PAGENO="0001" FOREIGN TRADE AND TARIFF PROPOSALS o~iff~~ HEARINGS BEFORE THE COMMITTEE ON WAYS AND MEANS HOUSE OF REPRESENTATIVES NINETIETH CONGRESS SECOND SESSION ON TARIFF AND TRADE PROPOSALS JUNE 4, 5, 10, 11, 12, 13, 14, 17, 18, 19, 21, 24, 25, 26, 27, 28; JULY 1 AND 2, 1968 PART 4 Contains June 14 and 17, 1968 Printed for the use of the Committee on Ways and Means 0 U.S. GOVERNMENT PRINTING OFFICE 95-1690 WASHINGTON : 1968 For sale by the Superintendent of Documents, U.S. Government Printing~ Office Washington, D.C. 20402 - Price $1.75 PAGENO="0002" l~ECIL R. KING, California HALE B000S, Louisiana FRANK M. KARSTEN, Missouri A. S. HERLONG, JR., Florida JOHN C. WATTS, Kentucky AL ULLMAN, Oregon JAMES £ 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. SCHN]1IEBELI, Pennsylvania HAROLD H. COLLIER, Illinois JOEL P. BROYHILL, Virginia JAMES F. BATTIN, Montana BARBER B. CONABLE, JR., New York GEORGE BUSH, Texas WILLIAM H. Qu~ALY, Minority Coun8el COMMITTEE ON WAYS AND MEANS WILBUR D. MILLS, Arkansas, Chairman Jonn M. MARTIN, Jr., Chief Counsel J. P. BAKER, Assistant Chief Counsel (II) PAGENO="0003" CONTENTS Part 1 1968: Page Tuesday, June 4 1 Part 2 Wednesday, June 5 439 Monday, June 10 649 Part 3 Tuesday, June 11 741 Wednesday, June 12 877 Thursday, June 13 1081 Part 4 Friday, June 14 1313 Monday, June 17 1475 Part 5 Tuesday, June 18 1829 Part 6 Wednesday, June 19 2349 Part 7 Friday, June 21 -~ - - - - 2749 Monday, June 24 3173 Part 8 Tuesday, June 25 3479 Part 9 Wednesday, June26 3865 Thursday, June 27 4201 Part 10 Friday, June 28 4483 Monday, July 1..~ 4669 Tuesday, July 2 4909 Part 11 Summaries 5601 (IU) PAGENO="0004" Iv SUBJECT HEADINGS Aircraft - Aluminum Athletic goods Barber and beauty shop equipment Bicycle parts and accessories Ceramic tile, glass, pottery, etc Chemicals Coal Dairy produots Distillin~ industry Electronics and cameras Fish Fruits and vegetables Fur General Government witnesses-. Honey Industrial rubber products Iron and steel Lead and zinc Leather goods Machine tools Meat Miscellaneous Oilandgas~. Optics Paper and publishing Pins, fasterners, etc Plastics, buttons, etc Rubber footwear Stainless steel Textiles Umbrellas Watches Window shades Wood and wood products Date June 21.. June 24. June 21. June 21. June 24. June 25. June 28 & July 1. July 1. July 2. June 21. June 25. June 24. July 2. June 26. June 11, 12, 13, 14, 17. June 4, 5, 10. June 24. June 26. June 18. June 18. June 26. June 21. June 24. July 2. June 27. June 21. June 27. June 21. June 21. June 25. June 21. June 19. June 21. June 25. June 25. June 27. Press release dated Thursday, May 9, 1968, announcing publié hearings on tariff and trade proposals Proposed "Trade Expansion Act of 1968," committee print Message of the President Draft bill (H.R. 17551, introduced by Chairman Mills on May 28, 1968, at the request of the administration) Section-by-section analysis 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, Depalrtment 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, Bi*eau of Interr~ational Labor Affairs Page 2 5 8 13 19 PAGENO="0005" V Commerce, Department of: Page Smith, Hon. Cyrus R~, Secretary 28 Garland, Allen IL, Director Trade and Commercial Policy Division__ 439 McQuade, Hon. Lawrence ó~, 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 STATEMENTS OF PUBLIC WITNESSES Abbitt, Hon. W. M., a Representative in Congress from the State of Virginia 4819 Abel, I. W., president, United Steelworkers of America 1845, 1895 Abernethy, Hon. Thomas 0., a Representative in Congress from the State of Mississippi 3173 Ackert, James D., Domestic Producers Association of New England 3386 Ad Hoc Committee of Galvanized Electrical Transmission Tower Fabri- cators: Gannaway, Charles B., chairman 2211 Searls, David T., counsel.. - 2211 Adair, Hon. E. Ross, a Representative in Congress from the State of Indiana 894 Adams, Charles F., chairman of the board, Raytheon Co - - - 3640 Adams, John Quincy, chairman, coordinating committee, Food Industries of New York, Inc 3297 Adams, Dr~ Walter, professor of economics, and director of program on industrial structures in the Atlantic community, Michigan State Uni- versity 1430 Aerospace Industries Association of America, Karl G. Harr, Jr., president. 1391 AFL-CIO: Biemiller, Andrew J., director, department of legislation 1091 Goldfinger, Nathaniel, director, department of research - - - - 1091 Alcan Aluminum Corp., Eric A. Trigg, president 3370 Aluminum Association, John M. Mitchell 3345 American Aniline Products, Inc.: Marshall, James J., president, and in behalf of Ad Hoc Committee of U.S. Dyestuff Products 4724 Stewart, Eugene L., counsel 4724 American Apparel Manufacturers Association, Lawrence S. Phillips 2538 American Association of Oilwell Drilling Contractors, Robert A. Busch- man, president 4314 American Association of Port Authorities, Roger H. Oilman, first vice president - 861 American Association of University Women, Dr. Lois Torrence 869 American Association of Woolen Importers, Inc.: Bissinger, Fred, president 2553 Daniels, Michael P., counsel 2553 Smith, David 2553 American Beekeeping Federation, Glenn Gibson, executive secretary 3453 American Cyanamid Co., John M. Fasoli, director of public relations.. - - - 4651 PAGENO="0006" VI American Farm Bureau Federation: Page Harris, Herbert E., II, legislative counsel_ 1215 Lynn, John C., legislative director 1215 American Fur Merchants Associations, Inc., Eugene Dreisin, president~ - 4039 American Importers Association: O'Brien, Gerald, executivevice president 829 Floor covering group: Herzstein, Robert E., counsel 2599 Imported footwear group: Remmendinger, Noel, counsel 4109, 4155 Lipkowitz, Edward, chairman 4155, 4174 Non-rubber-footwear group: Donohue, Joseph F, and Noel Hemmendinger, counsel, imported footwear group 4109 Organic chemicals group: Graubard, Seymour, counsel 4673 Haines, Walter W 4673, 4706 Hochschwender, Karl 4673, 4704 Stobaugh, Robert B., Jr 4673, 4675 Textile and apparel group: Daniels, Michael P., counsel 2415, 2417 Hohenberg, Bernard L., chairman 2415 American Iron & Steel Institute, Thomas F. Patton 1845 American Institute for Imported Steel, Inc., Kurt Orban, president 2088 American Loudspeaker Manufacturers Association, Eugene L. Stewart, counsel 3518 American National Cattlemen's Association: Carrothers, R. B 3196 House, Bill, president 3196 American Petroleum Refiners Association, Walter Famariss, Jr., president 4308 American Producers of Italian-Type Cheeses Association, and Stella cheese division, Universal Foods Corp., Stephen F. Owen, Jr., counsel 4866 American Retail Federation: Savona, Vincent 1404, 1409 Selonick, Edward H 1404 American Soybean Association: Lodwick, Seeley G., vice president 950 Rana.olph, Chet, executive vice president 950 American Textile Manufacturers Institute: Dent, Frederick B., president 2360 Jackson, Robert C., executive vice president 2360 American Watch Association, Bertram Lowe, chairman, customs com- mittee 3705 Anti-Friction-Bearing Manufacturers Association, Bernard J. Shallow, chairman 2974 Ashbrook, Hon. John M., a Representative in Congress from the State of Ohio 4829 Ashley, James M., chairman of the board, Trade Relations Council of the United States, Inc 1109 Ashton, Prof. David J., director, International Center of New England~ 1572, 1573 Association on Japanese Textile Imports, Inc., Mike M. Masaoka, Washing- ton representative 2490 Athletic Goods Manufacturers Association, William P. Holmes 3071 Atlanta Artificial Kidney Center, John H. Sadler, M.D., director~ - 1324, 1333 Baird Chemical Industries, Joseph M. Baird, chairman of the board - - - - 4764 Balgooyen, H. W., New York Chamber of Commerce 1271 Barbaree, George, international secretary-treasurer, and Robert Lord, vice president, International Brotherhood of Operative Potters~ - 3756, 3801 Barnard, Robert C., counsel, Synthetic Organic Chemical Manufacturers Association, and Dry Colors Manufacturers Association 4483, 4512 Bates, Hon. William H., a Representative in Congress from the State of Massachusetts 3378, 3865 Beard, Charles H., chairman of the board, National Committee on Inter- national Trade Documentation 1015 Beckman, Luke F., president, Minster Canning Co 5036 Beckmann, R. J., Domestic Wood Louvered Products Industry 4437 PAGENO="0007" VII Beloher, Hon. Page, a Representative in Congress from the State of Page Oklahoma 3178 Belgian-American Chamber of Commerce in the United States, Inc., Robert M. Gottschalk, counsel 1597 Bender, Mark G., Ph. D., assistant professor of economics, Holy Cross College, Worcester, Mass 1659 Bendix International, W. Michael Blumenthal, president 1238 Berry, Hon. E. Y., a Representative in Congress from the State of South Dakota 1085, 3996 Bevill, Hon. Tom, a Representative in Congress from the State of Alabarna.. 1839 Bicycle Manufacturers Association, William M. Hannon, chairman, Wash- ington affairs committee 4902 Biemiller, Andrew J., di~rector, department of legislation, AFL-CIO 1091 Bissinger, Fred, president, American Association of Woolen Importers, Inc.. 2553 Blackburn, Hon. Benjamin B., a Representative in Congress from the State of Georgia 1324 Blackie, William, chairman, Caterpillar Tractor Co 1348 Blumenthal, W. Michael, president, Bendix International 1238 B'nai B'rith, Herman Edelsberg, director, International Council 1026 Boeing Aircraft, T. A. Wilson, president 1343, 1347 Boland, Hon. Edward P., a Representative in Congress from the State of Massachusetts 895 Bonomo, Ralph, Italy-American Chamber of Commerce 1619, 1622 Boot & Shoemakers Union, John E. Mara, president, and George 0. Fecteau, general president, United Shoeworkers of America, AFL-CIO.. - 4102 Brndford District, Pennsylvania Oil Producers Association, Pennsylvania Grade Crude Oil Associaticn, and New York State Oil Producers As- sociation, J. Paul Jones 4212, 4251 Bradley, Mrs. David G., foreign policy chairman, League of Women Voters of the United States 982 British-American Chamber of Commerce of New York, Earl W. Kintner.. 1579 Broun, E. Fontaine, president, Manmade Fiber Producers Association 2464 Broyhill, Hon. James T., a Representative in Congress from the State of North Carolina 1475 Buchanan, Hon. John, a Representative in Congress from the State of Alabama 1319 Burch, Robert, Rocky Mountain Oil & Gas Association 4346 Burleson, Hon. Omar, a Representative in Congress from the State of Texas 4205 Burrows, Fred W., executive vice president, International Apple Associa- tion.. 5007 Burton, Hon. Laurence J., a Representative in Congress from the State of Utah 1478 Buschman, Robert A., president, American Association of Oilwell Drilling Contractors 4314 Business Builders International, Inc., J. Theodore Wolfson, president 857 Cal-Compack Foods, Gentry Corp., Santa Maria Chili, Inc., and Universal Foods Corp., W. Ed Crane, in behalf of 5001 California Council for International Trade, Gerald B. Levine, director and member, U.S. trade policy committee 1280 California Independent Producers & Royalty Owners Association, Joseph C. Shell, executive director 4212, 4270 California Olive Growers & Canners Industry Committee, G. K. Patterson.. 4991 California Strawberry Advisory Board, Northwest Canners & Freezers Association, and Oregon Strawberry Council, Robert E. Ward 3743 Camero, Sergio, administrator, Puerto Rico Economic Development Administration 4348 Campbell, William C., secretary, industrial rubber products division, Rubber Manufacturers Association 4190 Carmody, Edward T., vice chairman and director, Timex, the U.S. Time Corp - 3720. Carrothers, R. B., American National Cattlemen's Association 3196 Cast Iron Soil Pipe Institute: Hunt, Frederick D., foreign trade consultant 2234 Perry, J. Wiley, Jr., chairman, import study committee 2234 Caterpillar Tractor Co.: Blackie, William, chairman 1343, 1348 Eckley, Robert S., assistant to the president 1035 PAGENO="0008" VT" Page Cement Industry Antidumping Committee, John C. Mundt vice chairman~ 1369 Cerf, Jay H., manager, international group, Chamber of dommerce of the United States 1710 Chamber of Commerce of the United States, Jay H. Cerf, manager, inter- national group 1710 Cheese Importers Association of America, Martin A. Fromer, counsel 4873 Chester, Howard P., executive secretary, Stone, Glass, and Clay Coordi- nating Committee 3756 Chesterton, A. Devereaux, director, International Center of New Eng- land 1572, 1576 Christopher, William F., chairman, tariff committee, Society of the Plastics Industry, Inc~ 3098 Clay, Henry J., Netherlands Chamber of Commerce in the United States, Inc. 1589 Cleveland Greenhouse Growers Cooperative Association, Jerry Nowinski, chairman- 5027 Clothespin & Veneer Products Association, and Slide Fastener Association, Richard A. Tilden 2752 Coerper, Milo G., German-American Chamber of Commerce-- 1594 Colmer, Hon. William M., a Representative in Congress from the State of Mississippi 4819 Committee for a National Trade Policy, Carl J. Gilbert, chairman 741 Committee for Economic Development, Howard C. Petersen, vice chair- man, international economic studies, research, and policy committee- - - - 1225 Committee of Producers of Ferroalloys & Related Products, Ronald L. Cunningham 2170 Conneaut Port Authority, Mayor Edward `J. Griswold, of Conneaut, Ohio_ 1424 Control Data Corp., Hugh P. Donaghue, assistant to the president 1416 Cooper, Mitchell J., counsel, footwear division, Rubber Manufacturers Association 4148 Cooperating Oil & Gas Association, Clinton Engstrand, vice chairman, liaison committee, & president and chairman, Kansas Independent Oil & Gas Association 4212, 4238 Cornett, Hollan, executive board member, United Stone & Allied Products Workers of America 3756, 3792 Council, Buford W., chairman, tomato committee, Florida Fruit & Vege- table Association 4951, 4964 Cowherd, Edwin R., vice president, dyestuff and chemical division, GAF Corp 4640 Cox, J. Abney, past president and chairman, competition and marketing agreements committee, Florida Fruit & V~getable Association 4951 Crane, W. Ed, in behalf of Cal-Compack Foods, Gentry Corp., Santa Maria Chili, Inc., and Universal Foods Corp 5001 Culbertson, J. Steele, director, National Fish Meal & Oil Association 3429 Cunnin~gham, Ronald L., Committee of Producers of Ferroalloys & Related Products 2170 Daniels, Michael P.: American Association of Woolen Importers, Inc., counsel 2553 American Importers Association, textile and apparel group, counsel 2415, 2417 Danish-American Trade Council, Inc.: Hessel, B. H 1626 Wedell, Gustav, chairman, business practices committee 1626 Darman, Morton H., chairman of the board, National Association of Wool Manufacturers and in behalf of National Wool Growers Association. - - - 2376 Davidson, Paul H., president, International Importers, Inc., H. William Tanaka, attorney, in behalf of 3634 Davies, Richard, consultant, Synthetic Organic Chemical Manufacturers Association 4483, 4590 Davis, Roy B., president, National Cotton Council of America 2562 Dawson, David H., vice president, E. I. DuPont de Nemours & Co 4596 DeBlois, Robert, New England Fuel Institute 4302 Dellenback, Hon. John, a Representative in Congress from the State of Oregon 4006 Denney, Hon. Robert V., a Representative in Congress from the State of Nebraska 3191, 4007, 4843 PAGENO="0009" Ix Page Dent, Frederick B., president, American Textile Manufacturers Institute_ 2360 Dent, Hon. John, a Representative in Congress from the State of Penn- sylvania 3873 Derwinshi, Hon. Edward J., a Represer~tative in Congress from the State bf Illinois 1836 Dc Santis, Arthur A., executiveS secretary, Italy-American Chamber of Commerce 1619 Dirlam, Dr. Joel B., professor of economics, University of Rhode Island. - 1430 Dlouhy, John, executive vice president, Emil J. Paidar Co 3136 Donaghue, Hugh P., assistant to the president, Control Data Corp 1416 Donehower, William L., Jr., Rolled Zinc Manufacturers Association 2306 Donohue, Hon. Harold D., a Representative in Congress from the State of Massachusetts 1083 Donohue, Joseph F., Nonrubber Footwear Group, and Noel Hemmend- inger, Imported Footwear Group, American Importers Association 4109 Domestic bicycle tire and tube industry, C. J. Warrell 3450 Domestic Producers Association of New England, James D. Aekert 3386 Domestic `Wood Louvered Products Industry: Beckmann, R. J 37 Golden, David A., counsel 4437 Dorn, Hon. William Jennings Bryan, a Representative in Congress from the State of South Carolina 2407 Douglas, Donald W., Jr.,' vice president, McDonnell Douglas Corp 2783 Dreisin, Eugene, president, `American Fur Merchants Association, Inc - - - 4039 Dry Colors Manufacturers Association, Robert C. Barnard, counsel 4483 DuPont, E. I., de Nemours & Co., David H. Dawson, vice president 4596 Dymsza, Dr. William A., research director, International Business Institute, Graduate School of Business Administration, Rutgers University 1637 Eastern Meat Packers Association, Inc., and Meat Trade Institute of New York, George Kern *3287 E'berlein, John G., chairman, drawback committee, National Customs Brokers & Forwarders Association of America, Inc 1021 Eckhardt, Hon. Bob, a Representative in Congress from the State of Texas 1480 Eckley, Robert S., assistant to the president, Caterpillar Tractor 0o. - - - 1035 Edelsberg, Herman, director, International Council, B'nai B'rith 1026 Electronic Industries Association: Consumer products division: Fezell, George H., vice president 3479 Hoffman, Charles N., chairman 3479 International trade matters division: McCauley, Alfred R., special counsel 3479 Parts and distributor products divisions: Stewart, Eugene L., counsel 3518 EMBA Mink Breeders Association, Richard Westwood, president 4012 Emergency Committee for American Trade: Blackie, William, chairman, Caterpillar Tractor Co 1343, 1348 Purcell, Robert, finance committee chairman, International Basic Economic Corp 1343, 1350 Watson, Arthur K., chairman 1343 Wilson, T. A., president, Boeing Aircraft 1343, 1347 Engstrand, Clinton, vice chairman, liaison committee, Cooperating Oil & Gas Association, `and president and chairman, Kansas Independent Oil & Gas Association 4212, 4238 Epstein, Lawrence D., vice president, Perry Products, Co 2243 Eshleman, Hon. Edwin D., a Representative in Congress from the State of Pennsylvania 2751 Everett, Hon. Robert A., a Representative in Congress from the State of Tennessee -~ 3196 Fairchild Camera & Instrument Corp., Richard Hodgson, vice chairman, board of directors 3644 Fallon, Hon. George H., a Representative in Congress from the State of Maryland 1832 Famariss, Walter, Jr., president, American Petroleum Refiners Associa- tion 4308 Fasoli, John M., director of public relations, American Cyanamid Co_ - - - 4651 PAGENO="0010" x Fecteau, George 0., general president, United Shoeworkers of America, Page AFL-CIO, and John E. Mara, president, Boot & Shoemakers Union- - 4102 Fezell, George H., vice president, Consumer Products Division, Electronic Industries Association Finkel, Leonard E., president, Umbrella Frame Association of America~~ - 3140 Fisher, Hon. 0. 0., a Representative in Congress from the State of Texas_ 877 Flavor Pict Cooperative, Louis F. Rauth 5023 Fletcher, Aubrey, executive vice president, C. Tennant Sons & Co 2311 Florida Citrus Mutual, Robert W. Rutledge, executive vice president- - - - 4981 Florida Fruit & Vegetable Association: Council, Buford W., chairman, tomato committee 4951, 4964 Cox, J. Abney, past president and chairman, competition and market- ing agreements committee 4951 Peters, John S., manager, membership and industry relations division- 4951, 4966 Food Industries of New York, Inc., John Quincy Adams, chairman, coordinating committee 3297 Fox, Stark, executive vice president, Independent Oil & Gas Producers of California 4212, 4266 French, Charles W., vice president, Pfister Chemical, Inc 4648 Fromer, Martin A., counsel, Cheese Importers Association of America~ - - - 4873 Fuller, Robert P., chairman, government affairs committee, National Shoeboard Conference, Inc 4124 GAF Corp., Edwin R. Cowherd, vice president, dyestuff and chemical division 4640 Galifianakis, Hon. Nick, a Representative in Congress from the State of North Carolina 4008 Gallagher, Daniel R., director, Green Olive Trade Association 4991 Galvanized Electrical Transmission Tower Fabricators, ad hoc Committee of (See Ad Hoc Committee, etc.) Gannaway, Charles B., chairman, ad hoc Committee of Galvanized Electrical Transmission Tower Fabricators 2211 Geier, Philip 0., Jr., National Machine Tool Builders' Association 2845 Geller, Norman, director, Independent Wire Drawers Association- - - - 2194, 2196 Gentry Corp., Cal-Compack Foods, Santa Maria Chili, Inc., and Universal Foods Corp., E. Ed Crane, in behalf of 5001 German American Chamber of Commerce, Milo G. Coerper 1594 Gerstack er, Carl, chairman of the board, Manufacturing Chemists Association 4483,4484 Gibson, Glenn, executive secretary, American Beekeeping Federation- - - - 3453 Gilbert, Carl J., chairman, Committee for a National Trade Policy 741 Gilbert, Robert A., vice president, Investors League, Inc 1031 Gillis, John, vice president, and member, board of directors, Monsanto Co~~ 4618 Gilman, Roger H., first vice president, American Association of Port Authorities 861 Glass, Irving R., executive vice president, Tanners' Council of America, Inc 4064,4082 Golden, David A.: Domestic Wood Louvered Products Industry, counsel 4437 United States Potters Association, customs and tariff counsel 3803 Goldfinger, Nathaniel, director, Department of Research, AFL-CIO~ - - - 1091 Goldstein, Alan, chairman, national affairs committee, National Footwear Manufacturers Association 4064 Golson, Charles E., International Engineering & Construction Industries Council 805 Gottschalk, Robert M., counsel, Belgian-American Chamber of Commerce in the United States, Inc 1597 Graham, Harry L., legislative representative, National Grange 756 Graubard, Seymour, counsel, organic chemicals group, American Im- porters Association_~ 4673 Greater Detroit Board of Commerce, Frederick C. Nash, world affairs committee 1260 Greater Minneapolis Chamber of Commerce, J. Patrick Kittler, chairman, world trade committee 1290 Green Olive Trade Association, Daniel R. Gallagher, director 4991 Griswold, Mayor Edward J., city of Conneaut, Ohio, behalf of Conneaut Port Authority 1424 PAGENO="0011" xi Guenther, Dr. Harry P., dean, School of Business Administration, George- Page town University 1662 Hagan, Hon. G. Elliott, a Representative in Congress from the State of Georgia 3179 Haines, Walter W., organic chemicals group, American Importers Asso- ciation 4673, 4706 Hall, Hon. Durward G., a Representative in Congress from the State of Missouri -- 1081 Hamilton, Hon. Lee H., a Representative in Congress from the State of Indiana 4006 Hannon, William M., chairman, Washington affairs committee, Bicycle Manufacturers Association 4902 Hansen, Hon. Clifford P., a U.S. Senator from the State of Wyoming.. - - - 3192 Hardboard Manufacturers, James R~ Sharp, attorney 4447 Harr, Karl G., Jr., president, Aerospace Industries Association of America.. 1391 Harris, Herbert E., II, legislative counsel, American Farm Bureau Federa- tion -~ 1215 Harrison, Hon. William H., a Representative in Congress from the State of Wyoming 4933 Harsha, Hon. William H., a Representative in Congress from the State of Ohio.. - - 1838, 4831 Hartke,. Hon. Vance, a U.S. Senator from the State of Indiana 1981 Harvey, Hon. James, a Representative in Congress from the State of Michigan 4833 Hemingway, Stuart C., Jr., Stainless Steel Flatware Manufacturing Asso- ciation -- ---- - - 3091 Hemmendinger, Noel, counsel: Imported footwear group, American Importers Association 4109, 4155 Imported footwear group, and Joseph F. Donohue, nonrubber footwear * group, American Importers Association.. 4109 Henderson, Hon. David N., a Representative in Congress from the State, of North Carolina - - 3384 Henderson, David W., executive secretary, National Board of Fur Farm Organizations 4012,4019 Herkner, George W., executive vice president, Warner & Swasey Co - 2845, 2971 Herzstein, Robert E., counsel floor covering group, American Import Association, and Wilton and `Velvet Carpet & Rug Importers 2599 Hessel, B. H., Danish-American Trade Council, Inc 1637 Hicks, W. B., Jr., executive secretary, Liberty Lobby 1256 Hillman, Jimmye S., head, Department of Agricultural Economics, Uni- versity of Arizona 1039 Hobbs, Claude E., chairman, foreign trade committee, National Electrical Manufacturers Association 3507 Hocbschwender, Karl, organic chemicals group, American Importers Asso~ ciation 4673,4704 Hodgson, Richard, vice chairman, board of directors, Fairchild Camera & Instrument Corp 3644 Hoffman, Charles .N., chairman, Consumer Products Division, Electronic Industries Association 3479 Hohenberg, Bernard L., chairman, textile and apparel' group, American Importers Association 2415 Holmes, William P., Athletic Goods Manufacturers Association 3071 Home, Dr. M. K., Jr., chief economist, National Cotton Council of America 2562 Horton, Hon. Frank, a Representative in Congress from the State of New York 4835 House, Bill, president, American National Cattlemen's Association 3196 Hull, Rear Adm. Harry, executive director, International Center of New England 1572 ITunt, Frederick D., foreign trade consultant, Cast Iron Soil Pipe Institute.. 2234 Imported Hardwood Products Association, Myron Solter, counsel 4428 Independent Oil & Gas Producers of California, Stark Fox, executive vice president - 4212, 4266 Independent Petroleum Association of America, Harold M. McClure, Jr., president 4212, 4266, 4293 PAGENO="0012" XII Independent Wire Drawers Association: Page Geller, Norman, director 2194, 2196 Muntwyler, F. C., president 2194 Intemann, Herman K., vice president, Union Carbide Corp 4322 International Apple Association, Fred W. Burrows, executive vice presi- dent 5007 International Basic Economic Corp., Robert Purcell, finance committee chairman 1343, 1350 International Brotherhood of Operative Potters, George Barbaree, interna- tional secretary-treasurer, and Robert Lord, vice president 3756, 3801 International Center of New England: Ashton, Prof. David J., director 1572, 1573 Chesterton, A. Devereaux, director 1572, 1576 Hull, Rear Adm. Harry, executive director 1572 International Engineering & Construction Industries Council, Charles E. Golson * 805 International Importers, Inc., H. William Tanaka, attorney in behalf of Paul H. Davidson, president 3634 International Leather ~Goods, Plastics & Novelty Workers Union, AFL- ClO, Norman Zukowsky, international president 4130 International Longshoremen's & Warehousemen's Union, Albert Lannon, Jr., Washington representative 864 International Trade Development Board: Parker, Joseph 0., chairman 960 Pringle, Vie 960 Investors League Inc., Robert A. Gilbert, vice president 1031 Italy-American dhamber of Commerce: Bonomo, Ralph 1619, 1622 Dc Santis, Arthur A., executive secretary 1619 Jackson, Robert C., executive vice president, American~ Textile Manu- facturers Institute 2360 Javits, Hon. Jacob K., a U.S. Senator from theState of New York 3986 Johnson, Lindsay, F., Lead-Zinc Producers Committee 2279 Johnson, Reuben L., director, legislative services, National Farmers Union- 786 Jones, J. Paul, Pennsylvania Grade Crude Oil Association, Bradford district, Pennsylvania Oil Producers Association, and New York State Oil Producers Association 4212, 4251 Kansas Independent Oil & Gas Association, Clinton Engstrand, president and chairman, and vice chairman, liaison committee, Cooperating Oil & Gas Association 4212, 4238 Kaplan, Richard, counsel, Division of Imports, Rubber Manufacturers As- sociation 4190 Kastenmeier, Hon. Robert W., a Representative in Congress from the State of Wisconsin 4001 Keith, Hon. Hastings, a Representative in Congress from the State of Massachusetts 3385 Kentucky, Commonwealth of, Hon. Louie B. Nunn, Governor, statement read into the record by Hon. M. Gene Snyder, a Representative in Congress from the State of Kentucky 4930 Kern, George, Meat Trade Institute of New York, and Eastern Meat Packers Association, Inc 3287 Kindleberger, Charles P., professor of economics, Massachusetts Institute of Technology 1652 Kintner, Earl W., British-American Chamber of Commerce of New York~ - 1579 Kittler, J. Patrick, chairman, world trade committee, Greater Minneapolis Chamber of Commerce 1290 Kieppe, Hon. Thomas S., a Representative in Congress from the State of North Dakota 3195, 4009 Kohnstamm, H., & Co., Inc., Yale Meltzer, manager, commercial develop- ment and market research, patents, and trademarks 4628- Korzenik, Sidney S., executive director and counsel, National Knitted Outerwear Association 2577 Kyros, Hon. Peter N., a Representative ~in Congress from the State of Maine Laird, Hon. Melvin R., a Representative in Congress from the State of Wisconsin 886 Lakeway Chemicals, Inc., Normand Phaneuf, president 4642 PAGENO="0013" - XIII S Page Langdon Jim C., chairman, Railroad Commission of texas ~* 4285 Langen, ~F1on. Odin, a Representative in Congress from the State of Min- nesota Lannon, Albert, Jr., Washington representative, International Longshore- men's & Warehousemen's Union 864 Latta, Hon. Delbert L., ~ Representative in Congress from the State of Ohio Lead-Zinc Producers Committee, Lindsay F. Johnson 2279 League of Women Voters of the United States, Mrs. David G. Bradley, foreign polic~y chairman 982 LeBlond, R. K., Machine Tool Co., Daniel W. LeBlond, president_ -- 2845, 2969 Levine, Gerald B., director and member, U.S. trade policy committee, California Council fqr International Trade 1280 Liberty Lobby, W. B., Hicks, Jr., executive secretary 1256 Lipkowitz, Edward, chairman, imported footwear group, American Im- porters Association - __ 4155, 4174 Lloyd, Hon. Sherman P., a Representative in Congress from the State of Utah 902 Lobred, Leonard K., director, International Trade Division, National Canners Association 1009 Lodwick, Seeley G., vice president, American Soybean Association 950 Long, Hon. Clarence D., a Representative in Congress from the State of Maryland 4927 Long, Hon. Speedy 0., a Representative in Congress from the State of Louisiana - 3189 Lord, Robert, vice president, and George Barbaree, international secretary- treasurer, International Brotherhood of Operative Potters 3756, 3801 Lovre, Harold 0., in behalf of domestic mink ranchers 4012 Lowe, Bertram, chairman, customs committee, American Watch Associa- tion Lundquist, James H., counsel, Meat Importers' Council, Inc 3212 Lynn, John C., legislative director, American Farm Bureau Federation - - 1215 McCauley Alfred R., special counsel, Division on International Trade Matters, Electronic Industries Association 3479 McClure, Harold M., Jr., president, Independent Petroleum Association of America 4212, 4266, 4293 McClure, Hon. James A., a Representative in Congress from the State of Idaho 1339 McDonnell Douglas Corp., Donald W. Douglas, Jr., vice president 2783 McEwen, Hon. Robert C., a Representative in Congress from the State of New York 3991 McVay, M.D., chairmati, Government Relations Committee, National Soybean Processors Association 1234 Mack James K. counsel, National Confectioners Association of the United States ~47Ø Magdanz, Don F., executive secretary, National Livestock Feeders Association 3266 Mahon, Hon. George H., a Representative in Congress from the State of Texas - 4279 Manmade Fiber Producers Association, E. Fontaine Broun, president. - - - 2464 Manufacturing Chemists Association, Carl Gerstacker, chairman of the board 4483, 4484 Mara, John E., president, Boot & Shoemakers Union, and George 0. Fecteau, general president, United Shoeworkers of America, AFL-C10. 4102 Marsh, Edwin E., executive secretary, National Wool Growers Association. 3288 Marsh, Hon. Johh 0., Jr., a Representative in Congress from the State of Virginia 881, 059 Marshall, James J., president, American Aniline Products, Inc., and in behalf of ad hoc committee of U.S. Dyestuff Producers 4724 Martin, Hon. Dave, a Representative in Congress from the State of Nebraska 3180, 4834 Masaoka, Mike M., Washington representative, Association on Japanese Textile Imports, Inc - 2490 Massachusetts Committee for the Preservation of the Groundfish In- dustry, Howard W. Nickerson, chairman-coordinator 3420 PAGENO="0014" Matsunaga, Hon. Spark M., a Representative in Congress from the State Page of Hawaii 2352, 3183, 4290 May, Otto B., Inc., Ernest M. May 4616 Meat Importers' Council, Inc., James H. Lundquist, counsel 3212 Meat Trade Institute of New York, and Eastern Meat Packers Associa- tion, Inc., George Kern 3287 Meltzer, Yale, manager, commercial development and market research, patents and trademarks, H. Kohiistamm & Co., Inc 4628 Meyer, A., Jr., president, Tanners' Council of America, Inc 4064, 4079 Miller, Henry E., National~Retail Merchants Association 802 Minshall, Hon. William E., a Representative in Congress from the State of Ohio 1834 Minster Canning Co., Luke F. Beckman, president 5036 Mitchell, John M., Aluminum Association 3345 Monagan, Hon. John S., a Representative in Congress from the State of Connecticut 891 Monsanto Co., John Gillis, vice president, and member board of directors~ - 4618 Montgomery, Hon. G. V. (Sonny), a Representative in Congress from the State of Mississippi 4844 Moody, Joseph E., president, National Coal Policy Conference, Inc 4810 Morris, Hon. Thomas G., a Representative in Congress from the State of New Mexico - 899 Moss, Hon. Frank E., a Representative in Congress from the State of Utah- 4000 Mundt, John C., vice chairman, Cement Industry Antidumping Com- mittee 1369 Muntwyler, F. C., president, Independent Wire Drawers Association- - - - 2194 Muskie, Hon. Edmund S., a U.S. Senator from the State of Maine 3868 Nash, Frederick C., world affairs committee, Greater Detroit Board of Commerce 1260 Nation-Wide Committee on Import-Export Policy, 0. R. Strackbein, chairman 905 National Association of Wool Manufacturers, Morton H. Darman, chair- man of the board 2376 National Board of Fur Farm Organizatione, David W. Head.erson,. execu- tive secretary - 4012, 40W National Canners Association, Leonard K. Lobred, director, international trade division 1009~ National Coal Policy Conference, Inc., Joseph E. Moody, president 4810 National Committee on International Trade Documentation, Charles H. Beard, chairman of the board~ 1015 National Confectioners Association of the United States: Mack, James K., counsel 3470 Sifers, Burr, chairman, board of directors 3470 National Cotton Council of America: Davis, Roy B., president 2562 Home, Dr. M. K., Jr., chief economist 2562 Sayre, Dr. Charles R 2562 National Customs Brokers & Forwarders Association of America, Inc., John G. Eberlein, chairman, Drawback Committee 1021 National Electrical Manufacturers Association, Claude E. Hobbs, chair- man, Foreign Trade Committee 3507 National Farmers Union, Reuben L. Johnson, director, legislative services- 786 National Fish Meal & Oil Association, J. Steele Culbertson, director 3429 National Footwear Manufacturers Association: Goldstein, Alan, chairman, National Affairs Committee 4064 Shannon, Thomas F. counsel 4064 National Foreign Trade douncil, Inc., Robert M. Norris, president 1495 National Grange: Graham, Harry L., legislative representative 756 Newsom, Herschel D., master 756 National Knitted Outerwear Association, Sidney S. Korzenik, executive director and counsel 2577 National Livestock Feeders Association, Don F. Magdanz, executive secretary 3266 National Machine Tool Builders Association, Philip 0. Geier, Jr - 2845 National Milk Producers Federation, Otie M. Reed 4845 PAGENO="0015" xv Page National Retail Merchants Association, Henry E. Miller 802 National Shoeboard Conference, Inc., Robert P. Fuller, chairman, Gov- ernment Affairs Committee 4124 National Soybean Processors Association, M. D. McVay, chairman, Gov- ernment Relations Committee 1234 National Wool Growers Association: Darman, Morton H 2376 Marsh, Edwin E., executive secretary 3288 Nelsen, Hon. Ancher, a Representative in Congress from the State of Minnesota 4003, 4823 Netherlands Chamber of Commerce in the United States, Inc., Henry J. Clay 1580 Neu, Hugo, chairman, Scrap Industry Trade Policy Council 2202 New England Fuel Institute, Robert DeBlois 4302 New York Chamber of Commerce, H. W. Balgpoyen 1271 New York State Oil Producers Association, Bradford district, Pennsyl- vania Oil Producers Association, and Pennsylvania Grade Crude Oil Association, J. Paul Jones 4212, 4251 Newsom, Herschel D., master, National Grange 756 Nickerson, Howard W.., chairman-coordinator, Massachusetts Committee for the Preservation of the Groundfish Industry 3420 Norris, Robert M., president, National Foreign Trade Council, Inc 1495 Northern Textile Association, Fulton Rindge, Jr., chairman 2379 Northwest Canners & Freezers Association, Oregon Strawberry Council, and California Strawberry Advisory Board, Robert E. Ward 3743 Northwest Independent Steel Mills, Robert L. Phelps, in behalf of 2118 Nowinski, Jerry, chairman, Cleveland Greenhouse Growers Cooperative Association - - - - 5027 Nunn, Hon. Louie B., Governor of the Commonwealth of Kentucky, state- ment read into the record by Hon. M. Gene Snyder, a Representative in Congress from the State of Kentucky 4930 O'Brien, Gerald, executive vice president, American Importers Association.. 829 O'Hara, Clifford, director, port commerce, Port of New York Authority - 873 Orban, Kurt, president, American Institute for Imported Steel, Inc 2088 Oregon Strawberry Council, Northwest Canners & Freezers Association, and California Strawberry Advisory Board, Robert E. Ward 3743 Owen, Stephen F., J~., counsel, American Producers of Italian-Type Cheeses Association, and Stella cheese division, Universal Foods Corp.. 4866 Paidar, Emil J., Co., John Dlouhy, executive vice president~.. - - - - 3136 Paimby, Clarence, executive vice president, U.S. Feed Grains CounciL - - - 795 Palmer, John D., president, Tobacco Associates, Inc 1425 Panhandle Producers & Royalty Owners Association, Don Watson, president 4212, 4248 Parker, Joseph 0., chairman, International Trade Development Board.. - - 960 Patterson, G. K., California Olive Growers & Canners Industry Committee 4991 Patton, Thomas F., American Iron' & Steel Institute 1845 Pelly, Hon. Thomas M., a Representative in Congress from the State of Washington 3381 Pennsylvania Grade Crude Oil Association, Bradford district, Pennsylva- nia Oil Producers Association, and New York State Oil Producers Association, J. Paul Jones 4212, 4251 Pennsylvania Oil Producers Association, Bradford district, Pennsylvania Grade Crude Oil Association, and New York State Oil Producers Association, J. Paul Jones 4212, 4251 Pepper, Hon. Claude, a Representative in Congress from the State of Florida 4822 Perry, J. Wiley, Jr., chairman, import study committee, Cast Iron Soil Pipe Institute 2234 Perry Products Co., Lawrence D. Epstein, vice president 2243 Peters John S. manager membership and industry relations division, Florida Fruit & Vegetable Association 4951, 4966 Petersen, Howard ~., vice chairman, international economic studies, research and policy committee, Committee for Economic Development 1225 Pettis, Hon. Jerry L., a Representative in Congress from the *State of California 1840 PAGENO="0016" xv' - Page Pfister Chemical, Inc., Cht~rles W. French, vice president 4648 Phaneuf, Normand, president, Lakeway Chemicals, Inc 4642 Phelps, Robert L., in behalf of Northwest Independent Steel Mills 2118 Philbin, Hon. Philip J., a Representative in Congress from the State of Massachusetts 2349 Phillips, Lawrence S., American Apparel Manufacturers Association 2538 Pin, Clip & Fastener Association, Myron Solter, safety pin and straight pin division 2774 Pogeler, Glenn H., president, Soybean Council of America, Inc 1411 Polanco-Abreu, Hon. Santiago, Resident Commissioner, Puerto Rico 4941 Port of New York Authority, Clifford O'Hara, director, port commerce~ - - 873 Price, Hon. Bob, a Representative in Congress from the State of Texas - - 4202 Pringle, Vie, International Trade Development Board 960 Purcell, Hon. Graham, a Representative in Congress from the State of Texas 4201 Purcell, Robert, finance committee chairman, International Basic Eco- nomic Corp~ 1343, 1350 Pu erto Rico, Hon. Santiago Polanco-Abreu, Resident Commissioner 4941 Puerto Rico Economic Development Administration, Sergio Camero, administrator 4348 Quie, Hon. Albert H., a Representative in Congress from the State of Minnesota 4822 Quillen, Hon. James H., a Representative in Congress from the State of Tennessee -- 1336 Quimby, John, past director, West Coast Metal Importers Association - - 2228 Railroad Commission of Texas, Jim C. Langdon, chairman 4285 Randolph, Chet, executive vice president, American Soybean Association. 950 Rauth, Louis F. Flavor Pict Cooperative 5023 Raytheon Co., áharles F. Adams, chairman of the board 3640 Reed, Otie M., National Milk Producers Federation 4845 Reifel, Hon. Ben, a Representative in Congress from the State of South Dakota 4005 Reiser, Ralph, international president, United Glass & Ceramic Workers of North America 3756, 3767 Rhode Island Textile Association, Fulton Rindge, Jr 2379 Rhodes, Hon. John J., a Representative in Congress from the State of Arizona 4821 Richman, Gilbert C., button division, Society of the Plastics Industry, Inc 3131 Rindge, Fulton, Jr., chairman, Northern Textile Association, and in behalf of Rhode Island Textile Association 2379 Rivers, Hon. L. Mendel, a Representative in Congress from the State of South Carolina 4922 Robinson, Dana I., Sudbury, Mass 1297 Robison, Hon. Howard W., a Representative in Congress from the State of New York 4820 Rocky Mountain Oil & Gas Association, Robert Burcb 4346 Rodino, Hon. Peter W., a Representative in Congress from the State of New Jersey 4669 Rogers, Hon. Paul G., a Representative in Congress from the State of Florida 4951 Rolled Zinc Manufacturers Association, William L. Donehower, Jr 2306 Rubber Manufacturers Association: Campbell, William C., secretary, industrial rubber products division_ 4190 Cooper, Mitchell J., footwear division 4148 Kaplan, Richard, counsel, division on imports 4190 Ruppe, Hon. Philip E., a Representative in Congress from the State of Michigan 1842, 4009 Rutledge, Robert W., executive vice president, Florida Citrus MutuaL - - 4981 St. Germain, Hon. Fernand J., a Representative in Congress from the State of Rhode Island 1087 St. Onge, Hon. William L., a Representative in Congress from the State of Connecticut 2353, 4842 Sadler John H., M.D., director, Atlanta Artificial Kidney Center--- - 1324, 1333 Santa Maria Chili, Inc., Cal-Compack Foods, Gentry Corp., and Uni- versal Foods Corp., W. Ed Crane, in behalf of 5001 PAGENO="0017" XVII Page Savona, Vincent, and Edward H. Selonick, American Retail Federation - 1404, 1409 Saylor, Hon. John P., a Representative in Congress from the State of Pennsylvania 883 Sayre, Dr. Charles R., National Cotton Council of America 2562 Scandinavian Fur Agency, Inc., James R. Sharp, counsel 4050 Schadeberg, Hon. Henry C., a Representative in Congress from the State of Wisconsin 1485 Scherle, Hon. William J., a Representative in Congress from the State of Iowa 1492 Schwenger, Robert B., Kensington, Md 1678 Scrap ludustry Trade Policy Council, Hugo Neu, chairman 2202 Searls, David T., counsel, Ad Hoc Committee of Galvanized Electrical Transmission Tower Fabricators 2211 Selonick, Edward H., and Vincent Savona, American Retail Federation.. - 1404 Shallow, Bernard J., chairman Anti-Friction Bearing Manufacturers Association 2974 Shannon, Thomas F., counsel, National Footwear Manufacturers Associa- tion, and Tanners Council of America, Inc 4064 Sharp, James H., counsel: Hardboard Manufacturers 4447 Scandinavian Fur Agency, Inc 4050 Shell, Joseph C., executive director, California Independent Producers & Royalty Owners Association 4212, 4270 Shriver, I-Ion. Garner E., a Representative in Congress from the State of Kansas 4210 Sifers, Burr, chairman, board of directors, National Confectioners Associa- tion of the United States 3470 Slide Fastener Association, and Clothespin & Veneer Products Association, Richard A. Tilden 2752 Smith, David, American Association of Woolen Importers, Inc 2553 Smith, Hon. James V., a Representative in Congress from the State of Oklahoma 1313 Snyder, Hon. M. Gene, a Representative in Congress from the State of Kentucky 4843, 4930 Society of the Plastics Industry, Inc.: Christopher, William F., chairman, tariff committee 3098 Richman, Gilbert C., button division 3131 Solter, Myron, counsel: Imported Hardwood Products Association 4428 Pin, Clip & Fastener Association, safety pin and straight pin division.. 2774 Soybean Council of America, Inc., Glenn H. Pogeler, president 1411 Stainless Steel Flatware Manufacturing Association, Stuart C. Hemingway, Jr 3091 Steed, Netum A., president, Texas Independent Producers & Royalty Owners Association 4212, 4253 Steed, Hon. Tom, a Representative in Congress from the State of Oklahoma 3176 Steele, hoyt P., chairman, commercial policy committee, U.S. Council of the International Chamber of Commerce 1002 Steiger, Hon. William A., a Representative in Congress from the State of Wisconsin 1486 Stewart, Eugene L., counsel: American Loudspeaker Manufacturers Association 3518 American Aniline Products, Inc 4724 Electronic Industries Association, parts and distributor products divisions 3518 Trade Relations Council of the United States, Inc 1109 U.S. Producers of Flat Glass 1504 Stitt, Nelson A., director, United States-Japan Trade Council 2126 Stobaugh, Robert B., Jr., organic chemicals group, American Importers Association 4673, 4675 Stone, Glass, and Clay Coordinating Committee, Howard P. Chester, executive secretary 3756 Strackbein, 0. R., chairman, Nation-Wide Committee on Import-Export Policy 905 95-159 0 - 68 - pt. 4 - 2 PAGENO="0018" XVIII Stratton, Hon. Samuel S., a Representative in Congress from the State of Page New York 2405, 4004, 4825 Synthetic Organic Chemical Manufacturers Association: Barnard, Robert C., counsel 4483, 4512 Davies, Richard, counsultant 4483, 4590 Turchan, Thomas P., president 4483, 4504. Talcott, Hon. Burt L., a Representative in Congress from the State of California 3181 Tai~iaka, H. William, attorney, in behalf of Paul H. Davidson, president, International Importers, Inc 3634 Tanners' Council of America, Inc.: Glass, Irving R., executive vice president 4064, 4082 Meyer, A., Jr., president 4064, 4079 Shannon, Thomas F., counsel 4064 Taylor, Hon. Roy A., a Representative in Congress from the State of North Carolina 2350, 4826 Teague, Hon. Olin E., a Representative in Congress from the State of Texas 3174 Tennant, C., Sons & Co., Aubrey Fletcher, executive vice president 2311 Texas Independent Producers & Royalty Owners Association, Netum A. Steed, president 4212, 4253 Thomas, Victor, general vice president, United Cement, Lime & Gypsum Workers 3756, 3786 Thomson, Hon. Vernon, a Representative in Congress from the State of Wisconsin 4947 Thorn, Prof. Richard S., Department of Economics, University of Pitts- burgh 1691 Thorpe, A. E., vice president and secretary-treasurer, U.S. National Fruit Export Council 853 Tilden, Richard A., Clothespin & Veneer Products Association, and Slide Fastener Association 2752 Timex, the U.S. Time Corp., Edward T. Carmody, vice chairman and director 3720 Tobacco Associates, Inc., John D. Palmer, president 1425 Torrence, Dr. Lois, American Association of University Women 869 T9wer, Hon. John G., a U.S. Senator from the State of Texas 4264 Trade Relations Council of the United States, Inc.: Ashley, James M., chairman of the board 1109 Stewart, Eugene L., counsel 1109 Tranoco, Inc., Charles F. Travis; president 4455 Travis, Charles F., president, Tranoco, Inc 4455 Trigg, Eric A., president, Alcan Aluminum Corp 3370 Turchan, Thomas P., president, Synthetic Organic Chemical Manufacturers Association 4483, 4504 Uecker, William F., Window Shade Manufacturers Association 3857 Umbrella Frame Association of America, Leonard E. Finkel, president~ - - 3140 Union Carbide Corp., Herman K. Intemaun, vice president 4322 Universal Foods Corp., Cal-Compack Foods, Gentry Corp., and Santa Maria Chili, Inc., W. Ed Crane, in behalf of 5001 Universal Foods Corp., Stella cheese division, and American producers of Italian-Type Cheeses Association, Stephen F. Owen, Jr., counsel 4866 United Cement, Lime & Gypsum Workers, Victor Thomas, general vice president 3756, 3786 United Glass & Ceramic Workers of North America, Ralph Reiser, international president 3756, 3767 United Shoeworkers of America, AFL-CIO, George 0. Fecteau, general president, and John E. Mara, president, Boots & Shoemakers Union. - 4102 United States-Japan Trade Council, Nelson A. Stitt, director 2126 United States Potters Association, David A. Golden, customs and tariff counsel 3803 United Steelworkers of America, I. W. Able, president 1845, 1895 United Stone & Allied Products Workers of America, Hollan Cornett, executive board member 3756, 3792 U.S. Council of the International Chamber of Commerce, Hoyt P. Steele, chairman, commercial policy committee 1002 U.S. Dyestuff Producers, ad hoc committee of, James J. Marshall, in behalf of, and president, American Aniline Products, mc- 4724 PAGENO="0019" m Page U.S. Feed Grains Council, Clarence Palinby, exeonthre vice president.. - 795 U.S. National Fruit Export Council, A. E. Thorpe, vice president and secretary-treasurer 853 U.S. Producers of Flat Glass, EugeneL. Stewart, counsel 1504 U.S. Time Corp., Timex, Edward T. Carmody, vice chairman and director. 3720 Walker, Hon. E. S. Johnny, a Representative in Congress from the State of New Mexico - - 1337 Ward, Robert E., Northwest Canners & Freezers Association; Oregon Strawberry Council, and California Strawberry Advisory Board 3743 Warner & Swasey Co., George W. Herkner, executive vice president.. 2845, 2971 Warrell, C. J., domestic bicycle tire and tube industry 3450 Watkins, Hon. G. Robert, a Representative in Congress from the State of Pennsylvania.. - - - 1829 Watson, Arthur K., chairman, Emergency Committee for American Trade.. 1343 Watson, Don, president, Panhandle Producers & Royalty Owners Asso- ciation - - 4212, 4248 Wedell, Gustav, chairman, business practices committee, Danish-American Trade Council, Inc 1626 West Coast Metal Importers Association, John Quimby, past director - - 2228 Westwood, Richard, president, EMBA Mink Breeders Association.. - - - 4012 Whalley, Hon. J. Irving, a Representative in Congress from the State of Pennsylvania 4827 White, Hon. Richard C., a Representative in Congress from the State of Texas 2749, 4211 Whitener, Hon. Basil L., a Representative in Congress from the State of North Carolina 1499 Willis, Hon. Edwin E., a Representative in Congress from the State of Louisiana 4206 Willson, R. B., Co., Inc., Robert B. Willson, president.. 3462 Wilson, T. A., president, Boeing Aircraft 1343, 1347 Wilton & Velvet Carpet and Rug Importers, Robert E. Herzstein, counseL 2599 Window Shade Manufacturers Association, William F. tiecker 3857 W olfson, J. Theodore, president, Business Builders International, Inc.. - - - 857 W yatt, Hon. Wendell, a Representative in Congress from the State of Oregon 1089 Wyman, Hon. Louis C., a Representative in Congress from the State of New Hampshir& - - ,.. 2355 Zukowsky, Norman, international president, International Leather Goods, Plastics & Novelty Workers Union, AFL-CIO 4130 Zablockj, Hon. Clement J., a Representative in Congress from the State of Wisconsin 1335 MATERIAL SUBMITTED FOR THE RECORD GOVERNMENT OFFICIALS Clubb, Bruce E., Commissioner, Tariff Commission, statement before the Senate Finance Committee hearings on the International Antidumping Code, June 27, 1968 1942 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, letter dated June 10, 1968, to Chairman Mills 64 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 Comparison of watch prices 699 Dye exports financed by AID 574 Establishment of STR and TIC 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 International Grains Arrangement, 1967 394 PAGENO="0020" xx Roth, Ambassador William M.-Continued Justification for adjustment assistance program related to increased Page imports Nonrubber footwear 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 agricultural products 123 Preliminary inventory of nontariff barriers affecting U.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 Progress 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-Benezenoid chemicals 522 Table 3-Intermediates 523 Table 4-Dyes and azoics 524 Table 5-Pigments 525 Table 6-Medicinals 526 Table 7-Other benzenoid products 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 trade 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 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 Table 16-Selected employment data for chemicals and allied prod- ucts, industry, intermediate coal tar products industry, and all manu- 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 U.S. imports and exports by major industries 100 Husk, 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. Torbert, 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 PAGENO="0021" zxI Smith, lion. Cyrus R., Secretary, Dèpa$ment of Commerce: Page 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 first 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 PUBLIC A. & A. Trading Co., et al., H. William Tanaka, counsel, in behalf of certain importers of electronic products, statement 3654 Adams, Charles F., chairman of the board, Raytheon Co., telegram dated July 12, 1968, to Chairman Mills 3634 Addonizio, Mayor Hugh 3., Newark, N.J., statement 1473 Ad Hoc Committee of Galvanized Electrical Transmission Tower Fabri- cators: Letter dated May 31, 1967, from David T. Scans, counsel, Charles B. Gannaway, Jr., chairman, re imposition of countervailing duties on imports of Italian galvanized electrical transmission towers 2220 Letter dated July 11, 1968, from David T. Searls, counsel, to Chairman Mills, re strengthening of countervailing duty statute 2226 Judicial interpretation as to what is a bounty under countervailing duty law 2216 Adler, Kurt S., Inc., Kurt S. Adler, president, letter dated May 29, 1968, to Chairman Mills 3170 AFL-CIO, Nathaniel Qoldfinger, dii~ector, department of research, addi- tional views on adustment assistance provisions of the Trade Expansion Act of 1968 1107 Aircraft Locknut Manufacturers Association, et al., George P. Byrne, Jr., secretary and legal counsel, statement 3027 Air Transport Association of America, statement 4414 Akin, Paul B., president, Laclede Steel Co., statement 2255 Alabama Garment Manufacturers Association, James Utsey, president, letter dated June 18, 1968, to Chairman Mills, with resolution attached and with covering letter from Hon. Bill Nichols, a Representative in Congress from the State of Alabama 2626 Alabama, State of, Hon. Albert P. Brewer, Governor, telegram dated July / 8, 1968, to Chairman Mills 4362 Alaska Fishermen's Union, George Johansen, secretary-treasurer, state- ment - Allen, John R., vice president,' eastern region, McDonnell Douglas Corp., letter dated July 16, 1968, to Chairman Mills 2798 Allerhand, Irving W., vice president, Consolidated International Trading Corp., statement 4186 Allied Chemical Corp., Chester M. Brown, chairman of the board, state- ment 4785 All-State Welding Alloys Co., Inc., Thomas D. Nast,. president, letter dated July 3, 1968, to Chairman Mills 3374 Amalgamated Clothing Workers of America, AFL-CIO Milton Fried, director of research, and International Ladies' Garment ~Vorkers' Union, AFL-CIO, Lazare Teper, director of research,. letter dated June 14, 1968, to Chairman Mills 2641 Amalgamated Meat Cutters & Butcher Workmen of North America, AFL~-CIO, Abe Feinglass, international vice president, director, fur and leather department, statement 4182 American Bankers Association, Charls E. Walker, executive vice president, letter dated June 17, 1968, to Chairman Mills 1809 PAGENO="0022" XXII American Hand-Made Glassware Industry, 3. Raymond Price, executive Page secretary of Glass Crafts of America, statement in behalf of 3819 American Hardboard Association, J. Mason Meyer, executive secretary, statement 4468 American Importers Association: O'Brien, Gerald, executive vice president, statement on U.S. foreign trade policy before Trade Information Committee of Office of President's Special Representative for Trade Negotiations, May 20,1968 841 Floor covering group: Rostov, Charles I., statement 2603 Additional statement 2618 Textile and apparel group: Daniels, Michael P., counsel, report to the President on investigation No. 332-55 under section 332 of the Tariff Act of 1930 by U.S. Traiff Commission 2433 American Institute for Imported Steel, Inc.: Continuous casting; taking over 10 percent of semifinished steel pro- duction, article from 33/The Magazine of Metal Producing 2103 Deliveries of rolled steel products in countries of the European coal and steel community 2103 U.S. balance of trade-Steelmaking raw material, 1967 2102 American-International Charolais Association, J. Scott Henderson, execu- tive secretary, letter dated June 5, 1968, to Chairman Mills 3332 American Iron & Steel Institute, Thomas F. Patton: Discussions of steel imports with OEP-response to questions by Congressman Curtis 1917 Steel and the National Security, April 1968 1857 Steel import controls of other countries-response to question by Congressman Schneebeli 1910 "Uniqueness" of steel-response to question by Congressman Ullman 1908 American Koyo Corp., J. B. Gray, corporate services manager, letter dated July 9, 1968, to Chairman Mills 2268 American Loudspeaker Manufacturers Association, Eugene L. Stewart, counsel, letter dated July 3, 1968, to Hon. Jackson E. Betts, a Repre- sentative in Congress from the State of Ohio, re Far East comparative wages 3630 American Metal Importers Association, Inc., Aubrey L. Moss, president, letter dated July 1, 1968, to Committee on Ways and Means 3377 American Mining Congress, J. Allen Overton, Jr., executive vice president, letter dated May 29, 1968, to Chairman Mills, with attachments - -- - - - 1946 Declaration of Policy-1967-68 1947 Summary of issues discussed in AMC staff study 1948 Staff study and comparative analysis by the A.MC of the International Antidumping Code 1949 American Mushroom Institute, Ronald B. Hunte, executive director, letter dated June 26, 1968, to Chairman Mills 5088 American National Cattlemen's Association, C. W. McMillan, executive vice president, letter dated July 9, 1968, to Chairman Mills, re explana- tion of the proposed amendments to the Meat Import Act of 1964 3211 American Newspaper Publishers Association, Stanford Smith, general manager, statement 4465 American PaperInstitute, Inc., `Edwin A.. Locke, Jr., president, statement~_ 4460 American Pipe Fittings Association, T. William C. Smith, president, letter dated June 20, 1968, to Chairman Mills 2259 American Scotch Highland Breeders' Association, Margaret Manke, secretary, letter dated June 29, 1968, to Chairman Mills 3331 American Sprocket Chain Manufacturers Association, J. E. Cooper, presi- dent, R. E. Lambert, chairman, Committee on Government Relations, and L. E. Stybr, executive director, statement 3039 American Textile Manufacturers Institute, Frederick B. Dent, president, letter dated July 9, 1968, to Hon. Thomas B. Curtis, a Representative in' Congress from the State of Missouri, re statement of position on H. R. 17551 - 2388 Amperex Electronic Corp., Frank L. Randall, Jr., president, staternent.. - - - 3505 Anderson, M. Allen, president, Premier @anta Gertrudi~ A~~iation, resolution, dated May 26, 1968, with covering letter from Hon. Roman L. Hruska, a U.S. Senator from the State of Nebraska 3333 PAGENO="0023" - XXXII Angevine, Erma, executive director, Consumer F~deration of America, Page letter dated July 12, 1968, toChairman Mills 1739 Arizona Cattle Feeders' Association, D'. C. Entz, chairman, board of directors, statement 33U6 Arizona Cattle Growers' Association, statement 3306 Armco Steel Corp., C. William Verity, Jr., president, statement 225~ Ashland Oil & Refining Co.: Atkins, Orin E., president, letter dated July 5, 1968, to Chairman Mills Whealy, Roland A., vice president, statement 4393 Atkins, Orin E., president, Ashland Oil & Refining Co., letter dated July 5, 1968, to Chairman Mills 4397 Australian Meat Board, W. W. Stenning, North American representative, statement, with forwarding letter from the State Department 3301 Australian Mining Industry Council, statement, with forwarding letter from Department of State 2322 Australian Wool Tops Exporters, statement, with forwarding letter from Department of State ~734 Automobile Manufacturers Association, statement 1759 Baldanzi, George, international president, United Textile Workers of America, AFL-CIO, statement 2628 Barsy, Solbert J., Chicago, Ill., letter dated July 8, 1968, to Chairman Mills_ 2274 Bartel, Andrew, president, Great Lakes Mink Association, statement_ - - - 4017 Bass, V. J., vice president, J. E. Barnard & Co., Inc., letter dated June 27, 1968, to Chairman Mills 1806 Battenfeld Grease & Oil Corp. of New York, G. W. Miller, chairman of the board, statement, with forwarding letter from Hon. Henry P. Smith III, a ~lepresentative in Congress from the State of New York 4422 Battin, Hon. James F., a Representative in Congress from the State of Montana: Economic "abyss" seen by Martin; Reserve chief asks rise in taxes xnd spending cut, article from June 12, 1968, New York Times 989 U.S. trade surplus goal unattainable, official says, article from June 6, 1968, Wall Street Journal 988 Bauer, Richard J., president, Independent Zinc Alloyers Associatk~n, statement. 2304 Baughman, Harry W., Jr., national president, Window Glass Cutters League of America, statement 3824 Beeghly, Charles M., Jones & Laughlin Steel Corp., telegram dated June 20, 1968, to Chairman Mills 1926 Bell, David H., president, Ohio Oil & Gas Association, letter dated May 27, 1968, to Committee on Ways and Means 4392 Beiridge Oil Co., R. W. Trueblood, president, statement 4269 Bendix Corp., Michael Blumenthal, president~ Beudix International, telegram dated July 12, 1968, to Chairman Mills 3632 Bendix International, W. Michael Blumenthal, president, industry repre- sentations during Kennedy round 1251 Bennett, William E., president, Kentuckiana World Commerce Council, Inc., letter dated June 25, 1968, to Chairman Mills, with resolution attached 1775 Bernard, J. E., & Co., Inc., V. J. Bass, vice president, letter dated June 27, 1968, to Chairman Mills 1806 Beskind, Claire, president, League of WOmen Voters of the Princeton Com- munity (N.J.), letter dated June 20, 1968, to Chairman Mills 997 Bethlehem Steel Corp., Edmund F. Martin, chairman, letter dated June 17, 1968 to Chairman Mills 1926 Black ~ Decker Manufacturing Co., Alonzo G. Decker Jr., chairman of the board and president, letter dated June 20, 1968, to áhairman Mills 2268 Blake, Grant, president, Idaho Beekeepers Association, Inc., statement.. - - 3469 Blincoe, Richard D., president, Idaho Cattle Feeders Associt~tion, Inc., statement 3316 Blood, Mrs. Lawrence, president, League of Women Voters of Reading (Mass.), letter dated June 25, 1968, to Chairman Mills 994 Blumenthal, Harry & Sons, Inc., Harry Blumenthal, president, letter dated July 8, 1968, to Chairman Mills 3378 Blumenthal, W. Michael, president, Bendix International: Industry representations during Kennedy round 1251 Telegram dated July 12, 1968, to Chairman Mills 3632 PAGENO="0024" XXIV Page. B'nai B'rith, Dr. William A. Wexier, president, statement 1028 Bommarito, Peter, president, United Rubber, Cork, Linoleum, & Plastic Workers of America, AFL-CIO, statement 4180 Bourbon Institute, Vice Adm. William J. Marshall, USN (retired), president 2799 Branch, C. B., executive vice president, Dow Chemical Co., statement~ - - - 4793 Brewer, Hon. Albert P., Governor of the State of Alabama, telegram dated July 8, 1968, to Chairman Mills 4362 Bright Wite Goods Manufacturers Service Bureau, et a!., George P. Byrisie, Jr., secretary and legal counsel, statement 3027 Brook, John G., chairman, Lear Siegler, Inc., telegram dated July 12, 1968, to Chairman Mills 3633 Brown, Chester M., chairman of the board, Allied Chemical Corp., state- ment 4785 Brown, Hon. Clarence J., Jr., a Representative in Congress from the State of Ohio, statement 3300, 4887 Brown, L. G., president, Precision Drawn Steel Co., letter dated June 4, 1968, to Chairman Mills, with attachement 2273 Buckner, Emil H., secretary-treasurer, United States Extrusions Corp., letter dated June 27, 1968, to Chairman Mills 3377 Bucy, J. Fred, group vice president, Texas Instruments Inc., telegram dated July 11, 1968, to Chairman Mills 3634 Bullen, George S., legislative director, National Federation of Independent Business, statement 1730 Burke, Hon. James A., a Representative in Congress from the State of Massachusetts: Importation of footwear from foreign countries, material relatiug to 727 Strawberries, statistical tables and comments 3749 Burns, Hon. John A., Governor of the State of Hawaii, statement 2353 Business Builders International, Inc., J. Theodore Wolfson, presideqt, article from Wall Street Journal entitled "Steel Firms' Profits Are Expected To Spurt as Outlays Begin To Pay Off, Analysts Say" 859 Byrne, George P., Jr., secretary and legal counsel: Service Tools Institute, statement 3046 U.S. Cap Screw Service Bureau, U.S. Wood Screw Bureau, U.S. Machine Screw Service Bureau, Tapping Screw Service Bureau, Socket Screw Products Bureau, Tubular and Split Rivet Council, Aircraft Locknut Manufacturers Association, and Bright Wire Goods Manufacturers Service Bureau, statement 3027 Caggiano, G. Robert, director, Bureau of International Trade, Department of Commerce and Development, Commonwealth of Massachusetts, statement 1065 California-Arizona Citrus Industry, statement 5041 California Cattlemen's Association, Will Gill, Jr., president, statement- - 3308 California Dried Fig Advisory Board, Ron Klamm, manager, and managing director, California Fig Institute, statement 3308 California Fig Institute, Ron Klamm, managing director, and manager, California Dried Fig Advisory Board, statement - - 3308 Campbell, Dr. Persia, National Consumers League, statement 870 Campbell, R. A., chairman, liaison committee, Cooperating Oil and Gas Association, statement 4238 Candle Manufacturers Association, H. R. Parker, secretary, letter dated June 25, 1968, to Chairman Mills-- - 3170 Canned Meat Importers Association, Ronald Wright, president, statement- 3338 Carlip, Mrs. Alfred B., chairman, foreign policy committee League of Women Voters of Broome County (N.Y.), letter dated June 28, 1968, to Chairman Mills 998 Carnation Co. Jule N. Kvamme, corporate department, statement 4792 Carson, Mrs. ~Robert M., president, League of Women Voters of Winter Park-Orlando, Fla., letter dated June 26, 1968, to Chairman Mills 992 Cast Iron Soil Pipe Institute, Frederick D. Hunt, foreign trade consultant, letter dated July 22, 1968, to Representative Curtis, re r~uthority in negotiating International Antidumping Code 2241 PAGENO="0025" xxv Cement' Industry Antidumping Cominittee, John C. Mundt, vice chair- man: Memorandum on the legal authority of the executive branch to Page negotiate the International Antidumping Code.. 1888 Supplementary statement - - 1384 Certified Livestock Markets Association, C. T. "Tad" Sanders, general manager, letter dated July 3, 1968, to Chairman Mills 3332 Chamber of Commerce of the New Orleans area, Murray C. Fineher, president, letter to Chairman Mills, with statement attached. 1785 Chernoff, Mrs. Max, president, League of Women Voters of Great Neck, N.Y., letter dated June 21, 1968, to Chairman Mills 998 Citizens State Bank & Trust Co., Wayne R. Starr, president, letter dated June 20, 1968, to Chairman Mills 1~24 Citronbaum, Jack, executive vice, president, Luggage & Leather Goods Manufacturers of America, Inc., statement 4131 Clay, Henry J., Netherlands Chamber of Commerce in the United States, Inc., letter dated June 25, to Hon. John W. Byrnes, re quantitative restrictions 1~94 Clothing Manufacturers' Federation of Great Britain, and the Shirt, Collar & Tie Manufacturers' Federation, statement, with forwarding letter from the Department of State 2736 Committee of Producers of Ferroalloys and Related Products, Ronald L~ Cunningham, letter dated July 12, 1968, from Lloyd Symington, counsel, to Chairman Mills, re questions addressed by Congressman Curtis~ - - - 2191 Conneaut, Ohio, city of, Arvo E. Sundberg, statement 2248 Conner, Commissioner Doyle, Florida Department of Agriculture, state- ment 5 Conrad, A. B., secretary-manager, West Mexico Vegetable Distributors Association, statement, with forwarding letter from Hon. Morris K. Udall, a Representative in Congress from the State of Arizona 5088 Consolidated International Trading Corp., Irving W. Allerhand, vice president, statement 4186 Consumer Federation of America, Erma Angevine, executive director, let- ter dated July 12, 1968, to Chairman Mills 1739 Continental Oil Co., statement 4398 Continental Baking Co., George R. Vail, vice president and director, and president, Morton Frozen Foods Division, statement 3342 Cooper, J. B., president, R. B. Lambert, chairman, Committee on Govern- ment relations, and L. E. St~br, executive director, American Sprocket Chain Manufacturers Association, statement .3039 Cooperating Oil & Gas Association, R. A. Campbell, chairman liaison committee, statement 4238 Coors Porcelain Co., Clinton M. Hester, attorney, statement 3827 Copper & Brass Fabricators Council, Inc. ,Y. B. Veitfort, managing director, letter dated June 19, 1968, to Chairman Mills, with statement attached.... 2325 Cordage Institute, Merle S. Robie, chairman, executive committee, state- ment 2372 Corn Refiners Association, Inc., Robert C. Liebenow, president, statement.. 5093 Courtright, C. A., president, Washington Cattle Feeders Association, letter dated June 5, 1968, to Chairman Mills 3329 Coyne, Robert W., president, Distilled Spirits Institute, Inc., statement.. - 2811 Crawford, G. R., executive vice president, Smithfield Packing Co., Inc., letter dated June 10, 1968, to John M. Martin, Jr., chief counsel, Com- mittee on Ways and Means 3343 Crompton & Knowles, Corp., James W~ L. Monkrnan, vice president, statement 4798 Culbertson, W. 0., Jr., president, New Mexico Cattle Growers' Association, statement 3322 Cunningham, Ronald L., Committee of Producers of Ferro-alloys & Related Products, letter dated July 12, 1968, from Lloyd Symington, counsel, to Chairman Mills, re questions addressed by Congressman Curtis 2191 Curl, William W., president, Texas Citrus Mutual, statement_ - __ 5083 Curtis, Thomas B., a Representative in Congress from the State of Mis- souri: Memorandum to the American Iron & Steel Institute and their reply-Indirect imports and exports 1921 Memorandum to the Emergency Committee for American Trade and their reply-Problems of measuring steel export-import trade 1364 PAGENO="0026" XXVI Daniel, Mrs. T. Emory, president, League of Women Voters of De Kaib Page County (Ga.), letter dated July 8, 1968, to Chairman Mills 992 Daniels, Michael P., counsel: American Importers Association, textile and apparel group, report to the President on investigation No. 332-55 under section 332 of the Tariff Act of 1930 by U.S. Tariff Commission 2433 Japan Chemical Fibers Association, statement with forwarding letter from Department of State 2728 Japanese Chamber of Commerce, woolens division, statement 2743 Swiss Union of Commerce and Industry, statement, with covering letter from State Department 4771 Danish American Trade Council, Inc., Finish American Chamber of Com- merce, Inc., Norwegian-American Chamber of Commerce, Inc., and Swedish Chamber of Commerce of the United States, Inc., statement~ - - 1775 Davis, Warren B. director, planning and economics, Gulf Oil Corp., state- ment 4401 Davis Wire Corp., James L. Walker, president, letter dated July 9, 1968, to Chairman Mills, with attachments 2269 Decker, Alonzo G., Jr., chairman of the board and president, Black & Decker Manufacturing Co., letter dated June 20, 1968, to Chairman Mills 2268 Del Signore, M., president, et al., Local Union Nb. 14256, District 50, United Mine Workers of America, letter dated July 5, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 4808 Demeter, Mrs. James, Koib-Lena Cheese Co., letter dated May 23, 1968, to Chairman Mills 4901 Dent, Frederick B., president, American Textile Manufacturers Institute, letter dated July 9, 1968, to Hon. Thomas B. Curtis, a Representative in Congress from the State of Missouri, re statement of position on H.R. 17551 2388 Dent, Hon. John, a Representative in Congress from the State of Pennsyl- vania, nontariff trade barrier inventory by country 3878 Derby, Roland E., Jr., president, Nyanza, Inc., letter dated June 17, 1968, to Chairman Mills 4802 Dc Santis, Arthur A., executive secretary, Italy-American Chamber of Commerce, letter dated June 20, 1968, to Chairman Mills, re oil exports toltaly 1625 Detmers, Mrs. Bruce, president, League of Women Voters of Hamden (Conn.), letter dated June 24, 1968, to Chairman Mills 991 Deuschle, B. C., president, Shears, Scissors, and Manicure Implement Manufacturers Association, statement 3063 Distilled Spirits Institute, Inc., Robert W. Coyne, president, statement- - 2811 Diversified Wire & Steel Corp., David P. Piering, president, telegram, dated June 14, 1968, to Chairman Mills 2202 Docking, Hon. Robert B., Governor, State of Kansas, statement 4363 Doherty, Mrs. George, president, League of Women Voters of Anderson (md.), letter dated July 12, 1968, to Chairman Mills 993 Dole, Hon. Bob, a Representative in Congress from the State of Kansas, statement 4365, 4888 Domestic Litharge Industry, statement 2301 Dorn, Hon. William Jennings Bryan, a Representative in Congress from the State of South Carolina: Additional statement 2412 Joint statement of over 100 Members of the House presented by Mr. Dorn, secretary, Informal House Textile Committee Group 2414 Dow Chemical Co., C. B. Branch, executive vice president, statement-- - - 4793 Dray, Margaret B., economist, Chicago, Ill., letter dated May 19, 1968, to Ways and Means Committee 2275 Dryer, Edwin Jason, counsel, Independent Refiners Association of America, statement Duncan, Hon. John J., a Representative in Congress from the State of Tennessee, letter dated June 13, 1968, to Chairman Mills 4890 Dunn, Stephen F., president, National Coal Association, stateme~it 4423 Eberlein, John G., chairman, drawback committee, National Customs Brokers & Forwarders Association of America, Inc., pamphlet entitled "What Is Customs Drawback?" 1024 PAGENO="0027" mu Edeiman, L., vice presi~ent, Gafoo, Inc~, letter dated July 15, 1968, to rage Chairman Mills - 4062 Edgerton, William 13., ~Friends Committee on National Legislation, statement 18O7 Electronic Industries Association: Jaumot, F. B., Jr., chairman, semi-conductor division, letter dated July 10, 1968, to Chairman Mills 3507 McCauley, Alfred R., special counsel to consumer products division, letter dated June 27, 1968, to John M. Martin, Esq., chief counsel, Committee on Ways and Means, forwarding memorandum of the * Magnavox Co. on color television pricture tubes 3496 Moore, William H., staff vice president, Government products division letter dated July 12, 1968, to Chairman Mills 3507 Stewart, Eugene L., counsel, letter dated July 3, 1968, to Hon. Jackson E. Betts, a Representative in Congress from the State of Ohio re Far East comparative wages - - - 3630 Ellis, Don A., treasurer, Tektronix, Inc., statement 3704 EBMA Mink Breeders Association: Westwood, Richard E., president,~statoment 4014 Wittig, Harley, past president, statement 4013 Emergency Committee for American Trade: A critique of the Trade Relations Council's analysis of certain 1958/ 60-1964 declines in employment 1352 Memorandum from Representative Thomas B. Curtis of Missouri, and reply thereto-Problems of measuring steel export-import trade 1364 Entz, D. C., chairman, board of directors, Arizona Cattle Feeders' A~so- ciation, statement 3306 Erie Technical Products, Inc., George P. Fryling, president, telegram dated July 11, 1968, to Chairman Mills - 3633 Evans, Hon. Daniel J., Governor of the State of Washington, letter dated June 7, 1968, to Chairman Mills, with position paper attached 1719 Evaporated Milk Association, Fred J. Greiner, executive vice president, statement 4897 Expanded Shale, Clay & Slate Institute, the Lightweight Aggregate Pro- ducers A~ssociatjon, and the National Slag Association, statement 3813 Farrell Lines, Inc., statement .~ 1791 Feighan, Hon. Michael A., a Representative in Congress from the State of Ohio, statement 2087 Feinglass, Abe, international vice president, director, Fur and Leather Department, Amalgamated Meat Cutters & Butcher Workmen of North America, AFL~~-CIO, statement 418~ Fezell, George H., preeident, Magnavox Consumer Electronics Co., tele- gram dated July 10, 1968, to Chairman Mills 3633 Fincher, Murray C., president, Chamber of Commerce of the New Orleans Area, letter to Chairman Mills, with statement attached 1785 Fine & Specialty Wire Manufacturers' Association, J. A. Mogle, chairman, foreign trade committee, statemen1~ 2275 Finish American Chamber of Commerce, Inc., Danish American Trade Council, Inc., Norwegian-American Chamber of Commerce, Inc., and Swedish Chamber of Commerce of the United. States, Inc., statement_ - 1775 Finney, Wray, president, Oklahoma Cattlemen's Association, letter dated May 28, 1968, to Chairman Mills 3327 First National City Bank, Walter B. Wriston, president, letter dated July 12, 1968, to Chairman Mills, with attachment_ 1810 First Washington Net Factory, Inc., Carl Eoring, president, letter dated May 22, 1968, to John Martin, Jr., chief counsel, Committee on Ways and Means 2727 Fifth Cleveland Steels, Inc., Peter H. Garfunkel, executive vice president, letter dated May 23, 1968, to Chairman Mills 2272 Fishman, Morris, & Sons, Clinton M. Hester attorney, statement 2~47 Fitch, T. S. president, Washington Steel dorp., letter dated June 28, 1968, to áhairman Mills 1928 Fletcher, Aubrey, executive vice president, C. Tennant, Sons & Co., letter dated June 21, 1968, to Chairman Mills, re statistics on lead and zinc. - 2318 Florida Department of Agriculture, Commissioner Doyle Conner, state- ment 5069 PAGENO="0028" XXVIII Florida Fruit and Vegetable Association, J. S. Peters, manager, member- ship and industry relations, letter dated July 29, 1968, to Congressman Page Thomas B. Curtis, re domestic market for fruits and vegetables 4978 Ford, Hon. Gerald R., a Representative in Congress from the State of Michigan, letter dated May 27, 1968, to Chairman Mills, with petition re mink industry attached 4061 Foerch, Mrs. Margaret, president, League of Women Voters of Michigan, letter dated June 28, 1968, to Chairman Mills 996 Forsythe, Russell, president, and James H. Warner, secretary, Ohio Cattle Feeders Association, letter dated June 17, 1968, to Chairman Mills, with attachment - 3326 Forward America, Inc., Ed Wimmer, president, radio talk 1733 Foskett, John D., president, Homeshield Industries, letter dated July 3, 1968, to Chairman Mills 3369 Franko, Joseph J., treasurer, B. L. Lemke & Co., Inc., statement 4626 French Chamber of Commerce in the United States, Inc., Raymond J. Picard, president, statement 1773 Fried, Milton, director of research, Amalgamated Clothing Workers of America, AFL-CIO, and Lazare Teper, director of research, Iriterna- tional Ladies' Garment Workers' Union, AFL-CIO, letter dated June 14, 1968, to Chairman Mills 2641 Friedson, N., Meat-O-Mat, Inc., letter dated June 12, 1968, to John M. Martin, Jr., chief counsel, Ways and Means, Committee 3344 Friends Committee on National Legislation, William B. Edgerton, state- ment 1807 Frost, M. F., vice president, Texas Farm Bureau, statement 5081 Fryling, George P., president, Erie Technical Products, Inc., telegram dated July 11, 1968, to Chairman Mills 3633 Fuel Oil Council of Maryland, Jay D. Kline, president, and Independent Oil Heat Dealers Association of Maryland, John M. Myers, president, letter dated July 5, 1968, to Chairman Mills 4420 Gafco, Inc., L. Edelman, vice president, letter dated July 15, 1968, to Chairman Mills 4062 Galvanized Electrical Transmission Tower Fabricators. (See Ad Hoc Com- mittee of Galvanized etc.) Galvin, Robert W., ]Viotorola, Inc., telegram dated July 12, 1968, to Chairman Mills 3634 Gannaway, Charles B. (See Ad Hoc Committee of Galvanized Transmis- sion Tower Fabricators.) Garfunkel, Peter H., executive vice president, Firth Cleveland Steels, Inc., letter dated May 23, 1968, to Chairman Mills 2272 Gehl's Guernsey Farms, Inc., John P. Gehi, statement 4894 General Dynamics Corp., John J. Graham, group vice president, telegram dated July 11, 1968, to Chairman Mills 3633 General Electric Co., statement 3657 Gerst, Leon W., president, Tenneco colors division, T2nneco Chemicals, Inc., statement 4780 Gill, Will, Jr., president, California Cattlemen's Association, statement_ - 3308 Glass Crafts of America, J. Raymond Price, executive secretary, on behalf of the American Hand-Made Glassware Industry, statement 3819 Glass Workers' Protective Leagues of West Virginia, Pennsylvania, Ohio, and Indiana, Huberta M. Patterson, secretary, West Virginia League, statement 3826 Glenndenning, Howard A., president, Local Union No. 13896, District 50, United Mine Workers of America, letter dated July 3, 1968, to John Martin, Mr., chief counsel, Committee on Ways and Means 4809 Goldfinger, Nathaniel, director, department of research, AFL-CIO, addi- tional views on adjustment assistance provisions of the Trade Expansion Act of 1968 1107 Golson, Charles E. (See International Engineering & Construction In- dustries Council.) Gorton Corp., E. Robert Kinney, president, statement 3442 Graham, Harry L. (See National Grange.) Graham, John J., group vice president, General Dynamics Corp., telegram dated July 11, 1968, to Chairman Mills 3633 Granite City Steel Co., Nicholas P. Veeder, chairman of the board and president, statement 2254 PAGENO="0029" S ~x~thc Page Gray, Charles M., manager, Insulation Board Institute statement 4478 Gray, J. B., corporate services manager, American *oyo Corp., letter dated July 9, 1968, to Chairman Mills 2268 Great Lakes Mink Association, Andrew Bartel, president, statement 4017 Greater Fort Lauderdale (Fla.) Chamber of Commerce, Marshall M. smith, letter dated July 3, 1968, to Committee on Ways and Means 1785 Green, Ronald W., commissioner, Department of Sea and Shore Fisheries, State of Maine, statement 3445 Greenaway, E., secretary, National Association of Glove Manufacturers, letter dated May 28, 1968, to Chairman Mills, with forwarding letter from the Department of State 2742 Greiner, Fred J., executive vice president, Evaporated Milk Association, statement 4897 Grube, Mrs. Alfred, president, League of Women Voters of Sheboygan (Wis.), letter dated June 27, 1968, to Chairman Mills.. 1001 Guam, Territory of, Hon. Antonio B. Won Pat, Representative in Wash- ington, statement 3740 Gulf Oil Corp., Warren B. Davis, director, planning and economies, statement 4401 Haber, Fred S., president, Ocean Freight Consultants, Inc., statement 1801 Hahn, Dorothy Parshley, chairman, foreign economic policy, League of Women Voters of Falmouth (Mass.), letter dated July 1, 1963, to Chair- man Mills Hall, Wilfred H., executive vice president, National Oil Jobbers Council, statement 4366 Hamilton Watch Co. Arthur B. Sinkler, chairman of the board, letter dated July 12, 1968, to óhairman Mills 3741 Hampton, Robert N., director of marketing and international trade, National Council of Farmer Cooperatives, letter dated July 12, 1968, to Chairman Mills _1735 Hansen, Hon. George V., a Representative in Congress from the State of Idaho 4060 Hansen, Mrs. Howard, president, League of Women Voters of Glen Ellyn (Ill.), letter dated June 19, 1968, to Chairman Mills 992 Hardwood Plywood Manufacturers Association, statement 4475 Harnischfeger, Walter, Milwaukee, Wis, statement 5098 Harshaw Chemical Co., R. A. Lucht, president, letter dated May 31, 1968, to Chairman Mills 4800 Hartke, Hon Vance, a U S Setiator from the State of Indiana, statement re International Antidumping Act 1939 Harvey, Dr. E. W., administrator, Otter Trawl Commission of Oregon, statement 3450 Hathaway, Hon. William D., a Representative in Congress from the State of Maine, statement 4010 Haughton, D. J., chairman of the board, Lockheed Aircraft Corp., telegram dated July 11, 1968 to Chairman Mills 3633 Hawaii Cattlemen's douncil, Robert L. Hind, Jr., president, letters .(with attachments), dated June 1, and June 14, 1968, to Hon. Patsy T. Mink, a Representative in Congress from the State of Hawaii, with covering letter 3308 Hawaii, State of, Hon~ John A. Burns, Governor, statement - - - 23~3 Hawley Fuel Corp., Mark R. Joseph, vice president, letter dated June 11, 1968. to Chairman Mills 4427 Hays, George L., Mission Creek Angus Ranch, statement, and Mrs. George L. Hays, president, Idaho Cow Belles, letter dated May 22, 1968, to Hon. James A. McClure, a Representative in Congress from the State of Idaho, with covering letter 3335 Heinkel, Fred V., president, Midcontinent Farmers Association & Missouri Farmers Assoojation, Inc., statement 1310 Henderson, J. Scott, executive secretary, American-International Charolais Association, letter dated June 5, 1968, to Chairman Mills 3332 Hester, Clinton M. attorney: Coors Porcelain Co., statement 3827 Fishman, Morris & Sons, statement 2747 Hilton-Davis Chemical Co., R. L. Marienthal, manager of chemical sales, letter dated June 21, 1968, to Committee on Ways and Means - 4801 PAGENO="0030" ~xx Hind, Robert L., Jr., president, Hawaii Cattlemen's Council, Inc., letters (with attachments) dated June 1, and June 14, 1968, to Hon. Patsy T. Mink, a Representative in Congress from the State of Hawaii, with Page covering letter 3308 Homeshield Industries, John D. Foskett, president, letter dated July 3, 1968, to Chairman Mills 3369 Howard, John A., vice president and general manager, Magruder Color Co., Inc., letter dated June 24, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 4801 Hunt, Frederick D., foreign trade consultant, Cast Iron Soil Pipe Institute, letter dated July 22, 1968, to Representative Curtis, re authority in ne- gotiating International Anti-dumping Code 2241 Hunte, Ronald B., executive director, American Mushroom Institute, letter dated June 26, 1968, to Chairman Mills 5088 Huston, Charles Lukens, Jr., president, Lukens Steel Co., letter dated June 24, 1968, to Chairman Mills 2257 Idaho Beekeepers Association, Inc., Grant Blake, president, statement- - - 3469 Idaho Cattle Feeders Association, Inc., Richard D. Blincoe, president, statement 3316 Idaho Cow Belles, Mrs. George L. Hays, president, letter dated May 22, 1968, to Hon. James A. McClure, a Representative in Congress from the State of Idaho, with covering letter 3335 Independent Oil Heat Dealers Association of Maryland, John M. Myers, president, and Fuel Oil Council of Maryland, Jay D. Kline, president, letter dated July 5, 1968, to Chairman Mills 4420 Independent Petroleum Association of America, Dan L. Jones, general counsel, letter dated July 3, 1968, to Chairman Mills, re selected data on oils' balance of payments 4276 Independent Refiners Association of America, Edwin Jason Dryer, counsel, statement 4~3~ Independent Zinc Alloyers Association, Richard J. Bauer, president, statement 2304 Insulation Board Institute, Charles M. Gray, manager, statement- - - - - 4478 Inter-American Committee on the Alliance for Progress (ClAP), Carlos Sanz de Santamaria, chairman, statement, with covering letter from State Department to Cha~irman Mills 1713 International Chemical Workers Union, Walter L. Mitchell, president, statement 4804 International Economic Policy Association, statement 1727 International Engineering & Construction Industries Council, Charles E. Golson: Article from September-October 1967 issue Worldwide P. & I. Plan- ning entitled "~Seflor, qué es una `U.S. Firm' segdn la AID?" 822 Letter dated June 17, 1968, to Chairman Mills, re clarification of two points in the council's oral statement 828 Position paper entitled "The competitive position of United States engineering and construction firms in the international market" - - 809 International House, E. M. Rowley, president, letter dated July 10, 1968, to Chairman Mills, with resolution attached 1786 International Ladies' Garment Workers' Union, AFL-CIO, Lazare Teper, director of research, and Amalgamated Clothing Workers of America, AFL-CIO, Milton Fried, director of research, letter dated June 14, 1968, to Chairman Mills 2641 International Trade Club of Chicago, statement 1787 International Union of Electrical, Radio & Machine Workers, AFL-CIO- CLO, Paul Jennings, president, statement 1740 Iowa Beef Producers Association, Orville Kalsem, president, statement~ - 3318 Italy-American Chamber of Commerce: Dc Santis, Arthur A., executive secretary, letter dated June 20, 1968, to Chairman Mills, re oil exports to Italy 1625 Laraja, Edward, chairman, Dairy Products Importers Group, statement 1621 Jackson, Mrs. Robert F., president, League of Women Voters of Greater Toledo (Ohio), letter dated June 27, 1968, to Chairman Mills 999 Jo~pau Chemical Fibres Association, Michael P. Daniels, counsel, statement with forwarding letter from Department of State 2728 PAGENO="0031" ~_xxzxv~ ~ Magnavo~ C~i~morandum of the, on color teleyisloit .ptebure tubes, letter dated ~ffie 27, 1968, to John M. ~Martin, Esq., chief eounsel, Committee oja~ Ways and Means, from Alfred R. McCauley, special counsel to `ci~1tsnmer products division, Electronic Industries Associa- Page tion, forwa ~& memorandum 3496 Magnavox t~nstft~ter Electronics Co., George IL Fezell, president, tele- gram dated Jui~ ~0, 1968, to Chairman Mills 3633 Magruder Color C~i~Enc., John A. Howard, vice president and general manager, letter dated June 24, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways ai~d Means 4801 Maine, State of, Department of Sea and Shore Fisheries, Ronald W. Green, commissioner, statement 3445 Manke, Margaret, secretary, American Scotch Highland Breeders' Asso- ciation, letter dated June 29, 1968, to Chairman Mills 3331 Mantle & Costume Manufacturers' Export Group of London, England, ~ statement, with forwarding letter from Department of State 2739 j Marienthal, ~. L., manager of chemical sales, Hilton-Davis Chemical Co., letter dated June 21, 1968, to Committee on Ways and Means - - - ~4801 Marks Specialties, Inc., Harry L. Marks, president, statement 3069 Marshall, Vice Adm. Wm. J., U.S. Navy (retired), president, Bourbon Institute, statement 299 Martin, Edmund F., chairman, Bethlehem Steel Corp., letter dated June 17, 1968, to Chairman Mills 1926 Martin, Mrs. Harold, president, League of Women Voters of Los Gatos- Saratoga (Calif.), letter dated June 20, 1968, to Chairman Mills 991 Massachusetts, Commonwealth of: Caggiano, G. Robert, director, Bureau of International Trade, Department of Commerce and Development, statement 1065 Governor's Advisory Committee for the Shoe and Leather Industry, resolution 4063 Mathias, Hon. Charles McC., Jr., a Representative in Congress from the State of Maryland, letter dated June 20, 1968, to Chairman Mills 4889 May, Hon. R. J., secretary, Rubber and Plastics Footwear Manufacturers Association, Liverpool, England, with forwarding letter from the U.S. State Department 4174 * Meat-O-Mat, Inc., N. Friedson, letter dated June 12, 1968, to John M. Martin, Jr., chief counsel, Ways and Means Committee 3344 Mendocino County (Calif.) Farm Bureau, Mayme Williams, secretary, letter dated June 19, 1968, to Chairman Mills 3334 Mercker, Albert E., executive secretary, Vegetable Growers Association of America, statement 5086 Merrell, Fred E~, secretary, Long Island Association of Commerce & Industry, and World Trade Club of Long Island, letter dated June 26, 1968, to Committee on Ways and Means, with position paper attacheth 1789 Meyer, B. R., Kinkead Industries, Inc., letter dated July 1, 1968, to Chairman Mills 3376 Meyer, J. Mason, executive secretary, American Hardboard Association, statement 4468 Midcontinent. Farmers Association and Missouri Farmers Association, Inc., Fred V. Ileinkel, president, statement 1310 Miller, G. W,, chairman of the board, Battenfeld Grease & Oil Corp. of New York, statement, with forwarding letter from Hon. Henry P. Smith III, a Representative in Congress from the State of New York 4422 Miller, Henry E., National Retail Merchants Association, letter dated July 12 1968, to John M. Martin, Jr., from John C. Hazen, vice presi- dent-óovernment, re exports of textiles and textile products 805 Mink, Hon. Patsy T., a Representative in Congress from the State of Hawaii, letter dated June 20, 1968, to Chairman Mills forwarding material from the Hawaii Cattlemen's Council 3308 Miracle, Ralph, secretary, Montana Stockgrowers Association, Inc., letter dated June 5, 1968, to Chairman Mills 3320 Mission Creek Angus Ranch, George 1. Hays, statement, with covering letter from Hon. James A. McClure, a Representative in Congress from the State of Idaho 3335 Missouri Farmers Association, Inc., and Midcontinent Farmers Association, Fred V. Heinkel, president 1310 PAGENO="0032" XXXIII ~ Lear Siegler, Inc., John G. Brook, chairman, telegram dated July 12 1968, Page to Chairman Mills 3633 Leboeuf, Leonard E., treasurer and general counsel, Stevens Lin~n Asso- ciates, Inc., statement 2726 Lemke, B. L., & Co., Inc., Joseph J. Franko, treasurer, statement,. 4626 Levi, Archie B., president, et al., Oil, Chemical & Atomic Workers Inter- national Union, letter dated June 27, 1968, to Chairman Mills 4764 Levy, M. Barry, counsel, Toy Manufacturers of America, Inc., statement 3168 Lewis, Joseph H., president, local 12457, District 50, United Mine Workers of America, letter dated July 5, 1968, to J. W. Martin, Jr., chief counsel, Committee on Ways and Means 4808 ir Lichtblau, John H., director of research, Petroleum Industry Research Foundation, Inc., letter dated July 2, 1968, to Ways and Means Committee, with attachment 4388 Liebenow, Robert C., president, Corn Refiners Association, Inc., state- ment 5093 Light~weight Aggregate Producers Association, the Expanded Shale, Clay & Slate Institute, and the National Slag Association, statement 3813 Lindholm, Richard W., professor of finance and dean of the Graduate School of Management and Business, University of Oregon 1706 Linen Thread Co., Howard Johnson, sales manager, statement 2620 r Locke, Edwin A., Jr., president, American Paper Institute, Inc., statement. 4460 Lockheed Aircraft Corp., D. J. Houghton, chairman of the board, telegram dated July 11, 1968, to Chairman Mills 3633 Long Island Association of Commerce & Industry, and World Trade Club of Long Island, Fred B. Merrell, secretary, letter dated June 26, 1968, to Committee on Ways and Means, with position paper attached 1789 Louisiana, State of, Hon. John J. McKeithen, Governor, statement 4207 Loxcreen Co., J. W. Parrish, president, telegram dated July 8, 1968, to Chairman Mills 3376 Lucht, R. A., president, Harshaw Chemical Co., letter dated May 31, 1968, to Chairman Mills 48Q0 Luggage & Leather Goods Manufacturers of America, Inc., Jack Citron- baum, executive vice president, statement 4131 Lukens Steel Co., Charles Lukens Huston, Jr., president, letter dated June 24, 1968, to Chairman Mills~. - 2257 McCauley, Alfred R., special counsel to consumer products *division, Electronic Industries Association, letter dated June 27, 1968, to John M. Martin, Esq., chief counsel, Committee on Ways and Means, forwarding memorandum of the Magnavox Co. on color television picture tubes - - - 3496 McClory, Hon. Robert, a Representative in Congress from the State of Illinois, statement 4011 McClure, Hon. James A., a Representative in Congress from the State of Idaho, letter dated June 3, 1968, to Chairman Mills, forwarding letter from Mrs. George L. Hays, president, Idaho Cow Belles, and statement from George L. Hays, Mission Creek Angus Ranch 3335 McColly, Don W., president, and Jefferson B. Peyser, general counsel, Wine Institute, statement 2803 McDonald, D. L., president, West Central Texas Oil & Gas Association, statement 4205 McDonnell Douglas Corp., John R. Allen, vice president, eastern region, letter dated July 16, 1968, to Chairman Mills 2798 McKeithen, Hon. John J., Governor, State of Louisiana, statement 4207 McMillan, C. W., executive vice president, American National Cattle- men's Association, letter dated July 9, 1968, to Chairman Mills, re explanation of the proposed amendments to the Meat Import Act of 1964 3211 Mackenzie, Mrs. James W., president, League of Women Voters of Co- lumbia-Boone County (Mo.), letter dated June 24, 1968, to Chairman Mills 997 MacRae, John S., & Co., John S. MacRae, letter dated June 6, 1968, to Chairman Mills 2728 M. & R. Refractory Metals, Inc., R. S. Wood, vice president, telegram dated July 11, 1968, to Hon. Florence P. Dwyer, a Representative in Congress from the State of New Jersey, with covering letter 2347 95-159 0-68 - pt.4 - PAGENO="0033" xx~xI. - Laraja, Edward~ chairman, Dairy Procluets Importers Group, Italy- Page American Chamber of Commerce, Inc., statement 1621 Latella, John T., associate counsel, and Allan A. Rubin, vice president and counsel, U.S. Brewers Association; statement 2826 Lead-Zinc Producers Committee, Lindsay F. Johnson: Average E. & M. J. price per pound 2300 Factors preceding Presidential Proclamation No. 3257--September 22, 1958 2287 Leaf Tobacco Exporters Association, Inc., Malcolm B. Seawell, executF~e secretary and general counsel, statement 1429 League of Women Voters: Anderson (md.), Mrs. George Doherty, president, letter dated July 12, 1968, to Chairman Mills 9i~3 Ann Arbor (Mich.), Mrs. Joseph Kummer, first vice president, letter dated June 20, 1968, to Chairman Mills - - - - - 995 Beverly Hills (Calif.), Mrs. Bruce Rabin, president, letter dated June 18, 1968, to Chairman Mills 990 Broome County (N.Y.), Mrs. Alfred B. Carlip, chairman, foreign policy committee, letter dated June 28, 1968, to Chairman Mills.. - 998 Cincinnati (Ohio), telegram dated June 1, 1968, to Chairman Mills.~. 999 Columbia-Boone County (Mo.), Mr~. James W. Mackenzie, president, letter dated June 24, 1968, to Chairman Mills 997 Dc Kalb County (Ga.), Mrs. T. Emory Daniel, president, letter dated July 8, 1968, to Chairman Mills - 992 Falmouth (Mass~), Dorothy Parshlcy Hahn, chairman, foreign ecp- nomic policy, and Mrs. Dewitt C. Jones `III, president, letter dated July 1, 1968, to Chairman Mills 994 Glen Ellyn (Ill.), Mrs. Howard Hansen, president, letter dated June 19, 1968, to Chairman Mills 992 Great Neck (N.Y.), Mrs. Max Chernoff, president, letter dated June 24, 1968, to Chairman Mills 998 Greater Lafayette (md.), Mrs. Ralph Webb, president, letter dated June 27, 1968, to Chairman Mills 994 Greater Toledo (Ohio), Mrs. Robert F. Jackson, `president, letter dated June 27, 1968 to Chairman Mills 999 Hamden (Conn.), Mrs. Bruce Detmers, president, letter dated June 24, 1968, to Chairman Mills - 991 Indiana, Mrs. Robert S. Richey, president, letter dated July 1, 1968, to Chairman Mills 993 Long Beach (Calif.) Mrs. Marvin Tincher, presi~fent, letter dated' June 24, 1968, to óhairman Mills 990 Los Gatos-Saratoga (Calif.), Mrs. Harold Martin, president, letter dated June 20, 1968, to Chairman Mills 991 Metropolitan Dade County (Fla.), Mrs. Robert T. Phillips, president, letter dated June 24, 1968, to Chairman Mills - - - 991 Michigan, Mrs. Margaret Foerch, president, letter dated June 28, 1968, to Chairman Mills 996 Midland County (Tex.), Mrs. J. R. Sheeler, president, and Mrs. W. M. Raimer, foreign policy committee, letter dated June 26, 1968, to Chairman Mills 1000 New Berlin (Wis.), Mrs. Jack Prochnow, president, letter dated June 22, 1968, to Chairman Mills 1000 New Brighton (Minn.), Mrs. Paul A. Moore, Jr., president, letter dated June 20, 1968, to Chairman Mills 996 Oklahoma, Jean Thomas, State president, letter dated June 20, 1968, to Chairman Mills 999 Princeton Community (N.J.), Claire Beskind, president, letter dated June 20, 1968 to Chairman Mills 997 Reading (Mass'.~, Mrs. Lawrence Blood, president, letter dated June 25, 1968, to Chairman Mills 994 Sheboygan (Wis.), Mrs. Alfred Grube, president, letter dated June 27, 1968, to Chairman Mills 1001 Williamstown (Mass.), Anne F. Skinner foreign policy chairman, letter dated June 27, 1968, to Chairman M~ills 995 Winter Park-Orlando (Fla.), Mrs. Robert M. Carson, president, letter dated June 26, 1968, to Chairman Mills 992 PAGENO="0034" xxxi: Japanese Chamber of Commerce, Woolens Division, Michael P. Daniels, Page counsel, statement - - 2743 Jardox Fur Co., Arthur Rapaport, letter dated July 10, 1968, to Chairman Mills 4063 Jaumot, F. E., Jr., chairman, Semiconductor Division, Electronic Indus- tries Association, letter dated July 10, 1968, to Chairman Mills 3507 Jennings, Paul, president, International Union of Electrical, Radio, & Machine Workers, AFL-CIO--CLC, statement 1740 Johansen, George, secretary-treasurer, Alaska Fishermen's Union, state- ment 3444 Johnson, Howard, sales manager, Linen Thread Co., statement 2620 Johnson, Lindsay F. (See Lead-Zinc Producers Committee.) Johnson, Reuben L. (See National Farmers Union.) Jones, Mrs. Dewitt C., III, president, League of Women Voters of Fal- mouth (Mass.), letter dated July 1, 1968, to Chairman Mills 994 Jones & Laughlin Steel Corp., Charles M. Beeghly, telegram dated June 20, 1968, to Chairman Mills 1926 Jones, L. Dan, general counsel, Independent Petroleum Association of America, letter dated July 3, 1968, to Chairman Mills, re selected data on oils' balance of payments 4276 Joseph, Mark R., vice president, Hawley Fuel Corp., letter dated June 11, 1968, to Chairman Mills 4427 Kalsem, Orville, president, Iowa Beef Producers Association, statement_ - 3318 Kaminski, Jerome, president, International Union of District 50, United Mine Workers of America, letter dated July 11, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 4809 Kansas, State of, Hon. Robert B. Docking, Governor, statement 4363 Katz, Lawrence R., Polan, Katz & Co., Inc., letter dated July 9, 1968, to Chairman Mills 3157 Kennedy, Edward E. research director, International Union of District 50, United Mine VVorkers of America, statement 1752 Kentuckiana World Commerce Council, Inc., William E. Bennett, presi- dent, letter dated June 25, 1968, to Chairman Mills, with resolution attached 1775 Kerr, Robert M., attorney, Specialty Crops Conference, statement 5049 Keystone Steel & Wire Company, Walton B. Sommer, president and chairman of the board, letter dated June 10, 1968, to Chairman Mills, with statement attached 1927 King, Hon. Cecil R., a Representative in Congress from the State of California, letter dated February 13, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means, re trade ties between the United States and Canada with replies of the various Federal Depart- ments 2785 Kinkead Industries Inc., E. R. Meyer, letter dated July 1, 1968, to Chair- man Mills 3376 Kinney, E. Robert, president, Gorton Corp., statement 3442 Klamm, Ron, managing director, California Fig Institute, and manager, California Dried Fig Advisory Board, statement 3308 Kline, Jay D., president, Fuel Oil Council of Maryland, and Independent Oil Heat Dealers Association of Maryland, John M. Myers, president, letter dated July 5, 1968, to Chairman Mills 4420 Koring, Carl, president, First Washington Net Factory, Inc., letter dated * May 22, 1968, to John Martin, Jr., chief counsel, Committee on Ways and Means 2727 Koib-Lena Cheese Co., Mrs. James Demeter, letter dated May 23, 1968, to Chairman Mills 4901 Kummer, Mrs. Joseph, first vice president, League of Women Voters of Ann Arbor (Miôh.), letter dated June 20, 1968, to Chairman Mi1s~ - - - 995 Kurtin, Harold, president, National Association of Secondary Material Industries, Inc., letter dated July 10, 1968, to Chairman Mills 2627 Kvamine, Jule N., corporate department, Carnation Co., statement 4792 Laclede Steel Co., Paul B. Akin, president, statement 2255 Lambert, R. E., chairman, committee on Government relations, J. E. Cooper, president, and L. E. Stybr, executive director, American Sprock- et Chain Manufacturers Association, statement 3039 Lang, Ernest U., chief engineer, National-Standard Co., statement 1824 PAGENO="0035" XXXV Page Mississippi Cattlemen's Association, statement 3318 Mitchell, 0. J., Jr., vice president, Union Steel Chest Corp., letter dated June 4, 1968, to Chairman Mills 2258 Mitchell, Walter L., president, `International Chemical Workers Union, statement 4804 Modesto, Octavio A., general manager, Seafood Producers Association, letter dated May 31, 1968, to Chairman Mills - 3443 Mogle, J. A., chairman, foreign trade committee, Fine and Specialty Wire Manufacturers' Association, statement 2275 Moiola Bros., Lawrence Moiola, partner, letter dated May 22, 1968, to Chairman Mills 3336 Monkman, James W. L., vice president, Crompton & Knowles Corp., statement 479$ Montana Stockgrowers Association, Inc., Ralph Miracle, secretary, letter dated June 5, 1968, to Chairman Mills 3320 Moore, Hon. Dan K., Governor of North Carolina, statement 2624 Moore, Mrs. Paul A, Jr., president, League of Women Voters of New Brighton (Minn.), letter dated June 20, 1968, to Chairman Mills - - - 996 Moore, Wm. H., staff vice president, Government products division, Elec- tronic Industries Association, letter dated July 12, 1968, to Chairman Mills ~507 Moran, C. C., president, Cupples Products Division, H. H. Robertson Co., telegram dated July 3, 1968, to Chairman Mills 3376 Moss, Aubrey L., president, American Metal Importers Association, Inc., letter dated July 1, 1968, to Committee on Ways and Means 3377 Motorola, Inc., Robert W. Galvin, telegram dated July 12, 1968, to Chairman Mills 3634 Mundt, John C. (See Cement Industry Antidumping Committee.) Murphy Oil Corp., C. H. Murphy, Jr., president, statement 4405 Murray, John E., Jr., vice president, Nicholson & Co., Inc., letter dated June 24, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 5095 Myers, A. Nelson, vice president, marketing, Texas Gulf Sulphur, Co., letter dated July 9, 1968, to Chairman Mills 2348 Myers, John M., president, Independent Oil Heat Dealers Association of Maryland, and Fuel Oil Council of Maryland, Jay D. Kline, president, letter dated July 5, 1968, to Chairman Mills 4420 Nast, Thomas D., president, All-State Welding Alloys Co., Inc., letter dated July 3, 1968, to Chairman Mills 3374 Nation-Wide Committee on Import-Export Policy, 0. R. Strackbein, chairman: Cost of becoming competitive in ocean shipping 933 Countervailing duty provision, information on 919 Letter dated June 18, 1968, to Hon. Herman T. Schneebeli re U.S. treatment of imports 926 Nontariff trade barriers 929 Price of becoming competitive in steel 947 Trends in prices on commodities subject to import quotas 918 National Association of Alcoholic Beverage Importers, Inc., John F. O'Connell, president, statement * 2814 National* Association of Glove Manufacturers, E. Greenaway, secretary, letter dated May 28, 1968, to Chairman Mills, with forwarding letter from the Department of State 2742 National Association of Manufacturers, statement 1723 National Association of Secondary Material Industries, Inc., Harold Kurtin, president, letter dated July 10, 1968, to Chairman Mills. - - - 2627 National Coal Association, Stephen F. Dunn, president, statement 4423 National Consumers League, Dr. Persia Campbell, statement 870 National Council of Farmer Cooperatives, Robert N. Hampton, director of marketing and international trade, letter dated July 12, 1968, to Chairman Mills 1735 National Council of Jewish Women, Inc., statement 1826 National Customs Brokers & Forwarders Association of America, Inc., John G. Eberlein, chairman, drawback committee, pamphlet entitled "What Is Customs Drawback?" 1024 PAGENO="0036" XXXVI National Farmers Union, Reuben L. Johnson, director, legislative services: Statement of Farmers Union adopted by delegates at the convention Page in Minneapolis 790 Statement by Reuben L. Johnson to the conference on trade policy sponsored by the coordinating council of organizations on inter- national trade policy at the Sheraton Park Hotel, Washingtor~, D.C. 790 National Federation of Independent Business, George S. Bullen, legislative director, statement 1730 National Footwear Manufacturers Association: Nonrubber footwear: Tariff and trade regulations (U.S. Department of Commerce, Business and Defense Services Administration) - - - - 4093 Richardson, Mark E., president, telegram dated June 13, 1968, to Hon. Dean Rusk, Secretary of State 2624 National Grange: Graham, Harry L., legislative representative, excerpt from European Economic Commission report on the economic situation of the milk and milk products sector in the Community 782 Newson, Herschel D., master, U.S. agriculttral exports to the Euro- pean Economic Community: value by commodity 781 National Handbag Association, Steven J. Weiss, counsel, statement 4134 National Oil Jobbers Council, Wilfred H. Hall, executive vice president, statement 4366 National Piano Manufacturers Association, Perry S. Patterson, counsel, statement 3159 National Restaurant Association, Ira H. Nunn, counsel, statement 3337 National Retail Merchants Association, Henry E. Miller, letter dated July 12, 1968, to John M. Martin, Jr., from John C. Hazen, vice president, government, re exports of textiles and textile products 805 National Slag Association, the Expanded Shale, Clay & Slate Institute, and the Lightweight Aggregate Producers Association, statement 3813 National-Standard Co., Ernest U. Lang, chief engineer, statement 1824 Nebraska Stock Growers Association, E. H. Shoemaker, Jr., president, letter dated May 25, 1968, to Chairman Mills 3320 Netherlands Chamber of Commerce in the United States, Inc., Henry J. Clay, letter dated June 25, to Hon. John W. Byrnes, re quantitative restrictions_ 1594 Nevada State Cattle Association, Leslie J. Stewart, president, letter to Chairman Mills 3321 New Mexico Cattle Growers' Association, W. 0. Culbertson, Jr., president, statement 3322 New Zealand Dairy Board, statement, with forwarding letter from the State Department 4890 New Zealand Meat Producers Board, statement, with forwarding letter fromtheStateDepartment 3304 Newark, N. J., Mayor Hugh J. Addonizio, statement 1473 Newsom, Herschel D. (See National Grange.) Nicholson & Co., Inc., John E. Murray, Jr., vice president, letter dated June 24, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 5095 North Carolina, Governor of, Hon. Dan K. Moore, statement 2624 North Dakota Stockmen's Association, Raymond Schnell, president, statement 3325 Norwegian-American Chamber of Commerce, Inc., Danish American Trade Council, Inc., Finnish American Chamber of Commerce, Inc., and Swedish Chamber of Commerce of the United States, Inc., statement~ - - - 1775 Nunn, Ira H., counsel, National Restaurant Association, statement 3337 Nyanza, Inc., Roland E. Derby, Jr., president, letter dated June 17, 1968, to ChairmanMills 4802 O'Brien, Gerald, executive vice president, American Importers Association, statement on U.S. foreign trade policy before Trade Information Com- mittee of Office of President's Special Representative for Trade Negotia- tions-May 20, 1968 841 Ocean Freight Consultants, Inc., Fred S. Haber, president, statement 1801 Ocoma Foods Co., Harold J. Wendt, vice president, production, letter dated May 31, 1968, to Chairman Mills 3344 O'Connell, John F., president, National Association of Alcoholic Beverage Importers, Inc., statement 2814 PAGENO="0037" XXXVII O'Connor, J. M., executive vice president, Peerless of America, Inc., letter Page dated July 1, 1968, to Chairman Mills 3376 Odian, Bedros, attorney, Buffalo, N.Y., letter dated May 15, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means 5098 Oesterle, Father John, Church of St. Teresa, Munhall, Pa., letter dated June 3, 1968, to Ways and Means Committee 5096 Ohio Cattle Feeders Association, Russell Forsythe, president, and James H. Warner, secretary, letter dated June 17, 1968, to Chairman Mills, with attachment 3326 Ohio Oil & Gas Association, David H. Bell, president, letter dated May 27, 1968, to Committee on Ways and Means 4392 Oil, Chemical & Atomic Workers International Union: Levi, Archie B., president, et al., letter dated June 27, 1968, to Chairman Mills 4764 Riker, Raymond, president, local 8-95, letter dated July 3, 1968, to John M. Martin, Jr., chief counsel 4807 Oklahoma Cattlemen's Association, Wray Finney, president, letter dated May 28, 1968, to Chairman Mills 3327 Optical Importers Association of the United States, Inc., Julius Simon, president, statement 3135 Orban, Kurt. (See American Institute for Imported Steel, Inc.) Oregon, Otter Trawl Commission of, Dr. E. W. Harvey, administrator, statement 3450 Ornitz, Martin N., president, Roblin Steel Co., letter dated June 24, 1968, to Chairman Mills, with covering letter from Hon. Henry P. Smith, a Representative in Congress from the State of New York 2257 Orr, Robert M., president, and Ed Thompson, executive `vice president, Permian Basin Petroleum Association, statement 4281 Otter Trawl Commission of Oregon, Dr. E. W. Harvey, administrator, statement 3450 Overton, J. Allen, Jr. (See American Mining Congress.) Pacific American Steamship Association, statement 1790 Parker, H. R., secretary, Candle Manufacturers Association, letter dated June 25, 1968, to Chairman Mills 3170 Parrish, J. W., president, Loxcreen Co., telegram dated July 8, 1968, to Chairman Mills 3376 Patterson, Huberta M., secretary, West Virginia League, in behalf of West Virginia, Pennsylvania, Ohio, and Indiana Glass Workers' Protective Leagues1 statement 3826 Patterson, Perry S., counsel, National Piano Manufacturers Association, statement 3159 Patton, Thomas F. (See American Iron & Steel Institute.) Peerless of America, Inc., J. M. O'Connor, executive vice president, letter dated July 1, 1968, to Chairman Mills * 3376 Perkel, George, director of research, Textile Workers Union of America, AFL-CIO, statement 2630 Perkins, Hon. Carl D., a Representative in Congress from the State of Kentucky, letter dated June 17, 1968, to Chairman Mills 4889 Permian Basin Petroleum Association, Robert M. Orr, president, and Ed Thompson, executive vice president, statement 4281 Peters, J. S., manager, membership & industry relations, Florida Fruit & Vegetable Association, letter dated July 29, 1968, to Congressman Thomas B. Curtis, re domestic market for fruits and vegetables 4978 Petroleum Industry Research Foundation, Inc., John H. Lichtblau, director of research, letter dated July 2, 1968, to Ways and Means Committee, with attachment 4388 Peyser, Jefferson E., general counsel, and Don W. MeColly, president, Wine Institute, statement 2803 Phillips, Mrs. Robert T., president, League of Women Voters of Metro- politan Dade County (Fla.), letter dated June 24, 1968, to Chairman Mills 991 Picard, Raymond J., president, French Chamber of Commerce in the United States, Inc., statement - - - - 1773 Piering, David P., president, Diversified Wire & Steel Corp., telegram, dated June 14, 1968, to Chairman Mills 2202 Polan, Katz & Co., Inc., Lawrence R. Katz, letter dated July 9, 1968, to Chairman Mills 3157 PAGENO="0038" XXXVIII Precision Drawn Steel Co., L. G. Brown, president, letter dated June 4, Page 1968, to Chairman Mills, with attachment 2273 Premier Santa Gertrudis Association, M. Allen Anderson, president, reso- lution, dated May 26, 1968, with covering letter from Hon. Roman L. Hruska, a U.S. Senator from the State of Nebraska 3333 Price, J. Raymond, executive secretary of Glass Crafts of America, on behalf of the American Hand-Made Glassware Industry, statement~ - - 3819 Procimow, Mrs. Jack, president, League of Women Voters of New Berlin (Wis.), letter dated June 22, 1968, to Chairman Mills 1000 Public Lands Council, Joseph H. Tudor, general counsel, letter dated May 27, 1968, to Chairman Mills 3333 Purcell, Robert, Emergency Committee for American Trade, a critique of the Trade Relations Council's analysis of certain 1958/1960-1964 declines inemployment_~ 1352 Rabin, Mrs. Bruce, president, League of Women Voters of Beverly Hills (Calif.), letter dated June 18, 1968, to Chairman Mills 990 Raimer, Mrs. W. M., foreign policy committee, League of Women Voters of Midland County, Tex., letter dated June 26, 1968, to Chairman Mills~ 1000 Rampton Hon. Calvin L., Governor of the State of Utah, statement - - - 4059 Randall, ~Frank L., Jr., president, Amperex Electronic Corp., statement. - 3505 Rapaport, Arthur, Jardox Fur Co., letter dated July 10, 1968, to Chairman Mills 4063 Raytheon Co., Charles F. Adams, chairman of the board, telegram dated July 12, 1968, to Chairman Mills 3634 Reuther, Walter P., president, United Automobile, Aerospace and Agri- cultural Implement Workers of America (UAW), statement 1755 Richardson, Mark E., president, National Footwear Manufacturers Assoc- iation, telegram dated June 13, 1968, to Hon. Dean Rusk, Secretary of State 2624 Richey, Mrs. Robert S., president, League of Women Voters of Indiana, letter dated July 1, 1968, to Chairman Mills 993 Riker, Raymond, president local 8-95, Oil, Chemical and Atomic Workers International Union, letter dated July 3, 1968, to John M. Martin, Jr., chief counsel 4807 Roach, T. L., Jr., president Texas and Southwestern Cattle Raisers Association, letter dated May 28, 1968, to Chairman Mills, with at- tachment 3327 Rogers, Hon. Paul G., a Representative in Congress from the State of Florida, statement 4980 Robertson, H. H., Co., C. C. Moran, president, Cupples Products Division, telegram dated July 3, 1968, to Chairman Mills 3376 Robie, Merle S., chairman, executive committee, Cordage Institute, statement 2372 Roblin Steel Co., Martin N. Ornitz, president, letter dated June 24, 1968, to Chairman Mills, with covering letter from Hon. Hetiry P. Smith, a Representative in Congress from the State of New York 2257 Rostov, Charles I., floor covering group, American Import Association, statement 2603, 2618 Rott, Dr. Ernst, executive secretary, United States Austrian Chamber of Commerce, Inc., letter dated May 29, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means, with memorandum attached 1771 Rowley, E. M., president, International House, letter dated July 10, 1968, to Chairman Mills, with resolution attached 1786 Rubber & Plastics Footwear Manufacturers Association, Liverpool England, R. J. May, Hon. secretary, with forwarding letter from the U.S. State Department 4174 Rubin, Allan A., vice president and counsel, and John T. Latella, asso- ciate counsel, United States Brewers Association, statement 2826 Rusmisell, Deane E., president, Work Glove Manufacturers Association, Inc., statement 2723 Sanders, C. T. "Tad," general manager, Certified Livestock Markets Association, letter dated July 3, 1968, to Chairman Mills 3332 Sans de Santamaria, Carlos, chairman, Inter-American Committee on the Allit~noc for Progress (ClAP), statement, with covering letter from State Department to Chairman Mills 1713 PAGENO="0039" xxxTx Schmidt, Donald R., president, South Dakota Beekeepers Association, Page telegram dated June 22, 1968, to Chairman Mills 3470 Schnell, Raymond, president, North Dakota Stockmen's Association, statement 3325 Schwenger, Robert B., supplemental statement 1680 Scott, Hon. William Lloyd, a Repi~esentative in Congress from the State of Virginia, letter dated July 1, 1968, to Chairman Mills 4888 Seafood Producers Association, Octavio A. Modesto, general manager, letter dated May 31, 1968, to Chairman Mills 3443 Seawell, Malcolm B., executive secretary and general counsel, Leaf To- bacco Exporters Association, Inc., statement 1429 Sebastinas, A., president, International Union of District 50, United Mine Workers of America, Local 15143, letter dated June 14, 1968, to John M. Martin, Jr., chief counsel, Committee on Ways and Means - - 4807 Segall, Irving, New York, N.Y., letter dated July 11, 1968, to Chairman Mills 4062 Service Tools Institute, George P. Byrne, Jr., secretary and legal counsel, statement 3046 Sharp, W. Parker, Pittsburgh, Pa., letter dated June 18, 1968, to Chair- man Mills 2265 Shaw, Arnold H., counsel, Warehousemen's Association of the Port of New York, Inc., letter dated June 18, 1968, to Chairman Mills 1801 Shearer, Wendell B., president, Vinyl Maid, Inc., letter dated June 17, 1968, to Chairman Mills 5092 Sheeler, Mrs. J. R., president, League of Women Voters of iVlidland County (Tex.), letter dated June 26, 1968, to Chairman Mills 1000 Shears Scissors & Manicure Implement Manufacturers Association, B. d. Deuschle, president, statement 3063 Sherwin-Williams Co., G. L. Tickner, eastern manager, pigment, color and chemical department, statement 4667 Shirt, Collar & Tie Manufacturers' Federation, and Clothing Manu- facturers' Federation of Great Britain, statement, with forwarding letter from the Department of State 2736 Shoemaker, E. H., Jr., president Nebraska Stock Growers Association, letter dated May 25, 1968, to dhairman Mills 3320 Simon, Julius, president, Optical Importers Association of the United States, Inc., statement 3135 Sinkler, Arthur B., chairman of the board, Hamilton Watch Co., letter - dated July 12, 1968, to Chairman Mills 3741 Skinner, Anne F., foreign policy chairman, League of Women Voters of Williamstown (Mas~.), letter dated June 27, 1968, to Chairman Mills - 995 Slesinger, Reuben E., associate dean, professor of economics, division of the social sciences University of Pittsburgh, letter dated June 25, 1968, to Chairman Mil's, with article attached entitled "Steel Imports and Vertical Oligopoly Power: Comment" 2265 Smith, Marshall M., Greater Fort Lauderdale (Fla.) Chamber of Com- merce, letter dated July 3, 1968, to Committee on Ways and Means - - 1785 Smith, Stanford, general manager, American Newspaper Publishers Asso- ciation, statement 4465 Smith, T. William C., president, American Pipe Fittings Association, letter dated June 20, 1968, to Chairman Mills 2259 Smithfield Packing Co., Inc., G. R. Crawford, executive vice president, letter dated June 10, 1968, to John M. Martin, Jr., chief counsel, Com- mittee on Ways and Means 3343 Snow & Co., H. R. Snow, letter dated June 6, 1968, to Chairman Milk... - 3334 Socket Screw Products Bureau, et a!., George P. Byrne, Jr., secretary and legal counsel, statement 3027 Sommer, Walton B., president and chairman of the board, Keystone Steel & Wire Co., letter dated June 10, 1968, to Chairman Mills, with statement attached 1927 South Dakota Beekeepers Association, Donald R. Schmidt, president, telegram dated June 22, 1968, to Chairman Mills 3470 Southern California Edison Co., statement 4417 Specialty Crops Conference, Robert M. Kerr, attorney, statement 5049 Sporting Arms & Ammunition Manufacturers' Institute, Robert C. Zimmer, counsel, statement 3081 PAGENO="0040" XL Starr, Wayne R., president, Citizens State Bank & Trust Co., lette~' dated Page June 20, 1968, to Chairman Mills 1824 Standard Oil Company of California, statement 4408 Steelworkers of America, Local No. 3256, Arvo B. Sundberg, statement~ - 2248 Stenning, W. W., North American representative, Australian Meat Board, statement, with forwarding letter from the State Department 3301 Stephens, Hon. Robert G., Jr., a Representative in Congress from the State of Georgia 4886 Stevens Linen Associates, Inc., Leonard E. Leboeuf, treasurer and general counsel statement 2726 Stewart, ~Eugene L., counsel, Parts and Distributor Products Divisions, Electronic Industries Association and American Loudspeaker Manu- facturers Association, letter dated July 3, 1968, to Hon. Jackson E. Betts, a Representative in Congress from the State of Ohio, re Far East comparative wages- - 3630 Stewart, Leslie J., president, Nevada State Cattle Association, letter to Chairman Mills 3321 Strackbein, 0. R. (See Nation-Wide Committee on Import-Export Policy.) Strate, Martin F., executive secretary, Virginia Beef Cattle Association, letter dated May 24, 1968, to Chairman Mills 3329 Stybr, L. E., executive director, J. E. Cooper, president, and R. E. Lam- bert, chairman, committee on Government relations, American Sprocket Chair Manufacturers Association, statement 3039 Sundberg, Arvo E., representing the city of Conneaut, Ohio and Local No. 3256, AFL-CIO, Steelworkers of America, statement 2248 Swedish Chamber of Commerce of the United States, Inc., Danish Ameri- can Trade Council Inc., Finnish American Chamber of Commerce, Inc., and Norwegian-American Chamber of Commerce, Inc., statement~ 1775 Swiss Union of Commerce and Industry, Michael P. Daniels, counsel, statement, with covering letter from State Department 4771 Synthetic Organic Chemical Manufacturers Association (SOCMA), memorandum concerning testimony given in support of the "separate" package agreement 4760 Tanaka, H. William, counsel, on behalf of certain importers of electronic products, A. & A. Trading Co., et al., statement 3654 Tapping Screw Service Bureau, et al., George P. Byrne, Jr., secretary and legal counsel, statement 3027 Tatem Manufacturing Co., Inc., Stewart M. Tatem, statement 4481 Teague, Randal Cornell, director of regional and State activities, Young Americans for Freedom, Inc., statement 4909 Tektronix, Inc., Don A. Ellis, treasurer, statement 3704 Tennant, C., Sons & Co., Aubrey Fletcher, executive vice president, letter dated June 21, 1968, to Chairman Mills, re statistics on lead and zinc~ - 2318 Tenneco Chemicals, Inc., Leon W. Gerst, president, Tenneco colors divi- sion, statement 4780 Teper, Lazare, director of research, International Ladies' Garment Work- ers' Union, AFL-CIO, and Milton Fried, director of research, Amalga- mated Clothing Workers of America, AFL-CIO, letter dated June 14, 1968, to Chairman Mills 2641 Texaco Inc., statement 4409 Texas Citrus Mutual, William W. Curl, president, statement 5083 Texas Farm Bureau, M. F. Frost, vice president, statement 5081 Texas Gulf Sulphur Co., A. Nelson Myers, vice president, marketing, letter dated July 9, 1968, to Chairman Mills 2348 Texas Instruments Inc., J. Fred Bucy, group vice president, telegram dated July 11, 1968, to Chairman Mills 3634 Texas and Southwestern Cattle Raisers Association, T. L. Roach, Jr., president, letter dated May 28, 1968, to Chairman Mills, with attach- ment 3327 Textile Workers Union of America, AFL-CIO, George Perkel, director of research, statement 2630 Thomas, Jean, State president, League of Women Voters of Oklahoma, letter dated June 20, 1968, to Chairman Mills 999 Thompson, Ed., executive vice president, and Robert M. Orr, president, Permian Basin Petroleum Association, statement 4281 PAGENO="0041" XLI Tjckner, G. L., eastern manager, pigment, color and chemical department, Page Sherwin-Williams Co., statement 4667 Tincher, Mrs. Marvin, president, League of Women Voters of Long Beach (Calif.), letter dated June 24, 1968, to Chairman Mills. - - .~ 990 Tool and Stainless Steel Industry Committee, statement - 1929 Toy Manufacturers of America, Inc., M. Barry Levy, counsel, statement - 3168 Trueblood, R. W., president, Belridge Oil Co., statement 4269 Trugman-Nash, Inc., Bernard A. Trugman, statement 4894 Tubular and Split Rivet Council, et al., George P. Byrne, Jr., secretary and legal counsel, statement 3027 Tudor, Joseph H., general counsel, Public Lands Council, letter dated May 27, 1968, to Chairman Mills -- 3333 United Automobile, Aerospace, and Agricultural Implement Workers of America (UAW), Walter P. Reather, president, statement 1755 Union Steel Chest Corp., 0. J. Mitchell, Jr., vice president, letter dated June 4, 1968, to Chairman Mills 2258 United Mine Workers of America, District 50. (See Glenndenning, Howard A.; Kaminski, Jerome; Kennedy, Edward E.; Lewis, Joseph H.; Se- bastinas, A.; and Del Signore, M.) United Rubber, Cork, Linoleum, and Plastic Workers of America, AFL- ClO, Peter Bommarito, president, statement 4180 United Textile Workers of America, AFL-CIO, George Baldanzi, inter- national president, statement 2628 U.S. Austrian Chamber of Commerce, Inc., Dr. Ernst Rott, executive secretary letter dated May 29, 1968, to John M. Martin, Jr., chief counsel, áommittee on Ways and Means, with memorandum attached.. - 1771 U.S. Brewers Association, Allan A. Rubin, vice president and counsel, and John T. Latella, associate counsel, statement 2826 U.S. Cap Screw Service Bureau, et al., George P. Byriie, Jr., secretary and legal counsel, statement 3027 U.S. Dry Pea and Lentil Industry, statement 5087 U.S. Extrusions Corp., Emil H. Buckner, secretary-treasurei~, letter dated June 27, 1968, to Chairman Mills 3377 U.S. Machine Screw Service Bureau, et al., George P. Byrne, Jr., secretary and legal counsel, statement 3027 U.S. Wood Screw Service Bureau, et al., George P. Byrne, Jr., secretary and legal counsel, statement 3027 Utah, State of, Hon. Calvin L. Rampton, Governor, statement 4059 Utsey, James, president, Alabama Garment Manufacturers Association, letter dated June 18, 1968, to Chairman Mills, with resolution attached and with covering letter from Hon. Bill Nichols, a Representative in Congress from the State of Alabama 2626 Vail, George R., vice president and director, Continental Baking Co., and president, Morton Frozen Foods Division, statement 3342 Vander Ende, Gerrit P., San Francisco, Calif., letter dated May 22, 1968, to Chairman Mills 5096 Veeder, Nicholas P., chairman of the board and president, Granite City Steel Co., statement 2254 Vegetable Growers Association of America, Albert E, Mercker, executive secretary, statement 5086 Veltfort, T. E., managing director, Copper & Brass Fabricators Council, Inc., letter dated June 19, 1968, to Chairman Mills, with statement attached 2325 Verity, C. William, Jr., president, Armco Steel Corp., statement 2253 Vinyl Maid, Inc., Wendell B. Shearer, president, letter dated June 17, 1968, to Chairman Mills 5092 Virginia Beef Cattle Association, Martin F. Strate, executive secretary, let- ter dated May 24, 1968, to Chairman Mills 3329 Walker, Charls E., executive vice president, American Bankers Associa- tion, letter dated June 17, 1968, to Chairman Mills 1809 Walker, James L., president, Davis Wire Corp., letter dated July 9, 1968, to Chairman Mills, with attachments.. 2269 Warehousemen's Association of the Port of New York, Inc., Arnold lEE. Shaw, counsel, letter dated June 18, 1968, to Chairman Mills 1801 PAGENO="0042" XLII Warner, James H., secretary, and Russell Forsythe, president, Ohio Cattle Feeders Association, letter dated June 17, 1968, to Chairman Mills, Page with attachment 3326 Washington, State of, Hon. Daniel J. Evans, Governor, letter dated June 7, 1968, to Chairman Mills, with position paper attached 1719 Washington Cattle Feeders Association, C. A. Courtright, president, letter dated June 5, 1968, to Chairman Mills 3329 Washington Cattlemen's Association, Inc., John Woodard, president, letter dated June 14, 1968, to Ways and Means Committee 3330 Washington Steel Corp., T. S. Fitch, president, letter dated June 28, 1968, to Chairman Mills 1928 Webb, Mrs. Ralph, president, League of Women Voters of Greater Lafay- ette (Ind.), letter dated June 27, 1968, to Chairman Mills 994 Weiss, Steven J., counsel, National Handbag Association, statement 4134 Wendt, Harold J., vice president, production, Ocoma Foods Co., letter dated May 31, 1968, to Chairman Mills 334~ West Central Texas Oil & Gas Association, D. L. McDonald, president, statement 4205 West Mexico Vegetable Distributors Association, A. B. Conrad, secretary- manager, statement, with forwarding letter from Ron. Morris K. Udall, a Representative in Congress from the State of Arizona 5088 Western Dairy Products, Inc., statement 4892 Westwood, Richard E., president, EMBA Mink Breeders, Association, statement 4014 Wexler, Dr. William A., president, B'nai B'rith, statement 1028 Whealy, Roland A., vice president, Ashland Oil & Refining Co., statement~ 4393 Williams, Mayme, secretary, Mendocino County (Calif.) Farm Bureau, letter dated June 19, 1968, to Chairman Mills 3334 Williams, Oliver, New York, N.Y., statement 5096 Wimmer, Ed, president, Forward America, Inc., radio talk 1733 Window Glass Cutters League of America, Harry W. Baughman, Jr., national president, statement 3824 Wine Institute, Don W. McColly, president, and Jefferson E. Peyser, general counsel, statement 2803 Winn, Hon. Larry, Jr., a Representative in Congress from the State of Kansas, letter dated July 12, 1968, to Chairman Mills 3168 Wittig, Harley, past president, EMBA Mink Breeders Association, statement 4013 Wolfson, J. Theodore, president, Business Builders International, Inc., article from Wall Street Journal entitled "Steel firms' profits are ex- pected to spurt as outlays begin to pay off, analysts say" 859 Won Pat, Hon. Antonio B., Territory of Guam, Representative in Wash- ington, statement 3740 Wood, R. S., vice president, M. & R. Refractory Metals, Inc., telegram dated July 11, 1968, to Hon. Florence P. Dwyer, a Representative in Congress from the State of New Jersey, with covering letter 2347 Woodard, John, president, Washington Cattlemen's Association, Inc., letter dated June 14 1968, to Ways and Means Committee 3330 World Trade Club of tong Island, and Long Island Association of Com- merce & Industry, Fred E. Merrell, secretary, letter dated June 26, 1968, to Committee on Ways and Means, with position paper attached 1789 Work Glove Manufacturers Association, Inc., Deane E~ Rusmisell, president, statement 2723 Wright, Ronald, president, Canned Meat Importers Association, state- ment 3338 Wriston, Walter B., president, First National City Bank, letter dated July 12, 1968, to Chairman Mills, with attachment 1810 Young Americans for Freedom, Inc., Randal Cornell ~Teague, director of *regional and State activities, statement 4909 Zimmer, Robert C., Sporting Arms & Ammunition Manufacturers' Institute, statement 3081 Zwach, Hon. John M., a Representative in Congress from the State of Minnesota, statement 1494 PAGENO="0043" FOREIGN TRADE AND TARIFF PROPOSALS FRIDAY, JUNE 14, 1968 HOUSE OP REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, D.C. The committee met at 10 a.m., pursuant to notice, in `the commit- tee room, Longworth House Office Building, Hon. Wilbur P. Mills (chairman of the committee) presiding. The CHAIRMAN. The committee will please be. in order. Our first witness this morning is our colleague from Alabama, the Honorable John Buchanan. Is Mr. Buchanan present? Our next, witness is our colleague from Georgia, the Honorable Benjañiin Blackburn. Is Mr. Blackburn present? I see our next colleague is present, the gentleman from Oklahoma Mr. Smith, please come forward. We appreciate having you with us this morning and taking time from your busy schedule to come and advis~ with us and you are recognized. STATEMENT OP HON. NAMES V. SMITH, A R~PR~SE~TTATIV~ IN CONGRESS PROM THE STATE OP OKLAHOMA Mr. SMITH. Thank you,, Mr. Chairman and members of the com- mittee. I want to express my appreciation to you and the other distinguished members of this committee for the opportunity to testify on the serious situation which exists today in many areas of our economy because of the importation of foreign products into our country. I feel that I would be shirking my duties as a Member of Con- gress if I did not present my views concerning the economic damage that is being done to many of the Nation's industries as a result of foreign importation. In my opinion, one of the greatest culprits in the supply-demand situation is the Federal Government's present lib- eral import policies. Every nation of the world has import barriers directed against us `in the form of fees, quotas, and other protective devices for their own products. Indications are that we have been far too intent on making "friends" to protect properly our own basic industry. This must be a two-way road. We should continue to work for lower tariffs everywhere, but they must be on a reciprocal basis. While I realize that many similar bills have been introduced in this body concerning imports, I have, as well, introduced several bills which are presently pending before this distinguished committee. The measures which I have introduced encompass import restric- tions which I feel are necessary in the dairy (H.R. 5352), meat (H,R. 9375), oil (H.R. 10699), honey (H.R. 10677) and steel (H.R. 17565) industries. (1313) PAGENO="0044" 1314 The Dairy Import Act of 1967 could be one of the most important pieces of dairy legislation to be considered by the Congress in the last 20 years. Since being originally introduced in January of 1967 / by my distinguished colleague from California, the Honorable B. F. Sisk, more than 200 other Members of the House and 59 Members of the other body have seen fit to cosponsor the legislation. All who have cosponsored the measure know that unless it is passed, the dairy in- dustry of this country will continue to be severely affected. Dairy product imports are increasing at an alarming rate, with the U.S. Department of Agriculture estimating that in 1967 more than 3.5 billion pounds of milk equivalent was imported. The quotas presently in effect are not working. For example, the U.S. quota on butterfat-sugar mixture used in ice cream applies only to imports containing 45 percent or more butterfat and 25 percent or more sugar. Importers have only to cut these ingredients 1 percent below the minimums, and ship in unlimited quantities-which they are doing. Dairy imports have been limited since 1953 by authority of section 22 of the Agricultural Adjustment Act of 1935. The problem lies in the fact that imports are controlled on specifically defined products such as cheddar cheese, butter, blue mold cheese, Italian type cheese, and other products. There are no limitations on variations of these products. Effective import controls are necessary so that our dairy farmers will have an opportunity to achieve parity prices for their milk and butterfat. If these imports are allowed to continue, then many dairy farmers will be driven out of business; and consequently, the prices to consumers will increase. The Presidential proclamation, which was effective in July of 1967, although helpful, has not brought dairy imports under permanent or effective control. Even now, additional commodities are entering the United States through the mechanism of modifications in container sizes and types. Experience in controlling imports under section 22 of the Agricultural Adjustment Act proves conclusively that new legis- lation is badly needed. Another great industry in our country, the beef cattle industry, has as well had great difficulties because of excessive imports of meat into our country. One of the major difficulties experienced by the beef-cattle industry is that the Federal Government has encouraged beef cattle production on acres diverted from other types of crop production. Domestic beef production since 1960 has increased 35 percent. Meanwhile the world beef trade was expanding itself into the American market. This situ- ation was realized in 1964 when the Congress passed Public Law 88- 482, which established quantitative limitations on meat imports. However, there were serious loopholes in the 1964 law. It is incum- bent then on this Congress to tighten up the 1964 law in light of several major areas which are easily recognizable as problem areas in the beef production industry. The industry itself must achieve a level of stability and self-con- fidence on a broad scale if it is to continue to attract beef producers who will risk personal capital to enter the field. PAGENO="0045" 1315 The encouragement of foreign countries by our Government in build- ing their own cattle industries with the goal of exporting for American dollars is well known to this committee. New legislation needs to be implemented which will cause these countries to gear their exports to an exact, known figure, in order timt our own domestie growth will not be impeded. The Nation's beef cattle industry presently lacks stability because it cannot plan to meet future demands if an unreasonab]e amount of its beef supply is furnished by foreign peoples over whom we seem- ingly have little authority or control. What is needed then is a change in the ground rules to enable the domestic beef producing industry to more precisely predict and execute its planning for the future. We must never find ourselves dependent on meat supplies from other shores. We must, therefore, limit and regulate the exporters and some of our own importers. Mr. Chairman, I originally introduced in the House a bill which would amend the tariff schedules of the United States in regard to honey and honey products. Much has been said about the fact that we are a net exporting country and that imports should not be causing any difficulties. I would like any member of this distinguished com- mittee to explain this to an American beekeeper, whose customers are buying imported honey, or to a beekeeper who has reduced his price to meet the price of foreign competitors. I would ask anyone to explain, if possible, to an American beekeeper that honey imports do not affect our honey price support program, or beekeepers who have been forced to deliver honey to the Commodity Credit Corporation because their buyers are importing honey. The honey import bill should be passed so that the beekeepers may have an opportunity to achieve the national goal in public policy, clearly set forth in all major agricultural legislation, that they might' have an opportunity to achieve parity prices for their honey and wax. A beekeeper should enjoy a level of income commensurate with that received by other segments of our economy; and our Nation should have a thrifty beekeeping industry maintaining sufficient colonies of bees to insure adequate pollination for nearly 90 percent food and fiber products. We have witnessed in the recent months administrative changes in the mandatory oil import program which have seriously weakened its effectiveness and its integrity, insofar as the petroleum industry is concerned. The petroleum industry in Oklahoma is struggling for its very survival, and various pressures on `the oil import program have had substantial impact. Various factors have brought about congressional interest: 1. Lessened confidence in the American dollar abroad, and our country's chronic balance-of-payments deficit in which oil imports figure as a dominant influence. 2. The two major disruptions in the flow of Arab oil during the ]ast 10 years, which have brought home the folly of unnecessarily extending our country's dependence on foreign oil supplies. 3. A. 45-percent drop in domestic exploratory drilling since 1956; a trend which many feel cannot be reversed in the absence of an import program which does not enjoy industry confidence. PAGENO="0046" 1316 The major factor, however, is the erosion of the program by the exemptions and exceptions which have beeti made over the last 2 years, none of which have reinforced the "national security" aspects of the program, and many serving only to further aggravate our country's dollar outflow. Since 1965, there has been an increasing number of "exceptions," both within and outside the 12.2-percent limitation standard of the program for Districts I-TV (including all States east of the Rockies) of nonresidual imports of domestic production in that area. These exceptions have included the granting of special quotas within the 12.2-percent ceiling to petrochemical interests, Puerto Rican and Virgin Island projects, Eastern marketers for No. 2 fuel oil, and com- panies that carried over their 1967 allocation. These exceptions amount to 150,000 barrels daily in 1968. Canadian imports constitute an overage of 60,000 barrels daily over and above the 12.2 ceiling. Other "exceptions," totaling 180,000 barrels daily of imports in excess of the 12.2 ceiling, included bonded jet fuel and a part of the carryover of 1967 quotas. These "exceptions" have increased 290,000 barrels a day in just 3 years. These exceptions have resulted in industry's loss of confidence in a program whose integrity is in serious doubt. As a result, pressure continues to mount on the program, and its stability is in question. By 1972, total allowable imports under the 12.2 limitation can be expected to increase to 1,235,000 barrels daily. The accumulated pressures and proposals that now threaten to in- crease imports exceeds many times this increase in imports that are allowable. Other factors which destroy confidence in the program have been the totally inadequate administrative procedures followed by the De- partment of Interior in taking unilateral actions of great consequences without proper hearings, and without providing an opportunity for interested parties to present their views. The actions recently of the Oil Import Appeals Board in granting import quotas for the first time to oil marketers were taken without hearing, and after denying interested parties the right to be heard in public hearing. In addition to this accumulation of threats to the stabilization of the program, the completely unauthorized interference into oil pricing, first in the Oklahoma-Kansas crude oil prices in 1966, then in gasoline pricing, and now in asphalt pricing, serve to shatter the confidence in the entire program. These actions serve to only raise the question as to whether imports are to be firmly limited to serve oil security objectives or be maneuvered to keep depressed oil prices even further depressed. Domestic production and exploration have continued to decline along with operating rigs, drilling completions, footing drilled and seismic crews have reached new lows in 1966. The additions to our reserve have been inadequate. In Oklahoma, 1959 and 1966 activity compares as follows: Total well completions fell from 6,230 to 4,069, a 35-percent decline. Footage drilled declined from 21,278,000 feet to 18,142,000 a reduc- tion of 15 percent. Operating rigs were reduced from 226 to 141. In 1967, rig activity has further declined. PAGENO="0047" 1317 While drilling of exploratory wells increased in 1966, the 505 wildcat wells drilled were less than one-half the number drilled in 1959. Crude oil production increased 11 percent compared to an increase of 18 percent in crude oil imports into districts I through IV. The only basis for mandatory oil import program is national se- curity, and that basis must be completely reaffirmed. With that overall objective in mind we should: Commit ourselves to the preservation of the general principles of the current quota system with a reasonable reduction in the overall level of imports. Include all nonresidual imports in districts I through IV within the prescribed import ratio. Subject all products moving from offshore chemical plants to the same restrictions that such products would have if moving from for- eign sources. Allow free imports into trade zones only to the extent products are exported and' require raw material quota in proportion to the U.S. product imports. Delay the use of the "discretionary" asphalt import authority at least until the Office of Emergency Planning has completed its study of national security aspects of the importing of both finished asphalt and asphalt content crude. Continue to recognize the defense contribution of overland crude by exempting these imports from controls but restrict overland import growth to the same rate as the U.S. crude demand growth. Establish more specific guidelines for the operation of the Oil Im- port Appeals Board. These measures will provide long-range stability and insure an ample oil supply to this country in the interest of our national security. The American oil industry has too long suffered from the fourth agency of Government who rules by agency decree. It behooves us to protect our national economy and resources by supporting these measures. On May 28 I introduced a bill (H.R. 17565) to provide for orderly trade in iron ore, iron and steel mill products. I would like now to provide the committee with additional evidence of the pressing need for this legislation. The flood of steel imports into the United States has reached alarm- ing proportions. If allowed to continue-and at present there is noth- ing to stop it-this trend will have disastrous effects not only on our balance of trade but on our national economic welfare and will seri- ously threaten our national security. If this seems to be an overstatement, let me cite the figures on steel imports during the past decade: In 1958, we, imported 1.7 million net tons of steel, almost double the 1955 total of 973,000 tons 3 years previous. In 1961 this figure nearly doubled again to 3,160,000 tons. By 1964 we were up to 6.4 million tons. Last year it was 11.5 million. Thus the total has climbed some 10 million tons in 10 years, nearly doubling every 3 years-an incredible growth rate of almost 700 percent. In dollars, this growth has been from $192 million in 1958 to $1.3 billion in 1967. PAGENO="0048" 1318 I am concerned that this trend shows no sign of abatement. In fact, the American Iron and Steel Institute reports that during the first 4 months there has been a 51-percent increase in the tonnage imported and that imports for this year will reach about 16 million tons. With nothing to interfere with this trend, the industry fully expects this total to reach the intolerable level of 23 million tons by 19~Z0. The threat to our national security is becoming readily apparent; but' as the senior Senator from Indiana pointed out in an article re- cently printed in the Congressional Record: "If we wait until the national concern is apparent to everyone, it may be too late then to redress the long-term impact on our balance of payments of a steel trade account seriously out of `balance. A ratio of steel imports to consumption of 20 percent or 30 percent may permanently impair the ability of the steel industry to respond to a rapid increase in both military and supporting civilian requirements during the time of na- tional emergency." The Senator points out in hi's article that, following his steel im- port hearings of June 1966, the Senate Finance Committee spent 18 months studying worldwide steel competition. Its principal point, he c~bserves, is that a continued rise in steel imports weakening the domestic steel industry would confront the United States with a p05- sible national ordeal. "What do we mean by `national ordeal?' Let me make it clear that America's defense is dependent upon preventing subsidized, below-cost foreign steel production from eroding our capability of fulfilling emer- gency demands in this country. "I agree with the Finance Committee Steel Report that `no private enterprise industry can, in the long run, survive in competition with foreign industries that `have become instruments of government,' un- less its own government lends assistance against subsidized import and against obstacles to exports." Unless some action is taken to restrain thc~ import of steel into the United States, I strongly fear that the pressures of the expanding capacity of the steel-producing countries in both the Eastern and Western Hemisphere will seriously jeopardize our own industries and, inevitably, our economic `position in world trade. For all of these reasons, I `hope that the committee will approve this bill so that the Congress may act favorably on it during this session. Mr. Chairman, I believe the significance `of this situation in regard to the country's economy is dramatically underlined in an article in the June 1968 issue of Fortune magazine. The article, entitled "The Trade Winds-the Competition Position of the United States," states, in part: "Among the shocks, strains, and insults inflicted on the U.S. econ- omy in recent months, perhaps the most ominous of all has been a drastic turn for the worse in foreign trade. Beyond its unpleasant short-run effects, this sudden deterioration in the U.S. foreign-trade position has grave implications for the Nation's economic future. "For many years now, the United States has relied on a hefty sur- plus in merchandise trade with the outside world. This surplus has served to offset, to the extent of several billion dollars a year, `the chronic deficits in various other sectors of the U.S. payments ac- PAGENO="0049" / 1319 count-capital investment, overSeas military costs, foreign aid, tourist traffic, shipping. "But during the final quarter of 1967 and the first quarter of this year, the once sturdy U.S. trade surplus crumbled. "What wrecked it was a remarkable surge in imports. Exports have been rising, too, but nowhere near fast enough to maintain their lead over imports. The remaining margin of trade surplus has become so thin and frail that an 11-day dock strike in New York was enough to put U.S. foreign trade in deficit for the month of March. In one sense, moreover, the United States began running a deficit some months prior to the strike. A sizable share of U.S. exports is financed by the U.S. Government under foreign aid or other public programs.. (Some of these~ exports, though, would move out `anyway if special ~Govern- ment financing were not available.) Such Government-financed ex- ports now amount to $3.2 billion a year. In the first quarter, the U.S. trade surplus-total merchandise exports minus total merchandise im- ports-worked out to less than $1 bil]ion, at an annual rate. So apart from the Government-financed slice of exports, U.S. foreign-trade accounts showed a deficit at the rate of more than $2 billion a year. "Even when it still enjoyed a substantial trade surplus, the United States ran at deficit in its overall balance of payments, and lost a lot of gold as a result. Now, suddenly, the outlook seems much bleaker. The deterioration in the U.S. trade position greatly increases the diffi- culty of coping with the balance-of-payments deficit." Mr. `Chairman, I again thank the committee for its time. The CHAIRMAN. Thank you so much. Mr. SMrm. Thank you. The CHAIRMAN. I see that our colleague from Alabama is now in the room. Mr. Buchanan, will you come forward, please, sir. We are glad to have you with us this morning, and you are recognized, STATEMENT OP HON. JOHN BUCHANAN, A REPRESENTATIVE IN CONGRESS PROM. THE STATE OP ALABAMA Mr. BUCHANAN. Thank you, Mr. Chairman. Mr. Chairman, I want to thank the members of this `committee for giving me an opportunity to pres~nt a statement during the current hearings on tariff and trade proposals. The problems dealt with in these hearings have a direct and sub- stantive effect upon the State of Alabama and the city of Birmingham, which I represent in the Congress. This is the impact of the continuing increase in such imports as iron and steel products, and textile products on economic growth and employment opportunity in Alabama, as `elsewhere in the Nation. In 1967, raw steel production in the United States totaled 4,338,000 net tons.. Of this U.S. total, Alabama produced 3.4 percent, and ranked eighth among steel-producing States. There were 14 operating steel plants in the State. These plants accounted for an annual payroll in 1966 of $196,383,000, and made State and local tax payments in the amount of $9,274,614. In the period 1955 through 1965, steel consumption in the United States rose from 82,200,000 net tons to 106,200,000 an increase in con- 95-159 O-G8----pt. 4--4 PAGENO="0050" 1320 sumption of 24 million net tons. Of this increase in steel consumption in the United States on a national scale, 9,700,000 net tons was imported. The southern market increased in total consumption by 3,300,000 net tons. Southern steel producers share of this increase, however, was only 600,000 net tons while imports accounted for 2,700,000 net tons of the total increased southern market consumption. In 1965, at the end of this 10-year period, domestic steel produced outside the south and brought into the southern market was 5,300,000 net tons-exactly the same as in 1955. Hence, nonsouthern domestic producers had no share in the growth of the southern market during this period. Foreign imports of steel into the southern market during the same period rose from 400,000 tons to 3,100,000 tons. The effect of the continuing increase in steel imports is clear from these figures. Growth in steel consumption in the southern market which could have been met by expanded production by southern and other domestic steel producers was instead supplied through steel imports. The city of Birmingham, Ala., which I have the privilege to repre- sent in the Congress, is one of the Nation's steel producing centers, and the continuing impact of steel imports is of vital interest to the people of my district. To give some idea as to the basis for concern over the employment impact which imports can have on the steel industry alone, it has been estimated that 10.8 million tons of steel mill products imported during 1966 were equivalent to employment opportunities in the basic steel industry of 69,000 jobs and in supporting activities of `another 14,000 jobs. Low wages for foreign workers in the steel industry plus the rapid spread of steel technology have given foreign producers substantial labor cost advantages. As an example in 1966 hourly employment cost in the steel industry was $4.63 as compared with a low of $1.08 for Japan and ranging in between for steel producing countries including West Germany, Belgium, France, Italy, Luxembou~g and the Netherlands to a high of $2.08, or a margin ranging between $3.53 to $2.55 in favor of the foreign steel producers. The difference between the United States, Western Europe and Japan in employment cost in the production of steel is about $25 per ton in the case of Europe and $40 per ton in the case of Japan. The disparities in hourly employment costs between the steel in- dustries of the United States and the other major producers are so great that steel labor productivity here would have to be 21/2 times that of the Europeans and 41/2 times that of the Japanese to equalize unit labor costs. Following World War II, while the American steel industry was still in the process of recovering from the drain upon its resources resulting from the war and the reconstruction abroad, there were fully modern steelmaking plants being constructed overseas, in great part financed by the United States and built with the output of Amen- can mills. PAGENO="0051" 1321 In a special report on steel in Business Week of June 1966, it was pointed out that since 1947 the United States had shifted from a net exporter, with an annual export surplus in steel mill products of 6 million tons, to a net importer. While the United States had net steel exports of about 4 million tons in 1957, by 1965 this had been replaced by net steel imports of 8 million tons. On balance, the total loss to foreign steel amounted to 12 million tons. The textile industry in the Nation, and in the State of Alabama, has also suffered from the impact of a flood of imported textile products. It is reported that textile imports in 1966 reached a level of 2.8 billion equivalent square yards. This level, of imports amount to same 10 percent of the total U.S. textile market and is displacing the equivalent of 198,681 potential American textile jobs with an estimated annual payroll of $949,099,137. In Jefferson County, Ala., which includes Birmingham, there are some 1,500 people employed by the textile and apparel industries. These two industries account for about 80,000 employees in Alabama with an annual payroll amounting to $353 million. Textile mill products are produced in 42 of the State's 67 counties, and Alabama textile mills consumed over a million bales of cotton jn 1966, more than twice the 461,000 bales produced by Alabama farmers. The textile payroll isiS percent of all manufacturing payroll. Alabama accounts for approximately 3.5 percent of the national employment in these two industries. In testimony before the Special Labor Subcommittee of the House, textile industry spokesmen said that 2.8 billion square yards of textile imports in 1966 displaced the equivalent of 200,000 jobs in the Ameri- can textile and apparel industries. Textile imports in January of 1968 reached a record high for any single month in history, according to figures released by the Office of Textiles of the T5.S. Department of Commerce,. Imports of cotton, wool, and man-made fiber textile products in January were 291.2 million square yards. The previous high was 280.3 million square yards in September of 1966. In the past 5 years, it has been reported that U.S. textile imports increased 200 percent while U.S. textile production grew by less than 35 percent. As is also the case in America's steel industry, the textile industry is faced with competition from foreign countries where wage rates are so low that American manufacturers cannot hope to compete with most imported goods on the American market. As an example, the American textile worker earns an average of about $2.14 an hour, which will increase to $2.27 in September of this year, as compared to an average o~ 25 cents an hour in Hong Kong, 36 cents in Japan, 18 cents in Portugal, 14 cents in India, and 8 cents in Korea. In a 1-month period, almost 63 percent of the cotton textiles imported into the TJnited States came from Japan, Hong Kong, Mexico, India, and Brazil; with much of the remainder from Belgium, Italy, Portu- gal, Taiwan, Pakistan, the United Kingdom, West Germany, and Korea. PAGENO="0052" 1322 In 1966 Mexico exported to the United States 18.5 million pounds of cotton yarn with Brazil shipping 17.2 million pounds. To keep pace with technological developments, and the need for modernization and improvement of plant equipment, an estimated $1,180 million was spent by the industry for new plant and equipment in 1966, a figure that was almost double. the industry's net earnings. These expenditures are necessary if the industry is to meet competi- tion of foreign imports in the domestic market. And required levels of such spending may continue to rise. According to a statement released by the American Textile Manu- facturers Institute in March of 1968, completely comparable data on cotton, wool and manmade fiber textile imports are available only since January 1964. Looking at the January 1968 data against com- parable figures for January 1964, according to the report, we see that total imports for the month rose from 143 to 291 million square yards. Wool textile imports jumped from 8 to 12 million-an increase of 50 percent. Cotton textile imports shot up from 110 to 160 million square yards, an increase of 45 percent. Manmade fiber textile imports rocketed up from 25 to 119 million square yards-376 percent. In the face of this fantastically increasing import competition, the report continues, an increasing number of textile companies are al- ready importing yarn and grey cloth. Many of their competitor com- panies are vigorously investigating these possibilities. Some of the industry's apparel customers are already moving over- seas and others warn they may be forced to do likewise. The American textile industry nationwide has plants in 42 States, employing 950,000 people on a payroll of $4.5 billion. The apparel industry employs 1.4 million people in every State at more than $5 billion annually. Manmade fiber producing involves some 90,000 em- ployees who are paid almost $650 million. Thousands of other Americans in allied industries supplying or serving the textile industry also are affected by the impact of textile imports. It is obvious that these two major industries, steel and steel products, as well as textiles, which are of vital importance in our national economy must seek relief through protective measures in view of the continuing flood of foreign imports against which they must compete at an obvious production cost disadvantage of such magnitude. Another factor which enters into the tariff consideration is the non- tariff barrier-the extent to which foreign countries are charging fees in addition to straight duty charges which, in fact, provide effective protective barriers from imports. These nontariff barriers in the past have not received adequate con- sideration when tariff agreements have been entered into by the United States. As an example, welded carbon pipe may be imported into the United States from Belgium, France, or West Germany for a duty charge of $12.50. To exportS the same product from the United States to Belgium results in charges of $30.53; to France charges of $57.32; and to West Germany charges of $30.07. As another example, carbon plates can be imported into the United States from these three countries for a duty charge of $8. To export this product results in charges per $100 of product of $14.25 to Bel- gium; $42.07 to France; and $21.08 to West Germany. PAGENO="0053" 1323 .The list of nontariff barriers affecting U.S~ exports is extensive. To mention a few more, some African countries have a tax on the cost of freight value; Tunisia has a national defense tax; and a production tax; Argentina has customs surcharges and consular fees; Japan a commodity tax; Australia a primage rate; Thailand handling and landing fees; Belgium has stamp tax, transmission tax, turnover tax, and a wharfage fee; Brazil, consumption tax and a custom liquidation tax; France license requirements; and Italy an unloading tax and a compensatory tax. The American steel and textile workers, along with all Americans, have, through the taxes they have paid to their Government, helpe.d to subsidize their foreign competition through our foreign aid pro- gram. That competition is thriving, is using in many instances-by our standards-substandard, low-cost labor, and is competing with our workers who ought to continue to receive wages that are commensurate with what people working in the most prosperous great nation the world has yet known should receive. This consequently constitutes both strong and unfair foreign competition. Certainly, at the very least the American worker is entitle~1 to some protection from the consequences of our Government's use of his own tax dollars. Federal assistance to firms adversely affected by foreign imports and to workers who may become displaced as a result of these imports can provide a measure of relief to specific firms and workers. But if imports result in curtailment of business expansion and em- ployment opportunities, the community and the Nation will suffer. The Kennedy round has brought no relevant relief to either the steel and iron industry or the textile industry. In the last Kennedy round steel tariff was even reduced by a small amount. The only action taken regarding textiles was a 3-year extension of the agreement for trade in cotton textiles which represents merely minimal control in this area. There is no indication in the foreseeable future that the import pressures will lessen in domestic industries affected by the continuing rise in import of many commodities, and also faced with the serious disparity of employment costs. At the same time many foreign countries have quantitative controls protecting their own industries against import of some commodities. In steel, on a world basis, foreign governments have a 42-percent financial interest in their own steel industries, and in the countries of Western Europe, a 28-percent financial interest. Resulting govern- ment concessions again add to the cost gap between foreign and domestic production cost. In addition, expecting the Soviet blocq West- ern Europe and Japan have an excess of 55 million tons in production capacity. To establish any effective tariff control in the import of steel would require an increase of almost 1,000 percent-obviously not a practical consideration. Orderly quota controls would provide a fair and flexible method by which a reasonable protection could be established for our domestic iron and steel industry. With other Members of Congress, I have introduced legislation (H.R. 13839) to establish annual quantitative limitations on U.S. PAGENO="0054" 1324 imports of steel products. Our domestic steel and iron industry is not only one of the most vital to our Nation's economy, but it is essential to our national defense and security. It must continue necessary researcl'i and development to meet the technological advancements of today's world, and it is essential that this industry can expand through fair competition on the domestic market. This will be possible only if imports are subject to adequate quota control. I cannot too strongly urge the committee to give favorable consid- eration to the establishment of a system of quota control for the protection of vitally important domestic industry. I thank the committee for this time. The CHAIRMAN. We thank you very much for coming. Any questions? Thank you. Mr. BUCHANAN. Thank you. The CHAIRMAN. Is Mr. Blackburn here? Yes, I see Mr. Blackburn, our colleague from Georgia, Hon. Benjamin B. Blackburn. Mr. Blackburn, we appreciate having you with us this morning and you are recognized, sir. STATEMENT OP HON. BKbTJAMIN B. BLACKBURN, A REPRESENTA- TIVE IN CONGRESS PROM THE STATE OP GEORGIA, ACCOMPANIED BY DR. TOHN H. SADLER, DISTRICT DIRECTOR, ATLANTA KIDNEY CENTER Mr. BLACKBURN. Mr. Chairman, I want to say in the beginning that I do appreciate your giving me this opportunity to appear and explain my purpose. The CHAIRMAN. We are glad to have you. Mr. BLACKBURN. I am appearing before your committee today to discuss H.R. 13419, a bill to amend the tariff schedules of the United States to permit the free entry of a certain cellophane membrane- Cuprophane, the substance that has been distributed to you. Accompanying me today is Dr. John H. Sadler, director of the Atlanta Artificial Kidney Center which is under the direction of Emory University School of Medicine. It was Dr. Sadler who first brought this matter to my attention and has greatly aided me in my investigation of the whole area of kidney disease. There are two methods now employed in the United States to meet the problem of chronic kidney disease. One is treatment by artificial kidney machine (hemodialysis) and the other is transplantation of kidneys obtained from living or dead donors (renal hemotransplanta- tion). Although neither means is fully developed, both chronic hemo- dialysis and renal homotranspiantation are capable of prolonging life. Unfortunately, many patients whose lives might be maintained for a significant number of years are now dying because these treat- ment forms are not generally available. One out of five patients dying from chronic kidney failure (uremia) are medically suitable candi- dates for treatment by dialysis and transplantation. Nationally, there will be 7,000 new patients in fiscal year 1968, with chronic uremia who will be medically suitable for treatment by trans- plantation or hemodialysis. Many of these will die because treatment PAGENO="0055" 1325 by traiisplaritation will be available for approximately 450, and treat- ment by dialysis for approximately 550. Furthermore 750 patients from previous years will be maintained on chronic dialysis. The dial- ysis treatment will extend a patient's life as long as 9 years. Current experience indicates a 15-percent mortality rate during the first year of hemodialysis and a 10-percent rate in subsequent years. Technically, chronic hemodialysis can be accomplished in either the home or in a dialysis center. The recent success and greatly reduced cost of home dialysis means that every possible saving should be granted the patient. At the present time, there are four types of artificial kidneys using Cuprophane.. They are the following (1) Kiil, (2) Klung (and Mini. Kiung), (3) Dialung and (4) Coil, developed by Extracorporeal Medical Specialities. Hemodialysis is accomplished with an artificial kidney through which blood is circulated on one side of a cellophane membrane while the other side is bathed by a salt solution. The accumulated toxic product.s diffuse out of the blood into the bath solution, and the concentration and total amount of water and salts in the body fluids is adjusted by appropriate alteration in composition of the bath fluid. The cellophane membrane may take the form of a long coiled tube similar to a sausage casing (Travenol twin-coil kidney) which is immersed in a tub filled with bathing fluid, or it may be formed in flat sheets as in a sandwich (Kiil Dialung, Klung) with a layer of blood and bathing solution on opposite sides. Dialysis is generally performed two or sometimes three times weekly, and each dialysis period lasts for 6 to 16 hours. The cost of treatment in various hemodialysis varies greatly. A center with a great deal of experience estimates that its current annual cost to be approximately $10,000 per patient. In order to relieve the heavy workload which is placed on kidney treatment centers, a great deal of work has gone into the development of home kidney centers. The co~~ of chronic hemodialysis in the home varies widely both for initial capital equipment and for consumable supplies. One center recently reduced the cost of the complete home dialysis outfit from ~,ooo to $6,000. They project a further reduction to $5,000 if the pr~- totype of another machine proves satisfactory. Other estimates for imtial equipment were $7,500, $13,000 and $4,200-$6,000. As the members of the committee can very quickly recognize, this is a severe financial drain upon neople who are literally on the edge of death, anyway, so I have introduced a me.asure which would remove the tariff from Cuprophane. Now, turning specifically to my bill, H.R. 13419, one finds that. it places Cuprophane on the. list of items to be imported into the United States free of duty. Cuprophane is manufactured by the J. P. Bemberg Co., Wuppertal, Germany. This company has granted import.rights to Mr. Vitalis von Plato, of Springfield, Pa. When entering the United States. Cupro- pliane has a 23-percent duty placed upon it or 20 percent of the value and 2.5 ceiits per pound. Mr. von Plato sells the Cuprophane then to either Cobe Laboratories, Inc., of Denver~ Cob., or Extracorporeal Medical Specialties, Inc., of Mount. Laurel, N.J. These laboratories cut. Cuprophane membranes and sell them to hospitals and home patients. PAGENO="0056" 1326 The exact amount of savings to each patient has been very difficult to determine. Mr. Robert Collins, of Cobe Laboratories, has informed me that, "If the tariff was completely eliminated, we would be able to reduce our price from $70 for 500 sheets of Cuprophalle to $62.50." Mr. Charles Jones, of Extracorporeal Medical Specialties, Inc., states: Our present artificial kidney (Ex-0 1 dialyzer cartridge) sells for as low- as $23.63 when purchased by customers in large quantities. We certainly feel that a reduction in the Cuprophane, if passed on to us by your supplier, would be re- flected in the sales price of the cartridge. The exact savings to the user is difficult to predict, but I can safely say that it would range between 60 cents per unit and as high as $1.50 per unit, as costs are reduced through increased production. Last, Dr. John Sadler has informed me that: In the Kiung dialyzer which we use at the Atlanta Artificial Kidney Center, there are 34 sheets of Cuprophane. It usually requires from 36 to 40 sheets to build the dialyzer each time. Some sheets are defective and some may be damaged in assembling and have to be discarded. Thirty-six sheets of Cuprophane cost $1.44. If this could be reduced by approximately one-fourth, this would be a savings of 30 to ~5 cents to the patient. This savings wouid be accomplished with each treatment and twice weekly `treatment would be necessary; thus, in the course of a year it would save a patient on maintenance hemodialysis, ap- proximately $36. Thus far, I have oniy discussed the effect this bill would have di- rectly on the patient. Hospitals and institutions carry out over 90 per- cent of the hemodialysis treatments in the United States. Mr. Charles Jones, in his letter, gives a description on how this measure would affect institutions: This situation must be appraised from the immediate effect and from looking at the picture over a long term. On May 15, I checked with the Veterans' Ad- ministration and the U.S. Public Health Service, and found that the Veterans' Administration currently maintaining approximately 250 people on dialysis, and the U.S. Public Health Service was maintaining approximately 450 people. Assuming that each person was treated twice per week for 52 weeks each year, 72,800 dialyses are performed each year. Now assuming that 40 percent of these patients are treated with a coil or cartridge-type dialyzer which utilizes Cupro- phane, this would equal 29,120 dialyses, and naturally, a saving of $1.50 per dialysis w-ould result in a total saving of $43,680 by the Federal Government this year. I should mention also that there are another 700 to 1,500 patients being treated by dialysis and supported by sources other than the U.S. Govern- ment this, of course, would quadruple the savings to these dialysis patients. Looking at this picture over a long term, the U.S. Public Health Service stated that out of the 100,000 people who die from renal disease each year, 10,000 could be saved with dialysis. At the end of the first year, 86 percent are still surviving, at the end of the second year, 75 percent and from the third year on. 70 percent. When this is carried out, assuming that the Government would sup- port all these patients, there would be nearly 48,000 people being dialyzed at the end of the 6-year period, with a count of almost 5 million treatments. Here again, if we assume that 40 percent were on a coil-type dialyzer, this would result in 2 million treatments by this method with a saving-just from the elimination of Cupropharie duty-of $2 each or $3,000 to the Federal Government. The other 6 percent of treatments which are carried out with other type dialyzers in almost all cases utilize Cuprophane also, with costs ranging tip to $2 for the Cuprophane used in each treatment. Here again, if we assume that 3 million dialyses were reduced by 42 cents each or a savings of $1,260,000 again. just from the elimination of what we suspect the duty on Cuprophane to be. Therefore, it is my definite conclusion that this particular product, when imported for use in artificial kidneys, should have its duty elminated completely. PAGENO="0057" 1327 FurthermOre, Mr. Robert Collins provides us with additional in- formation concerning the use of Cuprophane by institutions: Because the Kiung kidney uses more, smaller sized sheets, the savings would be greater. During the first 4 months of this year, we sold 31,500 Kiung sheets. We project to sell on the order of 100,000 sheets for the next 12 months. The Atlanta Artificial Kidney Center uses 36 sheets of Cuprophane per dialysis for the Klung and 20 to 25 for the Mini Kiung. We are estimating that there will be about 50 patients using these two kidneys during the next 12 months. (Both kidneys use the same size cut sheets.) This would indicate 175000 sheets. Each patient uses about 3,500 sheets per year. The tariff savings would amount to approximately $4 per 500 sheets or $28 per year per patient for a total of $1,400. Combining the savings to the Kiil and Klung patients for the projected 12-month period, the total would be $8,900. We are not in a position to speak of the projected savings for the Dialung or EMSCO Coil Kidney users. We feel that the $8,900 savings is sufficient reason for pushing for the removal of the U.S. tariff on Cuprophane. From the information that I have been able to gather, there is not any U.S. firm which is presently producing Cuprophane or a substance that could be used as a substitute for Cuprophane. FMCC Corp., Amer- ican Viscose Division and DuPont have looked into the development of ceilophanes to replace Cuprophane. However, to the best of my knowledge, no substance has been developed by these corporations. For the information of my colleagues, I would like to insert the following items of correspondence from Dr. James H. Shinaberger, of the Los Angeles Veterans' Administration hospital. In comparative studies, we have found that the DuPont Co.'s most suitable membranes for dialysis (PD 250 and PD 215) are only about 65 to 75 percent as permeable to urea as Cuprophane. Furthermore, we observed two very unfavorable reactions to PD 215 cellophane when used for dialysis which is in no way to be considered the fault or liability of the DuPont Co. In fact, repre- sentatives of the DuPont Co.'s film division were most generous and cooperative with us in performing these studies. They had indicated that should any of their standard membranes prove satisfactory for hemodialysis, they would make it available for this purpose at little or no cost. We deeply appreciafe their attitude, but had to conclude that their membranes were not satisfactory for this purpose. The basic premeability of standard PT 150 Cuprophane (Bemberg. West Germany) is so high that no type of dialyzer (artificial kidney) yet developed is in itself efficient enough to fully utilize the full permeability of (`uprophane. This simple fact has made some of us wonder whether the cost of developing under research and contract grants new synthetic membranes for dialysis is really warranted until dialyzer design is advanced to the point of fully utilizing the permeability of the already available and very satisfactory Cuprophane. We regret that no American cellulosis membrane currently available is as suitable for dialysis as Cuprophane. We use Cuprophane because it reduces dialysis time 15-20 percent, and we feel that in order to make our patients' lives as nearly normal as possible, unnecessary prolongation of dialysis time must he avoided. Recently, the report of the TaHff Commission was submitted to this committee. In this report, the Commission states there are three tech- nical defects in my bill. The first objection is concerning the section of the tariff schedule to be amended. I agree wholeheartedly, and desire that the committee make this change in my bill. However, I. must take issue to the other two proposed changes. The Tariff Commission states that Cuprophane is mainly a trade name. I would like to submit to the committee a statement by Mr. Charles Sheldon, acting chief, Science Policy Research Division, Legislative PAGENO="0058" 1328 Reference Service, Library `of Congress. In the statement, Mr. Sheldon says, "Cuprophane is the registered name of a cellulose acetate pro- duced by the cuprous method of extrusion." Furthermore, in a letter to Mr. George Hoff of the U.S. Tariff Commission. Mr. Charles P. jones of Extracoporeal Medical, Inc., gives a detailed chemical breakdown of Cuprophane. He goes on to give the patent numbers of Cuprophane in the United States, Germany. Great Britain and Japan. I feel the chemical composition of Cuprophane as a basic substance has been extremely well documented and is not a trade name applied by an exclusive manufacturer. Third, the Tariff Commission seems to fear that if the tariff was to be removed on Cuprophane that this cellophane would compete with American-produced cellophane. I must differ very sharply with the Tariff Commission on this point. I)r. ,James H. Shinaberger, associate chief of the chronic dialris Unit at the Wadsworth VA Hospital in Los Angeles, Calif., states iii his letter to me: "From my own knowledge of the relative prices of American cello- phane and Cuprophane, I cannot believe that Cuprophane could ever compete for nonmedical purposes with American cellophanes." Furthermore, Dr. John H. Sadler of the Atlanta Kidney Center states in his statement to the committee: "Cuprophane is four times more expensive than any American-produced cellophane." The Tariff Commission feels that Cuprophane should be restricted to be sold to institutions only and that we should not remove the tariff across the board. On this point, I must differ with the Commission rather strongly. Again Dr. Shinaherger states: "I feel that re~trh~ting tariff-free entry of Cuprophane for pur- chase by institution's alone would be a backward step, since most of us feel that home dialysis rather than institutional dialysis is the develop- mental trend. The provision of a physician's prescription alone to the supplier should be acceptable e~vidence that a home dialysis patient will purchase Cuprophane for dialysis purposes only." For this reason, Mr. Chairman. I believe very strongly that these objections are not valid. Cuprophane will not compete with American cellophane and American home dialysis patients badly need to pur- chase this Cuprophane directly from the laboratories, thereby indi- cating the shortcomings of the Tariff Commission's objection on this ground. I cannot see any reason why the tariff should not be completely removed from Cuprophane. It is quite obvious that there will not be any startling reduction in cost by the passage of this legislation. Dr. John H. Sadler stated: "This is not a large savings, but every small economy over a long period of time is critical to these people. As a matter of printhple, it is unconscionable to uselessly add cost to a product which is required only for the medical care of people who would die without it. It would certainly represent an act of high principle on the part of the U.S. Congress in behalf of some otherwise disabled citizens." In view of the foregoing, I ask that we remove any tariff which in any way hinders the purchase of the critically needed material by patients with chronic kidney disease. For the information of my col- leagues, I am inserting the following letters for my colleagues' in- formation. (The information referred to follows:) PAGENO="0059" 1329 VETERANS' ADMINISTRATION CENTER, Los Angeles, Calif., ,Iune 10, 1968. Hon. BEN B. BLACKBURN, House Office Building, Washington, D.C. Dunn MR. BLACKBURN: Those of us in the medical profession who are deeply involved with chronic hemodialysis as a means of prolonging life in patients with chronic renal disease are deeply appreciative of your efforts to assist us with H.R. 13419-a bill to remove tariff on Cuprophan, a cellulosic membrane. I should like to furnish you with the following statements regarding my own experience with nearly 10,000 dialysis procedures. 1. Although intensive efforts are underway at this time to develop new syn- thetic membranes which are superior for hemoclialysis, none appear to me to be at a practical level of development, and most certainly, none are generally avail- able for dialysis. 2. In comparative studies, we have found that the Du Pont company's most suitable niembranes for dialysis (PP 250 and PD 215) are only about 65 to 75% as permeable to urea as Cuprophan. Furthermore we observed two very unfavor- able reactions to P1~ 2'15 cellophane when used for dialysis which is in no way to `be considered the fault or liability of the Du Pont Company. In fact, representa- tives of the Du Pont Company's Film Division were most generous and coopera- tive with us in performing these studies. They had indicated that should any of their standard membranes ~rove satisfactory for hemodialysis, they would make it available for this j~urpose at little or no cost. We deeply appreciate their atti- tude, but had to conclude that their membranes were not satisfactory for this purpose. 3. The basic permeability of standard PT 150 Cuprophan (Bennberg, West Germany) is so high that no type of dialyzer (artificial kidney) yet developed is in itself efficient enough to fully utilize the full permeability of Cuprophan. This simple fact has made some of us wonder whether the cost of developing under research and contract grants new synthetic membranes for dialysis is really warranted until dialyzer design is advanced to the point of fully utilizing the permeability of the already available and very satisfactory Cuprophan. 4. We regret that no American cellulosic membrane currently available is as suitable for dialysis as Cuprophan. We use Cuprophan because it reduces dialysis time 15-20% and we feel that in order to make our patients' lives as nearly nor- mal as possible, unnecessary prolongation of dialysis time must be avoided. `5. I feel that eliminating the tariff on Cuprophan would substantially reduce the cost of dialysis since it is an ongoing recurrent expense which cannot cur- rently be avoided. 6. From my own knowledge of the relative prices of American cellophane and Cuprophan, I cannot believe that Cuprophan could ever compete for non-medical purposes with American cellophanes. 7. I feel that restricting tariff-free Cuprophan for purchase by institutions alone would be a backward step, since most of us feel that home dialysis rather than institutional dialysis is the developmental trend. The provision of a physi- cian's prescription alone to the supplier should be acceptable evidence that a home dialysis patient will purchase Cuprophan for dialysis purposes only. I hope that these comments may prove helpful to you. These opinions, of course, are my own and do not in any way represent any official Veterans' Administra- tion policy or opinion. Best wishes for success in your endeavor, JAMES H. SHINABERGEE, M.D., Associate Chief, Chronic Dialysis Unit, Wadsworth VA Hospital. COBE LABORATORIES, INC., Denver, Cob.. June 3, 1968. Congressman BEN BLACKBURN, U.S. House of Representatives, TVashington, D.C. DEAR CONGRESSMAN BLACKBURN: We are most gratified to be in a position of supplying additional information which will result in lowering the cost of chronic hemodialysis treatment. We would like to repeat that we will pass along the savings to our customers when our purchase cost reflects the elimination of the tariff. (See Exhibit I). PAGENO="0060" 1330 The savings will vary by type of artificial kidney used. At the present time, we understand there are fopr artificial kidneys using Cuprophane in clinical use: 1. Kill; 2. Klung (and 1~1ini Klung) ; 3. Dialung; and 4. Coil developed by EMSCO. Cobe Laboratories, Inc. supplies Cuprophane for the first two kidneys. Exhibit II provides a description of the Kill which is the most commonly used kidney for chronic hemodialysis. This field of treatment is rapidly expanding. As a result, I have increased our projected sales for the next twelve months to 400,000 Kill Cuprophane mem- branes (cut sheets). This amounts to sufficient membranes to support 1,000 patients. This is a conservative figure as our actual sales of Kill sheets through Xpril were 131,300 sheets. For these 1,000 patients the savings would be approxi- mately $7,500,000 per year or $7.50 individually per year. Our Kiil Cuprophane customers fall into two classes, medical facilities having hemodialysis units and home patients who have the artificial kidney in their homes. Exhibit III provides a partial list. Because the Klung kidney uses more, smaller sized sheets, the savings would be greater. During the first 4 months of this year we sold 31,500 Klung sheets. We project to sell on the order of 100,000 sheets for the next 12 months. The Atlanta Artificial Kidney Center uses 36 sheets of Cuprophane per dialysis for the Kung and 20 to 25 for the Mini Kiung. We are estimating that there will be about 50 patients using these two kidneys during the next 12 months. (Both kidneys use the same size cut sheets). This would indicate 175,000 sheets. Each patient uses about 3,500 sheets per year. The tariff savings would amount to approximately $4.00 per 500 sheets or $28.00 per year per patient for a total of $1,400. Combining the savings of the Kiil and Klung patients for the projected 12 month period, the total w-ould be $8,900.00. We are not in a position to speak of the projected savings for the Dialung or EMSCO Coil Kidney users. We feel that the $8,900.00 savings is sufficient reason for pushing for the removal of the U.S. tariff on Cuprophane. We hope that the U.S. Congress sees it the same way as we do. Yours truly, ROBERT M. COLLINS, President. EXHIBIT I PRESENT COBE CUPROPHANE PRICES AND PROJECTED PRICES AFTER TARIFF REMOVAL Catalog Current Tariff removal No.- Description pricing projected pricing ll-305 100 sterile cuprophane sheets for the Kill dialyzer $62.50 $58.50 11-310 1,000 cuprophane sheets and blood ports for the Kill dialyzer 250.00 240.00 12-300 1,000 cuprophanesheetsforthe Kiildialyzer 130.00 120.00 115.00 110.00 12-301 500 cuprophane sheets for the Kiil dialyzer 70.00 62.50 12-302 100 cuprophane sheets for the Kiil dialyzer 20.00 19.00 17.50 17.00 11-307 500 cuprophane sheets for the Kiung dialyzer 20. 00 16. 00 1 Reference Cobe artificial kidney price list Ill. EXHIBIT III PARTIAL LISTING OF COBE CUPROPHANE CUSTOMERS MEDICAL CENTERS Touro Infirsuary, New Orleans, Louisiana. Veterans Administration Hospital, Cleveland, Ohio. Michael Reese Hospital and Medical Center, Chicago, Illinois. Tulane University, New Orleans, Louisiana. St. Vincent's Hospital, Los Angeles, California. Atlanta Artificial Kidney Center, Atlanta, Georgia. Vniversity of California, San Diego and San Francisco, California. Veterans Administration Center, Los Angeles, California. Vniversity of Washington, Seattle, Washington. University of Colorado, Denver, Colorado. Seattle Artificial Kidney Center, Seattle, Washington. PAGENO="0061" - 1B31 Good Samaritan Hospital, Phoenix, Arizona. Mayo Foundation, Rochester, Minnesota. Cedars-Sinai Medical Center, Los Angeles, California. County of Los Angeles, California. Dallas County Hospital District, Dallas, Texas. University of Alabama, Birmingham, Alabama. Grady Memorial Hospital, Atlanta, Georgia. I)uke University, Durham, North Carolina. United States Public Health Service Hospital, New Orleans, Louisiana. Montreal General Hospital, Montreal, Quebec. We, the undersigned, urge the passage of H.R. 13419, a bill proposing the removal of import tariff on cellophane (Cuprophane) membranes used in kidney dialysis. GLENNITA SMITH, Nashville V.H., Dialysis Unit (and 20 others). EXTRACORPOREAL MEDICAL SPECIALTIES, INC., Mount Laurel Township, N.J., May 21, 1968. Congressman BENJAMIN B. BLACKBURN, Houso Office Building, Washington, D.C. DEAR CONGRESSMAN BLACKBURN: At the request of Mr. Drew Tidwell, I am setting forth in this letter the reasons why I believe it would be advantageous to have `the import duties eliminated on Ouprophan membrane, which is manu- factured by the J. P. Bemberg Company of Wuppertal, Germany. It is imported to be used in the manufacture of dialyzers which are used in the treatment of chronic renal failure. Very important is the fact that we do not import Cuprophan directly. We use Cuprophan exclusively in our new EX-Ol dialyzer cartridge, however, we pur- chase it from a Mr. Vit~lis Von Plato of 497 Maplewood Road, Springfield, Penn- sylvania, 19064, and I would like to point out that any reduction In the selling price of our cartridge can only come about if the elimination of duty were to be passed on to us by Mr. Von Plato. Although we have worked with the German Consulate, the U.S. Commerce Department, and directly with the J. P. Bemberg Company, we have no idea what the import charge on Cuprophan is, and we have encountered great difficulty with the Bemberg Company in our attempts to insure adequate supplies at reasonable prices. Our present artificial kidney (EX-Ol dialyzer cartridge) sells for as low as $23.63 when purchased by the customer in large quantities. We certainly feel that a reduction in the duty on Cuprophan, if passed on to us by our supplier, would be reflected in the sales price of the cartridge. The exact saving to the user is difficult to predict, but I can safely say that it would `range between $.60 Per unit and as high as $1.50 per unit, as costs are reduced through increased Production. What does this mean to the U.S. Government? You must appraise the situa- tion from the immediate effect and from looidng at the picture over a long term. On May 15th I checked with the Veterans Administration and the U.S. Public Health Service, and found that the Veterans Administration was currently main- taining approximately 250 people on dialysis, and the U.S. Public Health Service was maintaining approximately 450 people. Assuming that each person was treated twice per week for 52 weeks each year, 72,800 dialyses are performed each year. Now assuming that 40% of these patients are treated with a coil or cartridge type dialyzer which utilizes Cuprophan, this would equal 29,120 dialyses, and naturally, a saving of $1.50 per dialysis Would result in a total saving of $43,680 by the Federal Government this year. I should mention also that there are another 700 to 1500 patients being treated by dialysis and sup- ported by sources other than the U.S. Government; this, of course, wonld quad- ruple the saving to these dialysis patients. Looking at this picture over a long term, the U.S. Public Health Service stated that out of the 100,000 people who die from renal disease each year, 10,000 could be saved with dialysis. At the end of the first year, 86% are still Surviving, at the end of the second year, 75%, and from the third year on, 70%. When this is carried out, assuming `that the Government would support all these patients, there would be nearly 48,000 people being dialyzed at the end of the six year PAGENO="0062" 1332 period, with a count of almost ~,000.000 treatments. Here again, if we assume that 40% were on a coil tye dialyzer, this would result in 2,000,000 treatments by this method, with a saving-just from the elimination of Cuprophan duty- of $2.00 each or $3,000,000 to the Federal Government. The other 60% of treatments which are carried out with other type dialyzers in almost all cases utilize Cuprophan also, with costs ranging up to $2.00 for the Cuprophan used in each treatment. Here again, if we assume that 3,000,000 dialyses were reduced by $.42 each or a saving of $1.260,000, again, just from the elimination of what we suspect the duty on Cuprophan to he. Therefore, it is my definite conclusion that this particular product, when imported for use in artificial kidneys, should have its duty eliminated completely. I believe this should be done just as soon as possible. Respectfully submitted, CHARLES P. JONES, President. EMORY UNIVERSITY SCHOOL OF MISDICINE, ATLANTA ARTIFICIAL KIDNEY CENTER, Atla'~ta, Ga., May 22, 1968. Hon. BEN B. BLACKBURN, Longworth House Office Bwflding, Washington, D.C. DEAR CONGRESSMAN BLACKBURN: We appreciate your concern and your efforts and wish you prompt success in obtaining legislative action on the proposal to remove the tariff from cuprophane cellophane. As we stated before, this cellophane product is imported from Germany for use as hemodialysis (artificial kidney) membrane. It is not used for any other pur- pose in America. American cellophane products are superior for wrapping packages. This membrane is used in approximately 75% of the hemodialysis treatment given in America. It is the only imported part commonly used for such treatment. The import duty on it is 23%. The Supplier, Cobe Laboratories, Denver, Colorado, has written a promise to those of us concerned with this matter that the removal of the tariff will result in a saving to the patient of exactly the amount of the tariff. The operating physical principal in the artificial kidney is that of osmosis. Osmosis applied to flowing solutions is called dialysis. When one of these solutions is blood, the process is called hemodialysis. In the artificial kidney an idealized solution called dialysate which contains the dissolved chemicals that the patient's blood should contain is passed on one side of a membrane (in this instance, en- prophane) and the blood is passed on the other. The abnormal products from the blood will pass, by osmosis, through the membrane into the dialysate and be discarded. By this means the metabolic poisons and impurities may be removed from a patient's blood. If this is accomplished twice weekly, the patient may be rehabilitated to productive life. There are currently in the United States an estimated 2000 patients on hemo- dialysis. The number cannot be established with great certainty, hut should be at least this many. The report of the Gottschalk Committee to the Bureau of the Budget estimates there are from 5000 to 7000 people per year who require replacement of kidney function in order to live. Obviously, most of these people are not receiving it. Future expansion of the capability to treat kidney failure will require a greatly increased use of hemodialysis. In the Klung dialyzer which we use at the Atlanta Artificial Kidney Center, there are 34 sheets of cuprophane. It usually requires from 36 to 40 sheets to build the dialyzer each time. Some sheets are defective and some may be damaged in assembling and have to be discarded. 36 sheets of cuprophane cost $1.44. If this could be reduced by approximately one-fourth, this would be a saving of 30 to 35 cents to the patient. This saving would be accomplished with each treatment and twice weekly treatment would be necessary; thus, in the course of a year it would save a patient on maintenance hemodialysis approximately $36.00. This is not a large saving, but every small economy over a long period of time is critical to these people. A.s a matter of principle, it is unconscionable to uselessly add cost to a product which is required only for the medical care of people who would die without it. In this particular Center we accomplish between 1400 and 2000 dialyses per year. It would reduce our cost significantly. We will appreciate anything you PAGENO="0063" 1333 can do to aid us in this matter. I hold myself ready to be of further assistance in any possible way. Sincerely, JOHN H. SADLER, M.D., Director. The ChAIRMAN. We appreciate your coming to the committee, and you have with you Dr. John H. Sadler. Mr. BLACKBtXRN. Yes, sir. The CII~~TRi%rAN. Dr. Sadler, do you have anything you want to say in supplementation of Mr. Blackburn's very fine statement? Mr. BLACKImRN. Mr. Chairman, may I excuse myself. Dr. Sadler, I have to catch a plane. This thing has worked out just fine for me. Thank you. The CHAIRMAN. Thank you. All right, Doctor. STATEMENT OF JOHN H. SADLER, M.D., DIRECTOR, ATLANTA ARTIFICIAL KIDNEY CENTER Dr. SADLER. I do have a short prepared statement which I request that you enter into the record. The ChAIRMAN. All right. It will be entered in the record following your oral statement. Dr. SADLER. I wish to amplify it just slightly, and testify to the technical applications of the product and cost factors. Artificial kid- ney treatments, that is hemodialysis-the dialysis process that Con- gressman Blackburn r~eferred to-is now available to probably about 2,500 people in the TTnited States in about 100 centers located in at least 46 States. It is a widespread process which is not only allowing people to just survive, but to be rehabilitated. Because the cost. in treatment centers such as our own in Atlanta ranges from $9,000 to about $14,000 per year per patient, it is sought to equip these patients with their own machines and let them go home and treat themselves with their family~ assistance. In doing this at home the saving over the cost at our center is approximately $2,000 a year. Therefore, it costs these people about $40 ~ week just to stay alive. However, if they undertake this treat- inent they not only remain alive, but remain productive, healthy, and in general, free from any symptoms. The cost of Cuprophane is only a small part of this total cost and removal of the tariff would initially be a small benefit, but this is a product which has no other usefulness and it seems unnecessary to make these peon1e pay $40 a week to stay alive when they could pay~ $39.50 if the tiriff were removed. The product, as you see, is not as clear as most American cellophanes. It is not a~ tough and it. costs approximately four times as much. Our correspondence with Dii Pont and with other cellophane manufacturers has been to the effect that if they had a product that was as effective as Cuprophane they would be willing to donate it for hemodialysis. We have tried all their cellophanes which might possibly be useful. Cellophanes prepared by American Viscose and other companies have been tried, but they have been found to have only 70 percent of the efficiency of Cuprophane. Even though Cuprophane can be used com- mercially in Europe, in the United States the only possible use for PAGENO="0064" 1334 Cuprophane is in hemodialysis. Furthermore, Cuprophane costs four times as much as standard American cellophane. To obtain Cuprophane the patient must present the supplier with a prescription from his doctor stating that the material will be used in kidney machines. This is done because the supplier would be libel for any use which the patient desires to employ Cuprophane in without the issuance of a prescription. For these reasons I cannot possibly see why there is a need for in- stitutions to be required to distribute Cuprophane as presented in the Tariff Commission report on this bill. (Dr. Sadler's prepared statement follows:) STATEMENT OF JOHN H. SADLER, M.D., ASSISTANT PROFESSOR OF MEDICINE (RENAL DISEASE AND INORGANIC METABOLISM), Dinncrou, ATLANTA ARTIFICIAL KIDNEY CENTER Mr. Chairman, I am here to provide information regarding Cuprophane cello- phane membrane for artificial kidneys and to urge your support for H.R. 18410, introduced by Congressman Ben B. Blackburn to remove the tariff from this product. The material in question is produced by the Bemberg company of Wuppertal, Germany. It is imported into this country exclusively for use as artificial kidney (hemodialysis) membrane. Currently, a tariff of 23% is imposed on this material. In the United States there are approximately 100 centers for chronic hemo- dialysis treatment. The number of patients sustained by these centers is ap- proximately 2500. The goal of this treatment is not only survival but also reha- bilitation. Because of this, many centers are training patients to take equip- ment and carry out this treatment at home. The greater freedom and convenience of this arrangement would recommend it, but the economy of hemodialysis demands that it be developed wherever possible. For example, at the Atlanta Artificial Kidney Center, our cost per patient for each dialysis is $110,000. Dialysis is required twice weekly, thus the annual cost is $11,400.00. This is considered a comparatively economical center opera- tion. On the other hand, our patients at home, after their initial purchase of hardware at approximately $6,000.00, have an annual cost of about $2,000.00. Of this, $1,600.00 is for disposable materials. Cuprophane represents approximately $160.00 per year. Other developments currenlty under way indicate a great likeli- hood of reducing the cost of disposable materials to $1,200.00 per year. This would leave cuprophane as the highest cost single item among the disposables used in dialysis. The membrane is critical to the operation of an artificial kidney. This device, called a dialyzer, passes blood through an envelope of cellophane imersed in a solu- tion, `the dialysate, which contains a normal concentration of necessary com- ponents of blood and none of the metabolic poisons which accumulate in the blood of people without kidney function. The abnormal products pass through into the dialysate, which is discarded. The ability of the membrane to pass these materials is critical to effective dialysis. In our Center, using the Kiung dialyzer, tests have been carried out, not only on Cuprophane PT-150 membranes but also on DuPont PD-~215 and DuPont P1IJD-() cellophane. We found that there was a loss of approximately 30% dialyzer performance with the alteration from cuprophane to the PD-215, and a further loss of 10% in proceeding to the PUD-0 membranes. Indeed, untoward reac- tions in some of our patients caused DuPont to stop selling its membranes where they might be used for hemodialysi's. Other centers, using Kill dialyzers, found a 15-20% increase in transfer of water and larger molecules such as uric acid, when they changed from American Viscose cellophane to cuprophane membranes. So vital is the difference that dialysis would have to be prolonged by at least two hours per treatment if American cellophanes as now available bad to be used. The importer and supplier have promised to pass the reduction in cost directly to the users of cuprophane. The use of the material in medical (enters and by patients on prescription only would eliminate any conceivable commercial conmpe- tition. cuprophane is three to four times more e~pcmisive than American cello- phanes, and it is less durable. Thus, there seems to be no reason to wrap packages with it. PAGENO="0065" 1335 In our Kiung dialyzer, 36 sheets of cupi~op1iane are used. They cost four cents each. Because of its f~agility and possible assembly errors, we calculate cost at forty sheets per dialysis. In our Center, where over 1500 dialyses per year are carried out, 60,000 sheets or more are used. A reduction of cost of even 10'2~ would be significant. To the family which finds itself spending $40.00 per week to keel) the breadwinner alive, the reduction to $39.50 is worth while. Cuprophane membranes are used by at least twokhirds of all patients on main- tenance hemodialysis, amounting to a total of about 200,000 square meters of cuprophane per year. It is not used in America for any purpose other than hemo- dialysis, and its medical use may easily be guaranteed by sale limited to licensed physicians, hospitals, or on a physician's prescription. Suppliers now must have prescriptions for these materials before sellitig to individual patients; otherwise, they would assume responsibility for the treatment carried out. With protection from abuse and documentation of need, it seems to me in- defensible to sustain this increase in the already high cost of maintainingprodnc- tive life in an individual who has lost his kidney function. If the `tariff remains, it is unlikely that it alone will prevent treatment of a sin- gle patient. However, the attitude that small excesses are unimportant will keep all costs high, and thereby many patients will be kept out. A small evil is no less evil for being small. These people have earned all the assistance we can give them. The CHAIRMAN. Thank you very much, Dr. Sadler. Are there any questions? Thank you, sir for coming to the committee. We appreciate your doing so. Dr. SADLER. Thank you, sir. The CHAIRMAN. Our next witness this morning is the Hoiiorable Clement J. Zablocki, of Wisconsin. You are recognized, sir. STATEMENT OP HON. CLEMENT J. ZABLOCKI, A R~PRESENT'ATXVE IN CONGRESS PROM THE STATE OP WISCONSIN Mr. ZABLOCKI. Mr. Chairman, I want to commend the Ways and Means Committee of the House for conducting these extensive hearings on our tariff and trade problems. - This is a critical period for our domestic economy of adjustment. to world market conditions, a period when accurate analysis of the prob- lems of international trade and finance and the formulation of appro- priate `Government positions relating to these problems are vitally important to the entire Nation. The difficulties encountered by certain types of our domestic indus~ tries are undeniable. Frequently, they are required to compete with a virtually unobstructed flow of foreign goods produced under favorable cost circumstances-sometimes including Government subsidies. The seriousness of some of these cases was recently highlighted by the Pres- ident's proclamation regarding dairy imports. In accord with this proclamation, certain dairy imports have been completely suspended pending the results of a Tariff Commission study of the effects of these imports on our dairy industry. Mink ranchers in Wisconsin have expressed to me their concern that the unrestricted flow of low-price mink imports will force many of them out of business. None of these spokesmen for adversely affected domestic industries is demanding a renewal of the tariff walls and protectionist policy which this country once knew. They are merely asking, and surely deserve, due consideration and appropriate Government assistance in making the transition to the conditions of a greatly expanded world trade. 95-159 O-68--pt. 4-5 PAGENO="0066" 1336 It is not always an easy task to determine just how a satisfactory balance is to be struck between the requirements of an ultimately mutually beneficial trade among nations on the one hand and the con- tinued welfare of our own domestic producers and workers on the other. Nonetheless, the task is so important tha.t w-e must devote our best energies to it. There is a definite need, it seems to me, for increased attention to our domestic trade adjustment problems. An expanded means for deter- mining the true nature of these problems on the part of the executive agencies involved and the conscientious oversight of Congress are, I believe, essential to this effort. It is my hope, Mr. Chairman, that these hearings will serve to focus attention on these problems and lead to a new understanding of the most effective means to deal with them. Thank you. The CHAIRMAN. Are there any questions? If not, then thank you Mr. Zablocki, for sharing your views with us. Mr. ZABLOCKI. Thank you, Mr. Chairman. The CHAIRMAN. Our colleague from Tennessee, Mr. Quillen. Please step forward and proceed as you see fit. It is a pleasure to have you here. STATEMENT OP HON. JAMES H. QUILLEN, A REPRESENTATIVE 1)1 CONGRESS PROM THE STATE OP TENNESSEE Mr. QIJILLEN. Thank you Mr. Chairman, it is a pleasure to be here. The Dairy Import Act is needed to stop the flow of unneeded dairy products which are being shipped into this country. This bill would limit imports to the average butterfat and nonfat milk solids shipped in from 1961 through 1965. Also, as the TJ.S. domestic market grows, the import quotas would be increased in the same ratio. Basically, this bill is needed to stop the imports of dairy products which are shipped here in evasion of quotas. For example, imports of evaporated milk grew from 4,000 pounds in 1962 to 1,311,000 pounds in 1967. Sweetened condensed milk imports grew from 69,000 pounds in 1962 to 4,074,000 pounds in 1967. Chocolate crumb is a so-called new product designed to evade our quotas. In 1960, 54,000 pounds of this product were imported. During 1967, imports of chocolate crumb climbed to 21.5 million pounds. Total cheese imports in 1967 were about 152 million pounds of which 60.3 million pounds were Cheddar and other American types, principally Colby and during this same period, Commodity Credit Corporation purchased about 180.5 million pounds of Cheddar or American cheese under the price support program. Imports of butterfat-sugar mixtures jumped from zero in 1961 to 105,626,000 pounds in 1966. Although some actions have been taken under section 22, these ac- tions were taken after huge amounts of dairy products have been imported. For instance, prior to ,June 30, 1967, there was no quota on Colby cheese, with the result that ever-increasing quantities were im- ported. Finally, when action was taken last year a quota of 6,096,600 pounds was granted. In the case of frozen cream, no quotas had been established until last year with the result again of large quantities coming into the United States. When quotas w-ere established, 12,- 540,000 pounds were permitted. PAGENO="0067" 1337 In other words, we reward countries that ship and develop prod- ucts in evasion of our quotas by granting them quotas on the very product~s used to evade our quotas. Not only are our dairy farmers .hurt by these imports, but imports added $131,177,198 of unnecessary cost to the price support program in 1967. Import controls are necessary to provide dairy far~mers a level of income commensurate with that received by other segments of our society. Also they are necessary so that dairy farmers can achieve parity prices for their milk. The CHAIRMAN. Thank you again Mr. Quillen. Are there any questions? Our next witness is the Honorable E. S. Johnny Walker of New Mexico. Thank you for coming. Proceed as you wish. STATEMENT OP HON. E. S. JOHNNY WALKER, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP NEW MEXICO Mr. WALKER. Mr. Chairman, distinguished members of the House Ways and Means Committee, I am filing this statement with the House Ways and Means Committee for inclusion in the hearings on the various import quota bills. Although many among the 750 bills on quotas are duplicates, I am particularly anxious that cognizance be taken of quota proposals on the following: potash, oil, textiles, steel, lead and zinc, and meat. You will understand that of greatest concern to me are those prod- ucts which are the major items produced by the workers of the State of New Mexico. Chief money earner and comprising over 60 percent of the value of all mineral production of New Mexico (over $800 million in 1967) is oil. Although we have an oil import quota for the area east of the Rockies, I am concerned that many oil-importing companies are getting an undue advantage by importing products such as naphtha as part of their chemical requirements. In addition our independent oil pro- ducers are also forced to restrict their production to around 45 percent of capacity. On the other hand some domestic producers are also getting the benefit of importing cheaper crude oil-a benefit of $1.25 per barrel. Any restriction on American production coupled with an increased import allowance automatically reduces the profits of in- dependent oil producers in my State as well as reducing the income of our oil workers. Also, we are being forced to restrict the exploration for new oil thereby endangering our national security. Above all our oil producers feel that we should have a firm oil import law rather than one of administrative discretion by the Department of the Interior. Another commodity whose importation is affecting our New Mexico economy adversely is potash. Although we produce 95 percent of all potash mined in the United States our advantage is being dissipated by excessive imports from Canada, These imports will soon be 50 per- cent of our total domestic requirements, thereby forcing us to cut our production and retrench on the number of workers we can employ. This industry is being hurt and only an absolute quota can restore our potash industry tp the position rightfully belonging to it. PAGENO="0068" 1338 I am concerned about excessive imports of textiles. Forty-five of our States grow cotton or manufacture cotton goods. In 1960 we spent over $500 million for imported textiles. But today the figure is over twice that amount. The welf~re of our 2.5 million people employed by the textile industry is being undermined. I wish to express my support for a viable import quota on textiles of all types of fibers-natural or man- made. The ITnited States is the leading producer of hides and user of leather in the world. I am vitally interested in protecting our leather industry. In scarcely a dozen years our imports of shoes rose from 8 million pairs to around 46 million leather pairs and 26 million pairs of other manufacture in 1967. This is around 24 percent of our American domestic market, an excessive percentage. Too many of our shoe fac- tories are operating at far below their normal capacity. At the utmost, around 10 percent of our yearly consumption should be allocated to foreign shoe products. Lead and zinc are among our foremost products of the Southwest. Isn't it time that Congress adopt a long-range mineral program, allow- ing for flexible quotas, particularly when imports threaten our do- mestic industry? Lead and zinc are vital to our national security. Yet their production here at home seems to hang on the wildly fluctuating prices of world markets. In times of excessive production most over- seas producers want to dump their excess stocks on our domestic market, thereby disturbing our regular production and marketing pro- grams. A quota can stop this practice. The remanufacture of iron and steel products is vital to our economy of New Mexico. Yet national imports have climbed from only 1.2 mil- lion tons in 1957 to 13 million tons in 1967. Our domestic steel pro- ducers cannot compete because of low wages overseas. Due to competi- tion our own steel producers have less money for modernization or newer processes. Only a quota on imports can stop the ever-increasing injury to our domestic steel industry. We in New Mexico are also concerned about the excessive imports of beef, veal, and lamb; particularly frozen, boned meats. Excessive imports have drastically reduced our feedlot cattle and also the number of workers in meatpacking plants. Our existing quotas are either too large or are being evaded by imports under different guises. Let us tighten the limits on beef imports by means of a flexible quota based on American consumption. Among other item's which are also of interest to me is broomcorn. We know that consumption of broomcorn is diminishing. This is all the more reason for restricting `consumption to corn produced domesti- cally. Yet we find excessive quantities imported from Mexico, beyond the current quota, competing more and more with our own broom'corn. Only a quota, based on consumption, can safeguard this American in- dustry. Other items also `should be reduced by absolute quotas, based on con- sumption. I feel that congressional sentiment is strong for import c~uot.as, especially if excessive imports threaten to harm a domestic in dustry producing like or competitive products. Again, I would like to thank the methbers of this committee, and Chairman Mills, for this opportunity to express my views on this im- portant subject. I have only touched briefly on the various areas of PAGENO="0069" 1339 concern to my constituents, and I am sure each industry will present testimony which will be more detailed. Thank you. The CHAIRMAN. Thank you again, Mr. Walker, for your statement. Congressman McClure, our colleague from Idaho, is our next witness. Welcome, Mr. McClure, it is good to have you with us today. STATEMENT OP HON. J~AMES A. MCCLURE, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP IDAHO Mr. MCCLURE. Mr. Chairman, I appreciate the opportunity to submit this statement on trade problems as they affect the First District of Idaho and to congratulate you and the members of your committee for conducting such an exhaustive study on a matter of deep concern to many Americans today. Trade means many things to many people. It is a diplomatic tool to the State Department official. The economist views it from a theoreti- cal standpoint. To the average citizen it can often be a matter of sur- vival. In my district, miners, farmers, and ranchers have all felt the sting of foreign competition as well as the hopelessness that an unconcerned government, can bring. These people are not advocates of straight pro- tectionist legislation. After all, we know that our State's economy is in part dependent. upon a spirit of reciprocity among the nations of the free world. Wheat exports are a good example of this, peas and lentils are another. At the same time, they know that many citizens have had a lifetime's nroductivity completely wiped out because of unrestricted imports. My district is made up of a series of small towns. When miners and farmers feel the pinch of foreign competition, it is usually felt by one and all. And so, on their behalf, I appeal to you to review the trade policies of our Nation-not from a selfish, one-way street approach, but rather from tho vantage point of correcting the injustices that cause the im- perfection's in an otherwise flourishing economy. Historically, the lead and zinc mining industry has been one of the major bulwarks in Idaho's ec'onomic structure, and my district ranks third in domestic lead production, fourth in zinc. It would be inac- curate to say that lead-zinc producers in my State have not p~articipated in the prosperity enjoyed by the rest of the Nation over the years. How- ever, we must remember that during the steel strike, imports increased. We thought that they would decline after the strike was over. But they didn~t and prices were cut $20 per ton. Lead imports in 1967 irtcreased 60 percent over the previous year, and it now appears that they w-ill increase another 60 percent during 1968. The future for zinc is equally gloomy, because of the increase in the number of smelters in Japan and Europe. World productive capac- ity is increasing faster than world consumption. And those nations will, of course, look to the United States for their markets. As Al Teske, secretary of the Idaho Mining Association, said in a letter to the Senate Finance Committee last fail: It is obvious that excess world supplies are again seeking and finding an outlet in the domestic market. Lower foreign prices have exerted and are continuing to exert heavy pressure on the domestic price * * ~. The situation today is dis- PAGENO="0070" 1340 turbingly reminiscent of the 1950's when the domestic lead-zinc industry was literally driven to the wall by the adverse impact of excessive imports, while en- deavoring over more than a decade to utilize any and every administrative remedy that was supposedly available. Pending before your committee are a number of bills to set up a flexible quota system for lead and zinc. I think the industry is to be congratulated for having taken the initiative in proposing a solution that is fair to American and foreign producers alike. Turning t'o agriculture, a few segments of our economy have been so hard hit by the influx of imports as the farm community. The fears of dairy farmers have actually been enhanced by the ad- ministration's actions in this regard. By the middle of 1967, imports had risen to an annual rate of 4 billion pounds and Secretary Freeman was forced to buy over 8 biflion pounds of milk equivalent to maintain the supp'ort price. Farm organizations were protesting by calling for milk-holding actions, and many of us wondered just how serious the situation would have to get before the administration acted. Paradoxically, the Attorney General was able to get a Federal restraining order against certain aspects of the milk-holding action 1 day after filing suit, while Secretary Freeman waited months before urging the President to take steps. The President asked the Tariff Commission to study the problem and then imposed an import quota of 1 billion pounds per year. Of course, by then the damage was done, and it was noted by one of our colleagues that dairy imports were equivalent to the production of 6,000 dairy farms with 50 cows each. It just so happens that during this period 6,000 domestic dairy farms went out of existence. The President's quota did not solve the import problem and so a few days ago, he imposed temporary import quotas on condensed and evap- orated milk and cream. While welcome, the President's proclamation just doesn't have the force of law. That which is a "temporary restric- tion" at the end of June may well be a "terminated restriction" at the end of November. Dairy farmers know this better than anyone else, so they continue to write the Congress begging for help. In my district, Joe Hall. manager of the Idaho Dairymen's Asso- ciation says: Action by the President during 1967 to curb runaway dairy product import- ing was badly needed and apparently effective as far as it goes: however, this action falls far short of what is needed. Effective control of the quantity and quality of dairy products imported into this country can only come about through passage of the Dairy Import Act. And C. M. Carlson, general manager of the Dairymen's Creamery Association, in Caldwell, recently wrote to me as follows: We feel it would be most helpful if you would indicate to the Ways and Means Committee that dairy farming and dairy processing are very important to the economy of your district ais well as to the entire State of Idaho; and unneeded imports are harmful to this important industry and are adding millions of dollars of unnecessary cost to the price support program as well as draining millions of dollars out of this country at a time when our balance of payments is already in a precarious condition. Existing import controls have been character- ized by repeated and flagrant evasion. In order to stop this from contthuing, it is indeed very important that the proposed Dairy Import Act be enacted into law. PAGENO="0071" 1341 Those are just two examples of the many letters I have received recently on dairy problems. It is much the same with meat imports. During 1966 893 million pounds of beef were imported into this country last year the figure rose to 979 million pounds. In the first 4 months of 1968 beef imports rose more than 16 percent over the com- parable period in 1967. Mr. Tom Hovenden has supplied me with a statement by Richard D. Blincoe, president of the Idaho Cattle Feeders Association, in which he says that meat import legislation is necessary in order to "bring economic stability to a basic domestic commodity production program that is essential to the overall prosperity of the United States." His full statement is already before your committee, and I urge that it be read. George L. Hays, a member `of the Idaho Cattlemen's Association, puts the blame squarely on Congress for "failing to put forth enough effort to get the job done." He adds that the cattlemen can no longer endure "24 cent beef calves, 8 percent money, and empty promises." Mink ranchers have also felt the pinch of foreign imports. Re- cently I received a petition from hundreds of these ranchers in my district pleading for congressional relief. Their petition reads: Since mink ranching is an integral part of the agricultural economy of the Distiret and the State, and since the industry has been seriousiy hurt by cx- cessive imports, we request that you actively support legislation which assures that we wiii not lose any more of our domestic market to foreign ranchers who pay no taxes here, pay no labor here, contributed nothing to the area, and elect no pubiic officials here, but do take a free ride on the extensive market deveiop- ment which our own ranchers have provided for the past many years. We are disturbed about the manner in which Congress has allowed our agricultural economy to be sacrificed to obtain concessions from other countries of the world for American industriai products. They know whereof they speak, for we imported 5,346,551 undressed mink pelts in 1967. By May of 1968, mink imports had risen above the number of pelts imported during the firstS months last year. You have before you a statement from the Idaho Beekeepers Asso- ciation which shows that honey production, like so many other seg- ments of the agricultural community, is in serious trouble, and like the others, most of the problem is directly traceable to foreign competition. Honey imports come primarily from Central and South America where beekeepers' helpers are paid wages averaging 30 cents a day. The comparable figure in Idaho is around $16 per day. It may surprise you to learn that many other agricultural crops depend upon honey bees for pollination, and Grant Blake, president of the Idaho Beekeepers Association, predicts that in the foreseeable fu- t~ure there will not be enough honey bees available for this purpose. Then, there is the matter of textiles. You have heard endless testi- mony from representatives of this industry, so I need not recite again the struggle for survival that they face today. Woolgrowers in my district share their concern. The Parma Wool Pool Association, of Parma, Idaho, speaking for 250 woolgrowers, wrote recently. The economic situation for domestic wool producers is growing more serious each year, with a good part of the reason being the relatively unrestricted wool PAGENO="0072" 1342 imports allowed * * ~`. Many of our members are being forced out of the wool and lamb business * * ~`. We appeal ito you to enlist your support in further restricting wool imports and in setting up higher tariffs. Right or wrong, it is Congress that is being taken to task for letting our trade policies literally destroy many American industries. The letters I have quoted are representative of hundreds of others that have come into my office during the past year. Recently, they have taken on a tone of despair, of the hopelessness that comes when a just cause has been abandoned. Let me quote from one more letter which arrived in my office only 3 weeks ago. It is from a farmer who lives near Weiser, Idaho. This is what he says: I attended a meeting at Ontario, Oregon, when a government panel was hold- ing meetings to get opinions from farmers as to what's wrong with family farming. Well, there was lots of suggestions as what could be done to help and what the true facts are. But I don't hear about anything being done by my Government. You see, Mr. McClure, I must face the fact that the government that is supposed to represent me, has gone by the wayside. My government is not in- terested in the well being of a family farmer. Now, if I was too lazy to work and wouldn't try to help myself, then the Government would help me. Or if I was a poor farmer in some far and distant land, then Uncle Sam would be con- cerned and want to help * * ~. I'm asking for only one thing, and that is a fair chance. No one as of now knows what the solution to the farm problem really is. But surely we can agree that the best beginning toward find- ing that solution lies in restoring the confidence of the farmer in his Government. If the administration won't take the necessary steps, then certainly Congress must. Without meaning to unduly embarrass you, Mr. Chairman, I re- call that it has been said you are the second most powerful man in the country today. While there are those who feel such statements actually underestimate your capacities, let me say that you and your committee have an opportunity that is not available to even the most powerful man, the President. For you are in a position to correct his mistakes. Surely a policy that drives the farmer off of his farm, that puts the miner on the relief rolls, must be a policy that is wrong. An an- swer must be found that is neither protectionist nor self-defeating. Flexible quotas, in tune to current domestic economic conditions, can and must be drawn, or else the sense of hopelessness that eats into the heart of an Idaho farmer will eventually eat into the hearts of all of us. The CHAInMAN. Mr. McClure, thank you for sharing your views with us; any questions ~ Our next witness then is Mr. Arthur K. Watson, Chairman of the Emergency Committee for American Trade. Mr. Watson, we are indeed gratified this morning that you are taking time from what I know is a very busy schedule as the head of a great American corporation to come to us and discuss this mat- ter. We appreciate your doing it and if you will identify those at the table with you we will be glad to recognize you. PAGENO="0073" 1343 STATEMENT OP ARTHUR K. WATSON, CHAIRMAN, EMERGENCY COMMITTEE FOR AMERICAN TRADE; ACCOMPANIED BY WILLIAM BLACKIE, CHAIRMAN, CATERPILLAR TRACTOR CO.; T. A. WILSON, PRESIDENT, BOEING AIRCRAFT; AND ROBERT PURCELL, FI- NANCE COMMITTEE CHAIRMAN, INTERNATIONAL BASIC ECO- NOMIC CORP. (IBEC) Mr. WATSON. Thank you very much, Chairman Mills, for the op- pqrtuni'ty for our Emergency Committee for American Trade to a - pear before your committee. I am backed by a team here of Mr. Ro - ert Purcell on the left, chairman of IBEC, Mr. T. A. Wilson, chair- man of the Boeing Co., and Mr. William Blackie, chairman of the Caterpillar Tractor Co., all of whom, if we may~ sir, would like to say a word after my statement. Having introduced my colleagues I think I should say that we have previously submitted a formal statement and would appreciate, Mr. Chairman, your including that statement along with our oral testi- mony in the record. The CIrAIRMAN. At the conclusion of your oral statements, without objection,. they will be included. Mr. WATSON. Yes, sir. Let me point out, as I did in the formal tes- timony, that we have not had the opportunity to check our statement with all 53 members of the Emergency Committee for American Trade. A few of our members might take exception to particular por- tions of it, but I am confident that all concur in its advocacy of freer trade as a policy for the United States and the vast majority in its specific provisions. Our committee was formed hurriedly last fall when it became ap- parent that the United States might `be tempted to turn its back on commitments so recently made in the Kennedy round and impose re- strictions of one kind or another on imports. The decision to join this committee was not taken lightly nor made casually by any member. Joining meant' taking issues with good friends and valued customers in other industries. Yet in a few months' time 53 companies have come together. Their aggregate exports run into the billions of dollars and these exports provide a substantial number of American jobs. Furthermore, the income from our foreign investments as well as these exports contribute greatly to our balance of payments. We are, true enough, an association of big companies. Yet if you were to add the thousands of smaller firms who are our suppliers and dealers I think you would find we represent a very broad spectrum of Americth business. It is worth noting that we continue to expand our member- ship as others `become concerned with the challenge. What this signifies, I believe, is deep-seated support for the liberal trade policies the Tjnited States has pursued successfully for over 30 years. Why jeopardize American jobs, American exports, and overseas earnings which are the results of this policy ~ Perhaps our feelings are best summarized in the words of former President Eisenhower who drafted the foreword in a booklet the emergency committee will he distributing shortly. Here is what Gen- PAGENO="0074" 1344 oral Eisenhower wrote just a few days before his recent illness, and I quote: ITnited States foreign trade policy since World War II has been successful and consistent. It has succeeded in helping Western Europe, Japan, and North America achieve new levels of prosperity. It is consistent with our confidence in the private enterprise system and in cooperation among nations. This policy of trade expansion under international rules has also contributed to our goal of a safer, more orderly and more humane world. Trade expansion has made it possible for Western Europe to move toward unity and for poorer nations to benefit from a growing world economy. All this has been accomplished to the detriment of no nation and to the dis- advantage of only a few producers hurt by changes that are familiar and inevit- able in a dynamic economy. Now, despite a commitment to the principle of freer trade, we are not appearing here as freer trade theorists, and I use the term "freer" rather than "free" deliberately. I am under no illusion that trade can be totally free, nor would I argue that it should be. We are businessmen, not theorists, and we want to deal so far as we can in ~pecifics. Certainly we are well aware that some American producers are injured by competition from imports and that some of these imports may represent unfai~r competition. We also know that our own exports are sometimes discriminated against abroad, and I suspect that every member of the emergency committee could name specific examples where the exports of his own company were unfairly treated. All this, notwithstanding the worldwide movement toward freer trade, has served us well and its reversal, we have not the slightest doubt, would injure us. We testify in our own self-interest, but we be- lieve this self-interest is synonymous with that of the general public. I want to emphasize this point of injury. Over the course of these hearings you will hear complaints of American manufacturers who feel they are hurt by imports and they will ask for protection of one kind or another. These cases can be made to appear very specific. Dollar figures can be assigned and jobs totaled. In a partial answer to them I want to report some of the general views of an international constit- uency. Over the past year I have been president of the International Cham- ber of Commerce and have traveled over the world meeting with businessmen from other countries. Again and again I have had two things pointed out to me. Businessmen in the developing countries, the same countries we are trying to help with foreign aid, tell me they must have some reasonable access to this vast American market if they are to pay for the myriad of products they want to buy from us. They need access for products they know how to make. You cannot manufacture a computer or a jet airplane in a small developing coun- try. You may he able to manufacture products that do not require a great deal of capital or technology. If we now decide to put up more barriers against this type of im- port we will be undercutting with one hand what our aid program and foreign policy is doing with the other. There was a second point these businessmen abroad made to me. They told me as politely as they could that any trade barrier we erected would be met with retaliation from their own governments. Thus, when your committee hears of alleged injury suffered by PAGENO="0075" 1345 American fii~ms because of imports I think it must mentally offset this against the exports we will lose if we reverse our trading policy. We would be deluding ourselves to think we can raise trade barriers unilaterally without paying a price. I know something of the senti- ment of businessmen abroad. They are not going to stand by silently while we build more fences around the American market. There is a danger, I recognize, in overreacting to foreign senti- ment. Nevertheless, we are dealing now with more than isolated quota legislation or "temporary border taxes. We are dealing with the com- bustible elements of a trade war. Protectionism is not an isolated phenomenon. Business all over the world must now digest the effects of the tariff cuts made during the Kennedy round. There are adjust- ments and the unknown foreign rival is always more worrisome than the known domestic competitor. Apprehension is international and it would not take much to tilt the delicate balance against liberal trade. It would not take much more to renew the panicky, mindless wave of prOtectionism we saw in the 1930's. If this should ever happen we must recognize that the economic consequences would be bad but the political consequences might `be disastrous. The International Chamber of Commerce has a slogan. It is "World Peace Through World Trade." Like all slogans, it oversimplifies. Yet there is a truth in those words. We cannot confine our thoughts solely to the technicalities of trade or reckon its balance too narrow. Trade certainly is also a technical subject. In our formal statement we tried to comment on the issues which this distinguished committee must consider. On page 5 of that testi- mony we have dealt with the question of import taxes, border taxes, and their like. On page 9 we addressed ourselves to the so-called orderly marketing legislation and on page 11 to various quota bills. I won't repeat those specific comments. Let me just say that our membership carefully considered what `the effect of all these measures might be. We considered them carefully because they are advanced by serious men who believe they would be helped by such measures and `by many others who believe such legislation would `benefit t'he Nation. We also considered them carefully in the hope that we could find somewhere through some plan a scheme that would make it possible to reduce imports without paying for that reduction in low exports. We had to conclude that this panacea has not yet been found. The most enthusiastic exponent of these ideas cannot guarantee you that they won't be met with retaliation. In my considered judgment, based on the conversations with foreign businessmen, they will be met by retaliation. They will, furthermore, add to our domestic inflation and reduce the competitiveness of American industry abroad, and this we are sure of. One of my associates will address this issue specifically. Now, if we are right in our assessment of the situation, the United States does not have the choice of restricting imports and thus helping PAGENO="0076" 1346 the balance of payments, or of expanding exports. We can only point toward expanding exports and the issue, as our committee sees it, ~s how do we do this. An important first step is passage of the administratmn's new trade bill. By giving the President limited negotiating authority on tariffs we will be in a safer bargaining position than we are in today. By getting rid of the outmoded American selling price system we will have removed what to foreigners is the stock symbol of American protectionism. ASP abroad is like a red flag to a hull. Foreign busi- nessmen, who haven't the slightest idea what ASP is or does, inevi- tably use it t.o defend nontariff barriers in their own country. I am advised that our Kennedy round negotiators received valuable concessions in exchange for ASP. The concessions would not only help our chemical industry export more abroad, but. would also give us reductions in nontariff barriers to the export of our automobiles, tobacco, and certain agricultural product.s. Now, in further inducement, the Common Market has offered accel- erated tariff cuts if we abolish ASP. In Europe, let me admit, I have told businessmen that the Common Market's offer should have been made without strings. It is a time when America could have expected a magnanimous offer without haggling over details. Instead we have a business proposition-something for something. Here at home I would add that we do have an offer from them and something is better than nothing. We had better do some hard think- ing before we let it go by default. Unfortunately, your hearings occur when our country finds itself uniquely pressured by events. A booming economy at. home and a costly war abroad have combined to stimulate imports, to depress the growth of exports, and drain dollars through military expenditures. It is these events rather than any development, in the trade picture which give your hearings their special urgency. For the very same reason I think it is unrealistic to att.ach too much importance to our trade performance over recent months. If, as we urged in our submitted testimony, the United States controls domestic inflation through spending cuts and tax increases, the pressure we now feel will be relaxed. This country, let. me assure you, has a vigorous and competitive economy. We are competing successfully now. We will continue to compete successfully in the future. Furthermore, we will compete most. effectively with our brains. We will compete with a high wage and a highly educated work force t.hat cannot be mat.ched in this century by any other nation. I have absolute faith in American business because I have seen both at home and abroad what. it can do. Our experience in world markets, however, leads us to the firm rec.ommendation that we begin now to lay the foundations for a fair competition policy that would achieve a substantial degree of commonness in an environment in which inter- t.ional business is transacted. The objective of this policy should be to create a code or series of codes that would establish common norn'is and standards. Its achieve- ment would allow U.S. industry to further increase its potential in overseas markets. PAGENO="0077" 1347 Let me sum up. We are not here to ask for special favors, We do not want protection for our businesses. We do not want subsidies for our exports. All we need is a sound domestic economy and access to foreign markets. Keep that door open and we can do the rest. Now let me turn to the other members of the Emergency Committee who are joining me in this testimony, and first .of all I would like to introduce Mr. T. A~ Wilson, president of the Boeing Co. Mr. Wilson. STATEMENT OP T. A. WILSON, PRESIDENT, BOEINa AIRCRAFT Mr. WILSON. Thank you, Mr. Watson. Gentlemen of the committee, we appreciate the opportunity to appear. before this committee to ex- press the Boeing Co.'s belief in the importance of freer world trade, not just its importance to the commercial jet transport industry, but more importantly to the trade balance of the United States. We view the expansion of world trade as being vital to the economic well-being of this Nation. Unilateral or more severe import restric- tioi~s in our view would invite reta1iatory trade restrictions which could seriously injure the United States, its consumers, the economy, and business and labor generally. With respect to labor, in his statement to this committee on June 4, Secretary Wirtz estimated that 60,000 jobs in the aircraft industry result directly from export business. In our company alone today we conservatively estimate that our foreign sales account for 15,000 of our employees. Since we subcontract approximately one-half of our work, a com- parable number of people would be employed by our subconstractors. Now, gentlemen, despite foreign government monopolies, subsidies, and other competitive advantages the U.S. commercial jet transport manufacturing industry has sold and delivered to foreign consumers one-third of its total output since the beginning of the jet age in 1958. Since 1958 these exports have averaged more than $300 million annu- ally. For the last 3 calendar years the average has been more than ~500 million annually. The immediate future looks even better. Market forecasters are estimating a foreign market for commercial jet trans- l)orts averaging $1 billion a year during the next decade. Conversely, total imports by the U.S. airlines of jet \aircra.ft have totaled $200 million since 1958 to the present time. A remarkable pene- tration of t.he world market has been achieved with U.S. manufac- turers capturing about 70 percent of the total sales of jets to foreign airlines. However, the imposition of additional U.S. import barriers could reduce the demand for our products. In the long run such action might further encourage certain foreign countries to support their airplane manufacturing industries in the development of competitive products that could reduce significantly the TT.S. share of the world market. The demand for U.S. jet transports by the world airlines is directly affected by the extend and trend of world trade. It is generally ac- cepted that the ease of long-range travel created by jet aircraft has stimulated and in turn is stimulated by international trade. Because of the critical `status of the country's balance-of-payments position a U.S. Government position reaffirming its support of freer world trade is considered to be most important. PAGENO="0078" 1348 We believe that the United States should continue its lead in demon- strating to the world that free trade is the cornerstone of the economies of free nations. Certainly no country has more to lose from pursuing the dangerous policy of restricting trade than the United States of America. The simple, yet essential truth, gentlemen, is that companies in the forefront technologically need world markets to remain competitive. Sales in world markets are frequently the difference between high unit cost production of smaller quantities and production sufficient to per- mit large-quantity economies, and therefore markedly lower costs. By the same token, this dependence on foreign export markets makes our industry extremely vulnerable to retaliation. Our 60 foreign cus- tomers include government and government-controlled entities. As an example, three of the largest are British Overseas Airways Corp., Air France, Lufthansa of West Germany. The first two, BOAC and Air France, are wholly government owned and the third, Lufthansa, is about 75 percent government owned. In light `of such government-airline relationships it would seem likely that should the United States institute trade restrictive actions the governments of the countries affected might be inclined to further support foreign airplane companies whose products presently are not generally competitive with those in the United States. Thank you, gentlemen, for the opportunity to express our views to this committee. Mr. `WATSON. Now, if I may, gentlemen, I would like to present Mr. William Blackie, chairman of the Caterpillar Tractor Co. STATEMENT `OP WILLIAM BLACKIE, CHAIRMAN, CATERPILLAR TRACTOR CO. Mr. BLACKIE. Good morning, gentlemen. I would like to support the position of the Emergency Committee by `appealing for protection, protection of the jobs of millions `of Americans who earn their living through all the 11.5. manufacturing and commercial processes involved in exportation. In total, I am informed that such employees far exceed any num'ber that could possibly be harmed by .any increase in imports, `and I pre- sume that one of the important objectives of our trade policy should be tiet advantage to us in terms of employment. Using `my own employer, Caterpillar Tractor Co., only for prag- matic illustrative purpo'ses, w-e expect our exports this year to exceed $500 million and hopefully to make a contribution of about that amount to the U.S. balance of payments. That will be about one-third of our total sales. On the basis of U.S. employment of more than 48,000 we estimate that about 15,000 of our American people owe their jobs to these exports. I might perhaps inter- ject here the information that the greater proportion of our work force is engaged in Illinois, and it is no coincidence that Caterpillar is both the largest employer and the largest exporter in that State. Other employment is located at our plants in California, Iowa, Ohio, Pennsylvania, and Wisconsin. In a footnote digression it might no:t be wholly inappropriate to mention that $500 million is roughly one-half of the adverse balance of trade for the entire U.S. steel industry. PAGENO="0079" 1349 When that industry decries the paucity of its exports it ~ener~dly seems to overlook the fact that Caterpillar, and ste~l users li~e it, are in effect its export department. These results have been attained gradually over a number of years and we believe we can carry them forward, provided that in addition to the hazards at home we are not handicapped by a reduction of opportunity to sell to other countries by reason of restrictions imposed by their governments. In every developed country, just as in ours, there are industries that would rather operate under the shelter of some form of protection than face up to the rigors of open competition, and again just as in our country, these industries are looking for every possible opporttinity to justify `a claim for protection from their external competitors. Not unexpectedly the arguments offered in support of their claims are not the same as those advanced here-full employment, defense essentiality, balance-of-payments betterment, et cetera. To be sure, none can claim harm from cheap American labor. Instead they claim to be the suffering victims/of the technological gap between TJ.S. industry and theirs. They want, in effect, to be protected from our skills, from those pro- ficiencies which have made it possible for American industry to pay higher wages and still be competitively effective in world markets. Among the opportunities which could be created for such claims by foreign industries and for responsive actions by their governments would b~ any action on the part of our Government to restrict their imports into this country. After years of multilateral reciprocity and a progressive expansion of international trade we would be faced with a variety of unilateral retaliatory measures leading to a regressive restriction of both interna- tional trade and international competition.. in the beginning, the battle would be fought on the ground of price. But price is only one of the elements in the competitive discipline. In the long run, it is likely to be superseded by the more important element of innovation, of invention, of ideas. Could it be entirely acci- dent or coincidence that in American ~industry today those exports which are contributing so gratifyingly to our balance of trade and pay- ments are for the most part being made by industries which, on the one hand, have had little or no protection from foreign competition and, on the other hand, have produced a disproportionately large con- tribution of innovation and `enterprise? Gentlemen, in any competitive situation `the way of wisdom is to avoid creation of conditions under which one would lose. In my judgment, we cannot retreat our way out of our present predicaments. With your help we can continue to move forward ex- panding our employment, increasing our tax base, strengthening the value of our dollar, and contributing more than ever to the welfare of this troubled world in which we hold such a responsible leadership position. / I thank you. Mr. WATSoN. Now, I would like to introduce once aga'in Mr. Robert Purcell, chairman of the International Basic Economy Corp.; since some of your earlier witnesses have attached special importance to the question of job displa~e'ment, Mr. Purcell wants especially to address this topic. PAGENO="0080" 1350 STATEMENT OP ROBERT PURCELL, CHAIRMAN, INTERNATIONAL BASIC ECONOMY CORP. Mr. PURCELL. Mr. Chairman, my name is Robert Purcell. I am a menther of the Emergency Committee for American Trade. In the past several years I have been officially connected with the Interna- tional Basic Economy Corp., successively as president, chairman of the board, and most recently chairman of the finance committee. `This corporation is engaged in a number of business activities specifically designed in part to contribute to the economic develop- ment `of less-developed countries on a private enterprise basis. (fo that end we have business activities in some 18 countries which are classified as less developed and, therefore, support the objective of aid in line with our Government's official foreign policy. Through this network of business organizations we are in close contact with these countries' business leaders, professional men, po- htical leaders, and others engaged in all walks of life. The first point \J wish to make this morning is that the people in these less-developed countries view with great alarm any move by the Government of the United States which will tend to decrease world trade and the ability of these countries to participate in `it. They frankly fail to comprehend any policy of the United States which, while giving financial aid to them on the one hand will, on the other, impair their ability to export their products through world trading channels to the United States. They point out that when other industrialized countries retaliate against IT.S. protectionism by erecting trade barriers of their own, then their export trade would be adversely affected elsewhere in the world. I submit, Mr. Chairman, that the adoption here of protectionist measures would be a sad step backward in our continuing endeavors to maintain good relations between this country and the developing nations of the world. The second and final point I wish to make this morning, Mr. Chair- man, relates to the question that is frequently used to arouse the emotions; namely, the effect of imports on jobs. It has been argued frequently and vigorously that American indus- try needs protection against imports so that our people will not lose their jobs. We all understand the seriousness of such a charge, but I must say that this argument sounds a bit strange today considering that the national unemployment rate is now down to 31/2 percent, that experienced wage and salary workers have an unemployment rate of 3.2 percent, and that unemployment among married men is down to the extremely low level of 1.6 percent. We have, in fact, a situation that has edged beyond full employ- ment toward one of overemployn~ent, and the resulting labor shortages are a significant force behind the current inflationary problem. This is not to deny that high-unemployment rates continue to exist in cer- tain areas and among certain groups in our economy. Everyone is aware that there is considerable unemployment among the young, among Negroes, in depressed areas, and in the ghettos. The question at issue, however, is whether or not import quotas or similar devices will actually improve the employment situation for these people. PAGENO="0081" 1351 We find no evidence5 that ~t will. If we are to solve the unemployment problem that now exists in various pockets in our economy, the tools used are going to have to be the kind that can be applie.d directly to the problem where it exists. General tools like import quotas covering entire industries will not do this job and will give us more inflation. Furthermore, it is erroneous to think that industries or even par- ticular enterprises protected by quotas will provide real solutions to the problems of unemployment and poverty. What they would do is trap people in low-paying jobs and virtually guarantee continuation of their status as low-wage workers. In 1966, in testimony presented to a subcommittee of the House Education and Labor Committee, the job displacement argument was offered in a slightly different form by the Trade Relations Council. It was based on a computer analysis of data on employment, imports, and exports for certain U.S. industries. A key table in that analysis covered 35 industries, all of them at the relatively small four-digit standard industrial classification code level. The 35 industries were allegedly labor intensive. All 35 showed a decline in employment from the average for 1958-60 to 1964, and all showed an increase in net imports over those same years. The implication was plain. Imports were presumedly causing the decline in employment and the decline was said to be particularly bad because labor-intensive industries offer many of the beginning jobs for people with low skills. The 35 industries involved had lost a little over 200,000 jobs over the period invOlved. About three-fourths of this loss was concentrated in nine of the 35 industries. Our economists examined these nine industries. Our analysis showed that most of the jobs involved were lost because of rising productivity in the industries involved. Imports had nothing to do with the loss of most of these jobs. It is true that imports exceeded exports by a greater margin in 1964 than in the base period 1958 to 1960 in every one of the nine industries examined, but the rise in net imports accounted for only a small frac- tion of the actual decline in jobs. S In footwear, where the job decline due to imports was greatest, 3,450 out of 12,764 production-worker jobs lost could be traced to imports. However, in sawmills and planing mills ohly 2,053 out of 42,133 could be traced to imports, and in bakery products only 117 production worker jobs out of a tptal of 18,713 jobs lost could be attributed to imports. S S The implication that imports caused most of the job loss is erroneous. While the loss of even one job can be a personal tragedy, even this must be offset against the 2.9 million American jobs based on exports which are a hazard when we consider restrictive trade legislation and the retahation it would provoke. One last point is worth making about the nine industries that were analyzed. Bringing the statistics up to date so that they apply to the Period 1964 to 1966, six of these industries actually showed employment Increases and the others showed a reduced rate of job loss. Details of our analyses are available if the committee would like to pursue this question further. 95-159 O-68-pt. 4-6 S PAGENO="0082" 1352 I wish to thank you for this opportunity to present my views. The CHAIRMAN. You will make the analysis available to the com- mittee, will you please, sir? Mr. PURCRLL. Yes, indeed, Mr. Chairman. (The material referred to follows:) A CRITIQuE OF THE TRADE RELATIONS CouNcIL's ANALYSIS OF CERTAIN 1958/00- 1964 DECLINES IN EMPLOYMENT INTRODIYCTION On October 12, 1966 a statement was submitted to the General Subcommittee on Labor, House of Representatives reporting the results of a computerized study -of the impact of imports on employment. The study involved was miide under the auspices of the Trade Relations Council of the U.S. Table 15 of the submitted statement was the critical one, showing as it did a 208,700 decline in employment in 35 manufacturing industries between 1958/60 and 1964. The 35 in- duStries involved are l-abo'r~in'tens'ive in charaeter, and it was inferred that they are as a consequence particularly subject to declines in employment due to rising imports. Since 9 of the 35 industries involved in the Trade Relations Council's situ-dy accounted for the bulk of the reported decline in employment (87%), an analysis was made of the causes of the decrease in jobs in these 9 industries. This analysis indicates that practically all of the declines were due to a rise in productivity between 1958/60 and 1964, and only -a minor portion to a rise in net imports. Furthermore, the experience of these industries between 1964 and 1966 (the latest year for which the necessary data are available), was alsO analyzed. During those years, 6 of these industries showed an increase in employment. These increases were largely due to the fact that increase-s in total v~alue's added, principally because of sales increases, were more than sufficient to offset the effects of rising productivity. THE ANALYSIS A set of tables is attached. The tables contain the raw m'ater~a1s for the anialysis. Table 1 compares the employment losses reported in the Trade Relations Coun- cil's analysis which was based on preliminary data. This critique uses the final data released by the Census Bureau. The general pattern remains the same. Table 2 compares the revised data on total job losses for the nine industries we have analyzed with the losses in production Worker jobs. Since production workers account for such a large percentage of tedal workers in these industries, any conclusions reached about the los's in production worker job's would `apply as ~vell to total employment decreases. This is important because our analysis of job loss due to productivity gains had to be done for pro'd'udtion workers only. Data are not a~ail'able to do the analysis for all employees. Table 3 is the -focal one of the critique. It shows the real decrease in pro'du~tJon worker job's due to a net rise in imports 1958/60-4964, and bow much of the decrease was actually due to rising productivity. The job loss due to the rise in net import's was co'mputed as follows: (`a) For each industry exports we're subtracted from imports for 1958/60 and 1964. The resul't is ne't impo'rts. The incr~a-se from 1958/60 to 1964 is the rise in net import's. (Data for this co'm~uitation was drawn from Table 15 of the state- ment submitted to the House General Subcommittee on Labor.) (b) The ratio of shipments to value added by manufacture in 1964 was com- puted. This ratio was applied to the rise in net imports to get the implied value added. (The rise in net imports in effect replaced a similar amount of domestic shipments. T'his has to be converted into the equivalent value added because the number of jobs involved is a function of the amount of value added involved.) (c) Using hours worked per year by production workers in 1964, and pro- duction worker value added per man-hour in 1904, the value added equivalent of the rise in net imports was converted into the number of production worker jobs involved. Table 4 carries the analysis from 1964 through 1966. Generally it shows ~ much brighter job picture in this more recent period. In 6 indimtrie~ total ialue added rose by more than enough to offset the effects of rising productivity and the change in annual hours worked. These industries showed employment in- PAGENO="0083" i3~3 creases, In the other industrje~, the job losses were small relative to those in 1958/(3Q-19~3~. The general strong expaw~ion of the economy during 19(34-66 is undoubtedly a large part of the explanation. CONCLUSION The statement submitted to the House General Subcommittee on Labor on October 12, 1966 incorrectly implies that the job losses in the 9 industries we have analyzed were largely due to import increases. Productivity increases were mainly responsible. Moreovver, the 1964-66 rise in the economy improved the em- ployment situation in all nine industries. TABLE 1.-COMPARISON OF EMPLOYMENT LOSS DATA, 1958-60 TO 1964 industry tin thousandsj Stewart Latest document data Total 1_181.0 -181.9 I Represents 87 percent of the employment loss of 208,700 reported for 35 industries, table 15, of statement submitted by the Trade Relations Council to the HOuse General Subcommittee on Labor, Oct. 12, 1966. TABLE 2.-TOTAL EMPLOYMENT LOSS VERSUS PRODUCTION WORKER EMPLOYMENT LOSS, 1958-60 TO 1964 Production Industry Total Production worker worker as percent of total Sawmills, planing mills Hatsandcaps Electron tubes Footwear Cotton broad fabrics Wooden containers Hosiery Bakery products Bricks, structural clay products -44,892 -42,133 -8,845 -8,299 -16,715 -14 494 -15,311 -12,764 -42,414 -39,442 -8,025 -6,986 -12,329 -11,308 -27,151 -18,713 -6,278 -6, 032 TABLE 3.-ANALYSIS OF DECLINE IN PRODUCTION WORKER JOBS, 1958-60 TO 1964 Sawmills, planing mills Hats and caps Electron tubes Footwear Cotton broad fabrics Woodencontainers Hosiery Bakery products - Bricks, structural clay products -49.6 -44.9 -9.0 -8.8 -16.8 -16.7 -15.6 -15.3 -38.4 -42.4 -9.3 -8.0 -12.3 -12.3 -23.8 - -27.2 -6.2 -6.3 94 94 87 83 93 87 92 69 96 ~ * Total decline Industry in production - worker jobs Decline due to rising productivity, change in annual hqurs of work Decline due to rise in net imports Sawmills, planing mills Hats and caps - - - Electron tubes Footwear Cotton broad fabrics Wooden containers Hosiery Bakery products Bricks, structural clay products -42, 133 -8,299 -14,494 -12,764 -39, 442 -6,986 -11,308 -18,713 -6, 032 -40, 080 . -7, 753 -14,095 -9,314 -38, 004 -6,847 -11,111 -18,596 -5, 921 -2, 053 -546 --399 -3,450 -1,438 -.13 -19 -117 -111 PAGENO="0084" 1354 TABLE 4.-THE EFFECT ON PRODUCTION WORKER JOBS OF CHANGING PRODUCTIVITY I AND TOTAL VALUE ADDED 1964-66 Loss of produc- tion worker Industry jobs due to higher value added per man- hour and change in hours worked Change in jobs due to change in total value added Total change in number of production worker jobs per year, 1964-66 ` Sawmills, planing mills Hats and caps Electron tubes Footwear Cotton broad fabrics Wooden containers Hosiery Bakery products Bricks, structural clay products -7,433 +1, 631 -5,644 -13,327 -35,877 -4,760 -9,455 -9,511 -512 +6, 433 -6,831 +22, 771 +18,189 +32, 961 +6,577 +13,445 +10,708 +603 -1,000 -5,200 +17, 127 +4,862 -2,916 +1,817 +3,990 +1, 197 +91 1 Based upon value added per production worker man-hour. APPENDIX Table 5 of this appendix shows the rise in value added per productiOn worker man-hour 1958/60-1964 (productivity) - It also shows the decrease in production worker jobs caused by this rise in productivity plus any change that occurred in annual hours worked. This decrease was larger than the actual job loss in 6 of the industries. These industries bad a rise in total value added. In those indus- tries with a fall in total value added the job loss was made even greater. (The job losses s'hown in the middle column of Table 5 represent the decreased number of workers needed to produce 1958/60 value added using 1964 production worker value added and average number of hours worked per year.) The final column in Table 5 is the actual job loss. It is explained by the job loss due to rising productivity (middle column), plus the job change caused by the increase or decrease in total value added. Tables 6, 7, and 8 provide some additional information on changes in value added and job lossess due to imports for the 9 industries we have analyzed. TABLE 5.-THE EFFECT OF THE RISE IN VALUE ADDED PER PRODUCTION WORKER MAN-HOUR (PRODUCTIVITY) ON PRODUCTION WORKER EMPLOYMENT 1958-60 AND 1964 Value added per production worker Industry man-hour Loss of produc- tion worker jobs due to higher value added per man-hour and Change in jobs due to change in total value added Total change in number of jobs 1958-60 1964 change in hours, worker per year Sawmills, planing mills $3. 09 $4. 12 Hats and caps 3.51 3,87 Electrontubes 5.85 7.62 Footwear 3.22 3,85 Cotton broad fabrics 2. 89 3. 62 Wooden containers 2.73 3.24 Hosiery 2.80 3.25 Bakery products 7. 51 9. 27 Bricks, structural clay products 3. 89 5. 06 -68,728 -3,780 -13,682 -38,722 -65, 400 -5,640 -15,516 -38,818 -11, 075 +26, 595 -4,519 -812 +25,958 +25,958 -1,346 +4,208 +20, 105 +5, 043 -42, 133 -8,299 -14,494 -12,764 -39, 442 -6,986 -11,308 -18, 713 -6, 032 PAGENO="0085" 1355 TABLE 6.-VALUE ADDED BY MANUFACTURE fin millions of dollarsj Industry 1958-60 1964 1966 Sawmills, planing mills 1,472. 7 1,693. 0 1, 748. 3 Hats and caps 211.7 179.4 133.6 Electron tubes 569. 1 556. 7 968. 1 Footwear 1,205. 9 1, 392. 4 1, 5~2. 8 Cotton broad fabrics 1, 556. 7 1, 757. 1 2, 059. 2 Wooden containers 182.9 174.2 225.9 Hosiery 488.8 514.4 606.5 Bakery products 2, 754. 5 3, 148. 2 3, 371. 1 Bricks, structural clay products 316. 7 371. 1 377, 7 TABLE 7.-VALUE ADDED PER PRODUCTION WORKER MAN-HOUR ~ Industry 1958-60 1964 1966 -~`~- Sawmills, planing mills $3 09 $4. 12 $4.32 Hats and caps 3. 51 3. 87 3. 71 Electron tubes 5. 85 7.62 8.7:1 Footwear 3.22 3.85 4. 13 Cotton broad fabrics 2.89 3. 59 4.23 Wooden containers 2. 73 3,24 3. 82 Hosiery 2. 80 3.25 3.63 Bakery products 7.51 9.27 10.11 Bricks, structural clay products 3. 89 5. 06 5. 20 TABLE 8.-PRODUCTION WORKER JOB LOSS DUE TO RISE IN NET IMPORTS 1958/60 TO 1964 IDollar amounts in millionsj .. Implied Implied loss Change in change in in produc- net imports value added tion worker per produc- jobs 1 tion worker Sawmills, planing mills -$37.4 -$17.0 -2,053 Hats and caps -7.~ 39 -546 Electron tubes -9.4 -6.1 _399 Footwear -44.6 -24.8 -3,450 Cotton broad fabrics -26.0 -11.1 -1,438 Wooden containers -2. 2 -0. 9 -139 Hosiery -2.6 -1.2 -197 Bakery products -4.2 -2.3 -117 Bricks, structural clay products -1.8 -1.2 -Ui ~ ...,... ~ .- ., ., ....~ .... .~ .,~-,.....-. ~ ~ .. .~ ... -. .. .~ ~ ._, ~ ...., I The value a,dded amounts implied by the rise in net imports were computed using the ratio of total value addedto total shipments in each industry. These value added amounts were converted into production worker employment as follows: (1) 1964 production worker value added per man-hour was multiplied by the average annual number of man-hours per production workers in 1964. This gave value added per production worker per year in 1964. (2) The value added implied in the rise in net imports was divided by the resulting value added per production worker per year in 1964. This gave the number of production workers needed In 1964 to produce the value added implied by the rise in net imports. The CHAIRMAN. Would it be possible for you to give us the names of the nine industries you refer to? Mr. PURCELL. Yes, indeed. The CHAIRMAN. It is in the statement? Mr. PURCELL. Yes. The nine industries are sawmills and planing mills, hats and caps, electron tubes, footwear, cotton broad fabrics, wooden containers, hosiery, bakery products, and bricks and structural clay products. PAGENO="0086" 1356 Frankly, I am a little mystified, Mr. Chairman, how many bricks we import because we can't carry bricks too far before the transporta- tion cost makes importation or transportation uneconomic, but that is one of the industries which it is claimed is affected by imports. (Mr. Watson's prepared statement follows:) STATEMENT OF ARTHUR K. WATSON, CHAIRMAN, EMERGENCY COMMITTEE FOR AMERICAN TRADE Chairman Mills and members of the Committee, my colleagues `and I are pleased to testify here today on behalf of the Emergency Committee for Ameri- can Trade. With me are Mr. William Blackie, Chairman of the Caterpillar Tractor Company, Mr. P. I. Wilson, President `of Boeing Aircraft, and Mr. Robert Purcell, Chairman `of the International Basic Economy Corporation. I am Chairman of the Board of IBM World Trade Oorpo'ration and am speaking today `also as Chairman of the Emergency Oommittee, and I am a'so currently serving :as President of the International Chamber of Commerce. As its name suggests, the Emergency Committee was formed in response to the serious threat which has recently been posed to the 34-year-old reciprocal trade agreements program. Our 53 members represent major segments of the manufacturing, banking, merchandising .and publishing secto'rs of the American economy. We did not have time enough to obtain the approval of every member for this statement. We do believe th'at the views expressed herein accurately express the consensus of our Committee. They are based on public statements agreed to by members and on continuing communications with them. We have joined together in `the Emergency Committee-and we are here today-because of our conviction, as businessmen, that a substantial and growing volume of two-way trade, based on reciprocity, is essential to the economic health of the United States. We are not free trade theorists. We recognize that some American producers may be facing unfair competition from imports and that some American exporters, including members of the Emergency Committee, are being discriminated against in foreign markets. We recognize also that the Ways and Means Committee is concerned, properly so, about the decline in the U.S. trade balance. We hope to deal with these and related issues straightforwardly and practi- cally. We believe that they can be resolved within the tested framework of a multilateral trading system and an expanding world economy. I want to make it clear at the outset that our companies have a tangible economic stake, amounting to many billions of dollars annually, in this system. We believe that for American industry trade means increased sales, profits, and lower unit costs . . . that it means job opportunities for our workers, who are among the best-paid in the United States and therefore in the world . . . that trade is a spur to the technological advancement on which America's economic progress so heavily depends. While we are here frankly to defend our own economic interests, we believe that the national interest is likewise identified with a liberal trade policy. Parenthetically, I might say that it is regrettable in some respects that the reciprocal trade agreements program has come to be known as a "liberal" trade policy. This is an adjective that may lose as many votes as it wins. The important thing is that the reciprocal trade agreements program is entirely consistent with the principles of the Free Enterprise market economy, and it should corn- macnd itself to the economic conservative no less than to the political liberal. The members of the Emergency Committee are convinced, on the basis of practical experience, that two-way international trade is a powerful engine of economic growth. We have witnessed the effect in our own companies and industries. For example. among the members of the Emergency Committee are the nation's largest aircraft makers. Boeing, McDonnell, Douglas, Lockheed and United Aircraft. One member company, Lockheed Aircraft Corporation, exported $249.3 million worth of products in 1067 and imported only $13 iiiillion. It employed an estimated 8,000 to 10,000 employees in export business that year. Overall, jet aircraft and parts are one of the nation's largest exports, totaling $921 million in 1067, UI) from the total of $226 million of five years earlier. Iii his statement to this Committee on June 4, Secretary Wirtz estimated that 60,000 jobs in the aircraft industry result from this export business. PAGENO="0087" 1357 The simple yet essential truth, Mr. Chairman, is that foF many major indus- tries sales in the world market are frequently the difference between high cost production and production sufficient to permit achievement of. scale economies, and, therefore, markedly lower costs. The aircraft industry is but one example of an industry that would be unable to achieve economies of scale without access to international markets. By the same token, however, this dependence on foreign export markets makes their industry very vulnerable to retailiation. Our customers are often govern- ments or government-controlled entities. If we damage our trading partners, they can turn elsewhere for their purchases. My own corporation has a vital stake in world trade. IBM exported $222.9 million worth of products in 1967, compared to $84.9 million in 1963. IBM's total net contribution to the U.S. balance of payments was $353.6 million in 1967. It is very difficult to estimate the employment resulting from these exports. But we do export parts and equipment from plants in all parts of the country. THE BALANCE OF PAYMENTS AND TRADE POLICY As businessmen and responsible citizens, we are greatly concerned with the weakening trade balance and with our recurrent balance of payments deficits. An essential question for public policy is whether in light of a declining trade surplus we should continue the trade policy that seeks liberalization of barriers to trade, or whether we should reverse that policy by imposing import restric- tions such as the quota proposals before the Congress, or special import taxes. The business community firmly believes that the most feasible answer to the balance of trade problem is reduction of the size of the federal deficit, both by cutting expenditures and by raising taxes. These steps are fundamental if we are to control domestic inflation and thus temper the economic forces `that on the one hand have made imports more attractive to consumers and more neces- sary for the economy, and on the other hand have made U.S. exports less competitive in the world market. We believe that an overwhelming majority of the nation's businessmen want enactment of the expenditure cut/tax increase package fashioned by the House- Senate conference. It is the essential step needed to help restore our trade surplus, help restore confidence in the dollar, and improve international monetary stability. Domestic price stability is clearly important if 15.5. industry is to remain competitive world-wide. SPECIAL IMPORT TAXES Direct measures have been suggested as necessary to `improve the payments balance by `improving the `balance of trade. Some `advocate that `the United States impose special restrictions on imports. Others have recommended a special import surcharge-some a border tax on im~orts with a corresponding rebate on export's. `The proposal most widely discussed `as a "4~orrective" for `a payments deficit `is a flat percentage surcharge on imports. `The `surcharge level `most frequently dis- cussed `is 10 percentage `points. Thus, if the duty `on commodity X is currently 5%, a 10% tariff surcharge would bring the total duty up to 15%-an increase of major significance. `The overwhelming majority of t:he Emergency Committee for American Trade i's opposed to a tariff `surcharge. An important reason `is `the harmful economic effect of raising `costs in an economy `that is striving `to remain internationally competitive. Exports would fall because of `higher component c'osts. Ironically, there is also the Possibility of increased imports of products `made with cheaper foreign raw materials. A surcharge would also mean higher prices to U.S. con- su'mers at a time when `many Ameri'can families are already suffering the effects of in'flati~n. `Finally, `there is the `problem `of foreign countermeasures. It is very likely that other countries would follow with their own special import taxes, thereby `lower- ing the `level of `international trade but with no net advantage `to the U.S. trad'e account. Many of `the same disadvantages would `attach to a 2% border tax/export rebate, wh'ich has `also been suggested as a balance of payments remedy and, more particularly, as a ba'sis from which the United S'tates could begin to negotiate removal of other countries' `border taxes. PAGENO="0088" 1358 This is a most complex issue, having to do with theories of taxation and the rules of the GATP. As this Committee knows, GATT rules permit indirect turn- over taxes on domestic production to be rebated when goods are exported. and permit an equivalent tax to be levied on imported goods. Under these same GAT'T rules, the U.S. uses `the same border `tax and rebate system to reflect our own manufacturers' excise taxes, such as tho'sc on tires and tubes at our border. When the border tax system was conceived in 1947, it was considered an "equalization" tax, based on a theory that indirect (axes are passed on to con- sumers. The `theory of taxati'on on which the border tax system was based is now widely challenged. It appears obvious that indirect taxes are not all passed `to the consumer. In whole or part they may be absorbed `by sellers. It uppears equally obvious tha't direct corporate taxes, on which the U.S. heavily relies, are not completely absorbed by corporations, as the theory held, but may to varying degrees be pas'sed on to consumers in higher prices. U.S. negotiators have recently opened talks in C'ATT to obtain changes in the border tax. We believe this is the best course of action at this time. It is diffi- cult to expect that a 2% charge on imports and a 2% rebate on exports, such as had reportedly been proposed w-ithin the Treasury, would produce any real impact on our balance of trade. Although a program of rebate would mean cash in hand to our members, we understand that many of our major trading partners could legally justify additional border taxes should the U.S. choose this course of action. Such a course, even though to our own immediate advantage, would in the end be self-defeating. Neither do we think that a border tax or a tariff surcharge are needed for bargaining reasons, even were our trading partners to accept such measures w-ithout retaliation. There are existing remedies in U.S. law for inequities against some American firms and industries. The countervailing duty law provides pro- tection against foreign imports that are subsidized. Section 337 of the Tariff Act of 1930 is intended to provide a recourse for those firms that suffer because foreign firms and their U.S. agents or distributors are violating our anti-trust laws. We have treaties of Friendship, Commerce and Navigation with most countries, treaties that provide that unfair trade practices, and discrimination in other matters such as investment, shall be removed. We have an anti-dumping law designed to curb the selling of foreign goods in this market at prices below those in the home market of the exporter. A national security provision in the 1962 trade act provides for an investigative procedure and special import pro- tection when a sound case of national defense essentially is made. We further have in the 1962 tradeact an escape clause and adjustment assistance procedure. Finally, w-e have the provisions of the General Agreement on Tariffs and Trade, rules that give us rights to take action against foreign trade practices that violates our rights. No doubt these mechanisms can and should be employed more vigorously. But we submit, Mr. Chairman, that they provide a very strong basis for protecting ourselves from injurious foreign practices that are felt by our businessmen both here and abroad. Mr. Chairman, what concerns us as businessmen about both types of special import charge is not only the likely harmful impact on our trade, but, equally, the impact of an international trade "war" on U.S. business operations overseas. It is vitally important to this country that the climate for U.S. foreign invest- ments be as healthy as possible. The profits of American owned businesses abroad strengthen American firms and the American economy. These foreign business operations are in a sense the hostages of foreign governments. They operate under host country laws, and they depend on a favorable business climate in those countries. Foreign hostility toward American firms would be one of the first results of a trade war started by this cüuntry. There are a number of ways in which this hostility could be expressed-none of w-hich would be helpful. I have in mind such devices as gov- ernmeiit taxes and licensing policies that could be used to discriminate against existing and prospective u.s. investments. The diminishing strength of the balance of trade is a serious problem. Putting our own domestic economy in order is the overriding corrective measure. Other measures such as vigorous diplomatic representations on behalf of U.S. interests are iii order. The offer of sixteen of our major trading partners to accelerate their Kennedy Round tariff cuts has been encouraged by our Committee in direct contacts with overseas business organizations. While the present offer is condi- tional on certain U.S. actions that may prove unaccel)table, it is in the right direction of multilateral solutions to domestic problems. PAGENO="0089" 135~ "ORDERLY MARKETING" AND "EQUITABLE TRADE" The nation's balance of payments problem and the weaknes~ of the trade ac- count have been used by the proponents Of trade restriction as a compelling rea- son for the more usual types of trade restriction. In a time of balance of payments crisis, national economic policy should help create a more competitive domestic economy. Proposals for import "ceilings" and quotas are inherently anti-competi- tive devices, the opposite of the type of measure that should be taken. For these gener~jl reasons, the Emergency Committee for American Trade ob- jects very strongly to the restrictive trade formulae in what are~called "orderly marketing" or "equitable trade" bills. A notable example of these, HR. 16936, would automatically impose quantitative import limitations on the basis of simple arithmetic formulae. In effect, *this "omnibus" approach to import re- striction employs the quota device, but in a disguised form. Without prior proof of injury to domestic industry, import ceilings would be imposed based on rates of growth of imports, variously calculated, over varying time periods, and in different regional markets. The application of these formulae would be an administrative nightmare. Ex- perience with the operation of present import quotas, on cotton, textiles, oil and sugar, and the like has proved the difficulty of administering an import quota program and the impossibility of fairly allocating the quota among different do- mestic consumers and foreign suppliers. Perhaps the greatest danger of the "omnibus" quota, or "equitable" trade ap- proach is its rhetorical appeal. Its proponents argue that, in contrast to an in- flexible quota, the "ceiling" approach would permit imports an assured growth as rapid as that of domestic consumption of particular products. They would hope to put aside the possibility of foreign retaliation by claiming that the ceil- ings would not actually "cut back" imports, but that they would merely allow "equitable" growth in tune with the rest of the market. These arguments on their face sound reasonable and fair. But such market control devices have no precedent in the domestic economy, and they should not. As American businessmen, we believe that the so called orderly trade approach to competition and the marketplace is the antithesis of the competitive philosophy and attitudes that have made this economy the richest and most progressive in the world. QUOTAS A major concern of the Emergency Committee are the many quota proposals now before Congress. It is not possible to explore here the problems of each commodity for which there is a quota proposed. Invariably, each case for pro- tection from foreign competition has different characteristics and causes. Some firms or even industries may have some major problems which make them vulnerable to import competition. We do not ignore factors that make import competition unfair and disruptive. Our purpose is to find ways to make adjustment to competition easier, and to remove unfair trade practices, either through the application of existing statutes~ the creation of new statutes, or by chaiiges in, or creation of, new international rules. The Emergency Committee's view is that quotas are a negative, self-defeating foriii of response both to problems of competition and to problems of unfair trade l)ractices. By their nature, quotas reduce incentives to modernize, to cut costs, to increase productivity and output-the essential underpinnings of our high stand- ard of living and wages. These forces would be weakened behind a shield of government restrictions which operate as subsidies. In the long run, our eco- non1ic growth and high* standards of living depend on the ability of elflcient industries to compete in our own and in world markets, and we believe that trade legislation and policy should be directed to this objective. Mr. Chairman, I have visited Europe several times in recent months, as well as Latin America. The leading businessmen I talked to in each country are all concerned with our balance of payments problem and with the prospect of trade restrictiomis here. To a man, however, they believe that restrictive actions by the ~nited States would initiate a competitive series of restrictions in their ~OWfl (ountries, with everyone a loser and no one a winner. Low-WAGE IMPORTS Let me touch on employment. Some sophisticated exponents of import protec- tion, using a computer analysis, have attempted to demonstrate a direct causal PAGENO="0090" 1360 relationship between imports and labor displacement between 1958/430 and 1964, particularly in what are called low-wage industries. At this point in our state- ment I will state only that our own analysis shows that rising productivity was a much more important cause of the loss of jobs in these industries than was the rise in net imports. Furthermore, from 1964 to 1966 six of the nine industries which are claimed to have suffered most from import competition actually showed increases in employment because of a vigorous rise in their sales. We are prepared to discuss this in more detail. OBJECTIVES FOB AMERICAN TRADE POLICY As a general objective, we believe that the continuing thrust of U.S. trade policy must be reciprocally and progressively to reduce trade barriers of all kinds. Though the Kennedy Round succeeded in reducing the average tariff levels of most major industrial countries to quite low levels, many high rates remain to be dismantled. But tariff reductions should no longer he the principal objective of trade policy. That objective niust be a new effort to document and progressively elimi- nate "other-than-tariff" barriers to trade. These barriers, along with the tradi- tional tariffs and quotas, can both impede trade and greatly distort trade patterns. FAIR COMPETITION POLICY Our experience in world markets leads us to the firm recommendation that we l)egin nowr to lay the foundations for a "fair competition policy" that would achieve a substantial degree of commonness in the environment in which inter- national business is transacted. The objective of this policy should be to create a code or series of codes that would establish common norms and standards. The new International Antidumping Code is an example of the type of interna- tional agreement that I have in mind. Without attempting to judge the technical question of whether or not the U. S. antidumping law and the International Code are in conflict, we believe that the Code is a positive step forward and indicates the direction towards which policy should aim. STRENGTHENING THE CONDUCT OF U.S. FOREIGN ECONOMIC POLICY If the United States is to cope fully with trade problems and is to be able to effectively encourage creation of a world program for fair economic competition, thought should be given to improved administrative mechanisms for the conduct of trade and related foreign economic policies. A minimum requirement is to make permanent the Office of the Special Representative for Trade Negotiations and to strengthen its ability to handle the many complex foreign trade and com- mercial issues that daily confront it. Beyond this, we suggest that this country begin to plan for eventual creation of a foreign economic policy agency with Cabinet status. We suggest that the Ways and Mean's Committee give thought to this pro- posal in framing new legislation. AI)MINISTRATION TRADE BILL The proposed 1968 Trade Expansion Act is necessary at this time for a number of reasons. The so-called "housekeeping" authority it contains will simply allow the President to use the tariff cutting authority left over from the 1962 Trade Expansion Act to conduct properly the nation's commercial relations. It would also give the President the bargaining power he might need to conduct negotia- tions to correct special l)roblcms arising between the United States and one or several of its trading partners. It is our understanding that the Administration has no intentions or plans to enter into any broad-scale tariff negotiations should the housekeeping authority be granted. A major problem of the Kennedy Round w-as the American Selling Price (ASP) system of customs valuation, a system which permits duties on four kinds of imports to be based on the U.S. price of the competitive product, rather than the actual price of the import itself. Though essentially it is a technical problem of import valuation, ASP is a choice example of a non-tariff barrier to trade. Adniinistration spokesmen have discussed at length the nature of the ASP systemim, and spokesmen for those who oppose change in the present system will no doubt exhaustively explore the technical aspects of this method of customs valuation in days to come. PAGENO="0091" 1361 We cart only make some general observations here. First, in my post as Presi- (lent of the Internfitional Chamber of Commerce, I talk regularly with business men abroad. I have been deeply impressed by the extent to which foreign business- men see the American Selling Price system as a major impediment to trade relations, as a symbol of the difficulty of competing in the American market. I am convinced that the American Selling Price, unless modified to conform to the standard methods of valuing imports, will impede further meaningful progress in removing foreign non-tariff barriers, and creating conditions of fair competition in world trade by eliminating restrictive business practices. It is very difficult for one group of businessmen to suggest remedies for an- other. We do not wish to be in that position, and would merely rest our comments about ASP on these thoughts: uniformity of commercial practice is a particularly desirable objective in international business; the ASP system itself has outlived the conditions that made it desirable in 1922 as a measure to encourage develop1 ment of the then "infant" benzenoid chemical industry; ASP stands in the way of really meaningful future liberalization of world trade through removal of the other-than-tariff restrictive trade practices of other countries. The proposed `trade bill would also authorize annual appropriations to finance the U.S. contribution to `the budget of the General Agreement on Tariffs and Trade. We support this proposal, because we believe that in any meaningful effort to establish uniform world competition rules the General Agreement on Tariffs and Trade would likely be the principal instrument through which to achieve this objective. CONCLUSION We have tried to demonstrate the nature of our economic stake in a freer trade I)olicy. We believe that restrictions such as quotas and orderly marketing ceil- ings are unwarranted and inconsistent with a free enterprise economic system. We believe that the balance of trade problem must be met by fundamental U.S. economic policy measures, rather than by measures of external control. We are convinced that any advantage `the United States attempts to gain through re- strictionist schemes will be more than wiped out by retaliation from our trading partners. For the future, we recommend that a policy of fair competition in world trade be formulated and implemented appropriately, and that primarily in this way problems of unfair foreign trade practices be corrected. The President's trade proposals would be a first step forward. The CHAIRMAN. Mr. Watson, does that conclude your testimony? Mr. WATSON. Yes, Mr. Chairman, that does conclude our testimo~iy and we thank you, sir, for your attention. The CHAIRMAN. We thank all of you for taking time from your busy schedules to come and advise with us on this matter. Are there any questions of the group? Mr. BUSH. Mr. Chairman. The CHAIRMAN. Mr. Bush. Mr. BUSH. Mr. Watson, in the testimony given, you talk about fear of retaliation. Many feel that there has already been retaliation. I know Mr. Blackie's company well. I used to be in the offshore drilling busi- ness and I bought many of those big expensive cats, the two-thirds that come from the people that are buying your products at home, and my company would go overseas to try to do business. We did a lot of business overseas. We are competing because of the uniqueness of our know-how- and suddenly we find great barriers overseas to our partici- l)ation. I have to sell a half interest to someone who wants to do business. By the way, I am no longer in the offshore drilling business. My question is aren't w-e correct in assuming that., if you can sell a Ford Falcon in .Japan for $5,700 and a Toyota sells in Japan for $1,700 there already is retaliation and aren't we trying to adjust? Isn't the problem now to adjust for the retaliation that ~has already taken place? PAGENO="0092" 1362 Mr. WATSON. Yes, Congressman Bush, I think we have to face the fact that-I don't like to call it retaliation. I would rather say there are barriers, and the particular country you spoke about has definite barriers. They have barriers in my industry and they have barriers in every industry. It is further complicated by the fact that they will also export a comparable automobile, say, from Japan to Venezuela as an example, a car comparable to a Ford Falcon or Chevy II, let's say, and inevitably they will undersell the competition by $500. In this case, in my own judgment, I believe you have to go to Japan on a very high level in a face-to-face encounter, government to gov- ernment, and just point out the problem clearly, and ask for solutions. We in our committee have had, within the last several weeks, meetings with the leading Japanese business association. We pointed out very clearly that they can't any longer have those barriers that have been in existence for Lord knows how long. Mr. BUSH. What have they done about it? Mr. WATSON. I think now they are waking up. I think there was a period when they wanted to get their economy going. That period is probably over, and I think the GATT rules can certainly be one way to begin correcting these practices. I think we have to face these problems and face them squarely. These things exist, but I think we, in our positions as businessmen engaged in international business, feel we have to attack them, and when we fail we have to call on the Government to help us; but we are fighting very hard, and I think we are having some success. Mr. BUSH. One more question, Mr. Chairman. In `the conclusion of your formal printed statement you said that the answer lies not in our retaliation or not in duties or imports controls, something like that, but rather in fundamental U.S. economic policy measures. One of you gentlemen referred to the tax bill and the spending. I believe you did, Mr. Watson. What other fundamental U.S. eco- nomic policy measures were you referring to in your statement on page 17? Mr. WATSON. I think our main emphasis there was on generally sound fiscal and monetary policies. That is what we were referring to, primarily. Mr. BUSH. And you would consider this legislation that we will consider next week on taxes and spending `cuts as a fundamental part of this. Mr. WATSON. Absolutely. We. could knock some of these barriers down, particularly those in Europe, if the Europeans suddenJy saw we meant business insofar as controlling our inflation and getting back to some fundamental principles. Mr. BUSH. Thank you, Mr. Chairman. The CHAIRMAN. Mr. Watson, there is equal concern abroad too, that we improve our balance-of-payments situation, I am told. Is that right? Mr. WATSON. Yes, sir, there certainly is, and I think that again goes to the tax spending cuts situation and that is why we who are engaged in both manufacturing abroad and exporting abroad are so anxious to keep the barriers here down so we can push these exports. I don't like to quote my own company's figures but I am proud of the fact that in the last 5 years we have contributed over a billion dol- PAGENO="0093" 1~63 lars to the xIet improvement in the balance of payments and I hope if everything goes all right this year that we are going to end up by hav- ing close to $400 million. We are sort of having a neck and neck race with Bill Blackie. Some day we hope to catch up with him. The CHAIRMAN. I wouldn't rely too confidently upon just the pack- age that we~ will consider in the House next week as a cureall for our balance-of-payments problem. I hope you don't put too much confi- dence in it. I think other things will have to be done as well. Mr. WATSON. No question, sir, and I think that one of the other things to be done is that we simply have to push our exports all we can. I think the recent narrowing of the gap in the trade balance is a worri- some thing. Yet given the opportunity, and if more barriers go up, I think the international business community of the United States can do the job. The CHAIRMAN. But there must be some reevaluation and reassess- meñt by Government itself if it is to make a major contribution to the balance-of-payments problem as I see it. Would you agree? Mr. WATSON. I would, sir. The CHAIRMAN. It takes all you can do in American business and all we can do in every sector except Government to offset the damage that is done by Government in our balance of payments. Would you agree? Mr. WATSON. I couldn't agree with you more. The CHAIRMAN. That is why I feel we need to make some basic reevaluation of some of our existing commitments. Mr. WATSON. If I may, Mr. Chairman, as a private citizen, one of the real reevaluations that has always seemed to me should have a high priority-and I know that I am treading on dangerous ground and that one can get into trouble for saying this, but I believe it-is I think we ought to reexamine what we are doing in Europe. I don't think we can carry the whole world on our backs continually. It seems to me that a policy of having occupying troops abroad more than 25 years after the end of hostilities, in an entirely new ballgame, needs reassessment. The CHAIRMAN. Off the record completely. (Discussion off the record.) The CHAIRMAN. Mr. Bush. Mr. BUSH. Mr. Watson, does your committee feel that we ought to have a favorable balance or do you feel that we ought to have a bal- ance in our international trade? On the statement you made earlier, you have to buy to sell, you know, this is fundamental and I think we all a~'ree with it, but if you were calling all the shots and you three or four gentlemen could mold it in any way in a utopian fashion would you want a favorable balance in this country or would you want a balance of trade? Mr. `WATSON. I would like to g~t the ba1ance first. Then our own objective, of course, is to have a favorable balance, and I think we have the ability to do it. Mr. BUSH. But your committee would be united in that we ought to sell more abroad than we get in frcm them? That would be the national goal, and the national purpoEc? PAGENO="0094" 1364 Mr. WATSON. Well, I can't really speak for our 53 members. Mr. Busir. No; I understand. Mr. WATSON. I can speak for myself and I hope, and I think, they would agree with me. I think the real matte~ is that this whole qi~estion of balance is tied up with competition. it i'~ my fundamental belief, and I have seen it happen, that the iTnited State of America is a high ouality manufacturing outfit. We ai'~ second to none in our skills. Therefore, given the right trade climate, and given a continuation of this interchange between ourselves and our trading partners, with the quality of our products we can get to a favorable balance, and we aim to get there. The CHAIRMAN. Any further questions ? Again we thank you, gentlemen, all of you, for coming to the committee. Mr. WATSON. Thank you very much. (The following material was received by the committee:) MEMORANDUM FROM REPRESENTATIVE THOMAS B. CURTIS, OF MISSOURI, TO THE EMERGENCY COMMITTEE FOR AMERICAN TRADE The table cited by Mr. Abel in his testimony to the Committee was drawn from the Senate Finance Committee's Steel Import Study, page 69, table 31. Table 31 attempts to more accurately measure total steel export-import trade by including the value of steel exported and imported in the form of end-use items. The total trade balance presented by this table, which was compiled by the American Iron and Steel Institute, shows a deficit of $496 million in total direct and indirect steel trade. But I wondered if this table should be qualified by factors explained in the Steel Import Study itself. For example, in addition to inserting with his testi- mony table 31, Mr. Abel might have for completeness included reference to the chart shown on the following page of the Senate Finance Study which follows as Appendix L. This chart, Chart 32 on page 70, reveals a $6 billion surplus (in 1966) in trade of end-use items containing steel. Thus, if the adverse balance of trade in direct steel products alone of $1 billion (this figure includes an addi- tional 10% added tothe value of imports to represent cost, insuranee, and freight and subtracts from exports the amount of AID-financed steel shipments) was combined with the $6 billion favorable balance resulting from trade in products containing steel, the result is a favorable balance of trade in 1966 for steel and products made from steel of $5 billion. I wondered also if the value of the direct steel imports might not have been overvalued by 10% to represent the c.i.f. costs (the standard measurement of value of U.S. imports is the "export value", which does not include these costs), and if by eliminating AID-financed exports the Table presented by Mr. Abel might be incomplete. The Senate Finance Committee Report itself qualified the information in the Table presented by Mr. Abel, noting the difficulty of estimating the steel content of end products made of steel. According to the Steel Import Study, page 68, "the data on foreign trade are not well adapted to the job of estimating steel content; there are vast categories of machinery and equipment items represented only by value data and with no corresponding unit figures. Even if unit data were avail- able, the average steel content is unknown without a bill of material for each type of machinery." Furthermore, shipping weights of such manufactured items are not necessarily representative of steel content. An automobile contains hun- dreds of pounds of other materials. Finally I feel it is very difficult to measure the value of the steel contained in these exports. For example, one large exporter informs me that they pay con- siderably more than the average steel price used in the estimates presented in Mr. Abel's Table. This is because their machinery exports contain many forgings and castings, special alloys and heat treated steel, as well as special sections, non-standard specifications, and special sizes. Thus the value assigned to the steel in Mr. Abel's table would seem to be too low at least for one major type of steel exporting industry. I wonder if it is not also appropriate to give special consideration here to the fact that end-use items made from stOel-such as machinery, transport equip- PAGENO="0095" 1365 ment, and many kinds of fabricated metal products-which make up the backbone of our exports of manufactured goods, cOntain a great deal of additional Amer- ican labor in high wage industries. Some of these workers in fact are members of the United States Steel Workers of America; Finally, I wonder if the Table presented by Mr. Abel doesn't have problems in its attempt to calculate a balance of trade simply for the steel contained in end- use products. This is because no business is transacted in the .~tcet contained in end-use items. Obviously, it is the end-use items themselves which flow in world trade. In selling these items, too, much more is sold than the steel contained in them. Perhaps more importantly, United States exporters of steel-containing end-use items sell value added by labor-high skill, high wage labor-engineering, research and development and very high amounts of human capital in the form of management and marketing skills. Valu~ oC U. S. Foreign Trade in End~Usc Items Conta1nin~ Steel, l957~p)(,6~ Billion $ 6 3 1 0 1957 58 59 60 63. 62 63 64 SOUl~E: Baøic data, Bureau of Census U.S. Department of Commerce, Office of Bu'iness Economics 14 13 12 9 8 7 5 `4 2 65 66 CHART 32 PAGENO="0096" 1366 PROBLEMS OF MEASURING STEEL ExPoRT-IMPoRT TRADE COMMENTS OF THE EMERGENCY COMMITTEE FOR AMERICAN TRADE ON QUESTIONS AND COMMENTS BY MR. CuRTIs 1. Why is the value of imports adjusted from an f.o.b. to a e,i.f. basis oii the indirect import and export table published in Dr. Weiclenhaminer's report, page 69? The value of imports should not be adjusted to reflect c.i.f. costs. We are not measuring the cost to the economy of imported steel mill products, instead we are trying to measure the value of the imported steel itself. To include c.i.f. costs distorts the value of the imports, so that the comparison of the imports with the value of steel exports is an unequal comparison, a comparison as it were of apples and pears~ 2. Why are steel product exports shown less AID-financed exports? AID-financed exports are probably mostly non-competitive exports. They might not all exist without AID financing. Nonetheless the American steel industry is paid for these sales to overseas users. These sales represent jobs and income, they are not a gift. For this reason they should probably be included in a balance of trade statistic for steel. 3. Why was $150 per ton used as the average price in estimating the value of steel contained in indirect exports? Estimating the actual value of the steel contained in indirect steel exports is probably impossible to do accurately. The market assigns value to the product, not simply to the amount of steel contained in it. Nonetheless, it is (lear that the steel in most of steel-containing exports is highly up-valued by additional proc- essing and labor, both at the steel mill and by subsequent fabricators and proc- essors. Such up-valuing can take many forms. But the cost of the steel in the finished export surely does not equal a mill steel cost of the basic steel. After it leaves the mill it is, whether ordinary carbon steel or very highly upgraded spe- cialty steel, not used in its ex-mill form, but considerably increased in value, perhaps by independent processors or by the final users themselves. (The following letter was received, for the record, by the commit- tee:) LINCOLN & STEWART, Washington, D.C., July 12,1968. Hon. Wir.ntm D. MILLs, Chairman, Ways and Means Committee, House of Representatives, Longwortls House Office Building, Washington, D.C. DEAn Mn. MILLS: On June 14, 1968, Messrs. Arthur K. Watson and Robert W. Purcell testified before the Committee on Ways and Means on behalf of "The Emergency Committee for American Trade." Mr. Purcell referred in his testi- mony to information presented by me to the General Subcommittee on Labor, Committee on Education and Labor, House of Representatives, in 1966 concerning bills to amend Section 4(e) of the Fair Labor Standards Act. Unfortunately, Mr. Purcell's reference to my testimony in his statement, and an accompanying memorandum entitled "A Critique of the Trade Relations Council's Analysis of Certain 1958/60-1964 Declines in Employment," which he stated he made available to the Committee, are seriously misleading. In the interests of having the record of your hearing clear on the point raised by Mr. Purcell, I make this response and ask that it be placed into the record of your Committee's hearings immediately following Mr. Purcell's testimony. As the printed hearings of the General Subcommittee on Labor, referred to above, clearly show, I presented a series of 15 tables of data in support of my testimony before that Subcommittee. In addition, we presented to that Subcom- mittee a voluminous report entitled Employment, Output, and Foreign Trade of U.s. Manufacturing Industries, 1958-1964/65 w-hich contained nearly 400 pages of tables and analyses. Because of the size of that study, it was not possible for it to be reprinted in the record of the hearings of the Subcommittee, but it is part of the official file of the Subcommittee. These tables and the analysis which accompanied them were concerned with an examination from a variety of points of view of the economic trends in em- l)loyment, output, and foreign trade of American industries. The tu(-hni(jUC enm- ployed was to group selected industries at the 4-digit level of the Standard Industrial Classification in accordance with various selection criteria and to offer the results of the tabulations of such selected groupings as possibly con- tributing to an understanding of the overall foreign trade problems affecting American industries. PAGENO="0097" 1367 Mr. Purcell chose to select one of this large group of tables for comment in Ins testimony. it was the last (Table 15) of the tables submitted for the record in support of my testimony. it presented data for industries that had sustained both an absolute loss of employment and an absolute decline in balance of trade during the perlo~ 1~58-j960 Compared with 1964. In presenting the table, I called attention to the rapid rise of imports (44.7%), the slight Increase in exports (0.2%), the sharp decline in the balance of trade (88.8%), compared with the slender growth in the domestic market over that span of years (7.2%). One of the consequences of the relatively static growth in the domestic market was an absolute loss of some 209,000 jobs for the 85 industries included in the group being analyzed. The disproportionate increase of imports versus exports was a contributing factor to this decline, but I certainly never claimed that the entire .job loss was clue to the import rise. Nevertheless, Mr. Purcell sought in his testimony before your Committee to put such a claim in my mouth retro- actively, stating that "imports were presumably causing the decline ii~ employ- ment." Mr. PurcOn's inemoranduni of analysis stthmifted to the Committee stated that this one table "was the critical one," though no claim or representation~to that effect was made by me. The superficiality of Mr. Purcell's analysis is shown by the fact that in another table submitted to the General Subcommittee on Labor in support of my testi- inony I did indeed undertake directly to measure the job loss due to adverse foreign trade trends in selected manufacturing industries. This presentation is iiiade In Table 1, the first of the series of 15 tables presented by me. Table 1 includes some but not all of the industries which are the subject of the entirely separate analysis presented in Table 15. Had Mr. Purcell desired to evaluate the true extent of the representations which I made as to actual or l)otential job loss due to adverse foreign trade developments on manufacturing industries, lie should have used Table 1 which dealt with that subject rather than Table 15 ~wbich did not. In point of fact, my estimates of job loss were not greatly different from those * reached by Mr. Purcell for those particular industries which he lifted out of my Table 15 or his further analysis. As an example, for the "footwear" industry (SIC 3141, 3142) the results of my analysis presented in Table 1 of my testimony to the General Subcommittee on Labor indicated that the job equivalent of the foreign trade shift in the products of that industry was a -4,460. Mr. Purcell's analysis concedes that the decline due to the rise in net imports was 3,450 jobs. - Another example is the industry producing wooden containers (SIC 2441, 2442, 2443, 2445) in which my Table 1, undertaking a direct measurement of the job equivalent of the adverse foreign trade shift. indicates a net job loss of 195 (oinpared to Mr. Purcell's estimate of 189. A third example is the hosiery industry (SIC 2251, 2252). Table 1 supporting my testiniony to the General Subcommittee on Labor measured the job equivale~it of the foreign trade shift in that industry as -265 jobs. Mr. Purcell's analysis shows a decline in jobs due to the rise in net imports of 197. The point of this discussion is that Mr. Purcell chose for his so-called "anal- ysis" a table which had nothing whatever to do with a direct measurement of job loss due to adverse foreign trade trends, and, therefore, that his analysis Proves nothing. Had he wished to present a critique of my methods of measuring (iileet job losses (inc to adverse foreign trade developments, the testimony which lie used as his misdirected exaniple (11(1 in fact include as the very first table Tahle 1) pre(isely this tyl)e of analysis, which he chose to ignore. I can only onelude that he ignored it because the measurenient of job loss which I made ~ rpflj)~( 1 is in the same general ball park" of the measurement of the job losses which his own methodology show-ed for those industries which fOrtuitousl3~ were include(i in both Table 15 and Table 1. Mr. Purcell enjoyed nationwide publicity for his attack on the data of the Trade Relations Council, as the attached clipping from the front page of the Journal of Commerce for June 20, 1968, evidences. It is most unfortunate that Mr. Purcell's unfair and misleading analysis would have gained such national attention, being directed to testimony and data which were not even before your Committee and misrepresenting the significance of the data and failing to deal directly with the subject matter which he purported to analyze as well. So that the members of your Committee and the Committee's staff and others who choose to use the printed record of your hearings may have both sides of the issues raised by Mr. Purcell, I respectfully request that this letter be included in the record of your hearings. 95-159 0-68-pt. 4-7 PAGENO="0098" 1368 In the testimony presented to your Committee on behalf of the Trade Relations Council by Mr. James M. Ashley, the Chairman of Its Board, there was provided at Appendix Table X a measurement of the net employment effect of foreign trade developments affecting 144 u.s. manufacturing industries with a balance of trade deficit in the year 1966. At Appendix Table XI, a similar measurement was presented for selected industries with special potential for employment of the poverty-stricken. The methodology used in making these measurements is similar to that which Mr. Purcell employs in his so-called "critique" and "analysis." The significant matter from the Committee's point of view is that Mr. Purcell made no attempt to address his analysis directly to that portion of the Trade Relations Council's data which was concerned with a direct measurement of job loss due to foreign trade, either as submitted to the Committee on Ways and Means (and, previously on May 13, 1968, to the Trade Information Committee of the Executive Branch), or as submitted two years ago to the General Subcommittee on Labor. Mr. Purcell's "critique" serves only to confirm the validity of the general methodology which I employed in those tables which I have presented on the public record undertaking a direct measurement of the loss of jobs due to foreign trade. I trust that this letter will serve to set the record straight. Sincerely yours, EUGENE L. STEWART. [From Journal of Commerce, June 20, 19681 WORLD TRADE-1)EBATE OVER Jon Loss AND IMPORTS GRows AS FREE TRADE GROUP CIIALENGES PROTECTIONIST THEORIES WASHINGTON.-The emotional issue of jobs and imports figures very large in the great trade debate now going on in the House Ways and Means Committee. It h~s a new dimension today because of the country's social unrest, as "poor people" march for employment opportunity. It has a direct relation to the daily headlines and a personal impact as none other in international trade discussions. Nearly two years ago, the Trade Relations Council-an apparently well-heeled business group whicli leans toward the notion that a number of our industries need a lot more import protection-unveiled a mammoth statistical study relating imports to employment. The central conclusion was that imports are hitting hardest those industries with the largest number of workers per output-the so~called labor intensive sectors. Now, the question is being asked, how can the government help provide the millions of new jobs economists say must be created, if our policy is to invite in more foreign goods. - COUNTER ANALYSIS But along comes the Emergency Committee for American Trade (ECAT), which seems at. least able to match TRC's resources. ECAT, numbering such as IBM and GM, carries the banner. for fairer, but also freer, international trade. It put a team o~ economists to work on the TRC computerized study. The result was a slightly astounding reinterpretation of the original conclusion. flisin~ productivity, not imports, was by far the bigger factor in those job losses TRC cited, says ECAT; The counter-analysis is done in four short pages, plus eight relatively simple statisticm~l tables. It focuses on the nine industries which TRC had said suffered the largest job losses from foreign competition. They are saw mills, hats and caps, electron tubes, footwear, cotton broad fa~brics, wooden containers, hosiery, bakery products, and bricks, and structural clay products. TRC's study, done at Georgetown University, showed how in 1964 employment was down from the 1958-60 average. The declines were heaviest in saw mills (39.6 percent), cotton broad fabrics (38.4 percent). bakery products (23.8 per- cent) and electron tubes (16.7 percent). STUDY LIMITED The ECAT team, for lack of complete data, limits its analysis to production workers, but it probably can be assumed that this is where the overwhelming job loss occurred. PAGENO="0099" 1369 In any event, this is a sax~iple of what wits found. In the saw-mills, less than 5 percent of production worker layoffs were due to imports and over 95 percent ascribed to productivity gains and working hour changes. Approximately the same was true in cotton broad fabrics. Among bakery producers, imports were even less of a factor-about 1 percent. They were only a 3 percent factor in job displacement in the electron tube industry. Footwear, of the nine sectors, was where imports had the biggest impact. ECAT's analysts report that while rising productivity brought about 75 percent of the industry's layoffs, imports contributed 25 percent, or one out of every four jobs lost. Changes in the hours worked had only minor effect, ECAT notes. ONE STEP FUETHER The international business group went one step further, updating employ- ment data in the nine industries through 1960. It reveals that jobs in six of the lime increased since 1964, the comparison year TRC used. The most marked ex- pansion was in electron tubes with good gains in footwear and hosiery. The three Industries showing further jobs declines were sawmills, hats and caps, and cotton broad fabrics. But frankly, both studies leave us wondering. What about factors like marl~et growth and competition from other domestic products? Don't they also in- fluence the job equation? This January, President Johnson asked for a few hundred thousaind clolla;s to make a comprehensive study on the efeect of foreign trade (both Imports and exports) on 15.5. employment, It seems unlikely, however, he will get the funds. The House has slashed the special trade representative's budget too deeply. It's a shame. Obviously, this study. is sorely needed to provide the best an~ swers possible to this perhaps most important of foreign, trade policy issues, espe- cially at a time when U.S. policy I~ being put under the microscope, The Cn~~IRMAN. Mr. Muncit. Mr. Mundt, if you will identify your- self for our record we will be glad to recognize you, sir. STATE~1ENT OP SOBN C, ~1TN* VICE CEAIR~UN, O~EN~ T~Y ANTIDtfl~~PjN~G ~OM ~rT~E, AOCOMPA~I~ BY DeNALD HISS, COUNSEL Mr. MuNprr. My name is John C. Mundt. I am vice chairman of the Cement Industry Antidumping Committee and senior vice president, marketing and public affairs, for the Lone Star Cement Corp. I should like to introduce Mr. Donald Hiss, a partner of Covington & Burling, counsel to our committee, Mr. Chairman. The CHAIRMAN. We appreciate having both of you with us this morning and if you have to omit any parts of your statement, Mr Mundt, in cooperating with our schedule, do so with the knowledge that all of the statement will appear in the record. Mr. MTJNDT. We intend to proceed in that way, Mr. Chairman. There will not be time to read a 30-page statement and we will discuss the pertinent portions of the statement with you. Our committ.ee represents 90 percent of the rated cement capacity in the United States. It consists of 34 companies prothicing portland cement in this country. We have had some vCry bad experience, Mr. Chairman, in the past with dumped cement from other countries, In the period from 1958 to 1965 members of our industry were compelled to file 19 complaints under the Antidumping Act of 1921. The Treasury found reason to suspect dumping in 14 of these cases and in four of them antidumping duties were actually imposed on cement from Sweden, Belgium, Portugal, and the Dominican Repub- PAGENO="0100" 1370 lie. We are concerned that when the Vietnam war is over and ocean bottoms become more available and demand increases with the con- struction activities that must take place these foreign countries will again attempt to dump their excess capacity of cement in this country. So it is against this past history of established cement dumping and with this future ahead of us that a new problem appears and gives us great concern and that is the International Antidumping Code. As you know, the code has been negotiated by the executive branch. Congress has not been asked to nor has it given its consent or concur- rence. Thecode and the new regulations are scheduled to go into effect on July 1. The CHAIRMAN. Let me interrupt you at that point. I don't normally do this, but I hope you will discuss with us whether there is in your opinion existing statutory authority for our couiitry to engage in a multilateral agreement involving ant.idumping and a program such as that to which you are speaking. Mr. MTJNnT. I think we will come to that, Mr. Chairman. We do think that there is authority, provided Coiigress consents, because there is the Antidumping Act of 1921 now on the statute books. The CHAIRMAN. Is there any place in law authority for the executive department to engage in an agreement involving antidumping which is contrary to the act of 1921? Mr. MUNDT. I would like Mr. Hiss to answer that. Mr. HISS. Mr. Chairman, there is so such authority. The CHAIRMAN. I hadn't found it. Go ahead. Mr. MtTNDT. We are convinced that under this International Anti- dumping Code it is going to be easier to introduce dumped cement into this country,, so it is because of this concern that we are here today and have filed this 30-page statement with you. The statement consists of nine very thorough sections. These are listed on page 2 of our statement. Because of this July 1 deadline, Mr. Chairman and members of the committee, we are suggesting and asking that this statement of ours be placed pretty high on your reading list. We also want to suggest that if you have not done so you request a copy of the report of the Tariff Commission recently to the Senate Finance Committee and we believe that a reading of our statement and report of the. Tariff Commission will indicate the urgency of action by this committee and th~ Congress on this subject. There are two matters that I would like to just mention briefly as preliminary points and that do not go to the thrustof our main argu- ment. The first point concerns the relationship of this subject of dumping to the negotiations that were concluded. At page 4 of our statement I will read just a few sentences: The cement induStry's position in the trade area is concerned only with the unfair trade ~ractiee of dumping and has no impact or relation to the Kennedy round tariff concessions. The cement industry's positiOn does not involve any pending quota or tariff proposals. The cement industry does not seek increased tariffs on cement, nor does it seek quota relief. In fact; the industry has never sought to restrict the entry of imports into this market. The industry7s concern with the unfair trade practice of dumping is only to insure that import competition is subject to the same standards of fair trade that are observed by U.S. industries under the antitrust laws. PAGENO="0101" 1371 The second point I would like to make is that we don't see that there would be any real problem if this July 1 date is postpoii~d insofar as our relationship is concerned with the other trading nations and the nations with whom we recently negotiated. / Canada has not yet approved t~iis International Antdumping Code either. We have no information of any bill that has been presented to the Canadian Parliament providing for such approval. The Canadian Parliament is now dissolved pending elections later this month. So we don't feel that there would be any embarrassment to the United States if the July 1 date is postponed. To introduce the matters about which we are fundamentally con- cerned here, let me just read the conclusion of our statement submitted today. The cement industry antidumping committee strongly urges that this committee take positive action to postpone the July 1 effective date of the International Antidumping Code, and to report out favor- ably House Concurrent Resolution 447. The code is in fundamental conflict with the Antidumping Act of 1921, and would severely weaken and emasculate the act. I am reading from page 29 in case any of you are following it. The cement industry, which has suffered serious injury from dump- ing in the past, would be effectively barred frOm relief under the code. Moreover, the implementation of the code in this country would constitute an usurpation of congressional authority by the executive. Implementation would also lead to administrative chaos as the Treas- ury and the Tariff Commission have taken contradictory positions. Hence, action by this committee is vital if U.S. industries are to be able to compete free of the unfair trade practice of dumping-a prac- tice condemned by Congress for over 50 years and condemned by all major trading nations as well. Now, permit me to acquaint you with these matters in more detail. It is the position of the cement industry that there is a serious and vital substantive conflict between the code and the act requiring con- gressional approval of the code before it is permitted to go into effect. This was also the conclusion of the Tariff Commission in the report to the Senate Finance Committee and you will recall one sentence in that report.. "The code," and I am quoting from the Tariff Com- mission, "no matter what are the obligations undertaken by the United States thereunder, internationally cannot, standing alone without legis- lative implementation, alter the provisions of the Antidumping Act." Of the many areas of difference between the act of 1921 and the pro- posed code let me review three of the basic areas of conflict. The first area of conflict involves the injury standards under the code and under the act. Here close attention to just a few words in both of these documents is important. The injury provisions of the act under which we have been operating require the Tariff Commission to determine, and I am now quoting,. "whether an industry in the United States is being or is likely to be injured." The injury provisions of the code require a showing, and I am quoting again, "that the dumped imports are demonstrably the prin- cipal cause of material injury." PAGENO="0102" 1372 So you see that the code requires a different and much higher standard of proof. No~v, there has been testimony before this committee already regard- ing the major cause test for adjustment assistance under the Trade Expansion Act of 1962. `The President `himself in his message to Congress `has described this major cause test as too rigid, too technical, and too complicated. In this cónnect~on I would like to read another short excerpt from our statement at page 16. In his statement on July 11, 1967, to the Subcommittee on Foreign Economic Policy of the Joint Economic Committee of Congress', Am- bassador William Roth described the difficulties of the "major cause" test of the 1962 act as follows, and I am now quoting from Ambassador Roth:. unfortunately, however, the adjustment assistance provisions have not had the expected beneficial effect,. because in practice the present test of eligibility to apply for' the assistance has proved too strict. In fact, in no case brought under the act have any firms or workers been able to prove eligibility. The presënt~ test of eligibility requires (1) that tariff concessions be shown to be the major cause of increased imports and (2) that such increased imports be shown to be the major cause oj~ injury to the petitioner. In the complex environment of our modern economy, a variety of factors affect the productive capacity and competitiveness of `American producers, mak- ing it virtually impossible to single out increased imports as the major cause of injury. Mr. Chairman, we submit that if the major cause test is too rigid under the Trade Expansion Act the principal cause test is too rigid under the Antidumping Code. `Consider the practical application for just a minute of these words in the market place. In the northeastern cement dumping cases there were several fact'ors that affected `the declining prices. One was a widening gap between supply and demand. Another was the actual decrease in the consump- tion of cement. The Tariff' `Commission took `judicial notice of these factors `but it found that dumped cement was nevertheless an im- portant contributing' cause to the price break in the northeast that followed 1960. , Und~r the act the cement industry in these cases was able to obtain relief but under the code we would have had to show and would have been. unable' to show that the dumped cement import from Sweden, Belgium, Portugal, and the Dominican Republic were demonstrably the principal cause of material injury, so we object to this code since as a practical matter of proof it would deprive us of a just remedy. The second area of conflict between the act and the code we wish to `mention involves industry standards. Under the act the Tariff Commission has used definitions of "mar- ket" on a regional basis where appropriate and it has also used as a basis large metropolitan seaboard markets. T'his accords with the realities of the cement business because we are a series of regional markets. There is no such thing as a national market for cement because of transportation ~osts~ Under the code regional markets may be con- sidered only in exceptional circumstances and are very narrowly defined. ` PAGENO="0103" 1873 The code permits consideration of a regional market only where the producers within such a market sell "all or almost all" of. their production in that market and there is injury to "all or almost all" of the producers in the regional market, and I was quoting from the code. As a marketing man I can't think of a single import area in the United States that would meet the code's definition of a regional mar- ket for the future. Now consider the application of these words again to the cement marketplace. In the Belgian case one of the markets under considera- tion was the southeast Florida market consisting of Palm Beach and Broward County together with metropolitan Miami. Neither of the two domestic cement producers in that case sold all or almost all of their production in southeast Florida. They had plants elsewhere in the United States. Under the code they would not have been entitled to relief even though the dumped Belgian cement accounted for as much as 13 percent of the market at one point. The code simply doesn't take into account the facts of the market- place. The third area of conflict involves the question of Treasury versus Tariff Commission functions. In 1954 Congress amended the Anti- dumping Act in order to transfer the injury determination exclusively over to the Tariff Commission. The code by executive agreement would give the Treasury certain responsibilities now to make certain in~jury determinations. it boils down to this. The administration seeks by unilateral action to take resp~nsi~ bilities from an arm of thelegislativ~ branch, the Tariff Commission, and give them to an arm of the executive branch, the Treasury. Congress has not consented to this change. Yet this will become oper- ative July 1 unless the committee or the Congress stops it. These are, we feel, major and substantive areas of conflict between the code and the act. In the report of the Tariff Commission it was stated very clearly that in the four cases in which we obtained antidumping duties under the act had the code been in effect the results of the cases would have been otherwise. I might say that our counsel, Covington & Burling, have reviewed this report. They concur with the report and tell us that we would not have obtained relief in these cases had the code been in effect. A paragraph at page 24 of our statement summarizes our concern at this point and I will just read that paragraph. It is reasonable to assume that once it becomes known that the cement industry will be unable to deter dumped cement under the Antidump- ing Code, foreign producers will resume dumping in this market. The dumping of cement during the period 1958-64 was consistent and in~ volved at least 15 countries. The industry's diligent prosecution. of these dumping violations and the pendlency of legislation to strengthen the act have no doubt deterred dumping in recent years. The implementation of the Antidumping Code will remove such deterrents, and it is very likely that the dump- ing of excess cement capacity will be resumed. - PAGENO="0104" 1374 Under these ëircumstances, the cement industry believes strongly that full deliberation and consideration of the Antidumping Code by Congress is essential. I might say, Mr. Chairman, that our industry is in no position eco- nomically to cope with dumped imports. Within the past month the National Industrial Conference Board has issued tables indicating that of 41 manufacturing industries in the United States the cement industry is at the very bottom, No. 41, in aftertax return on net worth, so we are in no. position to confront dumped imports. In conclusion, we would say this to your committee. There are serious and inevitable conflicts between the Antidumping Code and the Anti- dumping Act of 1921. The code will weaken and in fact emasculate the act. The cement industry would not be able to obtain relief from dumping under the international Aritidumping Code. The implementation of this code without congressional approval will constitute a dangerous precedent of usurpation of congressional authority by the Executive. There is a serious prospect of administrative chaos in view of the contrary positions taken by the Tariff Commission and the Treasury. In view of this we urge approval of House Concurrent Resolution 447 which would expressthe sense of Congress that the Antidumping Code is in conflict with the act and therefore can be implemented only by congressional action. We urge you to ask the President to delay implementation of this code, postpone the July 1 date, until the present hearings of this com- mittee are completed and you have an opportunity to form congres- sional judgment on these matters. Finally, we would urge you to review and approve proposals be- fore the House of Representatives such as H.R. 1075 to amend and strengthen the Antidumping Act of 1921. In this connection we want to thank members of this committee for their past interest in this subject. Many of the members of your corn- inittee have submitted bills on these points. We would like to request permission, Mr. Chairman, to file a supplementary statement on those matters. (See p. 1384.) The CHAIRMAN. You have that permission. Mr. MUNDT. Thank you for the privilege of appearing before you. We would be glad to answer any questions you might have. (Mr. Mundt's prepared statement follows:) STATEMENT OF JOHN C MUNbT, VICE CHAIRMAN, CEMENT INDUSTRY ANTIDUMPING COMMITTEE My name is John C. Mundt,* Vice Chairman of the Cement Industry Antiduinp- ing Committee. Seated on my right is Mr. Donald Hiss of Covington & Burling, counsel to the Cement Industry Committee. Our Committee consists of thrity-four companies in the Cement Industry which account for approximately 90 percent of the total rated cement capacity in the United States. There is attached as Appendix A a list of these thirty-four companies. The Cement Industry Committee is appearing before this Committee to support House Concurrent Resolution 447, which w-ould express the sense of Congress that the International Antidumping Code may not become effective without specific Congressional approval, and to urge this Committee to take action to *~ Senior Vice President, Marketing and Public Affairs, Lone Star Cement Corporation. PAGENO="0105" 1375 postpone the July 1 effective date for the Code. A summary of the points that will be covered in support of this position is as follows: I. Introductlon-l4he Cement Industry's concern with the unfair trade practice of dumping. (Page 3.) II. The Cement Industry's position on the International Antidumping Code is unrelated to the Kennedy Round concessions or any pending quota proposals, and is concerned only with the unfair trade practice of clumping. (Page 4.) III. Ways and Means Committee action on the International Antiduinping Code is urgently required before July 1, 1968. (Page 5.) Iv. The implementation of the Antidumping Code without Congressional ap- proval will constitute a dangerous precedent of usurpation of Congressional au- thority by the Executive. (Page 7.) V. As concluded by the Tariff Commission, there is serious and inevitable con- flict between the International Antithimping Code and the Antiduniping Act of 1921. (Page 9.) VI. The International Antidumping Code will weaken and emasculate the Antidumping Act of 1921. (Page 14.) VII. The Cement Industry would not be able to obtain any relief from dumping under the International Antidumping Code. (Page 20.) VIII. There is a serious prospect of administrative chaos in the administration of the International Antidumping Code. (Page 25.) IX. Canada, a key signatory, cannot provide reciprocal concessions under the International Antidumping Code by the July 1 effective date. (Page 27.) I. Introduction-The Cement Industry's concern with the unfair trade practice of dum~ping The Cement Industry has been vitally interested for the past ten years in United States policy concerning the unfair trade practice of dumping. The Cement Industry has had substantial experience under the Antidumping Act of 1921. As set forth in Appendix B, the Cement Industry during the period 1958-1965 was forced to file nineteen complaints tinder the Antidumping Act. The dumping during this period was on a continuing basis, with importers shifting from country to country as the complaints were filed against their sources of supply. The formal proceedings involved cement imports from fifteen different nations. That the industry suffered serious injury was borne out by the antidumping proceedings, in which the Treasury Department found reason to suspect dumping in fourteen cases. A number of these proceedings were dis- continued by Treasury on assurances by foreign exporters that there would be no further dumping. In four cases the Tariff Commission made affirn~ative determinations of Injury and special dumping duties were imposed on dumped cement imports from four countries (Sweden, Belgium, Portugal and the Do- ininican Republic), which continue in effect. Because of the injury sustained from dumping, and because of its inability to obtain effective relief under the Antidumping Act of 1921, the industry has since 1963 supported legislation to amend the Act. The primary purpose of this legislation is to provide meaningful relief to domestic industries injured by dumping. H.R. 1075 and other identical bills pending before your Committee provide sucl~i relief. The Cement Industry wishes to make clear to the Commit- tee that it continues to support this legislation fully, and it intends to file a separate statement for the record in support. II. The Cement industry's position on the International Antidumping Code is unrelated to the Kennedy Round concessions or any pending quota pro- posals, and is concerned only with the unfair trade practice of dumping The Cement Industry's position in the trade area is concerned only with the unfair trade practice of dumping and has no impact on or relation to the Ken- nedy Round tariff concessions. The Code was negotiated separately and is in no way tied to the Kennedy Round agreements. Although cement tariffs will be virtually eliminated pursuant to the Kennedy Round,' the industry does not object to the Geneva results. On the contrary, the industry's only concern is that imports that arrive in this country are legitimate, and are not sold un- fairly at dumped prices. This has beemi the policy of the TJnited States Congress 1The duties on Gray Portland Cement and Gray Clinker were completely eliminated. The duties on White Portland Cement and White Clinker were reduced by the maximum of 50 percenit. PAGENO="0106" 1376, for over fifty years, and dumping has been universally condemned as an unfair trade practice, as affirmed in the General Agreement on Tariffs and Trade. Similarly, the Cement Industry's position does not involve any pending quota - or tariff proposals. The Cement Industry does not seek increased tariffs on cement, nor does it seek quota relief. In fact, the industry has never sought to restrict the entry of imports into this market. The industFy's concern with the unfair trade practice of dumping is only to ensure that import competition is subject to the same standards of fair trade that are observed by U.S. industries under the antitrust laws. III. Ways and Means Committee action on the International Antidum ping Code is urgently required before July 1, 1.968 The International Antidumping Code is scheduled to become effective on July 1, 1968. The Code will be implemented In this country by means of substan- tial amendments of the Treasury regulations, which were published on June 1, to become effective on July 1. As described more fully below, these new regula- tions have been promulgated by Treasury despite their conflict with the Anti- dumping Act. Furthermore, although Treasury intends fully to implement the Code, a recent Report of the Tariff Commission suggests that that agency does not intend to be bound by the Code in the numerous areas of conflict. Therefore, among other repercussions if the Code is permitted to become effective, there will be administrative chaos in the administration of the Antidumping Act. Under these circumstances, it is essential for the Ways and Means Committee immediately to urge the President to postpone the implementation of the Code until these hearings on trade policy are concluded. This will enable the Committee to consider fully and render its judgment on the Code, H. Con. Res. 447, and other pending antidumping prQposals. Postponement of the effective date of the Code would have no impact on the United States' obligations or its trading partners' obligations under the Kennedy Round. Furthermore, there would be no need for embarrassment on the part of the President, since Canada, one of the key signatories of the Code, definitely w-ill not implement it by the scheduled July 1 effective date. The significant impli- cations of Canada's failure to implement the Code are reviewed more fully in Section IX below. ITT. The implementation of the Antiduinping Code without Congressional ap- proval will constitute a dangerous precedent of usurpation of Congressional authority by the Executive If the Antidumping Code is permitted to become effective without Congressional approval, this will constitute a dangerous precedent of usurpation by the execu- tive of Congressional authority. This would necessarily be a result because the Code, in the form of an international agreement, amends and revises substan- tially the Antidumping Act of 1921 without any Congressional action. The extent to which the Code amends and conflicts with the Antidumping Act is covered in Sections V and VI below. The Antidumping Act of 1921 is a domestic trade law and an integral part of the unfair trade laws of the U.S. The Act was clearly intended to apply the domestic antitrust laws to imported goods in competition with domestic products. That this was the intention of the Congress is clear from the legislative history of the Antidumping Act. ". . . the purpose of the proposed bill (forerunner of the Antidumping Act) is to prevei~t the stifling of domestic industries by the dumping of foreign merchandise . . . - Over 20 years ago, by the enactment of the Sherman Anti- trust Law, Congress recognized the necessity of legislation to prevent unfair methods of competition and monopoly within the United States, but effective legislation to prevent discriminations and unfair practices from abroad, to destroy competition and control prices, has not been enacted." H.R. Rep. No. 470, 66th Cong., 1st Sess., 1 (1919). Like other unfair trade laws, the Antidumping Act can be revised only through the Congressional process. As the Tariff Commission concluded in its recent Re- port to the Senate Finance Committee on Senate Concurrent Resolution 38-the Senate counterpart to IT. Con. Res. 447-"The Code, no matter what are the obligations undertaken by the United States thereunder internationally, cannot, standing alone without legislative implementation, alter the provisions of the Antidumping Act." The amendment of this legislation by an international agree- PAGENO="0107" 1377 mont is indistinguishable from an effort~ foe example, of the Executive to change through such an agreement the standards of the Sherman Antitrust Act, Similarly, the Executive could just as well sign an international criminal code purporting to cover crimes committed by importers. It is unquestionable that such actions would be considered by Congress and the States as clearly inter- fering with their legislative prerogatives. If Congress fails to act to prevent the Executive Branch from revising both the standards and procedure of a statute passed nearly fifty years ago to protect American industry from an unfair trade practice, then there should be little to deter the Executive in the future from negotiating revisions of other trade legislation, such as the countervailing duty statute, or even legislation out- side the trade field. The Cement Industry Committee respectfully submits that it is in Congress' own interest to express its sense that the International Anitiduniping Code should not become effective unless and until it has been specificaly approved by the Congress. It is our position that In the first instance the issue of the Code is one of the balance of power and Congress' constitutional mandate in the area of domestic unfair trade legislation. V. As concluded by the Tariff Commission, there i~ serious and inevitable con- flict between the International Antidum ping Code and the Antidumping Act of 1921 The Cement Industry Committee takes the position that the proposed pro- visions of the International Antiduniping Code would amend and conflict with the Antidumping Act of 1921. A majority of the Tariff Commission in Its recent Report submitted to the Senate Finance Committee confirmed that the Code is in serious and inevitable conflict with the Act. This conclusion was reached in a 3-2 decision in which two dissenting Commissioners took the position that conflicts between the Code and the Act should be determined only on a case-b~y~ case basis~ The Tariff Commission majority found in almost every `instance that the Cod~ is in conflict with or in some manner alters the Act. This statement will con- centrate on the three basic areas of conflict between the Code and the Act foun~1 by the Commission. 4. Injury ~tandards The Tariff Commission Report emphasizes that the injury provisions of the Code require a showing "that the dumped imports are demonstrably the prineipal cause of material injury or of threat of material injury to a do'n~estic Industry", whereas the Act requires only that the Commission determine "whOther an in- dustry in the United States is being, or is likely to be injured". The Conminisslon majority emphasizes thht the Act does not require a determination that dumped imports cause an adverse effect to a greater degree than any other factor adversely affecting an industry before `there can be a finding of injury, as is required by the Code. B. Industry ~tandards Similarly, the `Commission majority concludes that the industry concept of the Code differs substantially from that of the Act. The Code permits considera- tion of a regional industry only where the producers within such a market "sell all or almost all of their production" in th'at market, and there is Injury to "all or almost all" of the producers In the regional market. The CommissiOn majority concludes that this concept is "so narrowly defined" that four out of five prior injury determinations of the `Commission under the U.S. Act would have been reversed under the Code, and that the Code's permissible circumstances for re- gional industry consideration "rarely exist". C. Treasury Versus Tariff Commission Fvnctions The Commission majority also. concludes that the Code cohfiicts with the divi- simm of functions between the Treasury Department and the Tariff Commission under the Antidumping Act. The majority states `that the Code's requirements of simultaneous consideration of dumping and injury creates "an anomalous re- sult", and that effective simultaneity under the Act~is "not procedurally feasible or logical". Furthermore, the Code's requirement that a dumping complaint must l)e rejected (by Treasury) if there is not sufficient evidence of injury is in con- flict with the U.S. Act, which vests sole authority in the Commission to make PAGENO="0108" 1378 injury determinations. Moreover, the Code prohibits the imposition of any provisional measures until there is "sufficient evidence" of injury. Under the U.S. Act, the Treasury Department must automatically issue a withholding of ap- praisement notice on the product in question once it has reason to suspect dump- ing. Since Treasury has no authority under the Act to make any determination of injury. The Commission majority concludes that compliance with the "suffi- cient evidence" provision of the Code would preclude use of the withholding notice required by the Act. Notwithstanding these findings of the Tariff Commission, the new Treasury regulations will implement the Code. To accomplish this, however, Treasury proposes to ignore a specific decision of Congress. In 1954, Congress amended the Antidumping Act in order, to transfer completely the injury determination to the Tariff Commission. Under Section 53.27(e) of the new regulations, a dumping complaint is required to show evidence of injury and thus Treasury will make some kind of injury determination. There is no indication of whether this injury determination will be based on the onerous standards of the, Code, described above, as distinguished from the more reasonable injury standard of the U.S. Act. Whatever standard Treasury in fact adopts violates the Congressional man- date that the Tariff Commission alone should make determinations of injury. Similarly, Sections 53.88 and 53.39 of the new regulations effectively w-ould au- thorize simultaneous consideration of injury by the Tariff Commission and re- consideration of dumping and injury by Treasury, in clear defiance of the Act's requirement that the injury determination is to be made only after the dump- ing investigation has been concluded. Section 53.34 of the regulations would once more inject Treasury into the injury arena, by requiring that there be evidence of injury before the provisional measure of withholding of appraisement is im- posed. This is designed to comply with the Code requirement that there be suffi- cient evidence of injury before provisional measures are imposed, and will evis- cerate one of the basic protections against dumping afforded under the present statute. After reviewing these three major areas of conflict and other serious conflicts between the Code and the Act, many of which have been reflected in the new Treasury regulations, the Tariff Commission concludes that such an alteration of domestic law cann'ot be accomplished without Congressional action. As already quoted above, the majority states that "The Code, no matter what are the obliga- tions undertaken by the `United States thereunder internationally, cannot, stand- ing alone without legislative implementation, alter the provisions of the Anti- d'umpir~g Act". In additional comments, `Commissioner `Clubb states that the ma- jority's position is that the Commission is "powerless" to apply the Code until it is implemented or approved by Congress. H. `Con. Res. 447 would express the sense of Congress th'at the Antidumping Code is in conflict with `the Antidumping Act and therefore can be implemented only with Congressional action. `This was the conclusion of the Tariff Commis- sion-the agen'cy directed to enforce the main provision of the Antidumping Act. If there is any need for `further support for H. Con. Res. 447, it is readily avail- able in the fact `that the Code not only conflicts with `the existing A'ct but would w-e'aken it so severely as to effectively repeal it. `This is covered `by the nevt section. VI. The International Antidumping Code will weakcn~ and emasculate the Anti- dumping Act of 1921 If the International Antidumping Code is permitted to become effective, the Antidumping Act will inevitably `be weakened. In fact, the emasculation of the Act by the `Code will effectively repeal it. Domestic industries have not been able to obtain meaningful and effective relief from dumping under the Act, but under the `Code it would be extremely difficult, if not impossible, to obtain any kind of relief. The specific problems the Cement Industry would encounter under the Code are covered in I5ection VII `below. While the Antidumping Code weakens the Act iii many respects. the revision of the industry and injury standards required by the Code w-ill have the greates't impact. It has already been explained above that the `Code w-ould require a show- ing that the dumped imports are "demonstrably the principal cause of material injury or of threa't of material injury". This rigid l)urdefl of proof is in marked contrast to the Antid'umping Act which simply requires the showing that an in- dustry "is being or is likely to be injured." The Code's injury standards severely restrict the Tariff Commission's ability to make an affirmative finding of `injury. For example, in `the Tariff Commission's `recent 2-2 affirmative finding of in- PAGENO="0109" 1379 jury in Cast Iron Soil Pipe From Poland, the two `Colnmissioner$ finding injury under the Act, applied standards which clearly would not satisfy the Code. Com- missioner C.lub'b applied a test of causality that required merely that price fluc- tuations were "at least in part" due to dumping. He concluded that a finding of injury is required when there is anything more than "immaterial" injury. Com- missioner Sutton concluded that any injury in excess of de minimis requires an affirmative determination. The onerous burden of the "demonstrably principal cause" test is amply verified by recent experience with the adjustment assistance provisions of the Trade Ex- pansion Act of 1962. Under these provisions adjustment assistance relief is avail- able to domestic industries or workers where increased imports from tariff con- cessions are shown to be the "major cause" of injury to an industry. No industry or labor group has been able to sustain this difficult burden, and all petitions filed under this provision since 1962 have been unsuccessful. It is for this reason that the Administration has proposed that the Trade Expansion Act be amended to require a showing only that increased imports are "a substantial cause" of in- jury. In his trade message on May 28, 1968, to the Congress, President Johnson described the "major cause" test as "too rigid, too technical, and too complicated." In his statement on July 11, 1967, to the Subcommittee on Foreign Economic Policy of the Joint Economic Committee of Congress, Ambassador Wiliam Roth described the difficulties of the "major cause" test as follows: "Unfortunately, however, the adjustment assistance provisions have not had the expected beneficial effect, because in practice the present test of eligibility to apply for the assistance has proved too strict. In fact, in no case brought under the act have any firms or workers been able to prove eligibility. "The present test of eligibility requires (1) that tariff concessions be shown to be the major cause of increased imports and (2) that such increased imports be shown to be the major cause of injury to the petitioner. "In the complex environment of our modern economy, a great variety of fac- tors affect the productive capacity and competitiveness of American producers, making it virtually impossible to single out increased imports as the major cause of injury. In fact, it has usually been impossible to prove that tariff concessions were the major cause of increased imports." Despite the Administration's clearly articulated position that a "major cause" test is far too difficult for domestic industry to meet. under the Trade Expansion Act, the same Administration would require domestic industries under the Anti- dumping Code `to carry an equally onerous burden. There is language in the Anti- dumping Code that suggests that the "principal cause" Is that which outweighs the combined importance of other causes. Although one might debate the semantic distinctions between principal and major, it is clear that the principal cause test under the Code is no less strict than the major cause test that has been em- ployed under the Trade Expansion Act. Surely, in the words of Ambassador Roth quoted above, it is virtually impossible in the "complex environment of our modern economy" to show "demonstrably" that dumped imports are the "prin- cipal cause" of injury. It is difficult for the Cement Industry to understand why the Administration is convinced that liberaliza:tion of the adjustment assistance provisions Is needed while at the same time it advocates a severe restriction of this nation's law pro- hibiting dumping. After all, the adjustment assistance provisions are a form of protection of industry from legitimate competition, not an unfair trade practice like dumping. One can only surmise that in the bargaining in Geneva the U.S. negotiators-in order to obtain concessions from other countries which are of doubtful value-were willing to bargain away any real substsnce that the Anti- dumping Act contains. The Antidumping Code also would weaken severely the industry provisions of the Antidumping Act.. The next section will describe how this revision of the Act will preclude any relief to' `the Cement Industry. The Code defines the term "domestic industry" so as to encompass all producers of a particular product which is "like" the dumped product under consideration. Only in very "excep- tional circumstances" is the Tariff Commission permitted under the Code to con' sider a regional market as the area affected. Furthermore, as the Tariff Coin- mission concluded in its Report, a regional industry can be considered only where producers iii the region sell "all or almost all" of their product in the limited market area, and there is a finding of injury to "all or almost all" of such pro- ducers. In contrast, the Antiduinping Act does not restrict the Tariff Commission in its determination of what constitutes "an industry in the U.S.". Under the Act, PAGENO="0110" 1380 the Commission has concluded in many cases, and particularly in cement cases, that `the industry may `be appropriately defined as a regional competitive market, without requirements that producers sell virtually all of their production in the market and tha't virtually all of the producers are injured. The rigid standards of the regional industry provision of the Code are t'hus so restrictive as essentially to preclude any consideration of a regional market where the companies involved operate in mOre than one market area. This has a par- ticular impact on industries like cement, where the product is expensive to transport and the impact of imports is not likely to `be felt much beyond the immediate port area. It is for this reason, as discussed in the next section, that the Tariff Commission concluded `that it would have been forced to reach an opposite result in four cement dumping cases under the present Act if it had been required to apply the restrictive regional industry concept contained in the Code. There are many other provisions of the Code which would weaken the Anti- dumping Act. It has already been pointed out `that the withholding of appraise- ment provisions of the Act wnuld be severely curtailed by the requirement that there be evidence of injury before provisional measures can be imposed. Similarly, the injection of `the Treasury Department back into the injury determination further res'tricts the function of *the Tariff Commission in antidumping proceedings The Cement Industry Committee submits that in addition to the usurpation of Congressional authority `and the severe conflict with the Antidumping Act involve'd, the Cod'e' should not be permitted to `become effective `because it effec- tively repeals the Antidumping Act of 1921. It is manifest that only Congress can approve and implement an international agreement that substantially amends and revises an act of Congress. VII. The Cement Industry would not be able to obtain any relief from dumping under the International Antidumping Code As was noted at the outset, the Cement Industry has suffered serious injury in the past from the unfair trade practice of dumping. During the period 19~8-19~5, the Treasury Department found reason to suspect clumping in fourteen out of nineteen cases filed by the `industry. A number of these cases were dismissed by Treasury on assurances of discontinuance of dumping and for other reasons, as described in Appendix B. There w'ere four cases in which the Tariff Commis- sion made an `affirmative finding of injury and the industry o'btained the maximum relief in the form of special dumping duties on cement imports from Sweden, Belgium, Portugal and the Dominican Republic. At the time of the cases, imports from th'ese countries were entering New England, New York, New Jersey and Florida. Under the Antidump'ing Act these special duties continue In effect any time that cement imports are found to be dumped in this country. In these four cases, the Tariff Commission found that the Cement Industry had been Injured and relief was warranted. Yet, such a finding and such relief would have been completely barred if the An'tidumping Code bad been in effect. As set forth above, the Tariff Commission reached this conclusion in `it's' recent Report to the Senate Finance Committee. Covington & Burling was counsel to the Cement Industry in each of the four cases, and has advised that in its judg- ment the Tariff Cominnission majority is correct that an opposite outcome' would have resulted under the Code. In the first place, the Cement Industry under the Code would `have been required to show "demonstrably" that the dumped imports were "the principal cause" of material injury. The extreme burden of proof required by this standard has already been discussed in Section VI above. It is sufficient to s~y here that it is doubtful that the Cement Industry would have been able `to sustain this `burden under the Code, although the Commission found the requisite injury under the Act in each of the four cases. For example. the Commission in `the four cases found that there were eonornic factors other than dumping that contributed to the injury to the cement companies involved. Under these circumstances, it would have been exceedingly difficult, if not imnpos)sible. to `show that the `dumping demonstrably was the "principal cause" of material injury. It is absolutely clear that, as the Tariff Commission concluded, the restrictive concept of regional Industry in the Code would have prevented the Commission from finding injury to "an indu's'try in the United States" in the four cement cases. It may l~e helpful to consider two of the cases as examples. 111 the' case of PAGENO="0111" 1381 Portlaiicl Cement from Sweden, the Tardff Conunission determined that the "competitive market area" consi~tecl of a limited number of cement niants, sup- 1)lYing Rhode Island, Eastern Massachusetts and Easterii Connecticut. This group of producers sold in the designated regional market area only between 6.1 and 27.2 percent of their total domestic Production. 1-Jence, this limited group of pro- ducers clearly failed to satisfy `exceptional (ircuinstances" necessary for coii- sideratioli of a regional industry ufl(ler the Code. rpl~e~ sold consideraidy- less than "all or almost all" of their pr'oductioi~ in the limited New Englai~l niarket. It is also extreiiioly doubtful that it could have been `demonstrably" shown that the (IUIilpe(l Swedish imports injured `all oi~ almost all" of tile Producers in the market. Similarly, in the case o~f Portland Cement from Belgium, one of the market areas involved the Southeast Florida market, where two new cement J)lants came 011 stream in the Miami area in 19~5S. Both coml)aliies involved had cement plants in other markets, totally unrelated to Southeast Florida. They did not "sell all or almost all of their production" in Southeast Florida: under the Code they would therefore, not have been entitled to relief. Thus, the Report of the Tariff Commission, and the application above of the Code's regional injury standards to two of the prior cement cases, support fully the proposition that the Cement Industry will be effectively precluded from ob- taining any relief under the Antidumping Code. The Cement Industry consists of a series of regional markets. As noted earlier, the effective impact of dumped cement imports is limited because of the high cost of traffsporting the cement inland from the port of entry. The total area of competitive Impact will always remain confined to limited geographic markets. Putting to one side the rigid injur tests of the Code, it is obvious that a cememit company or group of corn- paimies cannot show material injury if the test is based on the entire national market, as required under the Code. It is reasonable to assume that once it becomes knowmi that the cement In- dustry will be unable to deter dumped cement under the Antidumping Code, for- eign producers will resume dumping in this market. The dumping of cement dur- ing the period 19~S-i9G~ was consistemit amid involved at least fifteen countries. The industry's diligent prosecution of these dumping violations and the pendency of legislation to strengthen the Act have no doubt deterred cluit~p1ng in recent years. The implementation of the Antidumpiug Code will remove such deterrents, and it is very likely that the dumping of excess cenmemmt capacity will be resumed. Under these circumstances, the Cement Industry belives strongly that full de~ liberation amid consideration of the Antidumping Code by Congress i'~ essential. T~III. There is a serious prospect of administrative chaos In the administration of the International An tiduniping Code If time International Antidumping Code is allowed to `become e~ectIve in the U.S., it appears inevitable that there will be confusion bordering on chaos in the administration of the Antidurnpimmg Act. This is because of time contrary positions of time Treasury Department and time Tariff commmmnission, which have been out- lined above and mmeed only be briefly referred to again. Time new regulatiomms promulgated by time Treasury Department, which become effective on July 1, w'ill implemnent the Code within those areas encompassed by time Treasury functiomi. Under `the Antidumping Act, Treasury is charged only with time responsi~bility of making time determuimmiation of whether dumping has occurred : the Tariff Commnision has time sole respomisibijity of mnakimmg tlme deter- milmatiomi of whether injury lmas resulted frommi time duimmping. Ummder the new regu- lations, however, tue Treasury Departnment will 110w- coimsider injury. As pre- m-iousiy pointed out, it is not clear wimat; standard of injury will be used-time restrictive standards of time Code or the lc~s strict standard of time Act. In any em-cut, time new- Treasury regulations are desigmmed to follow the Code to time letter. On the other lm:umd, a majority of time Tariff Conmnmission has made abundammthy lear that it will imot be able to apply the Code uimless and umitil it has been ap- Proved by the Congress. Furthernmore, time Commmmissioim has indicated its dis- agreemneimt witim Treasury as to time functions wimicli are normally admninistered by Treasury mmder time Act. With respect to injury, there is a strommg possibility that Treasury may be usiimg the Code standard of immjury w-hereas time Commmmmiission will apply time Act's standard. It mmnmst hi' enmphasized timat 110 dunmpimmg case can reach time Tariff Comimimmission ummiess it is referred there by Treasury. The contrasting positiomms of Treasury and the Coinnmission concerning the Code suggest the in- evitability of different interpretations of mnammy sections of the Act. This situa- PAGENO="0112" 1382 tioñ would preclude any prospect of certainty and predictability for business- men-both importers and domestic producers-in evaluating their status under the Antidumping Act. Although there are sufficient other reasons for Congress to express its sense that it should consider the Antidumping Code, the prospect of Administrative chaos in the administration of a Congressional unfair trade statute provides an additional practical reason for such consideration. Congress specifically directed in 1954 that the functions under the Act be separated as between Treasury and the Tariff Commission. Unless action is taken to clarify the status of the Code, this division of functions will be obliterated, and the two agencies will differ markedly in their interpretation and administratioli of the Act. IX. Canada, a key signatory, cannot provide reciprocal concessions under the International Antidumping Code by the July 1 effective date At the time of the announcement of the conclusion of the negotiation of the International Antidumping Code, the Administration emphasized that meaningful concessions had been obtained from other countries in order to encourage U.S. exports. Ambassador Roth has already emphasized this point in testimony before this Committee. In particular, stress has been placed by the Administration in the past on the fact that Canada had signed the Code and thereby agreed to require a finding of injury as a prerequisite to the imposition of dumping duties. Under present Canadian law, a determination of dumping automatically results in the imposition of such duties. Canada, however, along with many other countries-in inexplicable contrast to the United States' position-made clear that its signature on the Code was not binding since Parliamentary approval and legislation were required. Not- withstanding this, the United States negotiators represented that they viewed the Code as final and binding on the United States, evidently without regard as to whether other countries took steps to implement the Code. As might well have been expected, the significant concessions purportedly ob- tained from Canada have so far proven illusory. No Canadian legislation has been adopted to implement the Code, and the Parliament has been dissolved for the elections later this month. The newly elected Parliament is not expected to con- vene until after July 1, the date by which Canada agreed to implement the Code. Moreover, there has been no real indication that Canada will ultimately enact the required legislation to make the Code effective there. It is our information that no bill has actually been introduced in Parliament, and that the Code has met with substantial opposition from a number of important Canadian industries. Oan'ada's failure to implement the Code by the effective date has no direct bearing on the Code's many legal defects from this country's standpoint. On the other hand, the lack of assurance that the concessions supposedly obtained to benefit U.S. exports will actually be forthcoming is yet another factor strongly mitigating against hasty implementation of the Code in this country, without Congressional consideration. Moreover, the failure of a major trading partner of the United States to implement the Code by July 1 provides an appropriate opening for the United States to take action to postpone the implemen'tatioii of the Code here. If there is any concern about embarrassment-and there should not be where the Executive branch has acted beyond its authority-the Canadian situation does provide a valid reason for reconsideration of the Code by the United States. CONCLUSION The Cement Industry Antidumping Committee strongly urges that this Com- mittee take positive action to postpone the July 1 effective date of the Inter- national Antidumping Code, and to report out favorably House Concurrent Resolution 447. The Code is in fundlamential conflict with the An'tidumping Act of 1921, and would severely weaken and emasculate the Act. The Cement Indus- try, which has suffered serious injury from dumping in the past, would be effectively barred from relief under the Code. Moreover, the implementation of the Code in this country would constitute an usurpation of Congressional au- thority by the Executive. Implementation would also lead to admin!istrative chaos a's the Treasury and the Tariff Commission have taken contradictory positions. Hence, action by this Committee is vital if United States industries are to be able to compete free of the unfair trade practice of dumping-a practice condemned by Congress for over 50 years and condemned by all major trading nation's as well. PAGENO="0113" Allentown Portland Cement Company Alpha Portland Cement Company American Cement Corporation Ash Grove Lime and Portland Ce- meat Company Atlantic Cement Company, Inc. California Portland cement Com- pany Coplay Cement Manufacturing Oem- pany The Fiintkote Company General Portland Cement Company Giant Portland Cement Company Gulf Coast Portland Cement Coin- pany Huron Cement Company Ideal Basic Industries Kaiser Cement and Gypsum Corpo- ration Keystone Portland Consent Company Lehigh Portland Cement Clompany Loi~e Star Cement C'orporation Marquette Cement Manufacturing Company Martin Marietta Corporation Medusia Portland Cement Company Missouri Portland Cement Company National Cement Company The National Portland Cement Com- pany Nazareth Cement C'ompany ~orthwestern States Portland Ce- ment Company OKC Corporation Oregoas Portland Cement Company Penn-Dixie Cement Corporation Puerto Rican Cement Company San Antonio Portland Cement C~m- liany Southwestern Portland Cemeht C~m- pany The Whitehall Cement M'anufaetur~ ing Company Wyandotte Chemicals Corporation Date of Treasury initial Country of exportation formal finding of reason Nature of final determtnation by Treasury complant to believe or Department or Tariff Commission suspect dumping Belgium Oct. 2, 1959 Yes Treasury found dumping and Tariff found injury to the - domestic industry. Canada May 28, 1959 Yes Treasury found dumping but Tariff found no injury to the domestic industry in part because continuation of dumped sales seemed unlikely. Colombia Sept. 25, 1959 No Treasury found no dumping. Denmark Apr. 28, 1960 Yes Treasury found dumping but did not refer it to Tariff partly because of cessation of shipments. Dominican Republic Aug. 19, 1961 Yes Treasury found dumping but Tariff found no injury at the time to the domestic industry. May 4, 1962 Yes Treasury found dumping and Tariff found injury to the domestic industry. Israel July 21, 1959 Yes Treasury found no dumping partly because of a non- cost-justified quantity discount allowance. Italy June 7,1962 No Treasury found no dumping. Japan Dec. 1, 1961 None Treasury found dumping but did not refer to Tariff partly because of assurances by the producer that dumping would not be resumed. Feb. 5, 1963 Yes Treasury found dumping, but Tariff found no inury to the domestic industry. Aug. 26, 1965 No Treasury found no dumping. Norway Sept. 15, 1958 Yes Treasury fund no dumping solely because of a non~cost- justified quantity discount allowance. Dec. 27,1961 Yes Do. Poland Dec. 29, 1960 Yes Treasury found no dumping, but used a 3d country price and not Polish as home market price. Portugal June 9, 1960 Yes Treasury found dumping and Tariff found injury to the domestic industry. Sweden Nov. 25, 1958 Yes Do. Tunisia Sept. 13,1960 No Treasury found dumping but did not refer itto Tariff on assurances by the producers that dumping would not be resumed. - West Germany Aug. 13,1959 Yes Do. Yugoslavia Aug. 28,1961 Yes Do. - APPENDIX A TIlE CEMENT INDUSTRY ANTIPUMPING COMMITTEE APPENDIX B 05-159 0-68-pt. 4-S PAGENO="0114" 1384 (The following supplementary statement was received by the committee:) SUPPLEMENTAL STATEMENT SUEMITTED ON BEHALF OF `CEMENT INDUSTRY ANTI- DUMPING COMMITTEE On June 14, 1968, Mr. John Mundt testified before the Ways and Means Com- mittee on behalf `of `the Cement Industry Antidumping Committee. Mr. Mundt's oral testimony *and his prepared statement were directed only to the Cement Industry's position o'n the International Antidumping Code. During his testimony, Mr~ Mundt requested and was granted permission by the Chairman to file a supplemental statement for the record, reaffirming the Cement Industry's SU1)- port for pending legislation to `strengthen the Antidumping Act of 1921. Accord- ingly, thi~ supplemental statement will set forth the reasons for `the Industry's continuing support of this legislation. The pending legislation to `strengthen the Antidumping Act includes H.R. 1075 and other similar bills now pending before the Ways and Means Committee. This legislation has a counterpart in the Senate w-hich has the sponsorship of forty-one Senators (5. 1726). The primary purpose of the legislation i's to amend the Antidumping Act to ensure that it will provide meaningful and effective relief to domestic industries injured by the unfair trade practice of dumping. This statement will explain both the need for this legislation and the significance of its main provisions. The discussion will cover the following points: I. The Need for an Effective Antidumping Act. II. Provision for Time Limi'tation on Treasury Investigations. III. Provisions for Procedural Safeguards in Treasury Investigations. IV. Elaboration of Injury `and Industry Standards for Guidance of the Tariff Commission. V. `The Antidumping Act Under `the Proposed Legislation Would Remain ~n Integral Part of the Unfair Trade Practice Laws. L THE NEED FOR AN EFFECTIVE ANTIDUMPING ACT The cement Industry has, of `necessity, had more experience with the iiiade- quacie~ of the present Antidumping Act `than any `other industry. For the past ten years there has been widespread dumping of foreign cement at unfair prices,' and the industry has suffered exten'sively from this unfair trade practice. Nine- teen times `the industry has been forced to `invoke' the machinery of the Act by filing formal complaints involving cement imports from fifteen different countries. The limited relief afforded in these proceedings has been wholly inadequate. These proceedings are summarized in Appendix B of `the Cement Industry's state- ment filed with the Committee on June 14, 1968. The good faith of the domestic Cement Industry in filing these complaints is demonstrated by the fact that in fourteen of the nineteen cases the Treasury Department found "reason to believe or suspect" that dumping was taking place. In five of these cases Treasury made a finding of dumping, but did not refer the matter to the Tariff Commission upon assurances by the importers involved that the dumping would `be discontinued.2 In several instances an initial finding of dumping was later excused because of quantity discount allowances which were not cost-justified. While this was Treasury's policy at the time, non-cost-justified quantity discount allowances are no longer recognized by Treasury unless the foreign producers actually use such a discount schedule in their home markets as well. In another seven cases a final determination of dumping was made, and the case was referred to the Commission for a determination whether the dump- ing was causing injury to the domestic Cement Industry. In four of these cases (Sweden, Belgium, Portugal and the Dominican Republic) the Commission found the requisite injury, and special dumping duties w-ere imposed. These duties are still in effect. It should he kept in mind in assessing this record that dumping has been condemned by Congress as an unfair trade practice for over fifty years. The `See Table II entitled "Dumped or `Tainted' Cement Imports, 1958-1067 (BBLS)" in the statement filed with this Committee by the United Cement, Lime & Gypsum Workers' International Union, AFL-CIO. 2 The dismissal of complaints even though dumping has been found-because of price revisions-is a Treasury practice which is not permitted under the Antidumping Act. The Act requires that once dumping has been found the case must be automatically referred to the Tariff Commission for an Injury determination. PAGENO="0115" 138~ sole purpose of the Anticlumping Act is to prevent this practice aud the resulting injury to domestic industry by requiring foreign mann1~acturers who export to this market to observe the same standards of fair competition that competing do~nestic sellers must observe under the U.S. unfair trade practice and anti- trust laws. Furthermore, the only relief available under the Antidumping Act is the imposition of a dumping duty Which is intended to elimbiate the unfair competitive advantage obtained through the clumping. The domestic industry, therefore, even when successful in obtaining the maximum relief under the Antidumping Act, gains no competitive advantage over the foreign industry. The only result is that the foreign manufacturer must surrender the unfair advantage which it has gained through dumping, and fair competitjoji is restored. The injury suffered by the domestic Cement Industry through foreign dumping has been extensive. First, there have been sales lost directly to dumped imports. These have been sizable because of the drastic competitive effect in the cement market of the price cutting which illegal international price discrimination makes possible. Since cement is a homogeneous, non-differentiated prodi~ict made to standard specifications, no brand can claim any consumer loyalty or any price premiuni. Thus, if clumping makes Possible a price for imports only a few cehts below the domestic product, the dumped cement will be purchased at the ex- pense of competing domestic products, Secon4, lost sales by the U. S. Cement Industry are immediately and directly reflected in lost jobs and wages for American workers.~ Third, the dumped imports have a depressing effect on gen- eral cement prices in all areas where domestic cement must constantly cotapete for sales with the lower-cost clumped imports. Thus, the American prodticers have been able to maintain their sales which are not takeu over by dumped im- ports only at prices which have been forced substantially downward by the dumped imports. Fourth, the dumped imports have contributed to keeping the domestic Cement Industry operating far below capacity. This results in higher domestic costs because of the inefficient use of the productive assets which the industry pur- chased in proper anticipation of a tremendous growth in all types of construction in the United States during the 1980's. Fifth, through a "ripple" ~ffe~t the di~mped imports result in an extension of the lower domestic price, reduced in order to meet the dumped price of the Importers, to ether areas which the th~porters do not reach. Contractors in areas not served by the importers often. compete with eo~Itractors within this area who are purchasing cement at the lower domestic priee, forced down by the dumped imports. These companies, in turn, demand that the domestic cement producers extend the lower price to tbem to permit them to compete on equal terms with the contractors within th~ area served by the importers. Thus, dumped imports force the price of domestic cement down- ward In SOme areas beyond the area served by dumped 1mpo~ts. FinaUy~ ex- perience shows that, once the price is reduced by the domestic eoin.pttn1e~ as a result of the dumped imports, it becomes impractical to return to the higher price after dumped imports have been counteracted by the imposition ol' the special dumping duties. The Cement Industry has suffered considerable injury frota the unfair trade vractice of dumping. Its attempts to obtain relief under the Anttdumping A~t have met with, at best, limited success. The industry feels that It l~ imperative that the Act be revised to provide more effective relief and to brtn~ ft zi~ore in line with U.S. unfair trade practice and antitrust laws. The pending i~ntMumping legislation has been introduced to accomplish these objectives. The mnin feature~ of this legislation and the inadequacies of the Present Act which they are intended to remedy will be discussed below-. II. flOVIsION ron ~nin LIMITAPION ON TREAsURy xxvaspxGArfoNs tt is essential that a time limit be place upon the Treasury Department's in- vestigation and determination of whether dumping has occurred, Final deter- minations have been inordinately delayed in `the past. This uncertainty has injured importers while the provisional measure of withholding of appraisement was In effect. Troa~ury investigations of Cement Industry dumping complaints, See Tables IV and V entitled "Man-Hours Lost" and "Equivalent Wages Lost" from dumped cement, in the statement filed with this Committee by the United emnent, Lime & Gypsum Workers' International Union, AFL-CIO, PAGENO="0116" 1386 for example, have averaged seventeen months, `and one lasted more thaii three years after the filing of the complaint. The proposed legislation would establish a six-month time limit for such investigations, with a "safety valve" to permit additional time if needed. If exceptional circumstances require more than six months, the Secretary of the Treasury would advise the Chairman of the House Ways and Means Committee and the Chairman of the Senate Finance Coin- mittee of the reasons why a longer period was required. This proposed six-month time limit for `the dumping determination is twice as long as the period which Congress set in 1958 for the Tariff Commission to make its injury determina- tion under the Act-an issue of at least equal complexity. IlL PROVISION FOR PROCEDURAL SAFEGUARDS IN PREASURY INVESTIGATIONS The proposed legislation would also ensure that the safeguards of the Admiii- istrative Procedure Act would be provided in connection with Treasury dumping investigations. In keeping with the best tradition of the common law, the right to a fair and open hearing, including the right to counsel, to present evidence, and to confront and cross-examine, would be guaranteed. Moreover, both the importer and the domestic industry would have the right to seek judicial review of an adverse determination by Treasury or by the Tariff Commission-a right not only required by the Administrative Procedure Act but inherent in our system of government. At present such review is available only to importers. Full reports would be published containing the facts and reasoning relied upon by Treasury and by the Commission in their deliberations. In this way, judicial review would be facilitated, and a body of law would be developed to guide the business decisions of importers as well as domestic industry. Finally, proposed determinations would be published to give interested parties an opportunity to correct any fallacies and to supply additional pertinent information. IV. ELABORATION OF INJURY AND INDUSTRY STANDARDS FOR GUIDANCE OF THE TARIFF COMMISSION A primary purpose of the proposed legislation is the elaboration and prescrip- tion of standards to guide the Tariff Commission in its determination of wb~ther dumping has caused injury to a domestic industry. Such standards are neces- sary to prevent repetition of the unduly varying injury determinations made in the past under the very broad and vague standards now contained in the Anti- dumping Act. These determinations have often been the product of the individ- ual economic views of the members of the Commission, rather than of an established Congressional policy. A. Industry $tandards.-The Act provides no industry standard beyond direct- ing the Tariff Commission to determine whether there has been injury to "an industry in the United States". The proposed legislation borrows from established antitrust principles in defining the domestic industry, the geographical market, and the product market, and directs the Tariff Commission to consider the effects of dumping in a competitive market area. The definitions of industry and of geographical market are designed to focus attention precisely upon the area of "competitive overlap" between dumped imports and competing domestic goods, and to preclude the Tariff Commission from considering a nationwide market when the facts show, to the contrary, a fragmentation of markets along regional lines. Similarly, the definition of a "class or kind of merchandise", delineating as it does the boundaries of a product market, is designed to relate the deter- mnination of injury to a particular line of commerce in which a domestic industry may be engaged. Other lines of commerce in which one or more mhembers of a domestic industry may be engaged, but which are outside the scope of competi- tion with dumped imports, would not be considered by the Tariff Commissioll in weighing the impact of dumping upon a domestic industry. These "industry" guidelines are necessary for an effective law prohibiting dumping. Dumped imports frequently cause serious injury to ITS. producers of competing products in specific regions or local markets, although they may not 1)0 a competitive threat to the country's entire domestic industry l)ecause the characteristics of the commodities make their distribution over wide geogral)hi(al areas uneconomical. For example, the impact of dumped cement is normally confined to the geographical area surrounding the port of entry, due to the high cost of transporting the imported cement inland. This `is the area in which the dumped cement and the cement produced by one or more domestic producers PAGENO="0117" 1387 are directly co~npetitive. Moreover, if dumped imports which injure certain local or regional markets of an industry are not checked, because of an unduly broad definition of the5 industry involved, the importer. will be able to use his unfair sales advantage to capture additional regional markets one by one. Similarly, a foreign manufacturer dumping in this country can, when coin- peting with a multi-product domestic industry, ihake serious inroads on a product- by-product basis. If in each instance the impact were measured only against the total output of the industry concOrned, even though this output incl~uded products which were not competitive with each other, the domestic industry would have no remedy until the point when the dumping was about .to drive it out of business. Thus, the product line under the pending legislation would embrace only those products "reasonably interchangeable" with the dumped imports. B. Injury S~tandards.-With the assistance of the industry definitions, de- scribed above, the proposed legislation sets forth various tests and standards. for determining whether the dumping has resulted or is likely to result in ma- terial injury to the domestic industry. The first test is whether dumped imports have reached at least 5 percent of the sales for consumption in the competitive market area. This 5 percent figure is a reasonable one, drawn from antitrust cases dealing with partial foreclosure of regional markets. The basic concept of a cas- ual connection between the dumping and the injury finding has been preserved. This concept is evident not only in the requirement that a stated minimum share of the market be seized by dumped imports before injury will be deemed to exist, but also in the defense made available to the importer if he can show that the do- inestic industry would not have supplied that share of the market even if no dumping had occurred. The remaining injury tests, like the 5 percent test, similarly require a casual connection between the unfair trade practice of dumping and the resulting injury to a domestic industry. The second test of injury is whether dumped imports have caused a price break affecting 50 percent or more of sales in the competitive market area. The third test recognizes that the `interests of domestic labor cannot lie separated from those of domestic industry in the face of dumped imports, and makes a 5 percent decline in wages or employment a cognizable in- dex of injury under the Act. The fourth injury test is in part a catchall, and in part designed to recognize certain distinct consequences of dumping as a sufficient basis for a determina- tion of injury. Foi~ instance, if dumped imports help to drive a aomestic com- petitor from the ~narket, thereby reducing the number of domestic sources of supply, a finding of anti-dumping effects giving rise to injury should be made. The second, third and fourth tests of injury, outlined above, require that the (lumping of foreign merchandise be a contributing cause of the stated effects. The Tariff Commission has on occasion refused to recognize injury when its occurrence might have been explained in part by causes other than dumping, in spite of the fact that it is rarely the case that any event is the sole or even the Predominant cause of any other event, especially in the complex field of economic cause and effect. The proposed legislation would make it clear that, if dumping is a contributing cause, the presence of concurrent causes may not be used to avoid a finding of injury. Even if actual injury is not found to exist under any of the enumerated tests, the proposed legislation would direct the Tariff Commission to find a likelihood of injury when there is a reasonable likelihood of events, in consequence of dump- ing, that will satisfy one or more of those tests. In administering the Antidump- ing Act, the Commission has on Occasion used escape clause standards and equated likelihood of injury under the Antidumping Act with imminence of injury, with the effect of rendering the likelihood clause practically inoperative. The standard of reasonable likelihood, drawn from antitrust cases, would require a more sensible and more flexible approach in administering `that clause. V. THE ANTIDUMPINO ACT UNDER THE PROPOSED LEGISLATION WOULD REMAIN AN INTEGRAL PART OF THE UNFAIR TRADE PRACTICE LAWS By amending the Antidumping Act as proposed by the pending bills, the Con- gress would assure that foreign producers selling their products in the 11.5. market in competition with domestic produce~s would be subject to the same standards of fair trade that the domestic producers must observe. One of these PAGENO="0118" 1388 standards forbids a domestic seller to discriminate in price between different pur- chasers of comparable merchandise w-hen the result of such discrimination is to cause injury of competition. The Antidumping Act extends this principle to for- eign sellers in the U.S market by forbidding such sellers to charge a lower price in this market than is charged in their own home markets, when the result is to cause injury to a domestic industry. The Antidumping Act of 1921 was enacted by the Congress as an integral part of the unfair trade practice laws of this country,4 and the proposed legislation to strengthen the Act has the si~me purpose in mind. This purpose would in no way impede or restrict legitimate imports free of the taint of dumping. The proposed legislation cannot be categorized intelli- gently as providing protection to any domestic industry against legitimate com- petition, or as depriving any foreign industry of any fair competitive advantage which it might otherwise have. It merely forecloses to the foreign supplier any unfair advantage which he might derive from dumping, a practice which has been recognized as an unfair trade practice in this country for over fifty years and which has been universally condemned. The U.S. unfair trade practice laws prohibit domestic producers from certain unfair competitive conduct. The proposed amendments to the Antidumping Act would do no more than impose a similar prohibition against such unfair prac- tices when they are engaged in by foreign competitors. The CHAIRMAN. Thank you, Mr. Mundt, and Mr. Hiss, for coming to the committee. Are there any questions? We thank ~ Mr. Hiss. Mr. Chairman, in answer to your question about lack of authority, if you would like we would be very glad to file a statement on that. The CHAIRMAN. I meant to ask you to do that, if you would. Mr. Hiss. Fine, very well. The CHAIRMAN. It will appear in the record when received. Mr. Hiss. Thank you. (The following memorandum was received by the committ6e:) * MEMORANDUM ON THE LEGAL AUTHORITY OF THE ExECIYPIVE BRANCH To NEGOTIATE TIlE INTERNATIONAL ANTIDUMPING CODE On June 14, 1968, during the testimony of Mr. John C. Mundt, spokesman for the Cement Industry Antidumping Committee, before the Ways & Means COm- mittee, Chairman Wilbur Mills inquired as to whether the Cement Industry Committee bad looked into the question of the legal authority of the Executive Branch to negotiate the International Antidumping Code, which is inconsistent with and would supersede various sections of the Antidumping Act of 1921. The response to the Chairman's question by Donald hiss of this firm, as counsel to the Cement Industry Committee, was that there is no such legal authority. At the conclusion of Mr. Mundt's testimony it was suggested and agreed that the Cement Industry Committee should file a memorandum on this point. This memorandum has been prepared and is being filed with the Ways & Means Committee in accordance with that arrangement. The authority of the office of the Special Representative for Trade Negotia- tions, which negotiated the International Antidumping Code, derives solely from the Trade Expansion Act of 1962. The Office of the Special Representative was created by Congress in that Act. Under the Trade Expansion Act, the Presi- dent, through the Special Trade Representative, was given specifically limited authority to negotiate trade agreements concerning "existing duties or other im- port restrictions." The Act and its legislative history make it clear that this authority concerns only tariff duties or other import restrictions (such as quotas) relating to specific articles of merchandise. There was no authority to negotiate trade agreements with respect to nontariff legislation, such as the Antidumping Act of 1921, which is not a tariff act and which does not reiate to specific articles of merchandise. The Antidumping Act is an integral part of the unfair trade laws of the United States. It is not designed to impose tariff duties upon specific articles of 4See pp. 7-8 of the Cement Industry Committee's statement filed with this Committee on June 14, 1968. PAGENO="0119" 1389 merchandise but rather to prevent unfair price discrinination by foreign sellers in their exports to the United States. As early as 1916 the Congress of the United States recognized that the "dumping" of goods in this market u-as an unfair trade practice, and made the practice punishable by criminal lienalties and the sub- ject of civil treble damage actions. 15 U.S.C. § 72. The International Anticlumping Code necessarily requires extensive modifi- cation and revision of the Antidumping Act of 1921, as fully documented in the Cement Industry Committee's full statement of June 14, 1968, filed with the Ways & Means Committee. The legislative history of the 1962 Trade Expansion Act understandably is meager on the relationship of that statute to the Anti- dumping Act since the latter clearly deals with matters of domestic economic regulation of unfair competition that fall beyond the purview of the former, The Antidumping Act was clearly intended to apply the domestic antitrust laws to imported goods in competition with domestic products. ". . . the purpose of the proposed bill (forerunner of the Antidumping Act) is to prevent the stifling of domestic industries by the dumping of foreign mer- chandise. . . . Over 20 years ago, by the enactment of the Sherman Antitrust Law, Congress recognized the necessity of legislation to prevent unfair methods of competition and monopoly within the United States, but effective legislation to prevent discriminations and unfair practices from abroad, to destroy compe- tition and control prices, has not been enacted." HR. Rep. No. 479, 66th Cong., 1st Sess., 1 (1919). However, the references in the legislative history of the Trade Expansion Act that do appear demonstrate conclusively that Congress did not delegate to the Executive any authority to revise the Antidumping Act, or to negotiate an international antidumping code. The Senate Finance Committee Report specifi- cally stated: "Section 257(h) provides that section 22 of the Agricultural Adjustment Act and import restrictions imposed thereunder shall be unaffected by the bill. Other law$ not to be affected include the Antidumping Act and section 303 of the Tariff Act of 1930, which relates to countervailing duties." (S. Rep. No. 2059, 87th Cong., 2d Seas., 19 (1962)). (Emphasis added.) It thus becomes clear that "special dumping duties" imposed pursuant to the Antiduiiiping Act are not comprehended within the phrase "duty or other import restriction" found throughout the Trade Expansion Act. An exchange between Secretary of Treasury Dillon and Congressman Utt in the Hearings Before the House Committee on Ways and Means considering the proposed 1962 Act reinforces the view that, in the contemplation both of the Administration which proposed the bill, and of the Congress which enacted it into law, the Trade Expansion Act did not in any way touch upon `the Antidump- ing Act: "Secretary DILLON. Treasury is responsible for carrying out antidumping ac- tivities. I do not think this bill affects the antidumping legislation at all. "Mr. UPT. I was wondering if you could point out to me where the antidumping legislation is still in force? "Secretary DILLON. I think that is a totally separate piece of legislation. It never was part of the trade agreements legislation. It is a separate piece. "Mr. Urr. We have several sections entitled `Repeals.' I am wondering if any of those sections on antidumping are repealed by reference? "Secretary DILLON. So far as I know, nothing is. I cannot give you a posi- tive answer, but as far as I am informed, it is my understanding there is no change at all in the antidumping procedures so far as this bill is concerned." Hearings on H.R. 9900 Before `the House Committee on Ways and Means, 87th Cong., 2d Seas., pt. 2, at 897-98 (1962). Another Administration spokesman, Secretary of Commerce Luther H. Hodges, gave broad assurances that the government would not act under the 1962 legis- lation so as to undermine other statutory protection against unfair foreign competition: "And I am resolved that the Government shall take no action in the field of tariff policy that will work undue hardship to U.S. industry, workers, and farmers `through unfair foreign competition." Hearing on H.R. 9900 Before the House Committee on Ways and Means, 87th Cong., 2d Sess., pt. 1, at 81 (1902). (Emphasis added.) Section 201 of the 1962 Act confers authority upon the President to modify "other import restrictions" as well as duties under specified circumstances but the legislative history suggests that the term "other import restrictions" refers primarily to quotas: PAGENO="0120" 1390 "He [the President] can also impose additional import restrictions (e.g., quotas) ." H.R. Rep. No. 1818, 87th Cong., 2d Sess. 2 (1962). "The basic grant of authority also permits the modification of existing im- port restrictions other than duties, while at the same time authorizing the im- position of additional import restrictions (e.g., quotas) ." Id. at 14. Although there are occasional instances within the legislative history of efforts to expand the `term "other import restrictions" beyond mere quotas, It is sig- nificant `that no such effort can be found which alludes to antidumping regula- tions: "What are they [other import restrictions]? Embargoes, quotas, import li. censes, currency manipulations, quarantines, and a decision that goods must be delivered within 5 days after they are manufactured." 108 Cong. Rec. 18674 (daily ed. Sept. 18, 1962) (remarks of Senator Curtis). A memorandum on the 1962 Act prepared by the Tariff Commission and sub- mitted to the House Ways and Means Committee suggests a very limited dele- gation of authority to the President to modify duties or other import reistrictions. This limited authority is inconsistent with the bald assertion of power by the office of the Special Representative for Trade Negotiations in revising and amend- ing the Antidumping Act of 1921, even if some justification could conceivably be found for treating antidumping regulations as coming within the scope of "duty or other import restrictions :" "The existing authority to proclaim modifications of existing duties is appar- ently intended to permit the President to make rate and classification changes within and subordinate to the statutory struetnre of the tariff classification schedules, and not permit him to change the scope of any statutory provi- sions. In any event, whatever the President's ultimate authority under section 350 (a) (1) may be, he has so confined his proclaimed `modifications.' It is as- sumed that there would be no departure from past practice in exercising the authority under the new legislation." Hearings on H.R. 9600 Before the House Committee on Ways and Means, 87th Cong., 2d Sass., pt. 2, at 923 (1962). (Em- phasis added.) The United States Senate reaffirmed, by its adoption in 1966, of Senate Con- current Resolution 100 that there was no authority in the Trade Expansion Act of 1962 for any negotiations concerning antidumping. The Resolution stated that it was the sense of the Congress that no trade agreement or other arrangement under the Trade Expansion Act of 1962 should be entered into except in accord- ance with legislative authority specifically delegated by Congress. The report filed by the Senate Finance Committee, recommending adoption of the Resolu- tion, concluded as follows: "The Committee on Finance has been disturbed over reports that the current Kennedy Round of tariff negotiations may be broadened to include U.S. offers of concessions with respect to matters for which there is no existing delegated authority. - "It has been reported that one area in which our negotiators may offer conces- sions concerns the American selling price method of evaluation. "Another area may involve the treatment of `dumped' goods by the eonntry in which the dumping occurs. This problem coneeras unfair trade practices in a domestic economy and it is difficult for vs to understand why Congress should be bypassed at the crucial policymaking stages, and permitted to participate only after policy has been frozen in an international trade agreement." (Emphasis added.) It is thus clear that the negotiation of the International Antidumping Code was without legal authority and in clear defiance of a Senate Resolution. The substantive revisions and amendments of the Antidumping Act of 1921 which would be required by the International Antidumping Code can be legally accom- plished only by the Congress. It is for this reason that the Ways and Means Committee should report out favorably H. Con. Res. 447 which would express the sense of the Congress that the International Antidumping Code may not become effective without specific Congressional approval, and take action to postpone the July 1 effective date for the Code. O0vINGT0N & BIJRLTNG, Counsel to Cement Industry Antidumpiflhl Committee. The CILAIRi~IAN. Mr. Harr. Mr. Harr, if you will identify yourself for the record and identify those associates with you at the table we will be glad to recognize you, sir. PAGENO="0121" 1391 STATEMENT OP KARL U. EARR, SR., PEESIDENT, AEROSPACE IN- DUSTRIES ASSOCIATION O?AMERICA, AcCo)~T~AiqTED BY 1~OB~RT G. McCUNE, CEAIRMAN, INTERNATIONAL COMMITTEE, AND MARSHALL J. GARRETT Mr. HARR. Mr. Chairman,~ members of the commitee, I am Karl G. Harr, Jr., president of the Aerospace Industries Association of America. With me are Mr. Robert G. McCune of Lockheed Aircraft Corp., who is the chairman of our international corni~ittee and Mr. Marshall J. Garrett, who works on ou~ IAA staff in charge of our international committee activities. The CHAIRMAN. Mr. Harr, if ~t is necessary for you to omit any parts of your prepared statement in order to ~omply with our situation, do so with the knowledge tlrat the entire statement and the materials appended to it will appear in the reeord. Mr. HARR. Yes, it is a fairly brief statement we prepared. I wel- come this opportunity to express~ the aerospace industry's views on tariffs and trade proposals. This association includes the major manu- facturers of aircraft, powerplants, their components, and accessory equipment; guided missiles, space vehicles, and their propulsion sys- tems; navigation and communications systems; and the various parts and materials used in the construction, operation, and maintenance of aerospace products, both commercial and military. The aerospace industry's gross sales in 1967 were $27.2 billion, of which a record $2.2 billion or 8.3 percent of the total were exported, making it one of the Nation's principal manufacturing exporters. This industry last year accounted for more than 40 percent of the Nation's merchandise trade surplus. Its revenue from international sales annually has exceeded $1 billion in 10 of the last 12 years. Currently, commercial exports deliveries alone are generating a return of $3,000 per minute of every hour of every day. This is an im- pressive amount and takes on added significance when compared with last year's performance. Total first quarter commercial and military aerospace exports this year rose to $713.3 million from $506.8 million, a 44.3-percent increase above the *s~ame period in 1967. Major aerospaCe manufacturers report that the export backlog of commercial aircraft alone exceeds $2.6 billion. These orders include only transport aircraft in commercial use today. Not far down the line of air transport developments are t~ie DC-b, L-1011, the 747, and the supersonic transport, all of which are, or undoubtedly will be bought by foreign air carriers. In fact, a recent study published by Dillon, Read & Co., of New York, forecasts that export sales of U.S. commercial jet transports over the next decade will exceed $13 billion, an anticipated gain of 300 percent over the $3.2 billion in com~ mercial transport ~sales during the past decade. These facts and figures ;~ clearly demonstrate the present. and future capability of the aerospace 1ndustry to contribute to the Nation's economy and assist in reducing the balance-of-payment deficit. I would like to point out that any measures taken by the Govern- ment to create international trade greatly affects the general aviation, utility, and helicopter categories of the aerospace industry. For example, the total export figures previously mentioned includes 3,000 units of general aviation or utility aircraft exports valued at PAGENO="0122" 1392 $91.2 million in 1967. Annually, 20 percent of the total sales of the general aviation industry have been made abroad. At present the general aviation industry is ~projecting a $1-billion level of sales to be reached by 1973 with exports accounting for $200 million of this total and a consequent benefit to our balance of trade. A more modest growth pattern is emergIng in the helicopter cate- gory. In calendar 1967 its civil export sales were 220 units at a value of $27.3 million. These sales have grown at a rate of 146-percent increase during 5 years and this trend is predicted to continue. These forecasts are significant only as long as industry can freely compete in the i nternatioiial in arketplace unencumbered by artificially erected barriers. The aerospace industry is understandably concerned that its export market will suffer severely if our Nation assumes a protectionist trade role. I would like now to comment briefly on H.R. 17551. The aerospace industry favors the provisions of H.R. 17551, the Trade Expansion Act of I 9~. Our members actively supported the 1962 act. and provided detailed information on the aerospace industry export position to the TT.S. special representative for trade negotia- tions for use in the Kennedy round of deliberations in Geneva. AlA continues to support legislation ~which embodies the priliciples of free trade on a fair and equitable basis for all nations. Section 201, title IT .of the proposed act, which would extend the authority of the President to enter into trade agreements, reaffirms to our traditional trading pai~tners that the United States continues to promote equitable trade practices. Because of the substantial level of aerospace industry exports, we have no experience in adjustment assistance to firms and workers as proposed in section 301 of title TTT. We recognize certain sectors of the national economy might suffer from unemployment or underem- ploymeiit because of im~ports~ and do not oppose liberalization of the criteria of eligibility for adjustment assi~t.ance to firms and workers. For many decades the Thiited States has been involved in a techno- logical revolution that has recorded many shifts in labor patterns. We have learned that technological advances create new industries and new 1obs and result in an expanded and more prosperous total labor force. While recognizing that governmental assistance may be neces- sary in certain instances, we suggest that. commercial aerospace export sales alone will generate an additional 30,000 jobs ~ year over the next 10 years, and that this industry has a demonstrated capability to train new employees to meet its requirements. For example, in the 1939-41 period the aircraft. manufacturing industry multiplied its labor force by five times. The aerospace industry supports elimination of the American sell- rng price system of determining the value of certain imports for estab- lishing tariffs. To the best of our knowledge, that. system has long. since served its purpose. We support its elimination since, by so doing, we erase one U.S. nontariff barrier and support our position in recent trade negotiations to eliminate all nontariff barriers. Briefly, the aerospace industry considers this new act adequate to carry forward America's position in world t.rade for the immediate future. The aerospace industry is keenly aware of the increasing exposure of its exports which are keeping pace with the rapid rate of growth PAGENO="0123" 1393 of the world's air carrier industry. It is no accident that the United States supplies more than~ 72 pereent of the transport aircraft in airline use throughout the free world. Even though the United States lagged behind the British in operating jet tratisports on international routes, the industry arrived at its present position much the same way as other elements of the U.S. economy. Wo.rld markets have been won by designing and building products that are safe, reliable, economical, easy to maintain, and backed by a vast network of manufacturers' service organizations. It is the belief of aerospace exporters that, in the event import quota legislation of any kind enters the pattern of~U.S. foreign trade policy, our overseas aerospace sales would present an obvious target for retaliation. Even though the aerospace industry makes no effort to restrict aerospace imports, retaliation would not be drawn on an item-by-item basis. We believe we would be hit and hit hard for at least one very substantial reason. Formidable competition in Europe and the Far East can meet the requirements ~f foreign air carriers worldwide on a model-by-model basis from the SST to business and utility airplanes, helicopters, and military aircraft. It has been the experience of our transport aircraft exporters that loss of any one major market for any~eason has involved an approximately 10-year recovery cycle before U.S. equipment can be reintroduced. Not only has the aerospace indu~ry become the largest manu- facturing employer in the United States,. but~ of 1.4 million direct employees, approximately 10O~,000 are directly involved in export work. The aerospace industry has ~o way of dêtermithng to any precise degree how many export orders would be c~nce1ed or lost or what the reduction in direct and indirect, labor forces would be should this Nation follow the course óf~ pr~tect4onism. But if import quotas were imposed on U.S. aerospace exports and ~reign cQmpetitiou moved hi on our traditional markets, the loss to the U.S. coonomy would be incalculable. Foreign aerospace int~re~s are either wholly ~r partially govern- ment owned and, in most eases, government controlled. The first time a ES. import quota proposal is ~successfiil, the aerospace industry could be the first target f~r harmful countermeasures. Our industry support Government progra~ias which seek to ex- pancl international trade for~ll elements of the ES. economy. We have established an effective rapport with the appropriate. Government agencies and have benefited. from their assistance. For example, we have worked with the Office oflntermiational :Tradè Promotion of the Department of Commerce in their presentati~ of U.S. trade center exhibits in the world's major cities. These. exhibits have produced a continuing record of sales successes for aerospace products just as they have for other commodity groups. We endorse the announced objective of the administration to induce more firms to enter the export field, especially the smaller manufac- turers. Many firms in this category have au export pptential, but are unable to afford the cost of developing export markets. We suggest that offering a form of tax incentives for export trade promotion might prove sufficient inducement to attract larger numbers of such companies to enter the international marketplace. PAGENO="0124" 1394 While the subject of export financing may not be within the purview of this committee, we believe the Congress should express its endorse- ment of competitive U.S. source financing as a key element in the future foreign trade policy of the United States. In summary, I believe I have deséribed the magnitude of the aero- space industry's annual business and its broad potential to increase the Nation's favorable balance of trade. In our view, a realistic free trade attitude expressed by the Congress, precluding protectionist legis- lation, will bolster the Nation's present and future position in world markets. Our position in support of a free trade policy by the United States dates back many years, and as recently as May 21 we responded to another opportunity to express the industry's collective views on matters of tariffs and trade before the U.S. Trade Information Corn- mittee. I would like to submit a brief prepared for that committee, entitled "IT.S. Trade Policy and the Aerospace Industry" for in- clusion in the record. The industry is convinced that the balance-of-payments problem will not be solved by any short-term measures which may restrain our free enterprise system from pursuing international markets. Nor will it ever be solved in this decade if import quota legislation in any form is adopted as a national expression of trade policy. If we were to do so, we could promptly and rightly expect retaliation that would ~make a shambles of any free trade concepts and an end to trade expansion. We must work toward reciprocal elimination, not only of tariffs, but also of the multiplicity of varied nontariff barriers. In short, for the aerospace industry to make a maximum contribu- tion to our national trade surp'us requires only a reaffirmation arid ex- tension of existing policy and practice. Thank you very much. (The brief referred to follows:) U.S. TRADE POLICY RECOMMENDATIONS BY THE AEROSPACE INDUSTRY FOR THE U.S. TRADE INFORMATION COMMITTEE Position Paper of the Aerospace Industries Association of America. Inc. "FUTURE OF U.S. FOREIGN TRADE POLICY" This paper is submitted under the provisions of the Notice of Public Hearings, "Future of U.S. Foreign Trade Policy" appearing in the Federal Register of December 15, 1967. (Docket 67-4) - Spokesmen for the industry are: Karl G. Harr, Jr., President, Aerospace Introduction. Industies Association, Inc. Ronald C. Cox, Treasurer, Douglas Aircraft Export Financing. Company and, Assistant Treasurer, Mc- Donnell Douglas Corporation. Frank E. Hedrick, President, Beech Aircraft General Aviation Aircraft. Corporation. G. W. Taylor, Area Director-International Transport Aircraft. Sales, The Boeing Company. Robert G. McCune, Director, U.S. Govern- Military Exports. ment Programs, Eastern Region, Lock- heed Aircraft Corporation. Arthur J. Burrows, Assistant to Vice Presi- Competitive Trends. dent, Avco Lycoming Division. PAGENO="0125" 1395 TT.~. TRADE POLICY AND THE AEROSPACE INDUSTRY Iniroduction The Aerospace Industries Association of America, Incorporated, represetits ~8 manufacturing companies which in 1967 produced over 80 percent of the total U.S.-In'anufactured aerospace products. The U.S. aerospace industry includes the major U.S. manufacturers of aircraft for passenger transport, cargo, general aviatk~n and executive travels helicopters, related power plant components and accessories equipment, guided missiles, space vehicles, propulsion systems, navi- gatiou and communication systeths and various Parts and materials, used in the construction, operation and maintenance of aerospace products, both coin- mercial and military. The total U.S. aerospace sales during 1967 were `$27.2 billion of which $2.2 billion were exported. The aerospace industry is one of the nation's principal ilianufacturing export industries'and its export revenues have annually exce~'ded $1 billion in 10 of the past 12 years, In 1967 the aerospace Industry ~rade balance amounted to 44 percent of the U.S. muerehandise trade surplus! In `the period between 1958 and 1967, aerospace industry export sales have risen from $1,398 million to $2,248 million, an increase of 61 percent. These sales in 1967 represented 7,2 percent of `all U.S. exports. In the same year, aero- space exports represented 8.3 percent of the industry's total sales. Phe aerospace industry has significantly contributed to our nation's export trade and balance of payments position. This Association, formed I'a 1919, has `played an active role in the progressive development of U.S. aerospace exports, and emphasizes the reciprocal concept in the removal of trade barriers to the greatest p~raotlca1 extent. A liberal but realistic policy concerning ibternational trade is the fundamental position of the U.S. aerospace industr~y. The U.S. duty on "Aircraft and Parts" -is recorded and projected as follows: Percent Percent 1930 30 1963 10 1948 - 15 1968 9 1956 14 1969 8 1957 1~ 1970 7 1958 ` ~ 1971 6 1962 11 1972 It is interesting to note tba~ eate~si~e foreign licensing programs by aerospace firms, including joint ventu~s ~ng to the nation an a4ditlonal dollar income, beyond that earned by direet e~o$~,s, , ` Competitive treuls In the past several years, th*z~ j~ave been .a numt*~ of subtle changes in the world market conditions, i'~sU~ng in greater cbm~etltton In international markets. The British aerospace in~l~u'at*y 4ms cótnbined a naml*r of companies so that the few remaining corporatipns 1-epresent the, hard. nore of their technology. The same phenomenon is v1~slb1e in the continental Etiropean countries, where niergers or close working re~atl~hjps `are produc&~g iPormidable competitors in France, Germany and Benejnx, elose collaboration `arnoflg the Japanese aero- space companies is also heiplng~ their eothpetitive cap'abtflty. In most industrialIzed cotffl~ii governments e~d~vour to strengthen their aerospace industry. Consol1dath~ `and r~tlonali'zat1n~ between aerospace com- panies within ofle country ba~v~e e~e~it1afly eli*miniM~d~ 1'b~ernal competition. `The export of aerospace `hardwai~e `Is 03*fliy supported by ~1~e resi)ecti~Te governments. This support can take two'omi~no~ foNns: ` ` (a) Direct financial support of e~ports, either thr~ngh subsidization of the hardware prograni, or through favorabl~ fin~ir~~bg arrangements for- export orders, (b) Use of political power lb facilitating a sMe~ such as bilateral trade agreements between govrntn~~t~ concerning ether products not neces- sarily related to the aerospa~oe4~4ust~y. Another shift in the compe~1thre envj'ronment `Is ~nsed by ëollaboratjoii be- tween the industries of two or more countries. In thr~ oomni~rcial field the prime example of this is the Concorde, but~be s4me tec1ifit~Ue'ts being used in deveiop~ ing the P.28, VFWM14, anti the `ieropoan ~irbns (A~3O~). ~xamples in the PAGENO="0126" i39~ military field are even more abundant-the Jaguar strike fighter, the SA.340 and WG.13 belicoptei~s, the Milan and HOT anti-tank missiles. Frari~e, with half of its aerospace industry government-owned and all of it government-controlled, has moved into the international field. It has sold the Mirage fighters in the Near East and South America (Peru and Brazil). The same aircraft is being produced in Australia for their air force and also in Switzerland. Belgium has just announced plans to manufacture it. In all these cases the Northrop F5 was in contention but the French offered special induce- ments which the U.S. company could not match. The French also have sold fourteen hundred Alouette helicopters to fifty-five countries in the world. Japan is another contender in the world marketplace. It has sold. their YS11 to airlines in the United States, Southeast Asia and South America. Since it is not a member of the Berne Union Agreement, it is not restricted by the agree- ment in granting unusual credit terms. But the competition which, in the long run, offers the greatest problems to U.S. aerospace industry comes from the Soviet Union. Its aircraft industry is second in size only to th.at of the United States. While its reputation among the aircraft-exporting nations of the world is considerably lower than its size would warrant, there are indications that this situation is very likely to change in the foreseeable future. In the past~ Russia has sold largely to Bloc countries and to developing African nations. Dissatisfaction with their equipment has centered around low utiliza- tion, excessive ton-mile costs, high depreciation, scarcity and extremely high costs of spare parts and engines, shortness of engine life and the Soviet Union's reluctance to release performance and operating data. Another significant deter- rent has been the lack of service facilities outside the U.S.S.R., making it neces- sary In many cases to return equipment to the Soviet Union for major overhauls and repairs. More recently t~iey have taken steps to correct these shortcomings and study tb~ methods of the world's airlines. `The Soviet Union and Britain have signed a five-year agreement to~ share technology and scientific capabilities. Activities during the first year are centered around the exchange of statistics on Soviet and British engine service life and operational failures. Reports also indicate that the Russtans have signed an agreement with the French to advise them on service and maintenance of their commercial aircraft. These agreements should assist them mateytally in avoiding complaints about their commercial products. It appears that the Soviet Union's promotion of aircraft exports is a means to achieve polltlefi~i ends, and various strategems are employed to stimulate export sales. Geherofis terms are offered to. prospective customers, terms usually more favorable tb~an those proffered by Western firms. A concrete example of this has been experienced by the Fairchild Hiller company in Brazil. There the Soviet Antonov--24 aircraft was offered in competition with Fairchild Hiller at approximately one-half of the price of U.S., British and Japanese aircraft. Inter- est rates as low as 31/2 percent were quoted. Obviously, no U.S. company could long stay in business If it tried to match these terms and conditions. And the Soviets have oply begun their attempts to penetrate the Western commercial markets. The U.S. aero~p'a~3e industry sees these challenges clearly and intends to over- cc~me them. Its ~onipetitors now are to a degree state-owned monopolies, espe- cially `in France and Russia. Therefore, competitive conditions of `sale can `be e~pected `to be influenced by political considerations. Therefore, prices, terms and conditions may hav~ no correlation to cogts. It `is difficult for private industry to compete with nationalized foreign corn- panies. When these competitors combine to challenge the U.'S. aerospace leader- ship, `the confrontation `becomes formidable. Technology is more widely spread and competition more intense. For all these reasons the continued cooperation of U.S. government with the aerospace industry, within the framewor~k of free en- terprtise, is imperative. A.1 PJa,port Taxv Incentis'es Specific export `tax incentives shonid be examined by the Trade Information Committee. There is ample precedence of tax rebate or reduction programs in other `countries equally interested in export expansion. `The recognition that ex- port earnings strengthen the financial posture of the country promoting such `incentives makes it mandatory for the industry lb give the matter close atten- tion. `The respofise of U.S. industry to the availability of an investment tax credit PAGENO="0127" 1397 demonstrate~ that fiscal measures can be un effective toOl in stimulating greater effort towards a particular goal. The same response can `be expected from an emphasis on exports through ;~ ~eli conceived tax incentive program. The AlA will lend its fullest cooperation to the development of export sthnulation through tax incentives. A.2 Re'v'i~ion of Aerospace Tartff Nonumck~tvre In the past, `parts~ components, accessories, subassembl'ies, `and Instruments pertaining to a complete operating aircraft have generally been given customs treatment equal to that o~ the e~nplete aircraft At t~nies however certain parts instruments or ~omponei~ hare been applied tariff rates pertaining to their generic classifleatlop ~uob v'aDiations in customs treatment may be precluded by revising the aero~pa~ ta~r1if x~oinenelaVure and classiljcatjo~ to avoid amb4gu1ti~s Most European countrJ~ have adopted the Brussels nomenclature class~ufy1ng aircraft products as follows cx 8802 Aircraft (airplanes, helicopters em) A. Operatiog' wtth~~t motors (e.g. gliders). B. Operating wIth a propulsion machine: I. Helicopters, with empty weight of: a. 2,000 Kg. or less. `b. More than 2,000 Kg. II. Others, with an empty weight `Of: a. 2,000 Kg. or less. b. From `2,000Kg. to 15,0(X) Kg. c: From 15,000 Kg. to 35,000 Kg. d. More than 35,000 Kg. ex 88.03 Separate parts and accessories of aircraft. In the U.S. tariff, "aircraft and parts" is one basket item. This has presented difficulties during negotiations. It is `true that the item can be split into a's `many sub-classifications as necessary, ;bu.t when time is short' `and simplified procedures like the linear method `of negotiation are adopted, sub-classifying `ha's not been restored to. `This results in unequal, uneven exchange of concessluns. For statistical purposes,, the TSUS classifies aircraft' and parts as follows: Airplanes, all PSTJS 694.40 Airplanes, military, all types TSUS 694.40-10 Airplanes, nonmilitary, used or' rebuilt, all types ` PSUS 694.40-20 Airplanes, nonmilitary, rotary wing, all types, new TSUS 694.40-30 Airplanes, nonmilitary, new (not rotary' wing) less than 10,000 lbs., empty weight TSUS (394.40-40 Airplanes, nonmilitary, new (not rotary wing) 10,000 to 30,000 lbs., empty weight , TSUS 694.40-50 Airplanes, nonmilitary, new (not rotary wing) over 33,000 lbs., empty weight TSUS 694.40-60 Parts, aircraft and spacecraft TSUS 694.60 This classification was worked out with industr3r cooperation. There is a need for either of the following alternatives: (1) Bring into harmony the U.S. and European classifications (not neces- sarily rates), or (2) Adopt one of the two classifications for all countries concerned. A.3 Amending Customs procedure legislation to allow certain innocuous substitutions of aerospace components, under Temporary Import Bond Imported components are brought in under bond which are i~elease'd when the component temporarily Imported is reexported. However, it sometimes occurs that a component intended for a foreign customer is shifted to a domestic customer with the result that the component temporarily imported and intended for reexport is used for domestic aircraft and vice-versa. To `obtain release of the bond on the component retained in the domestic aircraft, the identical num- bered component would have to be removed and replaced-a rather prohibitive exercise. If substitution could be permitted of identically the same component differing only in serial number, this difficulty could be removed. A.~ Inclusion of s?nior aerospace ecsecutive in future negotiations vital to industry In any major international negotiation involving vital interests of the aero- space industries in which the U.S. Government participates whether on the. subject of tariffs, taxation, or any other tariff-trade factor, there should be PAGENO="0128" 1398 as part of the U.S. official delegation a senior aerospace industry executive to support and advise the U.S. Government officials. Whether the industry repre- sentative goes as a mere observer or as an integral member of the delegation, he will be technically qualified and supported in this position by AlA as well as any company involved in the subject matter of the negotiations. A.5 Method for future trade negotlatiQn$. (Ref. item (d) in notice of public hearing.) The interests of the aerospace industries can best be served only by item-by- item i~ego'tiat~ions because of the many peculiar and unique but important con- siderations. The aerospace industries of the European Eonomic Community must have come to the saute conclusion when in `the Rome Treaty aeronautical products were placed under List G. Also, concurrently with the signing of that Treaty, the member states signed Protocol XVII providing for transitory adjustment in the c~tQ'ms trewtn~ent of large air transports for public transportation. The exberience of tl~ aei ~ !iidu'~tHes with linear negotiations as conducted during the Kennedy Round was not at all an improvement over the same method used during the Dillon Round. We do not recommend the linear method for aero- space products. Sectoral or commodity group negotiations could be meaningful if the com- modity grouping is such that items grouped are actually conformed to business practice with identical markets and trading problems. However, when aerospace products are lumped in *a "steel sector," the dilution of impact on each item results in a meaningless simplification. We do not recommend this method for aerospace products, unless the items are so grouped as to accommodate the special needs of each participant. Neither do we believe in harmonization of tariffs unless `the industries whose tariffs are to be harmonized are all under one so'verign authority. Varying `situa- tions require different tariff rates even to achieve equa'l degrees o'f protection. Any free trade area involvement of the aerospace Industries should be very ca'r~ful1y studied in advance for possible implications in each specific instance. We `subscribe to the emphasis on non-tariff barriers because this i's the area where it is felt tangible improvements in the export potential of aerospace exports can be realized if negotiated intelligently and realistically. This is covered more specifically in sections B. an'd C. below. A.6 Trade Policies Particularly Affecting Developing Countries. (Ref. Item (e) of Notice of Public Hearing.) The aerospace industries could benefit if the developing countries were `aided in their economic development by tariff preferences, not necessarily in aerospace products which they do not produce but in products which they are uniquely suited to produce effectively and efficiently. Developing countries dependent upon exports of a few primary commodities can be aided through commodity agreements which would improve their terms of trade. Very careful consideration should be given to giving U.S. support and sanction to regional integration aimed at geopolitical objectives where the economic and trade consequences to the United States may be costly in terms' of trade loss, diversion or distortion without any assured stimulation, either immediate or prospective. A.7 Problems of Adjustment. (Ref. item (f) in Notice of Public Hearing.) The adjustmen~ assistance concept of the Trade Expansion Act of 196~ `as- sumes acceptance of the idea of a U.S. industry being considered "expendable." It may be conceivable that this approach would be justified in certain small industries; however, it is difficult to conceive of its applicability to the aerospace industries `because .o'f their defense orientation and of the magnitude of adjust- ment assistance funding which would be required in the event that such assist- ance were applied. A.8 TJJ~. Govermmeut Investment Controls Aeorspa'ee, per so, as compared with other commodity groups, is not as ham- pered by the new regulations which curtail future overseas investments and call fo'r heavier returns of earnings from abroad. However, some members of our Association have a wide spectrum of products covering many industries and are, therefore, significantly affected by the regulations. It is recognized that the PAGENO="0129" 1399 situation is quite cothplex and that there are no easy solutions to this aspeCt of the balance of payments problem. Nonetheless, the problems must be evaluated `In light of the fact that U.S. private enterprise is not only the largest hut also a growing source of dollars earned abroad. The total contribution of earnings to the balance of payments has risen from $17.4 billion In 1966 to $19.8 billion in 1967. Some of the basic problems include discouragement of repatriation of earnings by foreign governanenf,s, the difficutly in controlling repatriation whereU.S. fl'irns hold a minority intrest and the reduction of profitability of foreign subsidiaries- which in the long run could worsen the balance of payments problems. These issues become magnified by the fact that companies which have cooperated in the vol- untary program are now penalized more heavily than those which cooperated to a lesser degree. B.1 Jilwport Financing Effective export development of aerospace industry products hinges to a very large extent upon adequate financing: availability, timing, costs, and interest rates, and tailoring of terms to specific situatiOns, especially in the growing markets of developing countries. Flexibility demands that existing operational procedures of financing institutions and regulatory bodies allow them to carry out the main objective of promoting aerospace exports. Provisions should be made for (1) Export-import Bank guarantees on national interest hon-military credits in developing countries, or for (2) a fully adequate and dependable export rediscount facility, or for (3) reduced interest rates to match foreign competition. Financing aerospace exports involves large sums, because of the magnitude of commercial aircraft prices. By the same token, the contribution of aerospace exports to the U.S. trade surplus is exceptionally large (See Table A attached). A recent study made by a leading aircraft manufacturer showed that the aver- age annual exports of commercial aircraft during four periods (1947-58, 1959-68, 1969-75, 1976-85) have risen or will rise at the ratio of 1: 6: 10: 20. This includes piston airplanes, current subsonic jets (707, DC-8, etc.), high-capacity jets (747, stretched DC-8, airbus) and supersonic jets. Recommendations Regarding Ea'port Financing.-a. To implement the Presi- dent's New York's message on the balance of payments by allocatirfg $500 million of Export-Import Bank resources for liberalized credits to developing countries. This is similar to what the Export Credits Guarantee Department (ECGD) of the United Kingdom has allocated for "national interest" export credits. Applied. to the aerospace industries, this facility will enable the Export-Import Bank to match competitive financing terms hitherto impossible. b. To enlarge the sources of export financing by enabling institutional inves- tors, not now able to do so, `to finance aircraft exports beyond `the current 7-year term. This includes providing Eximbank guarantees (or alternative type of government guaranty as may be necessary) to loans by such institutional inves-' tors over the extended repayment period. If applicable, such guaranty should also be made available to non-U.S. financial institutions, e.g., to Euro-dollar transac- tions involving U.S. exports. c, To provide through the Export-Import Bank fully adequate rediscount fa- cilities for export papers as recommended by the President in his New Year's mes- sage. Such facilities will stimulate exports which are often delayed or impossible for no other reason than export financing. -~ d. To `modify the practice of `securing manufacturer's participation in export financing by the Export-Import Bank where privhte credits hacked `by govern- ment guaranty clearly indicate that such participation is unnecessary. The exporter's participation is usually required to ensure his continued support to the transac~i'on after completion of sale. In the commercial aircraft industry, the exporter's involvement after `sale is an inherent necessity. In fact, there `are few if any other industries which practice posbe'ale servicing to the same degree. ,e. To make available the benefits of Export-Import Bank guarantees to manu- facturers participating in guaranty or loan transactions in a manner enabling' them to dispose of such ~articipation without severe interest penalty. These guarantees can be made available after due "seasoning" of the `credit. f. To provide, when necessary, government assistance in the form of ade- quate guarantees relating to repossession, expropriation, inconvertibility, and war risk and insurrection in thos'e instances where leasing of aircraft from a U.S. source cannot be executed due to lack `of adequate protection from political 95-150 0-68--pt. 4-9 PAGENO="0130" 1400 risks. Such guarantee may also be desirable in cases of direct financing of an aircraft sale. g. To develop adequate support by private and governmental sources to pro- vide effective export financing programs applicable to used aircraft sold abroad directly by U.S. airlines without involvement of the aircraft manufacturer in the transaction. ii. To remove the 103% Federal Reserve limitation from any export of specific aerospace products clearly identiflaible with a transaction involving a qualified developing country. B.2 Proposed Travel Restrictions The industry, through this Association, submitted written testimony earlier this year to the Ways and Means Committee, U.S. House of Representatives, opposing the imposition of a tax on travel expenditures abroad as proposed by the Administration. Our belief is, to quote from our paper, that-"We are con- cerned that unintended effects of a Travel Tax Program may have an adverse impact not only on expected gains in balance of payments, but on other economic considerations as well, substantially outweighing any benefit that may arise from its enactment into law." What we now add to that is a further thought for this Committee. Apart from what we believed then would be a severe loss of international orders for U.S. aircraft as an aftermath of travel curtailment, new trade policy of the United States might be the proper vehicle to make it abundantly clear to the world of free trade that increased travel is encouraged-that denying it from our side is no less an undisguised form of protectionism. We make reference to this issue because of our understanding that the Chair- man of the House Ways and Means Committee, although temporarily suspending consideration of the travel expenditure tax, has indicated that it might be re- assessed, conditioned on future actions of the Administration on matters that do not bear on trade policy but are directly related to the balance of payments deficit. B.3 Nonta'riff barriers General Remarks-In actual competition with the United Kingdom and France for export sales in third markets, U.S. manufacturers of commercial air trans- ports have generally found nontariff barriers more bothersome than tariff duties. On a long term basis, the most significant such nontariff barriers to our sales efforts are: a. Unpredictability of customs treatment. b. Subsidies of various types. c. Export rebates. d. Use of government pressure in case prospect intends to buy U.S. air- craft. B.Sa Unpredictability of customs treatment-Waivers The United Kingdom, Canada and EEC apply certain customs treatment to transport aircraft in an unpredictable manner. Neither the exporting manufac- turer nor his potential customer can be sure if duties will be invoked. Therefore, the actual cost of acquisition remains in question. Under these circumstances, it is necessary to figure cautiously, i.e., on the high side-a practice which seriously damages the competitive position of the U.S. exporter. This should be contrasted to the ruling as it is followed in France, where any transport aircraft for public use is exempt from duty. The damaging effect of unpredictability cannot be alleviated by tariff reduc- tions alone if even the reduced tariff is waived by one partner to the agreement, but not by the other. The reduction from an applied 10% to an applied 5% is too high a price to pay in exchange for a reduction from a nominal 10% to a nominal 5%, which through waiving becomes in effect 0%. In the absence of specific authority on the part of the President to negotiate cer- tain nontariff barriers, the U.S. negotiating team accepted the above described unequal exchange of concessions. It is recommended that in the future the Presi- dent be given authority to modify or bind existing customs regulations and practices. )L~Jb Elubsidies of carious types The aerospace industry is a fertile field for the application of many different subsidies: (1) Direct export subsidies and export finance subsidies. (2) Direct production subsidies. PAGENO="0131" 1401 (3) Direct development subsidies. (4) Military orders for commercial aircraft or joint civil/military develop- ment. (5) Major system development, including funding for engines, electronics, and so forth, or direct subsidy for components or materials. (6) Subsidized technological development in such areas as aerodynamics, structures, propulsion and systems. (7) Government risk reduction programs including guaranteed sales and financing. (8) Deficit write-off in government-owned manufacturing plnnts or special credits for soctal benefits. (9) Special tax treatment for exports. The interpretation of the term "subsidy" is a broad one and subsidies cannot be evaluated or exchanged on a one-for-one basis. In the face of this inequality, it may be necessary to invoke countervailing duties as an equalizing factor. Under U.S. customs law, this is possible only where duties exist. It is, therefore, recom- mended that duties which can be applied as offsetting measures to the subsidies be not completely abolished, and further that the industry itself be given an opportunity t& analyze, categorize, and evaluate the subsidies with which it is faced. The limitation of the application of countervailing duties to Items still dutiable (excluding those already in the free list) would appear to be based on the assamp- tion that if an industry has allowed its import tariff to be eliminated, it must have no need whatsoever for tariff protection. We are not in a position to ascertain how sacrosanct Section 303 of the U.S. Tariff Act of 1930 is, which provides this limitation. But if legislation can be modified to provide proper safeguards against contingent subsidized foreign competition, future trade negotiating teams would have more leverage to apply. B.3o E~vport Rebate$ Up to April 1, 1968,~ exports of aircraft and other aerospace products from the United Kingdom were entitled to rebates of at least. one and one-half percent of value as a direct incentive. The withdrawal of this rebate was negotiated as part of the terms and conditions under which the United Kingdom was given time and support by the international monetary authorities to redress her bal- ance of payments deficit at the time of the devaluation of the pound sterling last November. Considering the range of transport aircraft prices from three to ten million dollars each, this one and one-half percent rebate varied from $45,000 to $150,000 per airplane. B.3d Government Pres8ure8 The following are examples of government pressures: Aerolineas Argentinas considered ordering U.S. flight equipment when the U.K. Minister of Aviation entered the negotiations and used the fact that England Es *a heavy importer of Argentina's meat, grain, wool and other products. When New Zealand was about to buy U.S. aircraft, it was asked to apply the full duty of 5% In consideration. of the fact that it benefited from the British Common- wealth preferential agreement. In addition, veiled threats were made which put New Zealand's exports of butter and meat products to the U.K. in jeopardy. In another case South Africa planned the purchase of U.S. helicopters. The French representative made it known at that time that his government may review its imports of wines from South Africa. There is no specific recommendation for redress on the part of the industry, beyond a request that the situation be studied and possible countermeasures be evaluated. The situation is particularly complicated by the fact that any gov- ernmental policy in the United States would have to take into account the free competition between U.S. aircraft manufacturers, while In the foreign countries mentioned internal competition is practically nonexistent. General aviation e~vports It is important to stress the diversified capability of general aviation aircraft by stating that it represents much more than routine capital goods in the trans- portation equipment category. Utility aircraft of the less than 20,000 lb. class are used in crop spraying dusting, aerial fertilizing, as well as seeding, fish restocking, pipeline surveillance, forest surveys, water bombing of remote 1~res*, geographical and geological surveys, aerial ambulance, police work border pa- PAGENO="0132" 1402 trol-and, of course, the transport of many different types of cargo, and, ob- viously, personnel. No only has this type of transportation become essential to the industrial nations of the world but its value to the developing nations is even more immediate. A small grass landing strip' hacked out of a jungle provides trade and communication `links with the outside world. The general aviation aircraft manufacturers have exported an average of 20% of total production during the period 1963 through 1967. Approximately fifty different models of U.S-manufactured general aviatiOl1 aircraft totaling over 3000 units were exported in 1967 to 67 nations in the free world for a net billing amount totaling $91.2 million. In recent years many millions have been spent to expand the worldwide sales and service organizations of the U.S. utility aircraft manufacturers. Because of this, we feel that it is significant that approximately 90% of the free world's general aviation fleet is made up of U.S-manufactured aircraft. Constant state- of-the-art improvements in manufacturing techniques, coupled with strict oper- ational controls, have helped the American utility aircraft to earn its stature as a reliable product. For this reason, we believe we can reliably predict exports of 3500 airplanes at an estimated manufacturers net billing of $100 million by the end of calendar 1968. Strongly supporting the "free trade" concept, U.S. utility aircraft manufac- turers call for reciprocal "zero in-zero out" trade in respect to tariffs, taxes and other nontariff barriers. The unrestricted marketplace, both foreign and domestic, will provide the appropriate and equitable sales environment for sub- stantial growth. General aviation sales are expected to double in the next five years, to reach this $1 billion mark at the end of the five year period. These exports are projected `to continue to remain 20% of total annual sales during this time. To insure the competitive posture of U.S. general aviation producers in free world markets, we recommend appropriate U.S. Government action in the fol- lowing specific areas. 0.1 Ecoport financing-General aviation aircraft Financing is the principal factor affecting the export sales of U.S.-manufac~ tured utility aircraft. Whereas traditional commercial banking institutions have' progressively recognized the industry's need for increased financing for air- craft, there exists a gap which has been reasonably well met by the acceptance corporations of the general aircraft manufacturers. We do not believe that the industry's capability to continue export financing can grow at the same rate as projected export sales. The Eximbank, in cooperation with the Foreign Credit Insurance Association, has responded to export credit requirements for general aviation aircraft. How- ever, these organizations have rather extensive procedures which require in some cases lengthy processing time for general aviation airplane loan applications. There has been some improvement in loan applications processing time but much more should be accomplished in this regard to insure our competitive posi- tion and provide reasonable reaction time to interested customers. A realistic system of export insurance competitive to that in effect in other highly industrialized countries should have priority consideration. (Y.~ Foreign import taco ineqisities Value added taxes and border taxes which are levied by Western European nations on imports result in a device which effectively increase the cost of IJ.S.-manufactured general aviation aircraft. Germany in 1968 has adopted the system of added value taxes. France has traditionally levied the added value tax. Similar taxes continue to be a problem in Mexico, Argentina and Chile. 0.3 Tariff negotiations-Utility aircraft * "Within EEC, no reductions were made on light aircraft and helicopters (under 2,000 kilograms), which remain dutiable at 12% and 15%, respectively. Both of these rates are bound. Duties had been temporarily suspended on aircraft over 15,000 kilograms and parts for such aircraft. The duty reductions estab- lished bound ceiling levels for rates on these products." Consequently the common external tariff on 85% of the models of U.S.-manu- factured utility aircraft still remains at 12% while the U.S. duty on all aircraft is being lowered from 10% to 5% by January 1, 1972. The U.S. duty is 9% at this *Quote from General Agreement on Tariffs and Trade, Volume 1, Part 3, Office of the Special Representative for Trade Negotlatious. PAGENO="0133" 1403 writing. In the EEC, obviously one of our principal market areas, the cost of the American airplane is increased. We stress the Importance of bringing these EEC duties clown to the U.S. 5% level on a reciprocal basis prior to negotiations which finally reduce the U.S. duty to zero. C.4 special nontairiff barrier Differences in U.S. and British formula for arriving at general aviation air- craft airworthiness acceptance has created an artificial trade barrier of an unusual sort. The British Air Registration Board, the Federal Aviation Admin~ istration and members of the aerospace industry have consulted on the alleged differences in certification procedures. More assistance from Government will be necessary prior to final resolution to this problem. D.1 Military e~vports Member companies of this Association manufacture most of the military air- craft and related weapons systems exported either directly or through sales gen- erated by the Department of Defense and the Military Services. This type of business, as stated previously, is not without brisk competition from abroad. It should be noted that our industry pursues this market only when a member of the family of free nations expresses a valid military requirement, has the eco- nomic capability of payment, and only when such sales are approved by the U.S. Department of State. The chart which follows gives a ten year history of sales in military aerospace exports. These figures exclude grant aid shipments. 10-YEAR MILITARY EXPORT (In millions of dollarsi 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 Complete aircraft 267.4 122.7 219.4 246. 1 310.6 226.7 241.4 304. 1 221. 7 323.8 Engines 29. 1 20. 5 12.8 17.9 19.2 34.6 30. 0 30. 1 31.2 26.4 Parts, accessories, and equipment, including spares 3797 290. 7 291.4 413.2 578.3 541. 1 475.4 287.6 250. 4 308.8 Rockets, guided missiles, and parts 36.2 122.8 113.8 97.6 105.1 92.7 97.3 141.8 134.2 208.6 Total, military 712.4 556.7 637.4 778. 8 1,013.2 895. 1 844. 1 763.6 637. 5 876.6 Source: U.S. Bureau of the Census, Aerospace Industries Association. What appears most significant to the aerospace industry is the restraint which the Department of Defense imposes not just on the manufacturers but on itself in measuring the propriety of selling military hardware in response to requests from abroad. The Department' has stated that it determines favorably on an average of only one of every three cases of requests for purchase from overseas. The basic criteria of balance'of power considerations, the economic dependability for purchase and long terra capability of maintenance of expensive equipment, political `stabllity-.these criteria all come well ahead of balance of payments con- sideration. It is well `they should and if these facts were to be more clearly illuminated, the outmoded allegation would vanish. The aerospace industry takes a sophisticated i'nterest in international military sales, recognizing their necessity for the mutual defense of the free world. It is aware of and abides by the control's, the governing rules and regulation's and recognizes the need for them. Yet the industry `believes it stands to lose the percentage of this market which is normally available to it unless `the Legislative Branch o'f Government fully understands that Our industry is more attuned to national interest and less to dollar return in this area. The Congress is currently studying in Execuitive Session the recently intro- duced Foreign Military Sales Act of 1968. In separating military export sales from the FOreign Assistance Act, and calling for liberal reporting of activities In this field, the new Act tends to preclude and clear away the objections of the Congress which were surfaced last year. Certainly, there `is no cloak of secrecy surrounding any industry sale of military equipment made direct `to a foreign buyer. All `such sales become a matter of public record at `the time industry' requests Government approval to negotiate with the customer. PAGENO="0134" 1404 It is the view of our industry that controls over its attempts to satisfy valid foreign military requirements are becoming more restrictive than before for other than the usual and normal considerations of national security. All other elements being equal, such as balance of power considerations in which industry has no voice, free nations having a valid concern with the defense of their people and property will buy modern equipment for that purpose wherever good equipment can be purchased. European competition is fast closing on the U.S. lead in airborne defense articles. Thus, if government~tO~gOverflment sales are eventually `to be the way these sales are made, we in turn support the proposed Foreign Military Sales Act. Here, again, export sales of aerospace defense equipment normally entail a large dollar flow. It is recommended, therefore, that the Government be re- sponsive to the necessity for adequate financing when such sales are declared a dependable undertaking by the proper approving agency. TABLE A-EXPORTS OF U.S. CIVILIAN AEROSPACE PRODUCTS 1, 1958 TO DATE IMillions of dollarsj 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 CIVILIAN Complete aircraft: Transports, new 228. 9 143. 7 480. 1 262. 5 259. 2 190. 9 211. 1 352. 8 420. 8 611. 4 General aviation, new 12.1 14.4 23.6 27.5 23.1 26.9 33.3 68.8 89.1 91.2 Rotary wing, new 9. 5 8. 1 7. 7 6.9 8. 8 9. 8 14.6 16. 2 11.6 25. 3 Other, including used 35.9 22. 7 25. 7 37.9 36. 7 16. 5 28. 1 39. 4 30. 9 61. 4 Total 286. 4 188.9 537. 1 334. 8 327. 8 244. 1 287. 1 477. 2 552. 4 789. 3 Engines: Jet and gas turbine 8. 0 18.6 47. 5 53.6 44.8 25.7 25. 0 38. 8 Internal combustion 40. 3 25. 1 23. 2 21.7 18. 2 19.4 21.7 17.4 Total 48.3 Parts, accessories, and equip- ment for aircraft, including spares: Engine spares and ac- cessories 70. 5 Other spares and equip- ment 280. 1 Total 350.6 Total, civilian 685. 3 43.7 7O. 7 75. 3 63. 0 45. 1 46.7 56.2 288.8 357. 9 236.6 379. 8 480.9 363.7 467.9 406.8 519. 0 341.4 442.7 342.3 430. 0 228. 5 321. 1 405.7 490. 0 305.9 5 1 1,308,5 538. 5 1, 088.7 878. 0 909.8 731.9 763.8 . 1,035. I Revised. Note: Total civilian aerospace exports, 1958-67: $8,900,000,000. Source: U .S. Bureau of the Census, Aerospace Industries Association. The CHAIRMAN. We thank you and those at the table with you for coming to the committee, Mr. Harr, and giving us the views of your organization. Any questions? If not, we thank you, sir. Mr. HA1UI. Thank you. The CHAIRMAN. The next witness is Mr. Edward H. Selonick of the American Retail Federation. If you will identify yourself for our record by giving us your name and capacity in which you appear and also identify those at the table with you we will be glad to recognize you, sir. STATEMENTS OP EDWARD H. SELONICK AND VINCENT SAVONA, AMERICAN RETAIL YEDERATION Mr. SELONIOK. Good morning, Chairman Mills and gentlemen. We are not trying to sell you anything here this morning. We just thought you might like to see some random samples of department store and 49.3 69.6 27.7 31.6 77.0 101.2 PAGENO="0135" 1405 chain store imports to which we will be addressing ourselves this morning. My name is Edward H. Selonick, president of the Hecht Co., with stores in the District of Columbia, Virginia, and Maryland, and vice president of the May Department Stores, operator of 78 stores in 10 States and the District of Columbia. I am representing the American Retail Federation, a federation of 48 States and 26 national retail associations and member retail companies. It is a privilege to appear before the Ways and Means Committee in support of the administration's Trade Expansion Act of 1968, and to have this opportunity to explain to you why the retail community believes in and supports a free trade program for the benefit of the American and world economy, the workingman, the businessman, and the consumer, and to explain to you why we must oppose restrictive import quotas concerning textiles, apparels, and other consumer products. PEDERATION SUPPORTS TRADE EXPANSION ACT OF 1968 I would like to speak first about the three major purposes of the Trade Expansion Act of 1968. The first purpose of the act is to con- tinue and strengthen the trade agreements program of the United States. History proves to us that America will thrive on an expanded trade program and will suffer irreparable harm from any step back- wards in our position of responsible leadership in world trade. Amer- ica has been the recognized world leader in the international trade system since the first Trade Agreements Act passed the Congress in 1934. In 1962 the Congress, through recognizing that our existing trade policy had served us well for nearly 30 years, was aware of a vastly and rapidly changing world economy and passed the Trade Expan- sion Act, which established a bold, far-reaching trade program that has already or eventually will benefit every person in the United States. Through the Kennedy round negotiations which resulted from the negotiating authority in the 1962 Trade Expansion Act, tariff bar- riers everywhere are falling, resulting in more jobs, lower prices, and other savings to consumers, and expanded world markets for Ameri- can manufacturers. America cannot rest for a moment in our efforts to face the prob- lems of the changing world economic and trade situation, and retail- ing, therefore, urges that the Congress enable the administration to continue and strengthen the trade agreements program of the United States by extending the President's authority to negotiate settlement of trade problems and disputes as requested in the trade bill. TRADE POLICY AND ADJUSTMENT ASSISTANCE The second purpose of the Trade Expansion Act of 1968 is to estab- lish a viable program of adjustment assistance for firms and workers affected by imports. The administration, and certainly retailing, `re& ognize the special and distressing problems of certain industries, firms, and workers who have had difficulty in meeting foreign corn- petition. Retailing supports the administration's proposal to make the adjustment assistance program in the Trade Expansion Act fairer PAGENO="0136" 1406 and more workable. Secretary of Labor Wirtz has earlier expressed to you his views on employment and our foreign trade policies, so I will not dwell very long on this provision of the administration's bill. There are facts to prove that far more jobs would be lost and far more industries hurt by raising world trade barriers than by expand ing world trade. To quote Secretary Wirtz, "In recent years, expended trade and high employment have gone hand in hand." There are, however, instances where firms, especially smaller firms whose output is limited to one single commodity of the same price range, are unable to compete with increased imports. I would like to quote from an extensive Tariff Commission study which was com- pleted on January 15, 1968, which supports this "smaller firm" theory in the area of textiles and apparel: Thus, the effects of the imports of apparel, like imports of fabrics, vary greatly. Imported cotton shirts selling for low prices may have a considerable Impact upon a small concern whose output is limited to shirts of the same price range, but have little or no effect upon that of a large, multiproduct producer whose shirts sell at substantially higher prices. There should be adjustment assistance as provided for in the Ad- ministration's bill, available to firms and workers when increased imports have been a substantial cause of injury. This is the fair way to help those who need help and will not serve as a "bonus" to entire industries, particularly those segments which remain competitive and thriving, as would be the case should across-the-board quotas be enacted. TRADE POLICY AND NONTARIFF BARRIERS The third purpose of the Trade Expansion Act of 1968 is to pro- mote the reduction or elimination of nontariff barriers to trade. Amer- ica does hold a position of responsible leadership in world trade, and while we realize that many U.S. exporters are hurt by nontariff bar- riers such as border taxes, export subsidies and rebates, quotas, and others which exist in foreign countries, we feel that great progress can be made toward the removal of these restrictions if the adminis- tration's efforts are not impeded by restrictive barriers such as the quotas provided for in bills now before this committee: We feel that the administration should be given specific authority to negotiate with other countries concerning the elimination or reduction of nontariff barriers. TRADE POLICY AND THE RETAILER The majority of retailing has been historically free-trade minded and antiproteetionist. This does not mean that a majority of the merchandise sold in retail establishments in this country is foreign produced-far to the contrary. Our research shows that in 1966 im- ported consumer goods, including food, were valued at approximately $7½ billion while retail sales in the same areas were approximately $150 billion. Our own survey of a cross section of the larger retail oper- ations indicates that between 5 and 10 percent of sales are derived from imported goods. Federal Government figures indicate that when all retail sales are considered, the percentage stays very close to a low 5 percent. PAGENO="0137" 1407 This leaves the domestic suppliers of the other DO percent of our merchandise at a definite advantage and well able to compete-even the textile and apparel industries, with a few exceptions. A free-trade policy does, however, give retailing a bargaining tiool to keep prices down, for we are able to shop the world over to stock our shelves with the items our customers want at prices they find attractive. TRADE POLICY AND THE CONSUMER Retailing is concerned with the entire scope of world trade-imports and exports. I must, however, narrow my `scope for a moment and address myself to this committee about retailing's indispensable role- that of the "purchasing agent for the consume~-," As a final link in the chain of distribution, it is the retailer who has a face-to-face relation~hip with the consumer, our boss. In fact, the consumer interest and the retail interest are the same. The consumer wants-stnd we want to give to her-the widest selection and the broadest assortment of merchandise at the lowest possible price. She wants value. She wants freedom of choice~ She wants style and creativity. It is obvious that any restriotions of trade that insulate American manufacturers from competition also restrict her choice in the marketplace. The aforementioned 10 percent of sales of imported goods is of enormous significance for this Nation's consumers. It adds abundance to the American marketplace, and this abundance, `though it provides uniqueness and novelty for many, provides real' dollar value for many more. At this time when Congress is: 1. On the verge of passing a tax increase to fight rising inflation and prices and, 2. Faced with the problems of the poor, it is important that trade restrictions which would inevitably lead to higher prices be turned aside. I refer ag~tin to the previously mentioned Tariff Commission study which supports a significant point: With regard to apparel, the Increasing level of imports in recent years reflectF~ in great part the active efforts of both retail and wholesale institutions in 1t, United States to broaden the variety of their product lines and the price ranges at which they are sold. A large but unknown portion of this merchandise is comparable to the domestic product both in terms of price and quality. A substan- tial propoi~tion of the total volume and value of the imported merchandise appears to be made up of products which are of low prire and are marketed prin- cipally in retail outlets which promote and sell `these products mainly on the basis of price; such products appear to be sold principally to lower income groups or to ethers for whom cost is a major consideration, There are millions of families subsisting on below-average incomes to whom the opportunity to purchase quality merchandise at low prices is a matter of vital concern. `Thus, for retailers and consumers, restrictions on free trade would raise many problems: 1. With restricted supply, and increased dependence upon domestic sources, it can be expected that prices would be increased to retail establishments. It is not only in the finished imported items that price to the retailer would be affected, but also in products of domestic man- ufacturers who would experience higher costs for imported raw ma- terials or semimanufactures. Increased prices could, of course, seri- ously affect the profit margins of retailers. PAGENO="0138" 1408 2. Retail establishments would find it more difficult to meet consumer demands for fashion, style, variety, and novelty found in imports or stimulated by imports. 3. Quota systems result in disruptions in established sources of supply. It is not only that quotas would be administered by countries, but within each country, systems would have to be set up to allocate quotas among individual manufacturers. Experience under the cotton arrangement has been a competitive search for an available quota. This is disruptive of established overseas sources. 4. Foreign competitors have challenged domestic producers on prices and productive efficiency and have stimulated them to increased ingenuity and inventiveness. The result has been both direct and in- direct savings to the consumer, because the availability of imports has had an effect far exceeding their dollar volume. 5. An overwhelming proportion of retail sales comes from domestic production. Therefore, any influence on the price retailers must pay for domestic products is a matter of immediate concern. A most beneficial aspect of imports is their competitive influence on U.S. manufacturers. 6. At a time when the private sector and the National Government are deeply concerned about inflation, profit squeezes, and price in- creases, one cannot ignore the potential inflationary effects of a reduc- tion in the supply of imports and resultant higher costs for domestically produced goods. 7. If the United States seeks to impose import quotas, either uni- laterally or by coercion, the danger of retaliation by our foreign trad- ing partners is very real. The United States then would face the diffi- cult question of what concessions in other commodity areas would be made to compensate for the special protective measures benefiting spe- cial segments of domestic industry. There are many indications that our trading~ partners, as a matter of principle, would pick U.S. export areas which would hurt American industry most. U.S. exports si~bject to retaliation would likely include: all agricultural products, machin- ery, chemicals, automotive equipment, and raw cotton. SUMMARY OF RETAILING'S POSITION ON TRADE POLICY Retailing supports the Trade Expansion Act of 1968 and its three purposes: 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. 3. To promote the reduction or elimination of nontariff barriers to trade. Retailing opposes import quotas, which decrease the `supply of im- ported products; and have inflationary economic effect; are disruptive of trade relations with our allies; and have destructive effects flowing from the administration of quota systems. Retailing supports a trade policy in keeping with our private enter- prise system-which offers the American consumer value and choice among goods available at reasonable prices. To sum up, I believe that the Congress should continue its policy of promoting the free flow of merchandise across national boundaries and of upholding the right of our citizens to have access to the widest PAGENO="0139" 1409 assortment of merchandise at the lowest possible cost. I believe that the welfare of all of our people should always take precedent over the limited interests of the few. We must preserve the freedom of the marketplace. Our manufacturers must be provided with an equal opportunity to compete__neither protecting them from foreign ingenuity nor penaliz- ing them for observing American standards of wages, hours, and work- ing conditions. And last, we must cherish, by word and deed, that tradition of welcome for foreign peoples and foreign ideas that has so enriched us all. Let's solve our prob1em-~but not by closing doors, locking gates~ or by setting up new maginot lines that are supposed to protect, but never do more than stultify. Now I would lil~e to introduce my colleague, Mr. Vincent Savona, the. import manager of the New York office of Montgomery Ward & Co. STATEMENT OF VIN~tENT SAVONA' Mr. SAVONA. My name is Vincent Savona. I am import manager of the New York office of Montgomery Ward & Co. I am here today on behalf of the American Retail Federation. RETAILING EXPERIENCE WITH QUOTA SYSTEMS In the experience of the retailer, import quotas are the most onerous form of trade control. The retailer as purchasing agent for America's mass consumer market, must provide complete coverage of the U.S. market as well as world markets-to provide the consumer the greatest choice in styles, price, and product characteristics. Import quotas, which set absolute limits on imports in any one year, present. numerous problems with regard to advance planning, seasonal orders, advance promotions, and compliance with the tech- nicalities of quota systems.which control exports from various nations to the United States. QUOTA SYSTEMS WORK The quota system problems are especially acute for those product areas which are in greatest demand by the American consumer. The long-term cotton textile quota arrangement was negotiated in 1962 to expire in 1967, when it `was renegotiated for 3 more years. In the ab- sence of a "voluntary" export' restraint, an importing country may re- fuse to accept imports from an exporting country. Bilateral agree- ments have `been negotiated by the United States with many addi- tional `countries, to set import levels on cotton products in terms of the previous base period. `The quota system on cotton textiles and ap- parel' sets up particular quantitative limits for 64 distinct cate~-ories of cotton textiles and apparel products. Because there are particular controls on each of these categories, not only is the total volume of cotton product imports controlled, but there are also specific controls on those categories of products which are most popular. In addition to the 64 regular categories, I might add, there are frequently addi- tional controls on subcategories within the `64 groups. Such governments as Japan and Hong Kong have discretion in administering their quota controls on exports of cotton products to the PAGENO="0140" 1410 United States. In such cases there is competitive search for unused quota since shares of quotas are divided up among individual trading companies in the case of Japan, or among individual manufacturers in the case of Taiwan and Hong Kong, `by industry organizations or by industry-goverment consultation. In some cases the governments ini- tially hold back a portion of the quota to guard against accidental overshipments and the risk that goods ordered by the retailer will be embargoed on arrival in the United States. But in most `other countries such as Brazil, Korea, Poland, Portu- gal, Republic of China, and Yugoslavia, shipments are directly con- trolled by the United States at ports of entry. Permission for entry must be granted for each shipment. In the case of these shipments, the retailer faces the prospect of embargo of his goods and the impossi- bility of filling orders as planned. This happens if, unknown to the retailer, the quota in a particular category of cotton products allotted to a country is suddenly filled before the end of a year. What problems arise for the retailer in a situation such as this? In most cases he will have surveyed consumer preferences, made buying trips, or covered all the various markets, planned his offerings for an up-coming selling season, and placed his orders far in advance. In some cases he will have issued printed promotions, with the expecta- tion that goods he has ordered will be shipped and will be in demand by the consumer. If, during that considerable time, the quota for a category of cotton products allocated to an exporting country has become filled, and the goods have been shipped, what happens? The retailer finds that his order is embargoed by the Customs Bureau at the port of entry. He has already incurred the cost of shipping the goods. He now must pay storage fees to the Government for goods embargoed. If they cannot be transshipped, they must sit in storage until quota reopens. Having already promoted the goods to the public, in expectation of offering them, the retailer must now search quickly for some domestic source of replacements, usually at increased costs. Finally, when the embargoed products are released, they may well be obsolete in a rapidly changing, seasonal fashion market. Since there is only an absolute amount of quota available for each product category with minimal flexibility, it is almost a rule of thumb that the more popular an item, the more difficult it is for competing retailers to purchase sufficient imports to justify marketing the prod- duct, and satisfy customer demand. PROJECTED PROBLEMS IF NEW QUOTAS WERE ADOPTED Adoption of quotas on additional consumer product imports into the United States would carry over many administrative difficulties into the full range of products now available to the American con- stimer. Quota systems tend to freeze the relative proportion of imports of broad product areas as well as individual types of products in terms of a past-base period. Therefore, if there is a particular market trend toward fashion products of manmade fibers, as an example, and if apparel of man- made fiber is subjected to quota restrictions, the retailer would be faced with one of two choices: (1) Cut short the supply of such items offered to the consumer, or PAGENO="0141" 1411 (2) Seek out substitute products from domespic resources at the going price. The retailer as he looks to the future will be facing a more and more sophisticated, better educated, and more selective consuming public. This means (a) more interest in creativity, style originality, the widest possible range of products from which to choose, and (b) greater consciousness of price and product value. It is the merchandising function to shop America and the world to provide the consumer this choice as part of our private enterprise system. If you take a look at the counters of America's retail outlets, you can see graphically the infinite variety of our consumer markets- how there is a place for the high-fashion mink coat, as well as the medium-priced suit, and budget shirt. We sincerely hope that the decisions on the mix of. products, the price ranges and the style assort- ments will, in the United States, be made not by restrictions on trade, but on the basis of consumer choice and the competitive market-a choice which should preserve the vigor of U.S. innovation and pro- ductive capacity, and the freshness of a worldwide reciprocal trade system. And by reciprocal we mean a truly bilateral give and take in international trade which, by its own nature, obviates the likeli- hood of unilateral retaliatory action. CONCLUSION We believe that while there is real merit in providing the adjust- ment assistance for American firms and workers, import quota restric- tions are not only not the answer, but hold out the prospect of great damage to the American consumer, the retailer, and producers, that strikes at the heart of the chain of distribution, which has tracli- tionally brought the American consumer .the widest s~ection in con- sumer goods in the world, at prices subject to market discipline. We believe from our own standpoint and that of the consumer that an open trade policy free of unreasonable restrictions is in the ultimate interest of all. The OHAIRMAN. We thank you gentlemen for bringing to us the views of the American Retail Federation. Are there any questions? Thank you very muth. Mr. SELONICK. Thank you. The CHAIRMAN. The Soybean Council of America's representa- tive. If you will identify yourself for our record by giving us your name, address, and capacity in which you appear, we will be glad to recognize you. STATEMENT OP GLENN H. POGELER, PRESIDENT, SOYBEAN COUNCIL OP AMERICA, INC. . Mr. POGELER. Mr. Chairman and members of the `Committee on Ways and Means, I app;reciate this opportunity to present this state- ment on the general subject of the balance of trade between the United States and foreign nations. My name is Glenn H. Pogeler. I am president of the Soybean Coun- cil of America, Inc., with executive offices in Arlington, Va. PAGENO="0142" 1412 The CHAIRMAN. Mr. Pogeler, if you have to omit any parts of your statement in order to comply with our situation this morning, do so with the knowledge that the entire statement and material appended to it will appear in the record. Mr. PoGELlui. Thank you. The Soybean Council is devoted to the expansion of markets for U.S. soybeans, soybean products, and related items around the world. The organization is supported by soybean producers, processors, handlers, exporters, and others interested in soybeans and products. The list of our members is as follows: American Soybean Association. National Soybean Processors Association. Allied Mills, Inc. Archer-Daniels-Midland Co. Arkansas Grain Oorporation. Big 4 Cooperative Processing Asso. Boone Valley Cooperative Processing Asso. Buckeye Cellulose Corporation. Bunge Corporation. Cargill, Inc. Central Cotton Oil Company. Central Iowa Bean Mill. Central Soya Oompany. Continental Grain Company. Delta Cotton Oil and Fertilizer Company. Farmers Union Cooperative Marketing Asso. Farmers Cooperative Association. Farmers Grain Dealers Asso. Fremont Cake and Meal Co. General Vegetable Oil Co. Gooch Milling and Elevator Co. Hess Terminals. Honeymnad Products Co. Illinois Grain Corp. Grain Div., Indiana Farm Bureau Co-op. Assn., Inc. Kansas Soya Products Co. Lauhoff Grain Co. M.F.A. Grain Div., Missouri Farmers Asso. Marshall Mills Co. Minnesota Linseed Oil Co. Mississippi Cottonseed Products Co. North American Export Grain Asso. Owensboro Grain Company. Paymaster Oil Mill Co., Div. of Anderson, Clayton and Co. A. W. Perdue and Son, Inc. Plains Cooperative Oil Mill. Planters Industries, Inc. Planters of Pine Bluff. Planters Manufacturing Co. Quincy Soyban Co. Ralston Purina Co. Riverside Industries. A. E. Staley Manufacturing Co. Southern Cotton Oil, Inc. Southern Soy Corp. Southern Soya Corp. of Cameron. Sw~fth and Company. Thionville Laboratories, Inc. Townsends, Inc. Tri-Oounty Cooperative Soybean Asso. West Bend Elevator Company. West Tennessee Soya Mill, Inc. Wilson Soya Company. Yazoo Valley Oil Mill, Inc. PAGENO="0143" 1413 Today I wish to point out the importance of exports of soybeans and products to the dollar-earning potential of U.S. agriculture and their contribution to our balance of trade. Soybeans, as one of the top dollar earners in U.S. agriculture, are presently utilizing approximately 4. million acres of U.S. farmland for this most important crop. We wish to comment on proposals relative to the expansion of quotas. We also wish to comment on the subject of East European-West trade. Attached to this statement is a chart illustrating the expansion of the exports of soybeans, soybean oil, and soybean meal over the last 18 years. This chart clearly demonstrates the rapid growth which exports of soybeans and products have made and their importance to Ameri- can agriculture. The efficiency of the U.S. soybean industry to produce effectively and efficiently in quantity and quality have made it possible for it to meet our domestic needs and supply an expanding market overseas. The American Soybean Association and the National Soybean Pro- cessors Association have both appeared before your committee prior to my testimony and, therefore, there may be some overlapping of the subjects covered by me because of the inability to coordinate our mate- rial due to the shortage of time. We hope that we will not bore you with repetition. SOYBEAN AND PRODtICT EXPORTS Soybean and product exports during 1966-67 continued their upward trend but, because of increasing competition from foreign producers of other oilseeds, proteins and fats and oils, the sharp increase in ex~ ports which we have seen in the past began to level off. The United States presently supplies to the world markets over 90 percent of the total soybeans traded in the world. Exports for the present marketing year are expected to total 270 million bushels compared to last year's exports of almost 262 million bushels. Exports of soybean meal last year rose to an *alltime high of 2,656,000 short tons and this year are estimated at 2.8 million short tons. Soybean oil exports during 1966-67 totaled approximately 1 billion pounds. This was considerably below the peak reached in 1964-65 when 1.3 billion pounds moved overseas, but up from the exports in 1965-66 of 920 million pounds which were the result of a smaller soy- bean crop in 1965. The total value of U.S. exports of soybeans, soybean oil, and soybean meal set a new record in 1966-67 of $1.149 billion compared with $1.1 billion in 1965-66. Approximately 40 `percent of the total U.S. soybean crops moves into world trade in the form of soybeans, soybean oil, or soybean meal. To maintain its competitive position with other crops, the U.S. soybean industry and the U.S. Department of Agriculture are invest- ing increasing funds in research aimed at increasing yields per acre and improving the quality of the products made from the soybean. The rapid expansion of the production and consumption of red meat and poultry in the European markets has created a rapidly growing demand for soybean meal. The demand for soybeans for processing in Europe has continued to expand at a rapid rate until just recently. PAGENO="0144" 1414 Subject to the availability of convertible currency, or the use of other credit arrangements, the market for fats and oils in the low-per-capita consuming areas of North Africa, the Middle East, and Asia offer a large market for additional utilization of fats and oils. Increasing competition from sunflower seed and sunflower oil from Russia and the southeastern European producing nations, at prices considerably under current soybean oil and soybean prices, has made a serious inroad in sales of U.S. soybean oil in the dollar markets of Europe and Iran. Rapeseed production, which is subsidized in the Common Market, has been increased at a rapid rate and offers stiff competition to soybeans. Fishmeal and fish oil from Peru, in expanding quantities, has also taken its place in the consumption patterns of Western Europe for protein and fats and oils. IMPORT QUOTAS The Soybean Council fears that an expansion of import quotas will eventually result in retaliatory action from present customers of the United States now buying our agricultural commodities. All segments of the U.S. soybean industry will suffer as a result of retaliatory action, if taken, since this action would reduce or limit the total volume of exports of U.S. agricultural commodities. We have consistently favored moving in the direction of free trade so that commodities produced efficiently and economically will move into world markets on the basis of efficiency of production. We fully realize that actions taken to introduce goods into world trade on this basis will be time consuming and very difficult to obtain, but we believe that goal is worthwhile. INCREASING EXPORTS The Soybean Council of America receives its funds from the U.S. soybean industry and contracts with the Foreign Agricultural Service of the U.S. Department of Agriculture to provide additional foreign currencies for use overseas in market development projects. We believe that this program has been of great assistance and value in the expan- sion of foreign markets for soybeans and products. Market development work is a must and the programs should be expanded and intensified if we are to meet the challenges of new com- petitors, such as the sunflower, rapeseed, and fish products which are currently offering heavy competition. The U.S. soybean industry is presently developing a program to acquire an additional source of dollar funds so that market development activities overseas may be further expanded. It is necessary that prices for U.S. soybeans and products remain competitive in the world markets if we are to capture our share of the present markets and expand tonnage in the years ahead. INTERNATIONAL AGREEMENT Recently some foreign processors have indicated an interest in nego- tiating an international agreement on fats and oils. At a recent meet- ing of the Fats and Oils Committee of FAO, this subject was again brought up. The Soybean Council feels the United States should not PAGENO="0145" 1415 enter into an international fats and oils agreement and feel~ that any such arrangement would ultimately tend to work to the disadvantage of the TJ.S. soybean industry, as far as the competitive situation in the world oilseeds, protein and fats and oils markets are concerned. We believe that our industry can compete very well in the world markets provided we are able to compete based on efficiency and quality. EAST EUROPEAN-WEST TRADE The Soybean Council has not officially taken a position on East European and West trade, but is aware of the fact that considerable business on soybean meal is being done through the market channels `of Western Europe to the East. Private business, for~ dollars, is also expanding. We believe that market opportunities exist in the East European areas for substantial quantities of soybean meal. The rapid expansion in poultry and livestock production and better feeding prac- tices have, in our opinion, created a potential demand which we believe is substantial. We recognize that our trade policies must be compatible with national interest and an expansion of exports of soybean meal to this area would be of value to the U.S. soybean industry and will return additional dollars to the United States. As I indicated, we have a table attached which gives the exports since 1950, to this statement. I think it is a magnificent story and we are happy to tell it wherever we have the opportunity. I might add one more bit of information. In six countries in Eastern Europe last year we exported 285,200 tons of soybean meal, which represents about 10 percent of our total exports last year. This is a significant amount of business. It is being done, I believe, quietly and I was surprised myself to see the total figure as it was put together last year. Thank you, Mr. Chairman. It is a pleasure to be here. (The table referred to follows:) TABLE 1.-U.S. EXPORTS Soybeans Soybean (bushels) oil (pounds) Soybean meal (short tons) 1966-67' 1965-66 1 1964-65 1963-64 1962-63 1961-62 1960-61 1955-56 1950-51 261,591,000 1,076,271,000 250, 591, 000 922, 647, 000 212, 175, 000 1,339,683,000 187,201, 000 1, 106, 000, 000 180,463,000 1,165,000,000 149,420,000 1,308,000,000 134,760.000 721,000,000 68, 580, 000 556, 000, 000 27,934,000 490,000,000 2,656,618 2,601, 048 2, 036~ 000 1,478,500 1,475,700 1,063,700 589,700 400,400 181,100 Preliminary. Source: U.S. Department of Agriculture. The CHAIRMAN. Mr. Pogeler, we appreciate your bringing to us this information and the views of your organization. Are there any questions? Thank you, sir. Mr. Harris? Mr. Harris, chairman of Countersurge. 95-159 0-68--pt. 4---'~-1O PAGENO="0146" 1416 The Honorable Hugh J. Addonizio, our former colleague, the mayor of the cityof Newark. (Seep. 1473.) Mr. James G. Miles, vice president of Marketing Developnient. Mr. Miles. STATEMENT OP HUGH P. DONAGHUE, ASSISTANT TO THE PRESIDLENT, CONTROL DATA CORP. Mr. DONAGHUE. Mr. Donaghue. The CHAIRMAN. All right, Mr. Donaghue. We would appreciate you identifying yourself. You represent the Marketing Development? Mr. DONAGHUE. I am Hugh Donaghue, assistant to the president, Control Data, sir, and we have submitted a fairly lengthy brief on the subject. Today I would just like to highlight a couple of the areas. The CHAIRMAN. All right, with the understanding that your entire statement will appear in the record. S Mr. DONAGHUE. Yes, sir. Control Data is a major computer manu- facturer of the United States with an annual sales volume in excess of $350 million. Control Data and its subsidiaries operate principally in the United States, but also in over 25 other countries, with about 30 percent of Control Data's business currently being outside the United States. We enforce and support the underlying principles of GATT, that is, the lowering of tariff barriers and the removal of quantitative restric- tions among all countries. We endorse and support the extension of the President's trade agreement authority under the Trade Expansion Act. We believe and recommend that it will be in the U.S. long-term interests to attain and permit the freest possible interaational trade. We believe that any restrictive quotas and/or tariffs will deleteriously affect both the United States and U.S. trade as well as world trade. We believe and recommend that there is no need for protective tariff barriers and/or restrictive quotas against the import of computers and/or their related component into the United States. For foreign trade-balance purposes it will be in the U.S. short-term as well as long-term interests to utilize in a maximum way those of its industries which have worldwide preeminence in technology, design, and manufacturing. And here again we point out the computer field as an example of this. We recommend minimal tariffs because U.S.-proposed tariffs invite other countries to impose retaliatory tariffs against U.S.-made prod- ucts making them less competitive in the marketplace. Following the Kennedy round the U.S. exports of computers and related components have continued to increase. The Kennedy round agreement should not be abrogated or diluted. Due to certain trade restrictions in the area of export controls imposed by the U.S. com- puter trade will potentially be diverted to foreign countries who are being compelled to establish their own national consortia to manu- facture computers, which will have the effect of diluting U.S. par- ticipation in the world markets. I would just like to read our conclusions as stated in our brief, sir. It is only just about a page. There is a growing and increasingly com- PAGENO="0147" 1417 petent competition in the world computer market. Although the United States still hoards a 90-percent share of the world market, it stands to decline as foreign competition increases, particularly with heavy sponsorship of foreign governments. The U.S. response will best be to help create an environment where its computer manufacturers can freely operate with as few restric- tions as possible. Thus, and only thus, can the dynamics of U.S. busi- ness and technology continue to prevail in the world marketplace. It is a corollary that any inhibitions, restrictions, tariffs, quotas, and retaliations that the United States imposes against other countries directly inhibits their sales to U.S. customers, the building of their economies, and the availability of dollars to them with which they can, in turn, purchase goods from the United States. It is seen that, presently, T5.S.-computer firms' foreign sales income is at the rate of $2.3 billion per year, and increasing at the compound rate of over 20 percent per year. At this rate, without restrictions, it `is thus possible that U.S.-foreign computer business could reach $5 billion per annum by 1971 and $10 billion by 1975. This compares with the $7 billion worth of quotas and restrictions in proposals now pending before the Congress, as cited in President Johnson's May 28, 1968, message to the Congress on greater prosperity through expanded world trade, in conjunction with the proposed Trade Expansion Act of 1968. In considering protections for other elements of U.S. industry, Con- gress should consider their relative monetary, balance of payments, and employment impacts in relationship to the tremendous and in- creasing potential of the United States outstanding computer industry and should weight the considerations accordingly. Thank you. (Mr. Donaghue's prepared statement follows:) STATEMENT OF HtTGH P. DONAGHUE, ASSISTANT TO THE PRESIDENT, CONTROL DATA CORPORATION PREFACE QuaiiftcatiOfl8 of Controj Data Corporation Control Data Corporation Is a major computer manufacturer of the United States with annualized sales volume in excess of $350 million. Control Data Corporation and its subsidiaries operate principally in the United States, but also in over 25 other countries, with about 30% of Control Data's business currently being outside the United States. GENERAL RACKGROUND RE U.S. COMPUTER INDUSTRY It is estimated that total revenues from the sale and lease of computers manu- factured by U.S. firms amounted to about $7.5 billion in 1967, of which about $2.3 `billion value was due to foreign revenues, most o,f which were in hard currencies. Computers are one of few commodities for which foreign countries are willing to pay hard currencies including, specifically U.S. dollars where the U.S. manufacturer so requests. ODC believes that, under proper U.S. foreign trade policies, these dollar volumes, balance of payments contributions and U.S. employment levels can be significantly increased in future years. The following data points up the fact that U.S. computer business is a significant proportion of total U.S. foreign trade volume, and that U.S. employ- ment re computers `for foreign trade is significant: The first commercial computers were delivered in the early 1950s and by the end of 1967, U.S. manufacturers had cumulatively delivered over 58,000 corn- PAGENO="0148" 1418 puting systems world-wide, valued at approximately $19.0 billion. Approximately 28% of these computers, valued at $5.7 billion, are `of U.S. manufacture, but installed outside the United States, although some of these had been manu- factured outside of the United States by subsidiaries of U.S. firms. The total cumulative computer installations made by other free world manu- facturers (primarily in France, United Kingdom, West Germany, Italy, Den- mark, Sweden, Holland, afid Japan), by the end of 1967, was valued at approxi- mately $2. billion. The value of equipment installed is growing at a compound annual rate estimated conservatively at 19%, world-wide. Purchases of computers `by foreign nations exhibit a growth rate of between 20% and 22% per year. It i's generally expected' that these growth trends will continue into the foreseeable future. During 1967 alone, nearly $6 billion worth of general purpose computers were delivered by American manufacturers to U.S. and foreign customers. At the end of 1967, U.S. companies continue `to `supply over 90% o'f the com- puters made in the Western World and probably over 90% of computers made in the entire world (East and West). The U.S. computer industry is seen to be subject to foreign competitive pres- sures which take into account restrictive trade policies of the United States. A large share o,f the world computer market, `and many billion~ of dollars of business annually, `and the related employment of hundreds of thousands of personnel by U.S. computer manufacturers is currently at stake. World- wide direct employment by U.S. manufacturers and their subsidiaries re computer sales and services stood at `more than 300,000 at the end of 1967, of which approximately 200,000 were employed in the United States and 100,000 abroad. These figures do not include the services of `hundreds of large and small sub- contractors and suppliers who indirectly provide labor, components, `subas- semblies, etc., utilized in an'd required in conjunction with computer manufacture and services. In addition, most foreign companies manufacture exclusively or almost ex- clusively, under patents and/or designs licensed by United States firms. The amounts' of licensing income from these ventures is not known; but these ventures are known to involve, concomitantly, the export of considerable U.S. manufac- tured components, parts and subsystems to the foreign licensee/manufacturers for inclusion in their systems. CDC and its subsidiaries operate principally in the United States, but also in over 25 other countries, with about 30 percent of Control Data's business cur- rently being outside the United States. CDO currently employs about 20,000 people, worl.dwide, about 17,000 of whom are in the United States. Almost all Control Data computers installed abroad are manufactured in the United States (exception: about $1 million tape transports manufactured by Electrofact, Control Data subsidiary in Holland). Thus, pro- portionally, of Control Data's 17,000 U.S. employees, approximately 30%, or 5,000 employees, are directly engaged re `CDO's export business. In addition, CDC employs the services of hundreds of large and small U.S. subcontractors and suppliers who indirectly provide labor, components, subassemblies, etc., for In- corporation into computers that CDC ships abroad. CDC'S COMMENTS AND RECOMMENDATIONS 1. (a) The Eatension of the President's Trade Agreement Authority under the Trade Fepansion Act Control Data Corporation endorses and supports the underlying principles of GATT, i.e., the lowering of tariff barriers and the removal of quantitative re- strictions among all countries. CDC endorses and supports the extension of the President's trade agreement authority under the Trade Expansion Act. CDC believes and recommends that there is no need for protective tariff bar- riers and/or restrictive quotas against the import of computers and/or related components into the United States. However, CDC notes that the European Economic Committee (EEC) granted no tariff reductions for five categories of electronic products including com- puters. CDC recommends that in future GATT negotiations, the United States should seek to obtain tariff reductions by EEC members in order to enhance the competitive position of U.S. computer manufacturers vis-a-vis foreign manu- facturers. CDC recommends, however, against the imposition of import tariffs by the United States. PAGENO="0149" 1419 2. Proposal Relative to Imposition of Quotas CDO believes and recommends that it will be in the United States' long term interest to attain and permit the freest possible international trade. CDC believes that any restrictive quotas and/or tariffs will deleteriously affect both United States trade and world trade. President Johnson said in his Message to Congress, May 28, 1968 entitled Greater Prosperity Through Esipanded World Trade (page 5): "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. "Iii 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 indirec'tly-has a stake in the growth and vitality of an open economic system." The U.S. should be exceedingly beneficient In all respects re trade policies and tariff procedures with respect to all countries, and particularly toward the underdeveloped and developing countries. Every country has only a limited amount of U.S. dollars (primarily derived from their exports to the U.S.) with which to purchase, in turn, U.S. commod- ities. They prefer to spend these precious dollars, insofar as possible, for goods and services of advanced technology (including computers) which they believe they can apply to advance the economic health and development of their countries. To the extent that U.S. tariff structures inhibit exports from the developing countries, these same inhibitors, therefore, also directly inhibit those countries from buying with dollars the tools they most need to build their industrial cap- abilities and their attendant selling and purchasing powers. U.S. trade contracts; the developing country is whipsawed and is injured proportionally more. These countries say that they are motivated, alternatively, to acquire advanced commodities from other Western countries (England, France, etc.) who apply less-discriminatory tariffs against them, and who therefore afford them foreign exchange. Sales are thus lost to the U.S., along with the opportunity to help right the U.S. balance of payments. In fact, lacking MFN, at least one East European country, in retaliation, has recently raised its tariffs against the import of U.S.-made comptiters to be higher than their tariffs applicable to computers made in other countries (Eng- land, France, etc.), which has the effect that U.S.-made computers are now un- favorably priced (including tariffs) in competition with English and French, etc. made computers. 3. Proposals for Increasing United ~8tates' Eapoirts It is said that some U.S. Industries are not competitive vls-a-vis foreign sources due to high U.S. labor costs, etc. To improve their competitiveness, these U.S. industries should try to improve their management and manufacturing effi- ciency by using the most advanced techniques. In other industries, particularly its strong multi~billion dollar computer indus- try, the U.S. leads the world, U.S. manufacturers having installed over 90% of the computers in the world today. For foreign trade-balance purposes, and as an offset to those U.S. industries which are not so competitive, it will be in the United States' short-term and long-term interests to make maximum foreign trade utilization of those of its industries which have worldwide preeminence In technology, design, manufac- turing and marketing (e.g. computers, aircraft, etc.). One of the current U.S. programs that mitigates against the increase of coni- puter and other heavy capital equipment exports is the Foreign Direct Invest- ment Program. In his mOssage to the Nation on the Balance of Payments, January 1, 1908, President Johnson said: "American exports provide an important source of earnings for our businessmen and jobs f~r our workers. They a're the cornerstone of our balance of payments CDC agrees. To limit-indeed, prevent-export sales can hardly be stated as the purpose of the Foreign Direct Investment Program. Yet in the ease of C'DC PAGENO="0150" 1420 this tends to be its effect. Under the Regulations (33 Fed. Reg. 15 OFR Sec. 1000 et Seq.), CDC's export sales and leases are viewed as investments. To the extent that the Regulations are so construed, the very success of U.S. sellers in obtaining orders mitigates against the sellers. A significant portion of U.S. com- puter export-orders are in the form of leases. Congress faced this problem in excluding export sales and leases from the Interest Equalization Tax (mt. Rev. Code of 1954, Sec. 4911). Lease transac- tions should similarly be excluded from the Foreign Direct Investment Program. A bona fide export sale, whether it be made through a wholly owned foreign subsidiary or directly to a foreign buyer, will have the same long-term bene- ficial effect on the U.S. balance of payments, and that effect can never be nega- tive. To view one transaction as an "investment" and the other as a "sale" is not realistic. We do not suggest that the Regulation should be amended in a manner which would permit foreign subsidiaries of U.S. exporters to sequester funds abroad. By the same token, CDO believes that bona fide exports should not be considered "foreign investments made with U.S. dollars." What is needed is a reasonable standard against which the performance of exporters of heavy capital equipment may be measured. Such a standard would appear to be the nerma2 terms of financing provided by the Export-Import Bank and similar foreign institutions (Hermes, Coface, ECGD) to capital equipment manufacturers for the purpose of stimulating exports. Such terms, agreed to by members of the Borne Union, and adhered to by E:ximbank, are the international norm for such transactions. To the extent the U.S. exporters' performance exceeds that norm (meanwhile relieving Eximbank of the burden of financing), the export sales should not mitigate against the exporter. If there is no change in the Regulations, or their ititerpretations, there will be created a negative effect in the exports of products of capital equipment manu- facturers, particularly those that are contracted on lease. ODO supports the below-mentioned changes proposed by the Machine and Allied Products Institute, as reported in its newsletter of April 5, 1968: "An exemption from "transfer of capital" restrictions of those open trade accounts from and between affiliated foreign subsidiaries covering goods, services, royalties and fees which are not outstanding for less than 180 days. "Where it can be shown by an established custom of the trade that such items are normally carried on open account for a longer period of time - than 180 days, then such items should also be exempted upon a paper showing of pertinent facts and circumstances to the Secretary of Commerce." 4. Proposals Relati've to Antidumping, Countervailing Duties, and Related MattP3rs ODC has no comments. 5. Proposals on Tariff Matters Generally CDC recommends for minimal or zero tariffs because U.S.-im:posed tariffs invite other countries to impose retaliatory tariffs against U.S.-made products, thus making our produCts less competitive at the marketplace. As noted in the Background Section (pages 1-3 supra), although U.S. computer manufacturers and their wholly-owned foreign subsidiaries have installed about $5.7 billion worth of computers outside the U.S. by the end of 1967, nevertheless there is competent and growing foreign competition, to wit: Foreign free world manufacturers have installed approximately $2 billion worth of computers primarily outside of the United States. These computers are located primarily in France, United Kingdom, West Germany, Italy, Denmark, Sweden, Holland and Japan. There is a large untapped market in Eastern Europe, and these competitors have launched particularly strong marketing efforts in Eastern Europe where they are operating with much greater permissiveness of their governments re export controls than are U.S. manufacturers. France, under its national PLAN CALCUL, bias in the past two years established a national computer consortium, Compagnic Internationale pour l'Informatique (CII), specifically to meet Fi-ance's own national computer re- quirements, and to market competitively both inside and outside of France against U.S. firms. Ciii ha's initiated a heavy marketing effort in Eastern Europe. Similarly, the Government of the United Kindom has, in the past six months blessed the merger of its two principal computer companies into the new Inter- PAGENO="0151" 1421 nationca Computers Ltd. to provide greater national competitive strength vis-a-vis U.S. computer manufacturers. A heavy markeilng effort is underway in East Europe and underdeveloped countries. Bilateral Trade Agreements._Many of the countries strong in computers (e.g., France, United Kingdom, West Germany, Italy, Denmark, Sweden, Holland and Japan) have worked out extensive bilateral trade agreements with the coun- tries of East Europe, and have lowered their tariffs and quotas to East Europe (steps that the United States has not taken). The result is that the East Europe countries are thus able to find easier markets for their goods in France, United Kingdom, West Germany, Japan, etc., than in the United States. The East Europe countries are thus able to obtain hard currencies in these same countries with which, in turn, they can turn around and purchase from these same countries heavy capital equipments including computers, and other commodities in far greater volumes than from the United States who maintains much higher tariffs against them. Long-Term Credits-Also, to facilitate trade with East European countries, the United Kingdom, France, etc., have made available long terni credits for purchases of heavy capital equipments including computers. The result has been increased foreign trade for the countries involved, at the expense of U.S. busi- ness. CDC believes and recommends that, as soon as possible, the United States should take similar steps. The arguments are similar to those relating to the Foreign Dis'ect Investment Program (pages 7-9, supra). ODC has been repeatedly told by top political officers of several East European countries that unless and until the United States will work out trade agreements with them, and drop other discriminatory trade practices including tariffs against them, their products cannot be sold competitively in the United States, and that therefore they cannot obtain dollars with which to purchase Our products. These East European officials further point out that, although they would prefer to deal with U.S. firms, they can obtain adequate products from France, United Kingdom, West Germany, Japan, etc., with the moneys and credits available. They further say that they should remain loyal to the countries with whom they have been able to work out trading agreement, vis-a-vis the United States. They go further to say until the United States lowers Its prohibitive and dis- criminatory tariffs against them, they will as a matter of political "necessity", maintain significantly higher tariffs vis-a-vis U.S.-made goods than they apply against goods made in the United Kingdom, France, West Germany, Japan, etc., who apply low tariffs as a part of their trade agreements. U.S-made goods being considered for import are thus, when import tariffs are added, priced out of the market. U.S. manufacturers are thus caught in an involute cycle which will require .a turn-around in U.S. policy to correct. CDC recommends that, to correct the aforementioned problems, with their attendant trade and balance-of-trade preclusions, the United States should cease its discriminator~ trade practices and tariffs against all countries, and should enter into trade agreements with as many countries as feasible. ODO believes that the United States will achieve tremendous trade and balance- of-trade and balance-of~payments benefits by being much more open-handed in its trade policies. ODO believes that, simultaneously, and as an important side effect, the United States would be the recipient of much political goodwill from the countries thus relieved of these trade discriminations. 6. Results of Kennedy Round Agreeement Following the "Kennedy Round," United States exports of computers and related components have continued to Increase. CDC strongly believes `and rec- ommends that the Kennedy Round agreements should not be abrogated or diluted. As previously cited (p. 4) the subject of computers and some other electronic components was not covered by the Kennedy Round in 1967. CDC recommends that to further expand exports of computers in the face of increasing competent competition abroad, in future negotiations the United States should press for other countries to lower their import tariffs against U.S.-made computers. Meanwhile, the United States should leave its import tariffs re computers and related components at zero, and the United States should generally reduce its tariffs on all commodities for reasons set forth elsewhere in this brief. 7. Measures Directed at Maintaining Our Favorable Balance of Trade and Other Matters Related to the Balance of Trade in the Conteet of Our Balance of Payments Problems Ecoport Controls-Due to certain trade restrictions (export controls) imposed by the United States, computer trade will potentially be diverted to foreign coun- PAGENO="0152" 1422 tries who are being compelled (partially by U.S. export controls) to establish their own national consortia to manufacture computers, which will have the effect of diluting U.S. participation in world computer markets. Countries specifically affected are France and Eastern Europe. Aggressively seeking to fill the vacuum are computer manufacturers in the United Kingdom, France, East Germany, Japan, etc. Typical of East European Reaction.-East German Government officials have specifically told CDC personnel that, if they cannot acquire U.S. computers, they Will certainly acquire computers of non-U.S. origin. They said that they would prefer not to apply East German resources to the development of capabilities to manufacture big computers in their country, but they made it clear that if they must, they will spare no expense to do so, because they believe that big com- puters for business and industrial management and control is the key to their ultimate goal to become a successful modern industrial nation. ODC has prepared and submitted on 13 June 1968 a separate brief on this sub- ject to the International Finance Subcommittee, Committee on Banking and Currency, U.S. Senate in conjunction with its Hearings re Joint Resolution E~J Res. 169, East-West Trade Resolution. There is no question that the U.S. companies today dominate the world com- puter industry in all its aspects . . . technology, hardware design and manu- facture, wide scope of software and applications, the quantity and quality of our personnel, the effectiveness of our marketing, and the financial resources available. The preeminence of American computer companies is, in fact, so great. and U.S. technology is moving so rapidly, that most other countries simply will not be able to marshal the resourees required to catch up, let alone keep up with such a rapidly moving target. CDC believes that the United States really has nothing to fear re the export of computers for peaceful purposes. However, no nation, whether fully developed, emerging, or underdeveloped, East or West, can long afford to be without computers. A nation with little or no significant computer technology of its own is forced to consider three alter- natives: it can tap U.S. know-how through purchase or lease from a U.S. manu- facturer or its overseas affiliate; it can purchase its computers from non-U.S. manufacturers; or it can commit vast national resources to developing, or accel- erating the development of its own computer industry. Balance of Payments and MEN Each of the East European countries has only a limited amount of U.S. dollars, (primarily derived from their exports to the U.S.) with which, in turn, to pur- chase U.S. commodities. Several East European countries not now granted MFN treatment by the U.S., have asked that CDC personnel transmit their requests to the U.S. Government, that they be granted MFN treatment, and the favored tariffs that it affords, so that they can more favorably export their goods to the U.S. in order to obtain more dollars with which to acquire, in turn, advanced commodities including computers. These same countries say that they are motivated, lacking MFN treatment, to alternatively acquire advanced commodities from other Western countries (Eng- land, France, etc.) who apply less-discriminatory tariffs against them, and who therefore afford them foreign exchange. Lacking MFN, sales are thus lost to the U.S., along with the opportunity to help right the U.S. balance of payments, in fact, lacking MFN, at least one East European country in retaliation has recently raised its tariffs against the import of U.S. made computers to be higher than their tariffs applicable to computers made in other countries (England, France. etc.), which has the effect that U.S. made computers are now unfavorably priced (including tariffs) in competition with (English and French, etc.) made computers. Trade Policies Particularly Affecting the Developing Countries The world is rapidly becoming a single interdependent economic unit with each nation ever-more acutely reliant on other nations to supply its total requirements. This is true whether a nation is relatively fully developed, emerging, or under- developed. The less developed the nation, the more acute the problem. It is CDC's belief and recommendation that the United States should estab- lish objectives, laws and policies to encourage American business and industry to become more initiative to assist in the economic development of all countries, particularly the emerging or underdeveloped countries. By this means the United States could achieve many desirable objectives without so much spending abroad of Federal funds of the U.S. PAGENO="0153" 1423 To encourage this CDC recommends that the U.S. should re-evaluate and change many aspects of its policies and practices re AID, Alliance for Progress, etc., and re export controls, and international trading and financial policies. Tax credits should be considered as inducements to participating businesses to en- courage greater initiative. `supporting Arguments and Evidence The United States is recently awakening to problems within our own country where ghettos of underprivileged people are suddenly found to be excessively cut-off or isolated from the so-called "power structure". The response of the under- privileged has been riots approaching revolution. The answer, as recently reported by President Johnson's National Advisory Commission on Civil Disorders can only be alleviation of the basic causes of the problem. Similarly, it h.as recently been predicted that there is a danger that wide parts of the world, including even some moderately-developed nations may in a few years become relative-deserts of backwardness vis-a-vis the "have" nations, unless the affluent nations immediately take all possible steps to help the less affluent nations upgrade themselves, including, particularly, heavy exports of technology, know-how, and advanced tools, and the means for overcoming illiteracy and its concommitant bondage. The U.S. is certainly the nation that has the most to give, and the U.S. will therefore be most the ta'rget of their frustrations and anger if we are not generous enough to help them improve their plights. Some people believe that advanced technological developments, including such as computers, may be responsible f~r preempting jobs. Due to the rapid growth of the computer industry to date, it would appear that this industry has, to date, created more jobs than it has destroyed; but there has admittedly not been enough history since the beginning of the computer age (mid 1950's) to tell for certain if computers will make more jobs than they will preempt. CDC believes that the pattern will be like the transportation industry whose statistics reveal that there is a greater percentage of the population employed in the United States today, in jobs related to transportation, than there were in horse and buggy days; although some jobs were displaced, increasing demands and ad- vancing technologies created far more jobs than were destroyed, and simultane- ously created a higher standard of living. Whatever the outcome, time will not turn back; computers are a fact of life from today forward. And just as the industrial or business concern that makes good utilizations of computers and other advanced technologies can outperform its competitors, making it so that the competitors must also have access to and utilize the same tools to remain competitive, so it is with the nations that are making good utilizations of computers and advanced technologies. They will out- perform those nations that do not have them . . . and the gaps will continue to widen between the developed and the underdeveloped nations unless the developed nations become much more effective in helping the developing nations reach parity. It is the concensus that for any nation the overall advantages that will come from computers will probably far outweigh any disadvantages. The optimiza- tions that can come from the use of computers in many fields will make them worth more than their "price" in any country . . . optimizations in the input! output econometrics of the country as a ~.vhole . . . financial optimizations . optimizations in the utilizations of basic commodites, as steel, so that more struc- tures can be built with the limited amounts available . . . optimizations in the utilizations of manpower, and many more. Also computers will be of wide value in rendering better educations, health care, better banking and accounting prac- tices, better communications, and in many additional areas. CONCLUSION It is seen that there is a growing and increasingly-competent competition in the world computer market. The United States still holds 90% share of world market, but stands to decline as the foreign competition increases, particularly with the heavy sponsorship of foreign governments. The United States' response will best be to help create an environment where its computer manufacturers can freely operate with as few restrictions as pos- sible. Thus, and only thus, can the dynamics of U.S. business and technology con- tinue to prevail in the world marketplace. PAGENO="0154" 1424 It is a corollary that any inhibitions, restrictions, tariffs, quotas and retalia- tions that the United States imposes against other countries directly inhibits heir sales to U.S. customers, the building of their economies, and the availability of dollars to them with which they can, in turn, purchase goods from the United States. It is seen that, presently, U.S. computer firms' foreign sales income is at the rate of $2.3 billion per year, and increasing at the compound rate of over 20% per year. At this rate, without restrictions, it is thus possible that U.S. foreign computer business could reach $5 billion per annum by 1971 and $10 billion by 1975. This compares with the $7 billion worth of quotas and restrictions in pro- posals now pending before the Congress, as cited in President Johnson's May 28, 1968, Message to the Congress on Greater Prosperity Tlirovgh Ewpan4ed World Trade, in conjunction with the proposed "Trade Expansion Act of 1968". In considering protections for other elements of U.S. industry, Congress should consider their relative monetary, balance of payments and employment impacts in relationship to the tremendous and increasing potential of the United States' outstanding computer industry, and should weight the considerations accord- ingly. Mr. BURKE (presiding). Are there any questions? Thank you very much, Mr. Donaghue. Our next witness is Mayor Edward 3. Griswold, City of Conneaut, Ohio. Will you identify yourself for the record? STATEMENT OP MAYOR EDWARD J. `GRISWOLD, CITY OP CO~Th1EAUT, OHIO, AND ON BEHALF OP THE COIqNELAUT PORT AUTHORITY Mayor GRISWoLD. Yes, Mr. Chairman. I, Edward 3. Griswold, mayor of the city of Conneaut, Ohio, appear here representing the city of Conneaut, Ohio, and the Conneaut Port Authority. I am here to testify against the proposed Trade Expansion Act of 1968, a pro- gram designed to expand U.S. trade abroad. The officials and citizens of my area ask your support of a piece of legislation to establish quotas limiting the importation of foreign pig iron, steel and other commodities into the United States. Foreign-made pig iron and steel is streamin~ into the United States is recordbreaking and ever-increasing, quantities, last year reaching more than a half-million and 111/2 million tons respectively, represent- ing some 12 to 13 percent of the total amount used in this country, and approximating the potential output of 85,000 American steel- workers. Ohio, the Nation's second greatest producer and consumer of steel and products of steel, employ some 90,000 who earn their livelihood directly from the steel industry which channels more than $700 mil- lion in wages and salaries and $60 million in State and local taxes into Ohio's economy each year. Several of the city of Conneaut's major employers and taxpayers are directly involved in the receipt, storage, and shipment of raw materials used in the manufacture of iron and steel and products of iron and steel. This is of primate importance to t.he economic health of our small community of 16,000 people. A continued rise in foreign ste~l imports along with other imports, would steadily weaken our industries `and erode t.heir capabilities to fulfill current and any future demands as concerns national defense. Governments in other steel-producing nations are constantly in- tensifying their support of their domestic steel industries. PAGENO="0155" 1425 There comes a day when we have to draw a line on imports and think of our own industries and manufacturers. Maybe it would be better for the American people to pay 2 to 3 cents per pound more for hamburger, or 2 cents per pound more for frankfurters and still have a job ancf be able to purchase these much needed foods than to be without employment. We, the officials of the city of Conneaut, Ohio, and the Oonneaut Port Authority, support fully the Iron and Steel Orderly Trade A~t of 1967 (Senate 2537) and the House of Representatives (H.R. 14120) which will, if enacted, help preserve the economic well-being of the Nation, the State of Ohio, the city of Conneaut, and provide for national security through a system of fairly established quotas lim- iting the quantities of foreign pig iron and steel that can be brought into the United States which is the main concern of the citizens of the city of Conneaut, Ohio. But we, the citizens of the United States, should be concerned nbout all imports into the United States, and how `they can affect the economic well-being of the Nation. We strongly urge your honorable body to take all the time necessary and weigh all facts before coming to any decision on this very im- portant issue, not only to the city of Conneaut, but to all of us in this great country of ours. The proposed act contains no mention of the restrictive import and export subsidies needed to help correct the United States balance of payments. We ask for your consideration and approval and that of the Con- gress of the United States on the Steel Orderly Act of 1967. I have tried to keep this testimony short and to the point. I wish to express my thanks and that of the citizens and officials of the city of Conneaut, for allowing us this opportunity to appear here before your honorable body and present our views on this very important matter. Thank you. The CHAIRMAN. We appreciate your taking time from your busy `schedule to be with us. Are there any questions? Thank you, sir. Mayor GRISWOLD. Thank you. *The CHAIRMAN. Mr. Palmer, president of the Tobacco Associates. Mr. Palmer, we are pleased to have you with us today, sir, and, if you will identify yourself for our record, we will be gla~I to recognize you. STATEiVIENT OP ~~OKN D. PALMER, PRESIDENT, TOBACCO ASSOCIATES, INC. Mr. PALMER. Thank you very much, Mr. Chairman, for this privi- lege of appearing before your committee. My name is John D. Palmer. I am president of Tobacco Associates, Inc., a nonprofit association supported by some 200,000 growers of Flue-cured tobacco in Virginia, the Carolinas, Georgia, and Florida, as well as by banks, merchants, fertilizer manufacturers, and other interests related to tobacco in these States. Its primary function is to protect and to expand foreign markets for Flue-cured tobacco. PAGENO="0156" 1426 Mr. Chairman, in addition to the organizations which are shown and who are associating themselves with my statement is also the Tobacco Institute of Washington, D.C. Two other tobacco organizations are filing separate statements, but have asked to be associated with ours: Leaf Tobacco Exporters Association, Inc. Tobacco Association of United States. The Leaf Tobacco Exporters Association comprises processors and exporters of unmanufactured tobacco. The Tobacco Association of United States includes in its membership manufacturers, processors and exporters, banks, shipping companies, and the like. I requested permission to appear before this committee because no agriculttiral commodity is more intimately involved in worldwide trade than tobacco. The action by the Congress on two sections of the Trade Expansion Act of 1968 will have important and lasting effects on the thousands of our farmers who grow tobacco. One section is the Geneva agreement on chemicals, and the other the continuance of negotiating authority to deal with trade problems and disputes. I shall deal with these separately in the course of this statement. The extent to which tobacco is directly and vitally affected by tariff and trade proposals is brought into sharp focus by two figures. The first is approximately $500 million and represents U.S. exports of unmanufactured tobacco of all types in 1967. The second is $140 mil- lion and represents the value of commercial exports of manufactured tobacco products in 1967. This is a total of nearly two-thirds of a billion dollars, the greater part of which by far were dollar sales- I would say approaching 90 percent is for cash and not under AID programs-and as such made an important contribution to our favor- able trade balance as well as in diminishing the balance-of-payments deficit. Such being the case, Mr. Chairman, I know you will agree with my statement that, tobacco is directly and vitally affected by tariff and trade matters. As America's first and most important agricultural export 350 years ago, and as one of the top five today, it deserves the most careful attention and consideration when we are dealing with our international commerce. I say so because our overseas trade in tobacco is particularly sensitive and vulnerable. We have no monopoly. Tobacco is a weed. It grows and flourishes in many latitudes through- out'the entire world. Production is substantial in places as remote from each other as Canada and Argentina. Since World War II, output of Flue-cured abroad has increased from less than 500 million pounds annually to nearly 2,500 million in 1967, an increment of 500 percent. Now, I want to emphasize for purposes of comparison and for the record that while our own Flue-cured production in 1967 was only about 50 percent greater than prewar, we have periodically re4uced import duties by two-thirds-from 35 cents a pound a number of years ago to 111/2 cents during the Kennedy round. We use imported oriental leaf, principally from Greece and Turkey, for blending purposes. The oriental content of most cigarettes is in excess of 10 percent. On the face of it, therefore, Flue-cured growers should be here howling to the Congress for import quotas and for increased, rather than decreased, duties. To the contrary, they take a PAGENO="0157" 1427 far broader, long-range view. They recognize that American smokers are entitled to buy whatever type cigarettes they prefer and it so hap- pens that they prefer those having this foreign content. They recognize and accept the fact that it is a basic component of the American cigarette. They recognize also that the oriental content contributed in large measure to demand abroad for the 24 billion cigarettes that we exported last year. More fundamentally, growers have always been stanch supporters of freest possible international commerce for the simple and sound reason that despite the enormous production in- creases abroad, we still export 30 to 40 percent of annual Flue-cured production. As our largest buyer is the United Kingdom to whom the American selling price system is particularly repugnant, I address myself now to this section of the Trade Expansion Act of 1968. I would like to comment here, Mr. Chairman, that Mr. Watson and a good many others who, have appeared before you have made refer- ence to tobacco and the ASP during the Kennedy round2 the British Government offered to reduce by 25 percent the preferential duty rate accorded to tobacco grown in the Commonwealth if we in turn would eliminate the ASP duty system which, I believe, is applicable to only four categories of imports, the principal one being benzenoid chemicals. It is this preferential duty that has accounted in large measure for the enormous production increases that occurred in Commonwealth countries, particularly Rhodesia, India, and Canada, and who, in that order, rank next after the United States as Britain's principal supply sources. Imports from Rhodesia have, of course, been cut off since her declaration of independence. That has no bearing on the past, and if she composes her differences with the London Government, the preferred duty position of her tobacco would revert to its status prior to the separation. The preference is 1 shilling 6 pence per pound weight, or prior to devaluation, 21 cents in U.S. currency. It had a two-prong- ed effect. First, British manufacturers could pay up to 21 cents a pound more for Commonwealth tobacco and still have it as cheaply as our own. Second, they could pay, let us say 15 cents a pound more, and still come out 6 cents ahead. In eithe.r case, the preference militated against us. It encouraged the British manufacturer to use Common- wealth growths and in doing so and in paying higher prices, it enabled Commonwealth tobacco, because of the United Kingdom premium, to become even more competitive in our other major markets, notably West Germany, Japan, and the Benelux countries. The elimination of ASP would do away with 25 percent of the umbrella over that competition. It would reduce the spread between our respective tobaccos from 21 cents a pound prior to devaluation to 13.5 cents as of today. However valuable such a step would be in absolute terms to our tobacco in Britain, the parallel benefits else- where could vastly overshadow that of tobacco. It would provide the world with a clear indication of our determination to move ahead in the difficult task of removing barriers to trade. This demonstration could pay off many times over to this Nation as a whole in the years ahead without damage of consequence, so I am informed, to the benzenoid industry. The record would indicate that this industry has used ASP as a wet nurse for nearly half a century when it should have been weaned on reaching full muturity long years ago. PAGENO="0158" 1428 Tobacco is more vitally involved in that in the Common Market than any other obstacle to Common Market trade. The need for continuing authority to negotiate is set out in bold relief in tobacco problems in the European Common Market. The market comprises two entirely different types and methods of tobacco operations. In France and Italy, tobacco is under monopoly control by the state all the way from seed to cigarette. These two countries produce 90 percent of all tobacco grown in the market. Benelux and West Germany have private industries. Methods and rates of taxation vary widely in all six. The goal set forth in the Treaty of Rome estab- lishing the Common Market envisioned the abolition of the monop- olies, the harmonization of taxes, and the institution of a common agricultural policy with respect to the growth of tobacco in the six. The attainment of these goals obviously presents an enormously complicated set of problems. The last mentioned, production within the community, is of greatest concern to us. The Commission has proposed to the Council of Ministers that production is to be without limit or control; that this production is to be supported at prices that would exceed 100 percent parity, and as, if and when surpluses existed, im- ports from us or other third countries would be subject to licensing and/or complete suspension until the excess position had been recti- fied. If the committee desires, Mr. Chairman, I shall be more than pleased to go into the ramifications of this proposal at the conclusion of my statement. Suffice it for the moment to say that without negoti- ating authority to counter this proposal, the European Common Mar- k~t which now takes in excess of $100 million annually of our nil- manufactured tthacco could be lost as a market in toto over a period of years. That is not an exaggeration: it is a straightforward fact of our tobacco life. It is one on which we have fully informed our growers that they in turn may follow the proceedings of this hearing and subsequent action by the Congress. In summary, then, Mr. Chairman, Flue-cured tobacco growers sup- port the Trade Expansion Act of 19~8. As ASP is repugnant to the United Kingdom, so it is an anathema to the farmer, for it holds his crops at a price disadvantage, while conferring a near monopoly on a handful of benzenoid manufacturers. Farmers not only want, but they must have, continued access to the Common Market and other coun- tries. Farmers are historically horsetraders `by the very nature of their occupation. They appreciate to the fullest the value and the necessity of having a hole card when making a bargain. An essential hole card for Ambassador Roth is the quid pro quo in the act of 1962, and they want it continued. They want above all exactly what the title of the act says-trade expansion. One item which I would like to take 1 minute on, Mr. Chairman- I did not include it in my formal statement, but I would like the com- mittee to know because it. was mentioned by several other witnesses this morning-is the interest of tobacco in East-West trade. It is an un- tapped market for us. The Soviet bloc countries have some 300 million people. Experience has shown since the end of World War, TI that wherever American tobacco became available to the public, the pub- lic switched over to using our tobacco and that is the reason we are to- day able to sell 30 to 40 percent of our entire crop despite the f act that PAGENO="0159" 1429 foreign production has gone up 500 percent since the war and ours has gone up only 50 percent. Wrest Germany before the war used 90 percent oriental tobacco, 10 percent American. Those figures are almost completely reversed today. So I would like to emphasize that tobacco growers are extremely in- terested and support East-West trade. Tobacco Associates as an organization first took part in the Leipzig Trade Fair in East Germany in 1966 and we have participated in it successfully since and shall continue to do so. Now, $2 million is a very little bit of money when we are talking about international trade but it is a fact that since 1960 up to date we have come from actual zero in our tobacco trade in East Germany to approximately $2 million today and we look for it to increase. Thank you very much, Mr. Chairman, for permitting me to appear before this committee. The CHAIRMAN. We thank you, Mr. Palmer, for bringing to us this statement of the views of your associates. We find it a very interest- ing statement. Any questions? Thank you, Mr. Palmer. Mr. PALMER. Thank you, sir. (The following statement was received, for the record, by the commitee:) STATEMENT OF MALCOLM B. SEAWELL, EXECUTIVE SECRETARY AN!) GENERAL COUNSEL, LEAF TOBACCO EXPORTERS ASSOCIATION, INC. My name is Malcoim B. Seawell. I am Executive Secretary and General Counsel for Leaf Tobacco Exporters Aseociation, Inc., 406 Raleigh Savings and Loan Building, Raleigh, North Carolina. I wish to submit the following state- ment on behalf of the sixty-eight tobacco exporting companies comprising Leaf Tobacco Exporters Association. These companies buy American tobacco and export it throughout the world. The United States is the world's largest exporter of tobacco and ranks third as an importer of tobacco. Last year, the value of U. S. exports of leaf tobacco added up to a record $~00 million. Most of these sales were for dollars and made a significant contribution to our balance of payments. Since one-third of total U.S. tobacco production is exported, U.S. tobacco exporters and farmers have a vital stake in expanding our export outlets. U.S. tobacco exporters have always strongly supported the long established American policy `of trade liberalization and expansion. We recognize that in order to expand export opportunities for Our products we must be willing to buy from foreign countries. For this reason we have consistently opposed over-protection or coddling of American industry by import restrictions. Protectionism, not only inflates the costs `of things they need to buy but also, reduces the buying power of customers abroad. We feel that a liberal trade policy is plainly in the national interest. The wisdom of this policy is illustrated by the more than $8 `billion in con- cessions achieved by the ITS, in t'he Kennedy Round. In the agricultural side of these negotiations we gained some important concessions for U.S. tobacco `which will give us `better access to certain foreign markets. In addition to these con- cessions, the U.S. tobacco industry stands to gain `a major `benefit from the so- called "American `Selling Price Package" (ASP), negotiated during the Kennedy Round. In return for agreement `by U.S. negotiators to seek Congressional action to abolish ASP, and subject to such action being taken, the United Kingdom agreed to reduce the margin of preference `on tobacco imports by 25%. What is ASP and what does ASP elimination mean to the U.S. tobacco industry? Most imports into the tTnited States are subject to `duty expressed as a per- centage of the value of the imported goods (e.g., 10 percent ad valorem). In PAGENO="0160" 1430 almost all cases, the U.S. ad valorem duty rates are applied to the foreign values of the goods in the country of exportation. This is not the case, however, with respect to certain benzenoid chemicals. When these produ(ts are imported into the United States and found by the Customs Bureau to be competitive with a domestic product, the ad valorem rate of duty is applied to the U.S. price of the competitive domestic product-i.e., the American Selling Price (ASP) Benzenoi'd chemicals first became si~bject to ASP under the Tariff Act of 1922. At that time ASP was conceived as a form of protection for the infant U.S. coal tar products or benzenoid chemicals industry which bad developed in the post World War I period in the wake of the destruction of the German chemical industry. Although the U.S. chemical industry has since grown and become competitive, the U.S. system of protection for benzenoid chemicals has been virtually un- changed-as `if the industry were still in the developing stage. This situation has brought the United States a great deal of criticism from other countries. Not only `does the ASP system permit the domestic manufac- turer to adjust the protection afforded by the import duty charges by adjusting the U.S. price `of his product, but this protective benefit may, in fact, be achieved on an item where there is only token II'S. production. As a result, the foreign exporter of a product subject to ASP faces uncertainty as to import charges `be will have to pay. If this legislation had not been in effect prior to U.S. member- ship in the GATT. its continuance by the IT.S. would he a GATT violation. In return for U.S. action to abolish this outmoded and patently unfair system, the U.K. will reduce the Commonwealth margin of preference on tobacco by one- fourth. What does this mean to the U.S. tobacco industry? The U.K. is the largest tI.S. export market for tobacco. taking 138 million pounds in 1967. This meant a contribution of $139 million to the U.S. balance of payments. At the present time the United Kingdom duty on U.S. unrn'anufactured tobacco is about $11 dollars per pound compared with a duty of $10.82 dollars on leaf from Ctanmon- wealth sources resulting margin of preference on leaf from Commonwealth sources `of 18.5 cents per pound. In recent years this Commonwealth preference has been an important factor in enabling leaf from Commonwealth sources to gain an increasing share of the U.K. tobacco market. During the 1950-54 period, the Commonwealth held only 44 percent `of the U.K. market. In 1905 ILK. imports from Commonwealth sources reached 184 million pounds-64 percent `of this `market. We expect this percentage would be even higher today if there were not a trade embargo on Rhodesian tobacco. A 25% reduction in the ILK. margin of preference for tobacco will reduce the advantage enjoyed by Commonwealth suppliers to the U.K. market by 4.5 cents per poun'd. This will make IT.S. tobacco more competitive with tobacco from Commonwealth sources and decrease the incentive for ILK. manufacturers to shift to greater purchases of Commonwealth tobacco. U.S. tobacco exporters urge that the necessary implementing legislation be adopted to approve the so-called "American Selling Price Package." We feel that it will be a forward step, not only for U. S. tobacco exporters. `but `also for American foreign trade. The CHAIRMAN. Dr. Adams. STATEMENTS OF DR WALTER ADAMS, PROFESSOR OP ECONOMICS, AND DIRECTOR OP PROGRAM ON INDUSTRIAL STRUCTURES IN THE ATLANTIC COMMUNITY, MICHIGAN STATE UNIVERSITY, AND DR. JOEL B. DIRLAM, PROFESSOR OP ECONOMICS, IJNIVER- SITY OP RHODE ISLAND; ACCOMPANIED BY WILLIAM JAMES ADAMS, HARVARD COLLEGE Dr. ADAMS. Yes, Mr. Chairman. The CHAIRMAN. Dr. Adams, you are accompanied by Dr. Dirlam. Dr. ADAMS. Yes. The CHAIRMAN. If you will identify yourself, Dr. Adams, and Dr. Dirlarn and the other gentlemen with you we will be glad to recognize you, sir. PAGENO="0161" 1431 Dr. ADAMS. Mr. Chairman, and ~entlémen of the committee, I am Walter Adams, professor of economics and director of the program on industrial structures in the Atlantic Community at Michigan State University. On my left is Dr. Joel B. Dirlam, professor of economics, University of Rhode Island. This statement is submitted on behalf of both of us. On my right is William James Adams, Harvard College, who prepared appendix No. 1. Mr. Chairman, at this point I would like to move that the' entire statement with the appendixes be included in the record. The CHAIRMAN. It will be, Dr. Adams. This is the material appended to it? Dr. ADAMS. That is correct. There are eight appendixes, Mr. Chair.. man. The CHAIRMAN. Yes, I know. Let me thank you, sir, for the depth and extent of the studies that the three of you have made and which you contrjbuted here to our. hearing. I have had occasion to go through some of it. We appreciate your doing it~ Dr. ADAMS. Thank you, Mr. Chairman. Public p~liey in America has traditionally favored competition and feared monopoly. As a people, we have always believed "that posses- sion of unchallenged economic power deadens initiative, discourages thrift and depresses energy; that immunity from competition is a nar- odtic, and rivalry is a stimuiai~t, to industrial progr~ss; that the spur of constant stress is necessary to counteract an inevitable disposition to let well enough alone." (Judge Learned Hand in United State8 V. A7coc&, 148 F. 2d 416 (1950).) The very essence of capitalism, according to the late Professor Schum- peter, is the "pei~ennial gale of creative duStruoti'on"-"the competition from the new commodity, the new te~hnology, the new source of supply. the new type of organizati.on"-which strikes at established power po- sitions, vested interests, and entrenched privilege. Such competition is not only the harbinger of economic progress, but also the built-in safe- guard against the vices of monopoly and privilege. Competitive capitalism results in undoubted public benefits. But those subject to its gales o'f creative destru'etion do not perceive it as a gentle and beneficient force. To insulate themselves `against it, and immunize themselves from it, they try to build storm shelters for their prOtection. And, since private shelteis in the form of cartels and monopolies are either unlawful, unfeasible, or inadequate, they `ask the Government to build public shelters for them. Th'ey try to manipulate the State to preserve their vested rights against the newcomer, the in~ novator, the foreigner. They w'ant the State to short cirëuit t'he dis- cipline of the competitive market-to vitiate the central regulatory mechanism of a free economy. One type of storm shelter which would-be monopolists demand `of their Government are barriers to foreign competition-in the form of tariffs, import quotas, "antidumping" laws, and other restrictions. Instinctively, they recognize the rough validity of the Manchester maxim that "free international trade is the `best antimonopoly policy 95-159 O-6'&-pt. 4-11 PAGENO="0162" 1432 and the best guarantee for the maintenance of a healthy degree of free competition." They also understand that Government help is vir- tually indispensable if they are to achieve their monopolistic goals. Economic history provides many examples of the high costs which society pays for cooperating with such monopolistic schemes. One of the most dramatic examples is the impact of French malthusianism which fostered cartels and monopolies at home, and built barriers to competition from abroad. As we demonstrate in some detail in appen- dix I, the French economy paid the price of stagnation and retardation for this policy which persisted, almost uninterrupted, from the Revo- lution to the post-World War II era. It is significant that, in the early 1950's, the French themselves, seeking the causes of their stagnation, concluded that the high cost-price structure, low productivity, and general inefficiency of French industry were in large measure due to the corrosive system. of protectionism. Thus, the French Commission on National Accounts concluded that- In effect, in the shelter of our frontier which foreign merchandise finds it difficult to cross * * * a structure is developed which is no longer stimulated to maximum productivity. * * * ~~ is in the structure which it has established that the almost complete cloistering of the French market must be judged. The true long-term cost of abusive protectionism is the low productivity of the economy. Noting that, on the average, French prices were a good 10 to 15 percent above world prices, Rend Mayer, a premier with close business connections, told the Chamber of Deputies: The essential cause-I say it with moderation, hut with conviction-of our high prices is the system of protectionism, that growing protectionism of which we cannot rid ourselves, the survival of unproductive enterprises, the private cartelization which one day legislation * * * must definitely destroy. Other French statesmen saw in the vigorous competition induced by the Common Market the only hope for reversing the stagnation of French industry, and providing the necessary stimulus to moderniza- tion, progress, and growth. Competitive entrepreneurship, they felt, was the only road to survival in a competitive world. It is both ironic and tragic that the Congress is now asked to em- brace a comprehensive and pervasive policy of economic malthusian- ism-the very policy which has produced such deleterious results in France and elsewhere, and which the most progressive industrial nations are now abandoning. Illustrative of the rationale for (what Barron's calls) the "protection racket" is the steel industry's clamor for import quotas. Some of its arguments border on the ludicrous. Thus, Roger Blough alleges that- Obviously there are many things in life that should and must be protected. For example, millions of our people-and a number of Government agencies-are laudably striving to protect certain vanishing forms of wildlife that are threat ened with extinction; and one may reasonably wonder, I suppose, how far down the road to oblivion some of our major industries must go before they are deemed to merit similar concern. Other steel executives are more specific in their claims of gloom and doom: Imports, they say, represent "more than 70,000 steelworker jobs alone, and many thousands of jobs in supporting industries;" imports are a threat to the national security because "a first-class power with global responsibilities cannot afford to rely on overseas PAGENO="0163" 1433 sources of steel thousands of miles awt~y;" imports are a serious drain on the U.S. balance of payments*; imports are the inevitable con- sequence of the world's highest wage structure which makes it impos- sible for America to compete with foreign-made products in world maritets; and finally, imports must be severely restricted in order to give, the American steel industry time to modernize so that it can meet foreign competition. These arguments, we submit, are spurious and deceptive. As we demonstrate in the appendixes to this statement, steel employment is not correlated with imports but with rising productivity-both in the TJnited States and in leading steel producing nations like the European Coal and Steel Community. The level of 11.5. steel prices is uncom- petitive not because of high labor co~ts, but because of an insensitive, monopolistic, and suicidal pricing policy, on the one hand, and tech- nological lethargy, on the other. The balance-of-payments deficit, reflected in rising imports and lagging exports, is indeed a stark reality, but this again is explained by the industry's noncompetitive behavior. According to the calculations of Prof. Egon Sohmen, of the Uni- versity of Saar in Germany, an international steel authority, the U.S. balance-of-payments deficits during the early 1960's could have been eliminated, if the steel industry had priced its products to assure operations at full, capacity, and if it had exported the additional steel produced at world market prices. Sohmen says: Moreover if steel prices in the United States had uniformly been at the lower world-market levels, many important American industries using steel-the - automobile or the machinery industries, to name only a few-~could have reduced their prices. This would `have entailed a rise of exports of these industries and a fall of competing imports, further improving the U.S. trade balance. Finally, as the record of the last 15 years conclusively shows, tech- nological progress will not come about by shielding the steel industry from foreign competition, but by subjecting the industry to the regu- latory discipline and competitive compulsions which such rivalry provides. In short, a strong steel industry, with a viable national de- fense posture, is a competitive steel industry-not an industry operat- ing in its monopoloid and lethargic manner under the umbrella of government protectionism. Despite its `poor performance in the past, `however, there are signs that the industry `has begun to respond to import comp~tition, and that it can prosper without the `crutch of government, aid. According to the Wall Street .Journal: The steel industry, long plagued by heavy modernization costs and rising im- ports, nonetheless seems poised on the brink of a `spectacular long-term surge in profits. The modernization program, induced by import Oompetition, is beginning to pay off. The new oxygen furnaces at Republic's Cleveland plant have shaved $10 per ton from previous production costs. Na- tional's `continuous ca'sting machine at the Weirton plant will save an estimated $2 a ton in operating costs, which would mean an annual saving of $6 million, or nearly 6 percent of National's pretax profit of $105 million last year. McLouth, a leader in new steel technology, is likely to be earning $27 `million by 1970, up from $10.8 million last year. In addition, o'f `course, the price increases announced last year on PAGENO="0164" 1434 70 percent of all steel mill products, will yield more than $350 million annually-4hat is, roughly twice the $170 million increase in labor costs effective last August. Finally, as an Allegheny Ludlum `spokesman ob- served, the steel industry can take a hell of a lot more business without adding more people. Its rising productivity is reflected in the fact that in the first quarter of 1968, the industry `produced 37 million tons with an average employment of 432,000 people, whereas in the first quarter of 1965, the output was 35 million tons with an employment of 463,000. (Wall Street Journal, May `31, 1968, p. 6.) This is hardly the time, therefore, to impose import quotas, or to short circuit the market forces which have compelled the steel giants to modernize and increase efficiency. In conclusion, we note that even if (steel) import quotas could be justified in theory, which they cannot, they would still be an unwise policy in practice. In a chess game, it is foolhardy to assume that our opponent will play dead-that our moves will not be met by counter- move's which neutralize a seemingly brilliant forward thrust. Trade restrictions `by the United States will inevitably and predictably invite massive retaliation, leading to a further loss of export sales and an aggravation of the balance-of -payments crisis. Let us remember that a large volume of American steel is exported in the form of machinery, metal fabrications, vehicles, aircraft, and similar products, and that the dollar value of these exports is 10 times larger than the dollar value of steel imports. Let us also remember that some 2.9 `million jobs in the United States are attributable to exports-accounting for 20 percent of the employment in engines and turbines; 24.9 percent in construc- tion machinery; 16.9 percent in special machinery; 15.6 percent in chemicals; 13.8 percent in plastics; 12.1 percent in office machinery, et cetera. Is it in our national self-interest to penalize these progressive, competitive, and aggressive export industries in order to protect some inefficient, lethargic, monopolistic giants? We submit, Mr. `Chairman, that this would be a bad trade off. Import quotas for such industries as steel are, therefore, unwise and self-defeating. Asi'de from their deleterious effect on world trade, they are against the `best interests of the United States-the employment of our workers, the efficiency and competitiveness of our industries, the ~tabilization of our balance-of-payments position, and our industrial strength for national defense. Mr. Chairman, we should `be delighted to answer any questions the committee may `have. (The appendixes referred to follow:) APPENDIx I MALTHUSIANISM, PRoTECTIONISM, AND STAGNATION: A CASE STUDY OF FRENCH COMMERCIAL POLICY (By Wiiii'am James Adams, Harvard College) To the American, m'aithusiani'sm is a theory of population growth. To the Frenchman, by contrast, m'aithuSian'i.sm is a theory of entrepreneurial behavior: it is an attempt to explain why French economic values crystallized about the goals of security and conservation rather than those of creation and innovation. Although French in origin, the concept of economic malth'us'ianis'm (as I shall refer to the second usage to distinguish it from `the first) can be used to analyze certain strident strains in our own economic attitudes. It is important, then, PAGENO="0165" 1435 for us to uncl'ersliaud what the Fi~pch mean by ecs~omic imal'tihuslan.ism, and to examine the consequences it had for their economy. Accordingly, I shall e~amine: (1) the meaning of economic rn'a'lthusianism, (2) the perniciouts effects on the French economy of its embod'inmnjt in a system of protectionism, and (3) the beneficial effects on the French economy of its temporary abandonment in favor of moderately free trade. I. THE CONCEPT OF ECONOMIC MALTHUSIANI5M Economic maithusianism stems from an obsessive fear of narrow markets.1 The nialthusian entrepreneur believes that narrow markets are inescapable. Nothing can be done to stretch them. He therefore resigns himself to the in- elasticity of the demand for his own product, whatever the actual economic sit- uation may be. Domestically, even when "confronted with an expanding econ- omy, the French producer still does not go out to find or make new markets; he waits for them to come to him."2 Abroad, he does not fight for markets that could permanently compensate him for allegedly inadequate domestic demand. The Pechii'ney `company, for instance, "one of `the most vigorous of France's large concern's" according to Ehrmann, once explained a sharp dip in `its exports in terms of increased domestic dem'and. It apparently did not `consider the possi- bility of satisfying both `by expanding'produetien. Fear of narrow markets is reflected in the malthusian's concern over the ability of the market to absorb his output. He i's consistently pessimistic in his estimate of what the fragile market is able to bear. Thu's the National Institute of Statistics found in its periodical questionnaires that "when asked to make prognoses concerning business conditions in the period immediately ahead, most employers undereetim'atje the possibilities of their firm's, `large or small, and the ability of the market to absorb their products." Similarly, executors of the Monnet plan found that Industry representatives on the several working committees "in'vaSiably would show concern whether there would be a sufficient market for the increased production called for by the plan ;" fearing overpro- duction, the Wen'del steel group refused, when asked by the Oomnmi'ssari'at, to install a continuous strip mill `in the early 1950~s. Pessimistic about the possibility of stretxthi'ng demand, the malthusian at- tempts to organize rather than to expand `hi's market. The reason `is simple: in a fixed market, market share is mOre important than market size, The chief desiderata under suOh circumstances become the stability of the market and the security of one's position in it. To the mnalthusi'an mentality, such stability and security are best achieved by formally organizing the market, for as Baum put it: "the emphasis on stability and security rather than profit maximization greatly facilitates `the establishment of a modus vivendi between potentially competing firms." The organization of markets is, therefore, secured by the formation of ententes. Each `producer agrees to market a specified ~iohrme at a specified price. In return, he is guaranteed h'i's position in* the market place, regardless of the economic justification for hit presence. As a former minister of economic affairs once described the system, "he who has the greatest difficulties erie's, `Help me to protect myself.' He furnishes his cost elements an'd sees to lit that the price fixed by the en'tente will ait lease cover his ~ Thus no one who abides by the rules is forced from the game, no matter how low the score to his credit. As a result, the small family firm has been permitted to ou'tlive its efficiency. French markets are `stil'l encrusted with a plethora of marginal firms `surrounding the few larger corporations which account for the major sha're of economic activity. As late as 1957, fully 60 percent of all firm's employed no salaried per- sonnel `and 95 percent employed fewer than five. Only 0.1 percent of all firms employed more than 100 persons. The surviva} of the marginal firm has been made possible by the fact that the large, relatively efficient, corporation which could long since have compelled it to modernize its plant or retire from the market-place has chosen to organize production instead. The corporation has no't done- so out of charity. Sphred the spur of competition, it is enabled to become "of the sleepy sort which does not strain after every gnat of profit, but prefers a quiet life." With a uniform price set high enough to maintain the most marginal of producers, `the relatively efficient corporation automatically enjoys a high profit margin, which, given inelastic de- mand, yesults in high profit voinme as well. That his profits could be even larger See footnotes at end of Appendix. PAGENO="0166" 1436 concerns the malthusian little. As Landes beautifully summarizes the attitude, "why take risks and make money faster, when you can follow at a safe distance, earn less to be sure, but still be there when the front runners have long since faded?" r~ he ease with which the large corporation can maintain its superiority in the family firm league liberates it from the tiresome necessity of adapting to world efficiency. Accordingly, it is lulled into inertia with regard to technical change. Thus, as Be'ttelheim despairs: The spontaneous expansion of production and natural resources which is the natural outcome of a state of competition where producers are con- `tinually obliged to improve their productive capacity lest they be eliminated from the market, has increasingly given place to the stagnation of production and resource development due to economic maithusianism which . .. has limited production and investment to the immediate absorptive capacity of the market.9 The large corporation which appears efficient by domestic standards is actually inefficient by world standards. It, too, becomes dependent on the protective effect of the cartel. It, too, would be eliminated from a rati~na1 market. The businessmen themselves were aware of this inefficiency. But the maltbu- sians among them were unconcerned. Two examples of their attitude are as sufficient as they are startling. First- At the turn of the century, Paul-Boncour spoke about the hostility of the trade associations toward modernization. The president of the pre-war CGPF constantly praised the "prudence" of the French industrialist in matters of rationalization. Not to have adapted suddenly to measures of standardization or mass production was considered by him a virtue, worthy of a country which has always honored the juste milieu, but also a tribute to nature, for natura saltus non fecit. The high level of French prices was to be regarded as the "ransom" for the meritorious modesty of modernization efforts.'° * Second in 1933, M. Duchemin in one of his yearly addresses to the CGPF had almost proudly declared that production of costs in France would always be higher than in other industrial `countries since in matters of modernization and competition Frenchmen would always show "that modernization which corresponds to the genius of the race." 11 Just as they were prepared to sacrifice profit maximization, so they were prepared to sacrifice technical efficiency to t'heir goals of security and stability. Disciplined by the cartel instead of the world market, they were easily able to do so. In the early 1950's the Commission on National Accounts reported that "the sclerosis of competition goes far beyond the framework of these open or closed cartel agreements among some power groups. It results from a complex of prac- tices which themselves are the product of a general mentality.12 That mentality is economic maithusianism. It seeks economic survival through stability and security. That is why the maithusian is more a Weberian t'han a Schumpeterian entrepreneur. He specializes in careful calculation rather than in spontaneous creation and innovation. II. THE HEAVY HAND OF THE STATE If the effects of economic maithusianism on efficiency were so perverse, why (licln't the French state, anxious to promote economic growth and development, attempt to eradicate it? The answer is simple. The maithusian businessmen were able to convince the government `that they needed time to adapt to the exigencies of the world market. Insulate us today that we might modernize tomorrow and (ompete the next day, ran their argument. Obligingly, the government not only sanctioned the cartels but protected them from foreign competition by instituting a comprehensive system of trade controls and prohibitions. Unfortunately it did not realize that "su'ch a monopoly of the home market has never promoted progress in industry." 18 The protection it extended had precisely the opposite effect from the one it had intended: it led to the retardation rather than the modernization of the French economy. Let me illustrate in detail, beginning with the agricultural sector. The Revo- lution of 1789 atomized French agriculture. Hence, few nineteenth century land- holdings could guarantee subsistence, much less permit efficient production for See footnotes at end of Appendix. PAGENO="0167" 1437 the market. Even in 1925, 37.9 percent of all farmland was cultivated in units of of less than one hectare; and another 45.9 percent was cultivated in units of one to ten hectares. This myriad of small holdings was hopelessly inefficient and would never have survived world competition. Unfortunately, it did not have to. The exigencies of war forced Napoleon I to rely on domestic agriculture. When cut off from tropical cane sugar, for Instance, he encouraged home production of sugar beets. There arose, then, a self~sufflcient but inefficient home agricul- ture. At the end of the Napoleonic wars, with the return of competition from abroad, home agriculture sought and secured protection. High tariffs appeared on sugar, wheat, and most other foodstuffs. Other agricultural products such as wool were also protected by either tariffs or absolute prohibitions. This system remained largely in effect until the Cobden-Chevalier Treaty of 1860. There fol- lowed twenty years of what the French euphemistically call free trade: i.e. mod- erate protection. Some foodstuffs, such as rye, barley, and oats, did enter free; but wheat still carried a duty of about 0.60 francs per one hundred kilograms, wheat flour one of 1.20 francs, and the pates d'Italie one of 1.20 francs. Com- parable duties remained on livestock. As competition from the great plains came to be felt, however, moderation capitulated to excess. A law of 1881 excluded grain and livestock from future commercial treaties. In 1885, duties on formerly free goods reappeared and those on the rest went up. The duty on wheat climbed to three francs, and in 1887 it was boosted to five francs. Finally, with-the Méline tariff of 1802, protection reached a climax, and the tariff on wheat levelled off at seven francs per hundred kilograms. Protection permitted farming to remain fragmented in France. In 1908-00, an Inquiry conducted by the Ministry of Agriculture on small property found that since the Méline tariff, the number of small holdings had increased in 42 depart- ments, had. declined in only thirteen, had remained stationary in seventeen, and were undetermined in fifteen. During the same period, the area of small hold- ings had increased in 52 departments, had declined in five, had been stationary in nineteen, and were undetermined in eleven. The Iquiry also discovered that the number of large farms was actually declining, while the number, and more significantly the area, of small holdings increased. As late as 1929, 62 percent of all exploitations greater than one hectare were between one and ten hectares. Another 34 percent were between ten and fifty hectares. `Fragmented farming retarded industrialization in two ways. First, It per- mitted the rural population to remain inefficiently swollen and therefore impeded urbanization. Hence, in the period 1815-48, fully three-fourths of all industrial workers retained a connection with agriculture. For many, industrial employ- ment was only a supplementary source of income. Thus, industrial labor remained unspecialized and inefficient. As long as it could fall back on its land, it was not compelled to acquire industrial habits and unit labor costs remained high. Indus- trial efficiency was impaired. Second, fragmented farming reduced agricultural as well as industrial effi- (1E'ncy. Augé-Laribd has estimated that over one-quarter of the land in cultivation is too fragmentized for economic use. Moreover, the protective tariff permitted the farmer to resist specialization in such products as wine in which France enjoyed comparative advantage. Even ~aurès, who had favored agricultural pro- tection in the years past, "declared that the tariff was now preventing it from realizing its true possibilities, by maintaining the un-economic production of grain and limiting the development of an export trade in the special lines in which it excelled." 14 Producing goods in which it had no relative competence, French agriculture lagged behind its foreign counterparts. In 1910, her wheat yield was twenty bushels per acre while that of Germany was thirty and that of Great Britain 32. She also lagged her neighbors in stigar beet yield per acre, in yield of sugar per ton of beets, and in milk production per cow. Golob summarizes the period after the Mdline tariff in this way: Considered only in relation to its own past, French agriculture in the first decade of the twentieth century seemed to be continuing to progress very slowly. Per hectare yields had risen, land ownership had gained some- what over tenancy, but the dominant note was one of maintenance of tra- ditions, of resistance to change rather than progressive change. If a rise of truck farming indicated a slight tendency toward specialization, the decline of so-called industrial crops indicated a return to diversified farming.n The result of this lack of specialization was high prices. Especially after 1894, the price of wheat became substantially higher in France than in the world See footnotes at end of Appendix. PAGENO="0168" 1438 market. This meant that wages had to be higher in France than abroad to cover subsistence, further retarding industrialization. Sluggish urbanization, low-productivity but high-wage labor, and high food prices can be imputed to agricultural inefficiency. It is not surprising that Bettelheim calls agriculture retardation "one of the principal factors in the isolation of our economy from the world economy." ~ While this inefficiency was directly caused by the Revolutionary land distribution, it was indirectly sustained by post-Revolutionary protectionism. Sawyer long ago noticed that "in agri- culture the system of tariff-protected peasant proprietorship has survived for great parts of France, giving her the highest percentage of `independents' in this field of any Western country. The result has been to hold an excessive amount of labor in the land and to maintain small, undercapitalized, underproductive units, particularly in the south and east." ~ Dillard, writing in 1967, has the same impression: "High agricultural tariffs," he declares, impeded the shift in resources from agriculture to full-time urban industry, a movement consistent with general economic development. Undoubtedly the pace of industrialization in France was slowed down by the high tariff on agricultural products. High tariffs on wheat and other foodstuffs continued well into the twentieth century and retarded the growth of the entire French economy.~ Unlike England, then, France failed to repeal her corn laws. As a result, she was unable to industrialize as rapidly. Industry received the same protection and displayed the same retardation. As early as the Revolution, Kemp found "the typical reaction [to competition] was to seek what defence was possible behind tariff walls, which meant falling back on a stagnant or only slowly growing market." a Thus the Convention annulled all existing commercial treaties, imposed several export duties, and prohibited the importation of many goods. A law of October, 179fi, banned all imports from Great Britain. In June, 1803, this ban was extended to goods from British colonies and goods passing through British ports. Navigation laws were passed and the free ports, dating from Colbert, were abolished. Under the Berlin and Milan decrees of 1806-07, businessmen became so accustomed to the per- vasive system of prohibitions, that they claimed it was essential for prosperity. Thus, prohibitions and high tariffs did not fall with Napoleon. Between 1816 and 1826, industries which had lived only by the grace of protection made sure that peace did not revive competition. Absolute prohibitions and virtually pro- hibitive tariffs, were extended rather than dismantled. Under Louis XVIII. protection was first accorded to producers of flax, wool, and cereals. Lest linen and woolen manufacturers be placed at a disadvantage by relatively high raw materials prices, a compensatory duty was levied on raw cotton, even though that fiber was not produced in France. More important, imports of coking coal faced a stiff tariff, usually o.f thirty percent. (The system, however, was com- plicated, and English coal faced much higher duties than either Belgian or Prussian coal.) Louis also raised the duty .on bar iron from ten percent to fifty percent. When it was found that Britain could still export iron smelted with coal across the Ohannel, a special duty of 120 percent was levied on such iron. It is not surprising that this tariff did in fact "preserve intact for French iron- masters the complete monopoly of the home market." 20 Nor is it surprising that the large landlords were strong supporters of the tariffs on coking coal and iron smelted with coal: they enabled them to make large profits on the wood they sold to smelters. The July Monarchy realized things had gone too far. It reduced duties on wool by one-third. This enabled the woolen and worsted industries to expand greatly near the foundation of the Second Empire, since the supply of home- grown Merino wool was insufficient both quantitatively and qualitatively for such expansion. Louis-Philippe also reduced the duty on iron smelted with coal by one-fourth and that on cotton of long and short staple to twenty francs. Finally, he removed the import prohibitions on fine cotton (which was not spun in significant quantities in France) and on coarse linen. Political considerations, however, prevented further reductions, and his regime remained, on balance, protectionist. Thus ". . . France still maintained, at the time of the Revolution of 1848, the system of absolute prohibitions-a legacy from the exclusive policies of the Napoleonic period. Included in the list of goods whose importation was unlawful were many of the most important industrial products, such as pottery, glass- ware, textiles, chemical products, and manufactures of metals and leather. Phe See footnotes at end of Appendix. PAGENO="0169" 1439 continuation of exclusion was demanded by the producers of similar products - in France, who feared that the duties which would otherwise be applied might not be sufficiently high to permit them to retain their monopoly of the hOme market ~ 21 From this protective system, the Revolution of 1848 subtracted nothing. "Though the Republican Assembly of 1849 was elected by manhood franchise, it showed no particular disposition to commercial liberty. Whereas in England the extension of democracy led dIrectly to greater freedom for for- eign trade, In France it had no such result * *~` 22 The legiSlature was controlled by the landowners and manufacturers~ who were naturally hostile to reform. Since no popular demand for reform arose, it was in no way disposed to act. Until the Oobden-Cheyaliei- Treaty, then, France remained devoutly protec- tionist. "French manufacturers had enoyed almoSt complete protection against foreign competition since the beginning of the revolutionary wars in 1792." u is time to discuss the results of this system of protection. It Is time to see whether it helped or harmed the Freneheconomy. In the coal and iron industries, to begin with, the effects of protection were adverse. The absence of abundant coal deposits caused the price of that mineral to be high in France in the first place. Generous lariffs boosted the price even higher, so that coke cost twice as much in France as in England or Germany. This made It much less profitable for the ironmasters to adopt the efficient coke- smelting process, and hence put them at a disadvantage with respect to foreign producers. It is a testament to the efficiency of the coke process that it remaIned, more efficient than the wood process, even with the artificially high price of coal. That is why `~the demand for coal increased so rapidly that domestic pros ducers could not expand fast enough to meet the needs, and large amounts con- tinued to be imported from Britain, Belgium, and Germany despite the tariff."24 The ironmasters didn't complain about the cost of coke because they also received protection. The price of iron was so high that even the most inefficient of producers could stay in the market without being compelled to modernize. Of the ironmasters of the Marne, Dunham says: Thanks to their favored position, they had been able to use antiquated machinery, or sometimes to depend to a great extent upon hand labor by workers in households, such as had been prevalent in England at the begin- ning of her industrial revolution, sixty-five years before. Many of the iron foundries were situated in mountain districts, far from both railroads and markets because, under existing prices, they could still afford to burn wood instead of coal.26 Thus protection prevented the rapid conversion to coke smelting. Not only did high tariffs keep coal artificially scarce, but they kept the price of iron artificially high. Hence, at! penalties for antiquated production methods were effectively removed. No wonder ". . . the progress of metallurgy in France was almost completely checked." 26 Just as high coal prices hIndered the development of the iron industry, so high iron and steel prices hindered the development of other important indus- tries. In 1860, the Inspector-General of Mines, M. Oombes, had occasion to inves- tigate the cutlery industry of the upper Marne. He concluded that it was ex- tremely inefficient. Testimony by the cutlery manufacturers themselves at gov- ernment hearings in May, 1860, correborated his opinion: "it was proved then that the cutlery industry had scarcely been touched by the industrial revolution and still used the old domeStic system with the waste of time and effort involved in manufacturing on a small scale in the widely scattered homes of the master workmen." 27 Much more significant than a retarded cutlery industry was a stunted railroad system. Inefficient smelting and refining of iron made "the construction of rail- roads slow and expensive." 26 Hence the creation of a pervasive transportation network, the plinth of the development process, was retarded by the inefficiency df the iron industry. That is why Dillard feels "tariffs on coal and iron clearly worked to the disadvantage of Frenèh economic growth." ~° ~The picture in textiles is only somewhat less bleak than that in coal and iron. In the early nineteenth century, urbanization proceeded at a leisurely pace. Hence, the putting out system, employing very little machinery, accounted for most spinning and weaving. Change came first to spinning. In cotton, for example, most spinning was done in mills with machinery by 1860, even though such mills were not of great size. Weaving, however, was hardly touched. In cotton, "in 1860, with the exception of Alsace and of centers like Rouen, Lille, and Roubaix where See footnotes at end of Appendix. PAGENO="0170" 1440 there were some powerlooms, it would not be far from the truth to say that all weaving was clone by hand."3° To trace the rate of progress in spinning and weaving, most economic histori- ans cite statistics on the introduction of spindles and looms.. I shall not follow this practice because I consider it quite deceptive. Most machinery in use was inefficient. Dunham, after describing the transition of cotton spinning from home to mill, says: "It seems clear, however, that the machinery used was of an anti- quated type, and that the French spinners did not as a rule adopt improvements as they were made in England." 31 In fact, some of this machinery was outmoded before it was even installed. Of the once strong silk tulle weavers, it is said: Their looms were generally old and poorly constructed, having been bought from manufacturers of cotton tulle in northern France and adapted to the weaving of silk tulle at great cost. They were run by hand, but England had installed looms run by steam power and had improved her methods so that she was driving the French from the markets of the United States, Spain, Germany, and Italy.32 Particular machines, then, as well as people can become inefficient in perform- ance of a given process. France did not keep up with England technologically; it had the unhealthy habit of using machinery that was obsolete on installment. Thus the mere existence of machinery is no measure of progress at all. How did the tariff relate to this retardation? By keeping the price of yarn and cloth artificially high, it permitted inefficient producers to stay in business with- out adopting better methods. Am? cites the case of Rouen, whose chamber of commerce declared in 1802 that her manufacturers "used `the most efficient tech- niques known." It thought France superior to England in the production "of all common cottons and the principal woolens." In 179~, just before the proscrip- tion decrees which left us with the system of prohibitions, we already exported, under the aegis of the Treaty of 1786, more cotton yarn th'an we have ever ex- ported since. In 1814, to make the prohibitions survive the war, Rouen had to admit that our industry had not matched the progress of British industry and that we were not prepared to take up her challenge.33 Whether or not they would have been wiped out by British competition is de- batable, but it is true that `they had not kept up with their British rivals. The prime argument for protetcion had been that it would permit home industry the l)rea'thing space to undertake reform. "Under the system of prohibitive tariff duties, however, the French [plain silk tullel manufacturers, like so many of their colleagues in other industries, made such large profits that they saw no need of improving `their methods or machinery." Among these colleagues in other industries were the woolen manufacturers. Dillard found that protective dutie's on woolen yarn and cloth probably retarded rather than promoted economic growth in this `ancient and well-established branch of the textile industry. The transition from band to machine weaving was delayed by the protective tariff. Protection to woolen cloth also sustained the domestic system of manufacture and impeded the transfer of manpower out of agriculture into full-time indus- trial employment, which was one of the primary needs for French industrial progress.3° Thus, the effect of insulation was not efficiency but stagnation. The textile industry did not reform because it was not compelled to reform. As long as there was no penalty more pricking than moderate instead of exorbitant profits, it was unreasonable to expect a change in technique. The picture in textiles was, however, less bleak than that in coal and iron. Unlike coal and iron, the textile industry did have some compartments of effi- ciency and strength. Principal among those was silk, which "enjoyed an absolute as well as a comparative advantage over all other countries during the nineteenth century." 3° Unfortunately, the protectionist policy in France provoked retalia- tion in other countries. As a result, the expansion of this efficient export industry was arrested. In sum, industrial tariff policy between the Revolution and `the Oobden- Ohevalier Treaty fostered retardation, not modernization. While it did not create the putting out system. the overpopulated country-side, or the small family firm, it did permit each of these institutions to `survive its economic utility. If prices had not been kept artificially swollen, the high cost producer could hare met British competition only by adopting more efficient techniques. Lacking both the innate obsession and the external compulsion to do so. he did not. The result was retardation. As Dunham tersely put it: "the deadening in- See footnotes at end of Appendix. PAGENO="0171" 1441 `fluence of a prohibitive tariff on industrial progress is well known and needs no demonstration. There is no reason to believe that this influence was less deadening in France between 1810 and 1860 than it has been else~here and at other times." ~ In 1860, the French Emperor, Napoleon 11,1, agreed to end the system of pro- hibitions. I say the Emperor did, because the people did not. So hostile was public opinion that the Cobden-Ohevalier Treaty could not be presen1~e'd even to the Emperor~s hand-picked Senate for ratification. It had to be presented as a taft aceompli. From the very beginning, there was substantial popular opposi- tion. By 1872, at the inception of the Third Republic, a majority of parliament favored high protection. By 1878, the Treaty with England wars denounced: and within three years the tariff had been raised: 24 percent for bargaining purposes. By 1888, in a questionnaire on tariff reform circulated by the ~9ocite des agricuiteurs, only three of 140 replies favored retention of the already in- creased tariff. By 1890, 96 of 107 chambers of commerce wanted to denounce all existing commercial treaties; only 35 recommended any renegotiation. Finally, in 1890, a tariff revision commission was appointed consisting of 39 protec- tionists, eight moderate protectionists, and eight free traders. It was clear what was going to happen. I could go on to discuss the return of protectionism: the effects of the Méline tariff, the import quotas of the 1930's the quotas and compensatory taxes of the late 1940's and early 1950's. I shall not do so, however, because such a dis- cussion could only contribute similar if not quite so shocking examples of the retarding inuence of protectionism. S'uffice it to say that in the early 1950's, the French, themselves seeking the causes of their stagnation, concluded that the high cost-price structure and the general inefficiency of French industry were in large measure due to the corrosive system of protection. The Nathan report found that "the French market, for short periods, has largely been isolated from foreign markets for the past twenty years. . . . The economic cloistering has, in effect, permitted our country to develop, purely on the basis of internal ex- igencies, practices or policies which could not fail to have consequences on the structure of national costs." ~ Similarly, a report of the Commission on National Accounts concluded that "in effect, in the shelter of our frontier which foreign merchandise finds it difficult to cross . . . a structure is developed which is no longer incited to maximum productivity. . . . It is in the structure which it has esta:blished that the almost complete cloistering of the French market must be judged. The true long-term cost of a'busive protectionism is the low pro- ductivity of the economy." That is w'hy the French found their prices, a good ten to fifteen percent above world prices on the average. It is also why M. René Mayer, a premier with close business connections, could *say before. parliament: The essential cause-I say it with moderation, but with conviction-of our high prices is the system of protectionism, that growing protectionism of which we cannot rid ourselves, the survival of unproductive enterprises, the private eartelization which one day legislation . . . must definitely destroy 40 Protectionism after 1892 was like protectionism before 1860. It permitted high- cost inefficient pr~xiucers to remain in business because of artifically high prices. The tariff may not have been the chief cause of French `retardation, `but "it i's clear `that in almost every case its influence was unfortunate, if not definitely harmful." ~ I do not discuss this period in detail, then, because it would constitute another exercise In negativism. Instead, I wish to take the more positive approach of showing just how salutory the absence of restriction would have been. Thus, I turn to the two truncated periods of French economic liberalism, the one just before the Revolution, the other at the summit of the Second Empire. III. THE INVISIBLE HAND OF THE STATE When free trade finally penetrated government policy, the manthusian did no't greet it with equanimity. In each `period of trade liberalization, he claimed that he would be destroyed by his more efficient foreign counterpart, and that far from modernizing he would be forced out of business. In each of these periods, however, thebusinessman was able to complete, and compete well, once he modernized.~ It is the purpose of this section to show how and why. In 1786, at the time of the Eden-Rayneval Treaty, the French businessman seemed in no condition to compete with his British counterpart. His rival had See footnotes at end of Appendix. PAGENO="0172" 1442 better coal, and even better wood. He was using water-frames while the French- man was still struggling with jennies. He was well informed concerning the kinds and qualities of French goods as well as the tastes and needs of French coii- sumers. He faced no guild system or internal tariff barriers. His country was not on the verge of bankruptcy. No wonder Vergennes predicted the sudden influx of British goods would give a strong shock to French industry. This strong shock was not unwelcome to the French statesman, however; be predicted that the shock was badly needed and would not destroy the French manufacturer. In this appraisal, he proved to be correct. Even in cotton, the vehicle of England's economic revolution, British imports did not kill the home industry but stimulated the adoption of the jenny and, to a lesser extent, the water frame. Broadly speaking, "no single branch of industry was ruined and in- dustry in general seems to have been notably stimulated by the competition which induced French manufacturers to study and copy British goods with gratifying success." ~ Hence, Haight concludes that "no doubt the equalization of duties on manufactured articles operated to the immediate benefit of England, but it pro- vided a much needed stimulus to the technical renovation of French industry and demonstrated, better than any amount of theoretical reasoning, the stifling effects of excessive regulation and organization." ~ France was on her way to economic revolution. Unfortunately, the operation of this Treaty was arrested prematurely. In its paranoia, the Revolution reverted to the system of prohibitions which I have already discussed above. Early hopes for catching England evaporated. The free trade movement itself went underground until Michel Chevalier and Frêdlric Bastiat formed a free trade association similar to the Anti-Corn Law League, and began to publish their L4bre-Echange. In 1847, they proposed the abolition of all prohibitions, the abolition of all duties on foodstuffs and raw materials, the abolition of constraints on shipping, and the setting of a maximum duty of twenty percent, to be lowered to ten percent in one year. The plan never gained popular support and was not even presented to parliament until the Second Re- public. By that time it had lost even its backers. Bastia, more afraid of the so- cialists than annoyed with the tariff, devoted all his energy to celebrating the virtues of a laissez-faire (as opposed to liberal) system. His asso~ciation was dis- banded and his newspapers ceased publication. Thus, when moderately free trade was proposed by Sante-Beuve, it was overwhelmingly rejected in pariliament. The record of the Second Republic demonstrated that reform wauld have to come as a coup. That is in fact what happened, as I related above. The `Cobden- Chevalier Treaty was negotiated privately, then secretly. It was never approved by parliament. And yet (perhaps therefore) its provisions were impressive, France was to eliminate all duties on foodstuffs and raw materials. By 1861, she was to permit all British goods to enter at a maximum rate of thirty percent. By 1864, that rate was to fall to 25 percent. Each nation granted the other most- favored-nation treatment. Specifically, the coal duty was to drop by one-half and the coke duty by two-thirds. British cast iron was to be admitted at 25 francs per hundred kilograms,~ her machinery at fifteen francs per hundred kilograms, a reduction of 75 percent. Cutlery was taxed at an ad valoreni rate of twenty. percent. In textiles, most British cloths would be taxed at fifteen francs per hundred kilograms, and then at ten frances in 1864. What were the effects of this comprehensive trade liberalization? Let us look, first of all, at the iron industry. Indeed, let us look at the producers in that industry who were most inefficient and would find it most difficult to adapt: the ironmasters of the upper Marne. Those establishments located high in the hills or deep in the forests refused to convert to coke and were, as a result, eliminated. The charcoal industry died and iron mining virtually ceased. But those establishments that were situated near the railroads or the canals, or were placed close to the river, survived and increased their output greatly after changing their equipment and improving their methods. Many learned to special- ize in making cast-iron, and the manufacture of wrought- or weld-iron prospered. Rolling-mills were modernized, and produced large quantities of fine iron and steel . . - The manufacturers, in short, brought their equipment up to date and specialized in the production of goods of superior quality, especially in that of finished parts for machinery of all sorts and sizes.4° Thus, in 1912, the iron industry of the upper Marne had a far larger number of workers, a far higher volume of output, and a far better quality product than it did in 1860. It did suffer in the transition period, but after that, "the indus- See footnotes at end of Appendix. PAGENO="0173" 1443 try was not injured by the new commercial policy of the Second Empire; in fact there are many grounds for saying that the reforms so bitterly opposed in 1860 were of great and lasting benefit to the manufacturers of the upper Marne." ~ The adaptation of the rest of the French iron industry was even more spec- tacular. Producers made use of British scientific discoveries, and improved their methods of production. Soon they were able to export large quantities of iron goods to countries other than Britain-especially locomotives and other machin- ery. Most impressive was the fact that the British were not able to increase their exports of iron goods to France, despite the large reductions in duties. The reason was that the adoption of efficient techniques brought French costs way down. Costs fell farther than tariffs, and so the new duties remained prohibitive. The lower price of iron stimulated all firms which used that commodity. This involved almost every sector of the economy. Most important was the effect on transportation. According to Dunham, the great development of French rail- roads in the later years of the Second Empire was, to a very considerable degree, the result of English competition, which brought down the price of French iron, and both increased the supply and improved the quality by compelling the small ironmasters to abandon their inaccessible forges in the mountains and establish themselves in favorable situations where they could smelt with coal. The use of wood for smelting was declining before 1860, but the change to the burning of coal was completed with rapidity after the conclusion of the Commercial Treaty.48 The development of the railroads In turn affected the coal and iron industries. Apart from their direct demand for coal and iron products, the railroads reduced the cost of coal at the point of consumption enormously, making the rewards for conversion from wood smelting even greater. This served to reinforce the already increased demand for coal and improve the efficiency of the iron industry. No wonder iron and steel production spurted to over one million tons per year in the 1860's. Cheap Iron also enabled the textiles industry to undergo its adaptation to free trade more painlessly. I have already shown that spinning and especially weaving were slow to adopt machinery, and that when they did, such machinery was old and inefficient. The new Treaty forced both branches to catch up. In cotton spin- ning, for instance, "we have abundant evidence that British competition caused the introduction of large numbers of seif-actings." ~ In weaving, it is Interesting to compare the reactlon~ of Elbeuf, a town which encountered little British competition against its fancy clothes, with Lisieux, a town which encountered stiff competition against its ready-made clothing. Less than half of Elbeuf's fancy cloths, which represented three-fourths of her production, were woven on power looms, the machines being used chiefly for the plain cloths of a single color. At Lisleux, on the other hand, where the principal industry of ready-made clothing was feeling keenly British competition, there were four hundred power looms in 1870, all of them intro- duced after the signature of the treaty with England, but the number of hand-looms had decreased from 2500 to 1200 and the Industry showed a strong tendency to concentrate in the town.6° Similar evidence could be adduced in cotton and linen.81 In textiles, too, then, French industry was able to equip itself with efficient processes and then to compete effectively with the British, at least in the domestic market. Textile prices, like `Iron prices, fell so far that ad rem duties became prohibitive. The manufacturers of Dundee ascribed this to greater French effi- ciency; they felt "that the French duties which were moderate in 1860 had since become prohibitive because of the great progress made by the French lInen in- dustry." ~ Once again, the Cebden-Chevafler Treaty forced businessmen to adopt efficient techniques and to lower their prices, permitting the whole economy to move forward. More important than the introduction Of any particular piece of machinery was the appearance of a new entrepreneurial mentality. In Part II, I showed how the spirit of economic `malthusianism was an Important retardative factor in the French industrial process. At the beginning of this section, I suggested that this spirit would have evaporated in a stridently competitive environment. This seems to have been the case. It is worth quoting at length from the life of M. Ban!, a velvet manufacturer from Amiens. His reaction to the Preaty was to apply for an Imperial loan under the law of August 1, 1860.~ Writing later of this difficult period, he said: I was sure their fears were exaggerated. I was well informed regarding the English market, and certain that Amiens could compete. I therefore asked See footnotes at end of Appendix. PAGENO="0174" 1444 for a loan of 150,000 francs in August, 1860, and received 100,000 in March, 1861, and January and April, 1862. I used this to erect a new building and to set up 108 looms for cotton velvet, and I already had 82 of these when the crisis of the American war came. The result was the quick rise of cotton with which the cloth could not keep up, loss on the goods, stagnation of trade, lack of credit, and the closing of one of the chief markets for Utrecht velvet. I had to stop the manufacture of both forms of velvet. I studied linen and got orders from Amiens merchants and an agreement from the Pont Remy mill to supply yarn. But my funds were sufficient to change only thirty looms and this was not enough to pay. Then the medal awarded me at the Exposi- tion of London [18621 attracted the attention of French manufacturers to the mechanical weaving of IJtrecht velvet. Payen, and later others, gave me orders to resume work with 38 looms. 1 had great difficulty in training work- men in mechanical weaving, and these difficulties kept cropping up and still do. Meantime wages and excessive general costs due to an insufficient num- ber of looms, interest on capital, the cost of all these investigations, the change of looms; all these meant continual loss. My net loss is now 331,429 franca My average sales since 1858 have been 280,000 francs. With my equipment I should sell for 1,000,000 francs. My present plight is due wholly to insuffi- cient production.TM The aroma of an ardent capitalist simply exudes from that passage. Baril did not shrink from the challenges of hardships of a competitive market. He was not only to adapt but to win a Briti$k award for technical excellence. He was an entrepreneur of whom Schumpeter could have been proud. Most businessmen were not such hearty capitalists as Baril. Only the great wine and silk firms refrained from proclaiming their imminent destruction. The others complained of having to adapt to small profits on large volume from large profits on small volume. They resented the increased exertion they had to make. But they learned, and they changed. They had to, or they would not have sur- vived. Thus "international competition in silk goods was sharper in 1876 and 1877 than in 1860, yet the French silk industry had grown to fear it less because it had learned from experience that it was beneficial." ~ Whatever their public propa- ganda might have been, whatever their private feelings actually were, French businessmen were compelled to meet the test of the marketplace, and the blight of economic malthusianism was overcome. iv. CONCLUSION In the critical decades of the early and late nineteenth century, high tariffs in France cauterized the competitive process and permitted, indeed encouraged, the retention of niaithusian values and practicea In two fleeting periods of moderately free trade, however, France showed that these values and practices were not indelibly imprinted on her econOmic soul. They showed she could compete, and compete well, when assisted by the invisible hand. The same elan vital has char- acterized economic France in the 1950's and 1960's. For World War II taught her that French foreign policy, the French Union, a French Europe, and even French culture, were all destined for decline without a policy of vigorous economic ex- pansion. Today, she sees, through the eyes of Jean~Jacques Servan-Schreiber, that the cost of economic rualthusianism is the e~istenice of France itself. For the cost of such rigidities, if they are permitted to continue, will be overwhelming. The common market is not the prelude to a new period of stability: it is the be- ginning of perpetual change. Automation and computers will spread, the pace of invention will quicken, incomes will continue to rise, and the tastes of con- sumers to vary. Growth will indefatigably create and destroy both processes and the skills necessary to perform them.~ Like it or not, the only way to achieve security in the modern economic world is to heed the perennial gale of creative destruction, not to bide from it. BIBLIOGRAPHY 1. Amé, M. Etude sur Les Tarifs de Donanes et Sur Les Traités de Commerce, Paris: Imprimerie Nationale (1876). 2. Baum, Warren C., The French Economy and the $tate, Princeton: Princeton University Press (1958). 3. Berger, Alain, "Sortir du malthusianisme," Esprit, (January, 1954). See footnotes at end of Appendix. PAGENO="0175" 1445 4. Betteihelm, Charles, Bilna de L'Economjc Fraincaise 1919-1946, Paris: Presses Universitaire~ de France (1947). 5. Christopher, `John B. "The Dessication of the Bourgeois Spirit," in Earle, Edward Mead (ed.), Modern France, Princeton: Princeton University Press (1951). 6. Dillard, Dudley, Economic Development of the North Atlantic Community, Englewooci Cliffs: Prentice-Hall (19437). 7. Dunham, Arthur Louis, The Anglo-French Treaty of Commerce of 1860 and the Progress of the Industrial Revolution in France, Ann Arbor: University of Michigan Press (1930). 8. Ehrmann, Henry W., Organized Business in France, Princeton: Princeton Uni- versity Press (1957). 9. Golob, Eugene Owen, The M~line Tariff: French Agriculture a'nd Nationatist Economic Policy, New York: Columbia University Press (1944). 10. Haight, Frank Arnold, A History of French Commercial Policies, New York: Macmillan (1941). 11. Kinclleberger, Charles, Economic Growth in France and Britailn, 1852-1950, Cambridge: Harvard University Pri~ss (1964). 12. Landes, David S., "French Business and the Businessman: A Social and Cul- tural Analysis," in Earle, Edward Mead (ed.), Modern France, Princeton: Princeton University Press (1951). 13. Sawyer, John E., "Strains in the Social Structure of Modern France," In Earle, Edward Meaci (ed.), Modern France, Princeton: Princeton University Press (1951). 14. Sayers, R. E. (ed), Banking in Western Europe, Oxford: Oxford Press (1962). 15. Servan-Schrelber, Jean-Jacques, Le DIfI Americain, Paris: Den*obl (1967). 16. Kemp, Tom, "Structural Factors in the Retardation of French Growth," Kyklos, XV (1962). FOOTNOTES TO APPENDIX I (Numbers in brackets refer to listings in the bibliography. All references origi- naHy appearing in French have been translated) 1. The origin:s of this fear can be traced back to the medieval guilds. It be- came more pronounced in France than elsewhere because of her unique demo- gra~phic h:istory since the M'kllle Ages. 2. [12]. p.339. 3. [8], p. 284. 4. mid, p. 287. 5. [2], p. 255. 6. Qudted in [8], p. 379. 7. John Hicks, Value and Capital, p. 265. 8. [12], p. 350. 9. [4], p. 150. 10. [8], p. 382. 11. Ibid., p. 305. 12. Quoted in ibid., p. 391. 13. [7], p. 145. 14. [9], pp. 216-17. 15. Ibid., p. 22(3. 16. [4], p. 174. 17. [13], p. 3043. 18. [6], pp. 294-95. 19. [16], p. 337. 20. [7].p.9. -21. Ibid., p. 20. 22. [10], p. 29. 23. [7],p.145. 24. [6], p. 293. 25. [7], p. 129. 26. Ibid., pp. 9-10. 27. Ibid., pp. 170-71. 28. Ibid., pp. 10-11. 29. [6], p. 294. PAGENO="0176" 1446 30. [7], p.210. 31. Ibid., p. 191. 32. Ibid., pp. 258-59. 33. [1], p. 288, n. 3. 34. [7], pp. 258-59. 35. [6], p. 294. 36. [7], p. 294. 37. Ibid., p. 192. 38. Quieted in [2], pp. 267-68. 39. Quoted in ibid., p. 268. 40. Quoted in [8], p. 305. 41. A. L. Dunham, The Industrial Revolution in France, p. 399. 42. `See, for example, the rest of the speech by M. Mayer, already cited above. "I add," he continues, "that when industrialists pursue another and progressive policy, they are capable of exporting." 43. [7],p.7. 44. [10], p. 12. 45. This is obviously a quantity rather than a rate. Although the tre)aty was phrased in ad valorem rather than ad rem terms, the French were permitted to establ~inh specific duties as long as their implied rate (using 1860 prices) was permissible under the treaty. 46. [7], pp. 172-73. 47. Ibid., p. 173. 48. Ibid., p. 141. 49. Ibid., pp. 209-10. 50. Ibid., p. 227. 51. See Dunham's chapters in [7] on these industries. 52. [7], p. 250. 53. This law, strikingly similar to the adjustment assistance provisions of the American Trade Expansion Act of 1962 (section 301), granted loans for modern- ization or relocatihn to firms having difficulty meeting foreign competition under the new tariff schedules. 54. Quoted in [7], pp. 157-58. 55. [7], p. 273. 56. [l5],p. 258. APPENDIX II STEEL IMPORTS AND DOMESTIC EMPLOYMRNT Steel spokesmen claim that 11 million tons of imported steel "represents more than 70,000 steelworker jobs alone, and many thousands of additional jobs in supporting industries-all at a time when this nation is striving to achieve maximum employment." (L. B. Worthington, chairman of AISI, 8 February 1967) The implication is clear: steel imports reduce steel employment by 70,000- plus jobs. Aside from the dubious techniques for arriving at this 70,000 figure,' the contention is defective for the following reasons: (1) Sharply rising imports, starting in 1959, have been associated with sig- nificant increases in steel production-not only in the United States, but also in the European Coal and Steel Community. In neither case can unemployment be traced to rising imports. (See Table TI-i.) 1 The estimation seems to have been made on a purely mechanical basis. A simple division of steel shipments In 1966 by employment in the steel Industry Indicates that 156 tons were shipped for every person employed. Since 11 million tons valued at 1.2 billIon were imported In 1966, dividing by average tonnage per employee gives a 70,000 figure. An alternative method of arriving at this estimate would be to consider that the 1965 Imports of 10 millIon tons were equal to the combined shipments of Armco and Jones & Laughlin. These two companies employed about 79,000 people (Background Memorandum on Ameri- can Iron & Steel Institute Steel Import PolIcy, Feb. 10, 1961). Using the first method assumes: (1) The industry could have filled the extra 11 million tons of demand; (2) The industry's present employees could have produced no more than they did In 1966; (3) The industry could have hired additIonal labor just as efficient as Its existing labor force. PAGENO="0177" 1447 In the United States, for example, imports increased from 3.4 million tons in 1960 to 10.8 million tons in 1966, while production rose from 99.3 millIon tons to 134.1 millIon tons. The increase in production was five times greater than the increase in imports. Yet in both years, the industry had approximately the same number of wage employees (ca. 447,000). In the European Coal and Steel Community, the same trends are in evidence. Between 1959 and 1965, imports increased by 6.5 million tons while production increased by 25 million tons-or four times as much. Yet, in both years, the number of wage employees in the industry was almost identical (ca. 464,000). TABLE 11-1.-EMPLOYMENT, PRODUCTION, AND IMPORT TRENDS, ECSC AND THE UNITED STATES, 1959-67 \~ ECSC Unite d States Year Employ- ment 1 Raw steel production Average Employ- tons per Imports ment employee Raw steel production Average tons per Imports employee 1959. 464,467 69,625,000 149.9 8,467, 000 399,738 93 446,000 233.8 4,396,354 1960 482,453 80,287,000 166.4 11,981,000 449,888 99 282,000 220.7 3,358,725 1961 483,351 80,739,000 167.0 12, 080,000 405,924 98, 014, 000 241. 5 3, 163,686 1962 479, 466 80,465,000 167.8 13, 531,000 402,662 98,328,000 244.2 4, 100,039 1963 469,326 80,698,000 171.9 15, 508,000 405, 536 109,261,000 269.4 5,446,326 1964 477,513 91,334,000 191.3 16,611,000 434,654 127,076,000 292.4 6,439,635 1965 464,707 94,792,000 204. 0 15, 068,000 458, 539 131,462,000 286. 7 10,383,021 1966 439,949 93,819,000 213.2 17,013,000 446,712 134,101,000 300.2 10,753,022 1967 428,499 299,085,000 231.2 424,153 127,213,000 299.9 211,454,502 I Number of wage employees as of December of each year, 1959-66, and as of September 1967. 2 Preliminary. Source: AISI, Annual Statistical Reports, 1960-67. Statistiches Bundesamt, Eisen und Stahl. 4. Vierteljahresheft, 1967. (2) Between 1962 and 1967, while U.S. steel imports more than doubled, separation rates in the steel industry have been consistently below the average for durable goods and for manufacturing as a whole. In May 1967, total separa- tions for the steel industry were at the rate of 2.5 per 100, compared to 4.1 for all manufacturing_substantially the same proportions as in 1962. (3) Total insured unemployment in June 1967, in nine areas identifiable as steel centers (such as Allentown, Bethlehem, Buffalo, Gary-Hammond, and Pitts- burgh) shows a sharp decline since 1960-again during a period of rising imports, Thus, while 12 percent of the Youngstown labor force was unemployed in 1960, the rate had dropped to 3.3 percent by February 1965. Rising imports cannot be associated with rising unemployment. If anything, the correlation points to the reverse. (4) The United Steelworkers of America have not been able to furnish us with precise data on unemployment of steel labor. Nor do the published sources indicate that there is more than minimal unemployment at this time. On the contrary, there is some evidence of periodic shortages of steel labor in some production centers. (5) During the post-World War II period, the long-run trend of employment in the steel industry has moved downward. However, as Table IT-i shows, this is due to an increase in productivity (i.~e., mechanization and automation) and not to an increase in imports. Employment has tended to decline even though produc- tion has increased, for the simple reason that output per man and output per man- hour have increased substantially. Again, this is true both for the United States and the European Coal and Steel Community. As Meyer Bernstein of the United Steel Workers explained to the Congress (testimony on S. lIes. 149, June 2, 1966): ".¬her point to be kept in mind is that as far as employment in the steel industry is concerned, the rate of national industrial activity is much more important than the balance of imports and ex- ports. A prosperous year will increase employment of steelworkers far greater than a surge of imports will reduce such empjoyment. It should b~ remembered that 1965 was not only the year of highest steel products imports, It was also the year of highest American steel industry production. We achieved this record 95-159 O-68---pt. 4-12 T PAGENO="0178" 1448 production with considerably fewer workers than we had in former years of lower production, but this is because of increased productivity." A~ Table H-i shows, this increased productivity, measured by average tons produced per wage employees, is in evidence both in the United States and the European Coal and Steel Community. In short, our examination of the evidence Indicates that steel employment may be related to progressive automation, to geographic shifts in demand (which may cause local labor shortages as well as surpluses), and to the abandonment of antiquated plants. it cannot be scientifically correlated with steel imports. APPENDIX III U.S. IMPORTS or IRON ORE AND STEEL PRODUCTS In an interview entitled "Why the American people should be concerned about steel imports," L. B. Worthington, then chairman of the American Iron & Steel Institute, stated: "I believe that every thinking citizen is concerned that indus- try maintain the highest practical level of employment. Every ton of steel brought past our shores is a ton that an American steelworker didn't get a fair chance to make. Then, of course, there's the danger that-if imports are permitted to replace American steel in our domestic market-important producing segments of our in- dustry may deteriorate, to the detriment of this country's economic welfare and its military strength. All of these factors should be, and I think are of great interest to citizens and their government representatives." ("~teelways, May-June 1967) Mr. Worthington expressed these concerns on the basis of 1966 statistics which showed tha:t steel imports totaled 10.8 million tons, accounting for 10.9 percent of domestic consumption. It is strange, to say the least, that Mr. Worthington mentioned only the delete- rious effects of steel imports on employment levels, national economic welfare, military strength, and the U.S. balance of payments, while maintaining a golden silence on the parallel effects of iron ore imports. It Is strange, because in 1966, "U.S. imports of iron ore, which amounted to 46 million long tons, valued at $462 million, constituted about 35 percent of steel producers' requirements and were larger than the iron ore imports of any other country." (U.S. Tariff Commission, Summaries of Trade and Tariff Information, Schedule 6, Volume 4, 1967, p. 2) Tables 111-1 and 111-2 demonstrate the incongruence of Mr. Worthington's silence. Table 111-1 shows that, between 1959 and 1966, iron ore imports ac- counted for a minimum of 25.1 percent and a maximum of 37.1 of domestic U.S. consumption-in contrast to steel Imports which ranged from a low of 4.7 per- cent to a high of 10.9 percent. Why, one might ask, should we worry about 10.9 percent of the domestic steel market going to imports, while ignoring 37.1 percent of the domestic iron ore market being captured by overseas sources? Is not the impact on domestic employment, national welfare, and military strength anal- ogous in both cases? If not, why not? The same question arises with respect to the U.S. balance of payments. As Table 111-2 shows, the total deficit on our steel trade between 1959 and 1966 amounted to $2.6, while the d"flelt on our iron ore trade totaled $2.3 million during the same period. Moreover, during five of these eight years, the deficit on~ iron ore was greater than the deficit on steel. it would appear, therefore, that the balance-of-payments effect of iron ore imports merit at least some mention in the steel indui~try's discussion of the import problem. The reasons for the steel industry's silence are not difficult to fathom. Iron ore is the basic raw material for making steel, and the steel industry is anxious to buy the highest quality ore at the most reasonable price. In the interest of efficiency and cost-effectiveness, it imports more than 1/3 of its ore requirements-often from its "captive" mines abroad. This the industry regards simply as prudent manage- ment and routine cost minimization: as a purchaser, it seeks the best and cheap- est source of supply. Why, then, the difference in its attitude to steel imports? Why demand government action to bar steel imports in excess of 9.6 percent of domestic PAGENO="0179" 1449 consumption? Why not pern~it steel-using industr~es (tractors, automobiles, indus- trial machinery, etc.) to obtain their raw material from the ch~apest sources? Why not permit these industries to behave like prudent buyers, so that they can function as effective competitors in world markets? Consistency may be the hob- goblin of little minds, but the steel industry's incongruent posture vis-a-vis iron ore and steel imports warrants an explanation. TABLE Ill-i-IMPORTS OF IRON ORE AND STEEL MILL PRODUCTS: A COMPARISON, 1959-66 Iron orel Year Reported Pro- Imports Exports con- duction sumption ~ Ste eI mill pr oducts2 Percent of imports to con- sumption Net ship- ments Imports Apparent Exports con- sumption * Percent of Import to con- sumption 1959 60, 550 35,627 2,973 96, 303 37. 1 69, 377 4, 396 1,677 72,096 6. 1 1960 89,291 34,584 5236 105,842 32.8 71,149 3,359 2,977 71,531 4.7 1961 71,425 25,808 4,916 103,125 25.1 66,126 3,163 1,990 67,299 4.7 1962 71,829 33,435 5, 898 101,999 32. 8 70, 552 4, 100 2, 013 72,639 5. 6 1963 - - - - 73, 599 33, 266 6, 813 112, 672 29. 7 75, 555 5,446 2,224 78,777 6. 9 1964 84,836 42,416 6,963 132,356 32.0 84,945 6,440 3,442 87,943 7.3 1965 87,842 45, 105 7, 035 131, 880 34. 2 92, 666 10, 383 2, 496 100, 553 10. 3 1966 90,147 46,259 7,779 134,067 34.5 89,995 10,753 1,724 99,024 10.9 1 Thousands of long tons. 2 Thousands of net tons. Source: U.S. Tariff Commission, "Summaries of Trade and Tariff Information," schedu~e 6 vol. 4, Washington D.C., 1967, p. 16, and American Iron and Steel Institute, `The Steel Import Problem" October 196~, p. 51. TABLE 111-2.-FOREIGN TRADE IN IRON ORE AND IN STEEL MILL PRODUCTS, 1959-66 [Millions of dollarsi Iron ore Year Imports Exports . Steel mill products Surplus Imports Exports 1 (deficit) Surplus' (deficit) 1959 312 34 279 515 352 163 1960 322 58 264 449 585 136 1961 / 250 54 197 382 379 3 1962 325 63 262 484 302 182 1963 323 76 247 633 291 342 1964 421 80 342 749 425 324 1965 444 80 363 1,177 357 820 1966 462 92 370 1,208 330 878 1 Excludes AID-financed exports that do not affect the balance of trade. Sources: U.S. Tariff Commission, "Summaries of Trade and Tariff Information," Schedule 6, vol 4, 1967, p.16 for iron ore, and American Iron and Steel Institute, "1 he Steel Import Problem," October 1967, p.8, for steel mill products. APPENDIX IV STEEL IMPORTS IN TEE UNITED SPATES AND TIlE EIIROI'EAN CoAL AND STEEL COMMUNITY On February 8, 1~67, Mr. L. B, Worthington, speaking as chairman of the American Iron & Steel Institute, told a Congressional breakfast: "Foreign governments use their steel industries as ins!trumen:ts of national policy result- ing in the protection of those industries, The measures they have adopted take many forms but they are d~s4gned to protec~t domestic markets and stimulate exports, - . . And America is the prime target for these exports because the steel market in the United States is nOt Only the largest and most diversified in the world-it is the most open and easily accessible in the world. . . - But in other countries it is different." PAGENO="0180" 1450 The image conjured up by Mr. Worthington and his fellow steel executives is of an American market inundated by an ever larger volume of steel imports, capturing an ever larger percentage of our steel sales. It is an image of sinister foreigners, operating in an insulated home market in which they can charge high prices, while using the American market "as a kind of `Bargain Basement' in which to dispose of their surplus production." It is an image, pregnant with dark fore- boding, and is offered as justification for the limitation of steel imports by law to 9.6 percent of domestic consumption. This image, we submit, is pure fantasy-an index of the paranoia with which Big Steel views the world. It is certainly true that steel imports have increased consistently, rising from 4.4 million tons in 1959 to 11.5 million tons in 1967. It is certainly true that steel imports have captured an increasing share of the U.S. domestic market, rising from 6.1 percent in 1959 to roughly 12 percent in 1967. But what does this prove? Is the volume of imports, or their share of the domestic market, in any way abnormal? Is this an aberration in comparison to the experience of other leading steel producing countries? In short, is the import "problem" confronting American steel makers in any way unique? We submit that it is not, and the European Coal & Steel Community illustrates our contention. While it is fashionable to consider the Common Market a unified entity-approaching the United States in size of markets, volume of production, and level of industrial capacity-it is little more than an agglomeration of separate nations which have gradually eliminated tariffs on intra-community trade, but which still cling to their national boundaries. As Dr. Hans-Gunther Sohl, chairman of the International Iron & Steel Institute, told his American colleagues, "Upon closer serunity, the oft-quoted economic giant of the EEC reveals itself as an incomplete agglomerate held together principally by the duty-free exchange of goods. The producer is still confronted at every turn with the relies of national economic thinking." (Address before the 76th Annual Meeting Iron & Steel Institute, May 23, 1968.) Thus, a German steel producer find,s little solace in the fact that his Belgian competitor in the German market is a meenher of his "Community ;" whether the steel sold in Germany comes from South Africa or Belgium, it is still an import and it still deprives the German producer of a share of his home market. An examination of the import pattern in the Oommon Market is, therefore, highly instructive. .As Tahle IV-1 shows, imports captured a larger percentage of the EC:SC home market in every year between 1959 and 1966 than they did in the U.S. market. Imoprts also captured a larger percentage of the home market of every ECSC' member country between 1959 and 1966 than they did in the United States. And, as Table IV-2 shows, intra-community trade accounts for some 90 percent of the steel imports by the member countries. This is significant, of course, because of the geographical proximity of each member country to potential "invaders" of its home market-and the constant danger that imports will absorb a large share of domestic consumption. TABLE IV-l.-IMPORTS AS A PERCENTAGE OF DOMESTIC CONSUMPTION: THE UNITED STATES AND ECSC MEMBER COUNTRIES, 1959-66 tIn percenti United Year States Belgium. The Luxem- France Germany Italy Nether- bourg lands ECSC total 1959 6.1 15.8 12.1 12.9 13.5 61.1 15.3 1960 4.7 18. 7 20.3 12. 7 18. 6 62. 1 18.2 1961 4.7 17.1 19.8 11.2 20.3 60.5 17.6 1962 5. 6 20.9 20. 1 13. 7 22. 3 56.9 19.3 1963 6.9 24.3 21.6 14.4 26.8 64.8 21.6 1964 7.3 28. 7 22.6 15. 1 22. 1 63. 1 21. 2 1965 10. 3 28. 5 21. 2 15. 5 15. 3 58. 0 19. 5 1966 10.9 34.2 23.0 16.9 17.1 59.4 21.4 Sources: Statistisches Amt Der Europaischen Gemeinschaften Eisen und Stahl, Jahrbuch Annuaire, 1966, PP. 84-95; Eisen und Stahl, 1968, No. 1, p. 8 and pp. 86-89; Eisen und Stahl, 1963, No. 1, p. 8; American Iron and Steel Institute, Foreign Trade 1 rends, 1967 edition, p. 86. PAGENO="0181" (0" .3 .p ~ 3. P(1) a) C) t~~J NN~Nr'~D ~r~©o : a; ~.::;::, ZI ~;) ~ ~ , : ~; 0 o~ : : ~_;::::::::;;:` ~ I I I `.) ~ 1:;;:::; :;::::;; ;::;::;;; `I::::::;;;, 3 3 c~a)u'Q'c*,c,3 O~.JC0~Q1C)O3 `..~0ca~ CO~'.J'.~'CO~J'.J ~ ~ - ~ `.`.J~.j~0~(Ø ai ~zg~ øo'.'.a'.'.jc~ - ~f~.)r~3-. ~ f'~NC~-~ ~_oo'..JC)u'~ COC)".JCO.~ oo'-~ ~0oo~ ~ --~ooc~ ~c~r~)coooa) ~ r~r~ ~ 0)ooC ~ ~ ~ c~~-'.~ -ca-~cor~ ~ Wt%3)~3f%3r~~-- ~".JOOC~) N~c~co-'.ioo C'~C)U1C)O)C) ~C)~P.)'. F~)P.3,-~-. ~ C~C0~t'.) C)C~)-'N)~ C0'-JCO~n -I 3 -I C) 0 C,) 2 0 -o 2 C) 0 2 C,) C ~0 :~ o 2 C,) -I C) C,) C) 2 0 C) C, 0 C 2 -I C,, CO ci, -`.3 ~ ~ a 3-I (, > PAGENO="0182" 1452 PAGENO="0183" 1453 White American steelmen are petitioning Congress to limit Imports to 9.6 percent of domestic consumption, it is noteworthy that Belgium-Luxembourg is surviving with an import/consumpUon ratio (in 1966) of 34.2 percent, France with 23.0 percent, Germany with 16.9 percent, Italy with 17.1 percent, 4he Netherlands with 59.4 percent, and the European Community as a whole with 21.4 percent. Thus, Belgium-Luxembourg is exposed to roughly three times as much import competition as the United Sta:tes, and France to roughly t~iee as much. Moreover, in certain product lines, the import/consumption ratio is even higher. According to Dr. Sohi, 30 percent of the German consumption of rolled steel is supplied from abroad, 50 percent of the wide flange beams, and 40 per- ccitt of medium plates and cold rolled sheets. Under the circumstances, it would require a formidable tour-dc-force to prove that the B.C. S.C. countries enjoy a protected home market, insulated from import competition, in which they can charge high prices, in order to subsidize the sale of their surplus produc- tion at "bargain basement" prices in the U.S. market. Two final comments are in order: (1) As the ECSC High Authority noted In its Annual Report for 1967 (Item No. 195), steel prices in the Common Market were about the same in 1967 as they were in 1953, while in the United States they had risen an average of 40 percent over the same period. (See our Ap- pendix VI infra.) (2) Like it or not, the ECSC member countries are powerless to impose tariffs or import quotas on intra-community trade, which means that ECSO steel producers are compelled to solve their "import problem" primarily in the market place rather than by obtaining restrictive legislation like their American counlterparts. Perhaps, Dr. Sohl analyzed the import problem with the wisdom that comes with perspective. Imports, he told his American colleagues, "of course give us all headaches. The problem is to find a remedy that will cure us of the pain permanently, but without side effects. A medicine labelled `surcharge' or `quota' may well relieve these headaches, but it affects the stomach." APPENDIX V STEEL IMPORTS AND FoREIGN LABOR Cosrs According to L. B. Worthington, "whether we are talking about steel or any industry, American production costs are inescapably related to the American standard of living; and are based upon the world's highest wage structure. And when you remember that, in the economy as a whole, employment costs represent more than 75 percent of all production costs, you realize why-in induc~tries like steel-foreign-made products can often undersell ours in world markets." The clear implication is that no one can reasonably expect the American steel Industry to hold its own against such odds, unless, of course, Congress were to grant it special protection. This argument is defective on a number of counts: (1) As Fortune points out (October 1967), "some of the arguments that steel is making for protection-notably the fact that foreign wages are lower than U.S. wagon-can be disposed of by any first-year economics student." What Fortune is driving at is this: labor cost per ton of steel is found by relating output per man-hour of a steelworker to the wage he is paid. If his productivity is high (because he works with efficient machines, knowledgeable management, etc.), his wage rate can be high-yet the labor cost per ton of steel can be low. By contrast, labor costs per ton of steel in India will be higher than in the [Jnited States-even though indian steelworkers are lower-paid, if their productivity is low (because management lacks the know-how and the technical equipment to produce steel as efficiently as their American counterparts.) "Historically," as the AISI itself recognizes (Backgrfound Statement, February 1967), "the U.S. steel industry was able to compete in the world market and pay the highest wages because it enjoyed technical superiority." Obviously, then, the industry's current problem is not the high wages it pays, but its apparent loss of technical superiority. (2) Wages in the U.S. steel industry have always been far higher than foreign steel wages, and the differential `in recent years has narrowed rather than widened. Since 1957, i.e., before steel imports `became a matter of concern, steel wages have risen much faster in the Common Market, the United Kingdom, and PAGENO="0184" 1454 Japan than in the United States~ If the year 1957 15 given an index of 100, total labor costs per hour in 1966 stood at 143 for the U.S.; 177 for Germany: 206 for France; 169 for Belgium; 154 for Luxembourg; 219 for Italy; 221 for Holland; 156 for `the United Kingdom; and 175 for Japan (in `1965). If, as the Chase Man- hattan Bank's technical director for the metals industries reports in the August issue of "33" Magazine, current productivity trends favor the United States, there seems to be little justification for curbing steel imports at this tinie because of allegedly lower labor iCO5t5 abroad. (3) Finally, labor costs are only one component in the total cost of producing steel. Thus, a country can have higher labor costs than its competitors in world markets, and still have lower total costs. It can still be "cost-competitive". This Indeed is the position of the American steel industry when it competes with im- ported steel in the U.S. market. According to Richard S. Thorn, associate profes- sor of economics at the University of Pittsburgh, from where he has observed the steel industry for a good many years, "lower labor prod'ucitvity, higher material costs and ocean freight charges result in a higher `average cost for foreign steel at U.S. `ports than for U.S. steel at the mill. In other words, American steel prod- ucts are already, on the average, `cost competitive' with imports." (Cli allenge, July/August 1967). Estimates are at best approximate, because the U.S. steel industry has c~nsisten'tly refused to disclose its per-ton costs of produ'ction: but domestic producers enjoy a rough cost .advantage per ton of steel of $2.40 for coke, $2.40 for capital costs, and $14.00 for transportation-sufficient to offset a labor cost advantage of $18.40 per ton for European producers. In sum, higher labor costs hardly constitute adequate jtistification for the im- position of new barriers to steel imports. The existence of the sizable transporta- tion costs al'one, which foreign producers must bear when selling in the U.S. market, would seem to be protection enough for an industry which claims to be efficient and progressive. APrENDIX VI STEEL IMPORTS AND PRICING While `the steel industry asks the government to protect it from foreign com- petition, it insists on the right t'o engage in persistent price escalation. The logic of its argument runs somewhat as follows: the only way `to compete effectively against s'teel imports is through modernization of facilities an'd `technological in- novation. This requires sizable cap'itai funds which can be obtained only through higher profits and higher prices. By increasing prices therefore the industry en- hances its potential for effective comipeti'tion. But such price increases are possible only, if the government excludes foreign competition either by protective tariffs, or preferably by quotas. Roger B'lough, `in defending the industry's 1962 abortive price increase, clearly articulated `this philosophy: "While the price rise might have appeared to inten- sify our competitive difficulties with cheaper foreign steel, that steel is usually priced in relation to ours anyway, and in the long run, the increase would have improved our competitive strength. By using the added profits produced by the price increase to help `obtain the most modern and efficient tools of production, we `could hope eventually to narrow the gap `between American and foreign steel prices." (Look, January 29, 1963, p. 23) Thus, Mr. Blough proposed to meet the competition `of cheaper foreign steel by raising prices. This pricing policy, which seems almost deliberately designed to encourage imports, requires additional comment: (1) U.S. steel producers do not compete among themselves in terms of price. It is simply not the custnm of the industry. Instead of price competition, the industry follows a regime of strict price leadership an'd follower~hip. It is a classic, textbook oligopoly. (2) Since World War II, steel prices' have been a consistent inflationary force in the American economy. Between 1947 and 1951, according to the Council of Economic Advisers, "the average increase in the price of basic steel products was 9 percent per year, twice the average increase of all wholesale price~. The unique behavior of steel prices was most pronouw'ed' in the mid~1 950'~. While the who1e~ale price index wos falling an `average of 0.9' percent annually from 1951 to 1955, the price inilex for steel was rising an average of 4.8 percent per year. From 1955 to 19~38, steel `prices were increasing 7.1 percent annually or almost PAGENO="0185" 1455 three times as fast as wholesale prices generally. No other major sector shows a similar record." (Report to the President on Steel Prices, April 1965, pp. 8-9) (3) As the tables attached to this statement show in detail, ~this persistent upward trend in steel prices continued into the 1960's. Thus, since 1962, the dornestiq producers have been engaged in an unbroken round of "selective" price hikes. In a kind of ritual dance, the leadership in initiating increases shifts from one company to another-"ehacun ~ son tonr"-while each product successively gets its turn at a price boost. To cite only two examples: an important item like hot rolled sheets, imported in large volume, was increased by $4.00 a ton in 1963, and $3.00 a ton in 1966. Carbon bars were raised $5.00 a ton in 1963, and bar Prices went up again in 1967. (4) This pattern of constant escalation of steel prices has had both domestic and international consequence& In the domestic market, steel has lost ground not only to imports, but also to substitute materials. Th~ reason is not hard to, find: following an slmo~t uncontrollable suicidal instinct, steel was pricing itself out of the market. "On a comparative basis," according to the Council of Economic Advisers, "the price of basic steel products rose substantially relative to the prices of competing materials. Relative to plastics, the price of basic steel products was over twice as high in 1963 as it was in 1947. The i*ices of cement, glass, plastic materials, and aluminum all rose substantially less than steel. [See Table below] With this sharp deterioration in the relative price position of steel products vis-a-vis other materials, failure of iron and steel production to keep pace with the growth of the economy is not surprising." (Report to the President on Steel Prices, p. 28) PRICE CHANGES IN STEEL AND COMPETITIVE MATERIALS, 1947-64 Material Percentage change in wholesale price, index, 1947-64 Price in 1964 relative to steel (percent)l 5teel mill products Cement 113.3 65.9 100.0 77. 8 Glass flat Plastic materials 46.1 -5.6 68.5 44. 3 Aluminum ingots 70. 8 80. 1 I Based on 1964 prices on a 1947 base. Source: Council of Economic Advisers, "Report to the Preslient on Steel Prices," April 1965, p. 29. (5) Constant price escalation has, of course, inevitably encouraged increased importation of steel. Fortune, for example, finds it curious that, "while complain- ing about the low costs and the low prices of foreign steel, leading steel companies have chosen this particular time, of all times, to raise their own domestic prices when their mill's are still working at well under full capacity. Put all this to- gether and one is reminded of that old British march to which Oornwallis sur- rendered at Yorktown called The World Turned Upside Down." (October, 1967) If imports have caused concern for the domestic steel industry, this is clearly a case of self-inflicted injury. The only explanation we have been able to find for this insensitive (and ap- parently irrational) pricing policy vis-a-vis imports is the possibility that the domestic steel industry is applying a squeeze against indep~ndent, nonintegrated American steel fabricators. Thus, during the recent wire-rod dumping case, an independent fabricator testified that U.S. Steel charged him $6.00 per ton more for the raw material than the price at which be had to sell the finished product in competition with his giant supplier-competitor. In other words, the major steel companies may be trying to maintain their vertical o'bligopoly by maintaining or raising prices of basic steel-despite import competition-~whi1e lowering or main- taining prices of finished steel products. But this strategy of squeezing the inde- pendent fabricators can work for any p'j~olonged period of time only if the major companies succeed in their drive to shut off imports-which have ~ecome the lifeline of the independents. (See "Steel Imports and Vertical Oligopoly Power," American Economic Review, September 1964) PAGENO="0186" 1456 (6) Constant price escalation has also had International consequences. Ameri- can steel has, by its own actions, effectively priced itself out of world markets. In the process, It has seriously `damaged the U.S. `balance of payments position. Whereas in 1955 the United States exported four times as much steel as it im- ported, by 1906 it imported five times as much tonnage as it exported. In a dozen years, the Industry's trade balance was radically reversed. This phenonmenon is largely explained by the tilvergence Jetween the price policy of domestic and foreign producers. Whereas U.S. steel companies main- tain or raise their prices in the face of competition, foreign producers follow a much more flexible price policy designed to get additional business. Thus, eco~ nomists for the National Bureau of Economic Research, after surveying four main product groups (irofl and steel, nonferous metals', and non-electric machin- ery), found that the largest changes in international competitiveness "have taken place in iron and steel." Between 1953 and 1963, there was an almost 20 percent decline in the price competitiveness of American steel relative to European pro- ducers. Although a reversal of the trend began to appear in 1964, the price posture of U.S. steel in world markets "remained considerably worse than in 153 and 1957." (American Econonvic Review, May 1967, p. 486) Professor Egon Sohmen, an International steel authority, came to the same conclusion. After `surveying steel prices and output in the United States and in six EOSO countries (see Table VI-1), he found "that steel prices were almost completely rigid In the United States (for all practical purposes, they were ad- justed only in an upward direction) while they were remarkably flexible in Europe. Largely as a consequence of this, the level of production suffered major setbacks In the United States whenever business activity receded so that steel works operated at less than two thirds of capacity for many years. Steelmakers in Europe, on the other hand, were able to operate near capacity more or less continuously." PAGENO="0187" TABLE Vl-1.-STEEL PRICES, OUTPUT AND USE OF CAPACITY IN THE UNITED STATES AND THE EUROPEAN COAL AND STEEL COMMUNITY, 1955 TO 1966 (AVERAGE PRICES IN U.S. DOLLARS PER METRIC TON OF 5 ROLLING-MILL PRODUCTS; OUTPUTS IN MILLIONS OF METRIC TONS) 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 Average export prices: ECSC 122 135 144 129 102 147 117 101 93 96 100 91 United States 103 112 119 125 128 127 127 126 126 130 131 133 ECSC: Output 53 57 59 58 63 74 74 73 73 83 86 85 Capacity 56 59 64 69 70 78 80 83 88 92 102 109 Percentuseof capacity 95.7 96.1 93.9 85.9 89.8 95.5 91.7 87.5 83.3 90.0 84.2 7&4 United States: Output 106 105 102 77 85 92 91 91 102 118 122 125 Capacity 115 119 124 131 134 138 139 140 143 Percent use of capacity 93 90 85 61 63 67 65 64 71 Source: ECSC, annual reports, 1955-67. Steel prices, unitcosts, profits, and foreign competition, hearings before the Joint Economic Committee, 88th Cong., 1st sess., Washington, 1963, pp. 16 and 339. All prices refer to open-hearth quality steel (end-of-year values). Domestic prices in the ECSC countries were at all times close to export prices, the official price lists of steel producers in Europe (required by the ECSC treaty) being a mere formality. Prepared by Prof. Egon Sohmen. PAGENO="0188" 1458 j/Av.iag. szpod p~ic.~ S9.SaIthV$~L sudif jut, fu sb~tS~ 2/Nff.Ns.f mitik flu SOURCtS (.C.S.C.Aimvsf Reports, filet Ecoumlc CommIttu STEEL EXPORT PRICES AND PRODUCTION EUROPEAN COAL & STEEL COMMUNITY AND U.S.A. PRICE 1955~1966 PR0DUCTI0N~ $150 100 150 130 130 110 110 90 90 70 (Chart prepared by Prof. Egon Sobmen) PAGENO="0189" 1459 Professor Sohmen also concluded that "Apart from the prononneed difference in their flexibility, the difference between the absolute levels of steel prices is quite remarkable. With the sole exception of col'd~ro1led sheets, steel export prices in the United States were up to 30 per cent higher than in the ECSC during the early 1900's. As noted with much chagrin by the High Authority in its 15th Annual Report (1967), Item N. 195), steel prices In the common market were about the same as in 1953 while they had risen by an average of 40 per cent in the United States and also in England whose steel industry is notoriously uncompetitive. In the late 1950's, at a time when its own steel-producing capacity was seriously underutilized, the United States turned from a net exporter to a net importer of steel. Even rising imports did not prompt American steel pro- ducers to reconsider their price policy in order to recapture markets and to permit a fuller use of idle capacity." (Testimony before the Senate Antitrust & Monopoly Subcommittee, April 1968). In short, all available evidence indicates that steel is losing domestic markets to substitute materials and imports, and world markets to foreign producers, because it has chosen not to be price-competitive. By a strange inversion of logical decision making, it has decided to meet competition by rai8ing prices-and doing so persistently. PAGENO="0190" TABLE VI-2.-MAJOR STEEL PRICE CHANGES, 1962-67 Item No. Date Initiator Followers Products Change in price Washington reaction and industry response announced (1) Apr. 10, 1962 United States Steel 7 companies including All products Increase average $6 a Rescinded after President Kennedy's protest and Bethelhem. ton (or increase 3.5 Kaiser's and Inland's refusal to follow. - percent). (2) Apr. 13, 1962 Bethlehem withdrew increases and United States Steel obliged to rescind too. (3) Apr. 10, 1963 Wheeling Large plate, HR and CR sheet and strip~~. Increase $4.50 a ton President Kennedy accepted "selective" price increase;. (No inflationary spiral seen by experts even if all major steel producers lift prices.) Long terne sheet, galvanized sheet, and Increase $7 a ton roofing. Electrical sheet Increase $10 a ton (4) Apr. 15, 1963 Lukens Carbon plate Increase $5 a ton Alloy plate Increase $7 a ton (5) _..._do Republic HR sheet and strip Increase $4.50 a ton CR sheet and strip Increase $5.50 a ton Plate Increase $4.50 a ton Electro zinc coated sheet Increase $5.50 a ton (5) Apr. 16, 1963 Pittsburgh HR sheet and strip Increase $4.50 a ton -- - - CR sheet Increase $5.50 a ton CR strip Increase $6.50 a ton (6) Apr. 17, 1963 United States Steel HR sheet and strip Increase $4 a ton CR sheet and strip Increase $5 a ton Galvanized sheet and long terne sheet Increase $7 a ton (6) do Jones & Laughlin HR sheet and strip Increase $4 a ton CR sheet and strip Increase $5 a ton Galvanized sheet Incerase $7 a ton Plate Increase $4 a ton (6) do Armco Plate and HR sheet Increase $4.50 a ton CR sheet Increase $5.50 a ton Galvanized sheet Increase $7 a ton Enameling sheet Increase $5.50 a ton Wire rods and merchant wire products Decrease $5 a ton (7) Apr. 18, 1963 Bethlehem HR sheet Increase $4 a ton CR sheet Increase $5aton Galvanized sheet Increase $7 a ton National HR sheet Increase $4aton Youngstown Sheet & Tube___ CR sheet Increase $5 a ton Kaiser Plate Increase $4 a ton (8) Apr. 19, 1963 McLouth HR sheet and strips Increase $4 a ton CR sheet and strips Increase $5 a ton PAGENO="0191" (8) do Sharon HR strip Increase $4a ton CR sheet and str~p~ Increase $5 a ton Plate Increase $4 a ton (9) Sept.30, 1963 Youngstown Sheet & Tube Carbon bars and carbon steel bloom, billet, Increase $5 a ton (in- slabs, rerolling quality, crease 4 percent). (10) Oct. 2,1963 Republic Carbon, alloy bars Increase $4 to $5 a ton._ (11) do Inland Structural shapes and "H" bearing pile~.~ Increase $4 a ton (11) do Armco Carbonandalloybars Increase $4to $5aton~. Certain type of stainless sheet Decrease 7 percent price (11) do United States Steel HR carbon bars and carbon semifinished Increase $5 a ton steel. (12) Oct. 3, 1963 Bethlehem HR carbon plate, bars and semifinished do steel. (13) Mar. 31, 1964 Republic United States Steel, AIle- HR and CR stainless sheet and CR stainless Decrease by ito 7 cents gheny, Universal Cyclops. strip, a pound. (14) Apr. 6, 1964 Triangle Conduit & Cable Galvanized and black enamel rigid steel Increase 5 percent Co. conduit. (15) Aur. 13,1964 Youngstown Sheet & Tube._~ Rigid steel conduit do (16) Apr. 14,1964 Jones & Laughlin do~ do... - (17) Aor. 29, 1964 United States Steel Wire rods (certain sizes) Decrease $20 a ton (18) May 4,1964 Bethlehem do do (19) Oct. 8, 1964 United States Steel inland, Armco Concrete re-bars Increase $0.75 a hundredweight. (20) Oct. 15,1964 Youngstown do do __ (20) do Crucible Certain types of stainless pipe Increase 5 percent (21) Oct. 19,1964 Republic do do (21) do Bethlehem Electric fusion weld line pipe (most) Increase $5 a ton (22) Dec. 14, 1964 United States Steel Oil country casing tubing, pipe produCts.... Increase 4 to 4.5 percent_ (23) Dec. 22, 1964 Inland Galvanized sheet and coils Increase $6 a ton President Johnson had no comment. (24.) Dec. 28,1964 Republic, Granite City, do do United States Steel. (25) Dec. 30,1964 Bethlehem, Jones & Laughlin, Galvanized sheet do Youngstown Sheet & Tube. (26) Mar. 9,1965 Allegheny-Ludlum Flat-rolled silicon steel (4 grades) Increase $3 to $9 a ton... (27) Mar. 12,1965 United States Steel (3 nonoriented grades) electrical steel Increase $18 to $24 a ton sheets. A 4th-grade electrical steel sheet Decrease $4 a ton (28) Oct. 12, 1965 United States Steel Tin-coated steel Increase $0.25 per base box (from $9.10 to $9.35). (29) Oct. 14,1965 Bethlehem do Increase $0.25 per base box. Tin-free coils Decrease $0.45 per base box. (30) Oct. 19, 1965 National Tin-coated steel Increase $0.25 per base box. Tin-free steel_ Decrease $0.45 per base box. See footnote at end of table. - PAGENO="0192" TABLE Vl-2.-MAJ OR STEEL PRICE CHANGES, 1962-67-Continued Item No. Date Initiator announced Followers Products Change in price Washington reaction and industry response (31) Oct. 21, 1965 Jones & Laughlin Regular tin plate Increase $0.25 per base box. Black plate Decrease $0.45 per base box. (32) Dec. 31, 1965 Bethlehem Structuals Increase $5 a ton Strong Government objection. Pentagon ordered contracts on structural steel shifted to mills that do not list quotes. (32) Jan. 5, 1966 Inland do do Inland and Colorado Fuel & Iron postponed the increase. Colorado Fuel & Iron do Increase $3 a ton (33) Jan. 12, 1966 United States Steel do Increase $2.75 a ton Price resulting from negotiations (reasoning to- CR sheet Decrease $9 a ton in gether) with administration, United States Pittsburgh, Calif. Steel price move increasing the steel price index by about Yio of 1 percent called in- consequential rise by G. Ackley, while the former Bethlehem price move increasing the steel price index by 3~o of 1 percent was judged inflationary by Council of Economic Advisers. (34) Jan. 17, 1966 Bethlehem, Inland All structural shapes Increase $2.75 a ton (35) Feb. 9,1966 Lukens Certain types of plate Increase $4 a ton (36) Feb. 13, 1966 United States Steel, Alan Certain types of plate do Wood. (37) Feb. 24, 1966 Kaiser Certain types of plate do (38) Mar. 1, 1966 United States Steel Extras on certain carbon, high-strength and Increase $1 to $6 a ton United States Steel notified the Council of Eco- alloy plate dimension. (= average increase nomic Advisers .of its price change. Apparent of $2.92 a ton for all Government approval plate products. Low-carbon wire rods Reduction $6.50 a ton~_ Heavy HR carbon sheet Reduction $2 to $25 a ton. 1 Nails, staples, brads Increase of $15 a ton in all plants except $6 in Pittsburgh, Calif. and $9 in Worcester, Mass. (39) Mar. 3, 1966 Bethlehem Heavy-plate items Increase average $2.92 a ton. Heavy HR carbon sheet Decrease $2 to $25 a ton_ Kaiser Heavy-plate items Increase average $2.92 -- a ton. (39) Mar. 6,1966 Inland do Increase average $2.92 a ton. Heavy-gauge HR steel in coil Decrease $2 to $25 a ton_ do Alan Wood Heavy plate items Increase averages $2.92 a ton. PAGENO="0193" (40) May 19, 1966 Republic Bethlehem, Jones & Laugh- Alloy bars and billets, carbon special quality Increase $2 a ton Ii United States Steel, bars and billets. Inland, Kaiser. White carbon merchant bars Decrease $1 a ton CO Carbon shell billets Decrease $2 a ton ? (41) June 1, 1966 Republic, Copperwald, Cold-finished bars Unpublicized price move_ Bliss & Loughlin, La Salle. United States Steel Cold-carbon finished bars and alloy bars___ Increase $2 a ton y (42) June 5, 1966 Jones & Laughlin HR special quality bars; forging quality do bloom, billets, and slabs; alloy steel bars, bloom, billets, and slabs. HR merchant quality bars; bar-sized shapes Decrease $1 a ton ~ (43) Aug. 2, 1966 Inland Prime grade CR sheets; HR sheets and Increase $3 a ton Initiated without consulting the administration. strips. 2d grade sheets (same products) Increase $2 a ton White House asked for delay. Telegrams sent by White House (G. Ackley) to certain companies, but eventually the administration accepted the increase. co (44) Aug. 4, 1966 Armco Prime quality HR and CR sheet and strip_.... Increase $3 a ton Secondary sheet Increase $2 a ton (45) Aug. 5, 1966 Jones & Laughlin Prime quality sheet HR and CR.. Increase $3 a ton United States Steel, Bethle- Prime quality HR and CR sheet and strip do hem, Republic, National, - Youngstown Sheet & Tube. (46) Aug. 8, 1966 Granite City, Sharon, Alan do do Silence by White House explains the rise of :~ Wood, Empire, Reeves, several smaller firms. Interlake. (47) Aug. 10, 1966 Wheeling do do Delay in Wheeling decision explained by the preceding year's just introduced "price-at- time-of-order" system. Tin plate Increase $0.25 per base box. (48) Nov. 9, 1966 Allegheny-Ludlum Stainless sheets and strips Increase 25 percent (49) Nov 14 1966 Eastern Stainless Republic do do Washington invited Allegheny Ludlum chief Crucible, Carpenter. . officer for talks. Following increase of about 9.2 percent in nickel price (instituted by lnternational Nickel Co. of Canada) and dis- regarding Nov. 4 letter from the Council of Economic Advisers urging steel companies to absorb the nickel price increase. (50) Nov. 25, 1966 Jones & Laughlin Stainless billets, bars, and wire products__ Average increase of 4 percent. (51) Dec. 8, 1966 ..._ Armco do Average increase of 2.5 percent. (52) Dec. 1, 1966 Crucible Stainless steel bars, billets, rods and wire.. Unpublished revised prices. (53) Jan. 5, 1967 Jones & Laughlin Continuous weld pipe Increase 2.6 percent Seamless, electric resistance welded pipe... Increase 2.2 percent White House reacted mildly to price rise. Oil country tubular products Increase 2.9 percent (54) Jan. 11, 1967 Republic Steel pipe products Average increase 2.7 percent. See footnote at end of table. PAGENO="0194" Item No. Date Initiator announced Followers Products Change in price Washington reaction and industry response (55) Jan. 12,1967 United States Steel Steel pipe products Average increase 2.5 percent. do Youngstown, Wheeling, Lone do Average increase 2.7 Star. percent. (56) Jan. 13,1967 Armco Oilcountrytubing;standardpiPeprOduCtS do (57) Jan. 18, 1967 C.F. & I. (Denver) Steel pipe products do (58) Apr. 13, 1967 United States Steel Size extras on certain structural steel sec- Average increase of $2.49 tions, and size extras on sheet piling a ton or 2 percent up. products. (59) Apr. 17, 1967 Bethlehem Certain nonstandard Price changes not men- sized construction tioned. products. (60) Aug. 1, 1967 National Electrolytic tin plate Average increase 2.7 per- cent. (61) Aug. 2, 1967 Wheeling Holloware enameling stock, and blued Average increase of $0.25_ stock. (62) Aug. 3, 1967 United States Steel Tin plate, black plate, and tin-free steel~.... Average increase 2.7 per- cent (increase of $0.25 a base box). (63) Aug. 4, 1967 Bethlehem, Bethlehem, Pa., Temper hard tin plate, black plate, and Average increase of $0.25 Inland, and Kaiser. tin-free steel. by base box. Inland, Kaiser Thin double-reduced tin plate, black plate, Average increase of $0.15 and tin-free steel. by base box. Aug. 7,1967 Jones & Laughlin Double reduced electrolytic tin plate, and Increase of $0.10 a base tin mill black plate. box. (64) do United States Steel Carbon and alloy barextras(certaintypes)__ Increase of $2 a ton Heat-treated and straightened cut lengths_ Increase of $5 to $8 a ton_ Molybdenum grade alloy steel bars Increase of $2 a ton (65) Aug. 18, 1967 Republic Bar products(certain sizes) do Flat shapes (certain sizes) Increase of $1 to $2 aton_ Some semifinished carbon steel and some do sheetsteel(size extras). (66) Aug. 22,1967 Jones & Laughlin Copperwald_ Bar products Increase of $2 a ton do Bliss & Laughlin Wyckoff C.F. bars (size extras) Increase of $3 a ton (67) Aug. 18, 1967 Bethlehem HR carbon plates Increase of $4 a ton (68) Aug. 21,1967 United StatesSteel do do (69) do Alan Wood do do (70) Aug. 22, 1967. Republic, lnland, Jones & do do Laughlin. (71) Aug. 21, 1967 United States Steel Alloy plate Increase of $8 a ton (72) do Alan Wood do do (Ii) Aug. 22, 1967 Republic, Inland, and Jones do do & Laughlin. (74) Aug. 24, 1967 Bethlehem do do PAGENO="0195" (75) Aug. 30, 1967 Republic Carbon and alloy HR bars Increase of $0.15 per hundred pounds (or a $3 a ton increase). (76) Aug. 31,1967 UnitedStatesSteel do lncreaseof$3aton CF carbon and alloy bars Increase of $4 a ton (77) Sept. 4,1967 Bethlehem, Armco, Inland, Carbon and alloy HR bars Increase of $3 a ton Jones & Laughlin, Kaiser. CF carbon and alloy bars Increase of $4 a ton (78) Sept 11, 1967 United States steel and Stainless steel sheets Increase up to $80 a ton; others. and average up to 8 percent. Quantities from ~ to 5 tons. (79) Sept 21,1967 Cyclops Corp All nickel bearing grades of stainless steel Increase 6 percent or produced in strip bar, cold-finished wire, from $00225 to $00525 and forging billet, per pound. (80) Sept. 26, 1967 Crucible Wire range of stainless steels including Increase 3 to 5 percent~~. nickel bearing. Eastern Stainless strip, sheet and plate Increase between $00275 per pound and $0.06 per pound. (81) do Granite City Steel All flat-rolled steel products Reduction $2 a ton on base prices. (82) Sept 28, 1967 Crucible Hot wound coil springs for RR cars and Increase average 9 per- industrial uses. cent (83) Sept.29, 1967 do Permanent magnets Increase 4 percent.. Certain nickel bearinggradesof hard-facing IncreaseS percent welding products. (84) do Armco Corp Stainlesssheet,strip, barand wire products Increase $00225 to of chromium nickel series. $0.0525 per pound. (85) Oct. 1, 1967 Carpenter Stainless products: billet, bar, rod, wire...... Increase $0.0050 to $0.04 per pound. (86) Oct. 3, 1967 Crucible Stainless tubingproducts Increase 5 percent or - more. (87) Oct. 4,1967 United States Steel Steel wire rods Increase average I per- cent. (88) Oct. 5,1967 Allegheny-Ludlum, fol. Range of stainless steel products Increase average less lowing others Armco than 3.4 percent. Steel Corp. Stainless bars, billets, wires Reduction to Carpenter level of increased prices from $0.0250 to $0.0525 per pound and $00050 to $0.04 * per pound. (89) Oct 10, 1967 United States5teel follow- Jessop Steel Co., Washington Nickel bearing alloy steel products Increase in extra charges Jessop said its increases will average 33~ percent. ing others. Steel Corp. covering nickel content averaging $3 perton or 23/a percent G. Ackley, Chairman of Council of Economic - Advisers calls on national companies not to follow the steel bar hike announced by Republic. The cause stated was other competition and imports of foreign made stainless steel. President of Amsted Industries, Inc., said in- crease was badly needed since prices haven't been raised since 1958. United States Steel notified the Council of Eco- nomic Advisers of planned price increase. Government regrets the action and urged a postponement. Other companies are studying increase. See footnote at end of table. PAGENO="0196" TABLE Vl-2.-MAJOR STEEL PRICE CHANGES, 1962-67-Continued Item No. Date Initiator Followers Products Change in price Washington reaction and industry response announced (90) Nov. 15, 1967 United States Steel Wire and RR materials-wheels, axles, etc~ Increase 3 percent Sources say others had initiated first, Armco and Republic are studying the move. Other major producers had no comment. (91) Nov. 17, 1967 Bethlehem Continental, Detroit, Republic, Certain wire products Increase on extra Increase nad been effective since October, but Jones & Laughlin. cflarges. only customers knew. (92) Dec. 1, 1967 United States Steel Others expected Cold rolled sheet Increase $5 per ton or Johnson administration asked other steelmakers 3.4 percent. to "consider carefully" before following suit. President of Council of Economic Advisors is vexed. Government gave no indication of trying to roll back increase. Johnson will veto any legislation to protect steel industry from foreign imports. (93) Dec. 4, 1967 Bethlehem do Increase $5 per ton (94) Dec. 5,1967 Armco Steel do do Cold rolled strip do No Government comment. Armco Both hot rolled sheet and strip Increase $4 per ton If other industries follow Armco, about 84 percent Armco Both hot rolled sheet and strip Increase $4 per ton If other industries follow Armco, about 84 percent Galvanized sheet and strip Increase $5 per ton of all steel sold will have increased price this Long ternes Reduction $3 per ton year. Republic Cold rolled sheet lncrease $5 per ton Japanese and British prices will rise on cold ~ rolled sheet. (95) Dec. 6,1967 United States Steel Galvanized and aluminum coated sheets do United States Steel's decision to hold back on Long terne sheets Reduction $3 per ton increases of much of the flat rolled steel line seems certain to stop industrywide increases from going any further. Strategy is to avoid Johnson administration's wrath. Bethlehem Galvanized sheet Increase $5 per tOn Inland Galvanized and aluminum sheet do Hot and cold rolled sheets Increase of extra charges only. Kaiser Cold rolled sheets and strip Increase $5 per ton Hot rolled sheet and strip Increase $4 par ton Galvanized sheet and strip Increase $5 per ton Long ternes Reduction $3 per ton (96) Dec. 7,1967 Jones & Laughlin Cold rolled sheet and strip Increase $5 per ton If industry follows United States Steel's de- Galvanized sheet do cision, about 70 percent of all steel sold will Hot rolled sheet Increase $4 per ton have increased price. Youngstown Sheet & Tube Cold rolled sheet Increase $5 per ton Corp. National Steel Corp do do Galvanized sheet do (97) Dec. 8, 1967 Wheeling Steel Cold rolled sheet and galvanized do Long tome sheet Reduction $3 per ton~___ Granite City Cold rolled sheet Increase &4 percent or - $5 per ton. Galvanized sheet Increase 2.5 percent or $5 per ton. PAGENO="0197" Dec. 10, 1967 Armco and Kaiser Hot rolled sheet and strip Roll back prices $4 per Jones & Laughlin are studying the action. ton to $105 per ton. Kaiser Cold rolled carbon strip Roll back price $5 per ton. (98) Dec. 28, 1967 United States Steel Cold rolled strip Increase $5 per ton Followed increase by Interlake of cold rolled Standard rails do strip. Kaiser studying the action. Wrought steel wheels Reduction 33/2 percent~ (99) Jan. 17,1968 Allegheny-Ludlum Tool and high speed steels Increase not given (100) Apr. 3, 1968 United States Steel Republic Seamlesselectricandweld pipe Increase $10 a ton or 4 Increase due to increasing imports of foreign percent. steel which rose in the 1st 2 months of the Stainless steel plate for chemical plant use Increase $75 a ton or 73/2 year, 42 percent from a year ago. percent to 10 percent. Crucible Steel Co Stainless bars and wire. Cold finished high Increase of 4 percentand Increase on bars was effective Mar. 6 and wire carbon stainless wire extras, upward. extras on Mar. 26. Company blamed "increased costs at the mill" as the cause. (101) Apr. 4, 1968 United States Steel Grainless oriented electrical steel Increase $14 a ton or Armco Corp. and Allegheny.Ludlum are studying over 3 percent. situation. (102) Apr. 7,1968 do Youngstown Oil industrygoods Increase $7aton or 3 percent. (103) Apr. 16,1968 Kaiser Can-making tinplate Increase of $0.05 a base Other tinpiate makers are studying the move. box or 0.5 percent. (104) Apr. 17, 1968 United States Steel Portion of stainless steel plate Reduction to price in- Allegheny-Ludlum said their increases were crease of Allegheny- "considerably under" those first announced Ludlum. by United States Steel. Jessop Steel Co Stainless plate Increase average $0.02 to $00350 a pound or about 4 percent. Eastern Stainless Raising prices (105) Apr. 18,1968 do Alloy grade hotrolled bars, alloy plates, and Increase $0005 a pound i~P.. allay semifinished products. or $10 a ton. (106) May 8,1968 do Jones & Laughlin, and others_ Important products including gas and Reductions meeting low United States Steel has sought to keep reduc- water pipe, galvanized sheet and hot- prices foreign mills tions quiet, fearful of any general breaks in rolled sheet and strip. Unconfirmed in- are quoting customers. steel prices. ports on cold-rolled sheet. United States Steel's strategy breaks norms of - past industry practice. Other firms are fearful that price cutting will spread. Industry sources say United States Steel is out to increase it's share of the market which has been gradually declining. Industry is waiting to see what move foreign im- ports take. So far there have been no reduc- tions in import prices. (107) May 9,1968 Bethlehem Steel announced it will not join in price cuts to meet import prices. Says it can't meet foreign competition "without going broke," due to cost difference, especially wage costs. (108) May 12,1968 Armco Steel, Inland, and Jones & Laughlin say they will not follow price cuts to meet import prices. Armco said "Domestic price cuts sufli- cientto block imports would lead the U.S. steel industry to bankruptcy." I Reconciled to come under sheet-price schedule rather than plate prices. PAGENO="0198" 1468 ~d z ~ ~Racc~ E d ~J)C~)C)~ C~JC~ ~ 00 - - ~ C~J C%J 1'~ CCC) C~) ~ 0 - )O r'- ~ ~C~) ~-C~ b ~ < ~ C~JU) C~4r-~ ~ C~4 00 ~ c' U)~flr- C)C~J C~J ~ C~J C~1 ~C~N~00~ :OO~1 00~ E ~ - a C) ~ ~" C) a a~ C) 1) C) C) C) C) C) C) ~ 00~-~C) C~4C~4 CN .C .C ~ >~ 0000000000>>>> ~ Ed ~ ~ oc~ir, ~C)Wr~ 888~-~L~ Ed C~4 C4 C~) C~) C~) C~) ~)C~ C~ C~) C~) ~ C)) `-~-CC)4 Ed PAGENO="0199" * 14f~9 APPFNDIX VII ST1~InL IMPORTS AND TRCHNQL0GICAL INNOVATrON Historically, according to AISI, American steel was able to compete in world markets because of its technological superiority. In the face of increased compe- tition, says L. B. Worthington, "we've been doing everything in the book to make this industry as efficient and as competitive as it is possible for any indus- try to be. To enhance our position of technological leadership . . . we are now spending considerably in excess of 100 million dollars a year on research. {D]uring the past ten years American steel companies have spent more than 13 billion dollars on new, more efficient production facilities-designed not only to reduce costs, but to establish new high standards of quality for our competi- tion to shoot at." Presumably, all this is not enough. The industry wants more time `to establish its technological superiority, and wants governmental protection through import quotas in the meantime. Unfortunately, the facts do not support Mr. Worthington's clgims: (1) A 1966 report of the National Science Foundation shows that the steel industry ranks shockingly low in its R & D expenditures. In 1964, It spent only 60 cents of every hundred dollars in sales revenue on R & D, compared `to a $1.90 average for all manufacturing industry. Moreover, all the industries pro- ducing steel substitutes-aluminum, cement, plastics, and glass-invested more in R & D than did the steel industry, sometimes five or six times as much. (2) The major steel inventions in recent years-including the basic oxygen furnace, continuous casting, and vacuum degassing-came from abroad. They were not made by the American steel giants. (3) In innovation, as in invention, the American steel giants se~em to lag, not lead. The oxygen furnace, for example, the only major technological break- through in basic steel making since the turn of the century, was invented and innovated by the miniscule Austrian steel industry in 1950. It was first installed in the United States in 1954 by a small company (McLouth), and not adopted by the steel giants until more than a decade later: U.S. Steel in December 1963, Bethelehem in 1964, and Republic In 1965. Despite the fact that this new process entailed operating cost savings of roughly $5.00 per ton, as well as capital cost savings of $20-25 per ton of installed capacity, the U.S. steel industry during the 1950's "bought 40 million tons of the wrong kind of capacity-the open hearth furnace" (Business Week, November 16, 1963). As Fortune recently observed, much of this capacity "was obsolete when it was built" and the industry, by installing it, "prepared itself for dying." (October 1966 pp. 130, 135). Or, as Forbes put it more mildly, "In the Fifties, the steel industry poured hundreds of millions of dollars into equipment that was already obsolete technologically- open hearth furnaces." (Mari~h 1, 1967, p. 23.) The technological blunder may have cost close to $1 billion in "white elephant" facilities. (See "Big Steel, Invention, and Innovation," Quarterly Journal of Economies, May 1966.) (4) Even defenders of the American steel giants concede that it was the cold winds of competition rather than the sheltered atmosphere of protectionism which ultimately forced the domestic majors (belatedly) to follow the path of technological progress. Thus, Professor Alan McAdams admits that by "1962 it appears that the costs to United States producers fOr not innovating were sig- nificantly raised by actual and threatened competition from both domestic and foreign oxygen s:teelmakers." (Quarterly Journal of Economics, August 1967) Competition, not protection, broke down the industry's habitual lethargy and resistance to change. (5) Technological progress is less costly than AISI would have us suppose. Small American steel fabricators, utilizing the latest technology, and demanding neither special protection nor special favors from the federal government, have begun to produce their own basic steel-at costs far below the prices charged by the domestic steel giants. According to the Wall Street Jonrnal (October 5, 1967), "Roblin Steel Corp., North Tonawanda, N.Y., has niore than tripled Its earnings since 1964, when it installed an electric furnace and a continuous cast- ing machine and quit buying semifinished steel from major producers. Florida Steel Corp., Tampa, started making its own steel in 1958; since then, it has increased aT'n-~al net income re~rly 200% while achieving steel production of more than 300,000 tons a year." Such plants "turn out high-quality steel for less than $65 a ton, at least $20 a ton cheaper than current prices for bars of semi- finished steel called billets." (Ibid.) PAGENO="0200" 1470 In sum, experience makes it abundantly clear that an industry like steel, dominated by slothful giants, will lead neither in technological Invention nor innovation. To give such an industry artificial protection from competition would merely serve to reinforce its natural disposition to lead the quiet life and to let well enough alone. APPENDIX VIII STEEL IMPORTS AND THE U.S. BALANCE OF PAYMENTS In this appendix, we review the relation between steel imports and the balance of ~~ayments position of the United States. We propose to examine the effect that the domestic steel pricing and other policies have had on the balance of payments, and what the consequence might be of artificial restrictions on the import of steel products. In recent years, steel imports have accounted for a laFger share of domestic consumption than in the past, particularly since 1959. At the same time, steel exports have shrunk. The two phenomena are related, and elsewhere in this presentation we have demonstrated the crucial role played by the upward rigidity of pricing 1 and technological backwardness. It is, therefore, possible to regard any difficulties the steel industry may be facing in its international economic relations as to a large degree self-inflicted. This conclusion is not, however, sufficient to dispose of the balance of payments problem. The American Iron and Steel Institute, for instance, insists that "the most relevant trade factors are the inflow and outflow of the primary products of the steel industry itself" (Staff Study, p. 336), and by implication that the unfavorable balance of trade in steel is strategic in causing the unfavorable balance of payments for the U.S. There are several points that must be made with respect to the effect of steel imports on the balance of payments. In each case, it appears that the imports of steel products cannot be considered a serious threat to the United Staets. First, it is manifestly improper to assess the effect of steel imports considered in isola- tion without also examining the export and import of products containing steel. When the end-use items are taken into consideration, the steel balance of trade, even though it remains "unfavorable", is nevertheless sharply cut. Table 34 of the Senate Finance Committee Staff Study shows that for 1966 the net outflow was reduced from $889 to $486 million. This is approximately 2 per cent of the total value of merchandise imports in 1966. For 1967, the comparable figure is not available, because the AISI has not made public its estimates of the value of steel in end-use exports, but in view of the fact that the imports of steel in dollar value were lower in 1967 than in 1966, and the total merchandise trade exports were higher, it is extremely unlikely that the so-called "unfavorable balance of trade" for steel exceeded $486 million in 1967, and it may very well have been less. A further adjustment is sometimes made by those attempting to isolate the im~pact of steel imports on the U.S. international position. Since we are not im- porters of iron ore and concentrates and manganese ore and concentrates, and export scrap and coal and coke, a balance of trade can also be constructed for steel-making raw materials. It was favorable for the yers 1963, 1964 and 1965: in 1966 a slight deficit of $3 million was registered. In 1967, the balance again was favorable: imports totaled $659 million and exports $845 million, yielding a net inflow of $186 million. The justification for taking into account the end-use steel products should be plain enough. If domestic steel is used, then to the extent that these sales bring in foreign exchange, the effect is the same as though the steel had been exported directly. If the product uses imported steel, then to the extent the import is re-exported the loss of exchange by purchase of the imported steel is offset by its subsequent sale to foreigners. The raw materials for steel should be taken into account because, if the production of steel in the U.S. requires that raw materials be imported, exports can not be counted as a net gain of foreign exchange, nor can domestically produced steel consumed here be regarded as a complete import substitute. Therefore, all raw materials imported must be 1 "This emphasis on competitive price cutting Is typical of the policies of foreign steel industries when exporting. In the United States the practice has still been-with the exceptions, such as, unpublished discounts and freight absorption-to maintain prices and to adjust output to demand." steel Imports, Staff Study of the Senate Committee on Finance, 90th Cong., 1st ~ess., 1967, p. 120 (hereinafter referred to as Staff Stud~), PAGENO="0201" 1471 counted. By thc'same token,'w'e should credit the steel segment of the merchandise balance of trade with all exports of steel-making materials because foreign steel production, which may return to us as imports, or substitute for our exports, is nevertheless providing us with dollars. Nevertheless, to focus on the steel "balance of trade" Is an exercise in futility. International trade, like domestic trade, is exchange, and in the process of ex- change individuals, regions, and countries trade one type of commodity or service for another. The undisclosed assumption of those who would calculate the steel "balance ef trade" is that the U.S. should export at least as much steel as It imports. Applied to every commodity, this principle would lead to ridiculous results: accountants would never use physicians services, Denmark would never import cotton, and the U.S. would import po iron ore. From the standpoint of the economy, imports and exports are indissolubly linked, because foreigners can pay for our exports only by~ exporting to us, over the long run, unless we give or lend them the money to pay. We benefit In real terms by allowing them to pay by imports. hence, a "deficit" in steel can be regarded as being counterbalanced by a "surplus" in cotton, in construction machinery, or in calculators and computers. Importers of steel in the U.S. are, in effect, paying the exporters of other products. This elementary theorem of international trade is usually forgotten by groups that wish to choke off imports of competitive products. Foreigners have no way of paying for our exports to them, in the normal course of business, ewcept through use of dollars obtained by exporting to us, or to some other country that has exported to us. To the extent, therefore, that our restrictive policy reduces the number of dollars paid' for imports, our exports are bound to suffer. The fact that, since 1950, our mer- chandise trade receipts have increased from $10,117 million to $30,463 million (E~onom.ic Report of the President, 1968, p. 306 and Survey of Current Business, March 1968, p. 23) is not unrelated to the fact that our imports rose over the' same period from $9,108 million to $26,980 million. Generous as the American people have been with grants and loans, we would never have supported \a com- parable level of exports. The exports had to be financed by imports. The alterna- tive would have been to produce here a variety of materials that we could import more cheaply, paying by exports. Nothing in the analysis of the "steel balance of trade" can possibly upset this basic fact of economic life. On the contrary, we must conclude that attempts, such as those currently underway, to reduce imports, can only result in hurting exports. Foreigners will have fewer dollars to buy our exports; and if the quotas on steel are "successful" there will be an Immediate and parallel drop in the purchasing power available not only for U.S. agricultural and machinery products, but also for the purchase of steel products themselves! The Staff Study of the Senate Finance Committee was on sound ground when it concluded, with emphasis: "A restoration of a net eceport balance in steel trade would be desirable from the point of view of the U.S. balance of payments, but it would not help either the balance of trade or the balance of payments, if a sharp cut-back in the cur- rent level of steel imports would result in an equivalent dollar amount of other U.S. merchandise exports being lost by retaliation." (p. 81) The only point missed by the Study is that regardless of whetherthere is retalia- tion, the artificial creation of a net export balance in steel trade could not help but reduce our exports of other commodities. A corollary of the program of quotas, neglected by the steel industry, is that a "favorable' `balance must be paid for by exports from the "deficit" country. If, somehow, imposition of quotas left by some of our customer countries with debts owing in dollars, they would be forced t~ export more either to the U.S. or to third countries that would have to export more to the U.S., in order to pay for our net export of steel. Consequently, some other industry in the JT.S, would face an increasing volume of imports. This industry, too, might cry for help; other quotas would be introduced; and the ultimate fate of the level of international trade is not hard to imagine. The Staff Study of the Finance Committee is, therefore, in error when it says, "The growing deficit in the balance of trade in steel products has not only had an adverse effect on the total merchandise balance of trade but has contributed in- creasingly to the persistent deficit in our balance of payments." (p. 80). As we have just seen, th~ s characterization could be applied to any product which shows payments to foreigners in excess of receipts; there is no reason to single out steel. When we consider the deficit in the balance of payments as a whole, the steel deficit is trivial compared with the total out-payments for private capital investment, government loans and grants, and military expenditures. In 1967, PAGENO="0202" 1472 military expenditures totaled $4.3 billion: military grants, $.9 billion; govern- ment grants and capital outflows, $5.1 billion (Survey of Current Business, March 1968, pp. 17 and 23). Private capital outflows amounted to $5.4 billion. These transactions, all to a greater or lesser degree extraneous to the function of international trade, which is to improve the real income of the participants, have obviously "contributed" much more significantly to the "deficit" in the balance of payments than has the import of steel. To emphasize the point, we might consider the fact that steel imports at attractive prices make it possible to use resources in the United States for the output of other goods and services, and at the same time enable all users of the imported steel to lower the cost of end products. All of this shift, in response to the imports, increases output and raises the real income of the economy. The "deficit" in the balance of payments, however, is measured by the amount of claims on the U.S. held by foreigners in short-term form, plus our export of gold. If foreigners hold demand deposits in large amounts', it is not because of steel imports but rather because the government has transferred demand de- posits to foreigners, or private corporations have attem~pted to make long-term investments overseas. The restriction's that were instituted January 1 represent a recognition that the deficit results from ouitfio'ws of public and private capital, not from trade transactions. And it reflects, also, the realization that to try to restrict imports could only be self-defeating, by reducing the demand for our exports. The outflow of gold is totally unrelated to the import of steel. Foreign central banks have been attempting to build up their gold reserves in order to avoid having all their reserves in the form of short-term or long-term claims in dollar form. This reluctance to commit their fate entirely to the dollar is under- standable when U.S. foreign and military commitments have been so large. The remedy is not to destroy international trade, but to cut down on the commit- ments, a program the Administration is now following. At the same time, the U.S. and other nations are expanding the amount and adding to the type of reserve assistance that can be made available through the IMP, thu's relieving na'tions of the necessity of choosing beitween two reserve asset's: gold and the dollar. At a time like this, when international monetary cooperation is of the utmost importance, it would be doubly objectionable to have the U.S. initiate measures, illegal under GATT, for the institution of quotas. They would only provoke re- taliation, damaging not only our* volume of international trade and level of efficiency, but the prospects for achieving a long-run framework for international monetary cooperation. The claim has been made by the American Iron and Steel Institute that quotas are required to preserve the steel industry for national defense purposes if the steel industry is to remain healthy and progressive. The suipporters of quotas are not naive enough to insist that we are now dependent upon imports for the steel tha't goes into our weapons, tanks, and fighting ships. But they insist that the "health" of the steel industry is endangered by the imports; that it can- not muster the finances required to remain abrea's't of technological change, nor the will to devise and put them into operation. (AISI, The Steel Import Problem, 1967). The argument is so tortured that it is difficult to take i't seriously. The U.S. steel industry was at its lethargic worst during the period when it enjoyed freedom from imports. It was during the 1950's tha't, secure in its domestic and foreign markets, the leaders in the industry failed to develop and install the oxygen converter and continuous casting. It was during the 1950's that it made its mos't egregious and costly financial errors. Today, by contrast, under the threat and constant spur of imports, the industry has begun to revise its pricing practices, and i's on the road to replacing the open hearth with up-to-date BOFs. In the interest of national defense, therefore, it is important to remove restrictions on steel innova~ion-stimulatiflg imports, not to intensify them. Buy American laws should be repealed, not buttressed by quotas. If the thesis of the steel industry were correct, period's of high levels of imports into the United States would be accompanied by unemployment at the lowest peace-time level in our history. In these circumstances, with our major problem inflation, it is most disturbing that, in order to protect their monopoly position. some industries should press for quotas that can `only intensify the cost-push element in our economy, further disturb our export markets, and hence adversely affect our balance of payments. The CHAIRMAN. We thank you again, the three of you, for bring- ing this information to the committe6. I am sure it will be helpful to us. Are `there any questions? PAGENO="0203" 1473 Mr. BURK1t. I would just like to ask how long it took to prepare all these statistics that you have here? Dr. ADAMS. For the information of the committee, we have taken a long-term interest in this problem because the problem is not new and the problem will be with us for sometime to come. The Program on Industrial Structures in the Atlantic Community, of which I am a director, is engaged in continuing studies on this sub- ject and when Chairman Mills announced the hearings we collected some of the material from our files to make them available for this committee at this time. You might say this is in the nature of a. progress report by the program at Michigan State. Professor Dirlam of Rhode Island, of course, is my constant co1~ laborator. Mr. BURKE. I would just like to say I am going to take it home with me over the weekend and hope I will be able to digest part of it. Dr. ADAMS. You have my best wishes, sir, in that enterprize. The CHAIRMAN. Any further questions? If not, again we thank you. Dr. ADAMS. Thank you, Mr. Chairman. Dr. DIRLAM. It is a pleasure to be here. The CHAIRMAN. That completes the calendar today except for the mayor of the city of Newark, who is evidently not present, and Mr. Col- Iingw'ood J. Harris, the Chairman of Countersurge. Mr. Harris? Without objection these two gentlemen may extend their remarks in the record of the hearing. (The fol1owing statement of Hon. Hugh Addonizio, mayor of Newark, N.J., was received for the record:) STATEMENT OT HuGH ADDoNIzIo, MAYOR, NEWARK, N.J. I am submitting the following statement to the House Committee on Ways and Means out of my profound concern for the conseqi~ences of U.S. foreign trade policy on the future of the city of which I am the chief executive and other cities in a similar economic and social position in the United States. The major and crucial point I wish to emphasize to the Chairman of the Com- mittee and his colleagues is the direct and positive relationship between foreign trade and the `social and economic future of our city. The Committee is aware that events of the past two years have raised questions of profound importance to urban life. All of us who are charged `with the responsibility of city administra- tion h'ave felt it essential that we seek the roots of our difficulties, that we probe deeply for underlying causes. It is in the context of such inquiry that I address myself to the Committee's consideration of U.S. foreign trade policy. I submit to you, gentlemen, that one of the most vital `aspects of the problem is employment opportunity. We cannot have progress and social development in the face of unemployment or the threat of unemployment. The Committee is aware of the facts cited in the Kerner Commission Report. The disparities in relative emp1oyment levels among vario~is socio-econornic groupings of our popu. lation throw significant light on the causes of unrest. Denial of employment opportunity is a barrier to hope and aspiration. Human Beings inevitably sink into the morass of despair when the road to achievement and self~betterment is blocked by the absence of johs. The City of Newark is in many respects an illuminating cross-section of Aemrica. Much of our economic enterprise refiects~the technological advancement of modern industry and business. But, the highly `sophisticated sectors of our industrial and business life, cannot be the sole and sufficient pillar of employment. It is my conclusion that no economy can be genuinely viable `if it does not provide jabs represented by high labor intensity industries. We must have an employment potent~al for unskilled and semi-skilled people. These are the jobs which are the stepping stones to individual self~sufficiency. These are the jobs which are identified with the American tradition of initiative and progress. PAGENO="0204" 1474 I am here to ask you, to urge Congress, to protect the jobs without which our problems cannot be solved. In our opinion the position of the U.S. with respect to foreign trade policy has and can have crucial consequences. We have noted in the recent past the enormous increase of many imported products, the very kinds of goods which can provide an employment base for semi-skilled and un- skilled workers. We are troubled by the implications in the statistics of foreign trade because if this trend contipues unchecked our difficulties must increase. As the head of our city's government I know only too well that the forces of market competition compel manufacturing industry to seek lower labor cost resources. That has happened within the United States. It was marked by the migration of industry from area to area before a national mandated minimum wage structure created a uniform foundation. The same process is going on now in an international sense and we, the United States, are suffering in two ways. First, manufacturing volume in various high labor intensity industries has been curtailed by the competition of cheaper foreign goods. Second, the potential for growth by industry has been arrested so that job opportunity cannot keep pace with population gain. What manufacturer would invest in new or greater plant capacity when foreign competition has already proven devastat- ing to existing facilities? Industries such as textiles, apparel, shoes, leather and small leather goods have begun to wither on the vine in the city of Newark. I have no doubt that a very similar condition exists in many other areas of the country. We are now importing more than 30% of our domestic shoe production, and that level has been reached in less than ten years. Our leather tanners in Newark have been hurt thereby. Expansion and the employment of all labor is far from their minds at present. They are concerned with their survival. We are not here to engage in traditionl tariff controversy. In our judgment the day is past when tariff measures could be responsive to the situation we face. In our considered opinion the defense of vital job opportunity within the United States urgently requires measures to keep imports within reason. The flow must be monitored for the sake of millions of Americans who need opportu- nity in high labor intensity industry. Our country cannot remain passive in the face of a serious threat. I do not refer here merely to all the known facts of our balance of payments which are so familiar to this Committee. I speak of jobs and the disastrous chain of consequences which flow from loss of job opportunity. lu recognition of the facts which have been called so dramatically to our attention in recent months the Council of the City of Newark has adopted sev- eral resolutions and memorials to Congress. I take the liberty of reading one: "RESOLVED: It is the urgent sense of this body that prompt action must be taken by the U.S. Government to impose reasonable restraints on imports of leather, shoes and leather goods. Tremendous imports of such merchandise are a clear and immediate threat to employment in the City of Newark. The City Council of Newark recognizes that jobs for the under-privileged are the vital key to civil peace and progress. Loss of job opportunity as a result of the present tidal wave of imports of leather, shoes and leather products would aggravate immeasurably the potential problems confronting Newark. Therefore, action is imperative to stabilize imports at reasonable levels and thereby prevent irre- parable damage to the economic and social structure of our city." We look to your body for positive leadership in a grave and critical situation. The Congress must, of course, be concerned with every phase of our international relations. None is more important at this juncture for our national life than the preservation of jobs at home. We do not seek to deprive other nations of economic advancement. It is our copviction that reasonable import restraints will aid others as well as ourselves. An economically healthy America will have the resources to continue leading the world. Liberal, but sensible, Import restraints to prevent decay of Important parts of American industry are of vital importance for our future economic health and for the future of our cities such as Newark. The CHAIRMAN. That completes the calendar for today. Without objection the committee adjourns until 10 o'clock Monday morning. (Whereupon, at 12:50 p.m., the committee adjourned, to reconvene at 10 a.m., Monday, June 17, 1968.) PAGENO="0205" FOREIGN TRADE AND TARIFF PROPOSALS IVIONDAY, JUNE 17, 1968 HousE OF REPRESENTATIVES, COMMITrEE ON WAYS AND MEANS, Wa~ihington, D.C. The committee met at 10 a.m., pursuant to notice, in the committee room, Longworth House Office Building, Hon. Wilbur D. Mills (chair- man of the committee) presiding. The CHAIRMAN. The committee will please be in order. Our first witness this morning is our colleague from North Carolina, Hon. Basil L. Whitener. Is Mr. Whitener present? Our next witness is also from North Carolina, Hon. James T. Broy- hill. Mr. Broyhill, we a~ppreciate your being with us this morning and you are recognized, sir. STATEMENT OP I~ON. JAMES T. BROYHILL, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP NORTH CAROLINA Mr. BROYHILL. Thank you. Mr. Chairman and members of the com- mittee, I very much appreciate the opportunity to offer testimony this morning on the question of U.S. trade policy. In my opinion, the delib- -, erations of this committee will have far-reaching consequences for the economic welfare of the Nation. I should like to say at the beginning of these remarks that there is a regrettable tendency in discussing international trade policies to oversimplify the very complex arguments and to categorize those par- ticipating in the discussion as "free traders~' or "protectionists." Over- simplification or name calling, however, only damages a sincere and reasonable consideration of the issues involved here. There is no question that international trade is essential to the Amer- ican economy. The exchange of goods among the nations of the world is equally essential for stable and harmonious relations. These are basic facts which any consideration of trade policy must accept at the outset of the discussion. Our problem is to assure that we formtilate trade policies which will stimulate international commerce in an or- derly and equitable way. There is ample evidence, I believe, that we have failed to develop such policies and we are beginning to see the serious consequences of this failure. For 20 years, we J~ave assisted both the reconstruction of the war- destroyed economies of other nations and have assisted scores of coun- tries, old and new, in building stronger economic bases. In this process, we have opened our domestic market to encourage imports on an un- precedented scale. At the same time, we have not reacted *to the (1475) PAGENO="0206" 1476 barriers to trade other nations have erected. Certainly, the emergency conditions which brought about the uncritical attitude on the part of the United States no longer exist and it is time that we develop a more realistic posture. We can no longer afford to say, as I believe we have indicated in effect, that we will be willing to lower our tariffs only on the promise that other nations will not raise their barriers against our products. In North Carolina, we have several major industries which are in various stages of difficulty because of present trade policies. Cer- tainly, the textile industry is a major factor in our State and it is obvious now that serious problems are ahead for that industry if present trends continue. We need only to look at what is happening in our own marketplace. In 1967, imports of cotton, wool, and manmade fiber textile prod- ucts amounted to about 2.6 billion square yards or 10.1 percent of the U.S. market. This compares with an import penetration of 6.2 percent in 1961, indicating the very large increases in textile imports today. As the committee is aware, there is in existence an international cotton textile trade arrangement, which is supposed to provide some measure of control over imports. Negotiated in 1961, it was extended during the Kennedy round negotiations to 1970. The arrangement does not provide for absolute import quotas. As it has developed, cotton textile imports have risen from 720 million square yards in 1961 to 1.5 billion square yards in 1967. No restraints of any sort exist on manmade fiber or wool textiles. Wool textile imports now account for over 22 percent of the U.S. market, while manmade fiber textile imports rose from 151 million square yards in 1961 to 933 million in 1967. For the first 4 months of 1968, total textile imports were 1,055,600,000 equivalent square yards-a record for any 4-month period. Should they continue at this rate, textile imports in 1968 would reach almost 3.2 billion square yards. The previous import record, set in 1966, was 2.8 billion square yards. All indications, therefore, are that without Government action to restrain the growth of textile imports, they will continue to increase, undermining a basic U.S. industry. The textile industry has plants in 42 States, employing* 950,000 people on a payroll of $4.5 billion. The apparel industry employs 1.4 million people in every State at more than $5 billion annually. Manmade fiber producing involves some 90,000 employees who are paid almost $650 million. Textile, apparel, and manmade fiber employment account for one out of nine U.S. manufacturing jobs. This complex supplies 27 percent of all manufacturing jobs in the Appalachian region where the Gov- ernment is trying to encourage industrial development. In the State of North Carolina, the textile industry is the leading manufacturing employer. Textiles alone, employing almost 265,000 people, account for 43 percent of industrial employment in North Carolina, with an annual payroll of almost $1.2 billion. The State's more than 1,000 textile plants produce almost one-fourth of all broad- woven cotton goods in America; more than one-third of all manmade fiber fabric; almost 10 percent of the woolen and worsted goods; and nearly one-half of all cotton sales yarn. PAGENO="0207" 1477 The textile industry is unusually vulnerable to imports. The in- dustry, worldwide, is largely labor intensive; textile fibers are abund- antly available throughout the world and at a cost no higher, but often lower, than in the United States.; per unit transpOrtation costs are low and promise to decline further; textile technology is so widely known that no offsetting productivity advantage accrues to the United States; equipment can be used to produce textiles of various fibers, con- structions, and styles; relatively low capital requirements mean that the industry is marked by ease of entry and geographic dispersion; intense price competition characterizes the U.S. textile market and changes in the price of one product or construction frequently affect the prices of others; textile products are standard and interchangeable; and the physical resources of the industry cannot easily be shifted to other industrial uses. These characteristics have led to the adoption of quantitative re- straints on imports by many industrialized countries as the only answer to the import problem. Because of the all-fiber limitations ap- plied by other countries, cartelization of foreign textile industries, and subsidization by many foreign governments of their textile e~- ports, the U.S. market has received a disproportionate share of imports from low-wage countries. The United States, of all developed countries, perhaps has the most liberal textile trade policy. However,. Govern- ment action is required on a multifiber basis if we are to meet this problem. The volume, trend, and diversity of textile imports, if continued, will drastically alter the future shape and structure of the U.S. textile in- * dustry. If present policies continue, the management of the industry will be faced with the decision of whether to participate in the import business or face continuing erosion. Either would have devastating effects upon employment, wages, and the economy of the areaS af- fected, as well as our national economy. The industry does want to move abroad, 4~ither through the establish- ment of overseas facilities or by importing yarn and cloth. But unless there are reasonable restraints on the growth of imports, competition may force such considerations. Already several major apparel manu- facturers are exploring the feasibility of moving their productive op- erations abroad. * The solution to the import problem is to be found in the legislation pending in the Congress and sponsored by more than 250 Members of the House and Senate. These bills contemplate international agree- ments which would give foreign producers a share of the U.S. market based on the highest levels of imports which they have enjoyed so far, plus participation in market growth. This kind of development of our domestic market would provide an orderly process which would deal fairly with all producers, domestic and foreign. Although the textile industry is of paramount concern in North Carolina, we also see problems involving steel imports and huge in- creases in shoes imports. In our State, we have shoe producers in a number of communities where great economic hardship would result if these factories cutback their production further. The import threat has reached serious proportions. Imported footwear, for instance, ac- counted for 14.9 percent of the market in the United States in 1966. PAGENO="0208" 1478 However, this figure grew to 21.4 percent of the market during 1967, and `the rate it known to be increasing in the current year. Obviously, we cannot ~o on sacrificing industries and the productive capacity of the Nation in the name of expedience to foreign policy. Also, the mechanism in the present Trade Agreements Act whereby an industry can seek relief from damages is cumbersome and ineffective. We need a more flexible procedure for the satisfactory proof of dam- age than we now have available to American industry. And most of all, we need to recognize the immense advantages foreign products re- ceive as a result of the encouragement of exports by their governments. This fact, plus the imposition of border taxes and other levies against U.S. products by many countries abroad must not be ignored any longer. It is my sincere hope that the committee will favorably consider im- port quota legislation which I and many other Members of the House have offered. I wish to recommend, also, that methods be explored to change our tax structure so that exports will be encouraged and U.S. products can be made more competitive abroad. It is urgent that these questions be given attention in depth if we are to deal fairly with our domestic industries and increase the exporta- tion of American products. Both are essential for the economic well- being of the Nation. Again, let me assure you that I appreciate this opportunity of ap- pearing at this time. The CHAIRMAN. We appreciate your bringing to us your thoughts, Mr. Broyhill. The next witness is our colleague from Utah, the Honorable Laurence J. Burton. Mr. Burt~on, we appreciate having you with us and you are recognized. STATEMENT OP HON. LAURENCE J. BURTON, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP UTAH Mr. BURTON. Thank you, Mr. Chairman. My timing was perfect on that, I think. It is my strong belief that there is an urgent need for passage of im- port quota legislation. I am grateful to you, Mr. Chairman, and to the committee for holding these hearings and making it possible for this important subject to be carefully and fully considered. I represent a district that is partly urban, partly rural in makeup. A great segment of the economy of the district is dependent upon agri- culture. Cattle and sheep raising are particularly important industries there. Fur breeding is also a prominent agricultural enterprise in the district. But the district has a large and growing industrial and manu- facturing base, too. The Geneva works of United States Steel is located there, an employer of some 5,000 people. The mining industry is an- other substantial employer in the area. All of these industries-livestock raising and the textile industry which is related to it, dairying, fur breeding, breeding, mining, and steel manufacturing-are finding it difficult to remain strong and healthy in the face of competition from foreign-made goods that are allowed to enter this country in great numbers. PAGENO="0209" 1479 Take, for example, the situation with respect to the steel industry. While the demand for iron and steel mill products is rising in this country, domestic producers are losing ground, percentage-wise, com- pared to foreign producers. This alarming trend is of fairly, recent origin, but can be expected to worsen if we fail to tackle the problem soon. Ten years ago, for example, this country's steel imports were roughly equal to exports. Since then, a serious ga-p has developed as imports~ have risen to more than 10 million tons while exports remain at about 2 million tons. The most disturbing jump has occurred in the past 3 years. In 19-64, the import-export deficit was about -3 million tons. To- day, the trade gap stands at 9 million tons-a threefold increase. Obviously, this runaway trend must be halted, and the sooner the better. Cheaper labor costs and increasing technology of foreign pro- ducers are significant factors giving other countries a price advantage over domestic producers. - And what applies to the steel industry applies to the others I have mentioned. In recent months I have visited with many mink ranchers in my State, and some from other States, as well, who simply are backed up to the wa-li economically. They need help. And t:hey need it from the Congress and the administration. Either they get it or, as Mr. Ralph E. Westwood, a prominent mink rancher and president of Em-ba Mink Breeders As~oc-i~tion says, "`~ * * there wii'l be no mink ranching business in the United States." Mr. Westwood, I believe, is scheduled to testify before this committee at these hearings, if he has not done so already. While import quotas and trade barriers may be anathema to some, I must say that I prefer them to the present alternative: that of forcing our own people out of business and into financial ruin. For my part, I think it is time that we begin concerning ourselves first with condi- tions here at home; and secondly with the welfare of our foreign com- petitors. I am not opposed to helping stabilize the economies of other peoples in other lands. I believe that we should, insofar as practicable, do what we can to help them. For in so doing, we help not only them but ourselves as well. But we have got to realize that there is no wis- dom in helping others if we destroy our own people in the process- and this, in some instances, is what we are doing. Our aim should be to strike a happy balance between our own self-interest and that of our neighbors. But I submit that under present policy there is little or no balance at all. Our dairy people, our livestock raisers, the lead and zinc industry, and our textile manufacturers, like the steel and mink people, also suffer from an overdose of foreign competition. To correct this situa- tion I have introduced a number of bills. I refer specifically to H.R. 54 re1atin~ to lead-zinc import quotas, H.R. 7573 on dairy imports, H.R. 9375 dealing with meat imports, H.R. 11745 on textiles, H.R. 14089 on steel imports, `and H.R. 10422 to establish mink import quotas. In addition, I fully support other bills of a similar vein introduced in both Houses and sprnsored by many Members of both parties which are designed to lend help to our American producers in this critical time. There is no need for me to go into each of these areas in detail because expert witnesses for all of the concerned industries have or will `appear `at these hearings. - 95-150 0-6-S-pt. 4-14 PAGENO="0210" 1480 Let me conclude by saying that none of these bills is radical in na- ture. None wants to build high protective tariff walls that completely shut out foreign goods. There have been statements made that to set up quotas on imports would be to return to the days of high tariff and unreasonable protection. This simply is net so. Anyone who will take the time to study these bills will find that they are modest in approach and reasonable in spirit and tone. Again I urge that favorable `and speedy action be taken on these items. I hope that your `committee will give serious consideration to this legislation. Thank you very much. The CHAIRMAN. We thank you, Mr. Burton, for bringing to us your thoughts. Are there any questions? Thank you, `sir. Mr. BURTON. Thank you. The CHAIRMAN. The next witness is the Honorable Bob Eckhardt, our colleague from Texas. We appreciate having you with us this morning, and you are rec- ognized. STATEMENT OP HON. BOB ECKHARDT, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP TEXAS Mr. ECKHARDT. Thank you, sir; I wish to thank the committee for this opportunity to present my views on tariff and trade proposals. I will try to be brief and concise. There are three points I would like to make: (1) The most beneficial international economic policy for the `United States is essentially one of free trade; (2) As a Representative from the Houston port area, I feel that my constituents would have much to lose if a wall of protectionism arose around our country; and (3) I support the President in his call for the elimination of the American selling price system. There has been increasing discussion and support in the halls of Congress for general and speeific increases in quota restrictions on foreign imports. There are two reasons given to justify stiffer trade barriers, first, that such is a broad economic prescription to cure our balance-of-payments difficulties, and second, that we `should give relief to specific industries under pressure from rising imports. I wish to challenge both of these arguments; they are fallacious. Protective measures will do more to aggravate the situation than to help it. One must keep in mind, in a discussion like this, the distinction between the balance of payments and the balance of trade. The bal- ance of payments is made up, basically, of two separate categories; the balance of trade, which is the actual flow of goods and services, and the capital account, which includes the flow of investments and Government transactions-loans, foreign aid, military expenditures, and so forth. `Until very recently, the balance of trade has always been well in our favor. The drastic reduction in our trade surplus is primarily `due to the excessive aggregate demand of our economy. There has been an almost incredible rise in imports due to this infla- tion. If Congress passes the fiscal restraint measures presently pend- ing, the flow of imports should return to normal. PAGENO="0211" 1481 The protectionist does not see it this way. He reasons that by cut- ting down on foreign imports, our balance~of4rade surplus will iti- crease and this in turn will reduce the balance-of~payments deficit. Rather than pursuing a course of trade expansion and liberalization, he seeks a curtailment. Ratber than expanding the flow of goods, services, and international goodwill, he seeks the easy way out. The basic flaw in the protectionist's reasoning is this: While imports to this Nation will be reduced by the stiffer quotas, American exports will similarly decline. There is no doubt that other nations, whose economies would suffer due to the reduction of the American market for their goods, would retaliate. Now we must consider for a moment our trade posture now, as compared to that in a more normal economic environment. Over the last several years-before we unduly procrastinated in levying a tax to stave off inflation-we had a trade surplus that ran around $4.5 billion, more or less, over a number of years. Now, because of the abnormally inflated prices of American goods subject to foreign trade, our trading partners are doing no more than swapping even. They can afford to buy only about the same value of goods as they sell. Now suppose we enact trade restrictions against their products at a time when our products are most dear. It is quite reasonable, i.f not absolutely necessary on their part, to quit buying expensive American goods and start making it themselves. Thus, our exports, already diminished, reduce to an absolute minimum. Then, when we enact the necessary fiscal restraints to restore the value of the dollar, we find ourselves in a world market in which the economies of other, nations have been geared to be more self-sustaining. Obviously, we have much more to lose then-than our trading partners do-because, normally, we export goods valued at about $4112 billion more than the value of the goods we import. Thus, if our trading partners retaliate by a percentage cut in their normal level of imports equal to our percentage cut in our imports, we come out the big loser. Therefore, there is no question but that, in the long run, restrictive import quotas would hurt, not help, our interna- tional accounts difficulties. Now, why did we become the most advantageously situated trading Nation during most of this decade ~ By being in the forefront of the march toward liberalizing international trade. We inspired the most favored nation `clause of the early tariff reductions of the 1930's, we were the inspiration behind GATT, it was an American President for whom the most recent round of tariff reductions was named, all post- war and recent international economic cooperation arises from Ameri- can indealism. Thus, the mere talk of protectionism turns those who, through our quest for liberal free trade, became dependent upon our markets into cynics instead of good customers. Protectionism is a repudiation of all our free trade ideals. Furthermore, quotas are nearly always arbitrary and discriminatory Under either a base period or first-come, first-served basis, some nations are singled out to come under stricter quotas. Those penalized will take this action as an indication of the arbitrariness of the American foreign policy. Also, free trade is a hedge against inflation. The segment of our so- ciety which has the most to lose if the protectionists have their way is PAGENO="0212" 1482 the average consumer. Were import quotas made more restrictive, and hence conditions made less competitive for American businessmen, there would be less pressure on prices. Less competition and a reduced supply of goods are concomitants of high prices. Competition from abroad forces American industry to innovate more and to become more efficient. Foreign trade broadens the spectrum and variety of goods available, lowers prices, and stretches the wage earner's pay. It can be seen, then, that the primary benefactor of free trade is the American consumer, which is to say, the American people at large. Whatever short-run gains a particular interest group might gain from a protectionist policy is thus at the expense of the American people. What about the effects on the business sector? The protectionist emphasizes only the negative effects of international trade. Certainly one cannot dispute that some businesses and their workers are sub- ject to disruption as a consequence of competition from abroad. But, because of vast superiority in technology, education, productivity, and geographic advantages, when we choose to produce that which we can produce cheapest and best, we are not very much limited. If, through advancing technology and greater efficiency, domestic producers still cannot meet the foreign prices, perhaps we must admit to ourselves that there are certain areas in which other nations are better qualified. We can sell the goods which a more sophisticated technology can pro- duce cheapest and buy certain cheap consumer goods, component parts, and ingredients for manufacture from other countries with less sophis- ticated economies and be the net gainer. Free trade, it can be seen, has a two-sided effect on the business sec- tor and employment. The Government does have an obligation to those establishments and employees for whom trade has a detrimental effect. I applaud the President for his recommendations on adjustment as- sistance to firms and workers. We must not overlook the fact, however, that trade can stimulate an otherwise lethargic firm or industry to ac- tion that might expand production and employment. The absence of restraints on trade has possibly a greater effect on the positive side. A movement toward more liberalism will benefit all those industries `and firms that have foreign markets. According to a recent Government report, employment in the United States related to exports of goods increased by nearly 4 percent, or by 91,000, be- tween 1960 and 1965. In 1965, an estimated 2.4 million jobs were at- `tributable to exports of merchandise and another half million to ex- ports of services. (Monthly Labor Review, December 1967.) This does not include all of the indirect, supporting employment. If we follow a course of protectionism, which would undoubtedly be followed by~ retaliation abroad, what would happen to these people? I believe we have more to gain by promoting trade expansion and depend'rng on American competitiveness to bring about a huge net gain in terms of profits and employment. I offer as a suggestion to the distinguished menThers of the committee the possibility of some formal, semiformal, or even moral arrangement whereby those industries greatly bene- fiting by the expansion of internationnl trade would be obligated to rely for all additional employment on the rolls of those workers ad- versely affected by same. For instance, a foundry worker laid off by a PAGENO="0213" 1483 steel company would be a prime candidate for employment by a machinery firm enjoying an expanding export business. I conclude this section by saying that legislation to reverse the course we have taken toward free trade is bad economics, bad foreign policy, and is bad for the people. I suggest to the committee that, when its ramifications are understood, it is bad politics. Now, let me turn for a moment to application of these principles to my own district. Harris County, and particularly my district, is virtually the heart of the transportat:ion system of that area of the Southwest. As a matter of fact, the Houston ship channel wholly lies in my district. If we look solely to the Houston area, the case is overwhelmingly against restriction of imports. For the year 1967, about $0.59 billion worth of imports were imported through Houston as opposed to $1.36 billion exported through the port. It is easily seen that the people in my district have far more to lose in terms of profits and employment from trade restrictions than eould possibly be gained. Import quotas would have a disastrous effect on the many longshoremen, seamen, masters, mates, and pilots who live and work in my district. The entire community of Houston-Harris County is benefited: laborers, railroad- men, chemical and oil workers, bankers, port officials, and all others related to commerce. In addition, professional men, such as lawyers processing the claims of the waterfront people; the industrial workers, manufacturing the goods that flow through the port; accountants, servicing the stevedoring firms; and hence, indirectly, every person liv- ing or working in the area, enjoy the fruits of free trade. In 1966, a total of $416.3 million worth of exports were manufac- tured in Houston, primarily food products, chemicals, petroleum and coal products, crude and fabricated metal products, and machinery. The total employment in these particular industries is about 91,000. An estimate of the number of these people whose jobs are directly attributable to exports is nearly 70,000. This is in addition to all those mentioned above whose jobs are in the actual trade aspect of the flow of goods and services through Houston. Thus, about 20 percent or more of the total employment in my district would be jeopardized if the pro- tectionists have their way. The last point I would like to make is in support of the elimination of the American selling price system. If we were to ignore all other reasons for doing so, we would still be compelled to do away with ASP solely to help elicit the cooperation of our friends abroad in speeding up their Kennedy round tariff reductions. The concessions thus gained will far outweigh any possible disadvantages arising from the repeal of ASP. But aside from that, the fact remains that the industries prQ- tected by ASP no longer need the extent of protection which it affords. The rates are extraordinarily high and not in keeping with the spirit of growing international trade and cooperation. The American manu- facturer has an almost unheard of advantage in being able to set his prices and having the tariff on competing goods follow from it. It should be noted that the industries covered by ASP are very healthy and growing. Profits and investment are high, and employment is largely unaffected by imports as many of the benzenoid products are PAGENO="0214" 1484 produced only for internal use. One must also question the necessity of ASP when, in 1964, $300 million of benzenoid products were ex- ported as opposed to $50 million worth of imports, of which half did not compete with any American-made product. Protective tariffs for the affected industries will not be eliminated entirely, rather just brought in line with the rest of the TJ.S. tariff schedule. I subscribe to the old adage, "No man is an island"-neither is a nation, today. We abandoned the policy of isolationism a half century ago.; America must not become an island unto itself. Our country and its people deserve the benefits of the free intercourse of goods, services, and ideas among nations. Primarily, I desire to come before this committee because I under- stand that in the legislative process there is sometimes a tendency to listen to those who have the intense immediate interest and a long memory rather than to be quite as concerned with a broad base of per- sons and of industry which depends much more realistically upon this import-export trade. Of course I understand, at a time when balance of payments is very much on the negative side and even balance of trade is now on a more or less swap-out basis, practically even, with respect to exports and imports, that there is of course a tremendous temptation to do some- thing in the direction of protectionism. But I wish to urge upon the committee what I believe to be the interest of my district and of the Nation and that is that merely because at the present time with the in- crease of imports and the depression on exports caused by the present inflationary situation, merely because this adverse balance exists now does not mean that to restrict imports is going to improve the total situation. I think we must look at what has been the normal situation over most of this decade, particularly around the midpoint of the decade when our balance of trade has fluctuated around a $41/2 billion favor- able balance. If we should reduce our imports by some quota arrangement, or by certain types of tariffs at this time, we certainly can immediately expect the same action on the part of our trading partners elsewhere because we have been the leaders in free trade. We have been the leaders in the Kennedy round of reduction of tariffs, and we have been greatly the beneficiary of that process. Therefore, if we reverse the picture particularly at a time when our exports are dear and at a time when retaliation would be quite easy and would probably he rather permanent, because the industry of other nations would be geared, of course, then, to a kind of a self- sustaining balance which might ultimately close the door to exports for a long time in the future, we would be reducing our advantage in exports much more than we would be increasing our advantage wit'h respect to manufacturing in this country as against concerns which import in the Nation. For this reason it appears to me that once this door is open and then we change the direction from free trade toward protectionism, we will have greatly itijured our presently healthy developments with respect to free trade, and I think that that would be very disastrously reflected in the Harris County and Houston area. PAGENO="0215" 1485 I thank the chairman. The CHAIRMAN. Thank you, Mr. l~ckhardt, for bringing to us your views this morning. Are there any questions ~ Thank you, sir. Mr. ECKHARIYr. Thank you, sir. The CHAIRMAN. Our colleague from Wisconsin, Mr. Schadeberg, is our next witness. We appreciate having you with us this morning, and you are recognized. STATEMENT OP HON. HENRY 0. SOKADEBERG, A RZPR~E&ENTATIVE IN CONGRESS PROM THE STATE OP WISCONSIN Mr. SCHADEBERG. Mr. ~Jhairman, it is a privilege for me to have an opportunity to present to you my views on the subject of trade and tariffs, and I appreciate your courtesy in receiving them. I would like to bring to your attention at this time the particular interests of the residents of my district in Wisconsin, interests which, I am sure, are representative of many parts of this country. The First District of Wisconsin is a microcosm of the United States, It includes two large cities with populations over 50,000, with all the diverse urban interests and problems of large cities throughout the country. It em~ braces some 50 smaller cities and towns with their attendant needs. Among its citizens can be numbered factory workers, salesmen, doctors, journalists, farmers, small businessmen, truckdrivers, bankers, miiik ranchers, druggists, college professors, secretaries, skilled and un- skilled craftsmen-a real cross section of American life. Of crucial interest to these people are their incomes and their jobs. It is not necessary to point out to you the diminishing purchasihg power of the dollar. Coupled with this in many parts of my district is a radical decline in farm and business incomes which affects not only the farm operator or the business owner but his family and em- ployees as well. Its far-reaching effects go out to the business commu- nity as a whole which finds business activity slowed down as customers have less and less money to spend. I would like to stress for you the unique difficulties faced by two separate groups, the dairy farmers and the mink ranchers. In both cases their plights are related directly to a continuing and increasing volume of imports which compete with domestically produced goods: Wisconsin is the heartland of the United States, the Dairy State. Farmers comprise a hearty segment of its population, and dairy farmers a goodly portion of these. Yet, in growing numbers, dairy farmers are going out of business in Wisconsin. We may place the blame validly for this trend on any or all of a number of factors, but one overriding reason stands out-dairy farms would not be in such a precarious position today if it were not for the continuing importa- tion of unnecessarily large amounts of dairy products. Many of these goods from abroad can be shipped, distributed, and sold in this coun- try for less than the American farmer can market them. They cut directly into his sales and threaten his business viability. If this were~ mere product competition, one would tend to say, "Let it be resolved at the marketplace." This is not the case. Our farmers are not able to compete with state-owned farms, cheap labor, low-priced or sub- sidized cattle feed and farm equipment. PAGENO="0216" 1486 These economic facts of life are equally applicable in the case of mink imports. The American mink industry is in a state of crisis. The Tariff Commission report on this problem reveals that imported mink claims 53 percent of the American mink market, an increase of 11 percent since 1957. Mink ranchers are going out of business by the hundreds, yet relief is not in sight. As with dairy products, foreign mink skins, principally from the Scandinavian countries, can be shipped, marketed, and sold in this country for less than the American mink rancher can market them. Government policy appears to place more emphasis on retaining a favorable image abroad than on encour- aging its own citizens and businessmen at home. Trade is a two-way street, and our trade balance is of extreme im- portance in our position as an international power. It is recognized that the U.S. share of world markets has been shrinking while other countries in the world have expanded their exports more than twice as rapidly as we. And we are absorbing many of these foreign exports- at the expense of our own business community. Must U.S. producers suffer financial losses or even go out of business completely for the purpose of being a "good neighbor" to the rest of the world? It would appear so, from the recent testimony of administration officials before this committee on this subject. Along with many of my colleagues, I have sponsored legislation to stem the tide of excessive imports. Of particular interest are H.R. 7479, the dairy import bill, H.R. 7480, a section 22 amendment bill, and H.R. 10446, the mink import bill. I urge your immediate and close attention to these and similar measures which will put American farmers and mink ranchers back on their feet and I trust that this committee will endorse appropriate legislation in this regard. The CHAIRMAN. Are there any questions? If not, then thank you Mr. Schadeberg, for sharing your views with us. Mr. SOHADEBERG. Thank you, Mr. Chairman. The CHAIRMAN. Our next witness is also from Wisconsin, the Honor- able William A. Steiger. Mr. Steiger, we appreciate your being with us this morning and you are recognized, sir. STAThME~NT OP HON. WILLIAM A. STEIGER, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP WISCONSIN Mr. STEIGER. Mr. Chairman, members of the committee, thank you for allowing me this opportunity to submit testimony to the Ways and Means Committee during your deliberations on the Trade Expansion Act of 1968. There are several areas that I would like to discuss. First, however, let me say that I believe expanded trade is very important, and if we are to create and maintain a viable economy that serves our Nation and provides what it can `abroad, then the freedom to trade is a neces- sity. On the other hand, there are certain industries in this country that are continually threatened by expanded imports. While I recognize it is difficult to discuss reducing imports in certain areas while we are attempting to expand exports, it is clearly what must be done. While increased exports is a desirable goal, we cannot, in my judgment, sacrifice domestic industries by neglecting the impact of increased imports. PAGENO="0217" 1487 CRITICAL SITUATION OF MINK INDUSTRY The first area of concern that I would like to discuss is the problem faced by our Nation's mink ranchers. Mr. Chairman, this is not a large industry. Only 3,300 ranchers were recorded in the recent Tariff Com- mission investigation. In Wisconsin, however, it is a very important industry. Mink pelts account for a large dollar volume in the Wisconsin agri- cultural market. This industry ranks second to dairy products in dollar volume. Perhaps the easiest way to dramatize the problems our mink ranch- ers face is to point out that while we have some 3,300 ranchers today, in 1962 we had more than twice that number. S During your hearings, you will receive a substantial amount of sta- tistics on mink imports and other commodities. I will not try. to du- plicate that here but only point out that one of the reasons for the de- cline in the number of mink ranchers during the past few years is the increased percentage of the domestic market held by imports. Mink production in the United States almost doubled during the years 1956-66. In 1956 the net domestic production (less exports) was 4,345,000, and in 1966 the net domestic production was 7,863,000. In 1956, the ratio of imports to U.S. consumption of mink was 30.03 per- cent. In 1966 this ratio jumped to 54 percent. S If our domestic mink industry is to survive, then we must assist our mink ranchers. One of the only effective ways of doing that is to reason-* ably limit imports. I have worked during the past year with the U.S. Department of Commerce in attempting to get imports reduced on a voluntary basis and to provide adequate statistical information on domestic and foreign production for the mink industry. In addition, I have joined with a number of my colleagues in intro- ducing legislation that would provide a sliding ceiling on the amount of imports allowed into this country each year. That ceiling would be based on 30 percent of the domestic prod.uction for that year. This legislation, H.R. 11340, should, I believe, be favorably acted upon by this committee and the Congress. CRITICAL SITUATION OF LEATHER INDUSTRY Mr. Chairman, the second area of concern which I would like to discuss is the drastic increase in footwear imports during the past few years. During the first quarter of this year, imports of footwear of all types amounted to 65,096,400 pairs, an increase of 35 percent over the same period last year. This equaled 31,2 percent of the domestic pro- duction estimated at 208,818,000 pairs for the 3-month period. This matter deserves immediate attention. The threat to our domestic shoe and leather industry is extremely serious, and this committee has before it legislation designed to provide orderly marketing which I support. This threat is very real in my Sixth District of Wisconsin; Mr. Chairman, for both labor and management. Theodore Hasse, president of the Oshkosh Tanning Co., at Oshkosh, Wis., has told me that unless this import tide is controlled and stopped, PAGENO="0218" 1488 we will not have a shoe business left in the United States, and his com- pany will have no customers for its leather. Mr. Hasse asked me if his apprehension struck me as being far- fetched. He then asked me to consider these facts: In 1966 we imported 68 percent of the baseball gloves used in this country. Baseball may be our national pastime, Mr. Chairman, but we might never know this from the manufacturer's name on the gloves. In 1966 we imported more than 35 percent of our handbags and better than 50 percent of our dress gloves. Maybe we should talk to our wives about these items. Mr. Hasse tells me that the basic reason for the terrific increase in imports of shoes, leather, and leather goods is perfectly simple- unfair competition. Manufacturers in the United States are compelled by our Government to maintain a minimum scale of wage rates. There is no such obligation on manufacturers abroad. Labor costs in the United States are anywhere from three to 10 times higher than labor costs abroad. On the one hand our Government wants us to maintain a high cost structure and, on the other hand, it does nothing to protect us against the competition of products made by low-cost labor abroad. The United States also closes its eyes to subsidized exports and to nontariff restrictions which prevent us from competing abroad. For example, we still cannot export any leather to Japan, although there is certainly nothing wrong with the economy of that country now. Meantime, leather goods flood us from Japan. Operating behind their artificial barrier the Japanese tanners can afford to buy our raw materials and then return the finished goods to this country which cuts production and jobs in the United S'tates. In Europe there are direct and indirect subsidies to promote leather and leather good exports to the United States. At Sheboygan, Wis., Henry Jung of the Jung Shoe Manufacturing Co., describes his firm as a relatively small Wisconsin footwear manu- faotu~er employing 150 workers-typical of the many hundreds of similar shoe manufacturers located in over 600 cities and towns in the United States. Mr. Jung says that in recent years his company has felt the terrific impact of foreign shoe imports. He says that while foreign imports have increased over 1,500 percent in the last 10 years, footwear exports have decreased 35 percent in the same period. The recent results of the lcennedy round, he says, will reduce future tariffs an average of 30 percent and make the domestic shoe manufacturing industry more vulnerable. Jung says the heritage of his industry has never been a high profit one with average footwear manufacturers earnings at 2 to 3 percent on each dollar of sales. Obviously, he says, the American footwear industry cannot favorably compete with the low-labor rates paid in foreign countries which if paid in this country would be illegal, nor does it have any particular manufacturing advantage because of im- proved methods of technology. The only salvation for the industry, says Jung, is legislation which will curtail imports whenever imports are found to be contributing to economic impairment of a domestic industry. Members of Locals 19~T and 7~6 of the International Boot & Shoe Workers Union, AFL-CIO, at Sheboygan and New Holstein, have ex- PAGENO="0219" 1489 pressed to me their concern about their future. These union men and women want assurance that while their foreign counterpa~rts share in the growth of our domestic markets these markets are not snatched away from them. Now, however, foreign manufacturers seem to have a complete freedom to gobble up ever-increasing pi~oportions of the U.S. footwear market. Mr. Chairman, I share this concern expressed by labor and manage- ment for their future in this industry which has come a long way since the days of the Puritan bootmakers of New England in the `17th cen- tury only to face extinction now because of faulty Government ac- tion-or inaction. CRITIOAL, SITtIATION IN DALR~ INDUSTRY The third area of concern I would like to discuss, Mr. Chairman, is that for dairy products. The story of dairy product imports is a fas- cinating one. It is the story of deception, bypass and misrepresentation. Foreign importers of dairy products have for some years been cir- cumventing quotas through various means. Recent orders `by the De- partment of Agrieulture resulted in foreign producers merely re- designing packages and slightly altering mixtures. `The Department of Health, Education, and Welfare `backtracked on a ruling that imports of sweetened and condensed milk are no't subject to the Federal Import Milk Act. HEW now says that imports of sweetened and condensed milk are subject to the Federal Milk Act. This change left only evaporated milk as not being subject to the sanitary standards of the act.. `This meant that unlimited amounts of evaporated milk could be imported to this country. Then on June 10 of this year Secretary of Agriculture Orville Free- man announced that President Johnson proclaimed temporary import quotas on condensed and evaporated milk and cream. The quotas `will remain in effect pending completion of an investigation by the U.S. Tariff Commission, including recommendations on the need for per- manent import quotas. This same proclamation directed the Tariff Commission to investi~ gate the need for quotas on a number of other dairy products which are not now subject to import restrictions. These dairy products include chocolate milk crumb, butterfat-sugar mixtures in retail packages, Edam and Gouda cheese, Italian cow's milk cheese not in whole loaves, Swiss cheese, `and the miscellaneous cow's milk cheese classified as "other cheese" in the U.S. Tariff Schedules. In connection with this proclamation, the Secretary tells us that supplies of milk and dairy products are far in excess of commercial market demands. This has, he says, fostered cut-throat competition and disruption of world dairy markets. And the Secretary cities exam- ples of import transactions and price offers for canned milk and cheese in which the price of the foreign product was from one-third to one- half below th'at of the comparable domestic market. Mr. Chairman, the amazing thing is that the details cited by the Secretary are almost verbatim to facts contained for many, many months in my constituent mail. PAGENO="0220" 1490 My information is that in the past few months, Mozzarella cheese has entered this country from West Germany at the rate of approxi- mately 50,000 pounds per week. I also have been informed that dur- ing the next few months the importer expects to receive his first ship- ment of a whole milk item of the same type, which will add to the existing 50,000 pounds or `so received weekly. I trust this committee recognizes the disastrous effect this amount of imports has on the domestic Italian cheese industry. Mr. Joseph Sartori of the S&R Cheese Corp., of Plymouth, Wis., who is president of the American Producers of Italian Type Cheese Association, tells i~-ie that the importation from West `Germany of Mozzarella cheese is illegal on the face of it, for this is not a true Mozzarella. For months, the Department of Agriculture rebuffed Mr. Sartori. Now, the Secretary of Agriculture tells u's that the imports of so- called "other cheese" increased immediately after the issuance of a Presidential proclamation on June 30, 1967, which curtailed the im- portation of Colby and other A'merican-type cheese which had been imported in large quantities primarily for manufacturing and proc- essin~. Secretary Freeman now tells us `that deprived of the ability to ship in `much of the Colby-type cheese, importers resorted to lower fat cheeses and even processed cheese for use in the processing of other cheese, cheese food's `and cheese spreads. The Secretary says the price differential even made attractive the high moisture cheeses used in the commercial manufacture of pizza pies and similar products; not only were standard fat Mozzarella and Scarmoza cheeses im- ported, but entries included low fat, part skim Mozzarella and sub- standard part skim cheeses which could be properly identified under FDA `standards only as imitation cheeses. The Secretary says imports of "other cheese" have jumped from less than nine million pounds in 1964 to 25 million pounds in 1967. Over 40 per cent of this cheese was purchased at prices of 25 cents or less per pound, and an estimated 60 per cent at 30 cents or less per pound. Also, Mr. Chairman, every now and then, we reach a stage in our vast federal government when we seem to be interested in only a large number of producers and the single operator becomes seem- ingly unimportant. Such a case presently exists in regard to the in- creased importation of chocolate milk crumb. Mr. Chairman, there is only one independent producer of choco- late milk crumb in this country. It is Gehi Guernsey Farms in Ger- mantown, Wisconsin. They are rapidly going out of business because of the large amounts of imports. There are, in fact, less than 10 producers of milk crumb in this country and they all are gravely threatened. Here are the facts: The average price of milk crumb, delivered to the United States, in the January through March quarter of 1968 was as follows: Per owt. Netherlands $16. 10 Ireland 17. 80 United Kingdom 1~. 80 Belgium 16.00 PAGENO="0221" 149i~ The~&verage selling price per cwt. is $16.68. Now, based on conservative figures, the cost of ingredients of iden- tical United States-produced milk crumb: 37 percent milk solids (3 X $4.18 per ewt.) $12.54 56 percent sugar (56 percent x $1OMO per cwt.) 5.60 6 percent cpcpa (6 percent x $25.00 per cwt.) 1.50 Average ingredient cost per cwt 19. 64 You will note that this price breakdown clearly indicates that milk crumb produced abroad is being sold in this country for about $3 per hundredweight less than the U.S. ingredients cost. John Gehi informs me that as of today he is the oniy independent producer of milk crumb and he has only two customers left; the rest have switched to foreign milk crumb. For months Mr. Gehi has had a running correspondence with the Department of Agriculture, seeking some sort of relief. The Depart- ment kept replying that Mr. Gehl surely was the victim of misunder- standing. Actually, Mr. Chairman, John Gehl and I both knew that he was no victim of a misunderstanding, but rather a victim of imports which knocked the bottom out of his markets. Now, Mr. Chairman, the Secretary tells us that imports of choco- late milk crumb have increased tremendously. He says the 21.5 million pQunds imported in 1967 was an increase of about 10 times the 1965 level. Shipments received the first 3 months of 1968 were over 40 per- cent higher than the corresponding period of the preceding year. And he says that, because of the price advantages of imported chocolate crumb, foreign milk solids could replace the entire 90 million pounds of milk solids reported by the Tariff Commission to be consumed by the milk chocolate industry. The President has now acted with long-overdue import quotas on condensed and evaporated milk and cream. At the same time he or- dered the Tariff Commission to investigate the situation in such areas as chocolate milk crumb and Mozzarella -cheese. I think, Mr. Chairman, the President in this latter area also could have taken the immediate step of imposing quotas. Concerned people like Mr. Sar1~ori and Mr. Gehl surely see no need to await an investi- gation. They already have documented the case, as far as I am con- cerned. Mr. Chairman, what I have outlined to you today clearly indicates the need for dairy import legislation. The Dairy Import Act I have introduced (H.R. 7255) should be, I believe, used as the foundation for building import restrictions that will, as they do in the bill, há~ve a sliding ceiling based on domestic production. The legislation should be passed, Mr. Chairman, and I urge you to give it prompt and favor- able consideration. Surely we can't exclude all imports. We can be sure, however, that when we have products produced in this country we provide equitable treatment for them. An honest assessment of the industries I have discussed here today leads me to believe that action is needed to give them an opportunity to fairly compete at home and abroad. They are today facing a situation in which they cannot compete with lower.. PAGENO="0222" 1492 quality and lower-priced products which in some cases are supported by their governments. Your job is a difficult one and I appreciate you giving me this opportunity to participate. The CHAIRMAN. We appreciate your bringing to us your thoughts, Mr. Steiger. The next witness is our colleague from Iowa, the Honorable William J. Scherle. Mr. Scherle, we appreciate having you with us and you are recognized. STATEMENT OP HON. WILLIAM J. SCHERLE, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP IOWA Mr. SCHERLE. Gentlemen, let me begin by stating that I appreciate very much the fact that your committee is holding hearings on the import question, and for giving me an opportunity to appear before you. Of particular concern to my constituents are the areas of meat and dairy imports. Therefore, my remarks will be limited to these two subject areas. MEAT IMPORTS In May of 19~7, Congressman Robert Denney, of Nebraska, and I, introduced H.R. 9616 to revise the quota-control system on the impor- tation of certain meat and meat products. While we prefer the ap- proadh and coverage of this bill, m~st of the bills introduced in the House and Senate would improve the current situation. My comments are directed to this bill, but generally apply to all of the legislation proposed on this subject. Not only would H.R. 9616 cover fresh chilled and. frozen beef, veal, and mutton, as does the Meat Import Act of 1964, but it would extend the quotas to prepared or processed varieties of these same meats. It would lower the quota by changing the base years from 1959-63 to 1958-62. This eliminates 1963, which was the record year. This bill would require that so-called offshore purchases be charged against the quota. Existing law contains a triggering mechanism at 10 percent above the base qouta. The Secretary of Agriculture must estimate that annual imports of covered meats will exceed the quota by 10 percent before that quota can be invoked initially. Our bill would eliminate this 10-percent override. The quotas imposed by existing law are unrealistically high, and must be changed if the Meat Import Act is to be of any substantial benefit to our domestic producers. The basic law, Public Law 88-482, was passed in 1964, following a period of record meat imports. The basic quota of 725.4 million pounds expands with increases in domestic production. When this factor is considered, in combination with the 10-percent override, we find that imports must threaten to exceed 1,045,300,000 pounds in 1968 before the Secretary of Agriculture will impose quotas., Agriculture Secretary Freeman estimates that imports for 1968 will approximate 925 million pounds, representing a steady increase PAGENO="0223" 1493 in each of the last 3 years, but not enough to invoke, the existing qnota laws. If we are to have legislation regulating the importation of meat, it should be made effective. It cannot be unless significant changes are made. To that end, we encourage your committee to recommend these needed changes to the Congress. Those of us who support the Meat Import Act realize that trade is not a one-way street. But, in this connection, I would point out to the committee that, with regard to meat and meat products2 we had an unfavorable balance of trade of $493 million in 1967. This is nearly th~ sum the President had hoped to recoup with his proposed tax on foreign travel. Twenty years ago, the average price received on the sale of choice slaughter steers in Chicago was $30.96 per hundred pounds. Last Fri- day, the market in Chicago for choice steers closed at $27, a drop of nearly $4. During this same period, the wages of factory labor have increased in excessof 100 percent. The farmer cannot afford to continue to operate on a reduced income and pay higher prices for everything he must purchase. Meat imports into .this country are depressing the market price to the point where little, if any, profit remains in one of the Nation's major industries. Action to modernize our meat import laws would be of considerable benefit to the economy of the Seventh District of Iowa and the meat-producing areas of the Nation. DAIRY IMPORTS Because of the harmful impact of dairy imports on our domestic producers, on March 22, 1967, I introduced H.R. 7649, the Dairy Import Act of 1967. In all, over 200 individual Members of the House have introduced identical legislation. In my testimony before the U.S. Tariff Commission on May 15, 1967, I stated that the level of dairy imports was a significant factor in the seemingly endless closing down of dairy farms throughout thecountry. Because dairy imports in 1966 had tripled those in 1965, and the out- look was even more disastrous for 1967, the Tariff Commission deter- mined that the level of dairy imports was interfering with the Gov- ernment's price support program. It therefore called upon the Presi- dent to issue a proclamation on this important matter. When President Johnson announced on June 30, 1967, that imports on dairy products would be reduced to "one-fourth of the present volume beginning July 1, 1967," I was one of the first to applaud his decision, although pointing out that this action should have been taken long ago. There is no question that action under section 22 provided some relief to the Nation's dairy farmers, and a reduction in the flow of imports. There was a temporary slowup in imports. However; section `22 action has defects. To `begin with, the procla- mation is not permanent, and is thus snbject to change at the whim of administrative officials. Furthermore, the quotas under section 22 are on a commodity basis; thus loopholes `are always available. It has proven relatively easy to PAGENO="0224" 1494 develop new commodities which do not come within the specific descrip- tions contained therein. At the time of the President~s proclamation, I warned that it would not be long before importers would develop new methods of evading the quotas. That is precisely what has happened, and is the reason for my appearance here today. The President's June 30 proclamation specifically excluded such items as chocolate crumb, processed Edam and Gouda, and processed Italian-type cheese. Illustrative of the problem we are now facing are the following statistics. In 1960, only 50,000 pounds of chocolate crumb, which is a mix for ice cream, was imported into this country. But by the end of 1967, this total had risen to 10 million pounds. This month, because of the alarming levels of imports of such items as condensed and evaporated milk and cream, the President pro- claimed temporary import quotas on them. As the Secretary of Agriculture has pointed out: "Each pound of foreign milk imported as condensed or evaporated milk or cream will replace one pound of domestic milk now going to condenseries which would be converted to cheese, nonfat dry milk powder, and butter. The domestic milk displaced by these imports would consequently have to be purchased, in processed form, by the Commodity Credit Corpora- tion." The Tariff Commission is also to investigate the need for quotas on a number of other products not now subject to import restrictions. These include chocolate milk crumb, butterfat~sugar mixtures in retail packages, and most types of cow's-milk cheese which are not now under quota. I have no doubt that the `Tariff Commission will find that imports of these commodities are interfering with the price-support program. In time, `further section 22 action will follow. But to me, the only truly permanent solution to this problem is passage of the Dairy Im- port Act, whether it be H.R. 7649, or a similar bill. The State of Iowa is one of the Nation's leading dairy States. Pas- sage of dairy-import legisilation will mean much for the well-being of this most important industry. I therefore urge your adoption of legislation to permanently curb damaging levels of imports of dairy products. Thank you for your time and consideration. The CHAIRMAN. Thank you, Mr. Scherle, for bringing to us your thoughts. Are there any questions? Thank you, sir. Our colleague from Minnesota, the Honorable John M. Zwach, was unavoidably detained this morning and has requested that his state- ment be included in the record. Without objection it will be so done at this point. (Congressman Zwach's stat~ment follows:) STATEMENT OF HON. JOHN M. ZWACH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MINNESOTA Mr. Chairman, I wish to thank YOU and the Committee for this oppertunity to present my thinking on this vital question of Imports. I shall be brief as YOU have many experts here to add the facts and figures of this many&sided issue. Much has been said about the volume of agricultural exports which has ex- panded greatly and has presented the country with a favorable contribution to PAGENO="0225" 1495 the balance of payments problem. However, in stating this, we fall to look behind these figures to see what this world price program has done. We face a very difficult choice-to bring in more imports means the more rapid loss of jobs, industry, and farms, and the greater expenditure of tax dollars by our government in order to provide needed relief to those who are harmed by higher imports. In addition, a continued pursuit of this policy will place prices at a world level, but our fixed costs will remain at a much higher American level. In the field of agriculture alone, we have lost over 800,000 farmers in this decade. Parity of income for farmers now stands at 73%, the lowest since the Depression Period, and 7% below 1960. This parity is determined by dividing the index of farm costs by the index of farm prices. That cost index is guaranteed to go up as farmers must necessarily purchase many of the agricultural inputs and machinery made by those whose incomes are protected by cost-of-living wage increase contracts, overtime pay, and minimum pay scales. This is In no way intended to deny the fruits and values of organized labor to our skilled employees. So far as I have been able to ascertain, all nations except the United States use imports to supplement their home economies, not to harm them. The present policy of allowing nearly unlimited imports can mean the final exportation of all farming from the United States, and the same could apply to the steel and tex- tile industries as well as others. It leaves the other route of employing all the energies possible to produce in such volume that the sources of production are pushed into the hands of cor- porations or extremely wealthy owners and operators. Corporations may be able to withstand this competitive position as they are able to establish a selling price to cover their costs at the retail level. Not so with the independent small farmers. I detest this route, and believe that every, conceivable effort must be made to pre- vent the mass exodus of all our farm families. I have introduced bills which are before this Committee dealing with the importation of dairy products, HR. 5118; meat and meat products, B.R. 10582; honey, HR. 11770; mink pelts and skins, H.R. 10176; textiles, H.R. 13214; and House Concurrent Resolution 599 to prohibit the importation of livestock or fresh meat from any country in which livestock are known to be infected with hoof and mouth disease. None of these bills advocates a cut~back in imports or denies~imports, as I am a' firm believer in `the need and advantages of sound two-way trade. However, I do not believe that the present route is anything other than suicidal, and that efforts must be made to develop a sound import quota law covering these products. Thank you for your consideration. The CHAIRMAN. Our next witness is Mr. Robert M. Norris. Mr Nor- ris, please come forward. You have been before us in the past but again, Mr. Norris, we would ask you to identify yourself for this particular record. STAITMENT OP ROBERT N. NORRIS, PI~ESIDENT, NATIONAL POL EIGN TRADE COUNCIL, INC.; ACCOMPANIED BY MELVILLE K. WALKER, VICE PRESIDENT Mr. NoRRIS. Mr. Chairman, my name is Robert M. Norris. I am president of the National Foreign Trade Council, Inc. I am accom- panied by Mr. Melville H. Walker, vice president of the council. Mr. Chairman~ I am sure most of the members of your committee know that the membership of the council comprises a broad cross-section of U.S. companies engaged in all major fields of international trade and invest- ment, including manufacturers, exporters and importers, companies engaged in rail, sea, and air transportation, bankers, and insurance underwriters. We appreciate the onportunity to present views on behalf of the National Foreign Trade Council at these hearings on tariff and trade proposals, and in particular upon the administration's rec- 95-159 O-G&--pt. 4...-...45 PAGENO="0226" * 1496 ommendations embodied in H.R. 17551, the Trade Expansion Act of 1968. Specifically, I should like to present the views of the council regarding the extension of the negotiating authority of the President, adjustment assistancie, and the American selling price system. ExTENSION OP NEGOTIATING AUTHORITY The National Foreign Trade Council endorses the provisions of title II, section 201, of H.R. 17551 which extend until July 1, 1970, the authority of the President to exercise whatever portion of his authority which remained unused at the close of the Kennedy round of trade negotiations that may be required to reduce rates by as much as 50 percent. Since July 1, 1967, the expiration date for negotiating authority under the Trade Expansion Act of 1962 (TEA), the President has in fact had no authority to negotiate even minor adjustments in tariffs. Should need arise for adjustment by the United States of any rates of duty which are bound in the General Agreement on Tariffs and Trade (GATT), particularly with "escape clause" action, it is important that the United States be in position to negotiate a compensatory tariff concession under GATT procedures. The council endorses the pro- posed extension of negotiating authority under section 201 (a) (1) and Section 201(b) (1) of theTEA. ADJUSTMENT ASSISTANCE Although the National Foreign Trade Council favors amendment of the provisions of the Trade Expansion Act of 1962 to provide more readily available recourse to adjustment assistance for individual firms and workers than has proved possible under the tests for eligibility set forth in that act, it does not favor in all respects the amendments pro- posed in H.R. 17551. To be eligible for assistance under TEA (1962), it had to be demon- strated that tariff concessions have been in major part the cause of in- creased competitive imports and that such increased imports have been the major faetor in causing serious injury to the firm or unemploy- ment of a significant number of workers. Under these criteria, none of the petitions for adjustment assistance filed under the TEA has been approved. Section 301 of H.R. 17551 proposes to liberalize the criteria of eligi- bility of individual firms and workers for adjustment assistance. A significant change is that section 301 would relate injury to increased imports whether or not a trade agreement concession was a factor causing such increase in imports. Moreover, when increased imports are determined to be "a substantial cause of serious injury," rather than the "major cause" as under the 1962 TEA, individual firms or groups of workers would become eligible for adjustment assistance under the proposed legislation. The council's basic support of more liberalized criteria for adjust- ment assistance rests upon the recognition that individual U.S. indus- tries and firms may have to adjust their operations as reductions in tariff duties as contemplated in the Kennedy round go into effect. If adjustment assistance is to be justified, the council holds that, in addi- PAGENO="0227" 1497 tion to a determination that an increase in imports has been a substan- tial cause of serious injury., it must also be shown that such increase in imports resulted in a substantial way from a tariff concession granted. The council endorses the proposal that administration of the ad- justment assistance provision of the TEA be patterned on the Auto- motive Products Trade Act of 1965, with the President delegating the authority to make determination of eligibility jointly to the Sec- retaries of Labor, Commerce, and Treasury. It supports extension of the adjustment assistance provision of the Automotive Products Trade Act through June 30, 1971. THE AMERICAN SELLING-PRICE SYSTEM With' major and continuing emphasis for expanding world com- merce, and by building upon the results of the Kennedy round, the National Foreign Trade Council fully endorses the efforts now being undertaken by the United State's and the other governments concerned to analyze the extent and impact of nontariff barriers, and to develop the basis for concerted international action under the auspices of the GATT fortheir reduction and ultimate removal. At the same time, the ~eouncil also calls for continuing and more vigorous efforts by U.S. Government representatives in utilizing fully the countervailing duty, ant~idumping, and other provisions already in our own laws and in the GATT, to oppose and offset unfair competition and nontariff barriers which in contravention of GATT standards are advei~ely affecting U.S. commerce. Such devices as border taxes, export subsidies, import quotas, "buy national" laws and practices, discriminatory internal taxes, arbitrary customs valuation, and State trading and marketing regulations already adversely affect trade with many countries more than do thriffs per Se, and can become even more restrictive. It is within this framework that the National Foreign Trade Council supports the elimination of the American selling-price (ASP) system. In recognizing that the ASP system is characterized as a nontariff b'arrier, we strongly underline the fact that the United States is not the only offender insofar as the raising and maintaining of such bar- riers is concerned. Consequently,, any termination of the ASP sYstem calls `for sound bargaining. Our negotiations toward future trade lib- eralization should encompass adherence to the principle of enlightened national interest, and any agreement involving concessions by the United States should contain compensation of real advantage for exnnnding markets `for U.S. products. The National Forebrn Trade Council does not undertake to appraise in specific terms or values the compensatory concessions relating to the elimination of the ASP system which were a~reed to in the K~.nnedy round negotiations. Your committee has, and undoubtedly wilt con- tinue to receive, ~dncumentation from both the Special Representative for Trade Negotiations and the industries `concerned relating to the effect of elirthnation of the ASP system upon particular industries. Consistent with the foregoing, the council would strongly hope. therefore, that a common ground could be reached for elimination of the ASP system ~in'eJ for concerted international action under the auspices of the GATT for the reduction `and ultimate removal of non- PAGENO="0228" 1498 tariff barriers so that the opportunities and mutual benefits to be real- ized from Increased world commerce can be achieved. Mr. Chairman, this completes the comments which I wish to make at this time on behalf of the council regarding the administration's proposals embodied in H.R. 17551. FIJNDAMENTAL PRINCIPLES AND MEASURES WHICH SHOULD UNDERLIE U.S. TRADE POLICY Before concluding my statement, however, I would also emphasize that our recommendations in regard to the specific proposals of the ad- ministration are derived from the basic premise and conviction that a strong and secure U.S. economy is the central aim of foreign trade policy, as it is of our Nation's whole array of related economic policies. Only in the context of consistent and mutually supporting monetary and fiscal policies can foreign trade make its full contribution to the strength of our economy and to the well-being of our people. We have long stressed the paramount need for the United States to take meaningful measures to restore a sustainable balance in the U.S. international payments, and to assure the integrity of the dollar. In our view, the required remedial measures should be derived from the overall `integration and consistency of measures relating to taxa- tion and the reduction of governmental expenditures; monetary, inter- national trade, and investment policies. The primary requirements for strengthening the U.S. balance of payments are the restraint on off set- ting of inflationary pressures, from whatever source, and the preserva- tion of cost-price level's in the United States, compared with other countries, which will enable the products and services of U.S. industry to compete in world markets. We are aware, indeed, that this committee has been importantly in- volved wit~h ant:i-infiationary measures involving taxation and reduc- tions in Government expenditures an'd hope they will soon be success- fully resolved. There are a number of aspects of foreign trade policy, many of which your committee is now reviewing. Some of the issues which must be met deal with matters of longer run importance. Others involve governmental action to meet emergency situ'a:tions. Still others relate to the problems of particular industries which may be adversely affected by tariff reductions or which are insufficiently able to expand exports because of re~idual foreign trade barriers. The effects of these in loss to the U.S. bal~n'ce of payments mu~t be taken into account and remedial action studied, evaluated, and, if necessary, negotiated, mak- ing full use, as we have already emphasized, of the safeguards afforded under provisions of our laws and the GATT. Our first obligation in the formulation and carrying out of foreign trade policy is to foster, promote, and protect the foreign commerce of the Uthted States. But all experience shows that foreign trade policy to be effecitive must be developed in concert with other nations. The goal of economic progress in this country can only be attained in this interdependent world in whicih we live if other nations also are able to achieve such progress. The National Foreign Trade Council remains dedicated to the prin- ciple of open and nondiscriminatory trade on a most-favored-nation PAGENO="0229" 14~9 basis as the soundest goal for inlternajtiOnal trade policy. We ~mphasize the essential interdependence of international trade and investment, as we previously have in testimony before this committee, other commit- tees of the Congress, and departments and agencies of the executive branch. Foreign economic policies of our Government should encom- pass both foreign trade and investment, and should aim at the overall strengthening of our economy by the most efficient aH~cation of re- sources through the operation of open market forces. To this end we would strongly urge that within the U.S. Government there be the most effective coordination of efforts and responsibilities in the formu- lation and conduct of our foreign economic policies and programs to provide cohesive and constructive force to all related measures for the promotion of private international trade and investment. In respect to the mandatory controls of direct foreign investments, enforced since January 3, 1968, under the President's balance-of-pay- ments program, we have previously documented in communications to the Department of Commerce, and in testimony before this committee and the Joint Economic Committee of the Congress, the main problems and areas of concern which these regulations pose for U.S. direct investors. We have suggested certain amendments and changes in ad- ministrative procedures relating thereto, We have emphasized that the significant longer term benefits of expanding trade and investment should not be thwarted by any undue prolongation of such controls. We strongly reaffirm that the earliest possible termination of such con- trols is an essential step toward sound longrun trade policy for our country. Finally, Mr. Chairman, I would affirm that the unprecedented ex- pansion of world trade and investment which has occurred within the last 20 years has contributed greatly to the growth of the United States and the other nations of the free world. It has been possible because the nations of the free ~vorld have worked together to concert the trade, monetary, and fiscal policies and institutions which are essential for that growth. Our firm view is that the United States and other nations of the free world should meet their present problems in ways which will maintain and, as needed, strengthen the role of such agencies as the International Monetary Fund and the General Agreement on Tariffs and Trade, and thereby maintain a proved essential framework for international econothic progress. The CHAIRMAN. Any questions of Mr. Norris? If not, we thank you, sir. Mr. NORRIS. Thank you. The CHAIRMAN. The Chair observes that our colleague from North Carolina, Mr. Whitener, is now in the room. Mr. Whitener, we ap- preciate your coming to the committee. STATE~M~ENT OP HON. BASIL L. WHITENER, A REPRESENTATIVE IN CONGRESS PROM THE STATE OP NORTH CAROLINA Mr. WHITENER. Thank you, Mr. Chairman and members of the committee. Mr. Chairman, I am grateful for the opportunity to appear before the Ways and Means Conimittee `this morning. As the Representative of a congressional district which has more textile manufacturing plants PAGENO="0230" 1500 than any other section of the country, I have a particular interest in the problems of the industry and the Nation's export-import policy. I want to commend you, Mr. Ohairman, for the great interest that you have shown and the invaluable assistance that you have rendered to the American people in the field of international trade. I am like- wise grateful to the members of your committee, who, not always agreeing with my views and recommendations on import-export policy, have nevertheless conscientiously worked for an equitable solution to the many highly complex factors involved in our international trade relations. Mr. Cha~irman, as we all know, the great turning point in American trade policy took place with the adoption of the Trade Agreements Act of 1934. The legislation was conceived and enacted at a time of eco- nomic distress throughout the world. The great Cordell Hull thought of the legislation as a means of reviving a stagnant and demoralized international trade. He believed that, by a system of reciprocity in international trade, commerce could be revived among the nations. The Reciprocal Trade Agreements Act of 1934 was a great step forward for the United States and, as Cordell Hull had predicted, the legislation set the wheels of industry and commerce turning again. Mr. Chatirman, social, political, and economic forces in the world are in a constant state of evolution and change. With the drastic revolution that has occurred in industry and technology since 19~34, and under the many amendments which have been made to the origi- nal Reciprocal Trade Agreements Act, the basic principle of reciproc- ity enunciated by Cordell Hull has become eroded and practically nonexistent in many instances. The President has well stated the case for a reexamination of our international trade relations. In his message to the Congress on May 28, 1968, the President said: 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. It is my hope, Mr. Chairman, that all of us in the Congress will bear in mind these words of the President as we fashion the proposed Trade Expansion Act of 1968. No one can deny that many industries basic to the economic well- being of the American people and the very survival of our Nation are being seriously damaged by our present trade policy. Instead of a two- way street to which the President refers, our trade relations at the present time, in far too many instances, are a one-way avenue to oblivion for certain of our great industries. In our humane desire to better the standard of living for overseas countries we have made too many concessions in foreign trade. We have made a mockery of reciprocity. The great textile industry, wh~ch is so vital to' the welfare of the people I represent and to millkns of other Americans, has been par- ticularly the victim of well-intended concessions and agreements. Mr. Chairman, the imo~st recent statistics of the Bureasi of the Census indicate that we have over 574,000 persons employed in all types of manufacturing in N~rth `Carolina. We gain some idea of the tremen- dous importance of the textile industry to the economy of North Caro- PAGENO="0231" L501 lina when we realize that over 234,000 North Carolinians are eni- ployed in the manufacturing of textile mill products. Another 55,000 North Carolinians gain their living in the apparel and related prod- ucts industry which, as we know, is closely a~ociated with the textile industry. It will be readily seen, therefore, that any factor that affects, even in the slightest degree, the economic health of the textile industry has an immediate impact upon hundreds of thousands of North Caro- linians. (liver 70,000 people in my congressional district earn their living in textile plants. The Congress has expressed a genuine desire to alleviate some of tthe pressing economic problems of our less fortunate fellow citizens resid- ing in the beautiful Appalachian areas of the Southeast. Few people realize the tremendous impact that textiles have on Appalachia. Twenty-six percent of manufacturing employment in Appalachia is in textiles. Some 453,000 persons in Appalachia earn their living in textile plants. In those counties adjacent to Appalachia 236,000, or 31 percent of the laboring force, is employed in textiles. It will be seen, therefore, that any dislocation of textile employment opportunities will be felt more severely in an area of, the Nation already plagued by the lack of job opportunities. Mr. Chairman, the phenomenal increase in textile imports during the last several years staggers the imagination. In spite of the beet efforts of our country to convince our textile importing friends that they must honor their agreements with the United States, textiles continue to flood the Nation in ever-increasing amounts. In 1961. 720.2 million square yards of cotton textiles were exported to the United States. In 1967, the figure had nearly doubled. Last year, 1,485.4 million square yards of cotton textiles reached the United States. The dollar value of these imports have increased from $198.8 million in 1961 to $416.7 million in~ 1967. In manmade fibers we have witnessed the same tremendous increase in imports. In 1961, 164.3 million square yards of manmade textile imports reached the United States. In 1967, these imports had reached the astounding figure of 933.5 million square yards of manmade fiber textile imports. In dollar value manmade fiber textile imports have increased from $59.7 million in 1961 to $311.8 million in 1967. Mr. Chairman, when we combine cotton, wool, and manmade fiber imports we find that the total of such imports for 1961 was 985.2 mil- lion square yards. In 167 the figure had more than doubled for in that year 2,571.8 million square yards of these textile fiber imports were received in the United States. In dollar value the total for these im- ports more than doubled, in 1961 the figure was $458.7 million; by 1967 it had reached $1,055.8 million. Mr. Chairman, it is a credit to the leadership of the textile industry that the industry has been able to withstand the economic shock of such an alarming increase in imports. The industry has been accused of `poor management and the lack of dynamic new approaches to manufacturing and marketing. The experience that the textile industry has had in meeting the unprece- dented challenge of textile imports certainly belies these unwarranted accusations. PAGENO="0232" Th02 Mr. Chairman, the textile import picture for 1968 reflects the accel- erated trend in imports. Textile exports to the United States during the first quarter of 1968 were a record 780.7 million square yards. This was the highest first quarter import level on record. The first quarter total for 1~68. was 77.8 million square yards, or 12-12 percent higher than the first quarter of 1967. All major categories-cotton, wool, and manmade fibers-were substantially higher the first quarter of his year than they were the first quarter of 1967. There are those in the United States who labor under the erroneous impressiOn that the textile industry is amassing tremendous profits. Those who are familiar with the fiscal condition of the industry know that this is not a fact. During the period 1961 through 1966, for in- stance, the comparable rate of return for the producers of textile mill products was below that of all manufacturing. In July-September 1967, for example, the net profit of the textile industry was 5.3 percent, or about one-third lower than that of all manufacturing corporations which was 7.8 percent. There is a school of thought in the Nation that the textile industry is expendable and that our textile plants could be converted to other types of employment. Those who advance these radical ideas are also ignorant of the facts concerning textile manufacturing. They fail to realize that the physical resources of the textile industry more nearly than any other industry are so peculiar to the industry that it would be nearly impossible to shift plant and management to other industrial uses. Extensive studies of the feasibility of converting mills to nontextile production have in nearly every case provided a uniformly negative answer. In order to survive, textile mills must have their production facilities and distribution so highly engineered and `balanced that even to con- vert to another line of `textile manufacturing would result in a substan- tial restructuring of plants and tremendous additional investment. These facts are not peculiar to the United States. They apply to `tex- tile operations in nearly every other country of the world. It has been said that no industry operates more uniformly as to manufacturing methods and distribution than does the textile industry. Mr. Chairman, I feel that in the consideration of our international `trade relations we should also give serious thought to the impact that textile imports are having upon the domestic production and sale of cotton `at home and abroad. Ten years ago textile imports represented approximately 200,000 bales of cotton. In 1966 textile imports comprised more than 1 million bales Of cotton. This tremendous increase in imported cotton in the form of textile products takes on an ominous meaning when we realize that the six nations which furnish 84 percent of cotton yard imports to the United States buy almost no U.S. cotton. In the fiscal year ending July 31, 1967, these six countries purchased only 3,858 bales of U.S. cotton, or less than 0.1 percent of total U.S. exports of 4,668,847 bales. Those who are interested in promoting an expanded market `abroad for U.S. cotton would do well to heed this dangerous trend. The ease with which overseas nations can sell th'dr textile products in the United States has tremendously accelerated the construction PAGENO="0233" of textile plants abroad. The governments of textile-exporting nations have adopted various methods of subsidizing textile manufacturing. The Japanese, for instance, employ special aids for their textile in- dustry, consisting of export insi~irance arrangements, special foreign exchanges policies, special tax measures such as a favorable deprecia- tion rate applicable to exports, low-cost export financing, the subsidiza- tion of overseas trade promotion, and subsidies to protect the consolida-~ tion and modernization of the industry. In his message to the Congress on May 28, 1968, the President also said: "Other nations must join with us to put an end to noutariff bar- riers." The example I have just cited with respect to Japan is a classic case of an effective nontariff barrier to U.S. textile competiticn~ The barriers erected by overseas nations to the sale of American tex- tile products take many ingenious forms, involving, among other things, taxation, financing, advertising, quota arrangements, distribu- tion, product content. While the Congress has no voice in the internal policies of our trading partners the executive departments should nevertheless exert maximum effort along the line indicated by the President to induce foreign export nations to receive American prod- ucts on an equitable and reciprocal basis. I am hopeful, as this committee approaches the drafting of legisla- tion to regulate our international trade, that serious consideration will be given to the conditions prevailing in the textile industry and other basic industries forming the bedrock of our industrial capacity. I hope that the sound trade principles embodied in the Mills bill may find expression in the Trade Expansion Act of 1968. Let us make inter~ national trade truly reciprocal. Let us abolish the one-way street to which the President has referred. At a time when the Nation has been forced to make drastic changes in our traditional international monetary policy it is all the more mandatory that the Congress take a realistic look at some of the import conditions that have jeopardized the job opportunities of thou- sands of our people and which have been a contributing factor in diminishing our gold reserves. I strongly recommend that the Congress provide in the Trade Expansion Act of 1968 more effective methods of securing relief for American industry seriously threatened by imports. The history that industry has had with the Tariff Commission under existing law offers little hope for effective relief in the future. The law should be explicit. There should be no authority, implied or otherwise, in the Trade Expansion Act of 1968 that will give the Tariff Commission, or any executive department of the Government or independent agency, the power to bargain away the jobs of the American people on the grounds of international political expediency. "Reciprocity and fair play are the essential standards for inter- national trade," said President Johnson in his message to the Congress on May 28, 1968. I hope this great committee will report a bill which embodies the spirit of the President's declaration. The CHAIRMAN. We thank you, Mr. Whitener, for bringing your statement to the committee. Are there any questions of Mr. Wintener? We thank you, sir. Mr. WHITENER. Thank you. PAGENO="0234" Th04 The CHAIRMAN. Thank you again for coming. Mr. Stewart, if you will again identify yourself for our record we will be glad to recognize you. STATEME~MT OF EUGENE L. STEWART, COUNSEL, U.S. PRODUCERS OP FLAT GLASS Mr. STEWART. Mr. Chairman and members of the committee, I am Eugene L. Stewart. I appear here as counsel for the U.S. Producers of Flat Glass. I have a prepared statement which includes an extensive statistical appendix. I shall not read the statement, Mr. Chairman, but rather will summarize it. The CHAIRMAN. With the knowledge that your entire statement and the materials appended to it will appear in the record. Mr. STEWART. Thank you. I will occasionally refer to particular pages of the statement but otherwise will not follow it so it would not be possible for you to follow the statement. I therefore respectfully request your attention to what I have to say. The flat glass industry is presented to this committee because it offers an opportunity to illustrate to you the operation of the past and present escape clause or adjustment assistance provisions of the act as well as a combination of devices which face `the export trade of a basic manufacturing industry, including in addition to the European border taxes and other nontariff barriers, the type of systematic restrictive business practices with which basic industries in other countries under- take to influence and control foreign trade. The production of glass is one of the oldest industries in the world. In this country it `began in Jamestown in the early 1600's. To produce glass requires abundant natural resources, silica sand, soda ash, lime- stone, and a source of fuel such as coal or natural gas. These exist in the proper combinations in the United States, Eng- land, Belgium, France, Germany, Czechoslovakia, Russia, Japan, and Taiwan. Over the long sweep of time this industry, the demand for whose products is tied to the economic cycles, the pace of construction activity in various countries, and the strength of the automobile industry around the world, has gone through such peaks and valleys of economic distress that outside of the United States order has been achieved by the establishment of a monopoly such as in England with the Piikmg- ton group, a formal cartel as on the `Continent of Europe with St. Gobain in France, Glaverbel in Belgium and the German producers, and an arrangement such as exists in Japan where the three dominant producers, Asahi, Nippon, and Central, are permitted to rationalize their approach to exporting `by agreeing who shall export what and at what prices, and now most recently typified by Taiwan whose govern- ment promotes the production of flat glass by tax forgiveness and the subsidization of raw material costs. As against this rather formidable array of competitive forces abroad, the U.S. industry competes on the basis of, first, wage rates of $3.60 an hour on the average for production workers, which are far higher than most other American industry, `and a trade policy which has increasingly exposed the largest market, the U.S. `market, for the benefit of these foreign monopolies and cartels. PAGENO="0235" I illustrate what has happened to the duties that protected the U.S. industry as follows: You will recall, Mr. Chairman, and m~mbers of the committee, that under the Tariff Acts of 1922 and 1930 ~before the trade agreements authority there was the flexible tariff provision by which the Tariff Commission investigated the actual costs of produc- tion here and abroad. Four times the cost of producing flat glass in the United States and abroad was investigated `by the Government and the rates of duty established in the Tariff Act of 1930 were the rates found by the Tariff Commission in this factual investigation to be required. In the period 1931 to 1935, just preceding the first trade agreemeiit on the products of this industry, the average rate of duty on the three basic categories of flat glass were as follows: On rolled glass, 32 per- cent; on plate glass, 88 percent; and on sheet glass, 54 percent. By the time that immediately preceded the Kennedy round, by tariff reductions and trade agreements the rolled glass rate had been reduced from 32 percent to 9 percent, the plate glass rate from 88 percent to 16 percent, and the sheet glass rate from 54 percent to 19 percent. You will remember, Mr. Chairman, that when the peril point proce- dure was in effect under the provisions of the Trade Agreement Ex- tension Act of 1951 and subsequent acts the Tariff Commission was charged with investigating what the probable effect of reductions of duty would ~be on the~ products of an industry to determine whether in certain instances an increasein duty was required. In connection with the Dillon round in 1960 the Tariff Commission found that two categories of flat glass; namely, rolled glass and sheet glass, not only would be injured by a reduction in duty, but required an increase, and on its own motion it initiated two escape clause investigations. In 1961 the results of its investigations were reported. On sheet glass there was a report of a sufficient number of Commissioners to go to the President and President Kennedy raised the sheet glass rates. On rolled glass three of the Six Commissioners found injury but they divided on the form of relief and this prevented the President from acting. Now, in the current period President Johnson in 1967 reduced the escape clause rates on one category of sheet glass and eliminated them entirely on two other categories. In addition, in the Kennedy round cur Government agreed to re- duce the duties by 50 percent on all of the categories of flat glass that were legally available for tariff reduction, whioh included rolled glass~ which will I e reduced to 4.6 percent, plate glass, which will be reduced to ~3 percent, and two categories of sheet glass. Now, if you would turn very briefly to page 4 of my prepared state~. inent you will find a table. I will detain but a moment in regard to the table. At the far right you see percent change. If you look at the cer~ter column, 1962 to 1965, this was the period in which the escape clause rates put into effect by President Kennedy produced their greatest effect and if you run your eye down that column you will see that all the percents are plus. Shipmei~ts were up, employment was up, and the domestic market was up. PAGENO="0236" 15O~. If you go to the far right, 1965 to 1967, January 1, 1967, the tariff increase was terminated by President Johnson in certain categories and modified as to others, an'd you see the emergence of minuses, down on the value of shipments, down on employment, down on the domestic rnai~ket, although imports continued to increase. The increase in exports that are shown there is accounted primarily by exports to Oanada. Now if you would turn to page 6, on page 6 we are stating here in thousands of square feet the relationship of imports to domestic con- sumption of fiat glass and you will notice that in our healthieSt year under the escape clause rates, 1965, market penetration dropped to 17.8 percent, which is the bottom line of the table, the third column over from the left. When the tariff was reduced in 1967 at the beginning of the year im- ports increased although domestic consumption went down and the share of the market held by imports went up to 21.7 percent. Now on page 9,, in this table we take each of the three principal subdivisions of flat glass for the last 3 years. The first line shows what proportion of the domestic market is accounted for by that kind of glass. For exampie, plate glass in 1967 accounted for 221/2 percent of the domestic consumption of flat glass. The number right below that figure shows the share of the market accounted for by imports of plate glass, and very briefly the point about this table is in each category the market penetration has marched upward and in stairstep fashion during the past 3 years. If I could get you to look just. briefly at page 12, page 12 shows at a glance what has happened to the balance of trade in flat glass ex- pressed in units, a very substantial deficit which has increased very significantly in 1967, the year of the tariff reduction. Now, if you would turn to page 14, page 14 summarizes in units in the upper part of the page the percent of the exports accounted for by the United States and other principal suppliers, one and a half percent of world exports of sheet glass accounted for by the United States with the percentages for the other countries as shown. In plate glass, which is the lower half of the page, we accounted for 131/2 percent and you see the percentages accounted for by the other countries. Now turn to page 15. On page 15, the upper half, you see the per- cent of the total imports of the producing countries importsof sheet glass received by each nation. The United States received 74 percent of the amount of sheet glass imported by this group of principal countries that produce flat glass and in the lower half of the page as to plate glass, 45 percent. Now, it should be clear from these figures that the United States is nc~t able without the benefit of some type of import regulation measure to hold on to the domestic market and it is clear that it does not have significant access to the export market. Yet the flat glass industry is a basic industry. This industry has lost nearly 7,000 workers in the past few years as a result simply of the trade imbalance and this is shown by a graph on page 23 of the statement. Will you just take a quick look at it. The employment balance of import surplus over exports accounts now for about 7,000 jobs and PAGENO="0237" 1&~7 there has been an absolute decline, as reported by the Bureau of Labor Statistics, of about 6,000 jobs from our peak employment in 1959. I would like to come now to the conclusions and recommendations which we present. This industry is located in 11 States with 24 plants that employ 30,000 workers and the majority of the plants are in communities located in Appalachia or in areas that have been declared labor surplus by the Government. The average hourly wage of our workers, $3.60 an hour, is of excep- tional importance to the economic life of these communities. From the tariff history that I have recounted you can see that the Govern- ment has been systematic in eliminating or reducing very sharply the tariff protection of this industry. At the present time on the west coast of the United States we have a brandnew flat glass plant constructed there by one of the companies, the most efficient plant in the world from the point of view of its being modern, the machinery and the like. That plant is operating well below capacity. It is operating at about 50 percent of its capacity and there has been set in motion a very sharp series of price reduc- tions on the west coast because Japan and Taiwan are fighting over the west coast market. Taiwan is fighting on the basis of subsidization of its exports. On the east coast of the United States and in the Gulf ports a similar encroachment is being experienced from the `cartelized monopolies in Europe and in the first quarter of this year, 1968, every category of flat glass increased at least 40 percent over the comparable category in 1967. Our tariffs are now so low that they are no longer an effective mean's to enable the industry to stay alive. This is why we support pending bills which would impose quotas on imports of flat glass. Recognizing that other basic industries are in the same position, we endorse Mr. Collier's bill, ll.R. 17674, and we have a brief explana- tion `of that bill at pages 26 and 27 of our statement. The essence `of it is that it would take recent levels of imports as a base period quota and adjust them as the market rises or falls. It would also allow the Government to set aside the quotas if there is a shortage of supply. Finally, it would authorize the President to negotiate trade agree-. ments under firm guidelines in dealing with the demands for com- pensation or retaliation that other countries might be expected to laun± if these quotas go into effect. The theory of the bill is that seated around a table the countries that have a stake in the flat glass trade would rather work out on the basis of a negotiated agreement an adequate position in the U.S. market than to suffer a more severe loss than that which might be involved through the statutory quotas. Mr. Chairman, this concludes my summary of the statement. I would like to say that it is no longer possible to apply the principles of the period of the trade `agreements legislation from 1934 to date in solving the problems that face industry today. This `matter of restrictive, trade practices which I mentioned to you in which cartels may be formed for the export trade and to rationalize PAGENO="0238" 15O~ production within home markets is permitted by the Treaty of Rome in the Common Market by the legislation of countries such as Germany and England, by the legislation of Japan. Regardless of what else our Government may be able to accomplish by way of working on nontariff barriers it is not possible to negotiate a solution of these restrictive trade practices. Yet they are very real in their impact both on U.S. imports because the cartel can price the goods at the level necessary to get into this market and on their ability to keep our exports out of their markets. So we advance this final thought as a special reason why among the remedies your committee should consider are the remedies based upon the use of negotiated import quotas. Thank you, Mr. Chairman. (Mr. Stewart's prepared statement follows:) PAGENO="0239" 1509 Testimony of EUGENE L. STEWART, Counsel U. S. PRODUCERS OF FLAT GLASS Before the COMMITTEE ON WAYS AND MEANS U. S. HOUSE Of REPRESENTATIVES June 17, 1968 PAGENO="0240" 1510 (i) TABLE OF CONTENTS Page INTRODUCTION 1 I. THE INTERACTION OF GOVERNMENT TRADE POLICY ACTIONS AND ECONOMIC CHANGE IN THE FLAT GLASS INDUSTRY, 1958-1967 2 II. FOREIGN PRODUCTION HAS CAPTURED A LARGE AND RISING SHARE OF THE UNITED STATES MARKET IN EACH OF THE MAJOR PRODUCT CATEGORIES OF FLAT GLASS 8 III. THE POSITION OF THE UNITED STATES FLAT GLASS INDUSTRY IN THE WORLD EXPORT TRADE 10 IV. THE PRINCIPAL BENEFICIARIES OF U. S. FOREIGN TRADE POLICY IN FLAT GLASS ARE A SMALL GROUP OF NATIONAL MONOPOLIES AND CARTELS WHICH DOMINATE WORLD EXPORT TRADE THROUGH ANTICOMPETITIVE PRACTICES 17 V. GOVERNMENTALLY IMPOSED NONTARIFF BARRIERS ENHANCE THE DOMINANT COMPETITIVE POSITION OF FOREIGN PRODUCERS OF FLAT GLASS 19 VI. FOREIGN TRADE POLICY OF THE UNITED STATES HAS ADVERSELY AFFECTED EMPLOYMENT IN THE FLAT GLASS INDUSTRY 20 VII. CIRCUMSTANCES WHICH HAVE AFFECTED THE PRINCIPAL SOURCES OF DOMESTIC DEMAND FOR FLAT GLASS: 24 CONCLUSION AND RECOMMENDATIONS 25 APPENDIX: EXHIBIT 1 A-i EXHIBIT 2 . . . . A-2 EXHIBIT 3 A-4 EXHIBIT 4: St~ tistical Appendix Appendix Tables A through L A4 A30 PAGENO="0241" / 1511 INTRODUCTION The members of the U. S. flat glass industry are grateful for the action of the Committee in conducting public hearings on the state of our foreign trade policy with the particular emphasis which the Committee has given to areas which are potential candidates for reform. These companies and the location of their U. S. manufacturing plants are set forth in Exhibit 1 to this testimony. The domestic flat glass industry believes that its experience in foreign trade can provide useful insight for the Committee into inadequacies in the existing concepts which define our foreign trade policy, as well as into inadequacies in its administration. The term "flat glass" refers to the following principal categories of product: sheet glass, sometimes known as window glass; plate glass; float glass; and cast or rough roiled glass. Special categories of flat gLass include laminated or safety glass and toughened or specially tempered glass. Our Nation is now at the end of an era in foreign economic policy in which through a combination of foreign aid and foreign trade policy actions, it has succeeded in rebuilding the economies of Western Europe and of Japan and affording access to the U. S. market of manufacturing, agricultural, and mineral suppliers from these and other areas of the world to such a degree that many sectors of the American economy have suffered as a result. The United States industry manufacturing flat glass is one such sector. The industry has seen its share of the United States market curtailed and its access to the export market diminished. To assist in an understanding of the impact of past and present foreign trade policy on the United States flat glass industry as a means of gaining insight into the reform in policy which is required in the achievement of a foreign trade policy for the future whkh will advance the national interest, we shall present 95159O-68-pt. 4-16 PAGENO="0242" 1512 2 an overview of the economic changes which have been experienced by the industry during the past decade. I. THE INTERACTION OF GOVERNMENT TRADE POLICY ACTIONS AND ECONOMIC CHANGE IN THE FLAT GLASS INDUSTRY, 1958-1967 The pre-trade agreement rates and the rates established under the Tariff Acts of 1922 and 1930 on the two principal categories, sheet and plate glass, were determined by a combination of exhaustive administrative and legislative procedures. Subsequently, these rates of duty and the relationship of the duties established for the different categories of flat glass were sharply modified through trade agreement concessions. As of March 1962, these scientifically established rates had been reduced by approximately 50%. In a sheet glass escape clause investigation, the Tariff Commission found, and the President by proclamation determined that these tariff reductions had caused or threatened serious njury to the domestic industry. President Kennedy, on a selective basis, partially restored the pre-trade agreement, scientifically established rates of duties, effective June 17, 1962. Furthermore, in an escape clause investigation by the Tariff Commission, three of the six Commissioners found in May 1961 that rolled glass was being imported in such increased quantities as to cause or threaten serious injury to the domestic industry. Unfortunately, the three Commissioners were unable to agree as to the particular remedy required to correct the injury: two Commissioners recommended a restoration of the preconcession rates; the third Commissioner recommended an increase of duty amounting to less than a full restoration of the preconcession rates. This disagreement among the Commissioners as to remedy prevented President Kennedy from acting since under the law he was required to have the findings and recommendations of at least three Commissioners. PAGENO="0243" S 1513 5 3 On January 11, 1967, duties on thin and heavy sheet glass were reduced to their pre-1962 level, while partially reduced escape clause rates continue to apply to single and double strength sheet glass. On October 11, 1967, President Johnson, on the basis of the national interest, extended the modified escape clause rates of duty applicable to single and double strength sheet glass until January 1, 1970. The above-described Governmental actions related solely to one product of the flat glass industry. The other sectors of the industry have been no less seriously affected by imports under the reduced trade agreement rates. Notwithstanding this history, the U. S. negotiators agreed to reduce duties on rolled glass and plate glass by 50% in the Kennedy Round, despite the heavy and growing importation of these products under prevailing duties. The cumulative effect of past actions by the Government in dealing with the import problems of the flat glass industry may be estimated by an examination of the economic changes which have occurred in the industry during the past decade. In particular, four reference points in time will be useful in considering these changes: 1. The average of 1958-1960 as a base period. 2. The year 1962, in which on June 17 President Kennedy placed into effect increased tariffs on sheet glass. 3. The year 1965, representing the peak of the industry's recovery with the benefit of the tariff increase. 4. The year 1967, in which on January 11 President Johnson terminated the increased tariffs on all but single and double strength windo* glass. These data are presented in the following table. S PAGENO="0244" TABLE I ECONOMIC TRENDS IN THE U. S. FLAT GLASS INDUSTRY VALUE OF SHIPMENTS, ALL FLAT GLASS (in millions of dollars) of which - Sheet glass Plate, float, rolled, & wire glass Laminated, specially tempered, & other flat glass % CHI~NGE INCREASE YEAR REDUCTION to to to 1962 9~5 1967 1962 1965 1967 1958-60 -9.2% $490.6 $490.6 $676.4 $614.5 0.0% +37.9% 111.1 126.4 159.5 140.6 213.7 131.6 200.5 +13.8% +1.5% +11.2% +34.0% -6.2% 222.4 204.7 322.1 282.4 -8.0% +57.4% -12.3% EMPLOYMENT (in thousands) 32.2 40.1 30.4 38.3 32.3 42.5 30.7 42.0 -5.6% -4.5% +6.2% +11.0% -1.2% AVERAGE WEEKLY HOURS, PRODUCTION WORKERS $3.09 $3.29 $3.52 $3.66 +6.5% +7.0% +4.0% AVERAGE HOURLY EARNINGS, PRODUCTION WORKERS $2.19 $2.39 $2.61 $2.83 +9.1% +9.2% +8.4% - Average Hourly Earnings, All Manufacturing ~ DOMESTIC IMPORTS, EXPORTS, MARKET f.o.b. f.o.b. ($ millions) u. S. port ($ millions) mill (f~ millions) $542.5 $65.1 $13.2 $546.9 $71.8 $15.5 $723.0 $72.0 $25.4 $669.0 $89.0 $34.5 +0.8% +10.3% +17.4% +32.2% +0.3% +63.9% -7.5% +23.6% +35.8% IMPORTS AS A % OF DOMESTIC MARKET 12.0% 13.1% 10.0% 13.3% +9.2% -23.7% EARNINGS PERFORMANCE: . Net Profit After (Sheet Glass) Gross Earnings,* a % of Sales ~ Taxes as All Flat a % of Glass, Sales as 4.9% 35.8% 1.1% 31.1% 4.8% 38.1% 2.7% (1966) 35.9% -77.6% -13.1% +336.4% +22.5% -43.8% -5.8% ~ * Sales less payroll and materials purchases, SOURCE: Appendix Table A. before payment of overhead, depreciations and taxes. PAGENO="0245" 1515 5 The conclusions of major importance to be drawn from the data in Table I are as follows: 1. President Kennedy's action in 1962 in partially. withdrawing previous trade agreement concessions significantly strengthened the U. S. flat glass industry in its competition with foreign glass in the United States market. 2. President Johnson's action in January 1967 in restoring the concession rates on thin and heavy sheet glass contributed to a serious reversal of the domestic flat glass industry's economic position vis-à-vis foreign competition. The share of the domestic market accounted for by imports indicated on Table I was derived in relation to the value of foreign-produced goods landed in the U. S. market compared with the value of domestic shipments minus exports. With the improved import-regulatory effect of President Kennedy's tariff increase, the ratio of imports to domestic market was brought to the level of 10% (in dollar terms) by 1965. As Table I indicates, the President's action in partially restoring the earlier tariff cuts in January 1967 allowed import penetration to rise above the level of 13% of the domestic market. These ratios, based upon value, somewhat understate the true extent of the import penetration. A more accurate measurement of the extent to which imports have captured an increasing share of the domestic market may be made in terms of physical units (square feet), the accepted unit of measure within the industry. For the same key reference points in time used in Table I, this measure- ment of import penetration in physical units is shown in the following table. PAGENO="0246" 1516 Apparent Domestic Consumption Imports R&tio of Imports to Total Apparent Domestic Consunçtiofl 6 (In thouBande of square feet) TARIFF AVER.6~E INCREASE 1958-1960 1962 2,072,040 2,215,045 412,325 473,040 TABLE II IMPORTS OF FLAT GLASS PRODUCTS IN RELATION TO APPARENT DOtVESTIC C(NSI.PIPTION, 1958~-1967 PEAK YEAR 1965 2,516,245 448,360 TARIFF REDUCTION 1967_.. 2,307,281 499,534 21.7% % CHANGE 1958-60 1965 to to 1967 1967 +11.3% -8.3% +21.2% +11.4% +9.5% +23.0% 20.0% 21. 3% 17.8% Source: Appendix Table D. PAGENO="0247" 1517 7 Even the 22% ratio of imports to domestic consumption 1967, which was the highest in the industry's history, does not adequately indicate the full significance of the import rise following the partial restoration of the reduced duties on flat glass. Comparison of the increases in imports and domestic consumption between 1958-60 and 196.7 indicates that foreign-produced flat glass supplied nearly 40% of the total growth in the domestic market during this period. Information for 1968 indicates that U. S. imports of flat glass during the first quarter of this year have bounded upward at an extraordinary rate. 1. Sheet glass imports during the first quarter of 1968 totaled 1.8 million boxes (50 square feet per box). Last year in the first quarter, 1.2 million boxes were received. The per cent change this year versus last year: up 51%. 2. Plate and float glass imports during the first quarter of 1968 totaled 42.0 million square feet. Last year imports during the first quarter totaled 29.5 million square feet. This is a 42% increase, almost as great as that in sheet glass - and truly alarming in its proportions. This is not a case in which imports are filling a need which cannot be supplied by an industry producing at the limit of its capacity. On the contrary, the imports of sheet glass have increased most heavily in the Western Zone of the United States - up 63% over last year where a new flat glass manufacturing plant at Fresno, California, is operating far, far below its capacity. The seaport market regions are most heavily affected in sheet glass imports, with New York up 50% and Atlanta up 90%. The same pattern exists, in imports of plate and float glass products; imports of the Western Zone, chiefly from Japan and Taiwan, are up 62%. It is evident that imports are causing disruption of the domestic flat glass market far beyond the scale which exists in other areas which have been the recipient of positive Governmental action. PAGENO="0248" 1518 8 The market penetration by imports of cotton textiles (10% in 1967) is held to a moderate rate of growth by the Long-Term Cotton Textile Arrangement. Import penetration of residual fuel oil is held at the approximate relationship of 12.2% of domestic production by mandatory import quotas. Contrary to the affirmative action taken by the Executive Branch in extending the Long-Term Cotton Textile Arrangement and in maintaining in effect mandatory import controls on residual fuel oil, the Executive Branch by withdrawing the tariff increases on all but single and double strength window glass has altered the competitive position of foreign-produced and domestic glass in the U. S. market to the serious detriment of the U. S. industry. II. FOREIGN PRODUCTION HAS CAPTURED A LARGE AND RISING SHARE OF THE UNITED STATES MARKET IN EACH OF THE MAJOR PRODUCT CATEGORIES OF FLAT GLASS The disturbing degree of market penetration by imports of the domestic flat glass market which has again been precipitated by tariff action by the Executive inconsistent with the best interest of the domestic industry pervades each major sector of the flat glass market. The basic product categories of plate or float glass, sheet glass, and cast or rough rolled glass account for about 90% of the total flat glass consumption in the United States. Stepwise, import penetration is marching upward in these basic categories as shown by the following table. PAGENO="0249" TABLE UI IMPORT PENETRATION OF PRINCIPAL CATEGORIES OF THE UNITED STATES FLAT GLASS INDUSTRY. PLATE OR FLOAT GLASS - As % of Total U. S. Flat Glass Market - Share of U. S. Plate or Float Glass Market Supplied by Imports Source: Appendix Table E. The steady increase in~ the share of the market captured by foreign products shown by the above table confronts the domestic industry with~ difficult yet urgent issues. Under the impact of the partial repeal of President Kennedy's escape clause action, taken by the Executive in January 1967, it is evident that market penetration of sheet glass is on the march and that this will be accelerated 6y the action now under consideration by the Government of removing the remainder of the escape clause rates in 1970. 1519 9 1965 _1966 19~7_ 21.8% 21.9% 22.5% 7.9% 10.8% 12.3% SHEET GLASS - As % of Total U. S. Flat Glass Market 62.5% 63.5% 63.5% - Share of U. S. Sheet Glass Market Supplied by Imports 23.8% 26.3% 27.7% CAST OR ROUGH ROLLED GLASS - As % of Total U. S. Flat Glass Market 3.5% 3.7% 3.4% - Share of U. S. Cast or Rough Rolled * Glass Market Supplied by Imports 31.6% 32.7% 32.3% TOTAL OF ABOVE CATEGORIES - As % of Total U. S. Flat Glass Market 87.8% 89.1% 89.4% - Share of Above Categories Supplied by Imports 20.1% 22.7% 24.0% PAGENO="0250" 1520 10 The 50% reduction in duty agreed to by the United States in the Kennedy Round on plate and float glass and on other forms of flat glass other than sheet glass will speed up the deteriorating position of the U. S. industry in relation to foreign competition. These tariff reductions are very significant. When their effect in relation to all imports of flat glass is taken into account, the Kennedy Round duty reductions will result in a weighted average reduction in U. S. import duties of flat glass of 22%. In combination, these Governmental actions will destroy completely the beneficial effects created for the industry through President Kennedy's escape clause action in 1962. Despite the finding of three Tariff Commissioners in 1961 that the domestic industry producing rolled glass had been caused or threatened with serious injury by increasing imports, and in evident disregard of the fact that imports of cast or rolled glass in 1965 accounted for 32% of domestic consumption, the U. S. negotiators agreed to a reduction somewhat in excess of 50% on the duties of cast or rolled glass in the Kennedy Round. Can these consequences for a basic U. S. industry be defended on the ground of necessity or equity? This is a fair question which demands a fair answer. To attempt an answer requires attention to the relative position of the U. S. flat glass industry in the export markets of the world, as well as a close look at the beneficiaries of this extraordinary largesse of U. S. Governmental action. III. THE POSITION OF THE UNITED STATES FLAT GLASS INDUSTRY IN THE WORLD EXPORT TRADE The beginning point in this consideration is the balance of trade of the United States in the products of the flat glass industry. Because of the signifi- cant difference in unit values of foreign-produced and domestically produced flat glass, the best approximation of our Nation's trade balance in flat glass products is achieved through a presentation of the data in physical units. This is supplied in the following table. PAGENO="0251" 1521. 11 TABLE IV U. S.. FOREIGN TRADE IN PRODUCTS OF THE FLAr GLASS INDUSTRY, 1958-1967 (In thousands of square feet) % CH~6NGE., TARIFF PEAK TARIFF 1958-60 1965 AVERAGE INCREASE YEAR REDUCTION to to 1958-1~60 1962 1965 1961_ 1967 _Z.i Imports 412,325 473,040 448,360 499,534 +21.2% +11.1% Exports 29,467 44,448 51,218 63,298 +114.8% +23.6% Deficit Balance of Trade 382,858 428,592 397,142 436,236 -13.9% -9.8% Source: Appendix Table B. The perspective required for a correct understanding of the rise in exports shown by the above table is supplied by the fact that by 1967 nearly 71%, or 45 million square feet, of flat glass exports were shipped to Canada primarily for use by subsidiaries of U. S. producers, and in the form of laminated glass for use in automobile production. The first category of exports is essentially interplant transfers; the second category is accounted for by the duty-free treatment accorded articles used in the assembly of automobiles in the realignment of automobile production pur- suant to the Automotive Trade Agreement. These exports are not indicative of the competitive position of the U. S. flat glass industry generally in the world export trade. Even when full allqwance is made for these Canadian special category exports, the U. S. industry's total export performance is dwarfed by the access which our trade policy has afforded foreign flat glass products in the United States market. The net result of this import-export relationship and the growing deficit in our flat glass foreign trade is shown on the following chart. PAGENO="0252" Deficit Balance of Trade Average 1958- 60 Source: Appendix Table B 1522 12 CHART I UNITED STATES BALANCE OF FOREIGN TRADE IN UNITED STATES BALANCE OF FOREIGN TRADE IN PRODUCTS OF THE FLAT GLASS INDUSTRY, 1958-1967 (In Millions of Square Feet) 500 IMP. IMP. II II + 0 100 200 300 400 500 Tariff Increase 1962 Peak Year Tariff Reduction 1965 1967 PAGENO="0253" 1523 13 The next point of observation in evaluating the relative position of the U. S. flat glass industry with its foreign competitors requires a comparison of U. S. flat glass exports with those of the other principal flat glass producing countries. This comparison is made in the following table. TABLE V WORLD EXPORTS BY PRINCIPAL PRODUCING COU'ITRIES OF PRODUCTS OF THE FLAT GLASS INDUSIRY (In thousande of (I. S. dollcrrs) %of %of - 1960 Total 1967 Totc~l United States $ 14,251 7.1% $ 38,469 12.6% of which, Canada 8,512 4.2% 25,057 8.2% Other 5,739 2.9% 13, 412 4.4% Japan 7,421 3.7% 19,054 6.3% Belgium-Luxembourg 91,696 - 45.5% 111,779 36.7% West Germany 29,693 14.7% 52,047 17.1% France 25,376 12.6% 41,203 13.5% United Kingdom 32,939 16.4% - 42,102 13.8% TOTAL, ABOVE $201,376 100.0% $304,654 100.0% Source: Appendix Table F. On a dollar basis, excluding the trade with Canada which is so heavily influenced by the U. S.-Canadian Automotive Products Agreement, the United States in 1967 accounted for less than 5% of world exports of flat glass. It is obvious from the above table that the four Western European nations dominate world trade in flat glass and that Japan is boosting her participation in world exports of flat glass more rapidly than the. United States (as to countries other than Canada). PAGENO="0254" 1524 14 A study of OECD data for the first 6 months of 1967, given in physical units (metric tons), corroborates the above information. See Appendix Tables K and L. The United States, the United Kingdom, Belgium, France, Germany, and Japan exported a total of 189,454 metric tons of sheet glass during the first 6 months of 1967, with each country supplying the following proportions: UNITED STATES 1.5% UNITED KINGDOM 11.0% BELGIUM 43.8% FRANCE 9.9% GERMANY 23.4% JAPAN 10.3% In plate and float glass, these 6 countries during the first 6 months of 1967 exported 147,700 metric tons of product. Each country accounted for the following share of this total: UNITED STATES 13.5% UNITED KINGDOM 19.4% BELGIUM 25.3% FRANCE 17.0% GERMANY 11.6% JAPAN 13.2% Of the U. S. exports, 72% were destined to Canada, without which the U. S. share of world exports of plate and float glass was 4.1%. In addition, the average unit value (dollars per metric ton) of U. S. flat glass in the export trade is shown by the OECD data to be considerably above that of the other producers, a further indication of the inability of the U. S. industry to compete to any significant degree in the world market for flat glass. PAGENO="0255" 1525 15 The other side of the coin on the world trade picture can be seen through an analysis of the OECD data on imports of flat glass by the countries which are the principal producers of flat glass. During the first 6 months of 1967, these countries imported in aggregate a total of 118,581 metric tons of sheet glass. Of the total, each country accounted for the following share: UNITED STATES 74.3% UNITED KINGDOM 14.5% BELGIUM 2.0% FRANCE 4.5% GERMANY - 4.3% JAPAN 0.5% This pattern is repeated, though not in as extreme a degree, for the aggregate imports of 71,022 metric tons of plate and float glass' by the principal producers: UNITED STATES 45.0% UNITED KINGDOM 8.0% BELGIUM 12.5% FRANCE 10.1% GERMANY 23.8% JAPAN 0.5% These data clearly document the inequitable position of the U. S. in world trade in flat glass. Accounting for less than 2% of the exports of the principal producing countries of sheet glass, the United States is forced, as a result of our Government's past tariff actions, to accept 74% of the total imports of sheet glass accounted for by the principal producers. PAGENO="0256" 1526 16 Can a foreign trade policy be regarded as wise, balanced, or in the national interest which in the face of an inability on the part of one of the Nation's basic industries to participate on any but a very minor scale in world exports, opens wide the domestic market to the foreign industry so that it may extend its domination, already enjoyed in other world markets, to the only market available in significant degree to the domestic industry? The third point of observation in determining the future prospects of the U. S. flat glass industry in the light of the Nation's existing foreign economic policy jnvolves a closer look at the composition of U. S. foreign trade in fiat glass. By a systematic examination of the origin and destination of U. S. foreign trade in flat glass, additional insight may be gained concerning the competitive position of the U. S. industry. Table G in the Appendix provides the facts required for such an examination. The principal sources of demand for flat glass are in building and home construction and in automobiles. The principal demand for new building and home construction and automobiles is centered in the developed countries. The dramatic fact which emerges from the data in Appendix Table G is that the United States has a significant deficit in its foreign trade in flat glass with developed countries (Europe and Japan) and, apart from Canada, only very limited success in exporting to the less-developed countries of the world. The United States industry exports less to all of Europe than it does to South America, but its exports to South America are so small that its status as our large export market outside of Canada eloquently restates the recurrent theme of this analysis; namely, that world export markets are no haven for U. S. production being preempted on a massive scale from the domestic market by rising imports from Europe and Japan. PAGENO="0257" 1527 17 Can a wise U. S. foreign trade policy for the future assume the availability of export markets for the productive., resources of U. S. capital and labor which are dislodged from the American market by efficiently produced, low-wage foreign products? IV. THE PRiNCIPAL BENEFICIARIES OF U. 5; FOREIG?L TRADE POLICY IN FLAT GLASS ARE A SMALL GROUP~OF NATIONAL MONOPOLIES AND CARTELS WHICH DOMINATE WORLD EXPORT TRADE THROUGH ANTICOMPETITIVE PRACTICES. The final point of.obse~vationin a reasoned quest for an understanding of the position and dilemma of the U. S. flat glass industry is an identification of the actual beneficiaries of the national trade policy which accords prefóreutial status in the U. S. market to foreign products. Th~ recently issued report of the Monopolies Commission of the United Kingdom on The Supply of Flat Glass' supplies this identification in factual detail: There are .in the non-Communist world, ether than in the United States, only the following manufacturers or groups engaged in the large-scale production of flat glass: 1. In the United Kingdom, the Pilkington group. 2. In Europe, the `Compagnie de Saint-Gobain (St. Gobain) and the Glaverbel/Boussois/Delog group. 3. In Japan, the Asahi Glass Co. Ltd., Nippon Sheet Glass Co. Ltd., and Central Glass Co. Limited. 1 Her Majesty's Stationery Office, London, ordered by the House of Commons to be printed 7th February 1968. 95-159 O-68-pt. 4-17 PAGENO="0258" 1528 18 Not only were the foreign trade decisions of' the United States affecting flat glass tariffs unjustified on the basis of need or the comparative position of U. S. and foreign industries; they were most inadvisable in view of the fact that the benefit conferred was upon a monopoly in the United Kingdom, a cartel in Europe which establishes export quotas and controls export prices, and a cartel in Japan which also cooperates in export pricing to penetrate the United States market. More specific details on the operation of these cartels are included in Exhibit 2 of the Appendix. Suffice it to say that these foreign cartels have succeeded in reducing export prices for flat glass to levels at which the United States cannot compete. The conduct of this campaign to take over the U. S. market has therefore, been assisted by the trade agreement actions of the United States Government. In contrast to the policies observed in the United Kingdom, Western Europe, and Japan, which support and protect their home flat glass industries through the use of governmentally imposed import quotas and high rates of duties, the United States Government has seemingly adopted the tentative position that its own flat glass industry is expendable in the name of "free trade" notwithstanding the importance of the industry's products as essential manufacturing materials. Can a foreign trade policy be regarded as wise and in the national interest which disregards the anticompetitive and restrictive trade practices of foreign monopolies and cartels in curtailing U. S. exports, and which lays bare the American market for the benefit of the cartel pricing practices of the foreign groups intent upon a steady increase in the share of the United States market captured for their products? PAGENO="0259" 1529 19 V. GOVERNMENTALLY IMPOSED NONTARIFF BARRIERS ENHANCE THE DOMINANT COMPETITIVE POSITION OF FOREIGN PRODUCERS OF FLAT GLASS Appendix Table I presentsand Appendix Table J summarizes, from Government sources, available data concerning the existence of nontariff barriers applicable to U. S~ exports and export rebates applicable to U. S. imports of flat glass. Every producing country in Western Europe imposes a border tax on imports and fosters the exportation of its flat glass through the remission of internal taxes. The manner in which this system operates is illustrated by the hypothetical example given in Exhibit 3 of the Appendix. The example demonstrates why the American exporter must set a considerably higher delivery price than his European counterpart even where there is a superficial equality of access for U. S. producers to a foreign market and for foreign producers to the U. S. market as measured by the duty level. Japan continues to hold imports of flat glass in check through a system which combines the power to require import licenses, to subject imports to quotas, and to limit the availability of foreign exchange for flat glass imports. Under these circumstances it is essential that our Government realize that tariff concessions granted by the United States on imports of flat glass accrue to a few large monopolistic aggregations of producers in Western Europe and Japan who are quite prepared, when the U. S. flat glass industry is driven from the scene, to charge all that the traffic will bear on exports to the United States. The United States flat .glass industry is already handicapped by higher manufacturing costs than prevail in either Japan or Europe, as is evidenced abundantly by the import and export trends previously discussed. The U. S. industry is effectively precluded from gaining access to the markets dominated by the European and Japanese monopoly-cartels. Past Government policy has strengthened the competitive position of these European and Japanese monopoly-cartels in their objective to take over the United States market. PAGENO="0260" 1530 20 VI. FOREIGN TRADE POLICY OF THE UNITED STATES HAS ADVERSELY AFFECTED EMPLOYMENT IN THE FLAT GLASS INDUSTRY The flat glass industry pays wages which are* among the highest paid by industries in the United States. In 1967, the average hourly earnings for production workers in the flat glass industry reached a level of $3.66 an hour, excluding fringe benefits, or 30% above the average hourly wage earnings for all manufacturing industries. This high wage characteristic of the flat glass industry is of significance because the industry's plants are predominantly located in the poverty-~tricken areas of the United States. Of a total of 23 flat glass plants in operation during 1967, 13 were located either in the Appalachian poverty belt or in areas which have been designated by the U. S. Department of Labor as areas of substantial unemployment. In considering the question of the extension of escape clause tariff rates to imports of sheet glass, Vice Chairman Sutton of the U. S. Tariff Commission stated that the duties must be maintained - "at least until the effect of the partial restoration of rates already effective can be ascertained and until economic conditions in these communities have materially improved."2 Despite its potential for creating and maintaining high-paying jobs, employment in the U. S. flat glass industry has continued to decline in the wake of previously stated events. As of March 1968, total employment in the U. S. flat glass industry was 30,500 compared with 32,300 in March 1967 and 32,800 in March 1966. The high point in the industry's employment was reached in March 1959 at 36,700 workers, according to BLS data. 2 United States Tariff Commission, Sheet Glass, TC Publication 215, September 1967, p. 10. PAGENO="0261" 1531 21 Officials of the U. S. Department of Commerce, the Small Business Administration, and the U. S. Department of Labor have visited flat glass factories in Fresno, California; Shreveport, Louisiana; Henryetta and Okmulgee, Oklahoma; and Charleston and Clarksburg, West Virginia. The stated purpose of these visits was to enable the Government representatives as part of a task force appointed by President Johnson "to search for alternate employment and to take other steps which will work out long-term solutions to the problems created by job disloca- tion." At each plant, the Government representatives met with representatives of labor and management, and in some instances with other leaders in the communities in which the plants are located. Without ex~eption, the labor, management, and civic representatives conveyed the determination of the affected members of each community to keep the flat glass plants in existence because of their importance to the economic life of their communities and because of the practical impossibility of retraining the highly paid flat glass workers for comparably remunerative employment in their communities. The size of the work force and the payrolls represented by these flat glass plants were shown to be of such importance to the business, commercial, and cultural life of these communities that their elimination through deliberate tariff action by the United States was totally unacceptable to the workers and to the community leaders, as well as to management of the plants. The loss of. employment in the communities in which flat glass plants are located as a result of the continuing gross inbalance in U. S. foreign trade in flat glass can be measured. By relating the plant shipments of flat glass to total employment in the flat glass industry, it is possible to derive a general indication of the amount of employment associated with each thousand square feet of plant shipments of flat glass. When this factor is applied to the square foot equivalent of flat glass moving in foreign trade, an approximation of the United States employment counterpart of these imports and exports may be derived. PAGENO="0262" 1532 22 On this basis, in 1967 the net balance of employment attributable to United States foreign trade in flat glass was a deficit of 7,268 jobs. The employment equivalent of imports exceeded the employment equivalent of exports by that amount. At the prevailing average wage, this loss of 7,268 jobs in 1967 as a result of the deficit in U. S. foreign trade in flat glass represented a loss of payroll for the communities in which the industry's plants are located of $56 million. The impact of the foreign trade deficit in flat glass upon emnloyment in the industry is illustrated in the following chart. PAGENO="0263" 1~33 23 CHART 2 EMPLOYMENT EQUIVALENT OF UNITED STATES FLAT GLASS CONSUMPTION, 1958-W67 (Thousands of Employees) Source: Appendix Table H PAGENO="0264" 1534 24 Can a foreign trade policy be regarded as wise and in the national interest which refrains from the regulation of excessive imports which threaten high-paying jobs in economically depressed communities to accord preferential access to the United States market to a small group of foreign-based monopolies and cartels who exclude U. S. products from their territories and are intent upon capturing an ever-increasing share of the American market? VII. CIRCUMSTANCES WHICH HAVE AFFECTED THE PRINCIPAL SOURCES OF DOMESTIC DEMAND FOR FLAT GLASS As previously stated, the principal sources of demand for flat, glass are in building and home construction and in automobiles. Each of these areas of demand in the United States has now been severely affected to the detriment of the flat glass industry by a combination of circumstances, including the effect of Governmental actions. Monetary policy adopted to cope with the balance of payments crisis has severely affected building and home construction. According to official U. S. Government data, the total value of private building and residential construction put in place has steadily declined during the past 3 years, as follows: 1965 - $43.2 Billion 1966 - $42.4 Billion 1967 - $41.7 Billion Factory sales of domestically produced automobiles declined from 9.9 million in 1966 to 8.5 million in 1967, while imports rose from 0.96 million to 1.1 million. Thus far in 1968 imports have accounted for 10.5% of the total U. S. new car market, compared with 9.2% for all of 1967 and 7.3% in 1966 (Wall Street Journal, March 22, 1968, "Detroit versus Imports"). The U. S. PAGENO="0265" 1535 25 import duty on automobiles was reduced in the Kennedy Round from 6.5% to 3% ad valoren~, a factor which can only serve further to stimulate the importation of automobiles and an increase in the share of the U. S. i~iarket accounted for by foreign-produced vehicles. The sluggish demand which has resulted from these circumstances is being filled increasingly by foreign supply of flat glass. Domestic policy, influenced by the Nation's general foreign trade policy, is working hand in hand with the specific foreign trade actions directed to flat glass to injure the flat glass industry and to destroy the jobs of thousands of its employees. CONCLUSION AND RECOMMENDATIONS Past and present U. S. foreign trade policy and its administration have stimulated U. S. imports of flat glass and* strengthened the competitive position of foreign-produced flat glass in the American market to a degree that makes foreseeable - indeed, imminent - the discontinuance of production by the smaller U. S. manufacturers of flat glass and the transfer of future plant capacity and employment by the larger manufacturers to foreign countries. The principal beneficiaries of this U. S. policy and administration have been the foreign organizations which have a monopoly or which through a cartel dominate the production and sale of flat glass in the United Kingdom, Western Europe, and Japan. The superior competitive strength and the anticompetitive measures of the foreign producers have been facilitated in their operation within the American market by export rebates, while the home markets of these groups have been kept relatively immune from U. S. competition through border taxes and concerted pricing policies of the foreign producers. An essential and basic U. S. manufacturing industry, that engaged in the production of flat glass, will have no alternative under a continuation of such policies and administration but to terminate a portion of the manufacturing PAGENO="0266" 1536 26 facilities in the United States and to transfer productive capacity and employment from the United States to low-wage foreign countries. This state of affairs has come about because of a lack of balance in U. S. foreign trade policy which emphasizes the removal of U. S. tariffs and other import-regulating means without regard to the impact of such actions upon efficiently conducted U. S. manufacturing industries and the employment provided by such industries. It has occurred because of the failure of existing procedures for foreign trade policy administration adequately to identify the true competitive relationship between U. S. and foreign industries, including a complete and sensitive evaluation of the total array of trade-inhibiting measures, public and private, which benefit and protect the position of foreign producers in competing against U. S. manufacturers in the domestic and export markets. A trade policy is required for the future which accepts the necessity of maintaining and fostering the economic welfare and competitive strength of basic and essential U. S. manufacturing industries and in contributing to the standard of living and welfare of the workers of these industries and the communities in which they are located. With these criteria in mind, the flat glass industry supports H. R. 13631 and H. R. 13845, which through flexible quotas would provide equitable access to both domestic and foreign produced flat glass in the U. S. market. Recognizing that other basic manufacturing industries are in comparable positions, we also support H. R. 17674, an omnibus import control measure introduced by Mr. Collier of this Committee. H. R. 17674 would directly impose import quotas on steel, electronic products, footwear, meat products, and flat glass equal to the average annual imports, 1965-1967. It would provide a general procedure under which the products of other industries could be subjected to mandatory import quotas upon proof of import penetration comparable to that which exists in the named industries. PAGENO="0267" 1537 27 The import quotas established under the bill would be subject to adjustment annually in proportion to the growth of the domestic market. Quotas would be allocated by commodity and by country in accordance with the composition of our imports during a representative period. Departures could be made from this allocation to take into account recent developments in the import trade. Of fundamental importance in view of U. S. commitments under GATT, H. R. 17674 would grant authority to the President under firm guidelines to enter into trade agreements with countries whose trade with the United States would be affected by the statutory quotas so as to modify such quotas by agreement. This aspect of the bill is patterned after the precedent established within GATT by the negotiation of the Short~Term and Long-Term Cotton Textile Arrangements. The agreement of the affected nations to those arrangements eliminated any standing which they might have to demand compensation or to retaliate under GATT. H. R. 17674 does not directly deal with textiles in view of the bills sponsored by the Chairman and other members of this Committee pertaining to textile import quotas. H. R. 17674 appears to our industry to be preferable to other pending import quota bills because it provides for participation by the `President through the trade agreement technique in making adjustments in the statutory quotas in recognition of the realities of our Nation's trade agreement commitments. No other nation in the world ignores the legitimate needs of its domestic manufacturing industries to the extent as has become the case in the United States under the present and past administration of our foreign trade policy. A change is long overdue. PAGENO="0268" 1538 APPENDIX EXHIBIT 1 A-i U. S. PRODUCERS OF FLAT GLASS American Saint Gobain Corporation Fourco Glass Company Libbey . Owens. Ford Glass Company Mississippi Glass Company PPG Industries, Inc. Kingsport, Tennessee Clarksburg, West Virginia Toledo, Ohio St. Louis, Missouri Pittsburgh, Pennsylvania FLAT GLASS PLANTS Arkansas Fort Smith Cailfornia Fresno Fullerton Lathrop Illinois Decatur Ottawa Louisiana Shreveport Maryland Missouri Crystal City St. Louis Mt. Vernon Rossford Toledo Oklahoma Henryetta Okmulgee Pennsylvania Arnold Creighton Floreffe Ford City Jeannette Tennessee Kingsport West Virginia Charleston Clarksburg Ohio Cumberland PAGENO="0269" 1539 A-2 EXHIBIT 2 The report of the Monopolies Commission of the United Kingdom on The Supply of Flat Glass presents the. following information on the operation of the Pilkington flat glass monopoly in the United Kingdom; the Conipagnie de Saint- Gobain (St. Gobain) and the Glaverbel/Bous.soi.s/Delong which form a flat glass cartel in Europe; and the Asahi Glass Co., Ltd., Nippon Sheet Glass Co., Ltd., and Central Glass Co., Limited, three companies which make up a fiat glass cartel in Japan. The Japanese cartel is precluded from gaining major access to the market of the United Kingdom or Western Europe. The European cartel is restrained by agreement from penetrating the U. K. market above export quotas which are established by agreement between Pilkington and the European cartel. Only the United States market is freely open, and the benefit of the open-door policy which has been created by our Government is extended to foreign monopolistic aggregations which are able to charge any price they choose to progressively take over the United States market. As stated in the report of the U. K. Monopolies Commission on fiat glass, under a draft agreement between Pilkington and the producers of France, Belgium, and Germany, "broad quotas are laid down on a square footage basis for the total sheet exports of each national group, and the parties agree ~to observe common prices and conditions of sale in world export markets, each party's domestic market only being excepted. Although the agreement was never signed, we are told by Pilkington that its provisions have been loosely observed." [p. 121 The effectiveness of this agreement for its beneficiaries is shown by the fact that, as reported by the Monopolies Commission, "In 1966 about nine per cent by value, and about eight per cent in terms of quantity, of the United Kingdom demand was met by imported glass, * * *~" [p. 38] * Her Majesty's Stationery Office, London, ordered by the House of Commons to be printed 7th February 1968. PAGENO="0270" 1540 A-3 EXHIBIT 2-page 2 The roughly equal shares of the United Kingdom market supplied by imports, whether expressed in value or in quantity, as indicated by the above quotation, are in marked contrast to the situation previously discussed in the United States in which very low unit values for foreign products yield a much lower market penetration ratio by value than by quantity. The implica- tion is clear that as a result of the working arrangement between Pilkington and the European cartels, prices are maintained at levels acceptable to the European and United Kingdom groups, and the actual volume of imports permitted into England is correspondingly controlled. In addition to the cartel arrangement mentioned for sheet glass, the Monopolies Commission reported that the four principal overseas suppliers of float and plate glass are the Western European producers which charge identi- cal delivered prices and have identical conditions of sale. Further, the Commission reported that the share of the Western European glass makers of the market in the United Kingdom has been much reduced, and those producers "like Pilkington itself, may be willing on occasion to dispose of surplus production by selling it abroad at a low margin of profit." [p. 77] The result of Pilkington's monopoly position and the cartel agree- ment between the Western European flat glass producers and Pilkington is to reduce competition within the home market of each producer from other members of the cartels while leading to a concert of pricing and export actions on their part in disposing of their surplus production in the open markets of the world, the principal one of which is the United States. PAGENO="0271" 1541 A-4 and A-S EXHIBIT 3 OPERATION OF A SYSTEM OF BORDER TAXES AND REMISSION OF INTERNAL TAXES Hypothetical example with respect to Germany Assumption: Rate of Duty (15%) is the same for both the U. S. and Germany European Goods U. S. Goods Exported to the Exported to United States Europe 100 100 Invoice price 10 15 Ocean freight and insurance (15%) (15%) Customs duty 15 - U. S., on foreign price - 17.25 - Europe, on c.i.f. basis 125 132.25 Landed cost 0% (10% of Value added equalization tax landed (border tax) cost) 13.225 10% of invoice 0% Remission of value added tax price ______ on exports 115 145.475 This example is significant because it points to the fact that even / where there is a superficial equality of access for U. S. producers to a foreign market and for foreign producers to the U. S. market as measured by the duty level, the U. S. producer who undertakes to export to European markets must price his product with the realization that for every $100 of price an additional $45 in costs, duties, and taxes will be incurred and must be absorbed in setting a competitive delivered price. By contrast, his European counterpart competing within the United States market is subject only to a cost and duty burden of $15 for every $100 of invoice price one-third the border "barrier" the American goods encounter in seeking to move into Europe. PAGENO="0272" Exhibit 4: Statistical Appendix APPENDIX TABLE A BASIC ECCNOMIC DATA FOR THE U. S. FLAT GLASS INDUSTRY, 1958-1967 VALUE OF SHIPMENTS, FLAT GLASS INDUSTRY1 (S.I.C. 3211) ($ million8) of which - Sheet glass2 Plate, float, rolled, & wire glass3 Laminated, specially tempered, & other flat glass (not including products of establishments using purchased glass as raw material)' OUTPUT, FLAT GLASS INDUSTRY (1957-59 = lOO)~ WHOLESALE PRICE INDEX (1957-59 = 100)6 NNT P~FIT AFTER TAXES AS % OF SALES: Sheet Glass7 All Manufacturing8 Gm)SS EARNINGS (sales less payroll and materials purchases, before payment of overhead, depreciation, and tases) AS % OF SALES: Sheet Glass9 4.9% 0.3% 1.1% 4.1% 6.5% 4.8% 2.7% 4.5% 4.3% 4.5% 4.7% 5.2% 5.6% 5.6% 1962 1967 % QIPNGE: (Tariff 1965 (Tariff Increase Average 1965 AVERP&E Increase (Peak Ter'ininated in 1958-60 to 1958-60 1961 6/17/62 1963 i~L. ~f~L _J~L Past on 1/11/621 to 1981 ..12!Z.. $490.6 $448.4 $490.6 $549.3 $569.4 $676.4 $638.1 $614.5 +25.3% -9.2% $111.1 $111.0 $126.4 $141.5 $144.8 $140.6 $138.6 $131.6 +18.5% -6.4% $157.1 $149.5 $159.5 $175.8 $180.2 $213.7 $206.4 $200.5 +27.6% -6.2% $222.4 $187.9 $204.7 $232.0 $244.4 $322.1 $293.1 102.8 104.2 113.0 120.5 137.0 151.2 167.2 99.3 96.8 97.0 98.3 102.4 100.9 100.7 $282.4 +27.0% -12.3% 159.7 105.0 5.0% 35.8% 30.8% 31.1% 35.0% 35.8% 38.1% 32.4% 35.9% +0.3% -5.8% E14PLOYMENT (in thousands)'° 32.2 29.9 30.4 30.5 30.8 32.3 32.8 30.7 -4.7% -5.0% AVERAGE WEEKLY HOURS, PRODUCTION *)RKERS10 40.1 38.7 38.3 40.0 41.9 42.5 42.6 42.0 +4.7% -1.2% AVERAGE HOURLY EARNINGS, PRODUCTION WORKERS1° $3.09 $3.17 $3.29 $3.38 $3.44 $3.52 $3.60 $3.66 +18.4% +4.0% - Average Hourly Earnings, All Manufacturing10 $2.19 $2.32 $2.39 $2.46 $2.53 $2.61 $2.71 $2.83 +29.2% +8.4% DOMESTIC MARKET ($ millions)11 $542.5 $499.7 $546.9 $585.9 $622.3 $723.0 $686.6 $669.0 +23.3% -7.5% INPORTS, f.o.b. U. S. port ($ millions)12 $65.1 $64.5 $71.8 $53.1 $74.1 $72.0 $80.9 $89.0 +36.7% +23.6% EXPORTS, f.o.b. mill ($ millions)13 $13.2 $13.2 $15.5 $16.5 $21.2 $25.4 $32.4 $34.5 +161.4% +35.8% IMPORTS AS A % OF EGJESTIC M4REKT1~ 12.0% 12.9% 13.1% 9.1% 11.9% 10.0% 11.8% 13.3% #10.8% #33.0% PAGENO="0273" APPENDIX TABLE A - page 2 SOURCES: 1 U. S. Dept. of Commerce, Bureau of the Census, Census of Manufactures, 1958, 1963, and Annual Survey of Manufactures 1959-1966. a 2 U. S. Dept. of Commerce, Bureau of the Census, Facts for Industry Series, BDSAF-375; Current Industriaj Reports, Series BDSAP-375, M32A. Ibid. ~ Value of shipments, flat glass industry less total of shipments of sheet glass and plate, float, rolled C wire glass. Federal Reserve Board, Index of Industrial Production. U. S. Dept. of Labor, Bureau of Labor Statistics, Wholesale Price Index. ~ 1958-59, U. S. Tariff Commission, Publication 158, June 1965, Table 12, adjusted for Federal tax at 52%; 1961-66, U. S. Tariff Commission, Publication 215, September 1967, Table 12, adjusted for Federal tax at 48%. 8 FTC-SEC, Quarterly Financial Report for Manufacturing Corporations. See Methodology Note. 10 U. S. Dept. of Labor, Bureau of Labor Statistics, E)nployment and Earnings Statistics of the United States. ~ Value of Shipments + Imports (f.o.b. U. S. port basis) - Exports (f.o.b. mill basis). 12 U. S. Dept. of Commerce, Burear of the Census; import data adjusted to add ocean freight and insurance at 19% per U. S. Tariff Commission publication February 7, 1967, C. I. F. Value of Imports; and to add import duties as calcul~ted by U. S. Dept. of Commerce, U. S. Commodity Exports,Inrports As Related to Output, 1965 and 1964 and earlier issues, 1958-1963, and at the 1965 ratio of duties to import value (26.0%) for 1966. For 1967,duties calculated at 19.8% as per U. S. Dept. of Commerce, IM 146 for flat glass (Group 503B). 13 U. S. Dept. of Commerce, Bureau of the Census; export data adjusted from f.a.s. to f.o.b. by factor of 10% for inland freight, mill to port. P+ Imports, f.o.b. U. S. port, divided by Domestic Market. METHODOLOGY NOTE: Value of Shipments (first line) for Industry S.I.C. 3211 for 1967 derived by projecting 1966 data by % change 1966-67, in value of shipments of flat glass as reported in sources cited note 2 above. Gross earnings for 1967 derived by projecting Value Added by Manufacture for 1966, as reported in Annual Survey of Manufactures for 1966, against the % change in Value of Shipments 1966-67 (1967 = $415.2 million), and subtracting total payroll from Value Added. Total payroll for 1967 derived by projecting 1966 payroll per Annual Survey of Manufactures for 1966 against the % change in average number of employees, average hourly earnings and average weekly hours for industry S.I.C. 3211 as reported in source cited dote tO above (Payroll 1967 =$l93.3 million). Gross earnings = Value Added [sales - cost of materials] less total payroll. ~Gross earnings 1967 = $220.4 million) PAGENO="0274" APPENDIX T,ABLE B % Change: 1958-60/1967 1-21.2% +36.8% +114.8% 1-161.0% -13.9% -5.2% 1965/1967 +11.1% +23.7% 1-23.6% +35.8% -9.8% -17.0% 1 1965-1967: U. S. Department of Commerce, TSUS Commodity Categories 541.11-541.31, 542.11-542.98, 543.11-543.69, 544.11-544.17, 544.31, 544.41. (542.11-542.98, 544.11-544.17 import data in lbs. converted to sq. ft. @ 0.8620689 sq. ft./lb.; 544.41 import data in dollars converted to sq. ft. @ $1.65/sq. ft.) 1964: All flat glass products excepting sheet gla8s: U. S. Department of Commerce, TSUS Commodity Categories 541.11-541.31, 543.11-543.69, 544.31, 544.41 (544.41 import data in dollars converted to sq. ft. @ $1.65/sq. ft.). Sheet glass: U. S. Tariff Commission, Sheet Glass, TC Publication 215, September 1967; pound data converted to sq. ft. @ 0.8620689 sq. ft./lb. UNITED STATES FOREIGN TRADE IN PRODUCTS OF THE FLAT GLASS INDUSTRY~ 1958-1967 (Quantity in thousands of square feet; Value in thousands of dollars) IMPORTS1 EXPORTS2 BALANCE OF TRADE Quantity Values Quantity Value Quantity Value~ 1958 1959 1960 Average 1958-1960 308,964.4 507,241.7 420,768.6 412,324.9 $47,944.2 79,168.2 68,110.7 65,074.4 25,193.5 35,337.4 27,870.3 29,467.1 $11,489.8 15,305.2 12,825.9 13,207.0 -283,770.9 -471,904.3 -392,898.3 -382,857.8 $-36,454.4 -63,863.0 -55,284.8 -51,867.4 1961 1962 1963 1964 1965 1966 1967 384,521.6 473,039.5 383,117.6 487,774.4 448,360.0 495,690.0 499,534.0 64,520.6 71,767.0 53,098.8 74,097.7 71,984.0 80,874.8 89,026.6 32,874.2 44,447.8 47,360.1 68,040.0 51,217.9 63,017.0 63,297.5 13,151.1 15,450.8 16,481.2 21,172.8 25,372.8 32,437.9 34,468.6 -351,647.4 -428,591.7 -335,757.5 -419,734.4 -397,142.1 -432,673.0 -436,236.5 -51,369.5 -56,309.2 -36,617.6 -52,924.9 -46,611.2 -48,436.9 -54,558.0 (continued) 1;. 00 PAGENO="0275" APPENDIX TABLE B - page 2 (continued) 1958-1963: All flat glass products aseepting sheet glass: u. S. Department of Commerce, Schedule A Commodity Categories 5220.000-5220.225, 5240.040-5240.405, 5250.200, 5250.400. (5240.400 and 5240.405 import data in pounds converted to sq. ft. at ratio of sq. ft./lbs. for 1967 movement under TSUS Commodity Category 541.11 [0.4538 sq. ft./lb.]; 5250.200 and 5250.400 import data in dollars converted to sq. ft. at ratio of value to quantity for Commodity Category 5250. 300.) Sheet glass: u. S. Tariff Commission, Sheet Glass, TC Publications 110 and 215, September 1963, 1967, pound data converted to sq. ft. @ 0.8620689 sq. ft./lb. 2 1965-1967: U. S. Department of Commerce, Revised Schedule B Commodity Categories 664.0110- 664.0130, 664.7000, 664.9110-664.9140. 1958-1964: U. S. Department of Commerce, Schedule B Commodity Categories 52121, 52151, 52170, 52180, 52201 [52170 (Laminated Glass) import data in dollars converted to sq. ft. at ratio of dollars to sq. ft. for January 1968 movement under Revised Schedule B Commodity Category 664.7040 (Laminated Glass)]. [Calculated ratio of 1 sq. ft. to $1.08612 deflated for all years by application of wholesale price index for industrial commodities appearing in Statistical Abstract of the United States: 1967, U. S. Department of Commerce, Table 497; 52201 (Colored Glass) import data in dollars converted to sq. ft. at 1958 ratio of sq. ft. to value of shipments for SIC Product 32111-25 (Tinted and Colored Glass) as per 1963 Census of Menufactures, U. S. Department of Commerce. Calculated ratio of 100 sq. ft. to $15.5724 inflated for all years by application of wholesale price index for industrial commodities, supra.] Data adjusted to add ocean freight and insurance at 19% per U. S. Tariff Commission publication February 7, 1967, C. I. F. Value of I~nports; and to add import duties as calculated by U. S. Department of Commerce, U. S. CcAnnvdity Exports, Imports As Related to Output~, 1965 end 1964, and earlier issues, 1958-1963, and at the 1965 ratio of duties to import value (26.0%) for 1966. For 1967, duties calculated at 19.8% as per U. S. Department of Commerce, IM 146, for flat glass (Group 503B). Data adjusted from f.a.s. to f.o.b. by factor of 10% for inland freight, mill to port. \0 PAGENO="0276" APPENDIX TABLE C WITED STATES SHIF$'IENTS, IMPORTS~, AND EXPORTS OF PRODUCTS OF ThE FLAT GLASS INDUSTRY (SIC 3211). 1958-1967 (In millions of dollams) % Change: Avg. 1958-60/1967 #18.5% 1985/1967 -6.4% #27.6% #35.7% #21.9% #25.3% -6.2% -23.1% -3.2% -9.2% * Value of Shipments derived by projecting 1966 data by % thange 1966-67 in value of shipments of flat glasses reported in sources cited note 1. 1 U. S. Department of Coninerce, Bureau of the Census, Facts for Industry Series, BDSAF-375; Current Industrial Reports, Series BDSAP-375, MA32A. 2 U. S. Department of Coimnerce, Bureau of the Census, Annual Survey of Mcszufactures 1959-1968. Value of Shipments of Product Classes 32112 and 32114 minus Value of Shipments of plate, float, rolled and wire glass as per source cited note 1. Sum of Total Industry Shipments (see note 4) minus sheet, plate, float, rolled, wire and other flat glass as per sources cited notes 1 and 2. U. S. Department of Conmerce, Bureau of the Census, Annual Survey of Manufactures 1959-1966, General Statistics for Industry Groups and Industry. o Op. cit., supra, Appendix Table B, footnotes 1 and 3. 6 0p~ cit., supra, appendix Table B, footnotes 2 and 4. ` Total Industry Shipments plus Imports minus Exports. FLAT GLASS INDUSTRY SIC 3211 Plate, float, Other Rolled, and Wire Glass1 Flat Glass2 TOTAL Laminated3 INDUSTRY~ 96.7 48.1 147.6 384.7 199.2 81.4 142.3 557.4 175.5 121.7 126.2 529.9 157.1 83.7 138.5 490.6 1958 1959 1960 Average 1958-1960 1961 1962 1963 1964 1965 1966 1967 Sheet Glass1 92.3 134.5 106.5 111.1 111.0 126.4 141.5 144.8 140.6 138.6 131.6 149.5 159.5 175.8 180.2 213.7 206.4 200.5 64.3 89.5 98.5 112.2 147.8 118.0 113.6* IMPORTS5 47.9 79.2 68.1 65.1 64.5 71.8 53.1 74.1 72.0 80.9 89.0 123.6 115.2 133.5 132.2 174.3 175.1 168.8 EXPORTS6 11.5 15.3 12.8 13.2 13.1 15.4 16.5 21.2 25.4 32.4 34.5 448.4 490.6 549.3 569.4 676.4 638.1 614. 5* APPARENT DOtSTIC CONSII'IPTION7 421.1 621.3 585.2 542.5 499.7 546.9 585.9 622.3 723.0 686.6 669.0 #23.3% -7.5% RATIO OF IMPORTS TO: Total Apparent Industry Domestic Shir'nents Consumption 12.4% 11.4% 14.2% 12.7% 12.8% ll.6~ 13.3% 12.0% 14.4% 12.9% 14.6% 13.1% 9.7% 9.1% 13.0% 11.9% 10.6% 10.0% 12.7% 11.8% 14.5% 13.3% #9.0% #10.8% #36.8% #33.0% #36.7% #161.4% #23.6% #35.8% C;' Cl PAGENO="0277" APPENDIX TABLE D (JilTED STATES SHIPMENTS. IMPORTS~, AND EXPORTS OF PRODUCTS OF THE FLAT GLASS INDUSTRY (SIC 3211), 1958-1967 (In thousands of square feet) SHIPMENTS: FLAT GLASS INDUSTRY SIC 3211 RATIO OF IMPORTS TO: Plate, Float, Other APPARENT Total Apparent Sheet Rolled) cz~zd Fiat TOTAL DOMESTIC Industry Dcz'zestic - Gia8e1 Wire G1a8s1 Glass2 Laminated3 INDUSTRY IM'ORTS~ EXPORTS5 CONSUMPTION6 Shipments Consump~icn 1958 895,000 218,771 56,842 121,779 1,292,392 308,964 25,194 1,576,162 23.9% 19.6% 1959 1,307,250 521,053 94,486 115,795 2,038,584 5O7~,242 35,337 2,510,489 24.8% 20.2% 1960 1,036,900 455,629 141,265 102,775 1,736,569 420,769 27,870 2,129,468 24.2% 19.8% Average 1958-1960 1,079,717 398,484 97,531 113,450 1,689,182 412,325 29,467 2,072,040 24.4% 20.0% 1961 1,040480 388,003 74,950 103,312 1,606,445 384,522 32,874 1,958,093 23.9% 19.6% 1962 1,163,150 424,745 104,325 94,233 1,786,453 473,040 44,448 2,215,045 26.5% 21.3% 1963 1,248,400 476,242 114,936 109,319 1,948,897 383,118 47,360 2,284,655 19.7% 16.8% 1964 1,216,900 499,851 130,238 107,681 1,954,670 487,774 68,040 2,374,404 24.9% 20.5% 1965 1,203,900 605,552 169,437 140,214' 2,119,103 448,360 51,218 2,516,245 21.2% 17.8% 1966 1,146,500 582,543 132,391 137,863 1,999,297 495,690 63,017 2,431,970 24.8% 20.4% 1967 1,066,700 547,193 123,527* 128,631* 1,866,051* 499,534 63,298 2,307,281 26.8% 21.7% % Change: Avg. 1958-60/1967 -1.1% +37.3% +26.7% #13.4% +10.5% +21.5% +114.8% +11.3% +9.8% +9.5% 1965/1967 -11.4% -9.6% -27.1% -8.3% -11.9% +11.4% +23.6% -8.3% #26.4% #23.0% * Shipments derived by projecting 1966 data by % change 1966-67 in value of shipments of flat glass reported in sources cited note 1. 1 U. S. Dept. of Commerce, Bureau of the Census, Facts for Industry Series, BDSAF~375; Current Industrial Reports, Series BDSAF-375, MA32A. 2 Value of Shipments as per Appendix Table C, converted to sq. ft. at weighted ratio of value to sq. ft. for commodity exports during January 1968 under Revised Schedule A Commodity Categories 664.7020 (Toughened Safety Glass), 664.9130 (Multiple-Walled Insulated Glass), and 664.9140 (Glass, NEC). Derived ratio of 1 sq. ft. to $O.9Ol2 adjusted for all years prior to 1967 by application of wholesale price index for industrial commodities appearing in Statistical Abstract of the United States: 1967, U. S. Dept. of Commerce, Table 497. 3 Value of Shipments as per Appendix Table C, converted to sq. ft. at ratio of value to sq. ft. for commodity exports during January 1968 under Revised Schedule A Commodity Category 664.7020 (Laminated Glass). Derived ratio of 1 sq. ft. to $1. 2855 adjusted for all years prior to 1967 by application of wholesale price index for industrial commodities cited in note 2. "Op. cit., supra, Appendix Table B, footnote 1. ~ Op. cit.~ Bupra, appendix Table B, footnote 2. 6 Total Industry Shipments plus Imports minus Exports. PAGENO="0278" APPENDIX TABLE E RATIO OF U. S. IMPORTS TO DOMESTIC CONSIR'IPTION AND SHIPMENTS OF FLAT GLASS, BY PRINCIPAL CATEGORIES (In thousands of square feet) % CHANGE 1965 1966 1967 1965/1961 CAST OR ROUGH ROLLED GLASS Domestic Shipments1 61,809 62,374 54,245 -12.2% imports2 27,843 29,540 25,156 -9.7% Exports3 1,680 1,643 1,519 -9.6% DOmestiC Consuiuption~ 87,972 90,271 77,882 -11.5% Ratio of Imports to Domestic Shipments 45.0% 47.4% 46.4% +3.1% Ratio of Imports to Domestic Consumption 31.6% 32.7% 32.3% +2.2% PLATE OR FLOAT GLASS Domestic Shipments' 543,743 520,169 492,948 -9.3% Imports2 42,974 56,073 63,542 +47.9% Exports3 39,437 43,583 38,449 -2.5% Domestic Consumptionk 547,370 532,659 518,041 -5.4% Ratio of Imports to Domestic Shipments 7.9% 10.8% 12.9% +63.3% Ratio of Imports to Domestic Consumption 7.8% 10.5% 12.3% +57.7% SHEET GLASS Domestic Shipments1 1,203,900 1,146,500 1,066,700 -11.4% Imports2 373,984 406,847 405,506 +8.4% Exports3 4,305 8,575 10,479 +143.4% Domestic Consumption~ 1,573,579 1,544,772 1,461,727 -7.1% Ratio of Imports to Domestic Shipments 31.1% 35.5% 38.0% +22.2% Ratio of Imports to Domestic Consumption 23.8% 26.3% 27.7% +16.4% 1 Appendix Table D. (Cast or Rough Rolled Glass includes plate and float glass over 1/4" in thickness.) 2 u~ S. Departhent of Commerce, Bureau of the Census, II. S. Imports for Consumption, Commodity and Country of Origin. TSUSA Coninodity Categories: Cast or Rough Rolled Glass, 541.11-541.31; Plate or Float Glass, 543.11-543.69; Sheet Glass, 542.11-542.98 (converted into sq. ft. @ 0.8620689 sq. ft./lb.), 544.11-544.17. U. S. Department of Coninerce, Bureau of the Census, U. S. Exports, Schedule B Commodity and Country. Schedule B Coninodity Categories: Cast or Rough Rolled Glass, 664.0130; Plate and Float Glass, 664.0120, 664.9120; Sheet Glass, 664.0110, 664.9110. ~ Domestic Shipments plus Imports minus Exports. PAGENO="0279" APPENDIX TABLE F WORLD TRADE BY PRINCIPAL GLASS PRODUCING COU~1TRIES IN P~)DUCTS OF THE FLAT GLASS INDUSTRY (In thousands of ii. S. dollars) 1960 1961 1962 1963 196k 1965 1966 1967 (.NITED STATES Exports $14,251 $14,612 $17,167 $18,312 $ 23,525 $28,142 $ 36,042 $ 38,469 Imports 51,288 48,366 52,043 36,849 51,314 49,664 55,776 64,184 JAPAN Exports 7,412 8,267 10,473 11,415 14,050 16,327 18,171 19,054 Imports 1,432 2,140 2,345 1,956 3,902 3,205 2,422 4,817 BELGIUM-LUXEMBOURG Exports 91,696 84,221 96,877 89,572 105,107 97,949 101,692 111,779 Imports 3,837 4,832 5,558 4,823 7,839 8,768 13,582 12,876 WEST GERMANY Exports 28,169 29,693 34,870 37,356 40,717 42,842 47,682 52,047 Imports 12,176 10,944 10,753 13,147 21,038 37,250 33,287 26,754 FRANCE Exports 25,376 32,033 35,928 37,246 42,964 48,342 45,661 41,203 Imports 4,247 4,375 7,268 8,336 10,899 12,751 15,783 22,143 U4ITED KINGDOM Exports 32,939 28,707 34,424 34,433 42,481 40,321 40,305 42,102 Imports 7,705 8,608 9,083 10,909 14,672 12,428 12,562 15,273 SOURCE: United States, op. cit., supra, Appendix Table B, footnote 1. All other countries: 1964-1966 - United Nations, SITC Commodity Categories 664.3-664.7, 664.9. 1960-1963 and 1967 - United Nations, SITC Commodity Category 664.0 adjusted to ratio of weighted average of SITC Commodity Categories 664.3-664.7, 664.9 to SITC Commodity Category SITC 664.0 for years 1964-1966 (1967 data for SITC Commodity Category 664.0 for each country represent annual rate based upon reported data for the following periods: Japan, Belgium- Luxembourg, West Germany, United Kingdom - January through March; France - January through September). PAGENO="0280" APPENDIX TABLE G ORIGIN ~AJ'1D DESTINATION OF U. S. FOREIGN TRADE IN FLAT GLASS, 1966 (In thousands of doil.ai's) COU4TRY OR GEOGRAPHIC AREA - OF ORIGIN/DESTINATION NORTH N~ERICA Canada Mexico SOUTH AtRICA EUROPE EEC West Ger~ncmy EFTA United Kingdan Other (non-Coannunist) Cnnxnunist Countries Ruseuz IMPORTS (c.i.f.) $ 3,176 3,067 104 $ 0 $49,652 38,197 8,758 7,965 5,927 309 3,178 1,106 $16, 321+ 891 24 15,406 13, 663 *$ 17 $ 5 ASIA EXPORTS (f,o.bi) $24,261 21,602 2,038 $2,640 $ 2,367 1,822 390 393 179 150 0 0 1,31+6 493 436 415 314 $ 1,656 $ 146- BALN4CE OF TRADE $ +21,085 +18,535 +1,934 $ +2,640 $ -`+7,285 -36,375 -8,368 -7,572 -5,748 -159 -3,118 -1,106 -14,978 -398 +412 -14,991 -13,349 $ +1,639 +141 $ $ Middle East S. East and Southern Eastern Japan AUSTRALIA ~8ND OCEPNIA AFRICA TOTAL, GEOGRAPHIC AREAS $69,174 $32,416 $ -36,758 SOURCE: Trade Relations Council of the United States, Inc. PAGENO="0281" APPENDIX TABLE H EMPLOYMENT EQUIVALENT OF FOREIGN TRADE IN THE PRODUCTS OF THE FLAT GLASS INDUSTRY (SIC 3211), 1958-1967 SOURCE: Employment, U. S. Department of Labor Statistics, Employment and Earnings for the United States, 1909-66; Employment and Earnings, and Monthly Report on the Labor Force, March issues 1967 and 1968. Plant Shipments, op. cit., supra, Appendix Table D. Import and Export data in square feet, op. cit., supra, Appendix Table B. "I Average 1958-1960 1961 1962 1963 1964 1965 1966 1967 SHIPMENTS PER MILLION IMPORTS AT PLANT EXPORTS AT PLANT OF EMPLOYMENT EMPLOYMENT (ndllions SQUARE FEET SHIPMENT SQ. FT. SHIPMENT SQ. FT. DUE TO (thousands) of sq. ft.) SHIPMENTS EQUIVALENT RATIO EQUIVALENT RATIO FOREIGN TRADE 32.2 1,689.2 19.06 7,859 562 -7,297 29.9 1,606.4 18.61 7,152 612 -6,540 30.4 1,786.4 17.02 8,051 756 -7,295 30.5 1,948.9 15.65 5,996 741 -5,255 30.8 32.3 32.7 30.7 % Change 1965/1967 -5.0% 1,954.7 2,119.1 1,999.3 1,866.1 -11.9% 15.76 7,687 1,072 15.24 6,721 780 16.36 7,940 1,031 16.45 8,309 1,041 -6,615 -5,941 -6,909 -7,268 -22.3% C;' PAGENO="0282" A. UNWORKED DR4WN OR BLOWN GLASS (INCLUDING FLASHED GLASS), IN RECTANGLES Brussels Tariff Nomenclature (BTN) No. 70.06 Stcmckn'd International Trade Classificution (SITC) No. 664.3 PRE-KENNEDY ROUND TRADE COUNTRY, AND NCNTARIFF BARRIERS _AGREEMENT RATE EEC (see individual countries for nontariff barriers) France (Government Procurement Regulation. 20% Value Added Tax; Customs Stomp Tax, 2% of customs charges; export sales refunded Value Added Tax) West Germany (10% turnover equalization tax; export sales refunded this tax) Italy (0.5% customs adninistration fee; 4% turnover tax; 3.6% compensatory inrport tax; export sales refunded turnover tax) Belgium (11.5% transmission tax, refunded or exempt on export sales) Netherlands (8.8% turnover tax, refunded on export sales) EFTA (Member countries refund or exempt turnover taxes and value added taxes on export sales) United Kingdom (no border tax, etc.) 15% Norway (13.64% turnover tax. Govt. procurement regulation) 0,24 Kr/kg. Sweden (11.11% turnover tax) 18% Denmark (12.5% value added tax) 18% Austria (10.6% turnover equalization tax) 140 S/100 kg. (not over 30%); 18%, 22%; 140 S/l0O kg. (gross weight) Switzerland (5.4% turnover tax; statistical tax = 3% of customs duty) 10 Fr/l00 kg. FINLAND (12.4% turnover tax; refunded on export saieá) SPAIN (13% compensatory import tax; imports prohibited on projects using government funds; export sales exempt or refunded compensatory import tax and export bonus given to compensate for higher costs in Spain; exporters enjoy special depreciation and investment reserve privileges) 1552 A-16 APPENDIX TABLE I FOREIGN DUTIES (PRE-KENNEDY ROUND AND FINAL KENNEDY ROUND TRADE P&REEMENT RATES) AND NONTARIFF BARRIERS ON IMPORTS OF FLAT GLASS (Excluding rates of duty not affected in Kennedy Round) 10% FINAL KENNEDY ROUND TRADE AGREEMENT RATE 6% 7.5% 0,20 Kr/kg. 9% 14% 110 8/100 kg. (not over 23%; 14%, 18%; 110 S/100 kg. (gross weight) 5 Fr/lOO kg. 35% 30% drawn glass 17% other (continued) PAGENO="0283" 1553 TABLE I - PAGE 2 A. UNWORKED DRAWN OR BLOWN GLASS (INCLUDING FLASHED GLASS)., IN RE(F6ANGLES BTN 70.05, SITC 664.3 (continued) A-i 7 PRE-KENNEDY ROIi'ID TRADE A~REEMENT R.A 8% FINAL KENNEDY ROU'JD TRADE ~AGREEMENT RATE 8% COL.NTRY. AND N(}ITARIFE BARRIERS YUGOSLAVIA (controlled by quotas: goods contingent, and global exchange quota. Also export incentives such as higher retention quotas, and depreciation allow- ances) ICELAND (sales tax - not only on imports but not on exports) 35% 35% IRELAJ'ID (must make special ccpplication for transfer of funds if over ~ 2,000; 2.6% tureover tax or 5% wholesale tax; exports exempt from tax. New invest- ments pay no tax on export profits for 10 years) 60% 43.2% CZECHOSLOVAKIA (none; the state does the trading) (Czech. No. 375) range: 20 to 70 Crowna/100 kg. range: 10 to 35 Crowns/100 kg. JAPAN (license required; no quota limitation; 1% or 5% license deposit required with license application; 0.5% to 1.5% expense deduction allowed on exports) range: 10% to 20% range: 5% to 10% PAGENO="0284" 1554 A-18 TABLE I - PAGE 3 B. CAST, ROLLED, DRAWN OR BLOWN GLASS (INCLUDING FLASHED OR WIRED GLASS) IN RECTANGLES, SURFACE GROUND OR POLISHED, BUT NOT FURTHER WORKED Brussels Tariff Nanenciature (BTN) No. 70.06 Standard International Trade Classification (SITC) No. 664.4 PRE-KENNEDY FINAL KENNEDY ROUND TRADE ROUND TRADE COUNTRY, ABD NONTARIFF BARRIERS AGREEMENT RATE AGREEMENT RATE EEC (see individi~tal countries for nontariff barriers) 10% 5% Prance (Government procurement regulation; 20% value added tax; customs stamp tax, 2% of customs charges; export sales refunded value added tax) West Germany (10% turnover equalization tax; export sales refunded this tax) Italy (0.5% customs administration fee; 4% turnover tax; 3.6% compensatory import tax; export sales refunded turnover tax) Belgium (7% or 11% transmission tax, refunded or exempt on export sales) - Netherlands (10.4% or 11.9% turnover tax, refunded on export sales) EFTA (Member countries refund or exempt turnover taxes and value added taxes on export sales) United Kingdom (no border tax, etc.) 15% 7.5% Norway (13. 64% turnover tax; govt. procurement regulation) 0,36 Kr/kg. 0,30 Kr/kg. Sweden (11.11% turnover tax) 16% 8% Denmark (12.5% value added tax) Free Free Austria (7. 75% turnover equalization tax) 140 S/lOO kg.; 18%, 22% 70 S/lOO kg.; 9%, 11% Switzerland (5.4% turnover tax; statistical tax = 3% of customs duty) 10 to 16 Fr/ 100 Kg. 8 to 10 Fr/ 100 kg. FINLPND (12.4% turnover tax; refunded on export sales) 35% 17% wire plate glass; 30% other SPAIN (13%'cam-peneatory import tax; imports prohibited on projects using government funde; export sales exempt or refunded compensatory import tax and export bonus given to compensate for higher costs in Spain; exporters enjoy special depreciation & investment reserve privileges) *9% or 13% on BTN 70.06 (continued) PAGENO="0285" 1555 A-19 TABLE B. CAST, ROLLED, DRAWN OR BLOWN GLASS (INCLUDING FLASHED OR WIRED GLASS) IN RECTANGLES, SURFACE GROUND OR POLISHED, BUT NOT FURTHER WORKED BTN 70.06; SITC 66~.4 (continued) PRE-KENNEDY FINAL KENNEDY ROUND TRADE ROUND TRADE COUNTRY, AND NONTARIFF BARRIERS ~R~EMENT RATE AGREE1~ENT RATE YUGOSLAVIA (controlled by quotas: goods contingent, and global exchange quota; also export Incentives such as higher retention quotas, & depreciation allowances) ICELAND (sales tax - not only on Imports;but not on exports) 35% 35% IRELAND (must make special application for transfer of 60% 43.2% ftsnds if over ~ 2,000; 2.5% turnover tax or 5% wholesale tax; exports exempt frcQn tax. New invest- ments pap no tax on export profits for 10 years) CZECHOSLOVAKIA (none; the state does the trading) range: 150 to range: 75 to 88 (Czech. No. 377 - polished) 176 Crowns/ Crowns/l00 kg. 100kg. JAPAN (license required; quota limitation; 1% or 5% 25% 18% license deposit required with license application; administrative approval for allocation of foreign exchange; 0.5% to 1.5% expense deduction allowed on exports) PAGENO="0286" 1556 TABLE I-PAGE5 C. 1JNWORKED CAST OR ROLLED GLASS (INCLUDING FLASHED OR WIRED GLASS)J WHETHER FIGURED OR EOT~ IN RECTANGLFS Brns8el8 Tariff Nomenclature (BTN ) No. 70.04 Standard International Trade Classification (SITC) No. 664.5 A-20 COUNTRY~ AND NONTARIFF BARRIERS EEC (see indivicb~al countries for nontariff barriers) France (government procurement regulation; 20% value added tax; customs stcsnp tax~ 2% of customs charges; export sales refunded value added tax) West Germany (10% turnover equalization tax; export sales refunded this tax) Italy (0.5% customs adninistration fee; 4% turnover tax; 3.6% conrpensatory inrport tax; export sales refunded turnover tax) Belgium (7% transmission tax, refunded or exempt on export sales) Netherlands (8.8% turnover tax, refunded on export sales) EFTA (Member countries refund or exempt turnover taxes and value added taxes on export sales) United Kingdom (no border tax, eta.) Norway (13.64% turnover tax; govt. procurement regulation) Sweden (11.11% turnover tax) Denmark (12.5% value added tax) Austria (13% turnover equalization tax) Switzerland (5.4% turnover tax; statistical tax = 3% of customs duty) FINLAND (12.4% turnover tax; refunded on export sales) SPAIN (9% or 13% compensatory import tax; imports prohibited on projects using government funds; export sales exempt or refunded compensatory import tax and export bonus given to compensate for higher costs in Spain; exporters enjoy special depreciation and investment reserve privi~leges) PRE-KEF~NEDY FINAL KENNEDY ROUND TRADE ROUND TRADE AGREEMENT RATE AGREEMENT RATE 10% 5% 15% 7.5% 16% 8% Free Free range 25%, 28%, 20%, 84 or 140 S/lOO 65 or 110 5/100 kg. (gross wt.) kg. (gross wt.) 5 or 6 Fr/100 kg. 4 Fr/l00 Kg. 20% 10% (continued) PAGENO="0287" 1557 A-21 TABLE I - PABE 6 C. UNWORKED CAST OR ROLLED GLASS (INCTUDING FLASHED OR WIRED GLASS), WHETHER FIGURED OR NOT, IN RECTANGLES BTN 70.04; SITC 664.5 (continued) COUNTRY, ~AJ'1D t~LTARIFF BARRIERS YUGOSLAVIA (controlled by quotas: goods contingent, and global exchange quota; also export incentives such as higher retention cp~iotas, and depreciation allowances) ICELAND (sales tax - not only on imports; but not on exports) IRELAND (must make special application for transfer of funds if over ~ 2,000; 2.5% turnover tax or 5% wholesale tax; exports exempt from tax. New invest- ments pay no tax on export profits for 10 years) CZECHOSLOVPJ(IA (none; the state does the trading) (Czech. No. 379 - wired) JAPAN (license required; no quota limitation; 1% or 5% license deposit required with license application; 0.5% to 1.5% expense deduction allowed on exports) PRE-KENNEDY FINAL KENNEDY ROUND TRADE ROUND TRADE ~A~REE~'ENT RATE ~AGREEMENT R~T~ 35% 6~O% * 35% 43.2% 128 Crowns/100 kg. 64 Crowns/100 kg. 15%, 20% 7.5%, 10% PAGENO="0288" 1558 A-22 TABLE I - PAGE 7 D. SAFETY GLASS CONSISTING OF TOUGHENED OR LAMiNATED GLASS~ SHAPED OR NOT Brussels Tariff Nomenclature (BTN) No. ?0. 08 Standard International Trade Classification (SITC) No. 664.? COUNTRY,_AND_N~NTARIFF_BARRIERS ______________ EEC (see individual countries for nontccriff ba,.~riers) France (government procurement regulation; 20% vali~e added tax; customs stamp tax, 2% of customs charges; export sales refunded value added tax) West Germany (10% turnover equalization tax; export 8c3la8 refunded this tax) Italy (0.5% customs administration fee; 4% turnover tax; 3.6% cosrpensatopy import tax; export. sales refunded turnover tax) Belgium (14% transmission tas, refunded or exenrpt on esip~rt sales) Netherlands (10.4% turnover tax, refunded on export sales)' PRE-KEr94EDY FINAL KENNEDY ROUND TRADE~ ROUND TRADE ~R~E~ENT RATE AGREE~NT RATE 18% 9% EFTA (Menier countries refund or exempt turnover taxes and value added taxes on export sales) ` United Kingdc*n (no border tax, etc.) Ieorway (13.64% turnover tax; government procurement regulation) 17.5%, 20% 0,24 or 0,36 Kr/ kg. 10% 0,12 or 0,18 Kr! kg. Sweden (11.11% turnover tax) 16% to 20% 9%, 10% Denmark (12.5% value added tax) 10% 6% Austria (13% turnover equalization tax) 22%, 27% 18% Switzerland (5.4% turnover tax; statistical tax = 3% 20 Fr/100 kg.; 20 Fr/100 kg.; of customs duty) 30 Fr/l00 kg.; 20 Fr/100 kg.; ` 50 Fr/100 kg. 30 Fr/100 kg. FINLAND (12.4% turnover tax; refunded on export sales) 15%, 35%, 35% 7.5%, 17%, 30% SPAIN (13% compensatory import tax; imports prohibited on 30% 21% projects using government funds; export sales exempt or refunded compensatory import tax and export bonus given to compensate for higher costs in Spain; erporters~enjcy special depreciation and investment reserve privileges) (continued) PAGENO="0289" PRE-~(ENNEDY ROU~1D TRADE COUJTRY~ AND NONTARI FF BARRIERS AGREEMENT RATE YUGOSLAVIA (controlled by quotas: goode contingent, and global exohange quota. Also export inoeittives suoh as higher retention quotas, and depreciation allcwctnoes) ICELAND (sales tax - not only on imports; but not on exports) IRELAND (must make special application for transfer of funds if over ~ 2~ 000; 25% turnover tax or 5% wholesale tax; exports exempt from tax. New invest- ments pay no tax on export profits for 10 years) CZECHOSLOVAKIA (none; the state doeè the trading) JAPAN (license required; no quota limitation; 1% or 5% license deposit required with license application; 0.5% to 1.5% expense dedi~ction allczoed on e~orts) 1559 / TABLEI-PAGE8 D. SAFETY GLASS CONSISTING OF TOUGHENED OR LAMIEATED GLASS, SHAPED OR NOT BEN 70.08; SITC 864.7 (continued) A-23 PINAL KENNEDY ROU~1D TRADE 50% 50% 25% 12.5% 95-159 0 - 68 - pt. 4 - 19 PAGENO="0290" 1560 A-24 TABLE I - PAGE 9 E. CAST, ROLLED, DRAWN OR BLOWN GLASS (INCLUDING FLASHED OR WIRED GLASS) CUT TO SHAPE OTHER THAN RECTANGULAR SHAPE, OR BENT OR OTHERWISE WORKED (FOR EXAMPLE, EDGE WORKED OR ENGRAVED), WHPTHER OR NOT SURFACE GROUND OR POLISHED; MUL2~IPLE-WALLED INSULATING GLASS; LEADED LIGHTS AND THE LIKE Brussels Tariff Nomenclature (BTN) No. 70.07 Standard International Trade ClassificatIon (SITC) No. 664.91 PRE-KENNEDY FINAL KENNEDY ROUND TRADE ROUND TRADE COUNTRY, AND NONTARIFF BARRIERS AGREEIENL~I~.. AGREENENIJ~bI~ EEC (see indiviaual countries for nontariff barriers) 16% 8% France (government procurement regulation; 20% value added tar; customs stomp tar, 2% of customs charges; export sales refunded value added tax) West Germany (10% turnover equalization tax; export sales refunded this tax) Italy (0.5% customs administration fee; 4% turnover tax; 3.6% conrpensatory inTport tax; export sales refunded turnover tax) Belgium (7%, 13%, or 14.5% transmission tar, refunded or exempt on export sales) Netherlands (10.4% turnover tar, refunded on export sales) EFTA (Member countries refund or exempt turnover taxes and value added taxes on export sales) United Kingdom (no border tax, etc.) ` Norway (13.64% turnover tar; government procurement regulation) 15%, 16% range 0,24 to 4,00 Kr/kg.; 12% 7.5% range 0,12 to 2,00 Kr/kg.; 6% Sweden (11.11% turnover tax) 16%, 18%; 20% 9%; 10% Denmark (12.5% value added tar) Austria (10.6% or 13% turnover equalization tar) Switzerland (5.4% turnover tax; statistical tar = 3% of customs dety) 10% 25%, 27% range 10 to 180 Fr/l00 kg. 6% 20% range 8 to 90 Fr/100 kg. (continued) PAGENO="0291" 1561 A-25 TABLE I - PAGE 10 E. CAST, ROLDED, DRAWN OR BLOWN GLASS (INCLUDING FLASHED OR WIRED GLASS) CUT TO SHAPE OTHER THAN RECTANGULAR SHAPE, OR BENT OR OTHERWISE WORKED (FOR EXAMPLE, EDGE WORKED OR ENGRAVED), WHETHER OR NOT SURFACE GROUND OR POLISHED; MULTIPLE-WALLED INSLK~ATING GLASS; LEADED LIGHTS AND THE LIKE BTN 70.07; SITC 664.91 (continued) PRE-KENNEDY ROU'ID TRADE COU'flRY, AND NONTARIFF BARRIERS AGREEMENT RATE FINLAND (12.4% turnover ta.r; refunded on export sale8) 40%, 35%, or 40% (leaded Lights) FINAL KENNEDY ROU4D TRADE AGREEMENT RATE 35%, 30%, or- 20% (leaded lights) SPAIN (13% ccinpensatory import tax; imports prohibited on projects using government funds; export sales exempt or refunded compensatory import tax and export bonus given to compensate for higher costs in Spain; exporters enjoy special depreciation and investment reserve privileges) YUGOSLAVIA (controlled by quotas: goods contingent, and global exchange quota. Also export incentives such as higher retention quotas, and depreciation allowances) ICELAND (sales tax - not only on -imports; but not on exports) IREI~AND (must make special ctpplication for transfer of funds if over ~ 2,000; 2.5% turnover tax or 5% wholesale tax; exports exempt fran tax. New invest- ments pay no tax on export profits for 10 years) CZECHOSLOVAKIA (none; the state does the trading) (Czech. No. 376 - colored) JAPAN (license required; no quota limitation; 1% or 5% license deposit required with license application; 0.5% to 1.5% expense deduction allowed on exports) 50% 50% 128 Crowns/100 kg. 64 Crowns/l00 kg. 25% 12.5% PAGENO="0292" APPENDIX TABLE J EXAMPLES OF NONTARIFF BARRIERS AND EXPORT INCENTIVE PROGRAMS BY COUMTRY SOU~E: U. S. Department of Commerce, Bureau of International Commerce; Trade Information Committee, Preliminary Inventory of Nontariff Trade Barriers by Country. Border Tax and Export Rebate of Turnover Tax, Value Added Tax, Transmission Tax, etc.: Amount Rebate or Exençtion on Exports AUSTRIA 7. 75%-13% X WEST BELGIUM DENMARK FINLAND FRANCE ITALY ~JAPAN NETHERLANDS NORWAY SPAIN SWEDEN SWITZERLAND GE~4ANY 7%-l4.5% X 12.5% X 12.4% X 20% X 7.6% X - 8.8%-ll.9% X 13.64% X 9%-13% K 11.11% X 5.4% X 10% X In~ort Licenses Quotas Foreign Exchange Controls X - - - - - - - - - - - - - - - - - X X X - - - - - - - - - - - - - - - - - - Government Procurement Practices - - - - X - - - X - X - - - - Consular Fees, Import Surcharges, Prior Deposit Requirements, and miscellaneous - - - - X X X - - x - Export Incentives such as Bonuses, Tax Deductions,etc - - - - - - X - - K - - X :~ t~) a' PAGENO="0293" APPENDIX TABLE K EXPORTS OF FLAT GLASS OF THE PRINCIPAL NON-COMMUNIST COUNTRIES PRODUCING FLAT GLASS, JANUARY-JUNE 1967 (As Reported by the Exporting Country) FROM: UNITED STATES1 FROM: UNITED KINGDOM FROM: BELGIUM FROM: FRANCE FROM: WEST GERMANY FROM: JAPAN Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Tons Value Value Tons Value Value Tons Value Value Tons Value Value Tons Value Value Tons Value Valuc l000sl (000sl (000s) l000s) l000sl SITC 664.3 Drawn or Blown Glass, in Rectangles DESTINATION OF EXPORTS: UNITED STATES - - - 8,755 1275 146 25,943 4,856 187 4,287 807 188 10,762 2,066 192 9,694 1,365 141 JAPAN 120 60 500 24 4 166 - - - 25 31 1,240 278 172 619 - - - CANADA 2,227 1,347 605 2,525 406 161 9,140 1725 189 2,297 488 212 2,699 517 192 1292 208 161 EEC na na na 3,261 476 128 13,274 2,082 151 1,094 295 270 17,007 2,457 144 - - - Belghim na na na 9 1 111 - - - 963 159 165 174 151 869 - - - France na na na - - - 827 119 144 - - - 1,575 287 182 - - - West Germany na na na 5 1 200 789 140 177 42 47 1,119 - - - - - - Netherlands na na na 2,906 382 131 11,066 1,474 133 26 37 1423 8,751 1393 159 - - - Italy na na na 341 32 94 1,092 349 320 93 52 825 6,507 626 96 - - - EFTA na na na 1,716 353 206 22,064 3,464 157 4,195 827 197 8,253 1,860 225 - - - United Kingdom 19 14 737 - - - 13,118 1,805 138 1,066 287 264 1,713 388 227 - - - Austria na na~ na 17 2 118 639 102 160 275 46 167 800 190 238 - - - Portugal na na na 34 8 235 322 66 205 387 69 178 46 18 391 - - - Sweden na na na 1,138 252 221 2,413 473 196 785 142 182 2,118 504 238 - - - SINO-SOVIET na na na 9 1 111 330 56 170 45 42 933 176 43 244 - - - WORLD 2,830 1,743 616 20,921 3,231 154 82,983 14,888 179 18,755 3,822 204 44,374 8,237 186 19,591 2,564 131 (Continued) PAGENO="0294" APPENDIX TABLE K-page 2 EXPORTS OF FLAT GLASS OF THE PRINCIPAL NON-COMMUNIST COUNTRIES PRODUCING FLAT GLASS, JANUARY-JUNE 1967 (As Reported by the Exporting Country) FROM: UNITED STATES2 FROM: UNITED KINGDOM FROM: BELGIUM FROM: FRANCE FROM: WEST GERMANY FROM: JAPAN Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Tons Value Value Tons Value Value Tons Value Value Tons Value Value Tons Value Value Tons Value Value bOOs) lOGOs) bOOs) 1000sf 1000sf bOOs) SITC 664.4 Glass in Rectangles, Surface Ground.or Polished DESTINATION OF EXPORTS: UNITED STATES - - - 2,164 565 261 9,284 3,406 367 4,421 1014 229 2,595 667 257 16,966 3,879 229 JAPAN 480 244 508 272 89 327 10 5 500 15 2 133 5 2 400 - - - CANADA 14,489 6,288 434 4,483 1271 284 1.591 601 377 343 123 359 284 118 415 261 85 326 EEC na na na 2,839 923 325 13,671 4,373 320 12,185 2,082 171 10,603 1,474 139 - - - Belgium 280 114 407 12 5 4~7 - - - 1,234 182 147 7,219 810 112 - - - France 131 102 779 45 30 667 5,937 1,916 323 - - - 564 188 333 - - - West Germany na na na 1,133 450 397 3,387 996 294 10,781 1.735 161 - - - - - - Netherlands na na na 1,193 342 287 2,356 651 276 2 2 1,000 2,607 385 148 - - - Italy 353 113 320 456 96 211 1,991 810 407 168 163 970 213 91 427 - - - EFTA na na na 1,163 403 347 5,790 1,805 312 2,358 802 340 2,604 831 319 - - - United Kingdom 85 49 576 - - - 3,475 1,023 294 874 266 304 644 180 280 - - - Austria na na na 80 30 375 456 163 357 72 27 375 348 123 353 - - - Portugal na na na 26 8 308 272 60 221 364 130 357 87 12 138 - - - Sweden na na na 325 132 406 428 180 421 178 82 461 117 52 444 - - - SINO-SOVIET sa na na 24 13 542 280 72 257 - - - 76 26 342 - - - WORLD 20,004 9,113 456 28,660 8,907 311 37,376 12,488 334 25,069 5,609 224 17,139 3,431 200 19,452 4,667 240 United States exports obtained from Schedule B 6640110. (Sheet Glass in Rectangles, unworked). sq. ft. converted to lbs. at a ratio of 1.16 lbs/sq.ft.(United States Tariff Commission). 2 United States exports obtained from Schedule B 6640120 (Glass, Plate & Float, in Rectangles, unworked or surface ground or polished, excluding safety). Sq. ft. converted to lbs. on the basis of 3/16" average width estimated at 2.25 lbs. per sq. ft. on Source: OECD, Commodity Tradst Exports, January'June 1967. PAGENO="0295" APPENDIX TABLE L IMPORTS OF FLAT GLASS OF THE PRINCIPAL NON-COMMUNIST COUNTRIES PRODUCING FIAT GLASS, JANUARY-JUNE 1967 (As Reported by the Importing Country) TO: UNITED STATES TO: UNITED KINGDOM TO: BELGIUM TO: FRANCE TO: WEST GERMANY TO: JAPAN1 Metric- Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Tons Value Value Tons Value Value Tons Value Value Tons Value Value Tons Value Value Tons Value Value - (000s) l000s) (COOs) (000s) l000s) l000s) SITC 664.3 Drawn or Blown Glass, in Rectangles ORIGIN OF IMPORTS: UNITED STATES - - - - - - - - - 1 JAPAN 8,718 1,668 191 - - - CANADA 947 144 152 - - - - EEC 46,318 8,005 173 13,886 2,360 170 2,075 519 250 5,309 841 - 158 4,627 752 163 644 207 321 Belgium 26,973 4,091 152 11,144 1,622 146 - - - 874 140 160 513 91 177 - - - France 3,578 896 250 1,183 337 285 1,513 240 159 - - - 42 48 1,143 46 41 891 West Germany 10,963 2,309 211 1,546 393 254 218 160 734 1,544 254 165 - - - - 598 166 278 Netherlands 89 24 270 13 B - 62 172 90 523 - - - 80 15 188 - - - Italy 4,715 685 145 - - - 172 29 169 2,891 447 155 3,992 598 150 - - - EFTA 9,366 1,486 159 1 1 1,000 1 3 3,000 26 United Kingdom 8,073 1278 158 - - - 1 2 2,000 - - - Austria 627 101 161 - - - - - - - - Porwgal 266 29 109 - - - - - - - - ,S~veden 377 57 151 1 1 1,000 - - - - - SINO-SDVIET 10,975 903 - 82 3,287 207 63 242 15 62 - - ~ 3,951 381 96 1,379 86 62 - - - - - Czechoslovakia 1,788 144 81 321 24 75 - - - - - East Germany 45 3 67 - - - 242 15 62 - - Poland 3,198 232 73 1,121 71 63 - - - - - WORLD 88,043 13703 156 17,180 2,569 150 2,318 537 231 5,336 850 159 5,060 821 162 644 219 340 1 1,001) 9 12 1,333 C;' 8 308 87 27 310 - - - - 5 1 250 - - - - 10 6 600 - - - - 347 32 92 - - - - 283 28 99 - (Continued) PAGENO="0296" APPENDIX TABLE L-page 2 IMPORTS OF FLAT GLASS OF THE PRINCIPAL NON-COMMUNIST COUNTRIES PRODUCING FLAT GLASS, JANUARY-JUNE 1967 (As Reported by the Lmportin~ Country( TO: UNITED STATES TO: UNITED KINGDOM TO: BELGIUM TO: FRANCE TO: WEST GERMANY TO: JAPAN2 Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Metric Dollar Unit Tons Value Value Tons Value Value Tons Value Value Tons Value Value Tons Value Value Tons Value Value (000sl I000sI (000sl (000sI (000s( l000sl SITC 664.4 Glass in Rectangles, Surface Ground or Polished ORIGIN OF IMPORTS: UNITED STATES - - - 98 53 541 214 66 308 233 96 412 - - - 187 100 535 JAPAN 13,304 4,674 351 - - - - - CANADA 176 62 352 148 66 446 - - - EEC 16,676 5,779 347 5,398 1,631 302 8,599 1,054 123 6,938 2,009 290 15,716 3,129 199 22 10 455 Belgium 9,634 3,230 335 3,669 1,046 285 - - - 5,726 1.642 287 3,388 971 287 11 5 455 France 3,329 1,132 340 864 279 323 923 94 102 - - - 11,015 1,817 165 11 3 273 West Germany 1,966 929 473 724 235 325 7,087 817 115 463 188 406 - - - - 2 - Netherlands 44 22 500 35 45 129 84 42 500 - - - 43 35 814 -. - - Italy 1,703 466 274 106 26 245 505 101 200 749 179 239 1,270 306 241 - - - EFTA 1,538 578 376 1 4 4,000 36 4 111 16 9 563 1,211 475 392 165 120 727 United Kingdom 1,538 566 368 - - - 6 1 167 6 4 667 1,205 468 388 165 120 727 Austria na na na na na na na na na na na na na na na na na na Portugal sa na na na na na na na na na na na na na na na na na Sweden sa na na na na na na na na na na na na na na na na na SINO-SOVIET - - - 24 4 167 4 1 250 - - - 1 4 4,000 - - U.S.S.R. na na na na na na na na na na na na na na na na na na Czechoslovakia na na na na na na na na na na na na na na na na na na EastGermany - - - - - - - - - - - - - - - - - - Poland na na na na na na na na na na na na na na na na na na WORLD 31,979 11,175 349 5,669 1,788 310 8,877 1,127 127 7,185 2,115 294 16,928 3,608 213 384 230 599 Quantity values given in sq. meters were converted into metric tons on the basis of a ratio derived from Canadian and U.S. values on the assumption that the value of imports to these two countries would be comparable (ratio: .0092 T/sq. m.) 2Quanfity values given in sq. meters were converted to metric tons on the basis of a ratio for 3/16" average estimated at 24.219 Ibs./sq. meter. Source: OECD, Commodity Trade: Imports, January'June 1967. 0 PAGENO="0297" 1567 The CHAIRMAN. Thank you, Mr. Stewart, for your fine statement. Mr. Betts. Mr. BE~1TS. Mr. Stewart, I would be interested to know if any/action was taken under the adjustment assistance provisions with respect to `the 7,000 people who became unemployed. What happened? Mr. STEWART. The first thing that happeiied was an escape clause remedy an4 that remedy has been set aside by the President and sharply modified and the Government has sent a task force around to visit each plant to discuss with the workers and management at the plants what course of action might be followed to transfer those work- ers who are still employed and on our payrolls from their jobs in the flat glass industry to other employment if the President removes the remaining escape clause rates in 1970, so the Government is exploring whether or not adjustment assistance would work for these workers and each time they have visited these plants the whole community has been up in arms and has met with these people to demonstrate to them the effect on the communities. `There have been two instances in which adjustment assistance under the Automobile Act, the Canadian-United States Automotive Parts Trade Agreement Act, was requested for workers in flat glass plants whose jobs were deemed to be affected by the transfer of production to Canada. I may say in regard to our exports to Canada, which have been substantial up until now, we now expect and are experiencing a sharp decline in 1968 because the automobile companies in Canada to meet the Canadian requirement of their automobile manufacture are being forced to use Canadian glass produced by the subsidiary of Pilkington of the United Kingdom. Adjustment assistance would not work because you cannot find a job paying $3.60 an hour for a skilled glass worker in some other industry either in that community where he lives or elsewhere, and we believe that this is the judgment that the Government's task force may be coming to. Mr. BETTS. So, in other words, the people are still employed and the Gdvernment is still investigating, is that it? Mr. STEWART. That is correct. Mr. BETTS. As usual I am very much impressed with your statement. Mr. STEWART. Thank you, Mr. Betts. The CHAIRMAN. Mr. Schneebeli. Mr. SCHNEEBELI. Mr. Stewart, quite a few of our basic industries are being jeopardized in the matter of reduction in employment similar to `what you outlined in the glass industry. You have had a lot of ox- perience in this field and I've always found that you have a common- sense approach to these problems, so I am looking to you for advice. PAGENO="0298" 1568 Which of the several avenues of recourse that industries might have in the area of overwhelming foreign completion do you recommend as the more commonsense approach and which will have the least impadt as far as our foreign trade is concerned with regard to retalia- tion or reciprocal action from our leading trading partners? Mr. STEWART. Mr. Collier's bill, H.R. 17674, aside from the textile bills, as to which we take no position because of the eminence of their sponsorship and the great amount of thought the textile industry has naturally given its own problems, but as to all other industries, H.R. 17674 would have the minimum impact and generate the minimum amount of retaliation for these reasons. First, the base period selected is a very recent period and there is not a significant rollback. Second, the President is armed with the authority after the quotas go into effect to enter into trade agreement negotiations with the affected countries and to liberalize the quotas under guidelines. We believe that common, hard-headed business sense enters the pic- ture here. A country and its industry exporting to the United States would rather hold on to the business they have and provide for im- proving their position in the future than risk the loss of a significant amount of their business as the market grows in the future. Therefore, we think that these countries would negotiate as they did in the long-term cotton textile arrangements instance under the auspices of (}ATT, and by negotiating and agreeing to a formula they dissolve their capacity or their right to retaliate. Mr. SOHNEEBELI. Do many of our friends with whom we have a great amount of foreign trade take the import quota route? Do they use import quotas? Mr. STEWART. Import quotas are used selectively by almost every major trading nation. They are no longer used on a broad-scale basis and, indeed, there is not the necessity for other nations to consider it in equal measure to us because we have accorded their industries access to our market. Mr. ScHN~m~I. On the residual list that we experience with Japan, what type of restriction is paramount in this list of 120-plus items that Japan uses? Mr. STEWART. Japan retains the right at any time to require import licensing. The fact that they now have an open general license does&t mean that they have forfeited the standby ability. Second, in Japan the restriction that really works is this. If you wish to export to Japan you must find a trading company, because trade is carried on in Japan on the basis of trading companies. The existing trading companies that have the means of distributing your products are already locked into trading products of established PAGENO="0299" Japanese companies so you begin~ with a disadvantage of being unable tO get someone to represent you. But if you do find someone prepared to import your product, he must go to his bank for foreign exchange. That bank must get ap. proval of his request for foreign exchange from the central bank of Japan. If it is a competitive industry and competitive products, it just tunis out that the approval is not granted or is so long delayed that the venture has to be abandoned. Mr. SCHNELEBELI. Thank you very much. The CHAIRMAN. Mr. Broyhill. Mr. BROYHILL. Thank you, Mr. Chairman. Mr. Stewart, is the glass that is imported the same quality, the same finished product, ~s the flat glass that we export? Mr. STEWART. Yes, it is, with the possible exception of imported glass from Iron Curtain countries. Czechoslovakia is a case in point. Their window glass has in the past been of very low quality and is therefore sold at distressed prices, but as to the other producers it is high quality glass, absolutely suitable for our glass. Mr. BROYHILL. The only difference being the price itself. Mr. STEWART. Correct. Mr. BROYHILL. How were you able to get $34.5 million in exports in 1967 and $89 million in imports? That appears on page 4. Am I reading it correctly, $89 million in imports? Mr. STEWART. That is correct. Mr. BROYHILL. In 1967, $34 million in exports and by and large they are similar in quality and in types of finished products? Mr. STEWART. Yes. As we explain on subsequent pages of the state- ment, the exports to Canada äecounted for about, as I recall, 15 per- cent of our exports and they consisted of at that time in 1967 transfers of glass to U.S.-affiliated plants in Canada to be made into glass for automobiles, which business we are now about to lose and the exporta- tion of automobiles. Mr. BROYHILL. How could we have that much in exports if it is such a bargain to import, to buy $8 million worth, which apparently is at a lesser rate. How would we ever export any glass? Mr. STEWART. This industry has served the U.S. automobile indus- try very closely. The U.S. automobile industry, as you know, is the companies that have the plants in Canada and without this Can'adiah content requirement we would have continued to supply glass for those automObiles but now that the U.S. companies are trying very hard to reach their Canadian content requirement they must turn to glass of Canadian origin and so we are going to lose out on those exports. Mr. BROYHILL. Thank you. The CHAIRMAN. Any further questions? Mr. Ullman. Mr. ULLMAN. Mr. Stewart, you have impressed us with the extent of the problem in the industry that you are speaking for. I am very PAGENO="0300" 1570 much conc8r~1ed with what is happening but I also have a lot of problems with the alternatives. You are recommending legislation that would generally impose quotas, `would it not? Mr. STEWART. It would impose quotas on five basic industries and p~rovide `machinery under whhth other industries might qualify in a Tariff Commission investigation for quotas. It would in each instance, however, then authorize the President the negotiate with the affected countries for a liberalization of the qu'ota plan under guidelines spe- cified in the legislation, including a growth formula. / Mr. ULLMAN. The Government `then would be directly in the business of dividing up the marketplace, is that right? Mr. STEWART. Well, the initial quotas are based upon the division that has resulted in the marketplace. The subsequent allocation for- mula would `be proportioned to the growth of the market which again is reflection `of what `the marketplace itself has determined in the past and the right of the President to negotiate to liberalize that `means, as in the case of cotton textiles, the affected countries `could recognize the problem and mutually solve it in a~ way which did not curtail the trade of `any of them. There is no reason why, having worked in cotton textiles, it could not work in other basic industries. Mr. tTLLMAN. Well, I have heard a lot of witnesses who would be very much concerned about the Government actually getting into' the business of setting up the quotas, dividing up the marketplace, rigid formulas. Is there any new way that it could be administered that would allow the flexibility that you need in the market? Mr. STEWART. I think this is a very helpful point, Mr. Ullman, and I appreciate your raising it. Consider the alternative to the Govern- ment doing it first by statute to provide a basis and then by nego- ti'ati~n. The alternat:ive in the flat glass industry is that the world market will be divided up by cartels from which the U.S. industry is excluded. Is that to be preferred over a system in which all of the govern- ments sit down and on the basis of equity with some congressional guidelines accomplish a more fair division? We think that lihere is a need in this instance because nothing else can accomplish it than for the Government `through negotiation to do it. Now, as to those who protest Government intervention, I wonder what they think trade agreement negotiations over the past 30 years have been. When the Government decides to reduce duties they make a decision to alter the conditions of competition between the domestic and the foreign industries and systematically they have done it with the enthusiastic endorsement of those who now say that judgment PAGENO="0301" 1~71 applied by the Government in the context of quotas would be Gov- ernment interference. I submit they can't endorse the one and oppose the other on principle. Mr. ULLMAN. What machinery in the legislation that you are rec- ommending would be set up? Who would make the decision as to what the nature of the quota would be in each instance? Mr. STEWART. Initially the global quota would be imposed by the terms of the statute and the Secretary of Commerce or Agriculture would divide that up among countries by commodity category, but thereafter without limit as to time or amount the President would be authorized to negotiate with the affedted countries to achieve an equF' table state of affairs in regard to the regulation of U.S. imports, so that the President has the final decision but Congress provides the platform, the backlog, in relation to which those negotiations would be carried out. In other words, the legislation creates a negotiating position. If you are going to negotiate each side must have a negotiating position. With- out such legislation we cannot create `a negotiating position. The Canadian-American Committee of the National Planning As- sociation published a study entitled, "Constructive Alternatives to Proposals for U.S. Import Quotas." On page 26 in the third paragra'ph, after discussing the different types of quota bills, this report states: Of the three type's of quotas illustrated here, this alone would bring no immedi- ate cut in imports and cause the least impairment thereafter. The quota pro- posals for flat glass and consumer electronic products would appear to have this affect owing to their pacticular reference levels. Here is a free trade evaluation of a number of quota proposals say- ing that the principles of the flat glass bill would cause the least' harm and be the fairest, and I submit that apart from my testimony you should consider what this particular group has to say about the flat glass bill. Mr. ULLMAN. On another point, to what extent are imports in the industry `that you represent coming from American subsidiaries abroad? Mr. STEWARL Very little. There are plants in Canada and in connec- tion with the automobile agreement there is some two-way movement there, but that is minor. One of the companies has an ownership interest in an Italian company which is quite new. It is a new company and' a new plant. That plant is coming on stream with production. It i's my understanding that what might be regarded as token amounts of the output of that plant have come into the United States and tha't the American company concerned `has gone to the Com- merce Department and said, "If we do not get some relief from this import problem we will have to transfer our future output capacity to Europe and begin bringing in imports from these plants. This plant PAGENO="0302" 1572 was establ'ished to try to serve the common market but we can't get into the common market under their nontariff barriers," so the answer in summary is not yet significant, `but very likely it could become significant in the future if there is not some remedy. Mr. ULLMAN. Thank you. The `CHAIRMAN. Any further questions? If not, again, Mr. Stewart, we thank you, sir, for coming to the committee. Mr. STEWART. Thank you, Mr. Chairman. The CHAIRMAN. Rear Adm. Harry Hull, If you will identify your- self for our record we will be glad to recognize you, sir. STATEMENTS OP REAR ADM. HARRY HULL, EXECUTIVE DIREC- TOR, INTERNATIONAL CENTER OP NEW ENGLAIQD; ACCOMPA- NIED BY A. DEVEREUX CIIESTERTON, DIRECTOR; AN]) PROP. DAVID r. ASHTON, DIRLECTOR `Admiral Hur~L. Mr. Chairman and gentlemen, I am Harry Hull, executive çlirector of the International Center of New England. I am accompanied by Prof. David Ashton of Boston University and Mr. Devereux Chesterton, chairman of the board of A. W. Chesterton & Co., `both of whom are directors of the International Center. It is a pleasure to appear before this committee to present the views of the, Center in support of the proposed Trade Expansion Act of 1968. The International Center of New England is a private nonprofit membership corporation representing more than 1,000 members, in- cluding manufacturers, exporters, importers, all aspects of business life in New England. It was organized by businessmen who recognized the vital importance of international business to the growth of their companies and to the growth of the region's economy. Its objective is the expansion of New England's international commerce for the bene- fit of member companies, the national economy, and the cause of world peace. The center supports the proposed Trade Expansion Act `of 1968 for the reasons given in the message of the President which accompanies the draft bill. The center particularly supports the extension of the President's trade and tariff negotiating authority and the improvement in adjustment assistance to American firms and workers who may need some form of aid in responding to competition from imports. You have heard many arguments on these matters and we have followed them as reported in the press. Looking f or something new to submit to you I should like to quote two sentences from a speech PAGENO="0303" 1~73 given to the New England Council last Frida.y, June 14, by G. Law- ton Johnson, formerly a steel executive, now vice president and direc- tor of Boyden & Associates, Inc., of New York, one of the leading executive search firms in America. Mr. Johnson's opening sentence was: I should like to talk to you today about the futility of trying to copo wttb ~he future by living in the past. Later he said: The need to respond thoughtfully and aggressively to change in virtually all fields has never been more urgent. The complexities of world trade, the opportunities it offers to expand world markets, and the swiftness with which changes will take place make the extension of the President's negotiating authority in this most vital field a most urgently important matter. Correspondingly, in this coming period of rapid change a~id rapidly expanding world marS kets a few American industries, companies, and labor forces which ma7 be injured by increased competition from imports, may require assistance in adjusting to the changes. The improvements in adjust- ment assistance in the proposed act are the best solution to this problem that has come to public notice so far. Import quotas are not a feasible alternative. They fall in Mr. Johnson's category of a futile effort to cope with the future by living in the past. Mr. Chairman, 1 will be followed by Prof. David Ashton, chair- man of the International Business Department at Boston University, and the man who is most responsible for the development of State and regional statistics on exports. Professor Ashton will explain the im- portance of international commerce to New England's industry and economy today and can answer any questions you may have in this area. The CHAIRMAN. Professor Ashton. STATEMENT OP PROF. DAVID J. ASRTON Mr. ASHTON. Thank you, Mr. Chairman. My name is David 3. Ash- ton. I am professor of international business and international cur- riculum coordinator at the Boston University College of Business Ad- ministration. I am pleased to appear here today with Admiral Hull and Mr. Chesterton on behalf of the International Center of New England, Inc. I have been a member of the center and of its predecessor organization, the World Trade Center, in New England for the. past 10 years and am presently serving as a director and~ as chairman of the center's educational relations committee. I also serve as consultant to the Federal Reserve Bank of Boston and to the New England Re- PAGENO="0304" 1574 gional Commission, the two organizations which have in recent years been most concerned with and involved in trying to appraise and measure the international component in the New England economy. Time limitations today prevent any detailed discussion of the analy- sis which has produced the conclusions and recommendations I am about to present but I shall, of course, be glad to respond to any ques- tions or comments which your committee members or staff may have. The facts which I shall present here and much more will shortly be submitted to the New England Regional Commission in the form of a research monograph, which I hope that the commission, in its wis- dom, will decide to publish, but which I feel sure would be available to jour committee in any event, should you request it. I also note from the schedule that you are scheduled to hear my colleague, Professor Bender of Holy Cross, sometime during the day and I am sure he will have a good deal of interesting comments re- gardin~ the New England Regional Commission. Admiral Hull has already identified `the specific constituency that we represent here today, that is, the International Business Com- munity of New England. But in the regional context, I think, our constituency is much broader. We speak, really, for all those who bene- fit from vigorous competition and reduced barriers to trade; the con- sumer whose cost of living is lower and whose market choices are broadened; the producer whose materials and component inputs are available in greater variety and at lower cost; the exporter whose access to distant markets is improved; the worker and investor whose affiliation with competitively competent enterprises is reflected in higher wages and higher profits; and, yes, even the import-competitive producer who is stimulated to greater adaptability and ingenuity by the competitive challenge. We are convinced that our country's liberal trade policies of the last 35 years have been good for the Nation as a whole, and for New England in,particular. We appear before you, therefore, not as plead- ers for a narrow, particular interest, but to advocate the continuation, and amplification of a policy which has led the major trading nations of the world out of the self-destructive and exclusive nationalism of the 1930's and into two post-World War II decades of unprecedented world trade and prosperity. We advocate competition, Mr. Ohairman. as representatives `of a region which has been transformed by competition, both domestic and and foreign. We have been transformed from an area noted for stodgy manage- ment, and obsolescent plant, and an uncomfortable dependence on im- port competitive soft goods industries which had serious difficulty competing with other regions in the United States, let alone with efficient producers abroad. This 20-year transformation process, which has not been without its moments of anguish, has seen the industrial structure changed to one where competitive durable goods producers now constitute 55 percent of our region's manufacturing activity com- pared with only 43 percent in 1947, with a resultant commensurate improvement in profits and wages. Today our region's 32 major industries, each of which employs better than 1 percent of our region's industrial workers, are export- PAGENO="0305" oriented rather than import competitive. Directly competing imports j average only 2 percent of their annual sales compared with a 5 percent national average and only five of these 32 experience competing im- ports above this 5 percent national norm. These five industries, inci~- dentally, operate behind protective tariffs which now average 30 per- cent ad valorem. Contrasted with this import-competitive sector which employs about 6 percent of our region's workers the 22 export-oriented industries account for abOut one-third of the region's industrial em- ployees, that is, nearly six times as much. Moreover, these exporters are more representative of the industrial diversification into those newer industries which are strongly oriented toward recent scientific and technological developments, although the region's veteran world competitors, such as the machinery and in- struments groups, are also `strongly represented here. It is the success of these manufacturers at home and abroa:d which has helped to close the gap which had opened following World War II between economic growth in New England and the rest of the United States. Altihough our region's economic growth is not yet up to the national standard the resurgence of competitive capability which in the 1960's has closed the gap from the 33 percent of the mid-fifties down to 10 percent at the present time this competitive resurgence has been due by and large to the national and inter- national growth of this newer breed of industries.. In the near future the Kennedy round tariff reductions which have been contracted for by those countries which are our best customers overseas offer very attractive prospects for our' export expansion, es- pecially if our trade policy in discussions of the future can be devoted, as Ambassador Roth and many others have recommended, to the elimination of non-tariff barriers to trade and the elimination of hid- den export subsidies on the part of these foreign trading partners. We see no hope for this kind of progress, however, if the President's negotiating authority is not renewed or if we and our trading partners succumb to the temptation to initiate a self-defeating and retalia- tion-provoking round of quota legislation. We are not unmindful of the need for protection and administrative relief of certain producers under certain circumstances. We believe, however, that the combination of the protection of defense-essential industries, the provisions of the antidumping laws if effectively administered, and also the adjustment assistance provisions.contained in this and other legislation are sufficient to meet these needs. But you may reasonably ask, I think, despite the statistics and abstract logic, Is it still reasonable to expect that a small- or medium- sized U.S. manufacturer, of which our region has many, can survive without high tariffs or low quotas when his Italian or Japanese competitor, let us say, pays only one-fifth- or one-tenth of the wage rates that he must pay. I believe that I could make a convincing aca- demic case than this is often possible, but the business career of the third member of our delegation, Mr. Chesterton, is actual living proof of this and at this point, therefore, Mr. Chairman, I should like to thank you for this opportunity to speak and yield to Mr. Chesterton. The ChAIRMAN. All right. 95-159 O-58--pt. 4-20 ` PAGENO="0306" 1570 STATLME~IT OP A. DEVER~ETTX CH~STP~TON Mr. CHESTEIcPON. I appreciate this opportunity to express my views on our tariff policies, particularly as they affect our whole economy and our relations with other nations. First of all, I would like to tell you briefly about our company be- cause the views which I express are largely determined from my own personal selling experiences throughout the world. Our company manufactures what are known as mechanical pack- ings. These are products used by industry wherever gases or fluids must be sealed. Meohathcal packings come under a general classifi- cation ~f textiles as they are made from cotton, flax, jute, asbestos, rub- ber, fiber, and these in turn are twisted, woven, or braided in much the same manner as-other textile products. Mechanical packings are as old as steam so the industry goes back at least 150 years. I point this out in contrast to such enterprises as the new electronic industry wherein markets are being created daily. Our markets, like textiles, are old and, like most old industries, are highly competitive. In selling through the world we must compete with other foreign manufacturers who have some advantages, or what would on the surface appear to be advantages, over us. One is price, selling prices which are considerably below ours in the world market, about 331/3 percent, in the case of English packings with their preferential markets, at least 50 percent. Most importantly, though, British packings are introduced throughout the world by the requirements of their merchant marine. In every port their ships visit, stocks of British packings are required, which automatically gives the English worldwide sales representation. These are the disadvantages we have to overcome to compete in the world market. Here at home we sell at the highest prices in the TJ.S. market. I point this out solely because even being the highest priced company in Amer- icaand by far the highest priced in the world we have in a period of 8 short years come from practically a standing start to the largest ex- porters of packings in the United States and the second largest in the world. And mind you, we have to compete not only with American manufacturers, but against the English who get a free ride from their merchant marine usage, `and local manufacturers in countries like Ja- pan, France, Germany, Australia, India, Italy, Chile, Argentina, Bra- zil et cetera. The local manufacturer has lower costs and no duty or freight to contend with. Their net costs are easily one-half ours. Because of our success in overcoming this competition we were awarded at a White House ceremony the Nation's 500th E award. My point is not to belabor you with all these details, but rather to show that American goods, even when highly priced, can be sold not only here at home but in world competition. The reason that high- priced merchandise can be sold is that not everyone wants the lowest price. If all people bought only the lowest priced items we would all be riding around in Volkwagens and General Motors would not even exist. The problem I find and why we are worried about competition, is that American manufacturers are suffering from a massive inferiority PAGENO="0307" \,, .\ complex. What we should be doing for our own good is to do away with all tariff barriers and quotas and let our manufacturers discover that they can successfully compete, right here in the United States. When they discover they can compete against foreign manufactured products in the markets of New York, Chicago, Boston, and St. Louis, then they will realize they can also compete with the same manufacturers in London, Paris, Tokyo, and Berlin. Knowing this they will have the confidence to get out and sell in the export markets, which today most manufacturers are reluctant or afraid to do. Maybe you will think that the Chesterton record is an isolated phenomenon, but let me tell you about a far more dramatic case, that of a young man by the name of Speners Love who came to Massachu- setts in the early 1980's and invested in, of all things, a textile mill in Massachusetts. This at a time when all the other textile plants were abandoning New England like a sinking ship. Fall River, New Bed- ford, Lawrence, Lowell, once great textile centers, were becoming deserted villages. Interestingly enough, most of those who moved out and went south eventually failed. But young Mr. Love who kept on plugging and plodding, finally became the largest textile manufacturer not just in Massachusetts, or in New England, or in the United States, but in the entire world. His empire consists of 80 plants in 43 coun~ tries. Mr. Love's creation is known as Burlington Mills, and in case you think this is ancient history we are talking about, Mr. Love was just. my age. So this is the point. If you have the imagination, drive, determina- tion, you can succeed anywhere, even in the toughest of businesses, against worldwide competition. As a matter of fact, we Americans are the greatest businessmen in the world, and we are the world's greatest selling country. As an example, we even sell ballpoint pens in Japan, cameras to Germany, watches to Switzerland, and yes, even whisky to England. We Amen- cans can sell anything and we do. With 6 percent of the world's popula-, tion we do 33 percent of the world's trade and in doing so we sell $4 billion more than we import. So should we with all this evidence before us establish restrictive quotas or raise tariff rates? Are we crazy? Have we lost our good sense? Are we going to `shoot our own Santa Claus and invite retalia- tion? Can you imagine the consequences of such action should we, for instance, impose restrictive quotas on Canadian newsprints? Canada is our best customer. We are exporting to her over $6 billion worth of merchandise a year. Can you imagine what this good customer, who buy~ far more from us than she sells to us would do' if we took such unilateral action? Let me tell you `about restrictive quotas, and that is what. quotas are, restrictive, so let's not kid ourselves about this. Some 8 years ago Mexico bought over 50 percent of all our company's exports. They were our No., 1 customer. Then one day Mexico got the idea that they should restrict imports on our line to protect their own industry. Tariffs, already high, were not high enough, so they resorted to quotas. Here is `how quotas work in reverse. We haven't sold onesingle dollar's worth of packings in Mexico since they adopted the quotasysteni `and, gentlemen, any country can do the same to anything we manufacture PAGENO="0308" if we give them half an excuse to do so. Our establishing quotas, no matter how small they will be, will eventually involve us in a trade war which we can only lose. Another thing, we are a nation of consumers as well as producers. The consumer also has a right to be protected. The only way a con sumer can protest against rising prices or against rising inflation taking place is in the marketplace. If the consumer feels, for instance, that $45 is too much to pay for a pair of shoes, he can show his dis- approval by buying `a $15 imported shoe. This is the only way the con- sumer can protest, and I believe the consumer has a right to' express himself or herself and to do so loud and clear. Without some protest, some brakes applied, prices and wages, already exorbitantly high in some industries, will reach `astronomical proportions. I was in Germany, gentlemen, after World War I and I had occasion to buy an umbrella there that cost 18 billion marks. Mind you, the mark before inflation had been worth 25 cents in U.S. money. Of course wages were high, too. The working man was making a billion marks an hour, but he had to carry a travel bag with him just to carry around his marks. Should a like inflation take place in the United States unibrellas would sell for $41/2 billion apiece. My point is that at this time we can use a little restraint and allow the consumer the oppor- tunity to protest against rising price's and inflation. To do this we must maintain an open market. More alarmed than I am about all these problems, am I alarmed about the fact that we-supposedly responsible citizens of the world's richest and most powerful Nation-are gathered here today to discuss whether or not we shall abrogate our pledge. What has happened to our integrity? What has become of the integrity of our signature and our solemn word? We are here debating whether we should break our vows and tell the whole world that America is today without principle, that immedi- ate monetary gain means more to us than our pledges, that we as a nation no longer abide by our promises, that we have lost our integrity. We have only just completed the Kennedy round of tariff reduc- tions. The ink is hardly dry. Establishing quotas is no more and no less than a circumvention of our GATT agreements. At this time the whole world looks to us for leadership and example, and here we are not really debating quotas and tariffs, for these are only the outward manifestations of our acts. What we are doing is deciding now, right now, and once and for all whether America does or does not abide by its word. .Just after the last war I was talking to one of our Peruvian custom- ers and in the conversation he ventured the thought that America should run the world. I protested and said that were we ever to do such a thing as that we would be hated by every nation on earth. He replied, "It does not matter, this is America's destiny." I have thought a lot about this remark since then. It may be our destiny to run things, but I do believe that the mantle of leadership has been thrust on us. Per- haps this is destiny, but whatever it is, and under whatever name it is called, we have a terribly grave responsibility. This is our time in destiny. This is the time when America must lead the world. We cannot, we mi~st not, fail. The whole world watches PAGENO="0309" us and right now you gentlemen in this room are in the spotlight of history. Frankly, I believe that our integrity in the matter of GATT pledges is so important that even if we had to grovel, so to speak, in the dirt we should do so rather than letting the world down through selfish, self-centered, and, if I may say so, dishonorable action. When I was a child, my grandfather used to take me on his lap a~nd say, "Devereux, my word is my bond." Fifty, yes, 60 years have passe4. I have forgotten what my grandfather looked like, but I still keep hearing his words ringing out, "My word is my bond." What will the next and the next and the next generation of world inhabitants think of America? Will they be able to say, "There was a great freedom- loving country, whose word was its bond"? Thank you. The CHAIRMAN. Thank you, gentlemen, for bringing us the views you have expressed. Are there any questions? If not, we thank you very much. Admiral HULL. Thank you. The CHAIRMAN. Mr. Kintner. if you will identify yourself for our record, we will be glad to recognize you, sir. STATEMENT OP EARL W. KINTNER, BRITISH-AMERICAN CHAMBER OP COMMERCE OP NEW YORK; ACCOMPANIED BY DEREK LEE, PRESIDENT, AND DAVID PACY, VICE PR~F'~SIDENT OP THE CHAM- BER; AND MARK R. ~OELSON AND ANGELO'S CLONES Mr. KINPNER. Mr. Chairman, and distinguished members of the committee, my name is Earl W. Kintner, and I am a member of the Washington law firm of Arent, Fox, Kintner, Plotkin & Kahn. I am appearing before you today on behalf of the British-American Chamber of Commerce of New York, a New York corporation. The British-American Chambers of Commerce of the Midwest, of the Pacific Southwest, and of San Francisco wish to be associated with, and support the views expressed in this statement. I am accompanied here at the table by Mr. Derek Lee, president of the chamber, and by Mr. Mark Joelson, a member of my law firm. I am also accompanied here today at the hearing by Mr. David Pacy, vice president of the chamber and by Mr. Angelos Clones, who is an economist and employee of my law firm. The CHAIRMAN. Mr. Kintner, we are pleased to have you and the others you have mentioned with us today. You are recognized, sir. If it is necessary for you to omit parts of your statement in order to comply with our situation, do so with the knowledge that your full statement will appear in the record. Mr. KINTNER.' Mr. Chairman, I will summarize my statement very briefly and ask that the statement be printed in full in the record at this point. The CHAIRMAN. Without objection, it will be included in the record following your oral `statement. Mr. KINTNER. The British-American Chamber of Commerce of New York has for its basic purpose the expansion of trade in both direc- tions between the United States and the United Kingdom. More than 80 percent of the chamber's members are American citizens, American PAGENO="0310" 1580 firms or American corporations having a principal office and place of business within the United States. The chamber attached very great importance to safeguarding and increasing the flow of international trade. We therefore support the legislation which the administration has proposed to the committee. In sum, we believe that broadened international commerce, unob- structed by artificial barriers, is in the long-term interest of the United States, as well as its trading partners. Turning to the specific subject of trade with the United Kingdom we would point out that it brings about substantial and broadly equal benefits for both partners. The United Kingdom is the third largest ex- port market for U.S. products, while the United States is the largest British export market. Trade between the two countries has steadily expanded over the last 10 years. In 1958 U.S. exports to the United Kingdom amounted to $905 million and by 1967 had risen to $1,960 million. Over the same 10-year period, imports into the United States from the United King- dom increased from $864 million to $1,710 million. The United Kingdom market is of major importance for a number of U.S. industries and branches of agriculture, particularly, for in- stance, tobacco, corn, synthetic resins and plastics, office machinery, paper and paperboard. Moreover, trade with the United Kingdom has consistently yielded a balance in favor of the United States. In the last 10 years there have been only 2 years in which we had an adverse balance; and the total surplus of exports over imports exceeds $1.8 billion over the 10 years. A number of those who advocate the imposition of new restrictions on trade claim that this would be no more than reciprocity for the bar- riers maintained by other countries to the sale of American goods. We do not think this is true in relation to the United Kingdom. In any event, we believe that the United States must continue to strive for reciprocity in terms of reducing restrictions, rather than expanding them, if the long-term interests of all nations, including our own, are to be served. Trade barriers, unless they are justified by the most exceptional cir- cumstances, will inevitably work against our economic welfare, in re- stricting consumer choice, in compelling consumers to pay higher prices, and in fostering inefficient and unprogressive industries both here and abroad. It is sometimes contended that imports are always directly com- petitive with a domestic product and that they are normally sold on the basis of a price advantage. This is not true of many items which members of the chan~ber handle as importers from the United King~ dom. To take a simple example, British woolen products provide a range of quality which is not available from any other source. Far from undercutting the nearest equivalent domestic product, the British cloth is normally at least 25-percent more expensive. It does, however, meet a legitimate demand of some American consumers. It has also been suggested that lower wage levels in other coun- tries provide an unfair competitive advantage `and justify the imposi- tion of restrictions on imports. We do not believe that it would be PAGENO="0311" 15~l' right to raise barriers to the flow of goods from other countries simply on this basis. The level of wages is only one among many factors in production which together detennine the price levels at whiQh a country can af- ford to export. The apparent advantage of low-wage rates-or the ap- parent disadvantage of high-wage rates-is often offset by compen- sating factors such as the availability of raw materials and capital investment, the quality of training of labor and managerial personnel, the degree of moclerniztion and the utilization of advanced technologi- cal practices, and so forth. In these regards we conmiand significant advantages. In addition, concern has been expressed over the possible effect of imports on employment opportunities in the United States. We should be just as deeply concerned about the loss of existing jobs, dependent on U.S. export trade, which would be occasioned by the inevitable de- fensive measures taken by foreign countries on the creation of new import barriers here. Nor should imports be treated as a scapegoat when, under the spur of competition2 job opportunities in `certain industries are modified by the concentration of production in more modern and efficient plants. Turning to the administration's proposals, we support H.R. 17551, and in particular: (1) extension of the President's authority to ad- just tariffs through June 30, 1967; (2) modification of the rules gov- erning adjustment assistance; and (3) elimination of the American selling price system of valuation. We strongly believe, Mr. Ohairnian, that the U.S. benzenoid chemi- cal industry i's not in such a precarious condition that it genuinely re- quires `the exceptional and unique treatment that ASP affords. In the context of the ASP agreement, I would just like to make the point that, in trade with the United Kingdom, the overall chemicals agreement works out clearly in favor of the United States. U.S. ex- ports of chemicals to the United Kingdom are worth about $170 mil- lion a year and the tariffs which they face are to be substantially re- duced-by as much as 62 percent in some cases. There will then be very few United Kingdom tariffs over 11/2 per- cent in the chemical field; and the average will be below that figure. Many U.S. chemical tariffs will remain at 20 percent or higher and the average level will be well above that of the United Kingdom. U.S. imports of chemicals from the United Kingdom are around $70 mil- lion a year, and only a small part of these are benzenoi'ds. In this regard, the United States has an excellent bargain. Our chemical industry ~houid be able to maintain and increase i'ts existing large favorable balance in trade w'ith the United Kingdom. For its part, the United Kingdom is apparently looking for an expansion of its trade in chemicals chiefly through the further reduc- tion of EEC tariffs, which would follow `the elimination of ASP. In other words, our chemical industry is to receive more than it gave up in its bargain with the United Kingdom, with the latter receiving its principal `benefits in Europe. This is, in our view, an excellent example of how multilateral trade works. Finally, we wish to comment on the quota proposals which are under the consideration of this committee. We believe that all those who PAGENO="0312" Th82 have had practical experience in attempting to conduct trade under a quota system will reject this alternative. All quota systems require an elaborate and expensive bureaucracy. The Nation's resources can be spent on better things. Quotas are in- variably inequitable because decisions about which exporters and which importers are `to have a share can only be made on some arbitrary basis. And, as soon as the market has been rigidly allocated by being artificially divided among approved suppliers, the normal laws of supply and demand can no longer operate effectively and prices are bound to rise. Moreover, there is no reason to suppose that a large-scale inter- ference with the normal flow of trade, whidi the quota proposals nc~w under consideration would represent, would not cause the trading part- ners of the United States to impose equivalent restrictions on our export traide. We have a `bilateral trade surplus with most of these countries and an overall surplus on trade. It is one thing to ask the rest of the world to acquiesce in temporary restrictions ~cnhen a country's exports are clearly inadequate to ~ay for its imports, but it is quite a different thing to impose restrictions when many of our trading partners already have a deficit with us and are having difficulty financing their purchases. It would be our hope that, as the United States maintains its present position of technical leadership, many of our products will continue to secure a dominant place in world markets. But other countries must also be allowed to have successes in their own areas of excellence. The concept of imposing a ceiling on any import which takes more than a set percentage of the market runs' directly counter to this prin- ciple and, if it were widely adopted, would hit the United States harder than anyone else. For a nation which leads the world in innovation and the dynamic pursuit of new opportunities it appears inconceivable to adopt and foster a policy of putting trade in a straitjacket. The United States and the world has gained much from the persist- ent efforts which our Nation has made, since the end of World War II, to expand and liberalize international trade. We earnestly urge the continuation of these policies. On behalf of the British-American Chamber of Commerce, we thank this eminent committee for this opportunity to appear and for your consideration of our views, Mr. Chairman. (Mr. Kintner's prepared statement follows:) STATEMENT OF EA1iL W. KINTNER OF THE BRITISH-AMERICAN CHAMBER OF COMMERCE Mr. Chairman and Members of the Committee, my name is Earl W. Kintner, and I am a member of the Washington law firm of Arent, Fox, Kintner, Plotkin & Kahn. I am appearing before you today on behalf of the British-American Chamber of Commerce of New York to present the Chamber's views on a number of the tariff and trade matters which are the subject of these public hearings. The Chamber and its membership are vitally concerned with these matters and are deeply appreciative of this opportunity to appear. The British-American `Chamber of Commerce of New York has for its basic purpose the expansion of trade in both directions between the United States and the United Kingdom. More than 80 percent ~f the Chamber's members are PAGENO="0313" `~ ~ 158a . ~ ~ American citizens, American firms or Mneriean corporations having a pr1ñci~á1 office and place of business within the United States.1 These include U.S. importers of British products and U.S. firms and Individuals concerned with exporting U.S. products to the United Kingdom. The $350 or more U.S. firms who are members o'f the Ohamber represent a total employment of `over three million workers. For sotee of them tra'de with the United Kingdom; is only a small part of their total business activity, `but they all indicate by their membership in the Chamber that `it is a part to which t'hey attach importance. The chamber has asked me to appear to present its views to this Gommittee because of the very great Importance which it's members attach to safeguarding and increasing the flow of trade between the United States `and the United Kingdom.2 It is our belief that this trade brings about great and substantially * equal benefits for both partners. We therefore support the legislation which the Administration has proposed to the Committee. The Chamber also wishes to oppose proposals, which are pending `before the Committee, which would have the effect of restricting trade `by imposing quotas or other artificial barriers to international trade. In sum, we believe that international trade, unobstructed by artificial barriers, Is in the long-term interest of the U.S. as well as its trading partners. FOr this reason, we generally support measures designed to promote U.S. exports, such as the Department `of Commerce effort for export expansion. Conversely, we would like to see the elimination or reduction of restrictions on imports by the United States and by its trading partners. Trade expansion and not restriction, in our view, offers along with other measures, the best hope for the solution of our current balance of payments problem. ~ign4fleanoe of Trade Between the UnSte'd St at e8 and United Ki'agdotn Trade between the United States and the United Kingdom ha's `steadily ex- panded over the last ten years. U.S. exports to the United Kingdom in 1958 amounted to $905 million and, by 1967, had risen to $1,960 million. Moreover, over the same ten-year period, imports Into the U.S'. from the United Kingdom in- creased from $864 million worth o'f goods to $lj'l() million.8 There is no reason why thi's, beneficial trend should not continue and lead to higher level of trade in the future, provided that additional barriers are not imposed. It is important to note that the' United Kingdom i's the third largest export market for U.S. products, after Canada and Japan. Our exports to the United Kingdom between 1958 and 1967 have average from 5 to 7 percent of our total exports. The sigplflcance of the British market can be more fully appreciated by looking at the figures relating to ~a:rticuiar commodities'. In 1967, for instance, 18.8 percent o'f all U.S. exports of tobacco and tobacco manufactures, which totaled $752 million, went to the United Kingdom. Similarly 12.8 percent of `our total exports of unmilled corn or maize, 10.6 percent of our exports of synthetic resins and plastic, 14.1 percent of our exports of office machinery and 11.2 percent of our exports of paper `and paperboard went to the United Kingdom. Our present markets in the United Kingdom are thu's substantial ones, an'd the concerned see- tore of the U.S. economy are douhtless hoping to expand their export sales in the United Kingdom as the Kennedy Bound tariff reductions become effective. Reciprocally, the United States market is of exceptional importance for the United Kingdom: it is in fact the largest British export market. In 1966 and 1967, over 12 percent of total British exports were to the United States. Access to this m'arket has greatly helped the development of a number of important British industries which could not operate effectively in a market limited to the United Kingdom itself. In evaluating the `significance of trade and considering the ~ portion of the Chamber's financial support comes from sources within the United Kingdom. The present testimony has been filed with the Department of Justice, Waeh- ington, D.C., where there Is available fOr inspection the registration statement of ~Phe British-American Chamber of Commerce, 655 MadIson Avenue, New York, New York 10021, under 22 U.S.C. Secs. 611-621 as agent of British National Export Council and Con~ federation of British Industry, In London, The Scottish Council, Development and' Industry, in Edinburgh, and The Development Corporation for Wales, In Cardig. Regis- tration does no't Imply approval of this material by the United States Government. 2 British-American Chambers of Commerce of the Midwest (Chicago), of the Paelfic Southwest (Los Angeles), and of San Francisco wish to' be associated with the views expressed In this statement. These three Chambers represent a total of approxImately 400 U.S. based firms, in addition to their overseas membership. Total employment of the U.S. based firms is approximately two million. 8 Source: U.S. Department of Commerce, Bureau of the Census; Reports: FT 990, FT 420 and EM 450-55. PAGENO="0314" 1~84 policies we should adopt in the United States we have to bear in mind that for a nun~ber of European countries, including the United Kingdom, trade is not a luxury, but a matter of vital national importance. The United Kingdom has a very limited raw material base ~nd until the advent of nuclear power and the recent discovery of gas under the North Sea had no major domestic source of power other than coal. A market of 50 million people is by itself insufficient to support the large-scale modern technology which is the basis of much recent industrial development. We believe that countries in the position of the United Kingdom must be able to export in order to pay for the raw materials for their industry, for part of their sources of fuel and for a large part of their food sup- plies, much of them imported from the U.S. For them, prospects for future develop- ment and prosperity are inextricably linked with the development and expansion of foreign trade. It is for this reason that threats to existing and future levels of trade arouse such grave concern within the United Kingdom. Conversely, action which tends to open up markets on a reciprocal basis and which in general pro- motes the growth of world trade are very warmly welcomed and supported. The continuous growth of the U.S. market in the last ten years has been of great im- portance to British exporters, many of whom are represented in our Chamber of Oommerce. In addition to trade the two countries have an important stake in each other's prosperity in the form of large and profitable investments. American investment in Britain exceeds $5 billion and yields annual earnings of $500 million. This is a useful contribution to our balance of payments. British direct investment in the U.S. is worth about $3 billion, with annual earnings in the region of $250 million.4 There are, we believe, two main reasons why we in the United States should, In our own interest, look for ways to expand the flow of trade with the United Kingdom and should .try to avoid action which might unnecessarily prevent its growth. First, as I indicated earlier the United Kingdom is for us a major export mar- ket, of particular importance for a number of United States industries and branches of agriculture, which have a direct stake in the growth of British pros- perity. Second, trade with the United Kingdom has consistently yielded a balance in favor of the United States, making a valuable contribution to easing our bal- ance of payments problems. In the last ten years there have been only two years in which we bad an adverse balance; and the total surplus of exports over imports exceeds $1.8 billion over the ten years. A number of those who advocate the imposition of new restrictions on trade claim that this would be no more than reciprocity for the barriers maintained by other countries to the sale of American goods. We urge, on the contrary, that the United States must continue to strive for reciprocity in term.s of reducing restrictions, rather than expanding them, if the longterm interests of all nations, including our own, are to be served. The creation of new trade barriers, unless they are justified by the most exceptional circumstances, will inevitably work against our own economic welfare, in restricting consumer choice, in compelling consumers to pay higher prices, and in fostering inefficient and unprogressive industries both here and abroad. I have no wish to present an extensive justification for the British record on trade matters, and I would certainly not wish to claim that there are no points on which it can be criticized. Suffice it to say, however, that in the view of our members, who are engaged in trade in both directions between the U.S. and United Kingdom, there exist no obstacles to our exports to the United Kingdom which would justify the creation of new barriers against the import of British goods. British policies in this respect, it would appear, are not based on purely altruistic motives: as a nation heavily dependent on trade it is in the interests of Britain to bring about the removal of barriers to trade; and that, of course. requires the elimination of its own as far as possible. As the Committee is no doubt aware, the whole problem of nontariff barriers is to be reviewed in a working party established by the GATT and we are con- fident that the United Kingdom will be found to be among those nations who have the fewest such obstacles to trade. It is also relevant in this context to refer to the initiative which the British Government took earlier this year when the U.S. balance of payments situation prompted consideration of the imposi- `Source: U.S. Department of Commerce, survey of Curreat Busine88, September 1965, 00,67. PAGENO="0315" tion of an import ~nrcharge or similar restrictive measures. The British response, which I believe' was helpful and eonstructive, was to propose no less than the completion of the Kennedy Round tariff cuts of the major trading partners of the United States by next January, four years ahead of schedule. Although iti the end the proposal which was formulated by a number of other governments was less, far-reaching than the British Government had suggested, the original initiative showed that the United Kingdom consistently gives priority to avoid- ing the creation of new barriers to trade, and that there is a readiness to make costly sacrifices for this purpose. Certainly the creation of new restrictions on trade is not justified by the conduct of the United Kingdom as a trading partner. ~orne common fallacies about international trade Certain of the arguments presented against more liberal trade have sought to give the impression that imports are always directly competitive with a domestic product and, moreover, that they are normally sold on the basis of price advan- tage. In the case of many items which members of the Chamber handle as importers from the United E:ingdom neither of these suppositions are true. In the first place, many imports fulfill a requirement which Is not sufficiently met by domestic manufacturers. They complement our own production by previding a range of choice which the American consumer wants and is entitled to have. One obvious example of this is in the case of automobiles, where the American consumer who wants a smaller car has turned to imported products to meet his need. In other cases when imports appear at first sight to be directly competitive with American production this is often found not to be so on closer analysis. To take a simple example, British woolen products provide a range of quality which is not available from any other source. In addition, far from undercutting the nearest `equivalent domestic product, the British cloth is normally at least 25% more expensive. It does, however, meet a legitimate demand of some American consumers who desire this particular grade of materiaL In our view it would be wrong to impose restrictions on the access of the American consumer to this sort of product. It has also been suggested that lower wage levels in other countries provide ` an unfair competitive advantage and justify the imposition of restrictions on im- ports. We do not believe that it would be right to raise barriers to the flOw of goods from other countries simply on this basis. The level of wages in any country reflects the overall development of the economy: it depends on the level of productivity, which is in turn influenced by the availability of raw materials and of investment capital, the skills and quality of training of labor .and man- agerial personnel, the degree of modernization and the utilization of advanced technological practices, etc. If a country, an industry, or a firm attempts to pay wages above the level justified by its productivity the only result Is higher priCes and inflation or bankruptcy. There is no prospect for most other countries to be able to pay wage rates on the same level as the United States. Does this mean we should stop accepting their products whenever they compete directly with our own? The answer surely is that we must take account of all of the factors that enter into costs of production and not allow undue emphasis to be placed on a comparison of wage rates alone. With the advantages which we have achieved in terms of technological progress, the availability of a huge unified market, a highly skilled labor force and exceptionally qualified managerial personnel we should be well able to meet competition on equal terms. S In addition, concern has been expressed ~over the possible effect of imports on employment opportunities in the United States. We should be just as deeply concerned about the loss of existing jobs, dependent on U.S. export ti~ade, which would be occasioned by the inevitable defensive measures taken by foreign coun- tries on the creation of new import barriers here. In this connection, it shonld be noted, for example, that the $2 billion in annual exports which we now send to the United Kingdom represent at least 200,000 jobs, ~pread through practically every State in the Union. We should be careful not to endanger what we presently have in terms of actual, profitable employment in our export industries, in order to avert a hypothetical threat which imports might represent to certain jobs in the future. Nor should imports be treated as a scapegoat when, under the spur of competition, job opportunities in certain ~industries are modified by the con~ ceiitrat~on of production in more modern and efficient plants. The administration proposals The Committee is, of course, wholly familiar with the trade proposals recently submitted by President Johnson, which are embodied in R.R. 17551, and we shall not belabor them. We support this legislation and, in particular: (1) extension of PAGENO="0316" 1~8~ the President's authority to adjust tariffs through June 30, 1970, as necessary to give the President some flexibility in dealing with future trade developments; (2) modification of the rules governing adjustment assistance-the liberalization of trade may in some cases cause difficulties and hardship for domestic industries which are genuinely unable to meet competition from imports by improving their own competitiveness; in our view such industries are entitled to expect help from the national community which benefits at large from the greater prosperity gen- erated by expanding foreign trade; and (3) elimination of the American Selling Price system of valuation. Members of the Chamber who import chemicals into the United States have long been concerned about the problems created by the American Selling Price system of valuation. It is often impossible for an importer to know what rate of duty he will have to pay. Moreover, the rate which is finally determined fre- quently appears arbitrary and unfair to the importer in view of the price of his product. It is not surprising that this system has aroused widespread resentment in all countries which export to the United States good which are subject to this method of valuation. Our own exporters, including the chemical industry, would no doubt take the same view if the system were applied against them in other countries. It has been asserted that manufacturers will be injured if deprived of the exceptional levels of protection which the A.S.P. system affords them. I think it is legitimate to ask three questions on this point: Does the industry still require the protection of a system which was de- signed to safeguard an infant industry over 40 years ago? Does the industry genuinely require tariff rates which effectively exceed 100% of the import cost of the product in several cases? Does the industry require a system which is in fundamental violation of the principles which the major trading nations of the world agreed over 20 years ago should guide the methods of customs valuation in international trade? (I would recall that Article VII of the Oeneral Agreement on Tariffs and Trade stipulates that "The value for Customs purposes of imported mer- chandise should be based on the actual value of the imported merchandise on which duty is assessed, or of like merchandise, and should not be based on the value of merchandise of national origin or on arbitrary or fictitious values." General acceptance of thi~ principle has been of benefit to U.S. exporters and has greatly eased the conduct of international trade.) I believe that the answers to the three questions I have posed is that the benzenoid chemical industry is not in such a precarious condition that it genuinely requires this exceptional and unique treatment. As is pointed out in the Presi- dent's message, "chemicals, and benzenoids in particular, are among our most efficient and rapidly expanding industries", and are in a "strong position to face normal competition from irñports." Even if someone were to believe to the contrary, there would still be presented the question of why this one segment of the very successful and dynamic U.S. chemical industry has for so many years remained in need of special protective treatment. Perhaps the answer here is that the asserted inability of the benzenoicl sector of the chemical industry to compete could be attributed precisely to the long immunity from foreign competition which the American Selling Price system has conferred. There is no sound reason for permitting this situation to per- petuate itself. It is a basic tenet that healthy competition is the right stimulus for innovation and progress in our economy. It is difficult to see why the benzenoid ~themicai industry should be accorded protection that no other industry receives. It should be noted that, under the provisional agreement reached by our ne- gotiators in Geneva, even with the elimination of the American Selling Price system of valuation, benzenoids would retain substantial tariff protection. The details of the A.S.P. bargain have been analyzed in detail in testimony before the Committee, and I shall not burden you with repetition in this regard. I would just like to note one point in connection with the tariff reductions on chemicals generally. In trade with the United Kingdom, the agreement works out clearly in favor of the United States. U.S. exports of chemicals to the U. K. are worth about $170 million a year, and the tariffs which they face are to be sub- stantially reduced-by as much as ~2% in some cases-thus further opening up a large and growing market. If the agreement is put into effect there will be very few U. K. tariffs over 12'/2 % in the chemical field; and the average will be below that figure. Many U.S. chemical tariffs will remain at 20% or higher and the PAGENO="0317" 1687 average level will be well above that of the United Kingdom. U.S. imports of chemicals from the U. K. are arQund $70 million a year, and only a small part of these are bezenoids.5 When we take Into account the existing flow of trade and the prospects for growth, the United States has an excellent bargain. Our chemical industry should be able to maintain and increase its existing large favorable balance in trade with the United Kingdom. For its part, the United Kingdom is apparently looking for an expansion of its trade in chemicals chiefly through further reduction of E.E.C. tariffs, which would follow the elimination of A.S.P. In other words, our chemical industry is to receive more than it gave up in its bargain with the U. K., with the latter receiving its principal benefits in Europe. This is, in our view, an excellent example of how multilateral trade works. We believe that in future trade negotiations a great deal of emphasis must be placed on securing the removal of non-tariff barriers to trade such as. A.S.P. This will not be easy to achieve: these barriers, which . are frequently more effective than tariffs in securing immunity from competition for segments of. national economies, are likely to be tenaciously defended by those who believe they benefit from them. Nevertheless there is no reason why negotiation should not succeed in removing many of the worst obstacles to the free flow of trade. Import quota proposals peuding before the committee Finally, we wish to make a general statement regarding the various proposals for import quotas which are under the consideration of this Committee. In the view of the Chamber the Imposition of quota restrictions would definitely be a retrogressive step which would damage the United States and also its trading partners in all aspects of international trade. It required an immense effort on the part of the United States Government to secure the removal of the quota restrictions which were crippling world trade in, the period after the Second World War. The resulting liberalization was of great benefit both to the United States and to Europe. It is not too much to say that this `was one of the major factors which enabled Europe to escape from the threat of economic paralysis and political extremism after the War and to emerge as a prosperous and in- dependent partner of the United States. Are we now to go into reverse and to throw the world back into the tangle and chaotic web of restrictions from which we helped it to emerge? We believe that all those who have had practical experience in attempting to conduct trade under a quota system will reject this alternative. All quota systems require an elaborate and expensive bureaucracy. The nation's resources can be spent on better things. Quotas are invariably inequitable because deci- sions about which exporters and which importers are to have `a share can only be made on some arbitrary basis. Moreover, as soon as the market has been rigidly' allocated by being artifically divided among approved suppliers, the normal laws of supply and demand can no longer operate effectively and prices are bound to rise. One of the questions which has been raised is whether foreign countries would retaliate against quota restrictions on their trade. This is a question which can only be authoritatively answered by the governments concerned. However, it seems to the Chamber that it is fair to as'sume that defensive measures' by other countries would be automatic. There i.s no reason to suppose that a massive interference with the normal flow of trade which the quota proposals now under consideration would represent, would not cause the trading partners of the United States to impose equivalent restrictions on our export trade. There are two points which are relevant here. First, the United States is the largest market in the world. In 1965 it took one-ninth of all world exports~-$21 billion Out o'f $186 billion. It is the No. 1 export market for many o'f the world's main trading countries-the United Kingdom, Canada, Japan and for Latin America and developing Asia. It is also No. 2 for Germany and Switzerland and ranks high for most of the rest. Second, we have a bilateral trade surplus with most of these countries and an overall surplus on trade. It `is one `thing to ask the rest of the world to acquiesce in temporary restrictions when one's exports are manifestly insufficient to pay for one's imports, but it is quite a different thing to impose restrictions when many of our trading partners already have a bilateral deficit with us and are having difficulty financing their purchases. We, had practical experience of the way this works when we raised our trade 5 :tT.S. Department of Commerce, Bureau of the Census; Reports: FT 125, Dee, 1963-66; FT 135, Dee. 1967. PAGENO="0318" 1588 - barriers in 1930. We cut down our importa, but we lost even more in export~. There followed a catastrophic ~lecline in the world market in which our import restrictionsdid not help us to'preserve our own prosperity. It is also relevant `to point out that the concessions which countries have ex- tended to each other in trade negotiations in the form of agreed tariff reductions are~ based on the assumption that the other countries which will benefit from those reductions will go on in good faith to implement their side of the bargain. However, it renders the negotiations and agreements reached largely meaning- less when one of the contracting parties subsequently impairs the bargain by unilaterally imposing import quotas, with the object of restricting access to its market. The notion of setting aside a predetermined section of the market for imports and imposing a rigid ceiling above that level also seems to us `to be wrong for the following reason. Trade is never static. It is dynamic and constantly changing. Many of the items which are now of major importance to the United States as an exporting country had hardly been heard of 25 years ago. It is safe to predict that in another 10 or 15 years time we shall be exporting technologically ad- vanced products which are not yet even on the drawing-board. It would be our hope, that as the United States maintains its present position of technical leader- ship, many of these products will secure a dominant place in world markets Other countries must also be expected to have and allowed to have successes in their own areas of excellence. The concept of imposing a ceiling on any import which takes more than a set percentage of the market runs directly counter to this prospect `and, if it were widely adopted, would bit the United States harder than anyone else. For a nation which leads the world in innovation and the dynamic pursuit of new opportunities it appears inconceivable to adopt and fos- ter a policy of putting trade in a straitjacket. The United States and the world have gained much from the persistent efforts which our Nation has made, since the end of World War II, `to expand and liberalize international trade. We earnestly urge the continuation of these policies. On behalf of the British-American Chamber of Commerce, we thank this emi- nent Committee for this opportunity to appear and for your consideration of our views. The CHAIRMAN. Thank y:0U~ Mr. Kintner, for bringing to us the views of the British-American Chamber of Commerce. Are there any questions? Mr. Bn~iss. Mr. Chairman. The CHAIRMAN. Mr. Byrnes. Mr. BYRNES. Mr. Kintner, your group is basically interested, as I understand it, in the trade between this country and the United Kin~gdom. Mr. KINTNER. Yes, sir. Mr. BYRNES. What has your group done on the difference in the freight rate structure which is weighted against American trade going to Britain? Mr. KINTNER. We have not intervened directly in this matter but we understand that the chamber is very much concerned in securing an equalization of freight rates east and west. Mr. BYRNES. Why haven't you intervened? Why didn't you inter- irene, for instance, in the proceeding before the Maritime Commis- sion which was concluded last January? You are against discrimina- tion, and want to facilitate trad'e. Here is a definite area of discrimination. The Examiner found that the rates were so unreasonably high as to be detrimental to the com- merce of the United States, contrary to the public interest, and in vio- lation of the Shipping Act. These were hearings of the Maritime Commission. What I am try- ing to find out is why the chamber, which is interested in this matter, didn't interest themselves in this proceeding? PAGENO="0319" 1589 Mr. KINTNER. Mr. Byrnes, the chamber has not independently studied this problem. It is interested I can tell you as a matter of general policy in eliminating all restrictions which affeót interimtional trade. Mr. BYRNES. Here is a clear restriction. In addition to the discrirni- natory rates, the British duties are ap~lied against the goods and the freight-that is c.i.f. so the discrimination has a double-barreled impacit. Mr. KINTNER. I think your point is well taken, Mr. Byrnes, and I am prepared to recommend to the chamber that it consider this mat~. ter and make its views known to the Maritime Commission. Mr. BYRNE5. Thank you. The CHAIRMAN. Any further questions ~ Again we thank you, Mr. Kintner. Mr. KINTNER. Thank you. The CHAIRMAN. Mr. Olay, if you will identify yourself again for our record we will appreciate it. We remember your previous appear- ances. STATEMENT OP HENRY J. CLAY, NETHERLANDS CHAMBER ~ COMMERCE IN THE UNITED STATES, INC. Mr. Ci~&y. Thank you, Mr. Chairman. My name is Henry J. Clay. I am a member of the law firm of Abberley, Kooiman, Amon, Mar- ceiino & Clay of the city of New York. We are counsel to the Nether- lands Chamber of Oommerce inthe TJnited States, Inc. The CHAIRMAN. Mr. Clay, if it becomes necessary for you to omit parts of your statement in order to comply with our situation your entire statement will be placed in the record. Mr. CLAY. Thank you, Mr. Chairman. I do have a prepared state- ment and I would like to submit this for the purposes of the record. I would like to summarize one or two points if I may. The CHAIRMAN. It will be included. Mr. CLAY. Mr. Chairman, the trade between the Netherlands and the United States is extremely important to this country. Similar to the situation related to you by Mr. Kintner who represented the United Kingdom Chamber of Commerce, the Netherlands Chamber of Commerce in the United States is a chamber which represents some 800 firms or corporations, primarily American that are interested in the trade between the United States and Holland. Holland, as you know, is a gallant little nation of some 12 million people who was one of the beneficiaries of the U.S. assistance in Euro~pe to assist in the recovery of nations that were ravaged by World War II. It is primarily a trading nation. Through its ports of Amsterdam and Rotterdam you have the gateway to northwestern Europe. It services a vast commercial community which uses the Rhine River and through these two ports some 200 million Europeans are affected. Holland is a free trade nation. It supports the flow of free trade into that country. It has benefited substantially from the Kennedy round agreements and from GATT and will continue to benefit m the forthcoming round. Holland imports from the United States, 196'~ figures, $1,238 million of products, which is about 4 percent o'f the total PAGENO="0320" U.S. exports, and it ranks as the third best customer in Europe and fifth globally of U.S. foreign trade. The United States is a nation of some 200 million people. It imported in the same period from the Netherlands, approximately $372 million of goods, ranking seventh in Europe of goods sold to the United States. The dollar volume of exports versus imports puts the United States in a most favorable trade balance, approximately 3 to 1, which in turn places Holland in the position of being the foremost dollar producing nation in the Common Market as far as the Unite5l States is concerned. One of the concerns in the President's recommendations to the Con- gress, especially in relation to the proposed Trade Expansion Act of 1968, is the problem of the balance of payments. We support the Pres- ident's recommendation for a Trade Expansion Act of 1968 because we feel that the balance of payments will be improved on the followin basis: That world trade has risen to unprecedented levels since Won War II with U~S. exports excxeeding the imports. Earnings from U.S. investments abroad have been greater than investments placed abroad. Thus, the basic strength of the private sector is very apparent. It seems fair to say that the problem in government, namely, military and economic, aid is the problem that we are faced with in the im- balance of payments. Others must be encouraged to a greater role. Other nations must assist in the defense in the free world and in the economic develop- ment of developing nations. Mr. Chairman, we would oppose those proposals presently pending before this committee which restrict trade by imposing quotas or arti- ficial barriers to international trade. We would commend to your committee the excellent editorial which appeared in Friday's New York Times entitled, "Trade Winds in Congress." One of the statements made which bears repeating states that: As the biggest of world traders the United States would have more to lose than gain from an import surcharge because other countries would be certain to retaliate. The proposed legislation is part of this Government's program to expand international trade. We are increasingly dependent upon for- eign markets. Some 41/2 million Americans derive their livelihood from foreign trade. Mr. Chairman, any serious, restrictions on the trade activities as presently conducted certainly would affect the employment of these many persons. The chamber is not concerned with the likelihood of retaliation abroad from such restrictions. It does fear that these restrictions imposed by Congress would reduce U.S. exports abroad and the consequent deterioration of the U.S. competitive position abroad. We feel that this is extremely important. U.S. exports have leveled off and the fear of retaliation to reduèe those might further place us in an imbalance. It is for these reasons, Mr. Chairman, that the Nether- lands Chamber of `Commerce in the United $tates wholeheartedly supports the President's proposal as contained in the proposed Trade Expansion Act of 1968, and I thank you for the opportunity to appear before you, sir. (Mr. Clay's prepared statement follows:) PAGENO="0321" 1ô9~1 STATEMENT oi" HENRY J. Cn~y, NETHERLANDS CHAM]3ER OF COMMERCE IN THE UNITED STATES, INC. Mr. Chairman and Members of the Committee, my name is Henry J. Clay. I am a member of the law firm of Abberley, Kooiman, Amon, Marcellino & Clay of the City of New York. We are counsel to the Netherlands Chamber of Com- merce in the United States, Inc. This Chamber represents more than 800 firms pr corporations throughout the country engaged primarily in export-import, freight forwarding, insurance, travel, manufacturing and banking which do business in the Netherlands. The Chamber and its members welcome this oppor- tunity today to comment on the proposed "Trade Expansion Act of 1968". The message of the President to the Congress of May 28, 1968 accompanying the proposed legislation now before your Committee is a most competent factual statementoj~ the country's Deed in this area. We applaud President Johnson for this worthy and forthright statement of principal in a vital field which, in one way or another, affects the lives of every citizen in this country and multitudes abroad. The proposed abolition of the American selling price In the Act is an important contribution to the implementation of the Kennedy Round, a matter to which our membership attaches great importance. `INTRODIYCTIoN From the very early days of the beginnings in America, trade has been the basis on which we have flourished and progressed. Foreign trade-~that is the exports and imports-Is a vital part of our domestic economy and a most im- portant part of our foreign policy. As our country has grown, we have passed through the era of economic isolation (self-sufficiency) of the 19th Century, through the early 20th Century period during which Congressman Cordeli Hull urged legislation to reduce excessive tariffs and other import restrictions, through the Roosevelt administration which saw enactment of the Trade Agreement Act to 1947 when bilateral trade agreements with some twenty-nine countries were consolidated in the General Agreement on Tariffs and Trade (G.A.T.T.) and cur- rently to the "Trade Expansion Act of 1968" presently before this Committee for consideration. This journey has been over a long and tedious road, but, in spite of the growing pains, we have become the most powerful, the most produc- tive nation in the world. We must now. look to the future to preserve our gains and secure our leadership in free world trade. The early Dutch settlers in Nieuw Amsterdam were principally Dutch traders. These early traders made a material contribution to the development of trade between America and Europe which was to result in this country burgeoning into an impressive commercial and maritime power. The Netherlands Chamber of Commerce in the United States, Inc. is primarily interested in trade between the United States and the Netherlands. The Chamber is of the opinion that any unreasonable trade restrictions on goods flowing from Holland to the U.S. would ultimately hurt `the United States more than it could possibly hurt Holland. Reduction in Holland's exports to the United States would directly affect the ability of the Dutch customer to purchase American goods. The present ratio' which is 3: 1 is in favor of the United States as will be shown. It is our view that any U.S. trade policy which in modern day trading imposes protectionist legislation affecting world trade would result in slow strangulation. The American leadership in supporting the Kennedy Round Agreements and G.A.T.T. can and should be continued and extended through passage of the pro- posed "Trade Expansion Act of 1968". This is in the best interest of U.S. trade abroad. HOLLAND-AMERICAN TRADE Holland is a trading nation of some 12,000,000 persons whose national income in 1967 was 20 billion dollars. Its total foreign trade represents 75% of this income-or 15 billion dollars. Its imports from the United States in 1967 amounted to $1,238,000,000 which is about 4% of the total U.S. 1967 exports and ranks it as the third best customer in Europe and fifth globally of U.S. foreign trade. The United States, a nation of some 200,000,000, imported from the Nether- lands during 1967 approximately $372,000,000 of goods, ranking seventh in the European market of goods sold to the U.S. (West Germany: $1,955 million; Great Britain: $1,710 million; Italy: $856 million; France: $690 million; Bel- gium and Luxembourg: $584 million and Switzerland: $383 million.) The dollar volume of exports versus imports puts the United States in a most favorable 95-159 O-S&--pt. 4-21 PAGENO="0322" 1592 trade balance (approximately 3:1), which in turn places Holland in the position of being the foremost dollar producing nation of the Common Market as far as the U.S. is concerned. BALANCE OF PAYMENTS Much has been said and written about our balance of payments problem. We do not care to add to the vast information and materials available to the Committee on this subject except to make one or two observations. The net outflow of U.S. dollars, it seems safe to conclude, has been due to the foreign operations of the government, the overwhelniing amount of which has been for foreign aid and military expenditures. Whether the extent of such out- lays has been wise is increasingly put to question. One thing is certain however, the U.S. foreign economic activity has run a strong surplus. During 1967, the U.S. had an export surplus in its trade with the European Common Market amounting to $1,589 million, of which more than half ($856 million) represented the U.S. surplus in trade with the NetherlandS.* It would seem unwise, in our view, to disturb, through trade restrictions, such a continuing favorable balance of payments at a time when there is such an obvious imbalance in other parts of the world through our current military and other government commitments. We would repeat that the facts of the matter indicate that the current balance of payments deficits have resulted not from U.S. foreign economic activity or trade imbalance but from the net outflow of gold due to the government's foreign operations for economic aid and military expenditures which total $110 billion from 1948 through 1967. The private sector, on the other hand, shows a net trade surplus of some $84 billion for the same period. In due course, it is hoped, our balance of payments will return to normal when the extraordinary defense ex- penditures have been reduced or obviated. The Netherlands has a tradition of free trade. It supports the free flow of trade into that country. It is basically a commercial country which has benefited from the Kennedy Round and G.A.T.T. Tariff reductions are essential if Holland is to continue to purchase American goods-which current sales exceed $1,250,000,000 per year. Any program which moves toward reduction of trade barriers is a step in the direction of one trading free world. Through the exchange of such corn- `merce, the lives `of our citizens will be enriched and the road opened for world peace. CONCLUSION This proposed legislation is part of our governnient's program to expand inter- national trade and to stimulate our domestic economy. At the same time, it will provide this country with an opportunity to unify the West economically and build a position of strength for competition with the Soviet bloc. It will permit the United States to `become a leader in the economic strategy for the West. The result will `be a responsible long term program to maintain the West's competitive position in the world markets. Hopefully, such a program would also assist in relieving the `balance of payments problem. We are increasingly dependent upon foreign markets. Some 4% million Ameri- cans derive their livelihood from foreign trade. Any serious restrictions on the trade activities as conducted under the presently proposed law would affect the employment of many of these persons. The Chamber is not concerned with the likelihood of retaliation from abroad resulting from trade restrictions. It does fear that those trade restrictions imposed by the Congress would result in a reduction of U.S. exports abroad and the consequent deterioration of the U.S. competitive position abroad. At the present time, U.S. exports abroad have leveled off after an impressive increase in trade volume from 1958 through 1962. It is our fear that any trade restrictions im- posed at the present time could very easily decrease U.S. exports abroad. The "Trade Expansion Act of 1969" would remove the principal reasons for such fear. It is for these reasons that the Netherlands Chamber of Commerce in the United States, Inc. wholeheartedly supports the President's proposal as contained in the proposed "Trade Expansion Act of 1968". *Source: TJ.S. Dept. of Commerce, Bureau of Census: Highlights of U.S. Exports and Import Trade, FT 990, Dec. 1967, pp. 10 and 48; and FT 420, Calendar Year 19fi8. PAGENO="0323" l5~3' The CHAIRMAN. We thank you, Mr. Olay. Are there any questions? Mr. BYRNES. Just one question, Mr. Chairman. The CHAIRMAN. Mr. Byrnes. Mr. BYRNES. You said that the Netherlands is a free trading country, Yet they employ quantitative restrictions, don't they, quotas? Mr. OI~Y. With limitations. Mr. BYRNES. Well, they don't have tihetm on everything. Mr. C~tY. As far as I know, Mr. Byrnes, there are some very limited restrictions. It is known as a free trade nation. It is not primarily in- volved in manufacture. Some 40 percent of its people relate to trade and the use of trade facilities, the banking, the export, import, the handling, the warehousing. Their primary activity outside of dairy products is trade and the handling of trade through its ports. Mr. BYRNES. Then why do they license certain cotton fabrics, arti- ficial textile fibers~ wool and fine hair, flax hemp, zinc sheets, strips, minerals, and chemical fertilizers? I am only interested in getting the record strai~ht. You mention them as a free trade country and yet I find that they impose quantitative restrictions in these areas, and also engage in li- censing, which is probably as strict as you can get. They have a global quota on penicillin. They use the turnover tax. They also have par- ticular restrictons on manufactured tobacco products. I just mention these to put matters in context. I think too often that everyone but the United States is assumed to be free traders. They are always free traders and we are a restrictive country, but when you look into the situation you find that we apparently apply different criteria to how we conduct ourselves and how others do. What is free trading there becomes restrictionist here if we have similar policies. Mr. CLAY. Mr. Byrnes, your question is a very fair question. I would like to repeat that Holland is not a manufacturing country as such. Most of its trade relates to carrying goods from one nation to another. There is some manufacturing in the Netherlands. The primary products, as you know, are dairy products, the export- ing of cheeses and the like to the United States, tulip bulbs, and the like. There may be some licensing of which I am not at this moment prepared or qualified to answer, but I would like, in view of your ques- tion, to prepare a memorandum to submit to you, sir, on behalf of the chamber, hopefully able to answer your question. I am sorry that I am not more qualified right now. Mr. BYRNES. What is the question that you are going to answer? Mr. CLAY. I am going to try to answer the reason and give you facts and figures as to what volume, if any, there is relating to these licens- ing agreements. Mr. BYRNES. I don't think it is a matter of the volume. It is a mat- ter of the principle. You have primarily been talking in terms of principle, not in terms of volume. You said in your statement that the Netherlands was a free trade country and I just thought that we ought to find out whether it is free trade or not. Mr. CLAY. In relation to all the European Common Market coun- tries, it is. I am not qualified or competent at this moment to answer that question, but I would like to submit to you a memorandum, or to the committee, on this point. PAGENO="0324" 1~94 I am not qualified to answer that. The CHAIRMAN. Without objection, that will appear at this point in the record. (The following letter was received by the committee:) ABBERLY, K00IMAN, MARCELLINO & CLAY, New York, June 25, 1968. Hon. JOHN W. BYRNES, Rayburn House Office Building, Washington, D.C. M~ DEAR Mn. BYRNES: On June 17, 1968 during my appearance as a public witness before the House Committee on Ways and Means in support of the proposed "Trade Expansion Act of 1968", you asked a question on certain quantitative restrictions and licensing requirements imposed by the Netherlands Government on a number of products. We are pleased at this time to submit to you advice on this inquiry of yours. The Netherlands Government has placed a quantitative restriction on the import of coal. The European Coal and Steel Community, of which the Nether- lands is a member, recommended that *the Netherlands Government close its coal mine operations for economic reasons. The use of restrictions was to pro- vide an orderly process to close down these mines by the end of 1970. There exist two other quantitative restrictions; Penicillin and nitrogenous fertilizers. The above listed restrictions are mentioned in G.A.T.T. Document (G.A.T.T. L/2740/ ADD April 6, 1967). However, these quantitative restrictions are applied in a liberal way. You also raised a question on the licensing requirements of certain man made fibers. We have been advised that there are a number of products, including man made fibers, which are subject to Go~rernment licensing for imports into the Netherlands. The licensing procedure is used solely for administrative purposes. There is no restriction on the issuance of licenses for the import of the several items involved. The sole purpose of the Government in utilizing the licensing procedure is to obtain accurate information on the amount of an- nual imports of the various products so covered. Very truly yours, HENRY J. CLAY. The CnAIRMAN. Any further questions? Thank you again, Mr. Clay. Mr. CLAY. Thank you, Mr. Chairman. The CHAIRMAN. Mr. Coerper, if you will identify yourself for our record we will be glad to recognize you, sir. STATKMENT OP MILO G. COERPER, GERMAN AMERICAN CHAMBER OP COMMERCE Mr. COERPER. Thank you, Mr. Chairman. Mr. Chairman and distin- guished members of the Committee on Ways and Means, my name is Milo G. Coerper. I am a partner of the law firm of Coudert Bros. and am the Washington counsel for the German American Chamber of Commerce. I am making this statement on your invitation, on be- half of the chamber. The chamber was incorporated in the State of New York in 1947. It is registered under the Foreign Agents' Regis- tration Act because it receives some of its financial support from abroad. It is a binational organization with some 850 members, half of which are U.S. firms and half of which are German firms, thus representing businessmen from the two largest trading nations in the world. One of its primary concerns is the fostering of two-way trade between the United States and Germany. Its members are as interested in exports from the United States to Germany as they are in exports from Germany to the United States. Moreover, the chamber is aware of this committee's concern with the PAGENO="0325" 159~ present U.S. balance-of-payments problems and its desire, in this con- text, to be apprised of possible measures directed at maintaining a favorable balance of trade for the United States. The chamber would like to point out that the German trade and pay- ments surplus situation is such that it exerts an adverse pressure on the German economy and the international monetary situation; and that it is, therefore, in the interest of Germany, as well, to rectify this situation by increasing imports to Germany in every way possible. This is the official position of the German Government. At a recent meeting of the National Chambers of Commerce of Germany a high German official, as well as representatives of German industry and trade, urged increasing imports into the Federal Republic of Germany. Mr. Chairman, at this point I would like to read a telex that we received from the German National Chamber of Commerce to the German American Chamber of Commerce just recently. I quote: The German National Chamber of Commerce kindly requests that you devote special attention at this time to promoting U.S. exports to the Federal Republic of Germany. Please emphasize our concern at forthcoming trade hearings, At the meeting of the executives of German Chambers of Commerce in foreign coun- tries just concluded in Hanover both the government of the Federal Republic and the German National Chamber of Commerce acting on behalf of German business agreed that German foreign trade is not a one-way street. On the contrary, only a balanced development of exports and imports can serve the mutual interest of the trading partners. Only by adhering to basic free trade principles can we achieve success in face of protectionist trends which have created uneasy conditions on both sides of the Atlantic. Our wish for a build up of U.S. exports to the Federal Republic is based also on the reality of current trade trends. In the first quarter of 1968 German exports to the United States climbed con- siderably over the level achieved in the corresponding quarter of 1967. At the same time, German imports from the United States registered only a moderate advance. This development of German~American trade does not conform at all to Ger- many's foreign trade in general. Currently German imports are rising faster than exports on the strength of the economic resurgence now taking place in the Federal Republic. The manifold opportunities for increasing U.S. exports to Germany have there- fore not been fully realized as yet. For all of these reasons the German National Chamber of Commerce is asking the German American Chamber of Commerce to do everything in its power to support American exports to the Federal Re- public. We on our part will do our utmost to support your endeavors. The German American Chamber's members are as interested in ex- ports from the United States to Germany as they are in exports from Germany to the United States. The chamber has always been and continues to be a strong advocate of- increasing international trade. This naturally assumes a d~sire to eliminate all forms of barriers to fair international trade. The chamber seeks the removal of such barriers, not only in the United States, but also in Germany. The chamber assumes that this committee is more interested in positive efforts to improve the U.S. balance of trade, for example, through the promotion of U.S. exports, than it is in actions which would restrict fair international trade, With this assumption, the chamber would like to briefly review with the committee the trade picture between the United States and Germany and the action this chamber is now taking to encourage U.S. exports. PAGENO="0326" 1596 As this committee probably knows, the United States has had a favorable trade balance with Germany since the resumption of trade after World War II through 1967. We are aware of the situation for the last 3 months, but we believe this is very temporary and will be correctible through the rest of 1968. We have set forth below some annual trade figures for the years 1950 through 1967. I would like to point out, Mr. Chairman, that these are figures from the German Federal Statistics Office and you will see that the U.S. exports to Germany are generally substantially higher than American figures. The difference is due to two factors, and I believe that the U.S. Department of Commerce is aware of these factors. One factor is, as I understand it, that our export figures do not include any figure on German purchases of U.S. military equipment. The other factor is the difference, to some degree, in ports in which exports to Germany are brought in. Apparently a number of exports to Germany are brought into some of the ports in the Netherlands-the Low Countries-and are treated as exports to those countries, whereas in fact they are exports to Germany. [In millions of dollarsj Year U.S. exports U.S. imports U.S. plus balance 1950 1951 1952 1953 1954 1955 1956 413 647 506 395 532 704 952 102 311 236 411 249 347 298 97 295 237 388 376 493 454 594 747 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 Total 1950-67 1,341 990 1,090 1, 423 1 510 1,760 1,903 2,017 2,209 2,294 2,139 030 369 399 191 O~7 536 370 646 966 794 1,051 937 1,197 819 1,436 863 1,795 499 1,966 174 23,165 14,357 8,808 Source: German Federal Statistics Office. Even though the United States has had such a favorable balance, the German economy has obviously benefited from this free flow of trade and has not itself sought any substantial change to this balance. However, when this free trade flow began to be threatened with re- quests from certain industries within the United States for quotas and other forms of pro'tection and when fears were raised that the U.S. balance of trade would suffer in the absence of such restrictions, the chamber sought ~ositive means to assist the United States and con- cluded that a stringent effort to promote exports would be the best answer. In this connection, it advocated, as did the German Govern- ment, the unilateral acceleration by the Common Market of the Ken- nedy round tariff cuts. As you know, such n proposal has been con- ditionally approved by the Common Market countries.. Moreover, the chamber, itself, felt that it could be of substantial assistance to U.S. PAGENO="0327" 1507 businessmen who might want to initiate or increase exports to Ger- many, but didn't have the know-how, contacts, or facts necessary to do so. Accordingly, the chamber has met with various officials of the De- partment of Commerce in Washington and New York and has worked out some detailed proposals as to how the chamber could, specifically, through its connections and influences in Germany, assist the pro- motion of U.S~ exports to Germany in close cooperation with the Department of Commerce and businessmen of both countries. The chamber is sure that this program will pay off, not only be- cause of its inherent value, but because of many other factors now appearing on the economic scene. Among these factors are the following: 1. The renewed confidence in the TJ.S. dollar due to the apparent agreement of the administration and the Congress for the need to cut spending and increase taxes so as to stem the inflationary pattern in the United States-this will allow U.S. exporters to hold the price line and thus keep the export channels open. 2. The now apparent increasing inflation in Europe brought about by, among other things, increases in wages in Europe-thus making U.S. export prices more competitive in European markets. 3. And the most important factor-the increasing prosperity in Europe now expected to run at least through 1970, thus allowing in- creased consumer purchases in Europe of U.S. exports. Accordingly the chamber respectfully suggest that this committee should allow these new economic factors to operate at least for a short period of testing, coupled with positive efforts., such as a strong export promotion program, to see the possible results before it succumbs to restrictive measures which could worsen rather than improve the U.S. balance of trade. The chamber fears that any steps such as an import surcharge or quotas will only trigger countermeasures in other countries. As this committee knows, representatives of the United States and other countries are now studying all forms of nontariff barriers under the auspices of the GATT. We understand the U.S. representatives will make strong representations as to such barriers existing in other countries. We feel there is a good chance of removing many such barriers. This, of course, would be impossible if the United States now, itself, increase such barriers to trade. Thank you, Mr. Chairman. The CHAIRMAN. We thank you, Mr. Coerper, for your statement. Any questions? Again we thank you. Mr. Gottschal'k? If you will identify yourself for our record we will be glad to recognize you, sir. STATEMENT OP `ROBERT H. GOTTSC'HALK, COUNSEL, BELGIAN. AMERIQAN CHAMBER OP COMMERCE IN THE UNITED STATES, INC. Mr. GOTPSCHALK. Mr. Chairman and members of the committee, my name is Robert M. Gottsohalk. I am a law partner in the firm of Gottschalk & Frankfurt, 200 Park Avenue, in New York City, and PAGENO="0328" 198 Coudert Bros. in Brussels, Belgium. I am a member of the board of directors of the Belgian-American Chamber of Commerce in the United States, Inc., which is a New York corporation with principal offices at 50 Rockefeller Plaza, New York. I am also counsel to such chamber and it is in this latter capacity that I appear before you. The CHAIRMAN. If you have to omit any part of your statement in order to comply with our very rigid situation today, do so with the understanding that the entire statement will appear in the record. Mr. GOTTSCHALK. Thank you very much, Mr. Chairman. The Belgian-American Chamber of Commerce in the United States, Inc., is an organization composed of Both United States and Belgian members. Included in its membership are some of the most prominent U.S. corporations and financial institutions. In this presentation today to your committee, our chamber believes that is is serving both the best interests of its members and the interest of the United States. The Belgian-American chamber strongly supports the proposed Trade Expansion Act of 1968 as submitted to the Congress and re- ferred to the House Committee on Ways and Means on May 28, 1968, at the request of the administration. Our chamber also endorses, with admiration for its clarify and substance the message of the President accompanying its submission. The Belgian-American chamber desires to respectfully submit its own thoughts for your consideration. I. It is clear today that the purpose and ultimate success of the General Agreement on Tariffs and Trade and of the Kennedy round is to reach a "fair" balance of trade. This is not what is too often re- ferr~d to as a "favorable" balance of trade, but rather the level at which reasonable trade relationships exist between participating nations. The definition of a "fair" balance of trade must of necessity include times when the balance of trade will favor one nation as against an- other, and times when certain segments of the industry of one nation will benefit more than others from its exports or suffer more than others from imports. These are not evils but inevitable consequences of the development of free trade and are a pai~t of the environment within which nations may nurture their best productive capacities and effi- ciencies for the benefit of themselves and others. It is when and where the suffering begins that the gre~deist care must be exercised to refrain from being tempted to resort to protectionism as a solution to localized problems within the economy. The aim, where suffering does occur, is to meet the problems in constructive patterns indluding, where necessary, governmental assistance within the econ- omy itself. The development of a fair balance of trade must be paralleled by a determination to improve the efficiency and competitive strength of a~l1 industries. The overall competitive success of the United States in the world market during the last five decades should provide enough evidence that the United States has nothing to fear in this respect. The United States without a doubt i~ recognized as the technological leader in the world and as the innovator of managerial advances which far ex- ceed the capabilities of any other nation. PAGENO="0329" L599 II. The Belgian-American Chamber of Commerce accepts the con- cern reflected in the Trade Expansion Act of 168 for those industries where serious injury has proven to be the result of imports or where such injuries are clearly threatened. The remedies contained in the act mnke it clear that the United States is prepared to meet the ohalleges of international trade by its own efforts without resorting to a blockade of its border with import quotas or prohibitory tariffs. This policy of domestic discipline and of concern for those who are injured, recognizing as it does the enor- mous benefits to be gained by the country's consumers, is consistent with the U.S. position of world leadership. III. There are two fundamental benefits to be derived by the United States from the liberalization of international trade policies. The first concerns the open accessibility of overseas markets which will permit the outflow of American goods. These foreign markets are a major sustaining factor in the economic growth of America and the essential growth of its employment and productivity. Second, we must become increasingly aware of the dependence of our overseas enterprises, built with U.S. dollars, owned by U.S. en- tities, nurtured by U.S. ingenuity, on free trade for their economic realization. In Belgium alone during the period from 1959 through and includ- ing 1967 American-owned enterprises invested more than $1 billion in plant development, improvement, and expansion. Funds for these investments came from both American sources and iarg~-scale Euro- pean borrowing as well. The interesting fact of these investments is that in many instances neither Belgium nor for that matter the Common Market could con- ceivably absorb their output. Whether built with dollars or funds from abroad, U.S. enterprises overseas are relying on the soundness of the U.S. economy and are just as dependent on an environment of free trade as our American industries. The United States has sown the seeds of expansion abroad at a sub- stantial cost for the return of benefits, seeds which for their nurturing require, and will in the future require, the availability of multina- tional markets, and which will permit not only the repatriation of the invested dollars but future additional benefits as well. Protectionism in any form whatsoever, initiated by one country or imposed by another as retaliation, would not only endanger the structure of our domestic economy but would also jeopardize the markets which our overseas expansion was created to serve. IV. The position taken by the United States in the General Agree- ment on Tariffs and Trade and the recently concluded Kennedy round, as well as the position contained in the submitted Trade Ex- pansion Act of 1968 are consistent with the responsibility of the United States as a world trade leader. The very stability of the free world's markets is dependent upon the leadership of the United States and the soundness of its policies. Should the United States move toward restrictive trade policies or threaten to do so, it is clear that the consequences would be retaliatory protectionism and chaos in in- ternational trade from which no one could emerge a winner. This is not an assumption on our part but is a fact which was clearly dem- PAGENO="0330" 1600 onstrated in 1962 when, as a result of increased tariffs imposed by the United States on flat glass products and on carpets in a matter of days retaliatory measures were taken by the European Common Mar- ket countries against American chemical and plastic products. These measures and countermeasures were prophetic indications of the futility of protectionism. V. It is essential that the liberalism demanded of the United States in the Trade Expansion Act of 1968 be fully matched by this coun- try's economic partners. The Belgian-American Chamber of Commerce shares the concern of the administration and of this committee with any devices used by any nation to circumvent the free flow of international commerce by the placing of major nontariff barriers in the path of free trade. The chamber wishes to express its opposition to such barriers whether they be legal or illegal under our international agreements. In conclusion the Belgian-American Chamber of Commerce in the United States, Inc., on behalf of its members urges most respectfully that this committee recommend the proposed Trade Expansion Act of 1968. It is the chamber's firm belief that the adoption of the act will be another major step forward in reaching greater international pros- perity and understanding. Thank you, Mr. Chairman. The CHAIRMAN. We thank you, sir, for bringing to us your state- ment. You have along with your remarks some statistics that I think should be in the record dealing with U.S. exports to Belgium and Luxembourg and U.S. imports from Belgium and LuxenThourg. Also would you like to have in the record the membership of your group? Mr. GOTTSCHALK. Yes; I would, Mr. Chairman. The CHAIRMAN. And also the American firms which have subsidi- aries in Belgium. Mr. GOTTSCHALK. Yes, indeed, Mr. Chairman. The CHAIRMAN. Without objection that material will appear in the record at this point. (The information referred to follows:) APPENDIX I THE BELGIAN-AMERICAN CHAMBER OF COMMERCE IN THE UNITED STATES, INC., NEW YORK, N.Y. MEMBERS IN THE UNITED STATES1 ACEC Electric Corporation, New York, N.Y. African Metals Corporation, New York, N.Y. AGFA-G.evaert, Inc., Teterboro, N.J. Airco Welding Products International Dept., New York, N.Y. Allegheny Ludlum Steel Corporation, Pittsburgh, Pa. Alitransport, Inc., New York, N.Y. (The) American Express Co., Inc., New York, N.Y. American International Underwriters Corporation, New York, N.Y. American Petrofina, Inc., New York, N.Y. American Union Transport, Inc., New York, N.Y. Ainerlux Steel Products Corporation, New York, N.Y. Amsterdam Overseas Corporation, New York, N.Y. J. Aron & Company, Inc., New York, N.Y. 1 voting rights; list updated June 10, 1968. PAGENO="0331" 1601 Associated Metals & Minerals Corporation, New York, N.Y. Avon Products, International Division, New York, N.Y. Bache & Company, Inc., New York, N.Y. Howard H. Bachrach, New York, N.Y. Baker Irons & Dockstader, Inc., New York, N.Y. Baltimore Aircoil Company, Inc., Baltimore, Md. Bank of America N.T. & S.A. (International), New York, N.Y. (The) Bank of New York, New York, N.Y. (The) Bank of Nova Scotia, New York, N.Y. Bankers Trust Company, New York, N.Y. Banque de Bruxelles S.A., New York, N.Y. Bauer International Corporation, New York, N.Y. A.G. Becker & Company, Inc., New York, N.Y. Bekaert Steel Wire Corporation, New York, N.Y. Belgian American Education Foundation, Inc., New York, N.Y. Belgian American Mercantile Corporation, New York, N.Y. Belgian Linen Association, New York, N.Y. Belgian Line Association, New York, N.Y. Belgo-American Development Corporation, New York, N.Y. Boyd, Weir & Sewell, Inc., New York, N.Y. Broadloom Imports, Inc., New York, N.Y. Brown Brothers Harriman & Company, New York, N.Y. Brown, Crosby & Company, Inc., New York, N.Y. Irving Brown Printing Corporation, New York, N.Y. Brussels Restaurant, New York, N.Y. Bunge Corporation, New York, N.Y. Burnham & Company, New York, N.Y. Calvert, Vavasseur & Company, Inc., New York, N.Y. Mitchell B. Carroll, New York, N.Y. Caterpillar Tractor Company, Peoria, Ill. Jean Cattier, c/o White, Weld & C~mpany, New York, N.Y. Celanese Corporation, New York, N.Y. (The) Chase Manhattan Bank N.A.~ New York, N.Y. Chemical Bank New York Trust Company, New York, N~Y. Chevron Oil Europe, Inc., New York, N.Y. Cities Service Company, New York, N.Y. Clark-Schwebel Fiber Glass Corporation, New York, N.Y. Clayton Manufacturing Company, El Monte, Calif. Cleary, Gottlieb, Steen & Hamilton, New York, N.Y. (The) Ooca-Ool'a Export Corporation, New York, N.Y. Continental Bank International, New York, N.Y. Continental Grain Company, New York, N.Y. Ken Cook Publishers International, Milwaukee, Wise. Coppee-Rust, Pittsburgh, Pa. Cox, Langford & Brown, Washington, D.C. Credit Lyonnais, New York, N.Y. (The) Crispin Company & Continental Tube Div., Houston, Tex. Crocker-Citizens National Bank (International Banking Department), San Fran- cisco, Calif. Cushman & Wakefield, Inc., New York, N.Y. Day & Zimmerman, Inc., New York, N.Y. Dorothy Dean, Inc., Milwaukee, Wis. Deering Milliken, Inc., New York, N.Y. Daniel De Gorter, Inc., Ne~ York, N.Y. John De Gorter, Inc., New York, N.Y. Delightform Manufacturing Company, Inc., Easton, Pa. Do Luxe Laboratories, Inc., New York, N.Y. Louis Dembitzer, Ridgefield, Conn. Raymond Dereume International, Inc., Punxsutawney, Pa. Eric G. de Spinet, Bronxville, N.Y. (The.) Detroit Edison Company, Detroit, Mich. Paul J. Devignez, Inc. (Phenlx Work's), New York, N.Y. Diamond Distributors, Inc., New York, N.Y. Diamond Trade Association of America, Inc., New York, N.Y. Dichman, Wright & Pug, Inc., Norfolk, Va. Jerome W. Donor Company, Bala-Cynwyd, Pa. PAGENO="0332" 1602 (The) Drake Hotel, New York, N.Y. Electi~ochemical Processes, Inc., Ne~w York, N.Y. Emanuel, Deetjen & Company, New York, N.Y. Empire Steel Trading Comj~any, Inc., New York, N.Y. Englehard Minerals & Chemicals Corporation, Newark, N.J. Euro-Foods, Inc., New York, N.Y. European-American Banking Corporation-European-American Bank & Trust Company, New York, N.Y. First Manhattan Company, New York, N.Y. First National City Bank, New York, N.Y. Folger, Nolan, Fleming & Company, Inc., Washington, D.C. Francosteel Corporation, New York, N.Y. B. René Frank Associates, Ltd., New York, N.Y. Franki Foundation Company, New York, N.Y. Franklin Glass Corporation, Butler, Pa. Michel Fribourg, New York, N.Y. (The) Gates Rubber Company, Denver, Cob. General Motors Overseas Operations, Division General Motors Corporation, New York, N.Y. J. Gerber & Company, Inc., New York, N.Y. Glaverbel (U.S.A.), Inc., New York, N.Y. Glore Forgan, Wm. R. ~taats, Inc., New York, N.Y. H. Goodman & Sons, Inc., Kearny, N.J. Robert M. Gottschalk, New York, N.Y. Graub'arcl & Moskovitz, New York, N.Y. R~bert L. Grosjean, Bedford, N.Y. Guggenheim Brothers, New York, N.Y. Gulf Oil Corporation, New York, N.Y. Hallgarten Company, New York, N.Y. Hamilton Marine Contracting Company, Inc., Brooklyn, N.Y. Hansen & Tidemann, Inc., New York, N.Y. Hawley Fuel Corporation, New York, N.Y. Margaret Herbst Public Relations, New Yo:k, N.Y. Hertz International Ltd., New York, N.Y. Hill, Betts, Yamaoka, Freehill & Longcope, New York, N.Y. Holland-America Line, New York, N.Y. Philip A. Hunt Chemical Corporation, Palisades Park, NJ. IBM World Trade Corporation, New York, N.Y. Indussa Corporation, New York, N.Y. Infoplan, New York, N.Y. Ipco Hospital Supply Corporation, New York, N.Y. Irving Trust Company, New York, N.Y. ITT World Communication's, Inc., New York, N.Y. Katy Steel Company, Toledo, Ohio. Knott Hotels Corporation, New York, N.Y. T. G. Koryn, Inc., New York, N.Y. Kredietbank N. V. Belgium, New York, N.Y. Lipschutz & GutWirth Company, New York, N.Y. Marcel Loeb & Company, Inc., New York, N.Y. P. Lorillard Company, New York, N.Y. (The) Henry W. T. Mali & Company, Inc., New York, N.Y. Manhattan Publishing Company, New York, N.Y. Manufacturers Hanover Trust Company, New York, N.Y. Marine Midland Grace Trust Company of New York, New York, N.Y. Marsh & McLennan International, Inc., New York, N.Y. (The) Marsehalk Company, Inc., New York, N.Y. René Maurice, Forest Hills, N.Y. R. J. Mayer & Company, Inc., New York, N.Y. McAliister Brothers, Inc., New York, N.Y. (The) Mead Corporation, Dayton, Ohio Merck Sharp & Dohme International, New York, N.Y. Merco, Inc., New York, N.Y. Military Purchase System, Inc., New York, N.Y. Moore-MeCormack Lines, Inc., New York, N.Y. Morgan Guaranty Trust Company of New York, New York, N.Y. Morgan Stanley & Company, New York, N.Y. PAGENO="0333" 1603 Murray-Allen Imports, Inc., New Rochelle, N.Y. Myjaylar Corporation, Hialeab, PEa. National Distillers & Chemical Corporation, New York, N.Y. National Lead Company, New York, N.Y. Maurice Newton-Hallgarten & Company, New York, N.Y. New York Hilton at Rockefeller Center, New York, N.Y. Nourry Consulting & Research Corporation, New York, N.Y. Simon J. Nusbaum, New York, N.Y. G. P. Olivier Corporation, Houston, Texas Ordthel Collators, Inc., New York, N.Y. Owens Corning Fiberglass Corporation, New York, N.Y. Pako Corporation, Minneapolis, Minn. Pan American World Airways, Inc., New York, N.Y. M. Paquet & Company, Inc., New York, N.Y. Parke, Davis & Company, Detroit, Mich. Pfizer International, New York, N.Y. Philadelphia Interpational Bank, New York, N.Y. Picanol of American, Inc., Shelby, N. Ca~olina Pittsburgh Steel Company, Pittsburgh, Pa. Philip Morris International, New York, N.Y. Plant Location International, New York, N.Y. Port Everglades Steel Corporation, Fort Lauderdale, Fla. (The) Port of New York Authority, New York, N~Y. Radium Chemical Company, Inc., New York, N.Y~ RCA Communications, Inc., New York, N.Y. Sam Reisfeld & Son Im;port Company, Inc., New Orleans, La. William Ridley Associates, Fairfield, Conn. Rousselot Corporation, New York, N.Y. Sabena Belgian World Airlines, New York, N.Y. Samsonite Corporation, Denver, Cob. Savin Business Machines Corporation, New York, N.Y. J. Henry Schroder Banking Corporation, New York, N.Y. Schupf Company, Inc., New York, N.Y. Schuster Naval Stores Company, Savannah, Georgia Sharrets, Paley, CIai~ter & Blauvelt, New York, N.Y. Joseph Sigal, Los Angeles, Cal. Signal Oil & Gas Company, Los Angeles, Cal. Signal Stat Company, Brooklyn, N.Y. Smith, Barney & Company, Inc., New York, N.Y. Maurice J. Smits, New York, N.Y. Sperry & Hutchinson Company, New York, N.Y. Societe Generale (France), New York, N.Y. Sopac Transport Corporation, New York, N.Y. Sorrentino Ship~ing, Inc., New York, N.Y. Speed-O-Print Business Machines Corporation, Chicago, Ill. C. H. Sprague & Son Company, New York, N.Y. Standard Oil Company (N.J.), New York, N.Y. Staub, Warmhold & Associates International, Inc., New York, N.Y. Stein Hall & Company, Inc., New York, N.Y. Steuber Company, Inc., New York, N.Y. Strabem & Company, New York, N.Y. (The) St. Regis-Sheraton Hotel, New York, N.Y. Leon Tempeisman & Son, New York, N.Y. C. Tennant, Sons & Company of New York, New York, N.Y. Te~aoo, Inc., New York, N.Y. Thomas Collators, Inc., Linden, N.J. Harry Torczyner, New York, N.Y. Towers, Perrin, Forster & Crosby, Inc., Philadelphia, Pa. Traders Service Corporation, New York, N.Y. Transcar S.A., New York, N.Y. Trans-World Shipping Corporation, New York, N.Y. Twin Disc Incorporate, Racine, Wise. Aiberto Ubbebohde, Inc., New York, N.Y. Union Oarbide Europe, Inc., New York, N.Y. Union Electric Steel Corporation, Pittsburgh, Pa.. United Sta:tes Lines Company, New York, N.Y. PAGENO="0334" 1604 Ernited States Navigation Company, Inc., New York, N.Y. Universal Desalting Corporation, New York, N.Y. Van Nievelt, Gourdriaan & Co., New York, N.Y. Veerman International Company, New York, N.Y. Louis F. Verhuist, Harrington Park, N.J. Jules L. Vermeersch, Phoenix, Ariz. (The) Warmers Brothers Company, Bridgeport, Conn. C. J. Webb, Inc., Jenkintown, Pa. Wells Fargo Bank International Corporation, New York, N.Y. Westinghouse Electric International Company, New York, N.Y Joseph L. Wilmotte & Company, New York, N.Y. M. Wimpfh~imer & Son, Inc., New York, N.Y. Witco Ohemidal Company, Inc., New York, N.Y. MEMBERS IN BELGIUM2 Adeco S.A., Brussels. Agerep S.P.R.L., Renaix. Agence Maritime Anversoise S.A., Antwerp. Agence Maritime Internationale S.A., Antwerp. Bureau Maritime H.G. Ahlers S.A., Antwerp. Airec S.A., Brussels. Alimenta S.P.R.L., Brussels. American Foreign Insurance Association, Brussels. American Stock P.V.B.A., Deurne-Antwerp. Anglo-Continental Ropes S.A., Giliy-Haies. Antwerp Diamond Company, Antwerp. Armement Deppe S.A., Antwerp. Artistica S.P.R.L., Brussels. Association Nationale Des Tisseurs De Lin, Kortrijk. Association Pour La Promotion Et La Coordination Des Investissements Indus- triels En Hainaut, Mons. Assubel, Brussels. Ateliers De Construction De Jambes-Namur S.A., Jambes. Anc. Ateliers De Construction Mecanique Couquelet-DieudOflfle "Sepac" S.A., Grivegn~e. Ateliers Dc Construction Lefevre-Vanneste Et Cie S.P.R.L. "L.Y.D. Cy" N.Y., Gullegem. Ateliers Dc Construction Dc La Meuse S.A., Sciessin. Ateliers Houget~Duesberg-BOSSoll S.A., En1ival. Ateliers Et Emailleries Des Fiandres, Manin. Ateliers De La Louviere-Bouvy, La Louvière. Auxeltra-Genie Civil S.A., Brussels. Usines et Boulonneries Avaux, Anderlues. Firme Eddy Bamps & Son, Antwerp. Banque De Commerce S.A., Antwerp. Banque De Paris & Des Pays-Bas, Brussels. Banque Nagelmackers Fils & Cie, Brussels. Batiments & Ponts S.A., Brussels. Yve Ivo Bekaert & Enfants S.A., Waregem. Belangor S.A., Edelaere-Audenarde. Belgian Bunkering & Stevedoring Co., Antw~~rp. Belgisch BlaauwvriesVeem N.Y., Antwerp. Belgium's Finer Foods A.S.B.L., Brussels. Belgonucieaire S.A., Brussels. Bell Telephone Mfg. Co., N.Y., Antwerp. Beiref S.A., Andenne. Benedict Language School, Brussels. Benelux Survey S.A., Brussels. Bergougnan Beige S.A., Evergem-RabOt. Caves Bernarü-Massard, Grevenmacher. John P. Best & Co., S.A., Antwerp. Armand Blaton, Brussels. Law Office Frank Boas, Brussels 2Members in Belgium are members at large with no voting rights. PAGENO="0335" 1605 ]3oels & Begault, SNC, Brussels. Bogaert Pierre-Emmanuel, Weilimel. - Boschmans & Cie, S.P.R.L., Antwerp. Brasserie De Ghlin, Ghlin. Brepols Fabrieken N.Y., Turnhout. Britte S.A., Vivegnis. Brufina, Brussels. Bureau D'Etudes Industrielles F. Courtoy S.A., Brussels. Burnham International Investment & Finance Co. SA., Brussels. Roland Busselen Publicite S.P.R.L., Brussels. Cabeord S.A. (S.A. Vermeire), Hamme. JUsines De Callenelle S.A., Callenelle. Carbodiam S.A., Tilly. Carbomet S.A., Brussels. Carideng S.A., Lanaken. Carrieres, Scieries & Marbreries Etienne S.A., Mazy. Centre D'Information & De Documentation Atlantique (C.I.D.A.), Brussels. Chaineries Mecaniques S.A., ELaine-St. PauL Chimex (Eta Cappelle Freres S.A.), Menin. Cigrang Freres, Antwerp. Citalo S.A., Lodelinsiart. Cloisall S.A., Brussels. S.A. John Cockerill-Ougree, Seraing. Cogest S.A., Genthrugge. R. Coles S.A., Diegem. Oomauto S.A., Grand-Bigard. Cometain S.A., Brussels. Oompagnie D'Entreprises C.F.E. S.A., Brussels. Contichim S.A., Brussels. Coñnindus, Brussels. Compagnie Des Ciments Belges, Gaurain-Rameeroix. Gompagnie Generale Des Conduites D'Eau S.A., Liege. Compagnie Industrie & Travaux Emile Blaton, Brussels. Compagnie Internationale De Go'beleterie Inebrechable "Durobor" S.A., Soignies. Conipagnie Des Metaux D'Overpelt & De Corphalie S.A., Brussels. Cempagnie Royale Asturienne Des Mines, Brussels. Congochim S.A., Brussels. Congopaim S.A., Brussels. Culina S.A. Conserves Alimentaires, Thorembais. Constructions & Entreprises Industrielles C.E.I., Brussels. Oontimetals S.A., Brussels. Cototextil S.P.R.L., Ledeberg-Gent. Coudert Brothers, Brussels. CRC Chemicals Europe S.A., Brussels. Credit General De Belgique S.A., Brussels. Cribla S.A., Brussels. Louis Culer, Brussels. Ets. Oscar Daffe S.A., Wauthier-Braine. De Coene Freres, JCortrijk. De Groene Zone, Edegem. Entreprises Maurice Delens S.A., Brussels. Ets. Rodolpbe Delfosse, Brussels. Ets. Louis De Poortere, Aatheke. Armand De Reuse, Ghent. Imprimerie Resoer S.A., Liege. Devilca S.A., Bouillon. Ets. Louis De Waele S.A., Brussels. Ets. Textiles De Wltte-Lietaer S.A., Lauwe-lez-Courtral. Ets. De Witte-Visage, Marke-lez-Oourtrai. Ets. Louis D'Haene & Fils S.P.R.L., Kortrijk. Dorland & Grey S.A., Brussels. Dorr-Oliver S.A., Brussels. Douven En Zonen, Leopoldsburg. Ets. Drugmand & Meert, Brussels. G. Dumont & Freres S.A., Sclalgneaux-Sclayn. Dynabat S.P.R.L., Brussels. PAGENO="0336" 1606 Editions Est-Ouest, Brussels. Editions & Regies Nouvelles S.P.R.L., Brussels. Electrobel S.A., Brussels. Entreprises & Travaux S.A., Brussels. S.A. Metallurgique D'Esperance-Longdoz, Liege. ~teco N.Y., Zwevegem. Eternit S.A., Kapelle-op-den-Bos. Etudes & Recherches Industrielles "En" S.A., Brussels. Fabrique Nationale D'Armes De Guerre S.A., HerstaL Federation Belge Des Industries De L'Automobile & Du Cycle "Febiac" A.S.B.L., Brussels. Federation Des Entreprises De L'Industrie Des Fabrications Metalliques "Fabri- metal" A.S.B.L., Brussels. Federation De L'Industrie Textile Beige A.S.B.L., Brussels. Federation Des Industries Chimiques A.S.B.L., Brussels. Flock-Indus S.A.R.L., Bercbem-Antwerp. La Floridienne J. Buttgenbach & Co. S.A., Brussels. Foire Internationale De Bruxelles, Brussels. Foire Internationale De Gand, ~lhent. Foire Internationale De Liege, Liege. Fonderie-Emaillerie S.A., Brussels. Foraky S.A., Brussels. Forges Et Laminoirs De Jemappes S.A., Jemappes. Frame P.V.B.A., Gentbrugge. Ets. Freres-Bourgeois, Charlerol. Agence Maritime Freyman & Van Loo P.V.B.A., Antwerp. Fromagerie Franco-Suisse, Brussels. Generalvoyage S.A., Brussels. Genie Metallurgique Et Chimique "Mechim", Brussels. Gerard & Cie S.P.R.L., Brussels. G.E.T.A. S.A., Hyon. Louis Ghemar S.A., Antwerp. Glaces D'Auvelais S.A., Auvelais. Glaceries De St. Roch S.A., Brussels. Glaverbel S.A., Brussels. Joachim Goldenstein, Antwerp. Graux, Slosse & Cie, S.P.R.L., Ensival. L. R. Gregg Associates, S.P.R.L., Brussels. Grote Antwerpse Hotels N.Y., Antwerp. Groupement Des Agents Maritimes D'Usines, Antwerp. Groupement Des Hauts-Fourneaux & Acieries Belges, Brussels. Gyselinck Freres S.A., Lokeren. Ste. Metallurgique Hainaut-Sambre S.A., Couillet. S. A. Hamon, Brussels. Ateliers J. Hanrez S.A., Monceau-s/-Sambre. Harlow & Jones Belgium S.A., An,twerp. Henrijean & Ses Fils S.P.R.L., Brussels. ]E~essenatie-Neptunu5 N.Y., Antwerp. Ateliers Heuze, Malevez & Simon Beunis S.A., Auvelais. Ets. Henri Horn S.P.R.L., Erembodegem. Ets. Hufkens S.A., Hasseit. Maurice L. Hugaerts "the Broadman Company," Brussels. ICO, Brussels. Inoxybel S.A., Stavelot. S.A. Internationale De T.S.F. "S.A.I.T.," Brussels. "Mon Jardin" S.A., Geer. Jones, Lang, Wootton S.A., Brussels. Kredietbank S.A., Brussels. Kredietbank LuxembourgeOise S.A., Luxembourg. Lahaye & Gyssens P.V.B.A., Antwerp. Lainiere Des Flandres S.A., Rumbeke. Ets. Georges Laloux, Liege. Laminoirs D'Anvers S.A., Sehoten. Laminoirs De Longtain, La Croyère. Ets. Langohr-Lejenne, Societe Nouvelle Artifil-Europar, Theux-Fraflehimont. PAGENO="0337" 1607 Drukkerij-Uitgeverij Lannoo P.V.B.A., TIelt. Ets. B. Lauwaert & Co., Vilvoorde. Louis Lepage "Impextrade" S.A., Antwerp. Ets. Libaco S.A., Brussels. Anc. Ets. Libeert & Co., S.A., Meulebeke-lez-Tielt. Gordon Lilly Company Ltd., Brussels. U.O.E. Linalux, Liege. Liniere De Courtrai S.A., Kortrijk. Luxol S.A., Namur. Robert Maillard, Brussels. Manufacture Beige D'Aiguilles S.A., Eupen. Manufacture Beige De Gembloux S.A., Gembloux. Ets. Marchant & Stichelmans S.A., St. Gilles-lez-Termonde. Marcheurop S.A., Brussels. Imprimerie Marci S.P.R.L., Brussels. Tannerie Massure-Dhalluin, Estaimbourg. Ets. U. Matheys, Brussels. Mecar, Brussels. Stad Mechelen, Mechelen. Menage & Jowa, Liege. Metallurgie-Hoboken N.V., Hoboken. S.A. Metallurgique De Prayon, Prayon-Foret-Trooz. Hotel Metropole, Brussels. Chocolaterie Meurisse, Antwerp. Miroiterie Meyvaert S.A., Uhent. Miroiterie De Charleroi, Marchienne-au-pont. Schoenfabriek "Modern" Michel Serrien P.V.B.A., Niel-bij-Boom. Comptoir RU. Muller & Cie, Antwerp. Bonbons Napoleon S.P.R.L., Antwerp. Natural (Belgique) S.A., Brussels. Editions Nauwelaerts, Leuven. Neptune S.A., Antwerp. Chocolaterie Neuhaus, Leuven. Nietveit A., Ekeren-Antwerp. Metaalwerkhuizen Woohen Nobels Peilman N.V., St. Niklaas. Los Nouveiles Fabriques Nessonvautoises 0. Delcour, Fraipont. Nova S.A., Liege. Offices Des Proprietaires S.A., Brussels. Epuration & Conditionnement Des Eaux S.A., Brussels. Offices Technique De Publicite S.A., Brussels. Omnipatat S.P.R.L., Humbeek. Optibel S.A., Brussels. Papeteries Dc Belgique S.A., Brussels. Palace Hotel, Brussels. Les Papeteries Dc Genval S.A., Genval. Arsène Pardon & Cie, Brussels. P. Parmentier & Co., Brussels. Peltzer Paul, Wezembeek. - Planichim S.C., Brussels. Plant Location International, Brussels. Plastic-Union, Brussels. Mme Micheline Polak, Brussels. Polybeton S.A., Brussels. Les Potstainiers Hutois S.P.R.L., Huy. Pouderies Renuines De Belgique S.A., Brussels. Procter & Gamble, European Technical Center S.A., Strombeek-Bever. 1~rofiiunion, Societe Cooperative, La Croyère, Bois d'Haine. Programma S.P.R.L., Brussels. Henri Proost & Compagnie, Turnhout. Laminoirs, Hauts-Fourneaux, Forges, Fonderles & Usines De La Providence, Marchienne-au-Pont. Publi-Syntl-iese & R.L. Dupuy S.A., Brussels. Robert Quoidbach, Brussels. Raffinerie Tirlemontoise S.A., Tienen. Ravico, Brussels. Red Star Line S.A., Antwerp. 95-159 0-68-pt. 4-22 PAGENO="0338" 1608 Usines Remy S.A., Wijginaal. Roegies-Geernick S.A., Lokeren. Maurice Rosen P.V.B.A., Antwerp. Roussel & Servais S.A., Berchem-Ste Agathe. La Royale Beige S.A., Brussels. Rufin Pierrard Forest Product Agencies S.P.R.L., Waterloo. S.A.D.A.C.I., Ghent. Sadi (Societe Auviiiaire D'Industrie), Brussels. Samesco S.C., Hemiksem. Usines Samsons, Brussels. Bone Sarton & Fils S.P.R.L., Brussels. Scaldia S.A., Borgerbout-Antwerp. Serbruyns Freres S.A., Ghent. Siniina-Intair S.A., Deurne. Sobemi S.A., Brussels. Ste Anversoise De Liaisons Fluviales "Salf", Antwerp. Ste Commerciale & Miniere Du Congo "Cominiere", Brussels. Ste Commerciale Des Mines, Minerals & Metaux S.A. (Socotroisem), Brussels. Ste Pour L'Rxportation Des Sucres S.A., Antwerp. Ste Forestiere Et Agricole Du Mayumbe "Agrifor", (taken over by Coininière). Societe Generale De Banque, Brussels. Societe General Des Minerals S.A., Brussels. Societe Hoteliere St. Michel-Hotel Amigo S.A., Brussels. Societe Industrielle De L'Ajuminium "Sidal" N.Y., Duffel. Societe D'Industrie & Do Distribution "S.I.D.", Brussels. Societe Internationale Commerciale & Financiere Dc La Forminiere "Interfor," Brussels. Anc. Ets. Splichal S.A., Turnhout. Splintex Beige, Gilly. Stadsbestuur Van St. Niklaas, St. Niklaas-Waas. J. Stephen Stanton, European Representative, State of New York, Dept. of Com- merce, Brussels. Stepex, Mr. Stepen S. Stepanian, Brussels. Stocartra S.A., Antwerp. Sybetra S.A., Brussels. Teco S.A., Boix-de-Breux. Thiry & Co., S.A., Huy. Agence Maritime Dc Keyser Thornton S.A., Antwerp. Louis A. Tilmant & Co., Spri, Charleroi. Tissage De Courtrai S.A., Kortrijk. Tissage Dc Gryse-Facon, Brussels. Tissage Lanneau S.A., Harelbeke. Tonalty, Ets. C. Van Brabant, Antwerp. Trafibat S.P.R.L., Brussels. Trans-European Service Co., S.A., Brussels. Transintra S.A., Antwerp. S.A. Transports Simon Smits, Antwerp. Transunion, Brussels. Treffleries Leon Bekaert S.P.R.L., Zwevegem. René Turmes, Esch/Alzette. Union Ohimique Beige S.A., Brussels. Union Coinmerciale Des Glaceries Belges S.A., Brussels. Union Cotonniere S.A., Ledeberg. Union Miniere Du Haut-Katanga S.C.A.R.L., Brussels. S.A. Des Usines De Bralue-Le-Comte, Braine-le-Comte. S.A. Des Usines A Cuivre & A Zinc Dc Liege, Liege. Usines Du Lienaux S.A., Couvin. G. & A. Van Den Bogaerde S.A., Ghent. Imprimeria Yen Den Bossche, Mechelen. J.A. Van Do Voorde-Blomme, Brussels. Imprimerie G. & Ch. Vandezancle S.A., Brussels. S.P.R.L. Leon Van Eessel, Antwerp. Etc. A. Van Haute-Vercauteren, Hamme s/Durma Van Ilool En Zonen P.V.B.A., Koningshooikt. E. Vanhove & Co., Leuven. E. Vanparys, Brussels. Meubelfabriek Van Pelt N.V., Burcht. PAGENO="0339" 1609 Anc. Ets. Van Stalle SA., Brussels. Huis Marcel Van Thuyne, Destelbergen. Pubilcite Vanypeco, Brussels. Marcel Verineire, "Oabcord" S.A., Hamme. Vermeulen Freres S~A., St. Niklaas. Verreries Be L'Herinitage S.A., Jumet. Verreries & Gobeleteries Doyen S.A., Havre-Ville. Mines & Fondenies De Zinc De La Viellle Moi8tiagne, Angleur. Vlaams Economisch Verbond, Antwerp. S.A. Weyerhaeuser Belgium S.A., Ghlin. Bureau Technique Jean Wintgens, Eupen. Voyages Wirtz S.A., Antwerp. Maison Wolfers Freres, Brussels. Transports Internationaux Ziegler & Co. S.P.R.L., Brussels. APPENDIX 2 [Millions of dollarsj U.S. exports Year to Belgium! Luxembourg U.S. imports from Balance Belgium! Luxembourg 1951 377 216 161 1952 292 189 103 1953 239 236 3 1954 272 192 80 1955 322 242 80 1956 437 304 133 1957 423 270 147 1958 332 268 64 1959 351 416 65 1960 439 364 75 1961 420 351 69 1962 448 386 62 1963 524 379 145 1964 629 420 209 1965 643 494 149 1966 686 567 119 1967 704 584 120 Source: Statistical abstract of the United States. APPENDIX 3 [In millions of francsj , Year ~ Belgian Imports from all countries Belgian importsfrom the United States 1951 1952 - - -- 1953 127.517 123. 023 121 128 20. 558 18. 070 12 438 1954 1955_ -- 1956 127.493 142. 202 163 624 13. 129 15. 673 20 429 1957 1958 171. 622 156 447 21. 247 15 497 1959 1960 1961 172 090 197. 854 210 952 16 252 19. 551 18 740 1962 1963 - -- 1964 227 771 255. 603 296 123 22 533 23. 597 26 238 1965 1966 1967 ::::::::::::::::::::::::::::::::::::::::::::::::::::_:- 324 845 358 701 358. 795 27 533 28 453 29. 493 Source: Annuaire statistique de Ia Belgique. PAGENO="0340" 1610 APPENDIX 4 AMERICAN FIRMS WITH SUBSIDIAJUES AND AFFILIATES IN BELGIUM (Source: U.S. Department of Commerce (Sept. 1967)) Abbott Laboratories Inc., Chicago, Illinois. Abex Corporation, New York City, N.Y. Abig Quiet May Belgium, S.A. (US Private Interests), Brussels. Adams-Millis (Europe), Inc., High Point, North Carolina. Addreseogra~h-Multigraph Corp. (International Division), Cleveland, Ohio. Aircraft Suppliers Inc., Nutley, New Jersey. Air Express International Corp., John F. Kennedy Airport, New York. Air Reduction Co., Inc., New York City, New York. Air Products & Chemicals Inc., Allentown, Pennsylvania. Albion Malleable Iron Company, Albion, Michigan. Allegheny Ludlum Steel Corporation, Pittsburgh, Pennsylvania. Allied Chemical Corporation, New York City, New York. Allied Stores Corporation (International Division), New York City, New York. Allied Thermal Corporation, New Britain, Connecticut. Allis-Chalmers (International Division), Milwaukee,Wisconsin. All-State Welding Alloys Company, Inc., White Plains, New York. Alvey Conveyor Manufacturing Corporation, St. Louis, Missouri. Amerbel Corporation, New York City, New York. American Bureau of Shipping, New York City, New York. American Chamber of Commerce of the U.S., Washington, D.C. The American Cynamid Co., Wayne, New Jersey. American District Telegraph Co., New York City, New York. The American Express Co., New York, N.Y. The American Foreign Insurance Association, New York, N.Y. American Home Products Corporation, New York City, N.Y. The American Institute of Aeronautics and Astronautics, New York, N.Y. American International Oil Company, New York, N.Y. American International Underwriters, Brussels, Belgium. American Management Association, New York, N.Y. American Radiator and Standard Sanitary Corn., New York, N.Y. American Scientific Company, Providence, Rhode Island. American Sterilizer Company, Erie, Pennsylvania. American Union Transport, Inc., New York City, N.Y. Ametek, Inc., New York City, N.Y. AMP Incorporated, Harrisburg, Pennsylvania. Ampex Corporation, Redwood City, C1alifornia. Amphenol Corporation, Broadview, Illinois. Arther Anderson & Co., Chicago 3, Illinois. Homer G. Angelo, Geneva, Switzerland. The Ansul Company, Marinette, Wisconsin. Antwerp Industrial Diamond Corporation, New York City, N.Y. Arcair Company, Lancaster, Ohio. Archer & Company, Houston 29, Texas. Archer-Daniels-Midland Company, Minneapolis, Minnesota. S.G. Archibald, Paris 8è, France (US/European partnership) d'Arcy-M.N.P., New York City, N.Y. Argus Chemical Corporation, Brooklyn, N.Y. Arkansas Company Inc., Newark, New Jersey. Armco Steel Corporation, Middletown, Ohio. The Aro Corporation, Bryan, Ohio. Associate Factors Inc., Chicago, Illinois. Associated Merchandising Corporation, New York, N.Y. The Associated Press, New York, N.Y. The Atlantic Richfield Company, Philadelphia, Pennsylvania. Atlas Chemical Industries, Inc., Wilmington, Delaware. Ad. Auriema, Inc., New York City, N.Y. Automatic Poultry Feeder Company, Zeeland, Michigan. Avlquipo-Inc., New York, N.Y. Avon Products, Inc., New York, N.Y. American Scientific Company, Providence, Rhode Island. American Union Transport Inc., New York, N.Y. PAGENO="0341" 1611 Bache and O~. Overseas, S.A., New York, N.Y. Badger Co., Inc., Cambridge, Massachusetts. Baker, McKenzie and Hightower, Chicago, Illinois. Bail International, New York City, N.Y~ Bank of America N.P. and S.A., San Francisco, Oalifornia~ Bankers Trust Co. of New York, New York City, N.Y. Barton Distilling Company, Chicago, Illinois. Ted Bates, Inc., New York, N.Y. The B'auer Bros. Company, Springfield, Ohio~ Baumgold Bros., Inc., New York, N.Y. Baxter Laboratories Inc., Morton Grove, Illinois. Beatrice Foods Co., Chicago, Illinois. The Bechtel International Company, Reno, Nevada. Bell & Howell CO., Chicago, Illinois. Bemis Company, Inc., Minneapolis, Minnesota. Benton & Bowles, New York City, N.Y. Binks Mfg. Co., Chicago, Illinois. S. Birnbau.m, Antwerp, Belgium. Black & Decker Mfg. Co., Towson 4, Maryland. Black Diamond Steamship Corp., New York City, N.Y. Block Drug Co., Jersey City, N.J. Blue Bell Inc., Greensboro, North Carolina. Frank Boas, Brussels, Belgium. Borg-Warner International Corp., Chicago, Illinois. Bostrom Corporation, Milwaukee, Wisconsin. The Boeing C'o., Seattle, Washington. Brabo Industries (U.S. Private Interests), Antwerp, Belgium. Brabo Manufacturing Company, (U.S. Private Interests). W. M. Brady Company, Milwaukee, Wisconsin. Bristol Laboratories, New York City, N.Y. Brown International Paper and Pulp, S.A., Brussels (American Private Interests). R. MeKim Browning, (U.S. Private Interests), Swampscott, Mass. Buckman Laboratories Inc., Memphis, Tennessee. Burndy Corporation, Norwalk, Connecticut. Burnham & Company, New York City, N.Y. Burroughs Corporation, Detroit 32, Michigan. Butler Manufacturing Company, Kansas City, Missouri. The Butterick Company, Inc., New York City, N.Y. Capriel Inc., New York City, N.Y. Celanese Corporation of America, New York City, N.Y. California Packing Corp., San Francisco, California. Calvine Cotton Mills, Inc., (Mr. Salkind), Charlotte, N.C. Cameron Machine Co., Dover, New Jersey. Campbell Soup Co., Camden, New Jersey. Canny, Bowen, Howard, Peck & Associates, Inc., New York, N.Y. Cap-Roc, Inc., Rochester 14, N.Y. Capriel, Inc., New York City, N.Y. The Caiborundum Co., Niagara Falls, N.Y. The Cargill, Inc., Minneapolis, Minnesota. Carter-Wallace O.S., Inc., New York City, N.Y. Castle & Cooke, Inc., Honolulu, Hawaii. Castrol Ltd., Newark, New Jersey. Oatalysts & Chemicals, Inc., Louisville, Kentucky. Catalyptic Construction Co., Inc., Philadelphia, Pennsylvania. Caterpillar Tractor Co., Peoria, Illinois. Central Soya Co., Fort Wayne, Indiana. Cerro Corporation, New York City, N.Y. Cessna Aircraft Co., Wichita, Kansas. Chain Belt Co., Milwaukee, Wisconsin. Champion Papers, Inc., New York City, N.Y. Champion Spark Plug Co., Toledo, Ohio. The Chase Manhattan Bank, New York, N.Y. Chematar, Inc., New York City, N.Y. 13hevron Europe, Inc., (Branch of Standard Oil Co. of California). Chicago Metallic Sash Co., Chicago, Illinois. PAGENO="0342" 1612 Chicago Pneumatic Tool Co., New York City, N.Y. Chore-Time Equipment Inc., Wilford, Indiana. Chrysler Corporation, Detroit, Mkthigan. Cincinnati Milling and Grinding Machines, Inc., Cincinnati, Ohio. Cities Service Co., 60 Wall Tower, New York City, N.Y. C. P. Clare & Co., Chicago, Illinois. Clark Equipment Oo., (Intern. Div.), Buchanan, Michigan. Clayton Manufacturing Co., P.O. Box 550, El Monte, California. Cleary, Gottlieb, Steen & Hamilton, New York City, N.Y. Clevite Corporation Inc., Cleveland, Ohio. Clipper Manufacturing Co., Kansas City 34, Missouri. The OMC-Sierra Corporation, Reno, Nevada. The Coca-Cola Export Corporation, New York Olty, N.Y. Coggeshall & Hicks, New York City, N.Y. Oolgate Palmolive Co., New York, N.Y. Oolemand Company, Inc., Wichita, Kansas. Oollins & Aiknian Corporation, New York City, N.Y. Colonial Distributors, Inc., Boston, Massachusetts. Colorado and Gas Corporation, Denver, Cciorado. Columbia Pictures International Corp., New York City, N.Y. Oompton Advertising, Inc., New York City, N.Y. Container Stapling Corporation, Herrin, IllinOis. Continental Grain Company, New York, N.Y. Continental Illinois National Bank & Trust Co., of Chicago, Chicago, Illinois. Oontlnental Motors Corporation, Detroit, Michigan. Oontlnental Oil Company, Houston, Texas. Cook & Oo., Memphis, Tennessee. Corn Products, Inc., New York, N.Y. *Contin~tal Insurance Company of New York, New York, N.Y. Ooronet Industries, Inc., Dalton, Georgia. Oorning Glass Works, Corning, N.Y. Ooudert Brothers, New York City, N.Y. Crocker-Oltizens National Bank, San Francisco, California. Ootton Producers Association, Atlanta, Georgia. Crown Cork & Seal Co., Inc., Philadelphia, Pennsylvania Cuiigan Inc., Northbrook, Illinois. Cunningham-Limp International, Birmingham, Michigan. Oompton Advertising Inc., New York, N.Y. Cities Service International, New York, N.Y. OyanamLid International Corporation, Wayne, New Jersey. Daniel Construction Co., Inc., Greenville, South Carolina. Danly Machine Corporation, Chicago, Illinois. Davidson & Hemmendinger, Inc., Easton, Pennsylvania. Dawe's Lchoratories, Inc., Chicago, Illinois. Day Diamond Sales, PVBA (David Amsel) An.twerp, Belgium. Dean Export International, Long Beach, California. John Deere & Co., Moline, Illinois'. Th~ Deering Milliken Inc., New York City, N.Y. Delaware River Port Authority of Pennsylvania and New Jersey, Camden, New Jersey. Delightform Foundations, Inc., Easton, Pennsylvania. Dewey, Ballantine, Busliby, Palmer & Wood, New York, City, N.Y. Development Department, State of Ohio, Columbus, Ohio. 0.11. Dexter & Sons Co., Windsor Locks, Connecticut. Diamond Laboratories Inc., Des Moines, Iowa. A. B. Dick Oompany, Ohicago, Illinois. DickSon & Oo.mpany, Oharlotte, North Carolina. Dictaphone Corp., New York City, N.Y. Diebold, Inc., Canton, Ohio. The Diebold Group, Inc., New York City, N.Y. The Diner's Club International, New York Oity, N.Y. Donaldson, Lutkin and Jenrette, New York Oity, N.Y. Donaldson Oompany, Inc., Minneapolis, Minnesota. Donnelley Corporation, New York City, N.Y. Dorr-Oliver, Inc., Stamford, Connecticut. Dow Chemtoal 0om~any, Midland, Miciuigan. PAGENO="0343" 1613 Dow Corning Corporation, Midland, Michigan. Dravo Corporation, Pittsbhrgh, Pennsylvania. Dresser Industries, Inc., Dallas, Texas. Drever Company, Bethayres, PennSylvania. Duhin~Haskell-Jacobson, Inc., New York City, N.Y. Dun & Bradstreet, Inc., New York City, N.Y. D. K. Manufacturing Company, Batavia, Illinois. Dunham-Bush Inc., West Hartford, Connecticut. E.I. Du Pont de Nemours & Co., Wilmington, Delaware. Dymo Industries Inc., Berkeley, California. Eastman Kodak Co., Rochester, N.Y. Economic & Market Corporation, New York City, N.Y. Economics Laboratory Inc., St. Paul, Minnesota. Edmont Inc., Coshoeton, Ohio. Elastic Stop Nut Corporation of America. Electronic Associates Inc., Long Branch, New Jersey. Electronics Corporation of America, Cambridge, Massachusetts. Electro-Nite Engineering Co., Philadelphia, Pennsylvania. Emerson and C'uming Inc., Canton, Massachusetts. Encyclopedia Britannica, Inc., New York City, N.Y. Engelhard Industries, Newark, New Jersey. Erie Technological Products Inc., Erie, Pennsylvania. Eskimo~Europ International, Richmond, Virginia. Epstein, Manllov & Sachnoff, Chicago, Illinois. Esso Chemical Company Inc., New York, N.Y. Esso Research & Engineering Company, Inc., Linden, New Jersey. Ethyl Corporation, New York City, N.Y. Eversharp Inc., Milford, ConnectIcut. John Fabick Tractor Company, St. Louis, Missouri. Fairchild Publications of New York, New York City, N.Y. Famous Artiste Schools International, Inc., New~ York City, N.Y. Fansteel Metallurgical Corporation, North Chicago, Illinois. Federal Insurance Company, New York City, N.Y. Federal Mogul Corporation, Detroit, Michigan. Ferguson Machine Company, St. Louis, Missouri. Fiedler & Associates (Messrs. G. L. Fiedler and D. L. Stocker), New York City, N.Y. Filon Corporation, Cleveland, Ohio. Abel Finkelstein (U.S. Private Interests), New York City, N.Y. Finkeistein Bros., Co., New York City, N.Y. Firestone Tire & Rubber Co., Akron, Ohio. Robert S. First, New York City, N.Y. First Manhattan Company, New York City, N.Y. First National City Bank, New York City, N.Y. D. FiSchhein Company, Minneapolis, Minnesota. Fischer & Porter Company, Warminster, Pennsylvania. Fitchburg Paper Co., Fitchburg, Massachusetts. F.M.A., El Segundo, California. F.M.C. Corporation, San Jose, California. Foote, Cone & Belding, Inc., New York City, N.Y. Ford Motor Company, Dearborn, Michigan. Forrestal, Einmet & Co., New York City, N.Y. Friden Inc., San Leandro, California. Ferguson Machine Corporation, St. Louis, Missouri. Gardner Advertising Company, St. Louis, Mi~sourl. Gardner-Denver Company, Quincy, Illinois. Gates Rubber Company, Denver, Colorado. General Binding Corporation, Northbrook, Illinois. General Foods Corporation, White Plains, New York. General Foam Corporation, New York City, N.Y. General Electric Company, Milwaukee, Wisconsin. General Milk Company, Los Angeles, California. General Motors Acceptance Corporation, New York City, N.Y. General Motors Corporation, New York City, N.Y. General Telephone and Electronics (International). Inc., New York City, N.Y. General Tire and Rubber Company (Intern. Div.), Akron, Ohio. PAGENO="0344" 1614 General Ware~house Company, Baltimore, Maryland. Gillette Company, Boston, Massachusetts. Gimbel Bros., Inc., New York City, N.Y. Girdler Corporation, Louisville, Kentucky. The Glidden Company, Cleveland, Ohio. H. Goodman & Sons, New York City, N.Y. B. F. Goodrich (International Div.), Akron, Ohio. Goodyear International Corporation, Akron, Ohio. The Gorton Corporation, Gloucester, Massachusetts. John H. Graham & Company, Inc., New York City, N.Y. Graver Thnk & Manufacturing Company (Division of Union Tank Car Co.), Chicago, Illinois. Grefco Inc., Los Angeles, California. The Gregg Company Ltd., Hackensack, New Jersey. Gregg Associates, Milwaukee, Wisconsin. Grolier Inc., New York City, N.Y. Guardian Electric Manufacturing Oo., Chicago, Illinois. Guild Metal International Company, Bedford, Ohio. Gulf Oil Corporation, Pittsburgh, Pennsylvania. Gulf and W~stern Industries, Inc., New York City, N.Y. Hallgarteu & Co., New York City, N.Y. Halstead Associates Inc., Larchmont, New York. Frederic R. Harris, Inc., New York City, N.Y. Hart & Cooley Mfg. Co., Holland, Michigan. C. H. Hartley, Los Angeles, California. Harvard International Industries (Mr. Martin Slutsky), St.-Niklaas, Belgium. H. J. Heinz Co., Pittsburgh, Pennsylvania. Heller & Co., Chicago, Illinois. Heller Factors, Chicago, Illinois. H. Hentz & Co., New York City, N.Y. Hercules, Inc., Wilmington, Delaware. Hand Carpet Mills, Los Angeles, California. Hertz International, New York, N.Y. Hewitt-Robins, Inc., Stanford, Connecticut. Hewlett-Packard Co., Palo Alto, California. William Hill and Co., Inc., New York City, N.Y. Hilton International Co., New York City, N.Y. The Hobart Mfg. Co., Troy, Ohio. Hooker Chemical Corporation (International Division), New York City, N.Y. Hoover Company, N. Canton, Ohio. Housing Properties Belgium (US/Belgian Private Interests). Hudson Leasing Corporation, New York City, N.Y. Hughes Aircraft Company International, Culver City, California. Hunter International, S.A. Brussels, Belgium (US Private mt.). W. E. Hutton & Co., New York City, N.Y. Hydromation Engineering Company, Livonia, Michigan. Hyster Company, Portland, Oregon. ICAP Corporation, New York City, N.Y. I.B.M.-International Business Machines-World Trade Corporation, New York City, N.Y. Ideal Tape, Inc., Lowell, Massachusetts. 0. Imber, New York City, N.Y. Indussa Corporation, New York City, N.Y. I.M.S., Brussels, Belgium (US Private Interests). Ingersoll Milling Machine Co., Rockford, Illinois. Ingersoll-Rand, New York City, N.Y. Insul-8-Corporation, San Carlos, California. International Bank of Washington, Washington, D.C. International B. F. Goodrich, Akron, Ohio. Interchemicals & Plastics (US/Belgian Private Interests). International Harvester Co., Chicago, Illinois. International Latex Corporation, Dover, Delaware. International Metal Co., New York City, N.Y. International Packers Ltd., Chicago, Illinois. International Telephone and Telegraph Corp., New York, N.Y. International Rectifier Corporation, El Segundo, California. PAGENO="0345" 1615 International Research Associates Inc., New York City, N.Y. international Staple and Machine Co., Butler~ Pennsylvania. International Supply Corporation, Los Angeles, California. Interpublic Group of Companies, Inc., New York City, N.Y. I.T.T. Cannon Electric Inc., Los Angeles, California. I.T.T. Europe Inc., New York City, New York. Jewel Companies Inc., Chicago, Illinois. D. Jennings (US/Belgian Partnership), Detroit, Michigan. Johnson & Johnson International, New Brunswick, New Jersey. Johns-Manville Corporation, New York City, N.Y. Johnson Service Company, Milwaukee, Wisconsin. Johnson's Wax, Racine, Wisconsin. Joy Manufacturing Company, Pittsburgh, Pennsylvania. Joynel Company Inc., New York City, N.Y. The Keith British Stores, Ltd., Falmouth, Massachusetts. Kaiser Aluminum & Chemical Corporation, Oakland, California. Kaiser Refractories (Div. of Kaiser Aluminum & Chemical Corp.), Oakland California. The Kellogg Company (Div. of Kellogg Overseas Corp.), New York, N.Y. Key Pharmaceuticals, Miami, Florida. Kimber Farms, Inc., Fremont, California. The Kite Company, New York City, New York. Knott Hotels Corporation, New York City, N.Y. K.S.M. Continental, S.A., Nivelles, Belgium (see also Omark). Kysor Industrial Corporation, Cadillac, Michigan. Laboratory for Electronics Inc., Boston, Massachusetts. D. Landau, New York City, N.Y. (Private Interests). The Lau Blower Co., Dayton, Ohio. Estee Lauder Inc., New York City, N.Y. Lavo Relax (Benjamin Blankfield-US Private Interests). Law & Business Offices (Dr. Charles Hemeirike), Brussels. Lawter Chemicals Inc., Chicago, Illinois. Leaf Brands Inc., Chicago, Illinois. Lehigh Valley Industries, Brooklyn, N.Y. H. D. Lee Co., Inc., Kansas City, Missouri. Le Tourneau-Westinghouse Co., Peoria, Illinois. Libby, McNeill & Libby, Chicago, Illinois. Lieber & Solow, New York City, N.Y. A. D. Little Inc., Chambridge, Massachusetts. Little Giant Products, Peoria, Illinois, Litton Industries Inc., Beverly Hills, California. Litwin Engineering International, S.A. (US Private Interests). Locus Incorporated, Abilene, Texas. Lubrizol Corporation, Cleveland, Ohio. Lykes Lines Agency Inc., New Orleana, Louisiana. Lupton Manufacturing Company, Philadelphia, Pennsylvania. McCann Erickson Inc., New York City, N.Y. McCullogh Corporation, Los Angeles, California. Merck, Sharpe & Dohme International, New York, N.Y. Meridian Enterprises, Inc., Los Angeles, California. Merrill Lynch, Pierce, Fenner & Smith Inc., New York City, N.Y. Metasco Inc., (Subsidiary of International Division of Allied Stores Corp.), New York, N.Y. Metro-Atlantic Inc., Centerdale, Rhode Island. Metro-Goldwin-Mayer International, Inc., New York, N.Y. Microdot Inc., South Pasadena, California. JVLidwest Rubber Reclaiming Co., East St. Louis, Illinois. Millard-Norman Co., Cincinnati, Ohio. Miller Freeman Publications, San Francisco, California. 3-M, Minnesota Mining and Manufacturing Co., St. Paul, Minnesota. Minneapolis Honeywell Regulator Co., Minneapolis, Minnesota. Mister Minit (US-Canadian Private Interests), Brussels. Mohasco Industries Inc., Amsterdam, New York. Mobil Oil Corporation, New York City, N.Y. Mondial Laminated, S.A., (US Private Interests). Monroe Auto Equipment Co., Monroe, Michigan. PAGENO="0346" 1616 Monsanto Chemical Co., St. Louis, Missouri. S. Moore & Co., Mantua, Ohio. Moore & McCormack Co., New York City, N.Y. Morehouse Industries Inc., Los Angeles, California. Morgan Adhesives Co., Stow, Ohio. Morgan Guaranty Trust Co. of New York, New York City, N.Y. Morrison-Knudsen Co., Inc., Boise, Idaho. Mosier Safe Co., New York City, N.Y. Motorola Overseas Corp., Franklin Park, Illinois. Multipane Inc., Philadelphia, Pennsylvania. Muzak Corporation, New York City, N.Y. Nashua Corporation, Nashua, New Hampshire. National Canners Association, Washington, D.C. The National Cash Register Co., Dayton, 01110. National Chemsearch Corporation, Washington, D.C. National Cotton Council of America, Memphis, Tennessee. National Dairy Products Corporation, New York City, N.Y. National Distillers and Chemical Corporation of America, Richmond, Virginia. National Forge Export Corporation, Warren County, Pennsylvania. National Lead Company, New York City, N.Y. New Hampshire Insurance Co., Manchester, New Hampshire. New Holland Machine Co., (Div. of Sperry Rand Corp.) New Holland, Pa. Newsweek, New York City, N.Y. State of New York-Department of Commerce, Albany, New York. A. C. Nielsen Co., Ltd., Chicago, Illinois. Nordson Corporation, Amherst, Ohio. The Norwich Phannacal Co., New York City, N.Y. The Norton Company, Worcester, Massachusetts. Office Publications, Stamford, Connecticut. `State of Ohio-Development Department, Columbus, Ohio. Ohio S:teel Foundry Company, Lima, Ohio. Omark Industries, Inc., Portland, Oregon. K. Orban Company, Inc., Jersey City, New Jersey. Otis Elevator Company of New Jersey, New York, N.Y. Outboard Marine Corporation, Waukegan, Illinois. 0vermyer Corporation, Winchester, Indiana. Owens-Corning Fiberglas Corporation, Toledo, Ohio. Owens-Illinois Glass Co., Tbledo, Ohio. Packard Instrument Company, Chicago, Illinois. Panam-Pan American World Airways, New York City, N.Y. The Papercraft Corporation, Pittsburgh, Pennsylvania. Paramount Paper Products Oompany, Omaha, Nebraska. Paramount (International) Films, Inc., New York City, N.Y. Parco International, New York City, N.Y. Parke, Davis & Company, Detroit, Michigan. Parsons International, Los Angeles, California. Parsons & Whittemore, New York, N.Y. Pearison Engineering Co., Miami, Florida. Peat, Marwick, Mitchell & Co., New York, N.Y. Pepsi-Cola Company, New York, N.Y. Pepsi-Cola International, New York, N.Y. Gerry Perloff, Rockville Center, New York. Petroleum Fire Protection (U.'S. Private Interests) Brussels, Belgium. Chas. Pfizer &.Oo., New York, N.Y. Philip Morris, Inc., New York, N.Y. Phulipp Bros. (Dlv. of Minerals, Chemicals, Philipp Corp.), New York. Phillips Petroleum Company, Bartlesville, Oklahoma. Phillips-Ryan International (Tovar Belgique-IMS-MMS), Brussels, Belgium. Pickands Mather & Co., Cleveland, Ohio. Picker International Oorporation, White Plains, N.Y. Pillsbury Company, Minneapolis, Minnesota. Pioneer Overseas `Services `Corporation, New York, N.Y. Pittsburgh `Corning Corporation, Pittsburgh, Pennsylvania. Pittsburgh Plate Glass Co., Pittsburgh, Pennsylvania. Pittsburgh Steel Company, Pittsburgh, Pennsylvania. Plastic Coating Corporation, Rolyoke, Massachusetts. PAGENO="0347" 1617 Plibrico Company, Inc., Qhieago, Illinoi~. Polaroid Corporation, Cambridge, Massachusetts, Port Everglades Steel Corp., Fort Lauderdale, Florida. Premier Diamond Corp. (Messers. Isaac Lieber & Zelman Solowiejezuk). Prestolite International Co., Division of Elyra Oorp., Toledo, Ohio. Price, Waterhouse & Company, New York, N.Y. Procter & Gamble Company, Cincinnati, Ohio. The Prophet Company (Subsidiary of Greyhound Food Management Inc.), De- troit, Michigan. Pyronics Inc., Cleveland, Ohio. Quaker Oats Company, Ohicago, Illinois. Radiant Color COmpany, Richmond, Cklifornia. Ralston Purina Company, St. Louis, Missouri. The Ramtite Company, (Div. of S. Obermayer Co.), Ohicago, Illinois. Ramney Method International Inc., Sacramento, California. Raychem Corp. & Rayelad Tubes, Inc., Redwood Oity, California. Real Estate Belgium, S.A. (U.S. Private Interests). Reuben H. Donnelley Corporation, Wilmington, Delaware. Rena-Ware Distributors, Bellevue, Washington. Revlon International Corporation, New York City, N.Y. Reynolds International, Inc. (Subsidiary of Reynolds Metals Inc.), Richmond, Virginia. Rex Chain Belt Company, Milwaukee, Wisconsin. Rexall Drug & Chemical Company, Los Angeles, California. Rheem International Inc., New York, N.Y. Richardson-Merrell, New York, N.Y. Ridge Tool Company, Elyria, Ohio. Robbins Incubator Company, Denver, Colorado. ROberts Company, Sanford, North Carolina. H. H. Robertson Company, Pittsburgh, Pennsylvania. Rocke International Corporation, New York, N.Y. L.S. & D. Rockefeller, New York, N.Y. (USIQAP). Rockwell Manufacturing Co., Pittsburgh, Pennsylvania. Rozin Optical Export Corporation (US Private Interests) New York, N.Y. Rust Engineering Company, Pittsburgh, Pennsylvania. Mr. Salkind (Calvine Cotton Mills Inc.) Charlotte, N. Carolina. Sarco International Corporation, New York, N.Y. Samsonite Corporation, Denver, Colorado. Sawyer's Inc., Portland, Oregon. Schenley International Company, New York, N.Y. The Schlegel Mfg. Co., Henrietta, N.Y. School Manufacturing Company, Chicago, Illinois. A. Schulman, Akron, Ohio. Scott Paper Company, Philadelphia, Pennsylvania. Scott & Williams Inc., Laconia, New Hampshire. Sears, Roebuck & Company, Chicago, Illinois. Seeburg Corporation, Chicago, Illinois. E. Seidenfeld (US Private Interests). Shakespeare Company, Kalamazoo, Michigan. Sheraton Corporation of America, Boston, Massachusetts. Sherwin-Williams Company, Cleveland, Ohio. Shulton Inc., New York City, N.Y. Shur-Lok Corporation, Santa Ana, California. Sidem International, S. A. (US Private Interests), Brussels. Signal Oil & Gas Company, Los Angeles, California. Signode Corporation, Chicago, Illinois. simplex Time Recorder Company, Gardner, Massachusetts. Sinclair International Oil Company, New York, N.Y. Sinclair Petroleum Oorporation, New York, N.Y. Singer Company, New York, N.Y. Smith, Kline and French Laboratories, Philadelphia, Pa. Socony Mobile Oil Company, Inc., New York, N.Y. Southwestern Engineering C~mpany, Los Angeles, California. Southwestern Petrnleum C~rporation, Fort Worth, Texas. Sperry Rand C~rporation, New York City, N.Y. Sprague Electric Company, North Adams, Massachusetts. PAGENO="0348" 1618 Spray, Price, Townsend, Cushman, Chicago, Illinois. E. R. Squibb International, New York, N.Y. St. Regis Paper Ooinpany, New York, N.Y. Sta-Hi Corporation, Newport Beach, Oalffornia~ Standard Oil Co. (Indiana) AMOCO Chemicals Div., Chicago, Ill. Standard Oil Company (New Jersey), New York, N.Y. State of New York, Department of Commerce, N.Y.C., N.Y. State of Ohio, Development Department, Columbus, Ohio. Staub, Warmbold and Associates Inc., New York, N.Y. Sterling Drug, Inc., New York City, N.Y. C. P. Steuber & Company, New York, N.Y. Stewart International Associates, Milwaukee, Wisconsin. Stewart-Warner Oorporation, Chicago, Illinois. Levi Strauss International, San Francisco, California. Sun Oil Company, Philadelphia, Pennsylvania. Superior Oil Company, Houston, Texas. Sutton Engineering Oompany, Pittsburgh, Pennsylvania. Swift & Company, Olilcago, Illinois. M. Swift & Sons, Inc., Hartford, Connecticut. Technicon International, Ardeley, N.Y. Technical Animations, Inc., Port Washington, New York. L. Tempelsman & Son, New York City, N.Y. Tennant & Sons & Co., New York City, N.Y. Texaco Inc., New York, N.Y. Thomas Collators Inc., New York, N.Y. Thompson Aircraft Tire Corporation, San Francisco, California. J. Waiter Thompson Company, New York, N.Y. Titan Industrial Corporation, New York City, N.Y. Toledo Scale Corporation, Toledo, Ohio. Tops, S. A. (US & Belgian Private Interests), Brussels. The Torrington Mfg. Co., Torrington, Connecticut. Touche, Ross, Bailey and Smart, Detrbit, Michigan. Towers, Perrin, Forster & Crosby, Inc., Philadelphia, Pa. Train, Cabot & Associates, New York City, N.Y. Trane Company, La Crosse, Wisconsin. Trans International Airlines, Inc., Oakland mt. Airport, California. Transworld Airlines Inc., T.W.A., New York City, N.Y. Travenol Laboratories, Morton Grove, Illinois. Trend Mills Inc., Rome, Georgia. Twenteith Century-Fox International Corp., New York, N.Y. Twin Disc Company, Racine, Wisconsin. Messrs. A. E. Ulmann and R. E. Lecot (US-Belgian Partnership) N.Y.C., N.Y. Uni-Office International Corporation, New York, N.Y. Union Carbide International Company, New York, N.Y. Union Electric Steel Corporation, Pittsburgh, Pennsylvania. Union Special Machine Co. of America, Reno, Nevada. Uniswitch Corporation, Pittsburgh, Pennsylvania. United Artists Corporation, New York City, N.Y. United Elastic Corporation, Easth:ampton, Massachusetts. United Fruit Company, Boston, Massachusetts. United Press-U.P.-International, New York, N.Y. United Shoe Machinery Corporation, Boston, Massachusetts. United States Fire Insurance Company, New York, N.Y. United States Gypsum Co., Chicago, Illinois. United States Lines Company, New York, N.Y. United States Rubber Company, New York, N.Y. Universal International Films Inc., New York, N.Y. Universal Oil Products Co., Des Plaines, Illinois. Upjohn Company, Kalamazoo, Michigan. U.S. Plywood Champion Paper Corporation, Panama (Division of Champion Papers Inc., New York City, N.Y.) U.S. Vitamin & Pharmaceutical Corporation, New York City, N.Y. Varian Associates, Palo Alto, California. N. V. Vending Industries Ltd. (US Private Interests), Antwerp, Belgium. The Vendo Company, Kansas City, Missouri. PAGENO="0349" 1619 Vesely Manufacturing Company, Lapeer, Michigan. Vesuvius International Corporation, Wilmington, Delaware. Vickers Inc., (Div. of Sperry Rand Corporation) DetrOit, Mich. Virginia State Ports Authority, Norfolk, Virginia. V.S.I. Corporation, Pasadena, California. Walk-Over Shoes-Geo. E. Keith British Stores Ltd., Brockton, Mass. Ward Manufacturing Company, Inc., Hamilton, Ohio. Warner Bros. Pictures International Corporation, New York City, N.Y. The Warner Bros. Manufacturing Company, Bridgeport, Conn. Warner Electric Brake & Clutch Company, Beloit, Wisconsin. Warner-Lambert International Capital Corp., Morris Plains, N.J. Washington Post,. Washington, D.C. Waterbury Farrel, Cheshire, Connecticut. Robert A. Weaver, Jr., and Associates, Boston, Massachusetts. Well Bros.-Cotton Inc., Montgomery, Alabama. Western Union International Inc., New York, N.Y. Westinghouse Air Brake Company (WABCO), Wilmerding, Pa. Westinghouse Electric Corporation, Pittsburgh, Pennsylvania. Westrex Division of Aero Service, Brussels: See Litton Industries. West Virginia Pulp & Paper Co., New York City, N.Y. Weyerhaeuser Company, Tacoma, Washington. White & Oase, New York City, N.Y. Whitmoyer Laboratories, Myerstown, Pennsylvania. J. L. Wilmotte, New York City, N.Y. Witco Chemical Company, New York City, N.Y. Wilson Products, Paramus, New Jersey. F. W. Woolworth Company, New York City, N.Y. Worcester Valve Company, Worcester, Massachusetts Worldwide Information Services, New York City, N.Y. Wyandotte Chemicals Corporation, Wyandotte, Michigan. Wynn Oil Company, Azusa, California. Arthur Young and Company, New York, N.Y. Young and Rubicam Inc., New York, N.Y. The CHAIRMAN. Any questions? We thank you, sir. Mr. GOTTSCHALK. Thank you. The CHAIRMAN. Without objection the committee will recess until 2 o'clock. (Whereupon, at 12:25 p.m., the committee recessed to reconvene at 2p.m., the same day.) AFTER RECESS (The committee reconvened' at 2 p.m., Hon. Al IJilman presiding.) Mr. tTLLMAN. The committee will be in order. Mr. Do Santis? We welcome you before the committee, Mr. Do Santis. Will you identify yourself and your colleagues? You may proceed as you see fit. STATEJYEENTS OP ARTHUR A... BE SANTIS, EXECUTIVE &EIOEE- TARY, ITALY-AMERICAN CHAMBER OP COMMERCE~ AND RALPH BONOMO `Mr. DR SANTIS. Mr. Chairman, members of the Committee on Ways and Means, my name is Arthur A. De Santis, and my place of residence' is New York City. I appear before you today as executive secretary of the Italy-American Chamber of Commerce, Inc. (IACC), a member- ship corporation which was established in 1887 and duly chartered under the laws of the State of New York. The chamber is composed of PAGENO="0350" 1620 530 business corporations and other organizations vitally interested in trade relations between the United States and Itady. I would like to stress the fact that we are an independent, self-sustaining American trade association, not affiliated with any foreign interest. Most of our members import a variety of products from Italy, in- cluding, among other things, apparel, appliances, automobiles and equipment, beverages, ceramics, china, furniture and handicraft items, chemicals, footwear, marble products, food products, and textiles. Other members of the chamber export a number of products produced in the United States to Italy and elsewhere. This highly profitable business includes exports of cotton, coal, minerals, grains, metal prod- ucts, machinery, and other manufactured items. As you know, Ameri- can exports to Italy increased 7 percent last year, to $946 million. Im- ports from Italy totalled approximately $856 million, indicating, of course, a favorable balance of trade between the two countries. The Italy-American Chamber of Commerce supports continuance of our trade policies through appropriate legislation. It is sincerely hoped that final action by Congress on the Trade Expansion Act of 1968 will result in a continuation of current liberal trade policies. We recognize that there may be certain instances where restrictions on imports and exports must be imposed. It is believed that H.R. 17551 as finally enacted should include provisions which will protect American con- sumers, industry, and labor, where it has been established that legal restrictions are necessary. It has the experience of our membership and U.S. businessmen in general, that continued free exchange of products and know-how between the United States and Italy leads to a better life in both countries. We have learned from history that unwarranted restriction of free trade with friendly nations serves only to induce retaliation against us. This is why we register unrelenting opposition to unnecessary tariff and nontariff barriers proposed for imported tex- tiles, steel, certain food products, and other necessary items of com- merce. it is sincerely believed that these types of legislative proposals would include a trade war, which would be particularly unfortunate with Italy, a country which has been a loyal friend of the United States. Italian industry has actually created markets in the United States and throughout the world in a number of commodities. Italian food products and cheese created a demand that now supports a large sec- tion of food industry. In the case of business machines and other com- plex mechanical devices, Italy, in partnership with our industries, has helped produce better products for a broader market. In the case of textiles and items of wearing apparel, styled leadership has created a tremendous demand in America for all such products. Nonrubber foot- wear made here almost invariably reflects Italian style and design. Few, if any, American-made automobiles can be found which do not reflect Italian style leadership. Many of our newest and most decora- tive buildings are constructed utilizing Italian technolo~y and design. Most consumer items, whether made in America or in Italy, bear witness to the favorable effect Italian imports have had on Americans. In no area has this free trade of ideas and material been more evident than in the field of textiles and textile products. In conclusion, we submit that the strongest arguments supporting enactment of the Trade Expansion Act of 1968, or similar legislation, PAGENO="0351" 1621 are found in the booming economies of America and Italy. Successful conclusion of the Kennedy round trade negotiations at the same time our trading partners in Europe are joining together as the European Economic Community, augurs well for a continuation of free world prosperity through free competition. To substantially withdraw mean- ingful trade concessions recently made by all countries through the enactment of quotas and similar restrictions on imports would hurt us all. Mr. Chairman, may I have permission to file a brief on behalf of our importers of cheese, which belong to our association? Mr. ULLMAN. Without objection, the statement will be included in the record at this point. Do you have it with you? Mr. DESANTIS. No, we will file it. (The following statement was received by the committee:) STATEMENT OF EDWARD LABAJA, CHAIRMAN, DAIRY PRODUCuS IMI'ORTERS GROUP, ITALY-AMERICA `CHAMBER OF COMMERCE, Iwc~ The Italy-America Chamber of Commerce, Inc. is a self-sustaining national organization of American businessmen engaged in trade and other economic dealings with Italy. The Dairy Products Importers Group of the Chamber in. eludes numerous United States corporations and firms engaged In the importa- tion of Italian cheeses for sale in the United States. Statements submitted to the Trade Information Committee by Universal. Foods Corp., Stella Cheese Division, submitted on March 14, 1968, and the brief of the American Producers of Italian-T~ype Cheese Association on April 18, 1968, prompt us to file the following statement with this Committee in order to assure that confusion, if any, with respect to Italian cheese is tempered with fact. Indiscriminate use of the phrase "Italian-type" cheese and similar careless language. leaves the impression that Italy competes, outside of normal quotas, with cow's milk cheeses produced in the United States. Pecorino cheese, cur- rently classified in Items 117.65-.70, Tariff Schedules of the United States (TSUS), the major export item from Italy, is produced from sheep's milk. American-made Italian.type cheese substitutes are produced from 100% cow's milk and might be said to depend upon a market created by consumer demand for the real thing: ~Italian sheep's milk cheese (Pecorino Romano). The very existence of Italian-type cheese segment of the domestic dairy products Industry can be traced to the importation and creation of a market for genuine, traditional, Italian cheese. American made Italian-type cheese never existed until domestic producers studied methods and developed a process by which Imitation Romano- type cheese could be made. Hence, we are talking about a narrow, specialized market created by imported cheese. At best, the product produced in the U.S. is a substitute for the genuine Italian product which can be illustrated in the `difference of basic ingredients and production methods of the two. Domestic Romano cheese is made from 100% cow's milk. Italian Pecorino Romano cheese is made from 100% sheep's milk. With respect to American-made Romano and other Italian-type cheeses pro- duced from cow's milk, American manufacturers usually import the basic in- gredient used to coagulate the milk and infuse a Pecorino (sheep's milk) Romano flavor to a product produced with cow's milk. This enzyme, rennet, Is inciden- tally imported from Italy. Total imports of cheese into the United States during the year 1967 approxi- mated 151,779,982 lbs., of which amount Italy accounted for about 10% or 16,153,544 lbs. Of this total amount, 11,138,462 lbs. was for Pecorino (sheep's milk) cheese. True Pecorino cheese is not produced in the United States for the simple reason that there is no commercial sheep's milk production in America. The cost to the importer for Pecorino Romano Genuino in 1967 was from $1.05 to $1.08 per lb. The importer cost for Pecorino Sardo in 1967 was from $.90 to $.92 per lb. Imitations of the original Italian product sell in Wisconsin far below these prices'. Still the consumer is willing to pay more for real Italian imported Pecorino PAGENO="0352" [622 Romano, which substantiates our claim that the substitute is a materially dif- ferent product, at best a mild substitute. Obviously cheese made from ewe's mliii cannot be imitated successfully using cow's milk. Cow's milk cheese imported from Italy are several: Reggiano and Provolone. Reggiano (Parmesan) comes in two varieties--Reggiano Classico and Reg- giano Grana. The first and preferred, cost the American importer in 1967 an average of $1.25 per lb. and the second about $1.03 per lb. Approximately % of the total was the more expensive Classico. Provolone is also available in two varieties. One referred to as white paste, the other yellow paste. The white paste is the preferred and more costly variety constituting nearly 100% of imports. The average cost of this cheese to the im- porter in 1967 was $1.03 per lb. as opposed to domestic made product at $70 per lb. There is no subsidy on this milk in Italy. Certain domestic cheese manufacturers claim that there are so-called loop- holes in the quota on Italian-type cheeses. They do not say so, but they refer to Italian cow's milk cheese which product does not "flood" the U.S. market place and cannot be said to displace any significant portion of the U.S. market. The fact is that the full quota for Italian cheese from Italy was not used in 1967, nor is it likely to be used in 1968 or 1969. The introduction of the cut form was obviously, therefore, not an evasion of the intent of the quota, but rather a modernization of an unwieldy 60 lb. loaf of cheese into manageable size cuts. This convenient type package, especially in the food field, has been forced on producers by the movement away from the independent store to the chain store operation and is an American creation. In conclusion, it is suggested that the importation of true Italian Pecorino Romano cheese has created and continues to create a demand for Romano type grating cheese and therefore assist and encourage producers of imitation Italian cheeses to sell substitutes to those with less than discriminating tastes. Only the gourmet buys the true Pecorino and willingly pays the premium price therefor. Italian cheeses have never undersold competitive U.S. products. Imposition of a quota on sheep's milk cheese which is not even produced in the United States would, we submit, arbitrarily deny the U.S. consuming public of a unique and traditionally accepted product and would also capriciously restrain trade with Italy which is not even directly competitive with comparable U.S-made products. ITALY-AMERICA CHAMBER OF COMMERCE, INC., DAIRY PRODUCTs COMMITTEE The Ambrioia Co., NYC Antolini & Co., Ltd., NYC Bel Paese Sales, NYC Bertolli Trading Corp., Woodside, NY Del Gaizo Brands Importing Co., NYC A. de Simone, Inc., NYC Doro Int'l, Inc., Cincinnati, Ohio Galvanoni & Nevy Bros., Inc., NYC S. A. Laraja & Sons, Inc., NYC Locatelli, Inc., NYC L. Metafora Co., Inc., Boston, Mass. C. Pappas Co., Inc., Boston, Mass. Parisi Bros., Inc., Mt. Vernon, NY Pastene & Co., Inc., NYC Antonio Piccini & Sons, B'klyn, N~ Otto Roth & Co., Inc., NYC Schroeder Bros., Inc., NYC A. Schuman, Inc., Teaneck, NJ Paul Surace, NYC Uddo & Taormina Corp., Jersey City, NJ Joseph Bonsignore, NYC Giacomo Nino Bragelli, NYC Bristol Trading Corp., NYC Dornenico D'Angiola, Inc., Bronx, NY De Luca Sales Co., NYC Wm. Faehndrich, Inc., NYC Icco Cheese Co., Inc., B'klyn, NY Import Oil Co., NYC La Perla Corp., L.I.C., NY Musolino, Lo Conte Co., E. Cambridge, Mass. G. Nardella & So1~s, B'klyn, NY Ravarino & Fresehi, Inc., St. Louis, La. Ditta Sarda, Providence, Rd. Nino A. Sidari, New Rochelle, NY Salvatore Vacca, Bronx, NY Mr. ULLMAN. We appreciate very much your appearing before the cormnittee. Mr. Bonomo, we will be delighted to hear you. STATEMENT OP RALPH BONOMO Mr. BoNoMo. Mr. Chairman, distinguished committee members, my name is Ralph Bonomo. I am president of Republic Commercial Corp. of New York City, a TJ.S. corporation engaged in the domestic manu- facture and importation of a nun~ber `of textile products. I am ch:air- PAGENO="0353" 16~3 man of the Italy-America `Chamber of `Commerce Textile and Apparel Committee and appear for that group as well as my colleagues in the knitwear committee of the chamber, We support the stated goals Of the Trade Expansion Act of 1968. Conversely, we wish to register vigorous opposition to proposals de- signed to restrict imports of textile products by the invocation of an uuneoes~ary quota~ system. Those of us in~timately ~on~ected with the American textile a~d apparel industry know that Italy is' the style leader in wearing apparel and in woven fabrics for meWs and women's ~uits, especially woel knitwear. Italy is the trend setter~ providing characteristic Italian concepts, which in turn, give stimulus to U.S. manufacturers. In point of fact, the stimulus of high-styled Italian products `has revived the U.S. knitting inhstry. Evidence that American manufacturers need and rely upon Italian fashion ideas and concepts is found in the fact that U.S. producers almost invariably reproduce Italian styles for mass production. Qual- `ity goods produced in an imagma~tive manner create demand which in major part is eventually fulfilled by tT.S. production. At this point I would like to insert an item from Business Week dated June 15 under the subject heading "Plant Capacity Is Ade- quate," and I quote: "Few industries are pressing against capacity. Of the 14 major manufacturing industry groups, only three-i~ubber, petroleum, and textiles-are running at more than 90-percent capacity." (The article referred to follows:) [From Business Week~ June i~, 1908] PLANT OAPACITY Is ADEQUATE No new capital goods boom is developing, however. Plenty of available ca- pacity, `tight mo'ney, .high interest rates, and some trimming of sales expectation's are serving as restraints upon expansion. Most of the indicated stepup in spending is attributable to noumanufacturing industries. There is a T% rise projected in this area over the next two quar'ters. There was practically no gain here' in the first half. In manufacturing, capital spending apparently will rise more than ~% during the first half-but is expected to rise very little in the subsequent two quarters. This is what you would expect; utilization of plant is not particularly high right now. Few industries are pressing against capacity. Of the 14 major manufacturii~ig industry groups, only three (rubie'r, petroleum, and textiles) ar'e running at more than 90% of capacity. For all manufacturing, the rate of operations averages out to 84.5%, according to McGraw-Hill's index of industrial operating rates. This is a level well below that preferred by most companies', tho'ugh no't low enough to give a downward tilt `to investment in new plant. Moreover, if the forward pace of business' slows later this year~ the gap be- tween capacity and the operating r'ate may widen further. Mr. BoNoMo. Italian knitwear and textile products are not inex- pensive. There is no cheap labor in these industries in Italy. Recently published Tariff Commission statistics indicate that unit value's for knitwear products manaufactured in Italy are among the highest in the world. The `average uni't value for krnt manmade fiber outerwear imported during 1966 was $7.54 per pound at wholesale. In `the case of knit wool outerwear, average value per pound was $6.81, third highest of all such imports into the United States.. 95-159 0--CS--pt. 4-23 PAGENO="0354" 1624 In the case of fabrics, U.S. mills are not geared to the production of fine worsteds because our mills require long runs. Also of significance is the fact that the labor needed to process such fabrics is no longer available in abundance here. It is most difficult to attract young people to the wool industry, as aerospace and electronic industries lure young workers away. Furthermore, long runs required by U.S. mills limit diversification and, if imports were not supplementing U.S. supplies, the consuming public might be deprived of its present large choice in fabric designs. There are fewer woolen mills in the United States today than 15 years ago, but this condition is not attributable to imports. Mergers and consolidations have resulted in ailtime high earnings for the companies which remain. It is exaggerated and unfair to say that imports, particularly those from Italy, have hurt the domestic in- dustry. In knit outerwear productions, for example, U.S. mills in- creased supplies from 316 million pounds in 1961 to 497 million in 1965, and all the way up to 535 million in 1966, the last full year reported. During the same period, imports increased from an esti- mated 13 million pounds to 47 million pounds in 1965 and 57 million pounds in 1966. We do not believe that an industry which has increased its proditotion 40 percent in the last 6 years can logically claim that imports have caused them injury. American importers and Italian exporters have long maintained reasonable discipline where there was any indication that imports from Italy could possibly injure a competitive U.S. industry. Italian products, including fabrics and finished garments, are the result of creative talent and careful craftsmanship. This is the combination that has served as a basis for successful marketing in the United States. Restrictive quotas applied against outstanding Italian style and workmanship would serve to substantially injure successful American business firms. Seasonal styles of fashionable products could not be marketed under quota systems. It new styles were not introduced by importers, American manufacturers would be deprived of trend setters, which, as I have said before, `allow them to participate in the mass market. In closing, I would just like to remind you that it is only about a decade ago that the U.S. knit market was in very bad shape. Todays because of style leadership and the Italian know-how which developed today's knitting techniques, that U.S. industry is healthy and profit- able. Without any tariff or nontariff protection, our industry has the time factor and distributional factors on its side. Leadtime required for foreign manufacture gives U.S. producers a 4- to 6-week advantage in style product's. Those of us who import know that style leaders sold in high-priced, high-quality lines, create a demand `for the mass pro- duction market. Restrictions on such Italian products would. not make sense. For these reasons we support relaxation of tariff and nontariff barriers under H.R. 17551 and oppose any further restriction on the importation of textile apparel and knitwear products from Italy. Thank you. . If I may, I would like to ask you if we could include the editorial in the New York Times of June 14, "Trade Winds in Congress" to be included as part of my presentation. Mr. ULLMAN. Without objection, it will be done, PAGENO="0355" 1625 (The editorial referred to follows:) [Editorial from the New York Times, June 14, 1968] TRADE WINDS IN CONGRESS The month-long hearings on trade legislation now under way before the/House Ways and Means Committee involve a struggle between the national interest and the vested interests. The Johnson administration, in the national interest, is seeking modest legis- la'tive authority to tie up the loose ends of the Kennedy Round of world tariff- cutting. It has debated for months and rejected as dangerous backsliding pro- posals to reduce the deficit in the Nation's payments abroad through a border tax on imports. As the biggest of world traders, the United States would have more to lose than gain from an import surcharge because other countries would be certain to retaliate. But this certainly does not trouble the industry and farm lobbyists seeking to use the pending trade legislation as a vehicle for quota bills that would limit imports of dozen's of products ranging from chocalate to steel. A related threat to the nation's liberal trade policy is the effort by be'nzenoid chemical producers to block repeal of the highly protectionist "American Selling Price" system of customs valuation. Important European traiff concessions hinge on ASP. repeal, which the Administration pledged itself to seek during the Ken- nedy Round negotiations. But that is not all. The whole future of trade liberaliza- tion is at stake. At GATT headquarters in Geneva each of the trading nations now is submittting lists of the non-tariff barriers abroad that hamper its trade. This is a first step toward an American-proposed negotiation to reduce such barriers, which now represent a bigger impediment to trade than the world's remaining tariffs. The proper answer to dislocations in American business or labor is the kind of adjustment assistance authorized in the 1962 Trade Act. Rigid conditions in the 1962 law have prevented anyone from qualifying~ but more flexible pro- cedures in the Canadian-American auto'm~tive agreement have since demon- strated the value of loans and grants to help industry and labor improve output or shift to new lines of work. The pending Administration trade bill would lib- eralize the 1962 provisions for all industries. Favorable House action on the new trade bill appears likely. But a stiffer fight looms in the Senate, where protectionist interests are more influential. It is a fight the Administration must accept and win. The nation's stake in freer trade is too great to permit defeat. Mr. SCHNEEBELI. You quote the balance of trade with Italy being in our favor. If a U.S. petroleum company sells to Italy, products which they produce in the Mideast or Africa, is this considered a U.S. export to Italy? Mr. DE SANTIS. I do not know, but I can supply the information. Mr. ULLMAN. That will be supplied for the record. (The following letter was received by the committee:) ITALY-AMERICA CHAMBER O]3' COMMERCE, Iwo., New York, N.Y., Jnne 20,1968. Hon. WILBUR H. MILLS, Chairman, Ways and Means Committee, Honse of Representatives of the United Btates, Washiin~gton, D.C. DEAR CONGRESSMAN MILLS: During my appearance before the Committee on Ways and Means on June 17, 1968, afternoon session, a member of the Committee requested additional information which I am Submitting in the enclosed letter. We have been informed that petroleum products extracted by U.S. companies in any part of the world and any off-shore areas, exported to Italy, are consid- ered as part of trade originating from those countries who have jurisdiction over the areas in which petroleum products are extracted. We hope that the enclosed information answers the inquiry. However, please consider us at your disposal for any further information the Committee may require. Respectfully yours, ARTHUR A. DR SANTIS, Ecveontive ~5eoretary. PAGENO="0356" 1626 Mr. BATTIN. Just as a point of information, under the Italian Gov- ernment structure-of course, it is in the Conunon Market-what op- porturnty does an American exporter have to appear before the Italian &overnment and make their feelings known as far as trade and imports into that country are concerned? Is it done before a committee as we operate here, or is it done through Executive order? Mr. Dii SANTI5. Sir, we have intervened on behalf of American exporters in several instances. It might `be customs procedures. It might be regulations concerning foreign trade. And most recently I have returned from Italy about 2 weeks ago, and part of our talks with our own Government representatives in Italy has been on that question, in finding the proper way to approach the Italian Govern- ment authorities on these questions. It is being studied, and we are carrying it forward. Mr. BATTIN. Right now there isn't any? Mr. Dii SANTIS. At the present time we deal with the Italian foreign trade industries. Mr. BATTIN. Is that at the executive level? Mr. Dii SANTIS. Yes, that is the executive. Mr. BA~rIN. I think the same thing would be true with respect to Fr~tnce, Germany, and other European countries. Mr. Dii SANTIS. I think so, sir. Mr. TJLLMAN. Thank you very much, Mr. De Santis. Mr. Wedell, we are glad to have you. For the record, would you please identify yourself and all of your colleagues? With the understanding that your statement will appear in full in the record, you may proceed as you see fit. STATEMENT OP GUSTAV WE]YELL, CHAIRMAN, BUSINESS PRAC- TIDES COMMITTEE, DANISH-AMERICAN TRADE COuNCIL, INC.; ACCOMPANIED BY lB PEDERSEN, CHEESE CONSULTANT; KNUD SORENSEN; MARTIN PROMER, ATTORNEY, AND B. H. HESSEL Mr. WEDELL. Mr. Chairman, my name is Gustav Wedell. I am a past president, now member of the board and chairman of the Busi- ness Practices Committee of the Danish American Trade Council, Inc., 665 Fifth Avenue, New York, N.Y., a New York corporation. I have brought with me to the table Mr. Knud Sorensen, president of Plumrose, Inc., a major importer of Danish food products into the United States, Mr. lb Pedersen, cheese consultant `of my committee, Mr. Martin Fromer, attorney of New York who represents major importers of Danish cheese and who has broad knowledge of the existing restrictions on same. Further, there is Mr. B. H. Hessel of the Scandinavian Fur Agency, Inc., a New York corporation, which acts as clearing agency for most of the mink furskins raised in Den- mark and the other three Scandinavian countries and sold to U.S. buyers in the `open auctions held in those countries. These gentlemen are here only to aid me in answering any questions any member of your committee may have relative to the major prod- ucts imported by the United States from Denmark. Gentlemen, I have filed our `brief and request that it be printed in the record. PAGENO="0357" 1627 Mr. ULLMAN. Without objection, your brief will be printed in the record following your oral statement. Mr. WEDELL. In the 10 minutes allotted, I would like to summarize it. The council's membership consists largely of U.S. corporations and individuals striving to encourage and promote the two-way street of trade between the United States and Denmark. It is the only organi- zation in the United States engaged generally in that important task. Trade between the two countr1es has been markedly successful as the combined exports and imports of the two nations have increased from $258,900,000 in 1959 to $448 million in 1967. In every year the trade balance has been in favor of the United States to the tune of $32,500,000 in 1959, trebling to $96 million in 1967. Tn 1 year alone; that is, from 1966 to 1967, the balance in favor of the United States increased from $46 million to $96 million. U.S. exports of farm products constitute 21 percent of total U.S. exports worldwide, as con~pared with Den- mark, 37.7 percent of whose exports are farm products. Despite the fact that Denmark relies so substantially on the export of its farm products to support its trade with other nations, its purchases of farm products from the United States are well over the total value of the farm products which its exports to the United States. Foreign trade is even more important to Denmark than it is to the United States, for Denmark finds it necessary to export almost 21 per- cent of its gross national product, as compared with 4 percent for the United States. Every one of the 50 States in this country produces goods of the types which Denmark buys. But more importantly here, what does Denmark buy from the States? Chief among them are soy- bean, peanut, and other oilseeds, grain, foodstuffs, both nonelectrical and electrical machinery, tobacco, transport equipment, and chemicals. Take one State as an example, Arkansas-this happens to be the home State of the prominent chairman of the committee and, by the way, the home of my wife, too. Mr. ULLMAN. Let me congratulate you on that. I am going to con- vey to the chairman the reference to his State and also the fact that your wife is from there. Mr. WEDELL. Thank you. Arkansas exported over' $65 million of soybeans and cottonseed oil in fiscal 1965-66, products which are Denmark's largest imports from the United States, in fact, amounting to $51 million in 1967. And so it. goes with every State that members of this committee represent. Now, what items make up the bulk of U.S. ini4ports from Denmark? In dollar volume the major four items are canned meats (primarily hams), raw mink fur skins, nonelectric machinery, and cheeses. Three of these four major exports are farm products. Why are we concerned? Some of the Danish cheeses are already subject to import quota limitations under T'SUS. These and other Danish dairy products would be affected by numerous bills now pend- ing. Danish ham's would be limited under the provisions of bills no~w pending. And numerous bills are pending which propose to limit U.S. imports of raw mink skins. Now, Mr. Chairman, when it comes to trade by Denmark with the United States, it is not a n~atter of unfair competition and price cut- ting. In the case of ham and the bulk of Danish cheese, it is a matter PAGENO="0358" 1628 of high-quality Danish products which fetch higher prices from U.S. consumers than domestically produced products. This is justifiably so. In the case of raw mink fur skins, it is a case of supplying quanti- ties and colors primarily used for the trimming trade as distinguished from the fur garment trade. There can be no doubt from a careful reading of the Tariff Commission report on raw mink fur skins that U.S. production of such skins, usable by the trimming trade, is not adequate to satisfy the requirement of U.S. women's apparel manu- facturers. In the case of most other commodities it is simply f air-and- / square competition in quality products produced efficiently by Danish agriculture and industry. A further trade handicap as proposed by these quota bills is bound to severely damage a happy commercial re- lationship to the advantage of no one. Our great country would make a fatal mistake if it scuttles the very recent Kennedy round agreements, which Denmark, among other coun- tries, worked so hard to help make a success. We urge that your committee reject the concept of automatic quotas and remain faithful to the principle of free trade as represented by the Kennedy round. The balance-of-payments prdblem must, of course, be solved. We realize that. But we are hiding our heads in the sand if we believe that automatic and indiscriminate limitations on imports can provide a solution, especially when it comes to Danish-American trade relationships where the trade balance is so strongly in favor of the United States, that in 1967 the United States sold 54.5 percent more goods in. dollar value to Denmark than Denmark sold to the United States. We hope that this committee and the Congress, in its wisdom, will find a solution that will not backfire, as we are sure the imposition of import quotas would do. It may be of interest to this committee to have some facts as to how Scandinavia in the past has contributed to the solution of the balance-of-payments problem, and what plans it has for increasing its contribution toward that problem. This is merely one example I mention. In the 22 years since it began operations to the United States, Scan- dinavian Airlines, in which Denmark has a substantial investment, has bought or ordered approximately $600 million worth of American built aircraft. When its currently contracted-for reequipment cycle is com- pleted in 1971, SAS estimates that it will have spent over $300 million more here than its proje~ted earnings in America during the same period; that is, 22 years. This massive contribution to the U.S. balance-of-payments position includes other multi-million-dollar purchases of ground support and electronic data processing equipment. But it does not take account of possible orders to be placed in the next 3 years for additional U.S.- produced aircraft and electronic items. At the same time, SAS has been a pioneer in the promotion of tourism from Europe to the United States and has joined with the other airlines in offering lower promotional fares for Europeans com- ing to the United States. Thus, the United States produces high-performance aircraft and the Scandinavians buy them. The Danes produce high-quality food- stuffs, and the Americans pay premium prices for them. That is, from PAGENO="0359" 1629 all points of view, constructive two~way trade. That is trade as it should be, helpful to both trading nations. But artificial and auto- matic quotas are not designed to preserve that sort of trade-instead only to curtail it and maybe kill it. As believer in the two-way street of trade between the United States and Denmark, we are here in the best of conscience when it comes to U.S. export to Denmark. (a) The 1967 trade balance in favor of U.S.A. was 54.5 percent. (b) Denmark has no import restrictions whatsoever contrary to U.S.A. (o) Denmark's population is less than 5 million people versus the United States at least 200 million people and its higher standard of living. (d) In 1967 every American only spent about 85 cents on Danish products while every Dane spent about $53 on U.S. products. All this indeed makes one wonder why does the United States main- tain any import restrictions on Danish products in the first instance and to say the least consider imposing further restrictions at all with that kind of impressive trade record in U~S. favor and in addition involving as it does a little nation historically most friendly to the American nation. In concluding, Mr. Chairman, the Danish American Trade Council and its members want the record here to reflect our enthusiastic sup- port for the administration's proposed Trade Expansion Act of 1968. The President has acted forthrightly and affirmat4vely in formulating his proposals, and we support them. The extension of negotiating atuhority is as vital as is the enactment of relaxed conditions for pro- viding adjustment relief. We urge this measure be given prompt and wholehearted support by this committee. Mr. Chairman, that concludes my statement. I and the experts on Danish meats, cheeses, and raw mink furskins who are here with me will be happy to provide any further information we have which could be helpful to the matters this committee now has under consideration. I thank you for this opportunity to appear before you. (The Danish-American Trade Council brief referred to follows:) BRIEF ON BEuAu~' OF TEE DANISH-AMERIOAN TRADE COUNOII. My name is Gustttv Wedell. I am a past President, now member of the Board and Chairman of the Business Practices Committee of the Danish American Trade Council, Inc., 665 Fifth Avenue, New York, N.Y., a New York corporation. I have brought with me to the table Mr. Knud Sorensen, President of Plumrose, Inc., a major importer of Danish food products, Mr. lb Pedersen, Cheese Con- sultant of my Committee, Mr. Martin Fromer, attorney of New york who repre- sents major importers of Danish. cheese and who has broad knowledge of the existing restrictions on same; furthermore, Mr. B. II. Hessel of the Scandinavian Fur Agency, Inc., a New York corporation which acts as clearing agency for most of the mink furskins raised in Denmark and the other three Scandinavian countries and sold to U.S. buyers in the open auctions held in those countries. These gentlemen are here only to aid me in answering any questions any member of your Committee may have relative to the major products imported by the U.S. from Denmark. The Council's membership consists largely of U.S. corporations and individuals striving to encourage and promote the two-way street of trade between the U.S. and Denmark, It is the only organization in the United States engaged generally in the important task of promoting that trade. Trade between the two countries has been markedly successful as the combined exports and imports of the two PAGENO="0360" 1630 nations have increased from $258,900,000 in 1959 to $448,000,000 in 1967. In every year the trade balance has been in favor of the U.S. to the tune of $32,500,000 in 1959, trebling to $96,000,000 in 1967. In one year alone, i.e., from 1966 to 1967 the balance in favor of the United States increased from 46 million dollars to 96 million. U.S. exports of farm products constitute 21 per cent of the total U.S. exports as compared with Denmark, 37.7 per cent of whose exports are farm products. Despite the fact that Denmark relies so substantially on the export of its farm products to support its trade with other nations, its purchases of farm products from the United States are well over the total value of the farm products which it exports to the United States. Foreign trade is even more important to Denmark than it is to the United States, for Denmark finds lit necessary to export almost 21% of its gross national product as compared with 4% for the United States. Every one of the 50 states in this country produces goods of the types which Denmark buys. But more importantly here, what does Denmark buy from the States? While the members of this Committee are perhaps familiar with the figures, I should like to briefly remind you of production in the States represented by members of this Committee of the type which Denmark buys in substantial quantities. The figures I will use are from the Danish Government and from the U.S. Department of Commerce, the latter being from the publications of the Department of Commerce entitled "State Export Origin." The state by state figures I shall cite are for fiscal 1965/66, the latest data available. Denmark's trade is given for 1967 where available. In 1967 Denmark bought in the United States 272 million dollars worth of products, the leading commodities being oil seeds, grain and foodstuffs, non-elec- trical machinery, tobacco, electrical machinery, transport equipment and chemi- cals, these seven categories of products accounting for over $176 million dollars. Let's look at the exports of products from the states represented by members of this Committee, starting alphabetically with Arkansas, home state of your Chairman and, I might say, home state of my dear wife. Arkani~as exported over 65 million dollars of soybeans and cottonseed oil. Soy- beans represented the state's largest agricultural export. Denmark buys a lot of these products, its purchases of U.S. soybeans and soybean meal in 1967 totaling over 56 million dollars. California is a great export state, sending 17 and a half million dollars of feed grains abroad and 475.5 million in transport machinery. Non-electric machinery exports were 226.7 million-an increase of 124% over 1960. Denmark has pur- chased increasing amounts of these products; in 1967 over 18.5 million dollars of feed grains; 22.4 million in transport equipment, and 18.6 million in electrical machinery. Florida shipped abroad $9.7 million worth of tobacco, $4.1 million of feed grains, and $183 million of chemicals. In 1907 Denmark bought from the U.S. over 32 million dollars in grains and foodstuffs and $7.5 million of chemicals and allied products. Georgia is a great tobacco exporter, sending $33.7 million abroad along with $30 million of soybeans and cottonseed oil. Denmark's tobacco purchases from the United States in 1967 were $16.7 million and it may be of interest that peanut meal, a product produced in substantial quantities by the State of Georgia for export, was purchased in substantial quantities by Denmark. Georgia's export of transport equipment douiled from 1963 to 1966, the total for the latter year being $104.3 million. Illinois is first in exports of non-electrical machinery, $918 million-and first in exports of feed grains, soybeans, protein meal and soybean oil, amounting to over $152 million. In 1967 Denmark bought vast quantities of those products' and 46.5 million dollars of non-electrical machinery from the United States. Kentucky sent $32.7 million of tobacco abroad along with $17.4 million of feed grains and soybeans. Louisiana shipped abroad chemicals worth $117.2 million and also exported over $13 million in soybeans, cottonseed oil and feed grains'. Massachusetts' overseas sales of non-electric machinery were $183.9 million- and surprisingly-over two and a half million dollars of tobacco'. Michigan, naturally, leads the nation in exports of transport machinery to the tune of $789.9 million, while non-electrical machinery sales abroad increased 82% between 1960 and 1966, up to $298.4 million. In agricultural products Michigan exported $33.8 millions of feed grains and soybeans'. PAGENO="0361" 1631 Missouri's exports of manufactured goods have doubled since 1960, with sales of trai~sport equipment at $96.4 million and with electric machinery at 15.9 mil- lion. Sales to foreign markets of farm products accounted for ¼th of the state's cash receipts to farmers, and soybeans and feed grains contributed 108 million dollars to this. Montana doubled its exports of manufactured goods and other products between 1960 and 1966. On a per capita basis Montana ranked second In the nation In agricultural exports including $16.2 million In foodstuffs. New York's exports of non-eleetric machinery more than donb~ed b~tweein 1960 and 1966, to a total of $464 million. New York also expo~eted ~$(M mullion in feed grains. Ohio exported $116.9 million of feed gratas, soybeans, soybean oil an4t protein meal. Both non-electrical machinnry and transport e~itipment h&d export saics otbetween $400 million and $500 million iii 1~966 from Ohio. Oregon's electrical macWnery sales doubled to $28,7 millioia iii 1886 o*~er 41)80 - and feed grain exports were $8.1 million. Pennsyivqnla's export of mai~mfactured goods increasec1~ 48% between 1860 and 1966, non-electrical machinery increased 6()% to $387.4 millions. The sidle also exported $12.2 million of feed grain and $8 million of tobacco. Tennessee also exported substantial quantities of the major goods being bought by Denmark from the thalted States, Tennessee'~ exports in 1966 Included $107 million of ehemical~, $37.5 million of protein meal, soybeans and soybean oil, and $12.4 millions of tobacco. Teivas was the largest exporter of cottonseed oil, at $13.8 million, along with over $150 million of feed grains and protein meal. Texas also exported. $489 mIllions of chemical products and $162.8 millions of non-electrical mfichinery. VirgInia, the second largest exporter of tobacco products, sold $j94.2 mlliisis of these products abroad, as well as $33.6 millions of raw tobacc~ anl~ $1~4 million of feed grains and soybeans. Wisconsin ranked seventh on a pier capita basis on exports of machinery, its sales representing $151 for each of its residents, non-electrical machinery ex- ports were $328.3 million and exports of transportation equipment were $73.6 millions. Her exports of feed grains amounted to $17.2 millions. To take b~t one example-if Danish 1967 purchases of 51.1 million dollars of oil seeds were cut in half, it would be equal to 150% of Wisconsin's total 1966 sales of feed grains abroad. Now, what items make up the bulk of U.S. imports from Denmark? In dollar volume the major four items are canned meats (primarily hams), raw mink furskins, non-electric machinery and cheeses. Three of these four major exports are farm products. Why are we concerned? Some of the Da~1isb cheeses are already subject to import quota limitations under TSUS. These and other Danish dairy produCts would be affected by numerous bills now pending. Danish hams would be limited under the provitions of bills now pending. Numerous bills are also pending which propose to limit U.S. imports Of raw mink skins. The Herlong across-the-board import quota bill (HR. 1936) would without question result in a curtailment in the importation of raw mink furskins and (ould now or in the future affect other U.S. imports from Denmark. Thus, we in the Danish-American Trade Council who do business with Denmark are vitally concerned with import quota proposals which would bring about a shrinkage in the two-way trade we have laboriously and at great cost built up over the years. The mere possibility of the enactment of quota legislation now before this Committee has a debilitating effect on the Danish-American exporter and im- porter. For the past ten to fifteen years Danish exporters and American im- porters have spent considerable funds advertising and electrical machinery exports were $328.3 million and exports of transportation equipment were $73.6 millions. Her exports of feed grains amounted to $17.2 millions. To take but one example-if Danish 1967 purchases of 51.1 million dollars of oil seeds were cut in half, it would be equal to 150% of Wislcbonsin's total 1966 sales of feed grains abroad. Now, what items make up the bulk of U.S. imports from Denmark? In dollar volume the major four items are canned meats (primarily hams), raw mink fubrskins, non-electric machinery and cheeses. Three of these four major exports are farm products. Why are we concerned? Some of the Danish cheeses are already subject to import quota limitations under TSUS. These and other Danisuli PAGENO="0362" 1632 dairy products would be affected by numerous bills now pending. Danish hams would be limited under the provisions of bills now pending. Numerous bills are also pending which propose to limit U.S. imports of raw mink skins. The Ilerlong across-the-board import quota bill (HR. 1693G) would without question result in a curtailment in the importation of raw mink furskins and could now or in the future affect other U.S .imports from Denmark. Thus, we in the Danish-American Trade Council who do business with Denmark are vitally concerned with import quota proposals which would bring about a shrink- age in the two-way trade we have laboriously and at great cost built up over the years. The mere possibility of the enactment of quota legislation now before this Committee has a d~bilitating effect on the Danish-American exporter and im- porter. For the past ten to fifteen years Danish exporters and American importers have spent considerable funds advertisin.g and promoting Danish products in the American market and American exporters and Danish importers have done the same in Denmark. Now, however, with the possibility of road blocks being thrown up by this proposed legislation, able businessmen on both sides must begin to consider retrenchment in current expenditures in order to take care of a possible decline in future business. After all, if an important segment of Danish exports to `the United States are placed in jeopardy by the legislation which the Congress enacts, Denmark could, by sheer necessity, have no alternative to. a revision of its trade policy vis-a-vis the United States despite the fact that any such action would be completely foreign to Denmark's free trade philosophy. Curtailment of the two-way trade between Denmark and the United States would also have certain side effects. Among other things, it would decrease the tonnage of that trade carried on U.S. ships and thereby cut back the labor force utilized by shipping companies, by transportation companies, customs houses, brokers, warehousers, etc., who now are employed in facilitating the movement of U.S. products to Denmark and Danish shipments to the U.S. U.S importers of Danish meats alone employ hundreds of people, contribute to the employment of hundreds of brokerage houses and food distributors who employ thousands of wage earners. U.S. companies promoting Danish products spend millions of dollars a year in the United States advertising and have investe4l millions in U.S. facilities to process and handle those products. In the case of Denmark it is difficult to see why legislation blocking Danis'h sales of raw mink skins, canned meat pro'ducts and cheeses is being proposed when you consider that the U.S. in 1967 sold 54.5% more goods in value to Denmark than Denmark sold that year to the U.S. and-as pointed out above- Danish purchases in the United States affect the manufacturing and farm products of all states-particularly those represented in this Committee. And, Mr. Chairman, when. it comes to trade by Denmark with the United States, it is not a matter of unfair competition and price cutting. In the case of hams and the bulk of Danish cheese, it is a matter of high quaiity Danish products which fetch higher prices from U.S. consumers than domestically produced products. This is justifiably so. In the case of raw mink furskins it is a case of supplying quantities and colors primarily used for the trimming trade as distinguished from the fur garment trade. There can be no doubt from a careful reading of the Tariff Commission report on raw mink furskins that U.S. production of such skins usable by the trimming trade is not adequate to satisfy the requirements of U.S. womens apparel manufacturers. In the case of most other commodities it is simply fair and square competition in quality products produced efficiently by Danish agriculture and `industry. A further trade handicap as proposed by these quota bills is bound to severely damage a happy commercial relationship to the advantage of no one. The advocates of import restrictions in the U.S. should realize that the imposition of such restrictions on a string of important commodity groups would, while providing temporary safeguards for this or that narrow branch of industry, constitute a `breach with the fundamental principle of free inter- national trade to which every administration has been committed during the postwar years. These advocates should ask themselves whether in the long run the U.S.A. will be well served by a reversal of the laboriously adopted principle of free trade. If this is what U.S. trade and industry want and get-the relapse to a restrictive import policy wil leave its mark on the United States and all of Its trading friends in the free worid. And in such case, U.S.A.'s exports will undoubtedly in the near future be faced with obstructions and quota arrange- PAGENO="0363" 1633 ments in other countries which will neither be in the interest of American ex- porters nor of international trade collaboration. It should not be forgotten that during the Marshal Aid twenty-odd years ago responsible U.S. spokesmen urged the Danish people to work harder and produce more, and more efficiently, in order to take advantage of the U.S. market and thus recover and thereafter be able to stand on their own legs. Our great country would make a fatal mistake if it scuttles the very recent Kennedy Round agreements which Denmark, among other countries, worked so hard to help make a success. We urge that your Committee reject the concept of automatic quotas and remain faithful to the principle of free trade as represented by the Kennedy Round which this Committee some years ago authorized. By so doing, you as legislators can `do much to ntaintain the happy trade relations which now exist between Denmark and the United States. By so doing, American agriculture and industry will not have to suffer should Denmark and its European neighbors, through no fault of their own, be forced to withdraw the trading advantages which they have granted U.S. products under the Kennedy Round. The balance of payments problem must, of course, be solved. But we are hiding our heads in the sand if we believe that automatic and indiscriminate limitations on imports can provide a solution. We hope that this Committee and the Congress in its wisdom will find a solution that will not backfire `as we are sure the imposition of import quotas would do. It may be of interest to this Committee to have some facts as to how Scandi- navia in the past has contributed to the solution of the balance of payments problem and what plans it has for increasing its contribution toward that problem. In the 22 years since it began operations to the United States, Scandinavian Airlines, in which Denmark has a substantial investment, has consistently invested more in this country than it has taken out. During that period, SAS has bought or o'rdere'd 163 American-built aircraft involving a total cost of approximately 600 million dollars. When its currently contracted for re~equip~ ment cycle is complete in 1971, SAS estimates that it will have `spent over $300,000,000 more `here than its projected earnings in America during the same period. This massive contribution to the U.S. balance of payments position in- cludes other multi-million dollar purchases of ground support and electronic data processing equipment; `but it does not take account of possible orders to be placed in the next three years for additional U.S-produced aircraft and elec- tronic items. At the same time, SAS has been a pioneer in the promotion of tourism from Europe to the United States'. This year alone it has expended almost one-quarter of its system advertising and promotional budget to that end. It has joined with the o'ther airlines in offering lower promotional fares for Europeans coming to the United States. SAS is convinced that the result will be a sizable increase in its westbound traffic to America, not only through New York, but through its gateways, such as Los Angeles, Seattle, Chicago and other major coastal and interior cities. This growing traffic from Scandinavia is all the more contributory to the u.S. balance of payments because of the c~mparatively high average expenditures of Scandinavian tourists. That's the kind of trading we think it is important to keep alive. The U.S. produces higbperformance aircraft and the Scandinavians buy them. The Danes produce high-quality foodstuffs and the Americans pay premium prices for them. That is constructive two-way trade-that is trade as it should be-helpful to both trading nations. But artificial and automatic quotas are no't designed to preserve that sort of trade-instead only to curtail it. Finally, Mr. Chairman, the Danish American Trade Council and its members want the record here to reflect our enthusiastic support for the Administration's proposed Trade `Expansion Act of 1968. The President ha's acted forthrightly and affirmatively in formulating his proposals and we support them. The exten- s~on o'f negotiating authority is as vital as is the enactment of relaxed conditions for providing adjustment relief. We urge this measure be given prompt and wholehearted support by this Committee. Mr. Chairman, that concludes my statement. I and the experts on Danish meats, cheeses and raw mink furskins who are here with me will be happy to provide any further information we have which could be helpful to the matters this Committee now has under consideration. I thank you for this opportunity to appear before you. PAGENO="0364" 1634 The CHAIRMAN. Thank you, sir; for coming to the committee and giving us this statement of your views, and bringing with you those at the table. Are there any questions? Mr. IJilman? Mr. ULLMAN. I would like to ask one question of Mr. ilessel. You have information on the comparison of pelt imports between 1965, 1966, and 1967? Mr. HEs5EL. Yes. Mr. TJLLMAN. Could you give me the figures for those 3 years? Mr. HE5SEL. Do you want the dollar values? Mr. TJLLMAN. All of those, if you don't mind. Mr. HESSEL. Do you want Denmark, or- Mr. ULLMAN. Both, if you have them. Mr. HEss1~. In 1965, the imports of Danish minks amounted to 1,175,000 skins at a dollar value of 14.016 million. May I mention to you that the imports of mink skins from Scandi- navia in total declined in 1967, and declined considerably in the first few months of 1968. In 1967 prices declined. In 1968 prices advanced very strongly, and it proves the contention of the Tariff Commission that the imports have no bearing on the price level o'f the mink skins. Mr. ULLMAN. Do you also have 1966? Mr. HESSEL. In 1966, 1.508 million were the Danish imports, and the dollar value was 18.567 million. Mr. TJLLMAN. `That was Scandinavia, or Denmark? Mr. HESSEL. This was Denmark. Do you want the totals? Mr. ULLMAN. The 1965 figures were al~o Denmark, right? Mr. HESSEL. I can give you the totals. 1967 for Denmark is 1,195,000 skins, and the value is $11,282,000. Now, you want the whole df Scandinavia? Mr. ULLMAN. Can you give me the figure for all? - Mr. HESSEL. 3,551,000 for 1968 total- Mr. CONABLE. Would the gentleman yield? Doesn't that mean that the prices are related to the imports in the previous year? Mr. HESSEL. May I explain that-or, let us say-over 90 percent, 90 to 95 percent of the Scandinavian minks `coming into this country are purchased by American people at an auction, which is attended by a worldwide audience. And it is not a question of merchandise being shipped l~ere and then sold. The merchandise is purchased and paid for by `Americans before they even ship it. And `the world prices are the deciding factor, the world conditions, because the American buyer com- petes with the buyer from the other European countries. Does that answer your question? Mr. CONABLE. Your figures show that in 1967 the imports fell off quite sharply over 1966, and in 1968 the price had risen quite sharply. Mr. HESSEL. Yes; and the imports declined. Mr. CONABLE. Price is affected by supply, of course. Mr. HESSEL. No; I wouldn't answer it this way. The market went up in Europe as well as in this country. It is not that the American market price went up and the European price stayed low. The market went PAGENO="0365" 1635 up in Europe at the same rate, and, as a matter of fact, the price advance on the Scandinavian minks ir~ 1968 in percentages is almost equal with the American mink. Mr. CONABLE. Has this been a distressed industry in Europe as well as in this country? Mr. HE55EL. In 1967, fur prices, not only for minks,, but fur prices right down the line, declined. As a matter of fact, take the American Alaska seal, which is monopoly o~f the U.S. Government. It declined exactly the same way as most of the other items, so it was a general price decline which was worldwide, and not centered on one item. Mr. CONABLE. Thank you, Mr. Chairman. Mr. ULLMAN. Let me ask you while you are on that subject what the main reason for the increase in imports in 1966 as against 1965 was. Why was there such a large rise in imports in 1966? Mr. HES5EL. The increase of imports is based on an increased demand. American consumpthn increased, and therefore the merchant would increase his purchases. Mr. ULLMAN. What I would like to know is, why is the mink mdus- try in such a distressed state at the present time? Maybe you could give us some pointers on that. Mr. HESSEL. I would say that this is-the domestic mink industry is in a problem. That is a fact. But I believe that you have to get, or to take into consideration that this is a world commodity, and the prices have to set by the demand, and not only in one country, but the demand has to be in all countries and the decline, and the depression which you had in the mink industry in 1967 was largely that economic conditions in this country declined, and that West Germany, which has become one of the great factors in the fur in~ustry, had a very bad spell, and practically ceased buying until May or June of 1967. I don't think that the solution for the domestic mink producer is a quota. I think we have other ways. This industry is getting conscious of promotion. We can increase the outlet, the demand for the item. You have 200 million people in this country, and I also want to bring out that the commercial producers have increased from 1950 to 511 today; 88 percent of the American production is produced by 51 percent of the producers. The problem is that the remaining 49 percent cannot face the prob- lems of production. They cannot produce, probably, economically enough. Mr. ULLMA~.T. What percentage of th&-excuse me. Go ahead. Mr. HE5SEL. In other words, 49 percent of the mink prodnoers prq- duce only 12 percent of the quantity, and these are the people which I think have the problem~ Mr. ULLMAN. What percentage of the world market is the American fur market? Mr. HESSEL. The United States produced in 1967, 6.7 million skins. The world production was 22.6. `Mr. ULLMAN. What about consumption? Mr. HE55EL. Now, the consumption, the consumption in the United States, for 1967, was 10 million skins. - Mr. IJLLMAN. We produced- Mr. HESSEL. And the domestic production was 6 million, -- PAGENO="0366" 1636 Mr. ULLMAN. And we imported the rest? Mr. HESSEL. You imported 5.3, but then you have your exports'. You see, the United States exported 1.3 of its domestic production. Mr. ULLMAN. Can Scandinavia produce pelts cheaper than we can here? Mr. HESSEL. The production cost of mink ranchers has been some- *thin~ which I was present at the 1959 hearing before the Tariff Oorn- miss~on, and now in December 1967 the production costs between ranches in ~ach country differ quite considerably. The Scandinavian production cost is definitely not so much less than the U.S. production, because cereal products cost considerably higher in Scandinavia than they are in this country. Labor may be some- what higher in this country and somewhat less in Scandinavia, but I would `say the actual production cost is not a very considerable one. And I also would like to bring out here that the last Tariff Commis- sion `hearing in 1967, in December, where these questions were asked, and the Tariff Commission `had a very difficult time to pin down what is the actual average cost of production. Mr. ULLMAN. I wish I knew how this trading mart really worked. Do you think that the New York fur mart is a good and equitable way to establish fur sales and the prices on the world market? Mr. HESSEL. Well, just as well as the American travels to Europe to purchase at auction sales in London or Scandinavia the type of skins which he needs, the Italian, the West `German, the English, `the Belgian, come to New York and purchase the type of skins which they require for their trade. And the figures sho'w that the average of the export of American minks is `higher than the average `of the produc- tion in this country. `In other words, the foreign buyer comes here and purchases this type which he requires, and the-I have a slight idea why you are asking me this question-the splitting up of this market I would con- sider a very great loss and mistake, because, first of all, it will take-if you start selling American minks in Europe, you will take away from the importance of New York, because the buyer who comes here, the fur buyer who comes here, he doesn't only purchase minks, he `buys American goods. He `buys Canadian furs. He buys madeup garments. It is a combination. If you split up this offering of American minks over two markets, I personally would consider-I think you are making a mistake. Mr. ULLMAN. I think it is a great institution. I just wish I knew a little more how it works. Mr. WEDELL. Mr. Uliman, on June 26, this committee has scheduled hearings on the mink problem, and we will have both `Mr. HesseA and myself and another, witness. And I think we can answer many `of your questions' then. But, `basically, it will be on the basis of the Tariff Commission, which has just completed, as you know, a very exhaustive study. I know there is some dissatisfaction with it. Nevertheless, the facts `were very darn good-it is a good factfinding body, and we can review those for you. Mr. ULLMAN. We can look forward to it at that time. Would you complete those figures now? You had completed part of 1965 from `Scandinavia, PAGENO="0367" 1637 Mr. H~ssEL. You want l~65 for Scandinavia; $45,780,000 in 1965 w~s the money amount. In 19~'6 the total was 4,000,387 skins. The value was $55,000,517. Now, 1967, 3,000~817, and the dollar value, $37,413,000. Mr. Ur3Li~[AN. Thank you very much. Are there other questions? If not we thank you for appearing before the committee, Mr. Wedell, and your colleagues. Mr. ULLMAN (presiding). Dr. Dymsza, we are happy to have you before the committee. With the knowledge that your full statement will be in the record, will you proceed. STATEMENT OP DR. WILLIAM A. DYMSZA, RESEARCH DIRECTOR, INTERNATIONAL BUSINESS INSTITUTES GRADUATE SCHOOL `OP BUSINESS ADMINISTRATION, RUTGERS UNIVERSITY Dr. DYMSZA. My name is William Dymsza, of Rutgers University.. I will highlight my presentation. I will appreciate it if my complete brief is made part of the record. Mr. ULL1vrAN. Without objection, that will be made a part of the record following your oral statement. Dr. DYMSZA. My statement is based on studies at Rutgers Inter- national Institute on various aspects `of trade policy, which includes tariffs and trade barriers, and also East-West trade policy. I am not speaking for the companies supporting these studies, or for the organization supporting the studies in part. I am speaking from what we have discovered so far, because the studies are far from complete. The major points of my testimony are as follows: I recognize the concern of this committee and also the Congress of the United States in the question of the balance-of-payments problem. I believe, how~ ever, that the imposition of import quotas cannot solve the `balance- of-payments problem except in a very temporary fashion. Balance-of-payments problems result from many factors. It re- sults from the U.S. worldwide commitments, including the war in Viet- nam and the troops in Europe and elsewhere, but also results from the increased propensity of American's to purchase consumer goods and to travel overseas, as well as the increased tendency of U.S. companies to make investments overseas. Another important factor is the inflation we have had since 1965. The problem of import quotas is that they would not deal with the basic causes of the balance-of-payments problem. They would also lead to retaliation. As I said, rising imports in this country are at least a part of the result of inflation since 1965. Passage of the tax surcharge would make an important contribution to holding down inflation, although it would came somewhat late. . Many other steps could be taken, including a much more vigorous ex- port expansion program, reduction of U.S. troops overseas, and other types of policies. Now, Congress repeals the ASP system, if it does and does not im- pose new import restrictions, then the U.S. Government has a `good chance of getting acceleration of tariff redtiction in Western Europe. This would be very helpful to the balance-of-payments problem, PAGENO="0368" 1638 There has been a considerable demand on the part of U.S. industry to impose import quotas to maintain employment in U.S. industries that face increased import competition. It is my point of view that this would not maintain employment except on a very short term basis. The import competing industries face many other problems besides import competition. They face shifts in consumer demand and shifts in competing industries. They have failed to modernize facilities suffi- ciently in some cases and have not developed new and improved products. Import quotas cannot deal with these basic problems. They would tend to try to freeze the existing industrial status quo and would lead to an increase in prices. Trade adjustment systems is a better approach. Now, the imposition of import quotas would also be in violation of GATT, and this is a very serious matter, as well as the fact that it would lead to retaliation by foreign countries. Also, I advocate the repeal of the ASP on chemicals and other prod- ucts. This is important to get the full tariff reductions and other con- cessions negotiated in the Kennedy round. `~Uhe repeal o'f ASP is im- portant in making a start in reducing nontariff trade barriers. We cannot expect foreign countries to reduce their nontariff `harriers un- less we reduce some o'f our own. I believe the companies would be able to adapt to repeal of the ASP. From my study, we found that many companies are concerned about a wide range of these nontariff barriers in Europe and else- where. They are concerned in some cases about existing import quotas in Japan, Australia, and New Zealand. They are concerned by the ad- justments in Europe, border adjustments, about Government procure- ment practices. And they are concerned also by some removal of cartel practices. From our `study there has been a great deal of attention on the border tax issue. I believe that the GATT rules place the U.S. indus~ try at a competitive disadvantage, because we rely primarily on cor- poration and income taxes, whereas, foreign countries rely more on indirect taxes. We should make strong efforts, as I understand the Government is making, to revise the GATT rules. Future negotiations will see that nontariff barriers will play a far more important role. These foreign tariff barriers can `be attacked in different ways. Where GATT rules are violated, the United States should insist upon compliance. `In a case of border taxes', we shall try to revise the GA'T'T rules. In the `case of other types of restrictions, such as cartel practices, there is a possibility `of international conventions to eliminate the harmful and disruptive effects `o'f these private restrictive practices. Finally, I would hope in the long run that the President has the authority to negotiate do'wn nontariff barriers as well as tariff `bar- riers. That is, we would try to `get foreign countries to eliminate their nontariff barriers and in turn would try to reduce some of o'ur own to encourage an expansion in world trade. Another area of opportunity here in which we have made studies in conjunction with business companies is the whole question o'f East- West trade. I am just going to make a few comments on this question. PAGENO="0369" / ~``` -~ ~- / 1639 With the major changes taking place in Eastern Europe and the very rapid increase in trade between Western Europe and Eastern Europe, East-West trade offers us an opportunity for the United States. Trade of OE-OD countries reached $9 billion in 1967. It has doubled during the last 5 years. U.S. trade was around $370 millkm.~ It actually de~lin-ed in 1967 from 1966. There are many problems in trading with Eastern Europe and Ooin- munist countries, and these are well recognized; including the nature of their systems and many other aspects, `by U.S. Governmnet regula- tions, the controls, the failure to extend treatment to these countries where it may be justified, and financing factors and so forth make it difficult for U.S. companies to' compete in Eastern Europe. In general, I believe in decontrolling further. There are many items that are barriers which could be `eliminated from the control list. A second thing I would advocate is the passage of the East-West Trade Regulations Act, under which the President wo'uld have au- thority to extend most-favored-nation treatment to Oommunist coun- tries in return for equivalent concessions. Business authority could be very helpful to deal with a situation like that which is `emerging in Czechoslovakia at th'e present time. I hope in the future the committee will reconsider the whole question of the East-West Trade Regulations Act. And i~ we negotiate a settle- ment in Vietnam, which, of course, is very difficult and `slow at this time, the whole question of East-West trade needs to be reexamined, with the opportunities it offer's for U.S. companies and the U.S. economy. I appreciate this opportunity' to make this statement. (Dr. Dymsza's prepared statement follows:) STATEMENT OF DJL WILLIAM A. DYMSZA, RESEARCH DInrcToR, INTERNATIONAL BusINEss INSTITUTE, GRADUATE SCHOOL OF BUsINESS ADMINISTRATION, RUTGERS UIuvERSITY SELECTED ISSUES IN POST-KENNEDY ROUND TRADE POLICY A. Policies To Deal With the U.$. Balcowe-of-Payinents Problem The balanCe of payments is not likely to be improved by the imposition -of im- port quota's as demanded by many industries. Any Improvement would be very transitory, as we would expect foreign countries to retaliate. The most likely effect would be to generate a series `o'f quotas and other restrictions abr'tad that would ~tifie trade and do away With much of the progress made in the Kennedy Round and previous trade negotiations going back to 1934. Under GATT rules the United States has the authority to Impose import quotas temporarily to deal with a balance of payments' disequilibrium. It also has the right `to impose exchange controls on current transactions under' the Internaltional Monetary Fund regulations when there is' a finding that a funda- - mental disequilibrium exis'ts in its balance `o'f payments. These measures, how- ever, are - not intended `to protect American industries against foreign co-m.peti- ti'on. Such restriclions should be eliminated once the balance of payments problem is resolved. Experience, however, indicates (that once such restrictions `are im- posed, some American industries would pressure for their continuation. Another `problem is that `trade and `exchange controls do not deal adequately with basic causes of the deficit. Furthermore, this co'untry is such a large factor in world trade `that its actions have a substantial impact on the balance o'f payments' of other countries; thus import quotas would probably lead to retaliatory actions. The U.S. balance of payments disequilibrium results' from a number' o'f factors- this country's worldwide commitments including the war -in Vietnam, the do- terioratio'n in this country's competitive trade position partly `as a result of the 95-159 O-6&----pt. 4-24 - PAGENO="0370" 1640 inflation since 1965, the propensity of Americans to travel to a greater extent abroad and spend more on imported goods, and the development of multi-na- tional industrial corporations and banks with the tendency to make increased overssts investments and loans. The United States involvement in the Vietnamese war has directly and indirectly increased the deficit substantially, sometimes estimated to be in the order of about two billion dollars a year. Last fall's sterling devaluation also aggravated the deficit. The United States government's policies-which might be termed selective escalation and movement toward more direct controls-have been inadequate to deal with the deficit in the setting of this country's involvement in the Vi- etnamese war, a relatively full employment economy, and a commitment to the Dollar as a world reserve currency fixed in terms of gold at $35 an ounce. In my judgment, the important ingredient missing has been a more effective mix of fiscal policy with monetary policy to hold down inflation, specifically a tax increase. A more concerted export expansion program in cooperation with business', and earlier recognition and more determined action to eliminate the adverse com- petitive effecits on 11.5. exports of border tax adjustments in Western Europe would also have been helpfuL Furthermore, the 1968 balance of payments program of the Administration places the primary burden on American business companies to reduce their over- seas investments. While this program will improve the deficit in the short term it will have adverse effects in the longer term. In essence, I believe that balance of payment measures to achieve equilibrium should not place the main burden on restrictive trade policies or on exchange controls on business investments overseas. The policies can involve short term measures but should consider longer term repercussions on the U.S. economy and this country's foreign economic policy. The passage of the tax surcharge should be helpful to the US. balance of payments, but it come's s'omewhat late after a considerable degree of inflation has occurred. I would also advocate a more rapi~ reduction of U.S. troops in Europe and reductions' in these expendi- tures. Measures should also be considered to reduce the tourist gap, such as a tax on foreign travel. More effective promotion of foreign travel to this country through special rate air flights and package arrangements should be undertaken, but this is unlikely to reduce the tourist gap substantially. Although it is late, the promotion of exports as a national priority could be undertaken in cooperation with business in a more concerted rather than a frag- mentary way. There is no reason why the United States should not have export credit and an array of export services available second to no other country. More evaluation is required of current export expansion efforts to make them more effective and to reach business companies capable of making a greater export effort. Increasing the competitiveness of U.S. exports after the recent inflation may require new attention. For example, more rapid writeoffs on in- vestments to encourage modernization of productive facilities would be helpful. More determined efforts should be made to revise the GAPT rules to permit a partial compensatory tax on imports and rebate on exports with respect to corporation taxes. In other words, I believe in a mix of balance of pa~ments policies where the impact is widely diffused on many groups in the economy, and not concentrated on U.S. companies with overseas investments and on trade policy. Such policies should be accompanied by more adequate fiscal as well as monetary policies. I also believe surplus countries should be pressed even more to expand their economies in order to increase imports and also accelerate tariff reductions. Along this line, it would be advisable for Congress to repeal the American Selling Price and not to take any restrictive action against imports. Then the United States goverment could take advantage of the offer of Western European countries to accelerate their tariff reductions under the Kennedy Round. This would help this country's balance of payments to a considerable extent. B. Import Restriction and Employment Employment cannot be maintained except in the very short term by import' quota;s to protect U.S. industries from foreign competition. The inflation of 3.5 to 4.0% a year since 1965 has been a major factor in rising imports, along with a relatively full employment economy. Thus, the first approach to deal with rising imports should be a tax increase to hold down inflation, although it is quite late. However, the problems of import competing industries arise from many factors PAGENO="0371" `1641 besides rising imports, including failure in some cases to modernize facilities with the latest technology, shifts In cOnsumer `demand, competition from substi- tutes, and inadequacies of management. Some of the other problems usually are more important than import competition. Imposition `of import quotas would compound rather than solve the basic prob- lems Of these industries. `It would try to freeze the industrial structure in a rapidly changing and dynamic economy. It would reduce the incentive for the industries to modernize their plants more rapidly, develop new and improved products, and compcte more aggressively. It would saddle American consumers and end use industries with higher prices for goods, materials, and components. Since such import quotas `are against GATT rules, we should expect retaliation by foreign countries that would reduce our exports and lead to a decline in employment in our most efficient industries. A study of Beatrice Vaccara made a few years ago for the Brookings Institu- tion entitled, Employment and Output in Protected Manufacturing Industries showed that high tariffs could not protect employment in this country. The in- dustries that received the most protection were also the ones that were usually characterized by the slowest growth in this country and also tended to have de- clining employment. Another study by Dr. Walter Salant and Beatrice Vaccara also for the Brookings Institution entitled Import Liberali~ation and Employ- ment indicated that the effects of rising imports on employment have usually been overemphasized. Salant's and Vaccara's median estimate was that the net loss of jobs in this country would be 150,000 for every rise of a billion dollars in imports. The study pointed out that the effect of changes in technology, automa- tion, shifts in consumer tastes, and cyclical fluctuations in the economy were much greater on employment than rising imports. All in all considering the `above aspects, I believe tha't trade a'djustment assist- ance is a far more effective way of dealing with increased import competition than import quotas and higher tariffs, especially if the programs actively involve business, labor, and the local community. U. Repeal of American $elling Price The repeal of the American Selling Price is of major importance in order to obtain .the full benefits of tariff reductions and other concessions `of the Kennedy Round and also to make progress in the future in reducing nontariff barriers against U.S. exports. The elimination of A.S.P. on benzenoid chemicals Will present problems to some producers, but most of them can adapt to it as they have been modernizing and improving their efficiency. Chemical spokesmen in my judgment have been overstating the adverse effect `of the elimination of A.S2. Those pro- ducers who would encounter serious difficulties should be able to obtain adjust- ment assistance. From another standpoint, the repeal of A. S.P. would enable many chemical producers to increase their exports as a result of the substantially larger reductions of tariffs. Chemical spokesmen in my judgemen't have tended to understate the gains from larger tariff reductions in Europe. Of course, the companies who gain from exports may not be the same ones that suffer some harm from `repeal of A. S.P. However, indirect as well as direct effects should be, considered from increased chemical exports and also availability of lower priced benzenoid chemical materials that are used in many chemical and pharmaceutical end use industries in this country. Perhaps, of greater significance, very little progress can be expected in reducing nontariff barriers on U. S. exports unles the United States repeals the A. S.P. A With the recent tariff reductions negotiated under the Kennedy Round being implemented over five years, nontariff barriers will become more significant restrictions to an expansion of this country's exports. Since the A.S.P. valuation procedure is essentially a protective device, is contrary to GATT regulations, and is also a method of valuation that is not acceptable internationally, the United States will not have a case for elimination of other types of nontariff barriers unless it removes this major one that foreign countries find disturbing and dis- criminating. In my judgement, European countries have overemphasised the im- portance of the repeal of the A.S.P. Finally, I would emphasize that U.S. chemical and other companies have a good deal to gain from reduction of nontarifi! bar- riers overseas. The repeal of the A. S.P. will make possible various new approaches in this direction. D. Border Tao, Adjustments From discussions with international trade executives, I have found increasing concern about the impact of border tax adjustments upon the competitiveness of U.S. exports. GATT permits countries to grant rebates on exports and impose PAGENO="0372" 1642 levies on imports to compensate domestic producers for indirect but not direct taxes. This rule is bassed upon the theory that indirect taxes are always fully shifted into the final price of the goods and that direct taxes are absorbed by the factors of production. As businessmen have long realized and economists have more recently accepted, this theory is not valid under exis~ing competitive con- ditions. There are many indications that at least part of the corporation tax and social security taxes are shifted into the final prices of goods and some of the indirect taxes may be absorbed by business companies. Since the United States replies heavily on direct taxes and Western European countries rely sub- stantially more on indirect taxes, the GATT rule tends to discriminate against U.S. products and to place them at a competitive disadvantage with those of Western Europe. The question of border taxes is a highly complex and controversial issue. Since the GATT rule has been in effect for many years, many argue that the trade distorting effects of border taxes have been largely adjusted by changes in relative exchange rates, tariffs, and prices and by shifts in factors of production. On the other hand, there are many doubts of this with respect to many industries in which the United States and Western European countries compete from share of market studies and from the trends in this country's balance of payments. With the huge investments made to modernize industries, the expansion of mar- kets, the establishment of larger size firms through merger, the achievement of internal and external economies of scale, and rationalization of industries, West- ern European industries have been giving American ones more severe price and non-price competition. Furthermore, exchange rate adjustments have been diffi- cult to make under the present international currency system and the dollar as a key reserve currency has been fixed in terms of gold. Tariff rate changes in the past have in no way considered border tax adjustments. Shifts in factors is a slow process. In view of more severe price competition faced by U.S. manufacturers, the border tax adjustments probably take on more significance at present than in the past in placing this country's exports at a disadvantage. I recognize that there is disagreement about this issue, but this is the point of view of a number of knowledgeable international executives with whom I have had discussions. What can be done about the inequity of border tax adjustments to the U.S. foreign trade position? Unfortunately, no ideal or easy solution is possible. The alternatives would be as follows: 1. The United States could change its tax system and impose a value added tax to at least in part replace the corporation tax as recommended by the CED; 2. The GATT rule could be changed to allow countries to compensate in full or more realistically in part for corporation taxes; 3. This country could negotiate with other countries to reduce border tax ad- justments as part of a total approach to reduction of all types of barriers to inter- national trade; 4. The United States could try to obtain a GATT waiver to permit some sub- sidies on its exports to industrial n:ations to compensate for the disadvantage it suffers from border tax adjustments. All of these approaches present serious difficulties and would be difficult to im- plement. It would be unrealistic to expect a major change in this country's tax structure under which the value added tax would partly replace the corporation tax. Major tax changes in this country are not enacted for foreign trade reasons. Strong opposition could be expected to a value added tax on the grounds that it is more regressive than the corporation tax. Changing the GATT rule on border tax adjustments would also be difficult to accomplish, as the countries which benefit from the present rule would not readily agree. However, difficult as it may be since the GATT rule is based upon incorrect theory, we should make a determined effort to achieve a border tax adjustment on a part of the corporation tax. Further study would be helpful to determine the percent of corporation taxes to be compensated, ~ut even with com- prehensive studies no ideal answers would probably be obtained. At any rate, some workable average percentage could ~e developed for negotiating purposes, Even though it may be difficult to achieve, I believe that the United States should press for this change in the GATT rule. If the GATT rule cannot be changed, I believe that the United States should ask for a waiver to permit subsidies to compensate for the average disadvantage experienced ~y its exports as a result of border tax adjustments. Such a request might facilitate bargaining on a change in the GATT rule. Probably of greater sig- PAGENO="0373" 1643 nificance, future trade negotiations should encompass border tax adjustments and other major nontariff barriers as well as tariffs that remain in order to rethice all kinds of impediments to world trade. Another problem arises from the harmonization of internal taxes In the Euro- pean Common Market. This involves Germany and some other countries shifting from a turnover (cascade type) tax to a value added tax such as France presently has. In the case of Germttny the shift from the turnover to the value added tax is clearly going to increase border tax levies on imports and rebates on exports. The United States cannot stand by and permit this adverse change to its competitive position. It should request compensating tariff reductions or other equivalent concessions. If such concessions are not granted, it should impose countervailing duties until it receives compensating concessions. This should be a firm stand. E. International Conventions and Fnture Trade Legislation As already indicated in this paper, measures that may constitute non-tariff barriers to trade have to be dealt with in a nuni~ber of ways. Where the substance or spirit of GATT rules is violated by the practices of other countries, this country should vigorously press complaints for necessary changes. Many non- tariff barriers may be dealt with by the negotiation of international codes or conventions. Government procurement practices, state trading ~y market econo~ mies, and burdensome customs laws and administration may be dealt with In this way, knowing it will take time and involve some difficult negotiations. Further- more, some changes in American laws will be required. However, of special importance, future trade legislation should grant the President broad authority and flexibility to negotiate with other countries on border tax adjustments, other nontariff trade barriers, as well as tariffs that remain. The President should be able to negotiate for changes in our practices that other countries consider nontariff barriers in return for concessions in all kinds of restrictions that impede U.S. exports. Such negotiatiions might go into matters that have been considered as domestic questions in the past, where the effect is to place American goods at a disadvantage in terms of goods pi~oduced in foreign countries. I recognize that it will not be easy to accept the principle of such broad negotiations in this country or overseas, but I believe the time haS come to initiate such methods of reducing all kinds of bari4ers to international trade. The problems are many, including those of identifying major barriers, measuring their impact, developing effective negotiating procedures, and balanc- ing packages of concessions against each other. I believe that this is the direction in which we should move. VS. EAST-wEST TRADE POLICY A. The Framework of Policy United States policy on East-West trade should especially consider the break- down of monolithic Communism, the establishmerd of nationalistic communist states, and the economic reforms taking place in Eastern Europe. Countries such as Rumania and Czechoslovakia are striving to achieve greater political and economic independence. Perhaps even of greater importance, the Eastern Euro- pean countries including the Soviet Union have been moving toward managerial decentralization, incentives to encourage greater productivity, the use of market concepts of costs, demand, prices, and profits, and more consumer oriented econO- mies. The extent of economic reforms varies from country-to-country and it is difficult to foresee how far they will go. It would be rash, however, to expect these states to abandon their centrally-planned economies and state socialism' and adopt our system of mixed capitalism. Still the political trends in Eastern Europe may be among the most important developments of our times. They may further diminish Cold War tensions and ideological conflicts and may lead to a closer integration of the economies of COMECON countries with the Western world. Increased trade and other business arrangements should positively en- courage such developments. E. Brief E~ummary of East-West Trade While it is frequently maintained that East-West trade has only been a minor part ~of the total international trade on non-Communist countries-4about 4.5% in recent years-~it has been of considerable importance to the Western nations most fully involved. Trade of O.E.C.D. countries with Eastern Europe Including the U.S.S.R. has about doubled from 1961 to 1967 and reached about nine (9) PAGENO="0374" 1644 billion dollars in the latter year. This represents an annual rate of growth of about 12% a year. The eastern European markets have been the most rapidly growing ones for O.E.C.D. exports during this period. Besides the conventional exports and imports Western industrtal nations have entered into licensing arrangements, sales of technology, and turnkey agreements involving sales of machinery and technology and provision fo engineering services for the establishment of plants in Eastern Europe. A major recent development has lieen negotiation of types of joint ventures or co-production agreements. The Western partner in these co-production arrangements usually supplies machinery, technical kn'ow~höw, some management in an advisory capacity, and world marketing channels. The East European partner supplies the plant, workers, raw materials, and often certain components. Some of the output may be mar- keted in the Western country or in third countries through the marketing chan- nels of the Western partn~r. This provides part of the payment to `the Western company. Other payment takes the form of fees, royalties, `interest on loans, and a share of earnings on sales. This type of arrangement is advantageous to both sides because it utilizes the comparative advantage of both parties, facilitates payment for equipment and technology, provides an `opportunity of p'roducing goods in Eastern Europe utilizing the substantial supply of skilled, well trained, and irtexpensive workers, technicians, and engineers, and enables `the produced good's to be sold in Eastern Europe, Western Europe, and other countries. These co-production ventures are expected to multiply in the years ahead. United States ha's hardly participated in the growing trade with Eastern Europe. Its exports and imports amounted to 376 million dollar's, about 7% of its total world trade in 1966 and 372 million dollars, about 6% of its total world trade in 1967. On the other hand, the trade of other 0. E. 0. D. countries increased by about 11% in 19~7. Still, we should consider tha't a number of American companie's conduct trade with Eastern Europe through their subsidiaries while no precise data is `available, it is estimated tha't `sales of machinery and equip- ment `through U.S. `subsidiaries a're about three times greater than those from plants in this country. Few American companies have participated In `the turnkey agreements, the package deals, and the co-pr'odu~tion ventures-all of which have become increasingly important in recent years-except th'rough their subsidiaries. C. some Major Problems in Trading with Communist Countries It should be emphasized that many of the problems in developing East-West trade arise from `the Communist economic system and their politi'cal and economic policies, including `the centrally planned economies of Communist countries in which imports and exports are determined as p'art of their national plan, the monopolistic conduct of trade by sta'te trading organizations, the pas't Soviet efforts to achieve autarchy and to restruc'tu're trade among `OOMEOON countries, the bilateral character of their trade, the divorcement of their do- mestic prices and world market prices, their shortage of gold and convertible currencies, an'd their difficulty in selling to the West. Even with the recent expan- sion of East-West trade, only 30% of the fore'ign trade of CONE'CON c'ountries has been with countries outside of this economic `bloc. Furthermore, the East- ern European countries continue to be primarily exporters of agricultural food- stuffs, petroleum, minerals, and other raw materials, which have limited op- portunIties for expansion in the West in vie'w o'f alternative available sources of `supply, trends in demand, and developments in technology. The obstacle's are even greater in developing trade between the United States and Eastern Europe. The United States d'oes not have the long historical tr'ade ties with Eastern Europe that Western Europe has, now in the process of being revived. Furthermore, the economy o'f this country is far less complementary than that of W~ste'rn Europe and Japan with Eastern Europe. Since the Eastern European countries ~nive been primarily exporters of agricultural foodstuffs, fuels, raw materials, and b'ase metals, in re'cent yOars, they have considerable difficulty in selling to the United States. Nevertheless, COMECON countries have developed a considerable industrial base and history shows that as nationS industrialize and modernize their economies, the structure of their trade changes. The continuation of economic `reforms, the establishment of more consumer oriented economies, and higher living standards in Eastern Europe should not only foster a rapid growth of trade but major structural changes in the composi- tion and direction of their international trade. PAGENO="0375" 1). U.s. Polio~ as a~ Obstacle to T?ade While not underestimating the other obstacles to United States trade with Eastern Europe, we want to emphasize that American trade policies have been, a major barrier to the development of this trade. The more rigorous trade controls maintained by the United States on exports to Eastern Europe than those Of other O.E.C.D. countries, the complex administrative organization and procedures for making decision on export controls and licensing under the Export Control Act, the withdrawal of most favored nation treatment to all COMECON countries except Poland, the Battle Act which applies coercion on other non-Communist countries to maintain controls on their trade with Communist countries, and the various laws' and regulations that prevent or limit financial relations' with Eastern European countries-all have impeded in a major way the development of this trade. Furthermore, trade with Communist countries has become a highly political and emotional issue in Congress and with elements of public opinion. The Vietnamese conflict has intensified the emotional aspects and we find state~ meats such as that trading with the Soviet Bloc Communist countries is helping the enemy. U.S. policy on East-West trade have been highly rigid and failed to adapt to the far-reaching changes taking place in Eastern Europe an'd in Western coun- tries. The President enunciated in his State of the Union messages of 1966 and 1967 but not the one in 1968 that development of East-West trade was a way o'f building bridges between the United States and Eastern European Communist nations. However, the proposed East-West Trade Relations Act has net even been considered by the appropriate committees of Congress. Despite the easing of strategic controls in October 1966 and `slightly in June 1967, this country, as previously mentioned, maint'ainis a more severe level of strategic controls on exports to Eastern European countries than other Western nations do. Other O.E.O.D. countries generally embargo exports on goods clearly of strategic impor- tance as agreed by COCOM, the permanent international working committee of the Oonsu]itative Group comprising all NATO countries (except Iceland) and Japan. As `a result of the divergence on controls, Western European and Japanese business firms can export many products and technologies that American com- panies cannot. This has been frustrating t'o many companies in this country. It has also led to some frictions with other Western nations, especially when U.S. controls are extended indirectly to foreign corporations through the withholding of technology or components of American origin. However, even of greater sig- nificance, U.S. policy has failed to sufficiently consider the deep~ro'oted movement in Western Europe to abandon the doctrine of containment of Communism, reduce tensions with Communist countries, expand business and other contacts, and restore more no'~ual economic and political relationships. Thus, U.S. policy on East-West trade has isolated this country on a major issue from other Western nations and has encouraged some tendencies toward establishment of a third force in Western Europe. There is no question that President Johnson and his Administration have been ahead of Congress in recommending changes in East-West trade policies, but with the intensification of the Vietnamese war, they have not pushed vigorously for these changes. Recently, the Export-Import Bank Extension Act contained a provision prohibiting the Bank from extending credit guarantees to any Communist nation that is directly involved in supplying goods to Viet- nam. This in effect limits medium term credit for the export of capital goods to COMECON countries. Thus in many respects the U.S. policy of building bridges with Eastern European nations through trade has become a casualty of `the Vietnamese conflict and its emotional and \political ramifications. Nevertheless, in shaping future trade policy, we have to look beyond the political and emotional involvements of the president `to the role that increased trade and business contracts `can play in reducing internaitional tension `and con- flicts and contributig toward more normal relationships. Along this line the Report of the Special Committee on U.S. Trade Relations with Eastern Euro- pean Countries and the Soviet Union, more commonly called the Miller Report submitted to the President in April, 1965 is an inadequate framework for fu- ture East-West Trade Policy. The report did make a number of constructive recommendations, the most important one leading to the proposed East-West Trade Relations Act. However, the underlying philosophy of the report empha- sized the Cold War, the containment of Communism, and the political aspects of trade. It stressed using trade as a political instrument of national policy in dealing with Communism. It used statements such as the following: "* * * 1645 PAGENO="0376" 1646 the time is ripe to make more active use of trade agreements as political inst~u- ments in relations with communist countries." "Trade is a tactical tool to be used with other policy instruments in pursuing our national objectives." "Com- mercial considerations, however, have not been the determining factor in fram- ing U.S. policy in this subject and should not be now. It is not the amount of trade that is important but the politics of offering trade or withholding it." "In sum, trade with European Communist countries is politics in the broadest sense." In my judgment the Miller Report overemphasized the political and cold war aspects of trade with Communist countries and failed to give sufficient im- portance to the economic and business aspects. It placed too great emphasis on the ideological struggle with Communism. It failed to adequately consider the changes taking place within Communism, the strong forces at work in East and West to expand mutually advantageous trade, and the opportunities for the United States to develop more common policies with other Western nations. E. The Broad Directions of U.S. East-West Trade Policy A forward looking American trade policy should seek to encourage the con- structive developments taking place in Eastern Europe, such as the managerial decentralization, the movement toward Western market concepts, the trend to- ward more consumer oriented economies, and closer integration of the trade of these countries with the world economy. It should encourage movements toward greater independence such as those taking place in Czechoslovakia and Rumania. It should strive to align U.S. policies more closely with those of other 0. E. C. P. countries. The objective should be to develop common Western polices on trade and finance with European Communist countries. The political and economic war- fare aspects of trade should be de-emphasized and the economic and business aspects should be brought to the forefront. As political conditions permit, the United States should move to eliminate the differentiation in its policies with individual COMECON countries and evolve common policies for all Eastern Europe, including the Soviet Union. Difficult as it is, the United States should work for the establishment of a satisfactory code of principles between centrally- planned and market economies and strive to bring the Eastern European coun- tries into a multilateral trading system based upon commercial considerations and involving convertibility of currencies. Finally, despite the many problems, this country should initiate trade with Communist China as a w~ty of opening doors with this nation of 800 million people. F. The East-West Trade Relations Act. The passage of the East-West Trade Relations Act would be an important first step until the international atmosphere changes and more fundamental changes in policy can be undertaken. Under the `act the President would have the authority to extend most favored national treatment to individual Communist countries, when he determines it is in the national interest after consulting with `the govern- ment agencies concerned, business groups, and others. The authority could be used to negotiate commercial agreements with a particular country granting non- discriminatory tariff treatment in return for equivalent concessions to `the United States. Such commercial agreements would be for initial periods not longer than three years. The concessions received in return could include better access to markets on the basis of commercial considerations, more adequate arrangements for the protection of patents and other industrial property, agreements on pro- cedures to avoid dumping and other forms of market disruption, and assurances regarding the arbitration of commercial disputes in third countries. Such a com- mercial agreement ~should provide the Eastern European country an opportunity to sell more in the United States as a result of `the lower tariff rates. It should also improve the opportunities for American companies to develop their exports to the country. provided that other restrictions such as the strategic controls and financial restrictions are eased. However, in time as the United States gains experience in such agreements and trade expands and when political conditions permit, it should move toward the extension of mo/st favored nation treatment to all Eastern European countries. 0. The Strategic Control System The strategic control policy of the United States and its administration has proved to be ineffective in its major objectives and should be substantially modi- fied. The United States distinguishes between strategic and peaceful goods in trade with the East. However, the distinction has not been a clear one. There PAGENO="0377" 1:647 S have been variations and inconsistencies in determining whether goods are strategic or nonstrategic in issuing export licenses. Goods are neither peaceful nor warlike; it is people who are peaceful or warlike. Most goods can be used for military as well as civilian purposes. There has been no disagreemerjt about an embargo on arms, implements of war, atomic materials, and other military goods and highly sophisticated technologies with important military uses. how- ever, the problem arises when strategic goods are extended to include a wide range of industrial materials and equipment that have significant civilian appli- cations as well as possible military uses. It can readily be seen that many niate- rials, machines and techniques can contribute to the industrial development and economic strength of a nation. A nation's industrial base and its entire economy cau be shifted to support a military effort. Thus, if strategic goods are thought of in terms of those that make "a significant contribution to the military or economic potential" as defined in the Export Control Act as amended, a wide range of goods and techniques can be defined as strategic. Moreover, a widespread belief that trade with the potential enemy is immoral, the negative emphasis of the Export Control Act and the Battle Act, and Congressional attitudes have encouraged the United States governments to be highly restrictiye in trade with the East. The difficulty of applying a comprehensive system of export controls to limit the military-industrial potential of a sophisticated and highly self-sufficient economy like the Soviet Union should be recognized. The Soviet Union is a highly advanced ecopomy capable of producing nearly everything that it needs. With a substantial scientific `and technological base, it is `capable of finding substitutes for most controlled goods. In fact, strategic controls may force technological change and more rapid development of substitute products. Moreover, the costs of strategic controls to such an economy may be overestimated. The Soviet Union, of course, may prefer to import goods and technologies available in the West at lower cost. In turn to pay for these imports, it has to devote res'ource~ to produce exports that can be sold to the West. When strategic controls are imposed on goods that the Soviets would like to import, they can shift resources that would be devoted to exports to development and production of substitutes. This may lead to a less efficient use of resources and increase costs. But the increase in costs may be of marginal significance in slowing down economic S growth or military potential. The Soviet Union ha's demonstrated that it can develop practically any product or technology it wishes if it is willing to devote sufficient resources to it, even though it can be costly. S There is no precise way of measuring the effectiveness o'f the strategic trade controls in holding down or increasing the costs of the development of Soviet military-industrial `potential. Yet, the fact that the Soviet Union has become the second major military power, that it has achieved impressive space and other scientific accomplishments, and that it has experienced a high rate of economic S growth and industrial expansion during the period of `the use of strategic trade controls ~ou1d indicate that the trade embargo has had little effect in achieving its major objectives. The main effect probably has been to serve as an irritant in relations between the United States and the `Soviet Union. Since the United States has enforced more rigor'ous controls than other COCOM countries and most products only embargoed in this country could be readily obtained in Western countries, the system has been ineffective. The result has been to lead the Soviet Union and other Eastern European countries to buy goods in Western Europe and Japan rather than in the United States. This has penalized American businessmen and `has served to favor businessmen in other countries. It has also given businessmen in other Western nations an opportunity to get a firm foothold in the rapidly growing markets in Eastern Europe. This will make it more difficult for American companies to compete in these markets in the future. One way of assessing a policy such as the strategic controls is to weigh the benefits against the costs. In my judgment, the costs have exceeded the benefits because the policy has `been ineffective in attaining its major objectives; it has been a major barrier to the expansion of U.S. trade with Eastern Europe abd increased business contacts; it has given `businessmen in other countries an ad- vantage over American b~isinessmen in conducting trade with these `countries; it has aggravated tensions with COMECO'N countries, and it has increased fric- tions with other Western nations. S PAGENO="0378" 1648 H. Changes in Ecoport Control 4ct and Battle Act In view of the above analysis, I would recommend that the Export Control Act be modified so that the United `States could reduce its strategic controls to the level of other 0000'M countries. This would require that the law be amended to limit strategic controls to goods and technologies of a clear military and mili- tary-industrial nature. The requirements `that goods that make a significant contribution to `the economic potential of the Soviet Union and other Eas'tern European countries be controlled should be eliminated from the law. Furthermore, the `administration of the act should be considerably streamlined and simplified. In my judgment, the Battle Act, the other major law dealing with strategic controls, should also be modified. The act passed in 1951 at the height of tensions with the Soviet Union is clearly a Cold War document. Its stated purpose is "To provide for the control by the United States and cooperating foreign nations of exports to any nation or combinations of nations threatening the security of the United States including the Soviet Socialist Republics and all countries under its domination * * *~" The law provides for the mandatory termination of United States assistance, military, economic, and financial, to any country that know- ingly ships military goods (Title I, Category A), including arms, ammunitions, implements of war, and atomic energy materials to Communist countries. It also provides for termination of all foreign assistance to any country that ships Category B goods, those of basic strategic importance in the production of mili- tary supplies to Communist nations unless the President finds that the cessation of such assistance is clearly detrimental to U.S. national security. Furthermore, the act provides for strengthening strategic controls in conjunction with other countries in Title II goods, those of secondary strategic importance. These are goods which if exported in large quantities, would contribute to the military-in- dustrial potential, but usually have significant non-military uses. The basic philosophy of the Battle Act to use the threat of withdrawing foreign aid to coerce non-Communist countries to accept strategic controls on exports of goods specified by the United States is a highly questionable one. This procedure has led to antagonisms with other non-Communist nations. This is a condition that sovereign nations do not like to accept in return for foreign assistance. Fortunately, the President has had some discretionary authority in administer- ing the law. All in all, the act in its present form does not appear best suited to advance U.S. foreign policy interests in this rapidly changing world. The Battle Act would be either repealed or substantially modified. One way to amend the act would be to change its emphasis to cooperation with other non- Communist nations on strategic controls. The specific mentioning of the Soviet Union and its bloc should be eliminated, as other countries may pose threats to our national security in the future. The President could be given more discre- tionary authority on ways to obtain the cooperation of other nations on strategic controls. For example, when the President determined that any nation was clearly a major threat to this country's national security, he could negotiate with other Free World countries on termination of exports clearly of military significance to that country. In other words in my judgement, the largely negative aspects and the Cold War emphasis of the Battle Act should be changed and the President should be given more discretionary authority in obtaining the cooperation of other countries. I. The Ecoport-Import Bank, the FCIA, and Ecoport Financing U.S. laws and regulations also limit trade by various discriminatory restric- tions on financial transactions and credits to Eastern European countries. Of special importance are the limitations on Export-Import Bank financing. Since 1962 the Eximbank has been prohibited from financing or guaranteeing export credits unless the President finds it to be in the national interest to do so. How- e~ver, in the extension of the program in 1968, the Eximbank was prohibited from financing exports to any nation which by direct government action furnishes assistance to North Vietnam. This in effect prohibits the Bank's assistance to all COMECON countries. Thus, under present conditions medium term and long term credit which are vital for exports of capital goods are practically not available in this country for exports to Eastern European nations. All in all, the Export-Import Bank has been relatively inactive in financing East-West trade. During fiscal years 1963 to 1967, it extended abou't 66 million dollars of guarantees to finance exports to COMECON countries. This represents about .6% of `total Eximbank authorizations during this period. The Bank has made somewhat larger credit guarantees amounting to about 76 million dollars PAGENO="0379" 164~ during the same period to Yufi~oslavia, Which Is not eensldered as part of the European Oommunlst bloc. - The other organization in the credit field, the Foreign Credit Insurance Asso- ciation, more commonly called the FCIA, a group of private insurance companies working in conjunction with Eximbank to assure short and medium term export credits did not cover any exports to COMECON countries until 1967. It was eStablished as a "quasi governmental agency" to cover credits on exports to "responsible buyers in . . . free world markets," and did not make its facilities available to Eastern European countries. The FCIA has made only limited medium term credit insurance available to Yugoslavia, amounting to 1.3 million dollars through August 31, 1967. In January 1967 the Eximbank extended its FCIA insurance and regular commercial bank guarantee program to permit coverage of short term and medium term credits on U.S. exports to Bulgaria, Czechoslovakia, Hungary, Poland and Rumania. On the basis of these changes two commercial bank guar- antees aggregating some $628,000 have been authorized for export of earth- moving equipment to Bulgaria and less than $500 worth of goods have been shipped to Czeehoslo~akia under short term insurance. Since mid-1967 the Eximbank has refrained from extending significant credits or guarantees to Eastern European countries while Congress was debating the role that the Bank should play in connection with East-West trade. This debate has taken place in connection with legislation extending the life of the Bank and increasing its lending authority. Congress has now approved this legislation extending the Bank's life to June 30, 1973 and increasing its lending authority from 9 to 13.5 billion dollars. In passing this law, Congress has adopted two amendments to the Export-Import Bank Act which will affect the Bank's author- ity to extend credits and guarantees to the Eastern European countries. One amendment prohibits the Eximbank from financing or guaranteeing export credits to `these countries unless the President finds it to be in the national interest to do so. In most respects, this provision is virtually the same as that which has been included for the past five years in the Bank's annual appropria- tion Act. However, the provision is broader in one significant respect than that which has been contained in previous legislation. The Eximbank is now pro- hibited, except with the approval of the President, from engaging in an export transaction to a third country when the goods will be used in one of the Com- munist countries. Furthermore, the provision now is a permanent part of the Export-Import Bank Act. This second amendment provides that the Bank shall not finance or guarantee transactions with any country (a) which is engaged in armed conflict with the United States or (b) which "furnishes by direct governmental action (not includ- ing charactering, licensing or sales by non-wholly-owned business enterprises) goods, supplies, military assistance, or advisers to a nation" with whom the United States is in armed conflict, specifically North Vietnam. Different from the first amendnc~ent, this second provision is an outright prohibition on the Bank's authority and does not permit the Bank to act with a Presidental waiver on a finding of national interest. According to officials of the Bank this provision would completely curtail the Eximbank's participation in East-West trade. Since the amendment also provides that the Eximbank may not engage in a transaction with a third country for the benefit of a country which is assisting North Vietnam, the highly-publicized Flat case is prohibited under the provision. This will mean that the Eximbank will not be able to extend credit to Italy to finance machine tool purchases from the United States for the automobile plant that Fiat is building in the Soviet Union. Thus, the effect of the two amendments on the Export-Import Bank's activities in regard to COMECON countries is as follows. Assuming the governments of those countries are furnishing and continue to furnish goods and supplies to North Vietnam, the Eximbank is prohibited from financing or guaranteeing exports to or for use in those countries so long as the Vietnam war lasts. In other words, at the present neither Eximbank nor the FCIA is involved in financing East-West trade. When the war ends, the Eximbank may again finance or guarantee transactions with those countries when the President finds it to be in the national interest to do so. From discussing with commerical banks active in the international fields, I find that they will not extend medium and longer term credits without FCIA insurance or Eximbank guarantees. On the other hand, Western European countries make their excellent export credit programs available for exports to PAGENO="0380" 1650 Eastern European countries. American businessmen, therefore, are placed at a serious disadvantage in exporting machinery, tools and equipment to COMECON countries. Some international executives believe that the unavailability of credit is a more serious barrier to the development of East-West trade thaii the export controls. To permit development of trade with Eastern Europe, the United States needs to amend the Export-Import Bank Act passed in 1908 to make credit guarantees and insurance available to these countries. First, the amendment that prohibits Eximbank participation in financing to countries assisting North Vietnam should be repealed. Second, it would be advisable to eliminate the other amendment that prohibits Eximbank from financing exports or guaranteeing export credits unless the President finds it in the national interest to do so. Instead, it would be preferable, in my judgment, to permit the Bank and FCIA to make their services available to Eastern European countries, except where the President finds it to `be against the national interest. J. The Johnson Act and Credits The Johnson Act of 1934 which prohibits certain private loans and financial transactions with countries in default in payment of their debts to the United States, has been applied to the Soviet Union and other Eastern European countries, except Bulgaria. These countries are in default especially in World War I debts. The Soviet Union for example is deemed to be in default because it owes over 600 million dollars in principal and interest for loans to the Czarist government during World War I and it has failed to settle the Lend-Lease Account from World War II. However, the Johnson Act is not applied to allied nations such as France because they are members of the International Monetary Fund and the International Bank for Reconstruction and Development. While the application of the Johnson Act may be legally correct, it is question- able on other grounds and seems to be another manifestation of the Cold War. The original intent of the law was to protect American citizens from buying worthless or dubious foreign `securities. Thus, the legislation has been applied far beyond its original intent. For a considerable time, the Johnson Act was applied in such a way that financial institutions felt that anything beyond short term export credits to Communist countries might be illegal, but this is no longer the case. The Attorney General has recently ruled that the Johnson Act does not prohibit extension of credit "within the range of those commonly encountered in commercial sales of comparable character." According to international bankers consulted, the latest interpretation of the Act is such that medium term and longer term export credit is possible to Eastern European countries as long as it is the normal procedure in the sale of particular goods. Nevertheless, even with the change in interpretation, the Johnson Act can be a Cold War harassment. In the future it could limit some types of financial trans- actions as East-West trade develops. Since I believe that it does not serve a useful purpose, I believe that it should be repealed. K. Other Brief Recommendations on East-West Trade Policy 1. The administration of strategic controls should be substantially simplified and streamlined. The present organization and procedures to make decisions are too cumbersome and require the unanimous approval of the inter-governmental committees. For example, the administrators of strategic controls did not re- move items such as breakfast cereals, sugar, margarine and shortening, mayon- naise, lubricating oils, detergents, rubber heels, fine paper, cotton yarn, rayon, blankets, carpets and rugs and dishwashing machines from the positive list requiring validated licenses until October 1966. As one change, the rule requir- ing unanimity should be abandoned. Decisions should be made by a simple ma- jority or a two-thirds vote of the governmental representatives. 2. Even under the present law, it appears that many products can be removed from the positive list requiring validated licenses. A comprehensive re-evalua- tion should be made of all products subject to validated license control in order to remove the ones of questionable or marginal importance. Goods that are readily available in other Western countries should especially be removed from this control. Along this line, a permanent advisory group of knowledgeable business- men and private technical and other experts should be appointed to advise the Office of Export Oontrol on simplifying procedures and easing strategic controls. PAGENO="0381" 1651 3. The regulations on technical data and licensing agreements should be re- evaluated and eased to eliminate unreasonable and burdensome requirements on U.S. companies with overseas operations. 4. Other special interest legislation such as that prohibiting importation of seven specific types of fur from the Soviet Union should be repealed. 5. The United States should strive to develop a code of principles involving non-discrimination with respect to trade between market and state trading na- tions in conjunction with GATT and the U.N. Economic Commission for Europe. It should also encourage Eastern European countries to become members of GATT, the International Monetary Fund, and the International Batik for Re- construction and Development. One basis for Eastern European countries to be- come full fledged members of GAPT would be along the lines recently used in the case of Poland. However, the objective should be to encourage all Eastern European countries to move toward multilateral trade, convertibility of cur- rencies and world mavket pricing. 6. Finally, all the maze of laws, regulations, administrative procedures, rul- ings by the Department of Justice and other governmental organizations dealing with strategic controls, most favored nations treatment, importing, financial transactions, credits, disposal of agricultural surpluses, foreign assistance, and other matters should be thoroughly re-evaluated from the standpoint of UM. foreign policy, national security, and economic interests. The objective would be to develop a body of laws and policies more adequate to deal with the emerg- ing trends of the future and better to serve American interests in this coutitry and overseas. A top level action-oriented committee of knowledgeable business executives, and other private experts should be appointed to advise on the formulation of a new policy on East-West trade. Mr. TJLLMAN. Thank you. Are there questions? Mr. BETTS. Doctor, you mentioned the fact that the passage of the tax bill would probably have a beneficial effect on the balance of pay- ments. As I understand it, the American consumer is saving 10 billions of dollars in excess of normal. If that is true, the tax bill would take * the $10 billion in savings and put them in circulation by the Govern- ment. How would that affect the balance-of-payments proposition? Dr. DYMSZA. I think we projected our Government expenditures decrease, along with the tax increase, would actually hold down de- mand. I don't think the savings ratio is going to change that much. I don't know-as I understand it, there was an increase in real savings last year2 but there has been some sign of the real savings going down and getting back into the customary rate of consumer spending. But I think the overall aspects of the tax increase, holding back consumer and other types of spending, and also placing less stress on monetary policy to hold down inflation-the combination of all these things would be helpful in stopping the rapid increase we have had in the last 2'/2 years. Mr. BETTS. It just seemed to me that the tax bill would take the $10 billion that is being saved now and not being spent and give it to the Government to spend. Wouldn't that offset the benefits of this and, to that extent, would hurt the balance of payments? Dr. DYMSZA. I don't think a tax increase would actually come out of the savings. I think some of the tax increase would come out of consumer spending, and this would have an effect, and this in turn would aff~ct other aspects of the economy. Mr. BE~UTS. It would have to affect savings to some extent, `wouldn't it? PAGENO="0382" 1652 Dr. DYMSZA. I think the savings-spending rate might remain the same, and in that case we would find that part of the decrease would be a decrease in consumer spending. Mr. BETTS. But an increase in Government spending?' Dr. DYMSZA. I am assuming that the Government spending is going to be held down. Mr. BETTS. But the $10 billion will be spent. My point is, part of the $10 billion is being saved now. If it were transferred to the Government, it would be spent. To that extent, we wouldn't help the balance of payments at all. Dr. DYMSZA. I think the main impact of the tax increase would be to reduce overall demand, the forces of demand in relation to supply, and this would hold down the price increase which we will have. Also, it would lead to a lesser reliance on monetary policy, which has very uneven effect. For example, it has its major effect on housing and other segments of the construction industry. Mr. ULLMAN. Any further questions? Thank you very much, Dr. Dymsza. We appreciate very much your appearing before the committee. Mr. Kindleberger? We are happy to have you before the committee, Professor. For the record, would you please identify yourself, and proceed as you see fit. STATEMENT OP CHARLES P. KINDLEBERGER, PROFESSOR OP ECONOMICS~ MASSACHUSETTS INSTITUTE OP TECHNOLOGY Mr. KINDLEBERGER. I am Charles P. Kindleberger, of Bedford Road, Lincoln, Mass., employed as a professor of economics at the Massa- chusetts Institute of Technology, but speaking today in a personal capacity. Representative Charles W. Whalen, Jr., of the Third District of Ohio asked the committee to permit me to appear. I am the author of textbooks in the field of international trade, in- cluding "International Economics," which was issued this year in its fourth edition, and "Foreign Trade and the National Economy." Mr. TJLLMAN. Would you take the microphone closer, please? Did you mention Ohio? Mr. KINDLEBERGER. Yes, sir. I was invited by Representative Charles Whalen to appear. My only connection with Ohio is that I have a daughter in school there. Mr. TJLLMAN. Fine. Proceed. Mr. KINDLEBERGER. While I take exception to the Government's pro- gram in the field of the balance of payments, I support its proposals in trade, including a renewal of the President's powers to negotiate tariff reductions reciprocally under the General Agreement on Tariffs and Trade, the elimination of the American selling price as a basis for valuation or certain products, largely chemicals, in calculating ad valorem tariff duties, and the reduction on a mutual basis of nontariff barriers to trade. I urge the Congress to resist the attempts by a number of particular interests to impose new tariffs or quantitative restrictions PAGENO="0383" 1653 on a variety of products where imports have been increasing, especially steel, cheese, woolen textiles, et cetera. The reasoning behind my posi- tion may be characterized as the conventional wisdom of the interna- tional-trade economist, if you choose. While conventional, this wisdom is based upon a powerful analytical truth embodied in the law of com- parative advantage, which states that with certain very limited excep- tions, the country and the world as wholes are better off with freer than with more restricted trade, and that any valid social purpose which can be served by trade restriction can he accomplished more efficiently and more honestly in some other fashion. The United States and the rest of the world have been reducing tariffs since the Reciprocal Trade Agreements Act of 1934. This is as it should be. In a world of small isolated regions, the imposition of tariffs makes some sense to protect an industry while it makes an adjustment to unexpected supplies of goods, which come in, as it were, from beyond the `horizon, which a reasonable businessman may be expected to scan in looking for potential competition. Today that horizon is the world.. Changes in production costs occur at home and abroad. These changes take place relatively slowly. They call for adjustment in trade patterns in order to minimize costs of producing given outputs, or to maximize yield of given inputs. When costs of transport fall to the point that Japanese steel producers can assemble iron ore, coal, and limestone from domestic and foreign sources and ship steel across oceans `and lay jt down cheaper than U.S. firms, it suggests either that U.S. firms have a comparative disad- vantage in steelmaking and that our resources could be more advan- tageously employed in producing other commodities, or that U.S. producers have been slow to adopt cost-reducing innovations. There are other complications: such as price discrimination and allegedly subsidies to capital costs. I would argue that these are not a sufficient basis for this country reversing its and the world's move- ment to freer trade which has been in progress for 30-plus years. Persistent price discrimination is a benefit to the consumers and a cost to the subsidizer. The notion that foreign countries can dump products in this market and then when they have driven out domestic producers, raise prices to monopoly levels, rests upon a strong assumption that there is an asymmetry in exit and entry, that is, that firms are easily pushed out of an industry by low prices but not reattracted into it by high prices. This assumption is very dubious. Most economists who have thought long about it are not moved by the plea that trade restrictions are needed to prevent dumping or that dumping-that is, price discrimination-is deleterious. We adjust to price discrimination in our daily life without much difficulty: the Filene's basements in which distress goods are sold, discount houses, free medical services for the poor, and higher prices for first run showings of movies. It is no different in international trade. There will doubtless be much testimony that we should put tariffs or quotas on this and that product to protect the balance `of payments of the country. I do not insist that patriotism is the last refuge of ar scoundrel, but as an economist, I cannot intellectually concede that a general condition be put forward as an excuse for particular meas- ures. I object to the so-called quasi-adjustments which the Govern- PAGENO="0384" 1654 ment has undertaken in the tying provisions of U.S. aid, the interest equalization tax, its application to banks under the Gore amendment, the voluntary credit restraint program, the reduction in tourist duty- free allowances, the change in the Buy-American provisions applying to Government purchases, and the abortive taxes on travel. General conditions of excess spending or excess liquidity require macroeco- nomic measures in the monetary and fiscal field, affecting spending and money supplies, not particular measures restricting spending on this or that import or investment. These are partial-equilibrium measures which assume "other things equal" when these other things are in fact affected by the change undertaken, To cut down spending on particular imports will divert income to other foreign goods, building imports up again, or to domestic goods, which will aggravate the pressure on U.S. resources, raise prices still further, attracting other goods from abroad and harming exports. My views on the balance of payments of the United States are some- what idiosyncratic. I believe, for example, that the so-called liquidity balance or overall measure of the deficit is misleading, along with most others, and that we have been keeping our international books as though this country were a firm, when in fact it functions interna- tionally as a `bank. I disagree, for example, that we had a deficit in 19M when the current-account balance, including remittances and pen- sions were plus $7.6 billion, and the `so-called net-worth balance, which is the current-account balance less remittances, and U.S. Gov- ernment grants and capital, amounted to plus $4 billion. This is equilibrium, or surplus, in my judgment. Today the current-account balance has slipped substantially, so that the net-worth balance is $500 million negative in 1967. The income surtax is needed to slow down the boom, halt the rise in prices, and, with continued price rises in France, correct the disequilibrium. The financial flows on top of this net-worth balance have received excessive attention. It would be foolish to defend an extremist laissez faire position. The price system does not always produce a social optimum as, for example, in defense industries, industries with strong external econo- mies, infant industries where economies to scale or to learning exist within the plant. But anything a tariff can do, a subsidy can do better, a subsidy on domestic production rather than a penalty on imports. A tariff is a subsidy and a tax, but there is no guarantee that the tax is effectively or equitably levied, and the subsidy is too far reaching, ben- efiting existing as well as marginal producers or that the subsidy would be granted if the tariff were recognized as such. There is no guar- antee that it would be. Samuelson's elementary textbook in economics talks of the fallacy of composition, where the whole is not equal to the sum of its parts but may be negative when the parts are positive. If everyone stands to see a well-hit ball at a baseball game, only the long-legged see any batter, and a great many children can't see at all. If all interests which face import competition succeed in getting the Congress to legislate higher tariffs, the United States and the world will be worse off. In the trade field, as in exceptions from the income tax, when everybody is' some- body, nobody is anybody. Each one of us, no matter how sophisticated, is at heart selfish and embraces for himself principles of which most PAGENO="0385" 1655 would not apply to the body politic. Scrathh even an economist deep enough and you find a merclaantilist who wants to buy more than he sells; a populist who thinks that banks charge too much for credit; a racketeer who would like something for nothing; a monopolist who wants to push up the price at which he sells and push~ down the price at which he buys; a peasant who clings to his good earth; and a na- tionalist who thinks it is fine to buy from his own countrymen but wrong to spend money abroad. Each of these attitudes, if misguided, is understandable. But the duty of the Congress is to legislate in the national and-I permit myself to say-the international interest, and not to gratify the `selfish instincts of its constituents. The 35 years of U.S. leadership in policies of lowering barriers to trade h~e been, apart from wars, highly successful for us and for the rest of the world. Other countries have lowered tariffs, `and made adjustments with great benefit to themselves in expanded real income and growth. It would verge on criminal irresponsibility for thi's country, when it begins to feel pressure for readjustment itself, to give up on a policy so successful, so evidently necessary in the general interest, but `one requiring the political courage to resist special pleading of important local interests in an election year. / That is my statement, sir. Mr. ULLMAN. Are there any questions? Mr. Betts. Mr. Br~'rrs. Doctor, I understand that the theme of your presentation is that you deplore trade restrictions on the part `of the United States. Isn't it true that most of the other nations of the world have trade re- strictions? Mr. KINDLEBERGER. I deplore `trade restriction's on the part of every- one, sir, and I would have thought that in the General Agreement on Tariffs and Trade we are succeeding in getting these tariffs low- ered; yes. I am not simply singling out the United States by any means. Mr. BErm. You are putting every country in that? Mr. KINDLEBERGER. Yes. And as I understand, the measures which are up for discussion are U.S. measures. I think I would go one step further, if I m'ay and say I think `it is fair to say `that the United States has exercised leadership in this mat- ter, beginning with the act of 1934, going on to the Atlantic Charter, the lend-lease agreement, the Marshall plan, and so forth. And I would hope `the United States would not start a movement which is retro- gressive, leading away from that direction. Mr. BETTS. If I understand it, the whole concept of the Common Market is protection. Mr. KINDLEBERGER. If you will permit me to express a different view, I would say that the idea of the Common Market, which was supported by the United States, the Congress in the preamble to the Economic Cooperation Act of 1948, and by Paul Hoffman in his speech of Oc- tober 31, 1949, this was, then, to expand `trade within, and on the whole without d'amage to the trade without. There is a great deal of evidence to suggest that Common Market trade with the outside world ha's in fact expanded rather than been restricted. 95-159 O-6S---~pt. 4-25 PAGENO="0386" 1656 You are quite right when you say that there is a trade creating effect and a trade diverted effect, and the United States is threatened with trade diversion. But the facts of trade returns suggest, clearly, I think, that trade diversion has not been as serious as one might have expected. Mr. BETTS. But the Common Market still continues to be protective. Mr. KINDLEBERGER. No, I don't think that is a fair reading. In the first place, at the time of the Rome treaty, which was the Dillon round of unilateral reductions, and then the Kennedy round, and then there is their further reduction undertaken on the basis :~f the U.S. need in the field of the balance of payments to accelerate these reductions. If you take the tariffs as a whole of the Common Market, the average tariffs have been reduced sharply. Mr. BE~rrs. I was thinking of other restrictions outside of tariffs. Mr. KINDLEBERGER. They haven't been added to. They have been reduced.; perhaps not as rapidly as we would like. Mr. Birrrs. The United States hasn't added to it. Mr. KINDLEBERGER. No; but on the other hand, the United States didn't negotiate a reduction in ASP, for example, a nontariff barrier. I don't think it is fair to say, either, that we haven't put up any restrictions. We have cut the tourist exception from $500 to-what is it-$10 now? That is in two successive steps. We have tied foreign aid. We have put barriers in the interests and equalization tax in the field of finance. We have put restrictions on capital movements. We have, after reducing the buy-American percentage from 25 percent to 10 percent, we now put it back up to 50 percent. Mr. BErrs. In most of those instances, we- Mr. KINDLEBERGER. I don't see that. Mr. BErrs. What sort of first exemptions did other countries have? Mr. KINDLEBERGER. We have reversed a policy of our own. Other countries have tourist exemptions. Britain, in particular, for balance- of-payments reasons, has increased it. But there have been no increases in the tourist exeinptionsr- Mr. BETT5. As I understand it, some of these restrictions of other countries have been added since the Kennedy round. Mr. KINDLFABERGER. In Britain, that is true. Mr. BErrs. You are not going to tell me that Japan is a free trader. Mr. KINDLEBERGER. No. I would say that Japan is moving in that direction, with difficulty and some hesitation. We should create pressure for them to do more. Mr. BET2S. Free trade is a very nebulous word. Mr. KINDLEBERGER. I accept that. Mr. BErrs. They come up with a border tax to protect themselves. And we are told here time after time, witness after witness, that if we do something, there is going to be, maybe not in `the same field, but certainly retaliation on the part of our friends. I think we had better have some understanding that since we have been, as some witnesses called it, in World War II our trade policy was based more on aid than trade, whcther that is right or wrong, we are at a point today where we are in trouble. I would like to ask this question, because I think it relates to the whole basic concept: What happens as far as we are concerned as a country, and the free world is concerned if, as the Chairman of the PAGENO="0387" 1657 Federal Reserve Board iudica~ted, this is one of the choices we might be faced with very shortly, is not being able, or at least putting a moratorium on redeeming the Euro-dollars for gold? What happens to the world trade pattern? Mr. KINDL~EBERGER. I have testified at some length on that in the Senate, and I would be pleased to go on at some length. I said my views are idiosyncratic. That is, they are not widely shared. On the other hand, I happen to think the dollar is more important than gold. The dollar is the productive capacity of the country, and not the gold we happen to have. And I think the tTnited States is a bank and not a firm, that the TJ.S. dollars owned by foreign countries are basically wanted by them as money, and that the world is supported by dollar balances of foreign countries and not by th~ gold `supplies. This is, as I say-well, it doesn't follow exactly the line that many countries take. I believe, in other words, in the dollar reserve standard, and that the world is on a dollar standard, not on a gold standard, and that there is no necessity to redeem them in gold. We could pay out gold continuously, but it would survive as long as we keep our productive capacity. We could redeem those, if need be, in goods and services, which are produced cheaply and effectively. What we must do, I think, is control inflation, at least down to the level at which inflation is received in Europe, and I would like to get a gain on that, but I am not at all as worried as Chairman Martin i's on convertibility. Mr. BATTIN. I wish I could share your views, but our trading partners would rather have our gold than our dollars. Mr. KINDLEBERGER. Not all. If you would let me suggest this, I think the history of recent weeks has made it perfectly clear that the French need dollar's more than they need gold. Mr. BATTIN. Yes. Based on the two-price gold system developed here a couple of months ago, what would happen if the United States didn't pass a tax bill and reduce spending, as we have been encouraged to do by our trading partners? Mr. KTNDLEBERGER. I think that is an important thing. Mr. BATTIN. I do, too. Mr. KINDLEBERGER. I said in my statement that I think the balance of payments in accounts is what is called the "network balance," that is, the current balance surplus, less Government grants. But the notion we had of the balance-of-payments deficit in 1964,1 won't accept that. We had an export surplus of $8.4 billion, and if you deduct Govern- ment grants and loans, and so forth, which should be regarded as assets, it was $4 billion. So the notion that the dollar was weiak in 1964 is to my mind simply a myth, cultivated by many, but I don't agree. Mr. BATTIN. May I ask you one other question? You are suggest- ing a comparison of steel, that the Japanese could produce it and ship it here at a lesser price than we can. And perhaps the answer is we should go out of steel production and utilize our resources to greater advantage. Would this recommendation not have to be based on the as~ump- tion that we live in a utopian world that one section of the world PAGENO="0388" 16~8 wasn't after the other section and we didn't need this industry for our own national security? Mr. KINDLEB~RGER. I didn't mention the defense exception. I would go further and say that Japan, with 44 million tons of capadity pro- jected, will never take over the U.S. market with 110 million tons of capacity. It strikes me as being absurd. They have steel requirements which are very substantial. No, the United States is going out of certain lines of steelmaking, I think-wire and a few things like that. We can't compete in it any- more. And I don't see, apart from the defense argument, which seems to me that standby capacity would be adequate for-I can't see that that is a terrible thing. Mr. CONABLE. Did I understand you to say that the GATT countries were coming down? Mr. KINDLEBERGER. As I understand it, the United States is making a drive to reduce on a reciprocal basis the nontariff barriers to trade. Mr. CONABLE. Does that include border taxes? Mr. KINDLEBERGER. I don't regard that as a nontariff barrier. 1 re- gard that as a complication- Mr. CONABLE. Aren't most nontariff barriers complications of one sort or another? Mr. KINDLEBERGER. Some of them are the kind of thing that they won't take any American chickens in France because they have hor- mones. There are taxes which are-a domestic excise tax on engine capacity which is very strongly against U.S.-type automobiles. I would refer to those rather than-put it another way. There was a study some years ago by a committee which suggested that we very quickly ~et adjusted to the notion of evaluating taxes which are applied to imports and removed for exports, because all that really is an adjustment of exchange rate. Mr. CONABLE. I think if you gave the American industries a choice between the tariff barriers and the nontariff barriers, they would choose the tariff barriers, because they know what they are up against there. I have a feeling the nontariff barriers are very considerable in Europe. Mr. KINDLEBERGER. This suggests our exports to Europe are very small, and they are very substantial. If you are speaking of the in- crease in them, you are probably right. We have to face administra- tive complications. Mr. CONABLE. Do you have any suggestion as to how we can take leadership in reducing nontariff barriers other than taking off ASP? Mr. KINDLEBERGER. There is a great difficulty in the nontariff bar- rier field. It is very hard to get a list, put it that way, of the ones who are really hurt and which would be-well, as far as ASP is concerned, I have very little sympathy with industries who opposed changing any tariff protection, that is, to alter the rates so as to compensate for the changing in valuation. The industry lobbied very strongly against it then on the ground it didn't want to reveal its rates of protection. Mr. CONABLE. The only reason I mentioned ASP is that you men- tioned we should take leadership in reducing nontariff barriers, and I don't know anything else we can do with respect to nontariff barriers. PAGENO="0389" 1659 Mr. KINDLEBERGER. I am not a deep student of the details, but I think the thing to do is make some lists. I know the Americans object- to the horsepower tax, and the quotas on automobiles in Japan. Those are being worked on right now, but with what success I am not clear. Mr. CONABLE. We can't bid public contracts in most European countries. Mr. KINDLEBERGER. We have just lately let forthgners bid on con~ tracts here, and we still have the 50-percent "Buy-American" provision. But I would agree that the world is getting smaller all the time, and we are trading more and more in each other's backyards. Mr. CONABLE. We are a large factor in international trade, and I agree we should take leadership- Mr. KINDLEEERGER. I would hope at least the way the committee and the House and the Congress would legislate on the program that it has before it now-that would strike me as being a useful way of proceeding. Mr. BATTIN. I have before me a monthly economic letter of the First National City Bank of New York, wherein they have reported a study of these costs, the increases. And, strangely enough, most of that in- crease, the cost-of-living increase, is in- personal services, and not in consumer items, which, in fact, in the case of refrigerators, TV sets and things of that nature, there has actually been a decrease in price. So maybe there would have to be another factor at work. Maybe it is just the affluence of our society: Mr. KINDLEBERGER. You are entirely right. From 1960 to 1966, for example, the wholesale price index was-there was a study, and the' cost of living went up from 100 to 112. Th'at increase in the cost-of- living index didn't bring in many imports, because it was in things like schooling and medical care and entertainment, and so on, and these are items which are not susceptible to international trade. Our current account of the balance of payments has improved from a very weak position in 1959 to a very strong position, as I tried to indicate, in 1964, which was sustained in 1966. It is only the inflation since 1966 which has been hurting the current account. We have had the deterioration of $4 billion in that time. I quite agree with you. Mr. TJLLMAN. Dr. Kindleberger, on behalf of the committee, I would like to thank you for your contribution. Mr. FULTON (presid'ing). The next witness is Dr. Bender. We would like to welcome you for your appearance before the corn- mittee and ask you to identify yourself and your association for the record, please. STATEMENT OF MARK G. BENDER, PH. B., ASSISTANT PROFESSOR OP ECONOMICS, HOLY CROSS COLLEGE, WOItC]~STER, MASS. Dr. BENDER. Mr. Chairman `and members of the committee, I am Mark `G. Bender, assistant professor of economics at Holy Cross College. My purpose in appearing before the committee is purely informative in nature. My written statement is `brief and therefore I ~ha11 read it directly. PAGENO="0390" 1660 In the current decade few areas of economic concern have received as wide-spread public attention and private analysis as that accorded to the international status of the U.S. economy. An often cited indicator of the alleged deterioration of this country's international economic viability is the declining share of U.S. exports in world markets and, conversely, the increasing volume of U.S. imports. The desirability of a vigorous exporting economy cannot be ques- tioned. However, the conventional outlook concerning the importance of imports, one must concede, is much less positive. It seems, then appropriate at this time to reassess the impact of im- ports as economic goods, that is, as goods or services whidh are rela- tively scarce and, most importantly, satisfy wants. The study briefly described herein represents a recent attempt to evaluate the economic impact of imports on the Greater Hartford, Connecticut region. THE GREATER HARTFORD STUDY The sources of data included slightly more than 150 randomly selected firms of which 70 percent were manufacturers-167 firms actually were manufacturers-the `remainder being insurance, finan- cial, retail, `wholesale, et cetera. The firms studied accounted for ap- proximately $3 billion in sales and 80 percent of all manufacturing employment in the region. The study, therefore, covered 66-some-odd thousand of 80,000 employees in manufacture and then $3 billion in sales. Responding firms were placed in one or more of the following categories: 1. Users of imported goods/services. This would be users of primary metals, perhaps users of imported machinery, users of imported elec- tronic equipment, et cetera. The second category: providers of goods/services complementary to imports. These would be people who import an item for the purpose of distribution, import an item for the purpose of assembly or for some other complementary reason. Three: competitors with imported goods or services, these being firms which would be directly competing with imports in national* markets. Firms not involved with imports in any of the above categories were classified as "import immune." Of the 152 firms sampled 86 were involved with imports, 66 were immune. However, it should be noted that the involved firms were by far the most important, accounting for 87 percent of the sample's em- ployment and 76.5 percent of the sample's sales volume. REASONS FOR IMPORT IMMUNITY The most frequently cited reasons for import immunity were: Percent of t1~,e 66 immune Item firms 1. Customized service/product 2. Production of unique product 27 & Technological advantage 18 4. Government/military product 14 PAGENO="0391" 1G61 These results suggest that import immune firms in the Hartford area are generally "job-shops" or specialized machine and engineering firms. For the most part no "volume producers" in the area considered themselves import immune. Meaning again they neither used for nor provided complementary services to nor competed against imported items. The economic impact of imports can be gotten from the tables on the following two pages. An indication of the economic impact of imports on the Greater Hartford region can be derived from the following data: This again involves the 86 involved firms. Percent o/the 86 involved Item firms 1. Impact of imports on employment: No effect 70 Positive Negative 6 Balance (+) of imports on employment in the area 6 percent. Percent 2. Impact of imports on prices: No effect 55 Negative Positive 13 Imports had decreased. Percent 3. Impact of imports on profits: Positive 45 Noeffect 37 Negative 18 The balance is therefore positive in the Greater Hartford region. Percent 4. Impact of imports on future income: Positive 55 No effect 30 Negative 15 Again the balance of imports on future income is positive in the area. 5. Impact of imports on research/development: Percent No effect 66 Positive 34 Negative 0 Again in this case the balance is positive. 6. Probable future import involvement. Meaning how many expected in- volvement in the future: Percent Greater Noehange 26 Lesser ~Balance (+). The greater Hartford area expects greater import involvement. 7. Do imports promote quality? Percent Yes Go No 40 8. Do ini~orts promote specialization? No 66 Yes 34 9. Do imports promote diversification? No 66 Yes 34 PAGENO="0392" 1662 In no particular case was the net impact of imports found to be' adverse to the well-being of the Greater Hartford economy. Let me emphasize that the people responsible for the detail were the pragmatic hardheaded businessmen of the Hartford economy. Perhaps of especial interest to the committee would be the following fact: While a majority of import involved firms expected greater involvement in the future (64 percent) a majority of firms would not alter research/development plans (66 percent), would not seek new specializations (66 percent) and would not seek diversification (`66 per- cent). To some degree this supports the "unwillingness to compete" doctrine which is currently gaining stature. CONCLUSIONS WHICH I HAVE DRAWN FROM THE STUDY The evidence of the Greater Hartford study would appear to sup- port the following conclusions: 1. That tariffs and quotas or other import restrictions to be kept to a minimum; 2. That the need, indeed desirability, of some structural changes in the U.S. economy be recognized but also ameliorated through a meaningful "adjustment assistance" program; and 3. that appropriate measures be taken to increase U.S. exports; certainly that foreign trade restrictions be reduced. Just as a final concluding statement I want to say that the signifi- cance of the study is the fact that it takes an entire region, the core of the core city and 29 surrounding towns. It does a cross seetion study on all types of firms in any way involved with imports. It does not isolate itself to specific cases of firms especially vulnerable or espe- cially involved in a profitable manner with imports. It will give you therefore some idea of a macroeconomic effect. Mr. Chairman, this completes my statement. Mr. FULTON. Thank you, sir. Are there any questions? rfhere being no questions, thank you for your appearance and your contribution, sir. Dr. BENDER. Thank you. Mr. FULTON. Our next witness is Dr. Guenther. Doctor, we welcome you before the committee and ask you if you will identify yourself for the record and proceed as you see fit. STATEMENT OP DR. HARRY P. GUENTHER, DEAN, SCHOOL OP BU~SI~ESS ADMINISTRATION, GEORGETOWN UNIVERSITY Dr. GUENTHER. Mr. Chairman and members of the committee, 1 am Harry Guenther, dean of the School of Business Administration at Georgetown University. I greatly appreciate the opportunity to appear here today. Because the statement is somewhat long. With your permission I will merely st~bmit the full statement for the record and summarize it for you. Mr. FTILTON. That may be done. Dr. GUENTHER. The U.S. trade and balance-of-payments policies for the past 6 to 8 years `have assumed a vast commercial supei~iority in, PAGENO="0393" 1663 international trade, a superiority which I would assert does not, in fact, exist. The error of this assumption, I think, can be noted both by looking at trade statistics over the past 3 years in terms. of trend of reported merchandise trade surplus but become even more important if we ad- just that reported data to exclude Government-financed exports which do not fairly represent commercial ability, on which basis `the 1967 apparent surplus of three and a half `billion dollars would be reduced to about $200 million dollars. It is further evident if we were to take `a further step of adjusting our imports to a CIF basis as our trading partn'ers do in which case `that apparent surplus in 1967 would disappear completely. These `assumptions about our commercial superiority led to unsound bargaining and results in the Kennedy round of tariff negotiations. I think this has been somewhat clouded by the fact that the special negotiator's `office has constantly referred to equality of concession. Yet that equality of concession is based upon the precentage reduction in `tariffs, weighted by `the volume of 1964 trade affected. Obviously the real impact of tariff reductions is on what happens to trade subsequently, not the volume of trade to which they are already applied. In addition, tariffs are not the sole criteria if we are talking about overall trade negotiations and concessions. If we view what happened against the background of the simultaneous border tax adjustments there is serious reason, I `think, to have reservations abont the nature `of the bargain that was struck. There are areas in which, as indicated in the printed testimony, the total barriers to TJ.S. exports to other countries are now higher than they were before the Kennedy round of tariff negotiations because of these border tax adjustments. Furthermore, I think we can question the validity of the equality of bargain struck when we view this against the activity in the area of industry rationalization abroad. Foreign governments, particularly in Western Europe and Japan, are vigorously pursuing a program of industry rationalization `to en- courage mergers to increase size, to improve the ability of their firm to compete internationally. This is not to suggest that we should immediately reverse the policies that the Justice Department in this country has been following, but we should at least bargain with indus'try structure clearly in mind. That is what is being done abroad. Lastly, it is extremely difficult to view the 50-20 agreement reached in the area of chemicals as one of equality of concession. Again this is particularly incredible in view of what was being done at the time in the area of border tax harmonization. In connection with ASP, I think it is worth pointing out that the system is more condemned than it perhaps deserves. I am not a strong advocate of retention of ASP as a system of tariff evaluation, but it does not do all the terrible things that frequently it is claime~I result from the use of that system. It is clearly different from the system used by other countries, but it does not represent a variable levy of the sort which insulates producers from competition abroad. PAGENO="0394" 1664 Furthermore, `the conversion that was effected in connection with~ rates subject to the ASP method of evaluation because of the mixture of competitive and noncompetitive products in the basket categories contains error. For these reasons I think the United States should not accept the separate package. I think it was agreed to under false assumptions, as were some of the other aspects of the Kennedy round. I think we should know fully what the balance-of-payments and balance-of-trade impact of this~ elimination would be, and thus far there have been no thorough studies cited by the negotiators office of these effects and we should not assume, despite the frequent mention that this is an opportunity for leadership, that by eliminating ASP we are suddenly going to bring on a flood of reciprocal actions in our behalf from the Europeans. We did get some things in the way of concessions from them on condition of eliminating ASP-the other 30 percent that we should have gotten in chemicals. We also got some concessions in the area of automobile road taxes. I have yet to hear any strong statement from the automobile people as to the great value of that particular concession. In terms of the European willingness `to cooperate with us in some of these regards, it might be noted that I believe we have been discussing border taxes with them since 1964. Yet during the past 2 years they have succeeded in raising border taxes despite the fact that we were talking about reducing restrictions to trade. These mistakes that I think were made during the Kennedy round were doubly unfortunate because they were made at the very time when the administration was asserting that, in order to solve our balance- of-payments difficulties, we must look for an expanded merchandise trade surplus. I do not happen to believe that we can eliminate our balance-of- payments deficit simply through the trade account but, in view of all the difficulties we face, it is quite clear that we must take every initia- tive at our disposal to increase our merchandise trade surplus if we are to eliminate the overall balance-of-payments deficit. I think we need to take very firm action in the area of tax policy to supplement our balance-of-payments efforts, particularly insofar as it can assist in trade. Here I am not merely talking about domestic fiscal efforts for price control at home but also the application of the border tax adjustment system to those indirect taxes we already have, to a thorough examina- tion of the extent to which direct versus indirect taxes are passed either forward or backward, to activities that can be pursued in the area of taxation of Export Trade Corporations, and Western Hemi- sphere Trade Corporations. I think further that the direct foreign investment controls which are inimical to our export interests as well as our lon~run balance-of-pay- ments interests should be removed through a position incentive system. I think the United States has got to use all available leverage in- cluding at this time the refusal to eliminate ASP and those avenues under the GATT particularly in connection with articles VI, XII, and XXIII to bring inequities to prompt negotiation and those inequities surely do exist. PAGENO="0395" 166~ If the President's authority is to be extended, and I think it should be, then we must certainly be careful that we do not repeat the errors that were made in the Kennedy round. Lastly, I would strongly assert that we should not resort to quotas. I think they are an admission of defeat, They invite retaliation and do little more than to preserve existing inefficiencies. (Dr. Guenther's prepared statement follows:) STATEMENT OP DR. H~uiRY P. GUENTHER, DEAN, SCHOOL or BUSINESS ADMINISTBAPI0N, GEORGETOWN UNIVERSITY Mr. Chairman, I am Dr. Harry P. Guenther, Associate Professor of Finance and Dean of the School of Business Administration at Georgetown University. During the past few years both as academician and consultant I have devoted my research efforts to this country's balance of payments problems including its trade policy. In these endeavors I have been fortunate not only to have been en- couraged by my university in independent research, but also to have participated in a number of balance of payments studies including those conducted by the management consultant firm of Klein and Saks for the American Bankers As- sociation, the Pharmaceutical Manufacturers Association and the Synthetic Or- ganic Chemical Manufacturers Association, and by the International Economic Policy Association. In addition, my consulting work has given me opportunity for considerable travel and discussion abroad. By virtue of this experience I am hopeful that I have gained some insight which may prove useful to this~ Committee in its trade policy deliberations and am deeply appreciative of the opportunity you have afforded me to appear today. The following testimony seeks to draw on this experience in assessing recent trade negotiations, in considering the pending issue of the elimination of American Selling Price, and in briefly sketching some of the elements which seem to me necessary in balance of payments and trade policies that will foster maximum trade benefits to the United States. I. THE ASSUMPTION or U.S. COMMERCIAL SUPERIORITY The United States has for at least thirty years based its trade policy on the assumption of a pervasive superiority in commercial intercourse with the rest of the world. This same belief prevailed during the Kennedy Round tariff negotia- tions and needs careful examination as to validity before proceeding with consid- eration of the so-called separate package or with subsequent negotiations on non- tariff barriers. This matter is of legitimate concern, because even in an environ- ment of equivalent and reciprocal bargaining, it flavors opinions on both sides regarding what kind of concessions a nation can afford to make. A. U.S. merchan4ise trade-The basic data Regularly published U.S. Department of Commerce data show a large and consistent U.S. trade surplus over the last ten years as shown below, ranging from $1.0 billion to $6.7 billion. This would indeed tend to support assumptions of our international commercial skills as does the growth in exports from $16 billion to over $30 billion. TABLE 1.-U.S. MERCHANDISE TRADE, 1958-67 tin billions of dOllars] 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 Exports 16. 3 16. 3 19. 5 20. 0 20.6 22. 1 25. 3 26.2 29. 2 30. 5 imports 13.0 15.3 14.7 14.5 16.2 17.0 18.6 21.5 25.5 27.0 Balance 3.3 1.0 4.8 5.5 4.4 5.1 6.7 4.7 3.7 3.5 Source: U.S. Department of Commerce "Survey of Current Business," various issues. However, it is troublesome to note that, even using these conventionally reported figures, the trade surplus has declined in absolute terms in each of the last three years and in 1967 was the smallest amount since 1959. In per- PAGENO="0396" 1666 centage terms, the merchandise trade balance has declined from 26.5 percent of exports in 1964 to 11.6 percent in 1967. There has been a further de- terioration during the first quarter of 1968, and in March the merchandise trade account was reported in deficit. B. Goverament financed ecoports The merchandise trade data referred to above is not incorrect. It is, how- ever, improper data to use in assessing our international commercial strength for purposes of determining national posture in trade bargaining That por- tion of our exports which are Government financed do not fairly represent our commercial ability in world trade. Deducting Government financed exports from the U.S. merchandise trade surplus makes an appreciable difference in our apparent trade strength as shown in the comparison in Table II below. TABLE 11.-COMPARISON OF U.S. MERCHANDISE TRADE DATA, 1958-67 (In billions of dollarsi 1960 1961 1962 1963 1964 1965 1966 1967 Balance on merchandise trade 4. 8 5. 5 4. 4 5. 1 6. 7 4. 7 3. 7 3. 5 Balance excluding Government-financed ex- ports 2.8 3.2 2.1 2.4 3.9 2.0 .6 .2 Source: Ibid. The adjustments for Government financed exports are especially important in the case of the United States, for a large portion of such exports result from tied aid and so do not represent a commercial choice by `the recipient. In addition to those exports now reported in the memorandum item as Gov- ernment financed, data should ideally be further adjusted (for purposes of assessing trading strength) for certain agricultural exporits. That portion of agricultural products raised only by virtue of a Government subsidy which in turn permits sales at lower prices in international markets should not be con- sidered in appraising our international commercial ability. C. Basis of import valuation Without seeking to argue the relative merits of F.O.B. versus CI]?. import valuation, the fact is that while the U.S. values imports on an F.O.B. basis, other nations use O.I.F. While use of F.O.B. rather than 0.1]?. has no impact on our overall balance of j~ayments, it does result in a more favorable reporting of the merchandise trade position than the system used by other countries. The Department of Commerce has computed a factor of 8.9% to adjust imports from an F.O.B. to C.I.F. basis. Using `that factor for adjustment would raise 1067 mer- chandise imports to $29.3 billion leaving a surplus of only $1.1 billion, an amount dwarfed by the size of the adjustment required to net out Government financed exports. Those two adjustments together would yield a commercial trade deficit of $2.2 billion in 1967. D. U.S. share of world trade An analysis of the U.S. share of world trade also raises questions about the assumption of our commercial superiority. U.S. exports related to world exports declined from 18.2 percent in 1960 to 16.8 percent in 1966.1 While this clearly shows the important role the United States continues to play in world trade, it does not support the assumption of a broad and growing commercial supe- riority. E. The choice of a base year The base year chosen for data to be used in the Kennedy Round negotiations Wa's 1964. There is ample evidence that this might well have been a major factor in U.S. assumptions of commercial superiority. As was shown above, `the mer- chandise surplus reached a peak in 1964. It is necessary to go back to the imme- diate post-World War II period, when the rest of the world's economic base stood in ruins to find `surpluses of this size. On the basis of that data, and pre- sunstbly trends based on data through 1964, negotiations were carried out. The 17.5. position has since abruptly changed. Based upon 1965, 1966, and 1967 trade 1LM.F., International Monetary Statietics. Preliminary data suggest some improve- ment In 1967 over 1966. PAGENO="0397" 1667 data it Is clear that the choice of 1964 as a base was unfortunate. The negotiators ~iU claim, with some justification,2 that `thiS is indulging in hindsight. Y~t in choosing 1964 as their base year the negotiators surely displayed less than 2OL~~2O hindsight, for it was apparent as soon as the figures' were available that 1~64 was an unusual year. Exports rose in 1964 by $3.2 billion, a fealt equalled or exceeded since World War II only in 1947, 1951, and 1960, none \of which were `ordinary years. The merchandise surplus itself grew by $1.6 billion in 1964, a feat `equalled or exceeded on only four other post-World War II occa- sions, and the size of the surplus, $6.7 was second only to 1947. These facts should have raised questions about the validity of 1964 as a basis for negotiating. The data for 1965, 1966, and 1967 merely confirm that `a grievous error was made in ignoring that evidence. IL IS ASSUMPTION OF EQUALITY OF CONCESSIONS VALID? It has been strongly asserted by the Office of the `Special Representative and others in the Administration that the Kennedy Round resulted in equal conces- sions.3 It is also generally assumed in the process of negotiating reciprocal tariff agreements, that the bargaining will result in offsetting (from a trade balance viewpoint) gains and losses. Finally, the Kennedy Round negotiations were car- ried out under the notion that where equal tariff concessions were made there resulted an equality of trade barrier reduction. It is important th'at these argu- ments and assumptions be examined. A. The Mectsu~rement of Concesrions The econQmically desirable way to measure a tariff concession would be to meaSure its impact on future trade in the item under consideration. This in turn requires a precise and thorough demand analysis and estimates of pricing reac- tions by domestic producers. This is difficult, but not impossible. At the very least it might `be assumed that at the heart of any estimate would be `a care'ful assessment of elasticity of demand and trend of imports. This `does not appear to have been the case in the recent Kennedy Round. Taking 1964 ~as a base (a decision `commented upon earlier),, concessions were measured in terms o'f duty collected in 1964 on the item in question. Thus a tariff cut was a large concession if a large amount of duty was collected on imports of that item `in 1964. In addi- tion `to `data on amount of tariff collected, an elasticity factor on a scale from 1 to' `5 was included and tren'd "was taken into account," `but primary stress was apparently placed on the 1964 tariff data. That this is `the `case is not only based on inquiries at the Special Negotiators Office, but also on the tendency of Admin- istration spokesman to apply the overall tariff cut to volume of trade in speaking of comparability of concessions.4 From this the argument proceeds to assert that a large cut on a smaller volume of trade is equivalent to a small cut on a larger volume of trade. The approach described above leads to certain non sequiters. For example, take the case of an item which is not imported into the United States at all due to high tariffs. As no tariff was collected and there IS no trend `in import's, a tariff concession on this item would carry little weight. However, a tariff cut could be all that is needed for a foreign producer to take advantage of lower costs and export to the United States. Clearly, as difficult as it may be to assess, What i's of importance is not what import (and export) levels were bu't wh'at they will be after the concessions. The focus of impact of a tariff reduction is not on go'ods already imported but on those which did not previously enter. 2 "Some" because 1965 and 1966 data were available prior to the conclusion of the Kennedy Round. ~ For example: "In overall trade terms and taking both industry and agriculture, the tariff cuts made by the U.S. are in balance with those of other industrialized countries." The Fnture of U.s. Foreign Trade Poliey, Rearing before the Subcommittee on Foreign Economic Policy of the Joint Economic Committee, Vol. 1, p. 12. "* * * tha,t we have a reciprocal deal and that we did not give more than we re- ceived Ibid., p. 17. "In terms of 1966 trade the United States is giving tariff cuts on about $7 1/z to $8 billion of industrial and agricultural imports and is obtaining tariff concessions on about the same amount of U.S. exports." Ibid., p. 12. "These commitments will result in a weighted average duty reduction of 43 percent in United States chemical tariffs * * * [on] $325 million of dutiable import's' from the EEC, U.K., Japan, and Switzerland. The combined tariff reduction made by these four countries averages 26 percent on nearly $900 million of U.S. chemical exports * * Ibid., p. 13. PAGENO="0398" 1668 B. Criteria The issue of equality of concession will only be solved over time as subsequent trade data becomes available. But equality is not the sole criterion of one's bargaining success. The bargaining did net take place in a vacuum and its success must be weighed not in terms of probable results in a static world but in view of the changing trade environment. 1. Industrial rationalization abroad U.S. negotiators were apparently not given any administration direction with regard to specific industry bargaining as this country has not formulated in- dusitry policy for balance of payments or other purposes. This lack oct industry policy has not been the case in various countries abroad. Europe, traditionally less fearful of inter-corporate cooperation than the U.S., has seen aggressive gov- ernment action to foster merger to improve international competitive ability. In the United Kingdom, the government has recently encouraged a joint ven- ture among three large electronics concerns, with the Government holding a 10.5 percent equity interest. The result will be the world's largest non-U.S. com- puter firm which, while unlikely to enter the North American market, is surely aiming at a larger share of the United Kingdom and Continental markets. Auto manufacturing and banking have also seen recent major mergers in the United Kingdom. British efforts in such endeavors are backed by a government orga- nization, the Industrial Reorganization Corporation. In France, the government took an active hand in promoting the merger activity which reduced the number of electrical appliance makers from forty to three (two of which are discussing a merger) over a period of two years. The German government is encouraging integration of Ruhr coal producers and Italy offers tax benefits to encourage mergers. Such efforts are now even cross- ing national boundaries with the French and Germans removing impediments to mergers between firms in the two countries. Below is reproduced a table from the Wall Street Journal listing major 1967 mergers in Europe. Japan too has been active on this front. Most important recently, in view of certain U.S. import fears, has been the announcement that Yawata and Fuji Steel will merge early next year resulting in the world's second largest steel firm, trailing only U.S. Steel. These actions, of course, change the relative position of U.S. firms without regard to tariff cuts and come at a time when U.S. Government policy grows ever more skeptical of mergers. Major 1967 European mergers STEEL Annual sales ~n m,ellnons August Thyssen Hutte AG and Huttenwerke AG (Germany) $2,000 Den Wendel et Cie, Union Siderurgicue Lorraine and Societe Mossellane de Siderurgie 796 ELECTRICAL EQUIPMENT General Electric Co. and Associated Electrical Industries Ltd. (Britain) - 1, 080 English Electric Co. and Elliott Automation Co. (Britain) 989 Brown, Boveri & Cie. and Sulzer Freres (Switzerland) undisclosed AUTOS British Motor Holdings Ltd. and Leyland Motor Corp. (Britain) 1,920 BANKS Barclays Bank Ltd., Lloyds Bank Ltd. and Martins Bank Ltd. (Britain) - 11,700 (deposits) Westminster Bank Ltd. and National Provincial Bank Ltd. (Britain) - 7,200 (deposits) DRUGS Glaxo Ltd. and British Drug Houses Ltd. (Britain) 240 Sandox AG and Dr. A. Wander AG (Switzerland) 420 SHIPPING Kieler Howaldtswerke AG, Howaldtswerke AG and Deutschewerft AG (Germany) 200 PAGENO="0399" 1669 Major 1967 J3lnropean mergers-Continued TEXTILES ~ sales sn msihons Cour.taulds Ltd. and Olutsom & Kemp (Britain) - 878 MEAT PACRING Jean Caby, Fleury Michon, Jr. Morley et Fils and Oiida (France) 260 INSURANCE General Accident Fire & Life Assurance Co. and Yorkshire Insurance Co. (Britain) 428 (premium Income) SHOE MANUFACTURERS Robinson Schoenfabrieken N.Y. and N.Y. Swift Schoenfabrieken (Hol- land) 8,400 Source: The Wall Street Journal, Feb. 21. 2. Border taco harmonization Even if it can be safely assumed that there was an equality in tariff conces- sions upder the Kennedy Round, full analysis also requires attention to the dynamics of non-tariff barriers. While discussion of most non-tariff barriers was ruled out of negotiations early in the Kennedy Round deliberations, the EEC proceeded to reach agreement among themselves on the harmonization of border taxes. While there has been considerable disagreement over the differential incidence of direct versus indirect taxes and whether border taxes are dis- criminatory against trading partners not employing such, there can be no doubt that where border tax harmonization has raised the tax applied to imports and the rebate to exporters, the position of other nations' exports to the area is relatively worse. Thus, while it may be a useful working assumption that trade negotiations result in offsetting gains and losses from a balance of payments viewpoint, it has been unwise to assume that equal lowering of tariffs meant an equal movement toward free trade. The border tax mechanism, which allows charges to be levied on imports equivalent to domestic indirect taxes (and the tax is applied to OIF value and the tariff to landed value including the tax) can present a significant barrier to U.S. exports in addition to tariff. Under these circumstances, tariff reduction or complete removal are of less relative significance to U.S. exports than to EEC exports. TABLE IIL-U.~. phenol sales to Germany Cents per pound Selling price, country of origin Before Kennedy round: Duty: 4 percent, export price, c.i.f. basis (10.0 cents) . 4 Freight and insurance 1.4 Border tax (4 percent on landed value, 11.3 cents) .4 Total costs 2. 2 Landed cost of entry 11.7 After Kennedy round (20 percent) Duty: 3.2 percent, export price, cLf. basis (10.9 cents) . 3 Freight and insurance 1.4 Border tax (4 percent on landed value, 11.2 cents) .4 Total costs 2. 1 Landed cost of entry 11.6 After separate package (5O percent) Duty: 2 percent, export price, c.i.f. basis (10.9 cents) . 2 Freight and insurance 1.4 Border tax (4 percent on landed value, 11.1 cents) .4 Total costs 2.0 Landed cost of entry 11.5 PAGENO="0400" 1670 TABLE 111.-U.S. phenol sales to Germanit-Continued Cents per After Kennedy round and border tax harmonization: POUBd Duty: 8.2 percent, export price, c.i.f. basis (109 cents) . 3 Freight and insurance 1.4 Border tax (11 percent on landed value, 11.2 cents) 1.2 Total costs 2.9 Landed cost of entry 12.4 After separate package and border tax harmonization: Duty: 2 percent, export price, c.i.f. basis (10.9 cents) .2 Freight and insurance 1.4 Border tax (11 percent on landed value, 11.1 cents) 1.2 Total costs 2. 8 Landed cost of entry 12.3 TABLE IV.-German phenol sales to the United States Cents per pound Selling price, country of origin 7.0 Before Kennedy round: Duty: 3 cents per pound plus 17 percent ad valorem (ASP, 9.5 cents)__ 4.6 Freight and insurance 1.4 Su~tOtal 60 Lessrebate Total costs ~ 7 Landed cost of entry After Kennedy round: Duty: ~ cents per pound plus 81/2 percent ad valorem (ASP, 9.5 cents) 2.3 Freightandinsurance 1.4 Subtotal 3. 7 Less rebate , - .3 Tetalcosts 3.4 Landed cost of entry After separate package: Duty: 11/2 cents per pound plus 111/2 percent ad valorem (country of origin selling price, 7 cents) 2.3 Freight and insurance 1.4 Subtotal Less rebate Total costs 3.4 Lauded cost of entry :~ After Kennedy round and border tax harmonization: Duty: 11/2 cents per pound plus 8~ percent `ad valorem (ASP, 9.5 cents) 2. 3 Freight and insurance 1.4 Subtotal 3.7 Less rebate (11 percent) .8 Total costs 2.9 Landed cost of entry PAGENO="0401" 1671 TABLE P1.-German phenol sales to the United States-Continued After separate package and border tax harmonization: Duty: ~ cents per pound plus 111/2 percents ad valorem (country of origin selling price, 7 cents) 2.3 Freight and insurance :1.. 4 Subtotal 3 7 Less rebate (11 percent) . 8 Total costs 2.9 Landed cost of entry - 9,9 The recent border tax harmonigation agreement among EEC members will result in an increase in the border tax of all members except France, thus fur- ther burdening U.S. exports to the EEC. The Tables III and IV below indicate the nature of the impact of border tax harmonisation on one product traded between the United States and Germany. No effort is made to generalize from this about the precise balance of t~ade and payments results of harmonization~ hut only to indicate how changing conditions were of importance during Kennedy Round negotiations. It has been argued that the negative effects of border tax increases by five EEC nations will be in part offset by the decrease in French taxes. While this is true, the volume of 1967 U.S. e~ports to France totals only $1.0 billion while U.S. exports to the other five were $4.0 billion. Thus even with a relatively large French adjustment downward it seems likely that the net effect on U.S. exports to the EEC would be negative. In addition, since 1964, U.S. exports to France have been growing at a much slOwer rate. Between 1964 and 1967 U.S. exports to France rose by 3.6 percent while exports to. the other five rose by 7.4 percent.8 0. Our cominwroial ability As analyzed in the first section of this paper, there are a number of r~a5on's for believing that the assumptions of U.S. commercial superiority With which this country entered the Kennedy Round were ill-founded. These assumptions stemmed both from using the wrong data in assessing commercial strength and due to the choice of an unrepresentative base year. These factors resulted In a tendency to make overly generous concessions. D. U.S. concessions and tive bctlanee of payments Multilateral, reciprocal trade negotiations are expected to result in ~ome gains and some losses with, presumably, a neutral negotiating impact in the face of other substantial favorable trade factors (that is other factors at work which would shift our merchandise trade surplus snbstantially upward), or a positive negotiating impact (a net merchandise trade surplus increase resulting from negotiations), or both. A neutral or positive outcome was absolutely essential for the United States because of the large deficit in the U.S. balance of pay- ments and the Administration's announced reliance upon trade as the long run solution to the U.S. payments deficit.° This is not to claim that in the trade ac- count lies the solution to the deficit. To the contrary, this writer is convinced that the United States must look elsewhere for improvements of a magnitude to bring payments ec~uilibrium and the elimination of controls. however, because of the large and persistent payments deficits, the United States is in need of an aggressive trade policy which will, at the ver~~ least, prevent any deterioration of the merchandise trade position. - The U.S. balance of payments deficit was at issue in the Kennedy Round as a matter of fact (the deficit) and policy (the Administration's reliance on trade to eliminate the deficit). The negotiators proceeded as though it were not or assumed that, due to the nature of tariff concessions (equality) and trading superiority, the U.S. balance of payments would be unaffected at worst and possibly benefitted. Evidence is surely ample by this time to Indicate that our trade surplus is not going to expand relatively automatically and th~t our deficit is not transitory. IMP., I.B.R.B., Direction of Trade (various issues). 6 See Presidential balance-of-payments messages of 1961, 1963, and 1965 and Economic Report of the President, 1966-67. 95-159 0-68--pt. 4-26 PAGENO="0402" 1672 III. THE SIGNIFICANCE OF AMERICAN SELLING PRICE A. The ASP system I wish to make entirely clear that I am in favor of free trade and the free movement of factors of production. As such I favor tariff reduction and the elimination of ASD. However, one aspect of international economic activity (trade) and only one of its facets (the tariff) cannot be acted upon without careful attention to other elements entering into payments balances. Further- more, while now is as good a time as any to eliminate ASP, its elimination, as will be argued later, has not been desirably negotiated. In fairness to the present system it is desirable to dispel some myths and explain my opposition to it. It is sometimes claimed that ASP acts as a variable levy, akin to EEC grain levies, and therefore prevents a foreign producer from landing goods at a cost equal to or below domestic prices. This, it is argued, is made easier by virtue of the fact that a domestic producer can raise the tariff barrier by raising prices rather than competing by lowering prices. Such is sim- ply not the case, at least in theory.5 In any case where the tariff is less than 100 percent, a rise in the U.S. domestic producer's price will result in only a fractional rise in the foreign producer's landed cost including tariff. That is, if the U.S. producer raises his price by $1.00, with a 50 percent tariff rate th9 duty will go up by only fifty cents. As to kinship with the variable levy, there is a substantial difference. The variable levy serves to raise the market price of imports to a specified level whereas ASP only serves, ceteris paribas, to move import prices in the same direction as the domestic price for the product. The principal objection to ASP is that it is different and that it is at least psychologically bad and difficult to defend a system which differs from that applied to the vast majority of U.S. imports and from the system applied by other nations. Secondly, it can be argued that it is economically inequitable with respect to resource allocation. This second argument does not return to the argument dismissed above that it operates as a variable levy. Rather it stems from the fact that the system makes U.S. producers relatively less responsive to production costs abroad than are foreign producers to U.S. production cost charges. Therefore, while domestic producers are not insulated from competition by an ability to raise domestic prices, they receive some insulation from the effects of production economies achieved abroad. However, if the purpose of the tariff is protection (and revenue production has not been a prime factor at least since 1917 and possibly since 1893 8), then it would seem that there is virtue in a system which does not reward production economies abroad by an additional margin through automatic tariff reductions. Furthermore, it must be recognized that even if the conversion process had been adequate (an assertion this testimony seeks to refute below), it would work some significant inequities in the degree of tariff reduction received by nations exporting benzenoids to the United States. This is shown in Table V for four benzenoid products imported into the United States in 1966. TABLE V-COMPARISONS OF RELATIVE TARIFF REDUCTIONS Styrene Phenol Phthalic anhydride Naphthol Prior to Kennedy round: Duty based on average ASP___ After Kennedy round and elimination of ASP: Duty based on high export value Percent change from pre-Kennedy round Duty based on low export value Percentchange from pre-Kennedy round $0. 0424 $0. 0244 42. 4 $0. 0188 55.7 $0. 0496 $0. 0258 48. 0 $0. 0185 62.7 $0. 0373 $0. 0363 0. 3 $0. 0144 61.4 $0. 2100 $0. 0946 55. 0 $0. 0471 77.6 B. De~aØng the e~imSna~tion of ASP While it seems to me desirable to move to a common system of tariff valua- tion and to freer mtovesnents of all goods and facto1L~s of produdtion, it seems desirable at this time to delay the elimination of ASP for four reasons. It is possible In practice that domestic selling price "in the marketplace" may be below the price reported as ASP for customs purposes, but this should be easier for U.S. customs officials to detect than "dummy" foreign~ prices. S See, for example, Asher Isaacs' Ivsteraational Trade (R. D. IrwIn, 1948), pp. ~83-5. PAGENO="0403" 16~'3 (1) The "separate package" embod~1ng the elimination of ASP was agreed to under false assumptions. This ~as detailed in Part I oct this testimony. Due to history and statistical presentation, Kennedy Round negotiations were con- ducted with an assumption that the United States possessed a pervasive, fund'a- mental, and steadily widening commercial superiority over the rest of the world on an alimust across-the-board basis, an assumption the facts simply do not support. (2) The way in which the ASP bargain bias been struck does not bode we~U for Congressional prerogatives in `the formulation of trade policy. The bill is presented as something that the Administration agreed to seek to eliminate and for which they obtained concessions which will be lost if ASP is not eliminated (an approach the Senate requested be avoided in Sen'acte Resolution 100). Now consideration of this legislation is being influenced by the EEC in its offer to speed-up the schedule of agreed upon tariff cuts. While the speed-up would be of some benefit to the United States, that benefit is transitory as it does not alter the total concession offered in exchange for ASP and leaves the United States in the same position at the end of 1972 as would have been true otherwise. This speed-up offer is also some indication oct the value of ASP elimination to the Europeans, a point returned to later in this paper. The entire ASP bargain is curious. It was hoped that the Kennedy Round would result in a broad range of tariff cuts of 50 percent in the Industrial sector. In large muasure this was achieved, but in the chemical sector, U.S. negotia- tors agreed to cut tariffs by 50 percent in exchange for an EEC-UK reduc- tion of only 20 percent. It is difficult to accept this as an equal and reciprocal bargain as the logic of calling the ASP bargain a "separate" package would dictate. By tying the "other" 30 percent of the European cut to ASP elimina- tion, of course, there resulted not a separate but an integrally related package. (3) In the negotiating process, ASP was "sold" too cheaply, an argument that can be `supported both by inference and analysis. I't can be inferred from some of the foregoing which dealt with the false assumptions surrounding U.S. bargaining. It has been argued that the Kennedy Round tariff concession's were reciprocal in that the deeper U.S. cuts covered a much smaller volume of trade than the smaller European reductions. This argument has also been applied to the ag- gregate Kennedy Round concessions. Ouriously, the argument was not used on an industry basis except in the case of chemicals `and neither was it applied to all nations in the chemical case. Furthermore, the logical extension of such an argument would be to have obtained more than reciprocal concessions for categories where our trade was in deficit. As indicated earlier, weighting the cuts in tariffs in terms `of 1964 data ignores what the concessions mean in `terms of future imports and exports. `There are reasons for believing that the chemical industry, while by ~o means weak, is going through a period `of international competitive change which does not support use of existing U.S. chemical trade `balances `as a guide to rel'attve concession's. In addition to government sponsored industry harmonizatIon efforts abroad, the Common Market and opening of `the U.S. market `made available economies of scale hitherto denied `and technology represents `a rapldly shrinking gap. It would be incorrect to claim that ASP was to be eliminated as a consideration only of the remaining 30 percent chemical tariff reduction. Belgium, France, and I'taly agreed to modify their `road-use taxes to eliminate discrimination against American cars, the United Kingdom would reduce its preference on tobacco im- ports `by 25 percent, and `Switzerland would eliminate limitations on importation of canned fruit preserved with corn sy'rup. Whi'le these facts should not be over- looked, their importance seems slight. Attitudes abroad regarding the `elimination of ASP also cast sonic light on the negotiations. `There would appear to be no retson for the chemical `industry abroad to artificially inflate their optimism-quite the contrary, in view of the fact `that ASP has no't yet been eliminated. Yet they have' expressed delight at the agreements and anticipate that `the elimination of ASP will pave the way for major inroads into U.S. markets they had not previously pctietrated. Not that equality oct concessions means no `injury. Trade depends upon `comparative ad- vantage, and reductions in tariffs, if they a're meaningful in any sense other than to reduce government revenues, will foster this principle thus "harming" "certain ° "Harming" in the sense that, ceteris paribue, the domestic producer will face a less favorable position relative to landed cost of imports. He may, of course, respond by various Cost reduction techniques or price reductions whic~i will offset tariff cuts. PAGENO="0404" 1674 domestic producers hut improving the `allocation of resources. Despite European delight U.S. negotiators proclaimed both parts of the chemical package were to this country's advantage,'0 `though again falling back on a comparison of volume of 1904 trade covered by concessions. (4) Th~e Basket Categories. While use of a single year, the year selected, sam- pling methods, and adjustments of invoice, raise general questions applicable to `the entire conversion process, the most serious reservations `apply to `the basket categories, w'here evidence of downward bias as well as statistical looseness may be noted. The `basket categories referred to are the "other" categories not the basket groups broken out of the earlier (pre-1964) basket categories. The'se baskets consist of products imported in `small quantity and value or not imported at all, and as such they cian be properly lumped as "other". This does' not mean t'hdt calculation of a converted rate is not of great importance however. In some cases, the basket covers items of vast importance to domestic production.1' T'he basket converted rate is the rate to be applied to most existing products' which happened not to be imported in 1964 but which may at a later tim,e and to those products not yet invented or traded. The use of a single year data may be especially dangerous here because com- puting a basket rate involves weighting and the product mix can shift sub- stantially from year to year. Most serious of all `aspects of the converted rates in terms of bias is the fact that the basket category includes both competitive and non-competitive items12 which were combined in computing a weighted average converted rate for the basket. Since the ASP method of valuation only applies to competitive products, it is only those that require a converted rate. For non-competitive products foreign or export value is already applied `so no conversion is necessary. The mixin'g `of the two' has the anomalous effect of raising the rates for no'n-c'omp'eti- tive items and lowering it fo'r competitive go'o'ds. That is, the barrier' that results is higher than would have been the case if separate rates had `been computed on produdlis which the U.S. does not produce and lower on those where domestic industry competes. The converted rate on the `two groups `together' tends toward the lower end `of the range (between exis'ting rates `and converted rates for corn- `petitive items alone) `because the $ volume `of non-competitive items in the b'asket categories was substantially higher than that o'f competitive items in 1964.'~ Thus, the final converted rate represents a greater degree of bias against domes- tic products than foreign. The effect o'f this dan be seen in detail in Table' VI below. TABLE VI fIn percenti Basket category Average con- verted rate- competitive products Tariff Commission converted rate Competitive product tariff reduction througn conversion Dyes Intermediates - Pigments 72 42 " 48 36 ~ 33 14 ~ Source: Based on industry provided data. 10 in testimony before the Joint Economic Committee, Ambassador Roth stated, "Taking Into account both trade covered by concessions and the depth of the concessions, the United States thus stands to benefit on balance in eacth package. This positive balance also holds in our bilateral trade with each major par,ticipan't. Our chemical industry, in short, stands to derive substantial benefits." The Future of U~5. Foreign Trade PoZicy, Hearings before the Subcommittee on Foreign Economic Policy of the Joint Economic Committee, Volume I, p. ~5. U The basket categories cover some 3,000 products not imported in 1964 as well as over 700 that were imported; over 98% of the products produced in the United States fall in this category. In some areas the basket comprises a major proportion of domestic pro- duction-the dye basket (TSIJS 406.50J) includes items comprising 90% by volume and ~0% by value of U.S. dye production. `~ Non-competitive are those not produced in the United States. ~ In 1904, 57.3% by value of the basket category items imported were non-competitive. PAGENO="0405" 1675 Again using Tariff Commission cl~ta we can note the bias in another w~y. The converted rate ~n the basket category for dyes was 72%. The rate on ASP basis was 40%, indicating a relationship of 1.8:1 between ASP and export value. On that basis, using 1.00 as export value, ASP would be 1.80 and duty (ASP basis) would be .72. Assuming insurance and freight of 5% of export value and com- missions of 10% of landed value14 the selling price of an Import would be 1.95 made up as below: Export value 1. 00 Duty 72 Insurance and freight Commission . 18 Selling price 1. 95 This is between 8 and 9 percent higher than ASP and would seem to preclude sales of imports. Yet imports did enter the country. A logical conclusion would seem to be that the converted rate is too low. iv. CONCLUSIONS Faced with a serious and persistent balance of payn'ients deficit, the United States has through erroneous assumptions as to commercial superiority and equality of concession as well as by ignoring the changing economic environment, bargained Ineffectively in the Kennedy Round and proposes to eliminate ASP too cheaply and inaccurately. As I have had occasion to argue elsewhere ~ and as Is implied in the first part of this testimony, successive Administrations have predicated the entire balance of payments program on the mistaken expectation that this country's mer- chandise trade balance would soon expand to provide balance of payments equilibrium. It is time to recognize that sometime between 1958 and 1964 the eya of across-the-board dominance of world merchandise trade by the United States came to an end. This does not refer to the mounting deficits themselves or even the shrinking trade surplus since 1964 but rather to the fact that we are no longer a monopoly department store for the world's needs in goods. The United States has become a nation whose most significant competitive advantage is service exports-finance, technology, organizational and managerial know-how- along with those merchandise exports heavily dependent upon research-~com- puters, aircraft, electronic equipment. This is not to argue that an expanded merchandise trade surplus is unimportant, for such is critical in the present inter- national scene. But trade cannot help in the absence of a far more aggressive approach to trade policy. The invalid assumptions which led to the expectation of a substantial widening of the merchandise trade surplus were doubly damaging because they led to further actions which were both shortsighted in terms of U.S. international economic strength and in terms of trade flows themselves. I here refer to controls on capital movements, particularly direct foreign investment. Direct foreign investment has been a major positive factor in the U.S. balance of payments throughout the postwar period as is shown in Table VII. ~ on Industry source. `~ The National Banking Review, Vol. 4, No. 8 pp. 283-9 (h[arCh 1967); Compendium of Papers on Legislative Oversight Review 0/ U.k Trade Policies, Committee on Finance, United States Senate, Vol. 2, pp. 652-61 (196S). PAGENO="0406" 1676 TA~LE Vu-U.S. DIRECT FOREIGN INVESTMENT OUTFLOWS AND RELATED RECEIPTS, 1945-67 lIn millions of doIIars~ Direct . foreign investment outflows Repatriated income Royalties and fees Net balance 1945 100 1946 230 1947 749 1948 721 1949 660 1950 621 1951 508 1952 852 1953 735 1954 667 1955 823 1956 1,951 1957 2,442 1958 1, 181 1959 1,372 1960 1,674 1961 1,599 1962 1,654 1963 1,976 1964 2,435 1965 3,418 1966 3, 543 19672 3,026 426 589 809 1,964 1, 112 1,294 1,492 1,419 1,442 1,725 1,912 2 171 2 249 2, 121 2,228 2,355 2,768 3, 044 3,129 3,674 3,963 4, 045 4,445 (1) (1) (1) (1) (1) 126 130 130 128 136 158 229 238 245 349 403 463 580 660 756 924 1, 045 1,126 326 359 60 443 452 799 1,114 697 835 1,194 1,247 449 45 1, 185 1,205 1,084 1,632 1, 970 1,813 1,995 1,469 1, 547 2,545 1 Not available. 24th quarter 1967 data are preliminary. Source: U.S. Department of Commerce Survey of Current Business various issues; and Balance of Payments Statistical Supplement rev. ed. Washington: U.S. Government Printing Office. While the Administration has apparently accepted that direct foreign in- vestment is beneficial, the belief that the deficit was of short-term nature and that an expanded trade surplus would make possible the removal of controls were used as justification for restricting investments abroad. As has been shown above, the trade surplus is not going to eliminate the deficit and the controls are not short term. The controls themselves have now become mandatory. The ra- tionale that controls on direct foreign investment are acceptable because they are short term is not valid. And in the long run there are clearly grave dangers. These dangers would appear to be of three types outlined below. (1) The competitive position of existing foreign affiliates can be quickly eroded if expansion, modernization, and product and marketing developments do not kee~ pace with competition and market demands; (2) Direct foreign investment controls spur efforts to finance abroad which in turn drive up foreign interest rates, a factor which could retard the speed of economic growth abroad thus having a negative effect on U.S. exports: (3) With approximately 25% of U.S. exports going to or through the foreign affiliate of U.S. firms according to Department of Commerce estimates, the balance of payments gains of reducing direct foreign investment are clearly in some de- gree offset by resulting losses in exports to those direct foreign investment enter- prises. This country is in critical need of a balance of payment policy (we must not confuse a program with policy) broadly and imaginatively conceived. As such it would embrace trade policy which, in turn, would stress far more than hereto- fore matters in addition to tariffs. As indicated earlier, while solution of the defi- cit cannot be anticipated from the merchandise trade account, an improvement in that area must be an integral part of the overall balance of payments policy. And quotas and other trade restrictive devices are surely not the avenue to follow. The positive trade related elements of such a policy would include the following: (1) Tavation. The United States should take maximum advantage of the ap- plication of the philosophy of border tax adjustments to our existing tax struc- ture. I agree that our entire tax system should not be overthrown for balance of payments or export stimulation reasons. But we should seek maximum trade and payments benefits from existing indirect taxes and cannot ignore ways in PAGENO="0407" 1677 which future tax adjustments could bring such benefits. This dictates, for the longer run, careful consideration Of the expanded use of indirect taxes (excise, TVA, etc.) and/or a major effort to alter the (iATT working party agreement that assumes a black and white distinction in the incidence of direct and indirect taxes. We must also be cognizant in tax policy formulation of an increasing ten- dency to question the assumption that sales type taxes are regressive, especially if graduated or if compared with effective income tax rates. Also in the taxation area would be careful consideration of the reallocation pro- visions of Section 482 of the Revenue Code, provisions for the taxation of "for- eign base company income", Subpart G provisions dealing with Export Trade Corporations, and the question of expanding the geographical limits of Western Hemisphere Trade Corporations. While the Treasury surely has a legitimate interest in plugging loopholes and assuring equitable treatment to all taxpayers, under present balance of payments conditions this country must not ignore the balance of trade and payments impact of tax policy. Circumstances would seem to suggest that tax policy be one of our weapons to eliminate the deficit. (2) Investm~ent Controls. Because the controls on direct foreign investmbn't cannot realistically be viewed as short term and because they damage export efforts, they cannot be justified. Having applied them, however, and still seeing no near term elimination of the deficit, the Administration understandably (however unwisely) feels constrained to keep them. There is fear of short run negative effects of control removal despite awareness of longer range benefits of direct foreign investment. Rather than clinging to the controls until the U.S. balance of payments reaches equilibrium,'6 the controls ehould be removed on an individual basis tinder an incentive system of performance. Under such a sys- tem a company which could show a certain improvement in its own overall balance of payments account (or could give firm evidence that investment would result in such for those companies not yet involved in overseas activities) would be relieved of the application of the controls. Basing relief on a firm's overall balance of payments rather than on its balance of trade alone could pre- `sumably avoid violating the conditions of the GAPT regarding subsidies. Under such an arrangement `the controls could be dismantled without short-term ad- verse balance of payments impact. The difficulties, of which there surely are some, seem no more insurmountable than those the Department of Commerce faces in applying the existing controls and in measuring the contribution to our balance of payments through the corporate response to the restraint program. (3) Aggressh,e Negotiation. The United States must press for relief, especially in the area of non-tariff barriers, in negotiation's which will proceed from a realistic set of assumptions regarding our competitive position and with clearly defined balance of payments goals. Where Inequities exist, and they surely do, we must use all the weapons at our disposal. These include refusal to eliminate ASP except as part of reciprocal action on non-tariff barriers, the application of taxes for maximum trade benefits, and `the use, where necessary, of action available under Articles VI, XII, and XXIII of the GATT. Tb have meaningful negotiations and balance of payments rblief the United States must get its com- plaints to the bargaining table, must apply the leverage available, and must not fear to step back from negotiations which are unsatisfactory. This latter we failed `to do in the Kennedy Round. Earlier reference to statistical presentation and industry rationalization need no repetition here. They are part of what is needed fo'r an integrated balance of payments policy just as is domestic price stability. Such a policy while not alone eliminating the deficit, will enable the United States to gain maximum benefit in the merchandise trade account. Quotas will not bring such an achievement. They are not only an admission of defeat `but bring in `their wake fotaliation which will preven't optimu'm balance of payments benefits from the trade account. Mr. FULTON. Thank you, sir. Are there any questions ~ Mr. CONABLE. Mr. Chairman, the juxtaposition of this statement to the previous one is a very interesting one. Thank you. `° This means a surplus under present thinking, since, if removal of controls would bring a sharp rise in capital outflow, a balance could be achieved only by removing controls after achieving a surplus pos4tion. PAGENO="0408" 1678 Mr. FULTON. Thank you, Doctor, for your appearance before the committee. The next witness is Mr. Schwenger. Mr. Schw~nger, we are pleased to have you appear before the committee today. I want to say for the other members of the committee I am sure that some of them are aware of your many years in connection with the trade agreements program in the Department of Agriculture. We are pleased to have you appear before the committee. Will you identify yourself and your association for the record. STAE~ENT OP ROBLRT B. SCHWENGER, KENSINGTON, MD. Mr. SOHWENGER. Thank you, Mr. Chairman. My name is Robert B. Schwe*nger. I worked in the Interdepartmental Trade Agreements Organization from 1934 to 1966: 26 years for the Department of Agriculture; 6 years for the Department of Labor, after holding fellowships in international economic relations at the Universities of Wisconsin, Geneva, Switzerland, and Chicago. About 1963, I became convinced that a fundamental change in ap~ proach was needed, but officials were too preoccupied with the Ken- nedy round to really consider by proposal. In 1964 I was awarded a sabbatical year to develop my idea but officials were too preoccupied with the Kennedy round to consider it. In January 1967, I retired in order to try to get it considered in connection with new trade-policy legislation. Hence, I am particularly grateful for the opportunity to appear before this committee. My proposal for a change in policy must presumably go over to next year for consideration. However, regardless of what may then be decided, I believe it of the most urgent importance that the Congress now give an effective expression of its wish, when debating future for- eIgn trade policy, to be fully and authoritatively informed as regards the relevant problems and concerns of foreign governments and people. I believe such a simple expression would reverse the deterioration that I now see taking place in the support for a trade policy for the national interest and in the atmosphere of intergovernmental discus- sion of trade problems. In the 5 minutes allotted me for oral presentation, I will try to sum- marize the main points of the reasoning and analysis behind this con- tention, leaving the future proposal for inclusion in the record if I may do that. 1. Technology and interdependence-world growth perspective needed. Technology, working through the ownership and management in- stitutions evolved in the United States and other free world industrial countries, is integrating national economies into a world economy, a matter that has been touched upon by many of the witnesses. They must function as a single production-consumption process to achieve the enormous new possibilities-for example, the supply of a decent minimum of food, clothing, and shelter for every human being. And, due to advances in conmiunication, that enable everyone to see what is going on, people everywhere expect governments to facilitate that kind of world growth. Every important economic policy and program must be reviewed in that perspective. PAGENO="0409" 179 2. The national recovery perspective persists in trade policy. Our present trade policy does not meet the test. It is still directed against the excessive, beggar-my-neighbor barriers of the great de- pression. By 1934, it was widely recognized `that these barriers had oniy made matters worse. Cord~l1 Hull had the genius to forge a con- sensus of free traders and protectionists to bargain them away for the purpose of facilitating recovery. He persuaded other governments to do the same. Most of the beggar-my-neighbor barriers have now been reduced to little more than nuisance levels. 3. Measures to meet growth problems won't bargain away. Most government actions affecting trade today (today's trade bar- riers, if you want to call them that) are associ'ated with national or regional efforts to d~al with problems of innovation and world gro'wth that are really wider than national boundaries and are world bound- aries. The people of the program h'ave tried to develop intergovern- mental cooperation in facing these problems through the consultation and factfinding mechanisms of the GATT. But the present bargain- ing approach, directed uncritically against all "barriers" tends to inhibit intergovernmental problem solving. It requires formulation of national demand's followed by adversary discussion. The frequent result is the result on important national programs. The bbject is to win concessions not to get the facts and solve the problems. Hence the trade policy consensus everywhere is falling apart. Legislative bodies now find no really forward4ooking program serving the general public interest which they can use to support them and which they can support and thereby resist restrictive proposals urged by particular interests and governments when they consult to- gether, regarding problems with which they must deal, lack confidence, that they can settle their differences within a mutually accepted trade policy framework. They sometimes even turn to economic warfare in middiscussion as is the current case in the chicken war discussions going on as economic warfare throughout the world. The common interest in trade expansion as part of the dynamic growth of the world, tend to be lost sight `of. A lead must be given, therefore, toward trying to understand trade barriers in their fail dimensions-not only among governments but also among the leaders of opinion in all of the countries involved. Moreover, the lead in tI~at reasonable direction is needed urgently as a basis for a new consensus behind a program for seeking growth- oriented solutions to the disturbances to production, trade and mar- keting which are natural in `a dynamic, competitive world.. Those dis- turbances are bound to increase with the world's progress. One way to start would be for the Congress to request the President to explore this matter with other governments and report the results for consideration in drafting next year's legislation. Such a signal from the world's greatest economic power should have a dramatic effect at home and abroad. A new consensus would begin to form be- hind the search for a growth-oriented approach toward disturbances which are natural in the competitive world and which are bound to increase with progress. It will be evident to the committee that trade bargaining has cre- ated the impression that there is an economic basis for hostility among friendly countries. Of course, the opposite is true. PAGENO="0410" 1680 A technique of openly deliberating the full facts such as the one I will offer for inclusion in the record should have the opposite effect. It would emphasize the interpenetration of real economic interests short term as well as long between countries. International economic stresses and strains crisscross political lines. They are properly seen as healthy differences within a dynamic international economic community. The proposed request `to the President whether it is a forward-look- ing addition to the bill before the committee or separate would be an important step in building the structure. Thank you, Mr. Chairman. (The following supplemental statement was received by the com- mittee:) SUPPLEMENTAL STATEMENT OF ROBERT B. SOHWENGEE A GROWTH-ORIENTED FOREIGN TRADE POLICY: DELIBERATING PROBLEMS OPENLY INSTEAD OF BARGAINING B~imIERs SECRETLY i. INTRODUCTION My name is Robert B. Schwenger. I worked in the Interdepartmental Trade Agreements Organization from 1934 to 1966: 26 years for the Department of Agriculture; 6 years for the Department of Labor, after holding graduate fellow- ships in international economic relations at the Universities of Wisconsin, Geneva (Switzerland) and Chicagd. About 1963, I became convinced of the need for a fundamental change in ap- proach to the intergovernmental discussion of what are called "trade barriers"- that is, government actions affecting foreign trade. In 1964, I was awarded a sabbatical year (and appointed research professor at the University of Stock- holm's Institute for International Economic Studies) to develop my idea. How- ever, ofticials and economists were then too preoccupied with the Kennedy Round to really consider it. In January 1967, I retired in order to try to get my proposal considered in connection with new trade-policy legislation. Hence, I am particularly grateful for the opportunity to appear before this Committee. Immediate consultation and longer-term deliberation In the present circumstances, I have two proposals-one (which should be relatively uncontroversial) for consideration in the limited time available for action at this session of the Congress, the other (which involves a change in approach) for consideration next year or whenever the Committee sets the course for future U.S. foreign trade policy. They may be summarized as follows: 1. At this session, enact an arrangement (either as part of the Administra- tion bill or separately) whereby the Congress can be fully and authoritatively informed, when it debates and decides on future foreign trade policy, as regards the relevant problems and concerns of foreign governments and people. The purpose is to arrest and reverse the deterioration taking place in !the atmosphere of intergovernmental discussion of trade problems and in popular support (here and abroad) for expansionist trade policy. 2. When setting policy, provide for open intergovernmental deliberation of the full facts regarding the effects of individual trade barriers in the light of their public purposes, to be followed in each case by national reconsideration and, when appropriate, intergovernmental cooperation to~ ward accepted purposes. This would achieve the maximum possible expan- sion of mutually beneficial trade. It would replace the adversary confronta- tions of the old program (which now serve mainly to confuse and frag- mentize) by cooperation in problem analysis and the search for solutions. The Oommittee will observe that the two proposals, though related ideo- logically, are quite independent of one another. Declaring an interest in hear- ing all sides of the problem would not commit `the Congress to any particular solution. On the other hand, the longer-term proposal will be appropriate and important even if no action is taken this year. PAGENO="0411" I. IMMEOIATE REQUEST FOR AN EXCEANGE OF VIEW The argument for asking at this time that the President Institute, and report on, an exchange of views with foreign governments as to future international trade policy is relatively simple and straightforward. a. The present program is not dealing effectively with trade problems due to innovation, technological progress and the rapid growth of the world economy. b. Therefore, the popular consensus behind a general trade policy in the public interest is falling apart-both here and in other great trading coun- tries. The isolationist trade policies urged by particular interests are coming more and more to the fore. c. At the same time-~accelerating and being accelerated by the decline in consensus-there is a failure of intergovernmental discussions of trade problems to settle differences because of a fear by each participant that the others cannot be relied on to operate within a framework of trade policy ac- cepted as being in the common interest. d. An immediate indication by the Congress that, in this time of malaise and confusion, it is determined to remain in active, objective and friendly touch with other trading nations when enacting new legislation (for trade policy to follow the Kennedy Round) would be an act of constructive leader- ship; It would create an atmosphere favorable to the general public interest at home and to friendly understanding abroad. A. Present program can't deal with growth problems The first point, that `the present program deals inadequately with common problems of world growth, is dealt with more extensively in part II of this testi- mony. The three following paragraphs discuss (I) the growth possibilities and expectations in today's interdependent world, (ii) the orientation of present bar- gaining policy toward depression-caused barriers which are no longer important, and (iii) the need for a program directed toward the problems of innovation and world growth which underlie today's national trade barriers. (I) Technological possibilities in an interdependent world Technology, working through the ownership and management institutions evoiwed in the United States and other free world industrial countries, is inte- grating national economies into a world economy. They must function as a single production-consumption process to fully achieve the enormous new possibilities- for example, the supply of a decent minimum of food, clothing, and shelter for every human being. Moreover, due to advances in communication-movies, radio, television, etc., people know of these possibilities and expect governments to facilitate their early realization. Every important economic policy and program ,must be reviewed in this perspective. (ii) Trade policy clings to a national recovery goal Our present trade policy does not meet the test. It is still directed, in procedure and in inspiration, against beggar-my-neighbor barriers designed to wall nations off from world depression. By 1934, it was widely recognized that these barriers had only made matters worse. Cordell Hull had the genius to forge a consensus of free traders and protectionists to bargain them away for the purpose of facil- tinting recovery. He persuaded other governments to do the same. Most of the beggar-my-neighbor barriers have now been reduced to little more than nuisance levels. (iii) Today's barriers reflect problems of world economic growth Most government actions affecting trade today (today's trade barriers, If you want to call them that) are associated with national or regional efforts to deal with problems of innovation and world growth. The people of the program have tried to `develop intergovernmental cooperation in facing these problems through the consultation and fact-finding mechanism of the GATT. But the present bar- gaining approach, directed uncritically against all "barriers", tends to `inhibit in- tergovernmental problem-solving. It requires the prior formulation of national demands-followed by adversary discussion. A frequent result is reciprocal at- tack on important national programs. The object l's to win concessions-not to understand the full facts as a basis for solving the problem's, PAGENO="0412" 1682 B. Popnlar consensus behind trade policy is falling apart That the popular consensus which has supported the Trade Agreements Pro- gram is falling apart is a point on which, as regards to consensus in the 11.5., hardly anyone could add to the expertise of the meribers of the Oommittee. But it is falling apart elsewhere, too. As early as 1962, the special circumstances sur- rounding the European Common Market's trade policy were thought, in the ilLS., to justify rejuvenating the old trade-agreements program. But the consensus on an expansionist trade policy within the Common Market countries was shaken by the critical attitude of the other GATT countries toward the anticipated foreign trade impact of measures taken to solve the enormous problems of economic inte- gration of the six countries. And now we have, here in the U.S., a large number of quota requests by pro- ducers who, for the most part, do not claim to have suffered reduced output or even reduced employment as yet, but who want import restriction declared the U.S. policy for meeting the problems of world growth in particular lines of production. The Committee will recall the disastrous results the last time general trade policy was made by yielding to particular interests-~back in 1930. Income losses and unemployment were then real rather than anticipated and the failure to follow broadgauged, imaginative leadership was understandable. But the policy made matters worse. Yet today, for all our rapidly increasing wealth and employment, there is difficulty throughout the Free World maintaining national consensus for a framework of intergovernmental trade discussion in which, while the real growth projblems of particular interests can be met appropriately, their fears of future progress will not dictate a restrictive general policy. C. No accepted framework for settling intergovernmental problems The deterioration in the atmosphere of intergovernmental trade discussion was already serious during the Kennedy Round. The reciprocal disputes of fact and recriminations regarding policy purpose which were made public from time to time gave the impression that the important bargaining was carried out by threat and counter-threat with little element of common interest. This appears to be continuing and becoming aggravated in current discussions such as those regard- ing ~order taxes and poultry. The latter in particular merits specific attention as an example of the inadequacy of the present bargaining approach for dealing with problems of innovation and growth. Chicken was a luxury meat until war-time demand made it worthwhile to apply new technology. Costs were then so reduced that chicken became the poor man's meat in the U. S. Since it can be (and is) produced almost everywhere, it was natural for private enterprise to spread the new know-how and for government to help as a matter of technical assistance. But this took time. Late in the `50's, a temporary flow of chickens from the U. S. began to disrupt the European market. The Europeans blocked it. The U. S., although it had never before had significant chicken exports, demanded continuance of the new trade as a matter of right. This head-on, often emotional confrontation-in the Dillon Round, and then in the Kennedy Round-strengthened the hand of the particular chicken interests against the general public interest-almost as a matter of patriotism- in all of the countries involved. The world commercial surplus phase, which was a natural result of technological innovation, and should have been expected and prepared for, was brought on early. We now have open economic warfare. On February 18, the U. S. asked the GATT Council to establish a working party on the matter. We put the problem before the working party in a paper which, like all the representations of both sides in this bargaining, is designed to avoid considering the full world picture. We ask that the barriers be changed to assure our markets according to the legal rules and the bargaining spirit of the GATP. We say nothing about the technical revolution whose course through the world will probably terminate our exports anyway, nothing about the prob- lem of foreign adjustment to the disrupting technological change (which was easy for us because it came during war-time scarcity), nothing about our own "principle" of restraining exports that disrupt our markets, nothing about the growth of the American chicken-meat market which for us pales the significance of our exports, nothing about lowering prices to bring more proteins to poorer people. We just threaten to subsidize in order to maintain our exports at 50 million dollars a year. Yet in a full, deliberative discussion, both sides would surely get public support, probably even from chicken producers, for statesmanlike recognition of PAGENO="0413" 168~ the possibilities of the new technology in terms of benefit to low-income people- with private enterprise doing the job and getting the profit. The costs of the adjustment assistance required would be negligible by comparisea with the bene- fits. A scheme for sharing the costs, or making them a charge on the successful expansion, would be relatively easy to work out. Such reasonable intergovern- mental discussion has been prevented by the adversary bargaining technique. The bargaining has obscured the common interest in using a new protein- production technology to serve people. Instead, it set the leading countries of the free world against one another in high-level public recrimination. D. Congress can give a lead toward nnderstanding Both the failing consensus and the deteriorating negotiating atmosphere cry out for a lead to be given toward public understanding of trade problems in their fullest dimensions. Moreover, the lead In that reasonable direction is needed urgently as a basis for a new consensus behind a program for seeking growth- oriented solutions to the disturbances to production, trade and marketing which it is natural to expect to become more and more frequent in a dynamic, com- petitive world. One way to start would be for the Congress to formally request the President to explore this matter with other governments and report the results for con- sideration in drafting next year's legislation. Such a signal from the legislature of the world's greatest economic power would have a dramatic effect-at home and abroad. II. ESTABLISHMENT OF A POLICY OF DELIBERATING TRADE PROBLEMS OPENLY Introduction The Public Deliberating Proposal was inspired in considerable part by observ- ing, over the years of the present trade agreements program, the failures and successes of the improvisations tried for dealing with trade problems and amen- able to solution through the tra'de~barrier~bargaining approach. In retrospect, it is apparent that most of those problems were not due to beggar-my-neighbor protectionism but were associated with national efforts to deal with the problems of a rapidly growing world economy. This will be even more true of the trade problems of the future. The Committee is familiar with the problem areas: Agricultural incomes and output, distributions to needy foreigners, levels of employment and wages, market disruption, monopolistic pricing and production practices, the overall rate of national economic growth, threats to public health, depressed areas, monetary instabiilty, capital movements, taxation patterns, and so on. Although actions to deal with such problems often affect trade and are called trade barriers, there is no a priori case that discontinuing them would expand healthy trade and production-even after allowing for a period of adjustment. Efforts to bargain them away produce reciprocal bitterness. Yet no one, government, working with- out any foreign cooperation, can carry them out entirely successfully. Therefore, each of the problems must be discussed among the interested governments in some way. Many of them are-in the FA'O and commodity groups, in the OEOD and ILO, at the UNECOSOC, in the IMP, and so forth. They are even discussed at the GATT-although GATT's bargaining atmosphere tends rather to dis- courage than to advance intergovernmental problem solving. My proposal is for a format of trade discussion which would complement other intergovernmental economic discussion. It Is designed both to remove the nuisance left over from the beggar-my-neighbor era and to enable governments to serve domestic poli~y purposes successfully with as little harm to foreign interests and as much dynamic trade cre'ation as possible. As a convenient word for comparing this approach with the "bargaining" approach, I describe it as "deliberating".' The following description presents one possible format for applying the princi- ples of the proposed approach. 1 Some earlier relevant statements are as follows: "A Format for Intergovernmental Discussion of Trade Barriers in a Dynamic Environment," Compendium of Papers on Legislative Overeigist Review of U.S. Trade Policies, Committee on Finance, 11.5. Senate, February 7, 1968', pp. 666-675. "The Restructuring of Foreign Trade Negotiations," Issues and Objectives of U.S. Foreign Trade Policy, a Compendium of Statements, Subcosmnittee on Foreign Economic Policy, Joint Economic Committee, congress of the U.S., September 1967, pp. 65-96. Rethinking Foreign Trade Foley, Washington, February 1966; and revised text of the seet~on, "A Way to Start," July 1966. "Some Considerations and Proposals Regarding Agriculture in U.S. Foreign Trade Policy: The Search for a Coherent Approach," Stockholm, June 17, 1965 (manuscript). PAGENO="0414" 1684 ~mmary of a "deliberating-pub~ic~4n,tere.st" trade discussion format There would be established a continuing forum for conversation among govern- ments regarding any of one another's specific actions which had (or was alleged to have) significant repercussions on international trade. The form would be open to participation by all governments. The conversation would be held in public. The conversation would be non-adversary. Each participating government would be committed to state the economic purpose of any of its actions brought up for consideration (and as far as possible to limit the action `to the level and the duration required for that purpose). The forum would not dchate the purpose but would address itself to the economic effects of the action. The stated purpose and the facts and analysis of effects would be published in a report. Actions by other governments affecting the same trade might be in- cluded in the conversation and report on `the same non-adversary, analytical basis. There would b'e no recommenda'tions. Following (or in connec'tion with) the intergovernmental conversation, the acting government would be committed to give public reconsideration to its action, through its own constitutional processe's, in the light of `the facts and analy'sis brought out. (For most U.S. actions other than tariffs reducible without seriou's injury, this would presumably mean Congressional reconsideration.) If the government decided that the action was no't `currently necessary or, on balance, desirable, it would schedule it for discontinuation. If it found that an alternative or modified action would serve `the stated purpose sufficiently and with fewer undesired side effect's, it would change its program accordingly. It might, of `course, decide to make no change. Following (or in connection with) the reconsideration, the acting govern- men't might seek cooperation from other governments in the particular mix of actions that would serve the stated purpose in the most efficient way. All par- tici'pating governments would be committed to give public consideration to thus cooperating with the acting government. Much cooperation would probably be agreed upon in commodity or sector groups. Each participa'ting government would maintain a special independent official trade-information structure (preferably an agency of the parliament), the sole responsibility of which would be to assure that the facts and analyses for as- sessing th~ effects of trade-affecting actions were fully and understandably available at both the multilateral conversations and the national reconsidera- tions and were brought to public attention. The head of `this trade-informaion structure would have the status and authority needed to o'btain appropriate information. He would be a member of an intergovernmental trade-information organization to exchange fact's and `serte the intergovernmental public forum. Actions might be schedule for examination on the basis of a government-com- plaint procedure, a report by each government on the economic effects of its own actions, recommendation of `the principal officers of the special information struc- tu're, o'r reference from more specialized intergovernmental groups (such as international commodity groups) within the purview of `the general forum and its public prOcess. In addition, it should probably be open to a government to put forward for consideration an action which it contemplated but had no't yet taken; this tecimique might appeal in cases where foreign government cooperation was particularly valuable for insuring the success of the `action. The intergovernmental conversation would deal primarily with the economic effects of a government action. It would cover all significant effectsh-domestic and foreign, direct and indirec't, `concentrated and diffused, immediate and longer term, costs and gains. It would run to specific's. As far as possible, it would be in quantitative terms~-estimating `or evaluating even when examining doctri- na'ire `allegations of effect. How much does an action change prices, costs, profits, production, consumption? Who is affected adversely, who beneficially, when, and to what degree? What is the effect on the growth of the world production process-on innovation-on adjustment to `current change's in the economic environment? A participant government would not take a position as between a national (say, producer) interest that might be helped by an action and another national (say, transportation or consumer) interest that might be injured. Each would be assessed separately; and the presentation of this combination of assessments- for all intere.sts, wherever fo'und, which are significantly affected by the action- would be the formal object of the examination. Disagreements would be reported-and quantified as far as possible; they would relate to facts, not to recommendations for action-although perhaps facts PAGENO="0415" 1885 about alternative possible actions might be presented. There would be no report. ing of resolutions to create a sense of progress or a facade of decision. The con- sequences in action would come in the public national reconsideration and the consultations regarding cooperation. The latter might, in many cases, take place in existing commodity councils or other organizations for intergovernmental cooperation. The new forum would have a coordinating and multilateralizing influence on all intergovernmental discussions related to trade. Principal advantages of a deliiberating approach I will not go into any of the theoretical rationale by which this proposal can be justified. The members of the Committee will grasp most of it intuitively from their experience in considering problems of the present program. I would like, however, to point out three outstanding characteristics of the proposed approach which make it superior to the present bargaining approach for expanding trade and serving the national interest. They may be summarized as follows: 1. It will emphasize the common interest of governments in economic ex- pansion and trade-problem analysis-a force for peace (instead of, as now, emphasizing private business competition as a principal concern of trade policy). 2. It will supply a representafive-popular~government element in the emerging international competitive-mixed-economy process. 3. It will make foreign-trade policy consistent with other foreign eco- nomic policy (instead of, as now, a source of policy conflict). 1. Building a ~trueture of Peace by Publicly Deliberating Common Interest in Economic Growth In recent years the "bargaining" approach has retarded the creation of a struc- ture of peace-the kind of peace that manifests itself-and maintains itself-in day-to-day economic interchanges among producers, traders and consumers. In bargaining, each government is required to adopt an irrational nationalistic posture. One must accumulate "bargaining counters". A government must pub- licly treat each of its actions affecting trade as helpful to its economy and harm- ful to the countries which ask that it be reduced. Even when a U.S. duty has become clearly harmful to the U.S., so that a member of Congress introduces a bill for its removal, the administration sometimes asks the Congress to withhold action so that the duty may be used as a "bargaining counter" in GATT negotiations. Now, as I have suggested, this worked well for the beggar-my-neighbor barriers of the depression. As long as the barriers were so onerous as to be recognized by both sides as self-defeating and not really in any country's interest, it was a great idea to make an adversary game of getting them reduced. But there is no point in the bargaining game if one is dealing with trade barriers incidental to desired domestic policies. (And this includes, of course, not only non-tariff trade barriers but also high tariffs on particular industries which it may be domestic policy to maintain at the expense of the consuming public.) This explains the bitterness worked up, and frequently reflected in public discusSion, at the refusal of a particular government to toss onto the bargaining table a poii!itry policy or a sugar policy or a particular tax policy or a development policy or a petroleum policy or a steel pricing policy, etc. And the bargaining approach contemplates every domestic policy affecting trade as though it were designed primarily to benefit citizens at the expense of foreigners. Hence, it creates the public impression that the interest of one country in a given commodity trade is diameiricially opposite to the interest of other countries in the same trade. It encourages private producers to seek government support in their competition with foreign rivals. It promulgates the fallacies of pnltec- tionist eoononiies; it suggests to those who read the headlines that there is a suibstantial economic basis for political hostility among friendly countries. By contraSt, the public deliberating approach here proposed would constantly highlight the natural economic basis for peace. It would focus on the growing interpenetration of economic interests. The various national economies,. par- ticularly those in the privat&ownership industrial couuitries, cannot deal with ecosioinh~ problems successfully without regard to what is done in others. Therefore, the effecis of government action within a country would be de- liberated in relation to relevant effects and actions in the entire international PAGENO="0416" 1686 economy, The present method ~f setting up a prior U.S. position and an EEC position and a United Kingdom position, etc.-and then bargaining for a compro- mise-creates public antagonism on a nationalist basis over questions where the real differences are usually between different groups within a country. The pro- posed approach would involve governments in a joint public process of review in which the various interests were fairly represented and there was an op- portunity to understand and weigh. This would bring out the "horizontal" dimension in theinterest pattern. The traditkrnal government Identification of the pattern of national economic interest with the pattern of naitional political jurisdiction would be corrected specifically and~meaningfully in public thought and discussion. The stresses and strains incident to the economic process would be seen to crisscross, and therefore offset, the stresses and strains incident to the !nternational political process, ~he former would be *s~u as healthy differences reinforcing the life of a x~3thic, conipotttive community. This is what I mean by building peace. Oordell Hull, you may remember, made a great point of peace as an objective of his trade program. He saw that removing the depression barriers would smooth political relations. This was the high wisdom of his time. A future foreign trade policy, however, must require governments to discuss publicly both the desirable and undesirable effects of any sections complained of by foreigners- and to consider that discussion in its deeisiona-4f we are to grasp the great growth opportunities of our time. 2. Supplying the Government Component of a Dynamic International Competitive Miceed Economy Technological progress is not new. We have had a lot of it in the U.S. over the past century. In our great free-trade area, it formed one economy from the several parts-and we became the leading economy of the world-forging ahead of the separate economies in Europe. To permit this rapid growth and yet keep it healthily serving the public interest, we evolved a process of private and public relations which I call a "dynamic competitive mixed economy", taking words and insights from J. M. Clark's competition study and from John R. Commons, Gunnar Myrdal, Jacob Viner, and others of my teachers. Something like it now prevails within most of the private ownership industrial countries. There is freedom for initiative and innovation. There is a tendency to try to better, or to join, one's competitors. Individuals operating in groups often have an advantage. Most advances in technology seem to increase this advantage and make the optimum group size larger. Government exercises a degree of surveillance over conditions of competition on behalf of the public interest- as in agricultural incomes, wages, public utility services, business combination, banking and other fields. But government is only the complicated apex, as it were, of a dynamic combination of heterogeneous units-individuals, firms of all kinds and sizes, associations, combinations, public corporations, labor unions, community action groups, clubs and societies. Any of these may at times influence the economic process, or check and balance the influence of others. This dynamic mixed politico-economic process has been dramatically success- ful in the past in bringing technological progress to provide a greater and greater proportion of the people of an industrial country with a decent level of income and welf're, even though the creation of a continually adjusting dynamic balance within a nation to answer to the continually changing and increasing challenge of new growth has sometimes involved almost insuperable strain. (In the end, of course, the extension of increased economic benefits to new groups of participants almost always increases the benefits to the old groups who resisted.) As technology goes on to make the whole world its community, many parts of the mixed-economy process are extending internationally. More and more firms operate in several countries. Ties and affiliations are developing among labor unions, trade associations, chambers of commerce and all sorts of groups. And, as already noted, governments try to organize and consult as to their role in the world economy. This is done very largely by the executive branches of the various govern- ments. In the trade field, under the present program, it has been done with great secrecy regarding the effective details of discussion, so that the normal mechanisms of representativeness-the checks and balances of informed corn- PAGENO="0417" 1687 pon~nts of the mixed-economy process~-have not functioned welL The executive officials, certainly in the U.S., have shown a certain fear and distrust of the process. The opinion is widely held in governments that all people are dominated by a fear of depression and, therefore, are protectionist when their own earning activities are concerned. Hence, the executives have marshalled public support for vague or unrealistic concepts like freedom of trade, comparative advantage, across-the-board reductions, and (now) negotiating non-tariff barriers-but have carried out the details of the program behind closed doors. There they are in the dilemma of fearing to work for the public interest because they think the public will not support them when the results are known. At the same time, they are "sitting ducks" for the importunings of great corporations or other groups powerful and skillful enough to penetrate the secrecy. Thus, they preserve a trade-barrier reduction program in principle but do not feel free to carry it out thoroughly. They only rarely marshal opinion behind specific decisions in the public interest against the fears of a narrow interest. The proposed deliberating approach would open out this process and restore to parliaments their basic, representative function (without recapturing for them the executive function which they carried to such absurd extremes in the depression). Parliaments would authorize their executives to discuss the pros and cons of any trade problem intergovernmentally. More important, the par- liaments would be represented by an information officer with the duty and authority to see that the discussion was open, that all relevant facts were obtained and considered and, therefore, that both legislature and executive were far better informed than is ever the ease under the present program. The result would be a trading community disposed to progress together. Rela- tions among governments, as regards the specific trade problems of such progress, would be cooperative and restrained instead of adversary and pugnacious. 3. Bringing Coherence to U.& Foreign Economic Policy A related advantage of the deliberating approach is that it can "ride tandem" relatively comfortably with many areas of policy that conflict with the present program. In the thirty~odd years since the Trade Agreements Program begati, that policy has come into vigorous public conflict at various times with U.S. recovery programs, agricultural support programs, the European Recovery Pro- gram, aid to economic development abroad, various balance-of-payments pro- gi~ams, and others. In each case, a way through the apparent dilemma was im- provised in pragmatic intergovernmental cooperation. That improvisation provided insights for formulating the deliberating approach. The following sub- sections of this statement discuss the consistency of that approach with policy in the fields of a. Aid, b. Agriculture, c. Restrictive Business Practices, d. East- West Trade, and e. Other Foreign Economic Problems. a. Aid to Economic Development The trade policy conflict with hid policy (and recovery policy) stems from a basic difference in underlying theory. People responsible for developing an economy rapidly (or for reconstructing one) do not want to liberalize trade- at least not until development is successful. They want to control trade-in order to require support for their development plan from individuals whose short-run economic interests lie in other directions. They want relief from import competition. In the European case a working compromise was reached based on faith- and determination-that recovery and redevelopment would succeed. We felt ourselves involved. We bargained as equals to lower trade barriers, but we let the Europeans postpone performance of their part of the bargain until their "dollar gap" might be closed. This was thought to be a disguise for unilateral concessions because most economists said it never would be closed. But it closed well before they stopped saying that it wouldn't. For the poor agrarian countries, we have not yet found such a working com- promise of policies. Their opinion leaders (like the postwar Europeans) consider that trade-freeing policies exaggerate their dollar gap (or "foreign exchange gap" as they dali it). They consider it "economic imperialism"-freeing powerful firms to sell to them at administered prices and to buy their extractive products at competitive prices. On our side, we think we see "primitiveneiss"_-~.economic and technical inadequacy. We say free trade will help them, but we have no faith that they can soon develop-even if conforming with the GATT rules. 95-159 O-68--pt. 4-27 PAGENO="0418" 1688 In the trade-policy community, we-and they-gave up the search for a corn- premise some time ago. A code of second-class citizenship was drawn up and formally adopted as Part IV of (the basic GATT rules. We talk-at the UNCTAD, the GATT, the ECOSOC, and elsewhere-but it is an open secret that nothing substantial is expected to come of it very soon, either for trade or development. Meanwhile, in ether channels, we go on quite determinedly with aid and also with trade. Development and trade are sometimes discussed in quantita- tive, realistic relation to one another. The deliberating approach would give an open, rnultilater(al framework for that kind of discussion. There would be legal equality. Both the industrial countries and the less-developed would `discuss and explain the trade effects of their own policies. National objectives would not be challenged. In the ques- tioning and analyzing, the slow process of reciprocal "north-south" under- standing and identification would be publicly advanced. The interrelation of ideas and policy is such that, for the industrial countries to take a dynamic, purposive policy attitude toward the trade of the less- developed countries, they must first have a mature attitude regarding their own trade relationships. The dozen-odd separate industrial governments in the private-ownership world must first recognize, publicly and institutionally, that the trade flows among themselves trace arteries internal to a growing pro- `duction organism which they are fated to govern cooperatively. They will then see a new urgency for extending the industrial process rapidly into the less- industrialized population masses~-radical though the necessary measui~es might be. And this might work both ways. The less.~developed countries might then be able to accept publicly that their own major advances a're associated with advances in the industrial oountriea-that economic discrepancies are decreased by a mutually beneficial production process, n'ot by closing "gaps" as such. Industrialization in the less-developed countries in our time calls for multi- plying the total world production plant many timea-and varying an'd adapting it at the same time. Cooperative involvement in purposive public discussion of specific problem's of the trade which unites us progressively as development succeed's would bring a kinetic faith in success-4that the gains will be worth `the costs. b. Agric'ultural Pol4cy Because of world surpluses of important field crops, most governments by 1934 interfered regularly in their domestic markets in order to support crop- producers' incomes; hence, they could not be expected to free trade to let normal market forces reduce those incomes. As early as January 1938, the late Leslie A. Wheeler had the Department of Agriculture put out annual surveys of agricul- tural policies throughout the world in or'der that our trade policy could be based on knowledge of the trade~barr4er facts. In planning and negotiating the GATT, therefore, we were able to reach understanding on a synthesis of the two policy fields. Essentially, the GATT understanding was that, where governments intervene to support domestic producers' incomes for a commodity in surplus due to special market inadequacies, `those governments must treat international trade in the commodity fairly-judged by trade in previous representative periods and by changes in comparative international advantage. Where differences arise as to what is fair in a specific case, the interested governments must consult with one another and seek agreement. Government action maintained pursuant to such an agreement is given a general exemption from the GATT trade~ba'rrie'r- reduction rul'es. When post-war surpluses began to appear with the recovery of foreign produc- tion, the solution agreed upon in the GATT was contested and often ignored. By the time of the Kennedy Round, however, there bad been a gradual-although perhaps reluctant-return to it. The deliberating approach would reinforce the GATT solution by making its application the subject of public, factual, international examination. It ,would underline the different needs of different commodities as part of a normal con- tinuum of trade problems rather than treating them all together as a publicly per- plexing trade-policy dilemma. A major source of difference lies in cost structures. There is a large land-rent component in field-crop costs. This and other fixed costs militate toward cutthroat PAGENO="0419" 1689 competition. Increases in mechanization, management and non-land inputs to the polnt where the rent component was low might some day change this. For agricullural products other than field crops, one finds great variation in economic characteristics. Some are "industrializing" fairly rapidly and becoming less sub- ject to chronic surplus. In the public discussion and deliberations under the approach here proposed, government action affecting trade in some of these products might very well be found, like the nuisance remnants of the beggar-my-neighbor tariffs of the de- pression, to be no longer needed for their purposes. Whatever the needs of a particular group of producers, the deliberating approach would bring a much more effective kind of pressure against unnecessary public support-and a much more sympathetic and efficient conduct of necessary support-than does the theoretical denial of economic rationale for any supports that has been so diffi- cult to dissociate from the present policy. Incidentally, the long search for a method of support which will not affect trade is doomed to failure. Intervention in a market affects the whole market- and these markets are world wide. c. Restrictive Business Practices and Multinational cYorporc~tions The development and exercise of power over markets by private firms or groups presents government with a great policy challenge in the field of international trade-as it long has in the field of the restraint of domestic trade. Here the present trade-policy approach may be said to inhibit the formation of policy- rather than to conflict with established policy. The deliberating approach, on the other hand, would facilitate facing the new situation rationally and re- sponsibly. The establishment of monopoly power within a country, of course, is oftei~i checked by imports. Therefore, to the extent that the present policy reduces import restrictions, it is consistent with our historic anti-trust policy. However, the bargaining approach has required us to publicly cling to the restrictions pro- tecting our quasi-monopolistic industries in order to get maximum concessions from foreigners for reducing them. The resultant confusion and the present lack of leadership regarding future trade policy are being turned to monopoly purposes. One of our major established industries-~in whose world leadership we once took great pride-is making a great effort to persuade the Administration and Congress-at the expense of the American public (who consume products contain- ing steel) and of national and world growthto save it from the alternative of revitalizing its management-entrepreneurship~competition practices or losing a share of its market to foreigners. There is an obvious need to get, and deliberate openly the full facts about the world steel economy-including some not yet avail- able for our own indus'try-~before making such a significant admission of Ameri- can inability to compete. But the challenge of the growth of private market power internationally- rather than within countries-may be even more important. A growing part of international commerce is conducted by firms whose interest is not exclusively within the American or French or German or any other national `economy. "lYtulti- national corporations" is the currently popular term for them. We apparently are witnessing the development of a private-enterprise management structure for the world economy. To obtain maximum benefit from technological progress- and to keep it progressing, the world prodi~ction mechanism must integrate in the sense that the U.S. production mechanisim-or the German or the Swedish or other industrial mechanisms-integrated as part of their national development processes. Therefore, this world~spanning entrepreneurial and managerial "techno-structure" is making a great contribution. It serves as a channel for Inter- changes of dynamism and efficiency among countries. It spurs social, economic and institutional adaptation to the demands and opportunities of change. But it can also, and sometimes apparently does, inhibit such interchanges and such adaptation-channeling or suppressing competition and innovation for its ewn ends. Clearly some sort of basis is needed for intergovernmental consideration of proiblems stemming from multinational business activity. The U.S. has pushed for international agreement on the limitation of business practices restrictive of competition. This must doubtless be a concern of governments if they are to play their appropriate role in a dynamic mixed international economy. There must PAGENO="0420" 1~9O doubtless be an appropriate blending of the idea of limiting bigness as such and the idea of requiring market power to be used in the public initerest. Th~ latter, of course, is much more difficult and complicated. There are some uncoordinated national laws and regulations affecting a~tivities of multinational firms. These probably tend to inhibit the efficient performance of the function these firms have stepped in to ml rather than to remedy abuses effectively. In this situation, the proposed multilateral forum for the non-advisory delibera- tion of (rather than decision regarding) trade-policy problems would present a useful focus. It could help governments grope their way suc~essfu1ly through the difficulties Professor Ray Vernon foresees, in his article in the April l9~7 Harvard Business Review, in achieving what be calls "international harmoniza- tion." Recently, Mr. George Ball, while still with Lehman Brothers Interna- tional, suggested the negotiation of an international companies law. The working rules needed to achieve agreement on such a law, or on "harmonization," might evolve more rapidly and rationally dealing with specific problems in the proposed forum than in general negotiation or discussion of codes of conduct. d. State-Ownership Uountries: East-West Trade It might prove significant in the future that the deliberating approach, although its main justification must be uniting the private-ownership world, can be directly relevant for a policy of trading with countries in which the means of production are owned collectively-i.e., the Soviets. Using the present approach would tend to highlight a clash of unrealistic ideological extremes: Government direction of trade, versus free trade. In the case of Yugoslavia, which threw off external political restrictions and is trying to accommodate to the rules of the GATT under a modified state-ownership doc- trine, we are learning how long and difficult that road is. It requires a good deal of acceptance on the Soviet side of the superiority of the trade-agreements tech- nique and a good deal of winking at facts by us. As for the current idea of bargaining MFN treatment for negotiated advantages to the U.S., it is good only for relatively small, one-time deals. The deliberating approach might smooth over some of the ideological and prestige problems. Deliberation of the facts about a trade barrier, to seek a measure of intergovernmental understanding on a world-product-economy basis, involves an idiom of quantities produced, traded and consumed which is relevant regardless of the ownership institutions of a country. Soviets enter some current multilateral commodity discussions without ideological difficulty on either side. Moreover, while the emphasis of the deliberating approach on public informa- tion may be difficult for state-ownership countries-with their fetish of economic secrecy, it may turn out to be just the posture to facilitate detente. These coun- tries consider themselves democracies and need educated populations to in- dustrialize. They are already feeling the consequent imperative toward economic openness working underneath their tradition of secrecy. The more they succeed in their industrialization, the more openness will prevail. An open world trade- policy deliberating forum would be a strong influence in that direction. e. Other Foreign Economic Policy Once the deliberating approach was recognized as the principal trade-policy technique, policy regarding a great number of intergovernmental problems would be reinforced. The prospect of joint public inquiry into full facts, and the pre- sumption of cooperation toward p~irsuing publicly announced objectives with minimum damaging side effects-these two characteristics of the approach mili- tate toward rationality and "cool" even in very difficult situations. The new approach could be particularly helpful in dealing with those regional economic groupings where the precise requirements of the GATT have resulted less in desirable arrangements than in the granting of exceptions in law or in fact; in these matters, and the EEC is the prime example, the present approach has created much bad feeling. The problem of "non-participating" countries might also be made easier. Coun- tries not willing to accept the detailed rules of `the GATT (and perhaps Mexico is an important example) could be quite interested in consultations and fact- finding. They should `be welcomed to the multilateral forum. Even in such an area as monetary policy, the deliberating approach could have useful repercussions. The point can easily be overemphasized, but there is little doubt in my mind that the adversary postures cumulated over several years of PAGENO="0421" 1691 the Kennedy Round contributed something to the dlfficult~r of increasing the ele- ments of intergovernmental cooperation in international currency management. An established forum for non-adversary discussion of trade-policy consequences might possibly have had an opposite effect. The whole atmosphere of international economic discussion could be changed if the basic trade form were one of search for the common interest instead of search for victory in bargaining. Public Process Is Basic At the risk of repetition, let me conclude by underlining the great opening of the trade-policy process to public scrutiny which is essential to my proposal. The problem of forwarding international trade understanding-involving millions of opinion leaders and literate people in all parts of the world-requires dramatiza- tion of real issues. The bargaining process dramatizes an aggregation of eco- nomic interests most of which turn out to be of questionable national value. It surrounds local economic inertia with an aura of national patriotism. The delib- erating process would dramatize real individual or group economic interests. Misimpressions as to facts, incident to adversary process, would no longer appear to be sponsored by government. Instead, governments would enquire together- publicly-cross-examining. They would consider the gains of innovation as well as the suffering incident to it. They would estimate the effects, on the one and the other, of various actions being urged. Then they would decide their actions, each through its national public processes. To this end, there must be an information structure with the responsibility (and necessary authority) for assuring that there is no conscious distortion or concealment. It is my experience that most government trade decisions are taken without adequate information-and often the information known does not in- clude major material facts which are suspected. My proposal includes an inde- pendent agency with the duty and the power to remedy this as far as possible. It is important for the new information officers to operate independently of the executive arms of government. Some of my colleagues oppose the deliberating approach because they think it would increase government power over economic life; they argue that governments concerting internationally would control their domestic economies more closely. I see exactly the opposite result. The new in- formation mechanism is a key to the difference. If, in order to have government help to compete successfully, enterprises must submit to international public discussion of the reasons they cannot go it alone, they will rely on the free market unless their reasons for needing assistance can stand public scrutiny withia their own countries. There is much subsidy through trade restriction which would be discontinued if it had to stand full public examination on its merits. Mr. FTJLTON. Thank you, Mr. Schwenger. Are there any questions? Thank you for your contribution, sir. Our next witness is Professor Thorn. Professor Thorn, we welcome you in your appearance before the committee and ask that you identify yourself for the benefit of the record. STATEMENT OP PROP. RICHARD S. THORN, DEPARTMENT OP ECONOMICS, UNIVERSITY OP PITTSBURGH Professor THORN. My name is Richard S. Thorn, professor of eco- nomics at the University of Pittsburgh. I am speaking in opposition to the imposition of special quotas on steel imports. T~he rapid growth in steel imports should be restrained but quota restrictions are an inappropriate way to accomplish this end since they will not prevent the long-run decline in employment, profits and relative output which is taking place today. Quota restrictions are simply an unimaginative effort to preserve profit margins in a declining industry which will take away most of PAGENO="0422" 1692 the incentives to deal with the underlying factors which have pre- vented the steel industry from participating fully in the unprece- dented growth in the American and world economies. I ask you to look at table 1 of the paper before you. The key to the problem of the American steel industry is summarized in table 1. TABLE 1.-STEEL, PRODUCTIVITY, WAGES, PRICES, AND OUTPUT 1957-66 as percent per annum Steel industry All manufac- turing Output per man-hour 2. 8 3. 6 Compensation per man-hour 3. 4 3. 8 Unit labor costs .6 .2 Prices .7 .7 Output 3. 4 5. 0 Source: U.S. Senate, Public Finance Committee, Steel Imports (December 1967) pp. 466-468. Labor productivity in the steel industry has risen more slowly than that of the manufacturing industry, in general-2.8 percent per annum compared to 3.6 percent per annum for all manufacturing in the period 1957-66. While average hourly labor compensation has grown more slowly-3.4 percent for steel compared to 3.6 percent per annum f or all manufacturing-it is not enough to offset the slower growth in productivity with the result that unit labor costs in the steel in- dustry have risen on the average of 0.6 percent per annum compared to 0.2 percent per annum for all U.S. manufacturing industry. While unit labor costs have risen faster than the average, for manufacturing industry, prices have risen on the average about the same, so that a profit squeeze has developed. Output has increased only 3.4 percent per annum compared to 5 percent per annum for all manufacturing industry. The steel industry has focused its attention on the second item, labor costs, in table 1 as the cause of all its problems. In fact the avail- able statistical evidence indicates that the average cost of imported steel at U.S. ports is greater than the average cost of American steel at the mill. Mr. Holliston R. Wood, chairman of the board of Alan Wood Steel, said in 1966 that "With the possible exception of the Japanese I don't think anybody has substantially lower costs than ours," and he added the only reason he was leaving out Japan was a lack of information. This statement was seconded by Harvey Lee Allen, vice president and general manager of operations of Republic Steel Corp. When speaking of costs he said, "I don't think anybody is doing better than the United States if as well." These statements are confirmed by a research study of my own which I am appending to my written statement. I maintain that the first item, productivity, is of eciual, if not greater, importance. If the steel industry had been able to maintain a rate of growth in productivity equal to that of all U.S. manufacturing indus- try, its unit labor costs would have declined. If this was passed on to the consumer of steel in the form of lower prices more steel would have been sold, output would have risen faster and profits would PAGENO="0423" 1693 have been higher since, as the steel producers have pointed out, most of their profit is in the marginal tons of steel sold and imports would not be the problem they are today. The basic problem of the steel industry of lagging productivity has been compounded by an excessively rigid price policy in regard to imports which has made the U.S. market a "sitting duck" for foreign steel exporters. In order to stop imports, the steel industry should embark on a program embracing three basic points: 1. Increase expenditures on research, and the; development of new products in order to step up the rate of cost reducing innovations and expand its market. The steel industry spent only $0.60 of every $100 of sales on R. & D. compared to $1.90 for all manufacturing industry. Only the textile and wood products industries spent less on R. & D. than the steel industry, a shocking performance, I maintain. 2. Maintain the present high level of investment over the next dec- ade. This requires greater use of outside finance. The steel industry has self-financed 85 percent of its investment expenditures from its own resources (almost 100 percent if working capital is excluded) com- pared to the 61 percent figure for all manufacturing companies. In short, when business is good steel investment goes up. When busi- ness is bad it goes down and this type of investment behavior hasn't been adequate for steel to attain the type of growth and productivity that it needs to remain competitive, not only with imports but with domestic substitutes for steel. If steel wishes to increase its rate of growth and step up its productivity it must make greater use of American capital markets, one of the great advantages we have over our foreign competitors. 3. The introduction of an aggressive and flexible price policy de- signed to expand steel's market position both at home and abroad. Our domestic steel prices have risen 51 percent since 1952 compared to 19 percent for Germany and a 30-percent decline for Japan. While in the long run greater price competitiveness depends on cost reducing innovations and investment, even at present cost levels a great deal can be done to improve the competitive ability of the indus- try. I have gone into this in greater detail than I can do today in an article appearing in American Metal Markets for February 7, 1968. Any government assistance to the steel industry should support this self-help program. Steel quotas or increased tariffs do iiot. To the contrary, they eliminate most Of the incentives to make any changes at all. Any Government program to assist the industry should include: ~1. Research grants to the steel industry and universities for research in steel and a stepped up program of the Bureau of Mines in steel research. Actually the Bureau of Mines' program has been ci~it back. 2. Special accelerated depreciation allowances to the steel industry for a period of 5 years to allow and encourage the industry to under- take an intensified modernization program to make up lost ground. In a very real sense the problem of today's imports was made in the late fifties and early sixties when the level of steel investment was approximately one-half of what it is today. . 3. Streamlining of our antidumping laws to make the criteria for foreign dumping clearer and the legal process for securing relief less complicated and time-consuming. PAGENO="0424" 1694 4. Increase governmental pressure on nontariff barriers to steel ex- ports. I don't want to go into detail on the subject of nontariff barriers to trade as several speakers here today have. I can only second what they have said. The steel industry today is `faced with a critical choice. It must either meet the challenge of foreign steel, aluminum, cement, and plastics with a positive policy or else resign itself to a slow decline. The advocacy of quota protection is the counsel or despair. It is an unimaginative effort to preserve profit margins in a declining industry without attempting to deal with the `factors that have prevented the industry from participating fully in the unprecedented growth of the American and world economies. The steel industry's problems are capable of solution but they require basic changes of policy. The steel industry is tougher and more resourceful than the impression it gives from the statements of some of its spokesmen. The impressive increase in productivity that the industry produced under the pressure of World War II indicates the type of response that the industry is capa- ble of delivering when challenged. I have little doubt that the industry is `capable of the same type of response to today's challenge of steel imports and domestic substitutes for steel if it only throws off its mourning clothes, rolls up its sleeves and starts to flex its muscles. Thank you. Mr. FuLrrON. Thank you, Professor Thom. Are there any questions? Mr. CONABLE. No. I think that Professor Thorn has given us a help- ful statement, though~ Mr. FTJLTON. We thank you for the excellent statement that you have presented. Professor THORN. Thank you for the privilege of being able to come. Mr. BATTIN. Mr. Chairman. Mr. FULTON. Yes. Mr. BATTIN. I don't know if Professor Thorn wants the appendix included as part of his statement. Mr. FULTON. Would you like that included? Professor THORN. Yes. Mr. FULTON. Without objection the appendix to your statement will be included in the record. Professor THORN. Thank you. (Professor Thorn's prepared statement and appendix follows:) STATEMENT OF RICHA1U S. THORN, PROFESSOR OF ECONOMICS, UNIVERSITY OF PITTSBURGH The rapid~ growth in steel imports should be restricted but quota and tariff restrictions are an inappropriate way to accomplish this end since they will not prevent the long-run decline in employment, profits and relative output which is taking place today. Quota restrictions are simply an unimaginative effort to preserve profit margins in a declining industry which will take away most of the incentives to deal with thi~ underlying factors which have prevented the steel industry from participating fully in the unprecedented growth in the American and world economies. PAGENO="0425" 1695 S KEY TO THE STEEL PRO]ILEM The key to the problem of the American steel industry is summarized in Table 1. TABLE 1-STEEL, PRODUCTIVITY, WAGES, PRICES, AND OUTPUT 1957-66 as percent per annum Steel industry All manufac- turing Output per man-hour Compensation per man-hour Unit labor costs 2. 8 3. 4 .6 3, 6 3. 8 .2 Prices Output .7 34 5.0 Source: U.S. Senate, Public Finance Committee, Steel Imports (December 1967) pp. 466-468. Labor productivity in the steel industry has risen more slowly than that of the manufacturing industry, in general-2.8 per cent per annuria compared tO 3.6 per cent per annum in the period 1957-1966. While average hourly labor compensation has grown more slowly-3.4 per cent compared to 3.6 per cent per annum-but not enough to offset the slower growth in productivity with the result that unit labor costs in the steel industry has risen on the average 0.6 per cent per annum compared to 0.2 per cent per annum for all U.S. maim- facturing industry. While unit labor costs have risen faster thAn the average, for manufacturing industry, prices have risen on the average about the same, so that a profit squeeze has developed. Output has Increased only 3.4 per tent per annum compared to 5.0 per cent per annum for all manufacturing industry. The steel industry has focused all its attention on the second item, labor costs, `in Table 1 as the cause of all its problems. I maintain that the first item, productivity, is of equal, if not greater, importance. If the steel industry had been able to maintain a growth in productivity equal to that of all U.S. manu- facturing industry, its unit labor costs would have declined. If this was passed on to the consumer of steel, output would have risen faster and profits would have been higher since, as the steel producers have pointed out, most of their profit is in the marginal tons of steel sold and imports would not be the problem they are today. The basic problem of the steel industry of lagging productivity has been com- pounded by an excessively rigid price policy in regard to imports which luffi made the U.S. market a "sitting duck", for foreign steel exporters. In order to stop imports, the steel industry should embark on a three point program: 1. Increase expenditures on research and the development of new prod- ucts in order to step up the rate of cost reducing innovations and expand its market. The steel industry spent only $0.60 of every $100 of sales on R&D compared to $1.90 for all manufacturing. Only the textile and wood products industries spent less on R&D. 2. Maintain the present high level of investment over the next decade. This requires greater use of outside finance. The steel industry has self financed 85 per cent of its' investment expenditures (almost 100 per certt if working capital is excluded) compared to the 61 per cent figure for all manufacturing companies. S 3. The introduction of an aggressive and flexible price policy designed to expand steel's market position both at home and abroad. Our domestic steel prices have risen 51 per cent since 1952 compared to 19 per cent for Germany and a 30 per cent decline for ~apan. While in the long run greater price competitiveness depends on cost reducing innovations and investment, even at present cost levels a great deal can be done to improve the competitive ability of the industry. Any government assistance to the steel industry should support this self-help program. Steel quotas or increased tariffs do not. To the contrary, they elimi- nate most of the incentives to make any changes at all. The government program should include: 1. Research grunts to the steel industry and universities for research in steel and a stepped up program of the Bureau of Mines in steel reseaax&h, PAGENO="0426" 169~ 2. Special accelerated depreciation allowances to the steel industry for a period `of five years to allow and encourage the industry to undertake an intensified modernization program to make up lost ground. 3. Streamlining of our anti-dumping laws to make the criteria for foreign dumping clearer and the legal process for securing relief less complicated and time-consuming. 4. Increase governmental pressure on non-tariff barriers to steel exports. SOLUTION TO STEEL IMPORT PROBLEM If the steel industry wishes to participate fully in the growth of the American economy and maintain a profit rate closer to average experience by the American manufacturing industry, the solution to its problem is inescapable. It consists of three fundamental steps: 1. Greater expenditures on research and development in order to step up the rate of cost reducing innovations. 2. The maintenance of the present high levels of investment in plant and equipment over the next decade. 3. The introduction of an aggressive and flexible price policy to maximize profits designed to maintain and even expand steel's market position both at home `and abroad. The steel industry today is faced with a critical choice. It must either meet the challenge of foreign steel, aluminum, cement and plastics with a positive policy, or else resign itself to a `slow decline. The advocacy of quota protection is the counsel of despair. It is an unimaginative effort to preserve profit margins in a declining industry without attempting to deal with the factors that have prevented the industry from participating fully in the unprecedented growth of the American and world economies. The steel industry's problems are capable of solution, but they require basic changes of policy. STEEL'S MARKET LOSS Imports are just one sympton of the steel industry's growing inability to meet competition, not just from imports', but from substitute materials, notably aluminum, plastics and cement. The steel industry is not only not growing as fast as our economy, it is not growing as fast the industries that produce substi- tutes for steeL Between 1957 and 1966 steel output grew 36 percent while aluminum grew 100 per cent, plastic 86 per cent and cement 46 per cent. This loss of competitive ability is primarily the result of over a decade of inadequate investment in plant and equipment research. No amount of quota or tariff pro- tection will eliminate these deficiencies and reverse the relative decline in the importance of the steel industry in the American economy. An analytical diagnosis of the steel industry's problem suggests a radically different set of polices. PRICE BEHAVIOR Prices as well as technology have played an important role in the loss of steel's market position. Between 1947 and 1966 steel prices rose 115 per cent while the price of aluminum rose only 72 per cent, the price of cement 80 per cent and the price of plastics actually declined by four per cent. While U.S. steel export prices rose 3 per cent between 1957 and 1964, the prices of Common Market steel producers declined about six per cent. FOREIGN COSTS Several industry spokesmen have laid their problems at the door of the high wages being paid American steel-workers. The fact of the matter is that, in the period when steel imports have made their greatest incursion into the American market, foreign wages rates were, and still are, rising considerably faster than American wage rates. In the a4ppended study made by the author it was found that Japanese labor costs per ton of steel at the mill were $16 lower than comparable American labor costs. However, when higher Japanese coke costs of $4 a ton and ocean trans- port rates of $18-$22 a ton are added, they completely offset `the initial labor costs held by Japan. Similar results were found for the European producers. When capital and non-labor costs are taken into account one arrives at the conclusion PAGENO="0427" 1697 that the average cost of foreign steel landed at U.S. forts is greater than that of domestic steel at the milL This does not mean that there are not Japanese steel plants with costs sub- stantially below the average, just as there are U.S. plants. Nor that there are not specific foreign steel products produced at lower cost than corresponding American products but the differences are nowhere as great as those indicated simply by looking at differences In labor costs as some analysts would have us believe. In short, American steel producers are already "cost competitive" with foreign producers. However, "cost competitiveness" cannot be equated with price competitiveness. The rigid price policies followed by the American industry in which prices have with few exceptions moved in one direction have made the American steel market a "~dtting duck" for foreign steel producers, as they slowly disjoint one segment of the market after another. STEEL INVESTMENT The most important factor that has led the steel industry to its present situa- tion today, is inadequate investment in plant and equipment and research and development over the past decade. That might be a bitter pill for an industry to swallow whose investments have been two billion dollars a year over the past two years and are currently running over $2.4 billion a year. But steel's problems were not made in the last three years, but in the late fifties and early sixties when the level of investment was half as much as it is today. Wh&le present steel investment of over $2 billion annually is encouraging, it still does not provide final proof that the industry has committed itself to main- taining its present high levels of investment. The industry has traditionally increased its investment when business was good and red~uced it when business slacked off. As a result of this cyclical investment policy the industry has not been able to replace its high-cost, inefficient steel making capacity as fast as necessary to remain competitive. One trouble of course is `the world steel industry is a dynamic business where you have to run just to stand still market-wise. The American steel industry has a substantial advantage over `foreign steel producers in its almost un1imited~access `to `the American capital market. While Europe may have developed a lead in the technology of steelmaking in the past decade, the international `markets have gone to the countries which have had the capital to apply this `technology, as well illustrated by the example of Japan. The cyclical policy of `investment of the American industry which has brought it to its present state has resulted from the fetish it has developed for self- financing. T'he industry has financed approximately 85 per cent of its gross invest- ment from Internal funds, largely profits and depreciation, compared to an average of 61 per `cent for all manufacturing companies. If changes in working capital `are excluded, the `industry has financed almost 100 per cent of plant and equipment expenditures `from internal funds. The federal government should consider granting the steel industr~y emergency tax relief `for a limited period of time in the form of accelerated depreciation allowances on new investment in order t'o assist the industry in reestablishing its international competitive position. While, in general, I am `opposed to dis- criminatory tax treatment to any industry (in spite of the precedents found in our tax laws), I believe in the case of steel the benefits to the national interest outweigh the disadvantages `by a sufficient margin to make this a desirable course o~ action-infinitely superior to the quota protection currently being discussed. I suggest the steel industry be granted accelerated depreciation at the rate of 33 per cent the first year, 17 per cent the second year and normal rates in subse- quent years on new investment made within the next five years. In short, 50 per cent of any new investment iii the next five years could be written off in the first two years of its life. This type of "shock treatment" should allow our domestic industry to "shake out" `its obsolete, inefficient capacity and reduce its average costs to a level closer to those obtained in its current most efficient operations and set the stage for the pursuit of an aggressive price policy desighed to regain steel's lost markets and penetrate new ones. `The real `challenge to the industry will come when the present boom in steel subsidies, as it may already be doing. To maintain its present level of investment the industry will have to go to the capital market. Will it? `On the answer to this question more than any other hinges the future of the American steel industry. PAGENO="0428" 1698 RESEARCH, PRODUCT DEVELOPMENT In an age when industrial survival and technological development are so closely linked, the steel industry has failed to heed the message. A 1966 report of the National Science Foundation revealed that there were only three industries of those surveyed that spent less of their sales dollar on research and development than the steel industry: food products, textiles and lumber products. All of the industries that produce substitutes for steel spend more on R&D than the steel industry. The steel industry in 1964 spent only 60 cents of every $100 of sales on R&D compared to a $1.90 average for all manufacturing industry (ex- cluding government sponsored research). If the automobile, chemical and plastics and other industries spent the same amount on R&D as the steel industry, I won- der whether we would be debating a general protective tariff rather than a special one for steel? The upper echelons of steel management are almost devoid of men who have come up through the laboratory. My own contact with the industry's researchers has found them to be a demoralized group who feel they are the industry's step-child. Most major recent advances in steel making, BOF, vacuum processing and continuous casting were first developed or implemented in Europe and Japan. It is only in blast furnace technology that we hold any substantial lead, and this is largely due to the recently closed Bureau of Mines experimental blast furnace at Bruceton, Pa. In four years it produced innovations which produced savings in pig iron production of $5 a ton. Technology developed by Bruceton but not yet introduced would be capable of reducing costs another $2.50 a ton. These results were obtained from just four years of intensive research effort in one phase of steel production. It is also interesting to note that most of the new technology developed has been more labor-saving than capital-saving which should enhance the doniestic indus- try's ability to compete against imports. Technological developments however cannot be confined only to cost saving innovations but also must result in new products to regain lost markets and to develop new ones. In addition to greater industry expenditures on R&D there is ample justifica- tion for greater government research assistance to the steel industry. The steel industry is an orphan when it comes to government sponsored research. It receives less government research funds than any other major American industry. I suggest that a substantial government program promoting steel research be inaugurated consisting of 1) grants to individual finns and consortium of firms for applied and basic research; 2) introduction of an intensive research program by the Bureau of Mines in developing new technology and uses for steel including reactivation of the Bruceton experimental blast furnace and 3) government and industry grants to universities to stimulate basic research in steel and allied products. The arguments for greater government assistance in the research area are strong. Many aspects of steel research are extremely expensive and can only be carried on privately by our largest producers. Government sponsored research would make technological improvements available to the more progressive man- agements of the industry and would increase the competitiveness of the industry by giving smaller producers equivalent access to technological information as major producers. The image of steel as a tired old industry with hardening arteries painted by some steel critics is a better description of some executives than it is of the technological future of the industry. There is every indication that the steel industry will respond to a greater R&D effort in much the same way that the rest of American industry has over the past two decades. What is needed is the courage to explore the unknown. PRICE POLICY While in the long run the competitive ability of the steel industry depends fundamentally on lowering costs through greater investment in plant and equip- ment, the introduction of cost saving innovations, and the development of new products, even at present cost levels a great deal can be done to improve the competitive ability of the industry. The internal pricing policies of the industry have aggravated the industry's ability to meet competition from abroad. The industry has widely recognized PAGENO="0429" * 169'9~ that of all of its factory inputs, it is least competitive in unit labor costs and hence in labor intensive products. For eXample, in spite of this, the majority of the industry follows the con- ventional cost accounting principle of allocating overhead costs on the basis of variable cost, a large part of which are labor costs. The result of `this practice is that the products which are least likely to be able to competewith imports must carry the heaviest burden of overhead costs. An accounting rule which allocated overhead costs on the basis of non-labor direct unit costs of a product would contribute toward producing a more compet- itive pricing structure. Vertically integrated firms could improve their ability to compete against imports by allowing their processors and fabricators to purchase their inputs in the cheapest markets even if this means purchasing products from competitors or from abroad. In short, I am suggesiting that profit maximization at each horizontal stage of production in integrated companies will produce a cost and price structure bet- ter able to meet competition from imports and steel substitutes and will secure superior profits compared to attempts to maximize profits by treating the verti- cally integrated company as a single firm or "profit center." The steel industry should be more aggressive in meeting price competition selectively in individual markets rather than beating a hasty retreat. The industry has missed some important lessons of competitive gamesmanship. The creation of greater uncertainty about the domestic industry's price be- havior in meeting foreign competition may cause Japanese and other foreign pro- ducers to take a more cautious view of adding steel making capacity based on further penetration of the American market and will help destroy the "sitting duck" view that foreign steelmakers have taken of the American price structure. If there is one area which is clearly in the domain of government action, it is efforts to remove non-tariff barriers to trade. In this area the industry has been poorly served by our government partly because of the industry's own reluctance to seek assistance from Washington. The government should seek vigorously the lifting of discriminatory non-tariff barriers to steel exports in the OECD, which has specific jurisdiction in this area, and in our bilateral relations with steel producing and importing countries. U.S. anti-dumping laws should be revised in order to make the criteria for for- eign dumping clear and the legal process for securing relief less complicated and time consuming. Federal assistance to research, accelerated depreciation allowances to stimu- late investment, government pressure to remove foreign non-tariff barriers to trade and streamlining of our anti-dumping laws rather than special quota pro- tection are the proper areas for the industry to demand government action. The steel industry is tougher and more resourceful than the impression it gives from `the statements of some of its spokesmen. The impressive increase in pro- ductivity that the industry produced under the pressure of World War II indi- cates the response that industry is capable of delivering when challenged. I have little doubt that the industry is capable of the same type of response `to today's challenge of steel imports and domestic substitutes for steel. APPENDIX STEEL IMponTs, LABOR PRoDucTIvITY, AND CosT COMPETITIVENESS The principal argument that has been cited by the steel industry for the rapid increase in imports since 1957 is the rapid gr'o~rth of modern steel-making capacity abroad and lower foreign prices which the steel industry has ascribed to occasional dumping and "lower costs," particularly lower labor costs, abroad. Can the lower delivered prices of foreign steel in the U.S. be explained by lower costs abroad, and if so, how much of this may be attributed to lower labor costs? Recently, data have become available which, although they contain some important shortcomings, allow a more precise quantitative insight into the ques- tion of steel imports, labor productivity and the cost competitiveness of the domestic steel industry. It is difficult, if not impossible, at present to make PAGENO="0430" 1700 international comparison's of absolute unit costs for producing steel because of the lack of essential data. However estimates may be made of the differential costs of the major factor inputs which go into steel which together with infor- mation on labor productMty enables an estimate to be made of the differential unit costs for producing and delivering steel to the United States. This method gives us important' new information with which to evaluate the "cost compet- itiveness" of the domestic steel industry as distinguished from its "price com- petitiveness." The actual price charged per unit of output is a combination of cost and demand factors and the pricing policy followed by steel producers. WAGE COSTS In Table 1 are shown the unit wage costs per `ton of producing steel in several leading steel' producing countries which provide almost all the steel imported into the United States, along with `other information on wage rates and labor productivity. A few `words of explanation are necessary on the data: (1) Wage costs comprise gross wages which include average direct wages (`time or piecework wages) including cost of living, overtime, night or Sun- day work allowances and bonuses for special responsibility, heavy, dirty or dangerous work and productive bonuses plus the following fac'tors-legal or cont'ractual social insurance contributions to insurance institutions, paid vacations, public holidays and other days of leave with pay, family allow- ances pai'd by the employer, together with any other labor payments paid by the employer not coming under these categories. (2) Man-hours per ton of steel is the annual number of hours worked by production workers in 1966 divided by the crude steel production of that year, i.e. average production workers' man-hours required per metric ton of steel produced. (3) Unit labor costs were obtained by multiplying the average man- hours per metric ton of steel of (2) by the average gross hourly wage costs defined above. TABLE 1.-ESTIMATED LABOR COSTS FOR PRODUCING STEEL IN 1966 Unit labor Man-hours 1 per Hourly wage Crude steel cost per ton ton of steel cost production (metric tons) Japan 2 $14.92 $13.81 $1.08 47,784,000 Luxembourg 17. 88 8.68 2. 06 4,390, 000 Netherlands 14. 79 6. 88 2. 15 3,255, 000 Belgium 21.93 11.02 1.99 8,911,000 France 20. 19 12. 94 1. 56 19, 594, 000 Germany Federal Republic of 19. 42 10. 17 1. 91 35, 316, 000 Italy 14. 03 8. 30 1. 69 13, 639, 000 United States 32. 65 7. 05 4. 63 121,656, 000 I Production workers only. 2 1967: $1330 (estimate). Source: Iron & Steel Bulletin, Statistics Institute of European Economic Community, AISI Annual Statistical Report, 1966, p. 14. The data had three shortcomings: (1) no account is taken of the types of steel produced and the product-mix which may vary considerably between countries. Ideally one would want the labor productivity data on a product by product basis but this data is difficult to obtain and even if available would not be comparable with data from other mills because of differences in accounting methods; (2) some fringe benefits for foreign workers which are paid out of taxes or tax benefits are not included, e.g. housing in some coun'tries; (3) the cost of workers other than production workers is not taken into account. Table 2 shows that the ratio of production workers to the total labor force varies considerably. Belgium has the highest ratio, the U.S. is in about the middle, and Japan has the lowest ratio. In spite of these deficiencies, it has been possible to compute cost differences for inputs comprising approximately 75 per cent of total costs and the results are sufficiently accurate to indicate the approximate quantitative dimensions of the problem. PAGENO="0431" 1'701 TABLE 2-RANKING OF STEEL IMPORTS BY COUNTRY OF ORIGIN IN 1966 Percent of Ratio of Percent of U.S. steel imports, 1966 Unit labor costs per ton, 1966 increase in hourly wage costs, 1964-66 production workers to total labor force in steel, 1965 Japan 39.7 Belgium-Luxembourg 13. 1 West Germany 10.7 France 6. 5 United Kingdom 6.2 United States $15 18-22 19 20 125 33 21.0 12. 1 14.8 5. 5 10. 0 3. 1 76.9 84. 7 82.3 79. 3 80. 9 82. 3 1 Rough estimate. Source: American Iron and Steel Institute, International Federation of Metal Workers, and table 1. The United States, although it has the second highest labor productivity per ton (the reciprocal of man-hours per ton) of steel, also has the highest unit labor costs (Table 1) because of its high wage rates. Japan is the worst of the group in labor productivity but has the second lowest unit labor costs. The relative ranking of the remaining countries' unit labor cost is approximately inversely related to their labor productivity ranking. There is a rather close correlation of the ranking of the share of major steel producing countries in the U.S. import market and their unit labor costs (Table 2), which suggests that unit labor costs are a major determinant of the relative competitive ability of foreigners and that ether factors such as material cost are of secondary importance. However, the relative position of Belgium, Germany and France, Which have almost equal average unit labor costs, indicate that other factors than wage costs also enter into the market position of foreign producers. Wage costs per man-hour between ~64-19'66 have risen faster in foreign countries than in the United States as shown in Table 2 and, with the exception of the United Kingdom, have risen fastest in countries with lowest wages. However, in 1066 Japan still had approximately $16 a metric ton lower wage `costs than the United States, and European producers $5-13 a ton lower labor costs. Foreign steel producers therefore have an `average absolute labor cost advan- tage at `the mill of somewhere in the neighborhood of 4-14(% 1 of the unit price of steel, the exact amount depending on the price of the product, and the actual number of man-hours `employed per ton to produce it. The advantage of European producers alone was in the neighborhood of 4-11%. Fortunately for the domestic steel industry, labor costs comprise only 42 per cent `o'f its produ'ction costs. Material costs in 1964 comprised 4~ `per `cent of its cost and capital costs the remaining 9 per cent.2 Both material and capital costs represent a higher percentage of total costs of the foreign steel producers, and both these `costs are higher than those of the American industry. Th'e question then in determining the cost competitiveness of the U.S. industry is to detei~mine h'ow much higher these other costs' are. MATERIAL COST DIFFEIIENTIAL5 The amount of coke required to produce a ton of steel has' fallen `sharply in recent years as a result of improved technology. In 1~6 only 1282 lbs. of coke were required to produce a ton of steel in the United States.8 To produce a ton of coke requires approximately 1.48 tons of coal,4 so tha't approximately 1833 lbs. of coal are required to produce one ton of steel. Japan imports all its coking coal, and Europe a very large percentage of its coke. It is' known `that coke produced from European coal is `higher in cost and of inferior quality, so that if we assume all European and Japanese production is based on imported metallurgical coal 1 AssumIng an average price of steel of $118 a metric ton which was approximately the average elf, price of 15.5. steel Imports in 1966. U.S. Congress Senate Finance Committee, ~teei Imports (Dec. 19, 1967), p. 78 (cited hereafter simply as "iS'teel Imports"). Council of Economic Advjser,s,, Report to the President on ~S'teei Prices (Washington, April 1965), p. 80. 8 M. W. Llghtner, "Developments In Iron and Steel Making," `blast furnace and steel plant (November 1966), p. 1023 Cf. Steel Imports, p. 169 where a slightly higher rate of 1,312 lbs. is given. The newest Japanese coke plants are slightly more efficient. PAGENO="0432" 17O~ from the United States, we shall approximate the coke costs of the most efficient plants abroad.5 In practice, because European producers are required to employ a certain amount of Common Market (E'CSC) coal, their costs are slightly higher than this assumption would indicate. The difference in the cost of coke is based entirely on the differences in transportation costs and while the exact difference depends on the precise location of each plant with reference to its coal supply, we may take as a first approximation that the difference `between U.S. and foreign producers is due to differences in ocean freight rates. In February 1967, based on information supplied by a major U.S. coal exporter, the freight rates on coal were: Freight per gross ton 40000 ton vessels 80,000 ton vessels Norfolk to Japan Norfolk to West European ports $5. 50 3. 5 1 $4. 40 2. 80 1 Estimated. While these freight rates are extremely low levels and may be expected to rise, the greater use of super bulk carrier ocean vessels will tend to lower freight rates so that the average cost of transportation might remain relatively stable over the next five years in spite of higher average freight rates. Japan now is in the process of switching over to Australian coal to supply its steel industry and intends to use little American coal after 1972. This should re- sult in a substantial reduction of coal costs. Both the American and foreign industry find imports of foreign iron ore com- petitive with the domestic ores, especially at plants located close to ports. The United States imported 36 per cent of its iron ore in 1966. It may be assumed for the purposes of this exercise that the cost of iron ore is approximately the same for all producers, although it is likely that Japan and Europe probably have slightly higher ore costs. Ore costs in practice, however, will vary widely within a country from plant to plant, depending on the location of the plant. Both American and foreign producers imported almost all their manganese ore so there may assumed to be no differential in this respect. These three materials, iron ore, coal and manganese ore, account for approxi- mately 46 per cent of the cost of steelmaking materials in the U.S.6 It is assumed that with the remainder of the inputs such as steel scrap, electric power and other miscellaneous inputs, there is no differential although it is likely that on the balance, foreign costs are higher than those in the United States. TRANSPORTATION COST DIFFERENTIALS To bring the finished steel to U.S. markets involves further costs. The cost of transporting steel from Japan to U.S. Pacific Ports for most products actively imported in 1966, based on actual invoiced costs, was approximately between $18.65 and $22.33 and from Western Europe to East Coast Ports $l3.97-$2l.OO,~ depending on the product. In some instances, however, steel may be brought in on tramp steamers at less than $12 a ton, although in 1966 only a small percentage of steel entered the U.S. on tramp steamers.8 However, lapanese and other foreign producers are organiz- ing export cartels in order to make greater use of chartered vessels. CAPITAL COST DIFFERENTIALS The comparison of capital costs is one of the most difficult elements to estimate. In the period 1956-1966, the American steel industry invested $14.9 billion and charged off $9.6 billion in depreciation, depletion and amortization so that its net investment in this period wa~ $5.4 billion.9 At the same time steel capacity in- ~IT.S. Senate, Joint Economic Committee. "Steel Prices, Unit Costs, Profits and Foreign Competition," hearings, Washington, 1963, pp. 514-515. (Henceforth cited simply as "hearings"). 6 Based on 1961 weights. Hearings, op. cit., p. 257. Material costs represent a consider- ably higher proportion of total costs of the foreign industry, ~tee1 Imports, p. 447. "Cf. Hearings, op. cIt., pp. 5~5~-~567 for complete ocean tariff data for earlier period. 8Cf. Hearings, op. cit., p. 551. The information for 1966 is from private industry sources. °Steei Imports, p. 420. PAGENO="0433" 1703 creased by 36 million ~ at an average cost of $149 of net Investment per ton of new capacity. However since financial depreciation was considerably in excess of the physical depreciation of plant and equipment, the investment figure has been arbitrarily increased to $300 of net investment per ton of new capacity, the figure often cited by the industry.11 The cost of a net ton of Integrated ~capacity in Japan has been estin~ated to be on the order of $115-127 a net ton. For the purposes Of our calculation we shall assume a figure of $121 a ton.~ Lacking sufficient data it was assumed that the cost of European capacity was about halfway between that of Japan and the United States of $160 a ton. Roger Tyson of the Finance Committe of U.S. Steel has estimated the working life of a steel plant at 25 years. The figure of 2(~ years, however, has been em- ployed for depreciation in the calculation of depreciation differentIal~ Interest rates In 1966 were considerably lower in the United StatOs than abroad as shown in Table 3. However the American industry has charged the industry abroad has received low cost loans and certain tax advantages which have lo*- ered the average cost of their capital ~ and for the purposes of this study it is assumed that there are no differences in the Interest cost of capital. TABLE 3.-Lone term bond yields in selected collntries, December 1966 Long-term bond yields (percent) Germany 7.6 Japan 7.5 United Kingdom 6~ 8 Belgium 6.7 France United States 4. 7 NOTE-Yields on representative government or public sector bonds except for Japan where seven-year industrial bonds were used. Source: Federal Reserve Bank of New York, Annual Report, 1966 (New York 1967), p. 43. TOTAL COST DIFFERENTIALS BETWEEN U.S. AND FOREIGN STEEL PRODUCERS Now adding together the various elements of differential cost, we may obtain some rough aSsessment of the total cost differential of foreign steel producers. This is done in Table 4, separately for Japan and the major European producers shown previously in Table 2. The data in Table 4 do not take account of differences in management costs. It is difficult to estimate the direction of the effect that the inclusion of non- production workers would have. While the compensation of American salaried workers is higher than that of their Japanese counterparts, the ratio of the number of Japanese non-production workers to production workers was higher in 1964 as was shown in Table 2. The problem is further complicated by the difficulty in estimating the total compensation and benefits received by executives in each country. The ratio of salaried workers to wage workers however, rose substantially in the United States from 22.7 per cent in 1957 to 28.7 per cent in 196G. The reader is again reminded that these are averages There was, for ex- ample, a domestic steel plant in 1962 that had lower unit labor costs than the average for Japan,15 and some U.S. producers have higher coke costs than pro- ducers In Europe or Japan due to their location and overland freight rates. Nevertheless, the exercise is still valuable in shedding light on how valid is the general argument of lower foreign costs in explaining the sharp rise in steel imports. l0yte~l Imports, p. 278 and National Industrial Conference Board, Economic Almanac, 1968, p. 424. ~ AISI, The Steel Import Problem (New York 1967), p. 37. However C. A. Lovgren esti- mated the investment cost per ton of capacity for a two million ton plant producing cold roiled coils by conventional processes between $203-$225 depending on the particular com- bination of processes employed, "Forces of Economic Change, Steel U.S.A." Unpublished paper presented to the 97th Meeting of the A.I.M.E., February 27, 1968, p. 7. ~ K. Takeda, "The Technological Development of the Iron and Steel Industry in Japan" in American Iron and Steel Institute, 1966 Yea'rboolc, p. 234 data converted to net tons. ~ George McManus, The Inside Story of Steel Wages and Prices 1959-1967 (Philadelphia 1e67), p. 62. 14 Cf. AISI, The Problem of Steel Imports, op. cit. Steel Imports, p. 40 if. The interest Cost per ton of steel ingots for U.S. companies was the second lowest of all world in- dustries studied in 1962-64, however this data is influenced by the higher debt ratio of foreign steel industries. 15 Hearings, op. cit., p. 511. 95-159 0-~6S---pt. 4-28 PAGENO="0434" 1704 TABLE 4.-AVERAGE COST DIFFERENTIALS PER METRIC TON BETWEEN UNITED STATES AND JAPAN AND EECI I-Indicates Iesst han U.S.c ostsj Japan EEC Estim ated unit wage cos tdifferential -$1 7.73 -$18.62 to -$10.72. Coke, ocean freight tof oreign producer, 1967 3.60 to 4.65 2.37 to 2.96. Steel, ocean freight 1966 rates 18.65 to 22.33 13.97 to 21.00. Total differential excluding capital 4.64 to 9.25 -2.28 to 13.24. Estimate of capital cost differential -9.00 -4.50. Average tariffs 2 7.00 7.00. Total cost advantage 2.64 to 7.25 0.22 to 15.74. 1 Differences of sum of all excluded inputs assumed to be equal. 2SteeI imports, p. 24. It may be seen from Table 4 that lower material costs (largely due to ocean freight rates), transportation costs, capital costs and tariffs more than offset the cost disadvantage the U.S. steel industry incurs through higher unit wage labor costs. In other words the lower price of imports must be sought in other direc- tions, In general, than in lower costs of foreign producers.1° While some foreign products, particularly those of Japanese origin, may actually cost less delivered at U.S. ports than at U.S. steel mills, the difference is nowhere as great as the difference in unit labor cost and well within the realm of the competitive ability of the U.S. industry to meet through further improvement in labor productivity, managerial efficiency and reduction in prices. The large difference in prices of steel products observed in U.S. markets cannot be primarily ascribed to differences in costs but must, at least partly, be ascribed to differences in price policy. The OEEO Iron and Steel Committee observed in their 1960 report, "there seems to be a fundamental difference in the export price policy pursued by producers in the various exporting areas. . . the producers in the European Coal and Steel Community and Japan . . . seem to adopt a much more flexible policy . . . to try to expand their share of the export market by making price sacrifices. This policy is in marked contrast to that followed in the United States and, it would seem, in the United Kingdom where the steel indus- tries seem less disposed to offer heavy price cuts to overseas consumers ~ 17 nor, one can add, are they inclined to readily reduce prices to domestic consumers to meet foreign competition.~ The somewhat surprising fact that foreign producers have slightly higher costs than the American Steel Industry is supported by data on the rate of profits which with the possible exception of Japan are below those of the American Industry. Since foreign firms use a much larger amount of debt than American firms, a more reasonable comparison can be made employing the ratio of Net Income plus Interest to Revenues as shown in Table 5. The Common Market steel industry in face of its low profitability and over capacity is cutting back its investment. However, Japan continues to expand its steelmaking capacity in the expectation of further penetration of the American market. TABLE 5.-NET INCOME AND INTEREST AS A PERCENTAGE OF REVENUES FOR SELECTED FOREIGN STEEL COMPANIES, 1965 Net income! Net income revenues as plus interest! percent revenues as percent Japan (Yawatz) Belgium (Ilainaut-Sambre) Germany (Thyssen group) France (USINOR) United States (industry) 2.9 1. 0 2. 3 1.4 5. 9 9.7 3. 3 5. 1 6.0 6. 8 Source:''The Steel Import Problem," p. 64. 16 Professor Weidenhammer estimated that Japan had an average cost advantage of $16 a ton and that European costs equal American costs. Ct. ~teeZ Imports, p. 24. `~ OEEC, The Iron c~ steel Industry in Europe (Paris: May 1960), p. 97. Cf. Hang Sheng Cheng, "Relative Movements in the Price of Exports of Manufactures," IMP staff Papers (March 1062), p. 91-94. ~ J. Dirlam and W. Adams, "Steel Imports and Vertical Oligopoly Power," America'a Eco- nomsc Review (September 1964), pp. 026-655. PAGENO="0435" 1705 THE FUTURE COST COMPETITIVENESS OF THE AMERICAN STItEL INflUSTEY Technological developments in iron and steelmaking already in existence are capable of greatly increasing the cost competitiveness of the U.S. steel industry.~ In the making of iron alone, technological prograss already made by the Bureau of Mines is capable of reducing the cost of Ironmaking $2.50 a ton,2° The introduc- tion of the basic oxygen furnace (BOF) will lower operating costs including unit labor costs substantially.n The competitors of the U.S. however are not stand- ing still in technological development. To the contrary, in steelmaking they have a substantial lead.22 The prize, however, Will go to the national industry which most rapidly invests in plant and equipment embodying the newest technology. Here is a battleground where the U.S. industry has a substantial advantage In its access to the U.S. capital market if it chooses to exercise it. However, as' long as the steel industry relies principally on self-financing of new investment, it is tying its strongest competitive hand behind its back.~ In the longer run as European capital markets grow in strength, the U.S. steel industry will have to attain and maintain technological superiority in order to maintain its competitive position, although the closing gap between foreign and domestic `steel wage costs should offer some assistance. To achieve technological leadership will require a sharp increase in the surprisingly low industry and federal expenditures on research and development made by the steel industry.~ The transportation barrier will not offer permanent protection to the American steel industry. The important role of ocean freight rates, particularly those for finished products, in determining cost competitiveness can be seen on Table 4. If the present declining trend of ocean freights continues, the cost competitive- ness of American steel industry may be further threatened. This again high~ lights the necessity for cost saving, particularly in the direction of increasing labor productivity. The possibilities for substantial cost reductions are already in existence, as previously mentioned. The introduction of the best existing blast furnace tech- nology can reduce operating costs $2.50 a ton and the introduction of BO~ furnaces another $5.00 a ton. The BOF furnace is capable of increasing labor productivity in excess of 300 per cent over present methods of production as demonstrated by the actual operating experience of a major steel producer.~ The BOF gives the American industry the possibility of changing the composi- tion of its inputs in a manner to greatly reduce the ratio of labor to other factor inputs. Therefore rapid introduction of the B013' will improve the international cost competitiveness of the American industry by economizing on the factor input in which it is least cost competitive. This advantage to the American industry will occur even as foreign producers increasingly adopt the BOF processes because the new production function will make greater relative use of our lower cost inputs (materials and capital) relative to our higher costs Inputs (principally labor), whereas it will have the opposite effect on foreign producers. Similar comments to those made about the BOF also apply to the introduction of continuous casting and other presently available innovations.~ However careful attention must be paid also to management costs which have risen faster than wage costs, 3.8 per cent compared to 25 percent per ton for the period 1957-1966, respectively. ~° For example, a study made by L. F. Rothschild & Co. In 1965 of Republic Steel mdi- cated that savings of $23 a ton could be made if the most modern technology were intro- duced in all phases of steelmaking. steel Imports, p. 135. Cf C.A. Lovgren', op. cit. ~ on operation of the Bureau of Mines, Bruceton experimental blast furnace. ~ It has been estimated the BOF can reduce operating costs by approximately $5 a ton. See W. C. Ruechel and J. W. Irwin, op. cit., p. 62. Also, U.S. Bureau of Labor Statistics, Technological Trends in Major American Industrids (Washington 1966). p. 74. 221n 1966, Japan produced ~i8 per cent of Its steel with the BOF process. Europe 24 per cent and the United States 25 per cent. (Quarterly Bulletin cS steel statistics for Europe, various issues). ~ The U.S. steel industry financed approximately 85 per cent of Its gross investment from internal funds compared to the 61 per cent average for all manufacturing. See Council of Economic Advisers, op. cit., p. 60. 2~ Of the 15 industries for which the National Science Foundation computed the ratio of company financed research and development expenditures (excluding government funds) to sales in 1964 steel was 12th followed only by textiles, lumber and food products. The steel in~uistry spent only $60 of every $100 of sales on research and development, cornptared to $1.90 for all manufacttu-ing industry. The steel industry received less government tunds for research th,an any other major American industry. National Science Fo'un4ation,, Basw Research, Applied Research and Development in Industry, 1964. (Washington, June 1966), p. 62. ~ Hearings, op. cit., p. 762. ~ Cf. Steel Imports, p. 195. PAGENO="0436" 1706 CONCLUSION The higher productivity of labor has offset a major portion of the higher wage costs paid U.S. steelworkers when compared with foreign wages'. Higher material, transportation and capital costs have largely, or completely, offset any other cost advantages foreign steel producers may have. For most steel products, American steel products are already "cost competitive" in U.S. markets. For those foreign steel products whic'h have a present cost advantage, the American industry has it in its grasp through a higher rate of new investment and greater research and development expenditure to eliminate this advantage in most products. However, "cos't competitiveness" cannot be equated with price competitiveness. What is lacking is an aggressive price competitiveness to match the high co's't competitiveness of the American industry. Steel makers can take small solace in any success they obtain in shutting out steel `imports with tariffs or quotas. Under their present policies, if imports do not erode their domestic markets, aluminum, cement, plastics and glass will.27 The rise in steel imports in being a highly visible indicator well may be a blessing in disguise in calling attention to the loss of domestic steel markets to other competing materials, among them sited imports. The solution to the steel industries' problem of the loss of domestic markets ~ is a high rate of investment over the next decade both in plant and equipment embodying recent technological developments and in research and development to create new products and to achieve a future technological advantage, and the introduction of a more aggressive price policy. (`The following statement was received, for the record, by the com- mittee:) STATEMENT OF RICHARD W. LINDHOLM, PRoFEsSOR OF FINANCE AND DEAN OF THE GRADUATE SCHOOL OF MANAGEMENT AND BusINEss, UNIVERSITY OF OREGON The value added tax is rapidly becoming the major tax of the industrial nations of the world. However it is not being considered in these Hearings. The United States is not seriously considering this approach to the solution of its balance of international payments problem. Nevertheless, the close relationship of the expansion of value added tax use to the international flows of commodities, services and capital justifies a summary at this time of its basic theory and broad operational principles. My analysis which follows is based on over ten years of careful study of the tax as a public finance professor at Michigan State University and as professor of finance and dean of the Graduate School of Management and Business at the University of Oregon. A NATIONAL VALUE ADDED TAX TO STRENGTHEN THE U.S. INTERNATIONAL PAYMENTS POSITION The adoption of a value added tax as a major national tax would help to har- monize the U.S. tax system with that of most industrial nations. The term "tax harmonization" has been popularized by Professor Neumark, who completed with others a very influential report for the Member States of the European Eco- nomic Community (EEC) .~ It considers how to make national tax systems suffi- ciently similar so that tax differences do not become a major element in a deci- sion to invest; sell, produce, or where to hold income earned.2 27 These substitutes for steel products have made large inroads into traditionally iron and steel markets. Their prices have all fallen in relationship to steel and their output has grown considerably faster than that of steel. Cf. Council of Economic Advisers, op. cit., chapter 3, and R. Thorn, "The Trouble with Steel," Challenge (July 1967), for further discussion of this point. Cf. ~5teel Imports, pp. 109-117. ~ To regain foreign markets, however, will also require government assistance to re- duce non4ariff barriers to steel exports and freight rate discrimination. See H. Thorn, "The Challenge to Steel," American Metal Market, Feb. 7, 1968, p. 1. 1Translation of the Neumark Report of the Fiscal and Financial Committee on Tan Harmonization in the Common Market. The membership of the FFC Committee was Chair- man Fritz Neumark, Frankfurt am Main; members, Willy Albers, Kiel; Alain Barrere, Paris; Cesare Coscianai, Rome; Joseph Kauffman, Luxembourg; Maurice Masoin, Brussels; Bernard Schendstok, The Hague; Carl S. Shoup, New York; G. Stammati, Rome; George Vedel, Paris (Chicago, Illinois: Commerce Clearing House, 1963). ~A definition geared to economic goals suggested by Douglas Dossar and quoted by Melvyn Krauss in "Balance of Payments Aspects of Tax Harmonization," Natsonal Tan Journal, March 1967, p. 30, is as follows: ". . . tax structures are deemed to be har- monizeci when they are moved from an unsystematic to a systematic set of tax rate dif- ferentials geared to some objective of economic or political policy." PAGENO="0437" 1707 Another tax term recently introduced to much wider usage in American tax literature is "border taxes." This refers to the levy of taxes on the value of an imported good after customs and transportation costs have been included. The rate applied may be no higher than the indirect tax rates this good would bear if produced within the country of imnort. An "indirect tax" is a tax so declared in the General Agreement on Tariffs and Trade (GATT) and includes special excise taxes, general turnover, or sales taxes, and also VAT. Excluded are the individual and corporate income and profit taxes and apparently all property and wealth taxes.3 GATT establishes standards for national conduct of nations in the area of in- ternational trade. All major commercial non-communist nations have agreed to follow the rules. The last major nation to be accepted was Japan. "Tax rebate" refers to the GATT rule permitting nations to refund indirect taxes attributable to goods exported. The general fiscal rule applicable by GAT'T is that direct taxes (all taxes' not indirect ) are payable at source, i.e., the country of origin. In the case of income taxes, this means the country in which the income was earned. All indirect taxes are to be collected on a basis of country of destination. This means indirect taxes are rebated on exports and assessed as border taxes on imports. VAT has become the principal source of tax revenues of the French national government. The French name is t~a'e sur Ia valeur ajouteë (TVA). It is a tax levied at each stage of production on the difference between the selling price o$ the product and the value of products purchased from other business firms In- cluded in the product sold. There are other terms involved in thinking about the relationship between na- tional tax systems and the balance of payments. These will be defined along the way as is appropriate. The importance of the relationship between national tax systems and the balance of payments was first recognized in U.S. Treasury tax recommendations when the Revenue Act of 1962 was developed. Federal government tax actions since 1962 consisted largely of making corrections on the fringe of a troublesome and basië international tax disharmony existing between the U.S. and EEC~ Even the justly famous U.S. 1964 tax reductions are appropriately viewed in this light. The American economy in 1968 continues to enjoy an industrial research or- ganization that develops many new products requiring worldwide investment and marketing for full exploitation.4 It continues to be a high savings economy. It also continues to suffer from a negative balance of payments figure, large federal government deficits, and rising prices. U.s. adjustrn&nts The Hearings and the Treasury 1962 and 1964 tax proposals considered only a limited approach toward harmonizing U.S. and European tax treatment of busi- nesses. The harmonization was toward making the maximum individual income tax rate more comparable with that existing in Europe. The corporate tax rate was reduced directly and also indirectly by increasing the rate of allowable depreciation and by making allowance for a tax credit for qualified investment The legislation of 1962 also provided procedures aimed at increasing corporate income taxes collected on profits of foreign operations of American companies. The elimination and reduction of rates of the special federal excise taxes in 1965 was a step toward harmonizing the U.S. tax system with that of the Men~ber States of EEC. Tax treaties and 1966 legislation to reduce tax barriers to foreign investment in the U.S. are yet other tax harmonization steps taken by the U.S. The 1964 adoption of the Interest Equalization tax by the U.S. and the special 25 percent German tax on interest income oi~ foreign holders of German bonds and savings accounts, one arising from unusual capital outflow and the other from unwanted capital inflow, are symptoms of the types of tax developments caused by international imbalance. The reaction can become much more drastic as the imbalance becomes greater and takes on more of the air of permanence. This can be expected to be the situation now that Germany has adopted VAT and the rapid spread of the tax throughout western Europe is underway. 8 can be collected on the income paid base and this is the procedure that may be used if it is introduced into the U.K. or the U.S. Neverth5less, nearly all considerations of VAT utilize the sales or transaction *base. 4Dan Throop Smith, Revens~e Act of 1962, Hearings of senate Finance Ooniinittëe, Pt. 7 (Washington, D.C.: U.S. GPO, 1962), pp. 3087-3093. PAGENO="0438" 1708 EEC member state taco evolution Traditionally, the Member States of EEC have made considerably greater use of indirect taxes than the U.S. These taxes are refunded on exports and collected as border taxes on imports. This became accepted practice when tax rates were much lower than in the 1960's and has been included in the GATT arrangements. VAT (TVA) as developed by France during the past ten years has been accepted by GATT as an indirect tax and therefore refupdable on exports. Also, the tax can be levied as a border tax on imports. The taxes collected by all levels of government of European nations divert to government use about as large a portion of GNP as is the case in the U.S. The impact on the balance of international payments of tax differences is not in the relative level of taxation. It lies in the types of taxes used to raise this level of government revenue, and the manner of taxation expected to exist in the future. The EEC is now deeply involved in carr~ring out Article 99 of the Treaty of Rome. On April 5, 1960, under the provision of Article 99, The EEC Commission established a Fiscal and Financial Committee (FFC) to work towards "estab- lishment of a common market through creating and insuring conditions similar to those of an internal market" in the area of taxation. The report of the FFC was completed in July, 1962, and adopted by the Economic and Social Committee of EEC on July 2, 1963, and by the European Parliament on October 17, 1963. A substantial portion of the FFC report is a recommendation for a common EEC value-added tax along the lines of the very successful French TVA. The timing provides for passing and promulgating a VAT (PVA) system before December 31, 1967, and the entry of the system into force cannot be delayed beyond December 31, 1969. The draft of structure and implementing details were completed on schedule and submitted in April 1965. In February 1967, the EEC Member States gave final approval to adoption of a VAT (TVA) system on industrial goods. The system will be in effect not later than 1970. On January 1, 1968, the German VAT (Mehrwersteuer) went into effect. The remaining EEC Member States are developing appropriate legislation. However, the Italian VAT is not expected to become effective until 1971.~ VAT is being used by Den- mark, and Norway and Sweden have adopted legislation to introduce it. EEC is well on its way to establishing a common VAT. Under the rules of GATT the VAT possesses the capability of providing a powerful export stimulus through rebate to the exporter of all tax attributable to the production of the product exported. It also can be the basis for restricting imports as the full rate of the tax can be applied to imports as border taxes. It is very doubtful if a tax possessing these international trade "advantages" can be realistically abandoned or turned down once introduced and used by a major group of trading nations. Current U.S. discussions to attempt to minimize the advantages are therefore unlikely to produce results." GATT's acceptance of VAT as an indirect tax seems to have developed origin- ally from the conditions out of which it arose and the method of French admin- istration. The correctness of this decision can be the subject of an honest differ- ence of opinion. But this is all water over the dam, and TVA, and therefore VAT, are considered to be indirect taxes by GATT under Article XVI-4 and implementing amendments. This GATT position combined with proven effective- ness of VAT in France points to a very nearly inevitable continued spread of the use of the tax. It is a multi-level tax, and therefore can be a major revenue raiser with rela- tively low rates. Its use permits red~xction of taxes on profits and incomes. It will also be the basis for an clitio~al protective trade wall increasing the clif- ficulty for firms outside EEC to compete in EEC with producers located in EEC Member States. The attraction of VAT to EEC Member States and other Euro- pean nations as a substitute for their cascade turnover taxes is nearly irresistible. The tax does not violate the basic theory of turnover taxation while it eliminates most of the weaknesses of this tax. The VAT approach to taxation has proven itself in France and has been adopted by Germany. The generalization of the procedure will permit EEC Member Tauat'ion, April 1966, pp. 92-95, February 1967, pp. 44-45, and Oommon "Richard W. Liadhoim, "Adjusting the Posture of the U.S. Economy to Facilitate Cor- pQ~ate freedom in International Actions," The Journal of Finance, (1966) pp. 253-265 and Maintaining the strength ot the United stales Dollar in a strong Free World U.S. Treasury, January 1968, p. 11. PAGENO="0439" 17~iO States and other Western European nations to increase the relative portion of total government revenues arising from a multi-level transactions tax. This de- velopment will relieve the revenue pressure for substantial corporate and indi- vidual Income taxes. More than likely VAT will also make it politically easier to retain general indirect taxation as a major revenue raiser. The net effect will be~ that pressures for European use of direct taxation will decrease and pres- sures against indirect taxation, particularly of the multi-stage type will also decrease. The disharmony between the tax system prevailing in the U.S. and Europe will widen. Balance of payments considerations A number of undesirable results can be associated with this developing inter- national tax situation: (1) It makes it more difficult for the U.S. to enjoy its economic potential; (2) It causes the rebirth and continuation of international economic bar- riers to products of nations using direct taxes; (3) It makes foreign investment attractive in countries using VAT because it permits them to reduce their income taxes. Negative U.S. international payments balances set into motion by the widen- ing tax disharmony cause the following chain of events: The lower profits taxes in the EEC Member States than in the U.S. make it attractive for American capitalists to invest in the EEC and to retain reserves outside of the U.S. The relatively high profit taxes in the U.S. cause EEC capitalists to refrain from investing in the U.S.: the net result is negative international balances on capital accounts for the U.S. The Foreign Investors Tax Act. of 1966 somewhat mitigates this impact by giving favors to foreign income receivers and asset holders that are not available to U.S. citizens. The tax refund available to exporters from EEC Member States, but not available to exporters from the U.S., and the border taxes assessed by EEC, but not by the U.S. reduces international balances on trade accounts.7 The U.S. surplus (balance on goods and services) has deteriorated steadily from $6.9 billion in 1965 to $5.1 billion in 1966 and to $4.8 billion in 1967.8 Possible approaches The U.S. by shifting its national tax system toward the existing and evolving tax system of EEC Member States, can escape the "national tax disharmony syndrome." But this is not the only possible escape route. The U.S. could devalue the dollar. It could withdraw from GATT and freely change its tariffs to com- pensate for border taxes and tax refunds. It could severely restrict foreign investment of American savings. The alternatives to moving toward tax har- monization are not attractive. The Europeans, and particularly the EEC Member States, also have alterna- tives. They could revalue their monetary units upward relative to the American dollar. They could abandon the trade advantages possessed by indirect taxes. They could collect profit and Income taxes equal to the U.S. level. They could prohibit foreign investments in their country. Some of the alternatives possess the same basic unattractiveness of a reduction of freedom in international trans- actions as the U.S. alternatives. Others run counter to the basic competitive nature of international transactions between national groupings. The alternatives to a basic harmonization of the U.S. tax system with the system existing and evolving among the EEC Member States show few charac- teristics required for acceptability. At the same time the Europeans in VAT have developed a technique for making much more effective use of their concept that the transaction should be an important tax base. The last six years have not been a period in which European taxes have been moving toward the American model (with the possible exception of the U. K.) of high profit and income tax rates. On the other hand there has been some tendency for the U.S. to move toward the European modeL It is quite possible that international economic freedom and free world economic growth would be well served by a basic change-the word reform does not seem to be the correct one, although reform is involved-of the American tax system toward the existing and evolving EEC model.0 This would require 7liicharej W. Lindholm, "National Tax System and International Balance of Paymenth," National Taco Jovrnal, June 1966, pp. 163-172. 8 Federal Reserve Bulletin, May 1968, p. A-68. 0 See pp. 247-258 of The Role of Direct and Indirect Taa'es in the Federal Re~venue system, (Washington, D.C.: The Brookings InstitutIon, 1964) for an excellent summary statement of the economic strengths of VAT. PAGENO="0440" 1710 a substantial reduction in the portion of the U.S. federal government receipts arising from direct taxes and an increase in the portion arising from indirect taxes. To do this would more than likely involve legislation providing for the in- troduction of a national VAT and to the exemption of low and middle bracket income receivers from the individual income tax, plus a sharp reduction of the corporate income tax on all corporate profits not arising from capital gains and the elimination of all federal excise taxes except those on tobacco and alcohol. The Congressional discussions, that took place when the 1962 Revenue Act was before Congress and again in the Summer of 1965 and in 1966 in considera- tion of H.R. 5912 and 13103, demonstrate that the tax differences between the U.S. and Europe are alone sufficiently sharp to warrant new U.S. legislation. The new legislation adopted were stopgaps to permit continued growth of free international economic relations. However, this is not the end of the story. Domestic U.S. fiscal conditions have become nearly unbearably complicated as a result of the federal tax legislation aimed at arresting the deterioration of the U.S. international balance of payments. Both the domestic and interna- tional federal fiscal situation could be substantially strengthened by a funda- mental move toward use of the transaction as a tax base.1° American tax legislation recommended and adopted during the past six years has not been aimed at a general harmonizing of the American tax system with the tax system existing and evolving in Europe, except in an incidental way, as was pointed out above. The aim has been to develop procedures to prevent the differences in the prevailing taw systems from placing an unbearable strain on the TJ.$. balance of international payments under current conditions. It is ques- tionable if this is the best method of meeting the long-term requirements for the development of the American economic potential and the economic growth of Europe. Also it is a slow and laborious method for harmonizing the U.S. tax system with the existing and evolving tax systems of EEC Member States. The political pressures existing to move European taxation toward the American model have been greatly weakened by the development of VAT as a substitute for the cascade turnover tax. At the same time the economic desirability of the U.S. tax system including VAT as a major tax has increased. In the near future the American people should dare to experiment with a rare innovation, a ra- tional tax program.11 Mr. FULTON. Our next witness is Mr. Cerf. Mr. Cerf, we welcome you in your appearance before the committee and ask that you identify yourself for the record. STATEMENT OP JAY H. CERP, MANAGER, INTERNATIONAL GROUP, CHAMBER OP COMMERCE OP THE UNITED STATES; ACCOMPANIED BY MRS. KAY VEST, FOREIGN TRADE DIRECTOR; AND HENRY W. MOORE, JR., RESEARCH ASSOCIATE, ECONOMIC ANALYSIS AND STUDY GROUP Mr. CE1v~'. Thank you, sir. I am Jay H. Cerf, manager of the international group of the Cham- ber of Commerce of the United States. On behalf of the chamber I want to thank this distinguished committee for the privilege of presenting several of our views on foreign trade policy in 1968 and beyond. If I may, I should like to introduce my colleagues. To the right of me is Mrs. Kay Vest, foreign trade director, of the national chamber, and Mr. Henry W. Moore, Jr., who is research associate in our economic analysis and study group. 10 Richard W. Lindholm, "Adaptation of Tax Policy to Internatianal and Great Society Requirements," Taco Changes for ~5hortrun ytabilization, Hearings of yubcommittee on Fiscal Policy of the Joint Economic Committee, (Washington, D.C.: TJSGPO, 1966), pp. U Frederick G. Reuse, Fiscal Policy for Growth Without Intlation, (Baltimore, Md.: The Johns Hopkins Press, 1963), p. 280. PAGENO="0441" `zu. Mr. FuuI~0N. We welcome you. Mr. Ciuu3'. Our trade policy recommendations are derived from a broader s~eotrum of U.S. business than any other business organiza- tion in existence. The national chamber is composed of some 3,900 or- ganization members, including over 1,000 trade associations and more than 33,000 business members, togsther constituting an underlying membership of more than 5 million individuals and firms. It is well known to this committee that, since 1934, the national chamber has `consistently supported the principle of the U.S. recip- rocal trade agreements program. The chamber rests its case for, trade expansion on a fundamental tenet. I refer to the well-established economic principle, that trade, investment and economic growth bene- fit when artificial restraints are minimized. Just as it has been the chamber's. goal to reduce government intervention in business domes- tically it equally seeks to reduce artificial and discriminatory devices in restraint of international trade. Before specifying our recommendations to this committee, permit me to be a bit more specific about the underlying chamber view to which I have referred. 1. Balance-of -pa'qiments prob7em.-The United States is suffering balance-of-payments difficulties along with rising domestic prices.. The fundamental cause of rising prices, aside from wage-cost factors, is inadequate domestic fiscal discipline and, as this committee knows, the chamber has had much to say on this. With respect to the relation- ship between foreign trade and inflation, higher domestic prices lessen the competitive ability of U.S. goods at home and abroad. Added restraints on imports, however, feed inflationary forces without net gain to the balance of payments. 2. Retaiiation.-Bey.ond the competitive disadvantage to American goods experienced because of inflation, new trade restrictions intro- duce the added possibility of outright foreign retaliation. Information gathered during recent foreign travels by national chamber staff and committee members tends to support the view that `retaliation is not unlikely if new restrictions are imposed at this particular time. There is strong indication that rising economic nationalism in Europe, about which no one has any doubt, in several cases needs only the excuse of a U.S. reversal of its trade expansionist stance to justify trade and investment restrictions by Europeans. I would like to underline that we don't only mean trade restric- tions. We mean investment restrictions to which perhaps we are even more vulnerable. 3. "Government-sponsored cartels."-Possibly the greatest current threat to our continuing suecesss in world markets is the prospect of a new, unprecedented American era in which the U.S. Government would move in on private business and start allocating markets. This country-the same government-that has fought business cartels and waged antitrust wars for three-quarters of `a century is itself now being asked to apportion markets into prearranged shares among producers. It is not easy for some to comprehend' why some maintain it is appropriate to slice up markets by Government action when pre- allocation among producers is ground for criminal action if it is a result of agreement between business firms. PAGENO="0442" 1712 4. The costs of retrogression.-Since 1945, American leadership in trade and monetary policy has been the principal cause of the tre- mendous rate of economic development in much of the modern world. Retrogression-such as introducing a system of import quotas-would be a reversal of a 20-year trend which has brought rising wealth, eco- nomic growth, and expanding world trade. RECOMMENDATIONS 1. Provisions of H.R. 17551, the Trade Expansion Act of 1968.- The chamber supports provisions of H.R. 17551 which would extend, through June 30, 1970, Presidential authority to negotiate tariff re- ductions enabling use of the residual powers of the 1962 act. This country's ability to exercise this residual authority is essential if American business is to benefit, and be protected from actions by our trading partners during the months ahead. The chamber does not recommend authority at this time for major new tariff negotiations. 2. Office of the Special Representative for Trade Negotiations.- In order more effectively to carry out the above objectives the na- tional chamber recommends that the Office of the Special Representa- tive for Trade Negotiations be stren~hened to give that agency the tools needed for the proper coordination of U.S. foreign trade policies. 3. Adjustment assistance.-Despite aggregate benefits to American business due to reciprocal tariff reductions, the national chamber is sympathetically aware of the likelihood that genuine instances of injury to domestic industry do arise by reason of tariff concessions. We feel that future foreign trade legislation should recognize injury better than it has in the past. We, therefore, recommend that criteria for trade adjustment assistance provisions in the existing law be changed so that producers experiencing import injury can more easily qualify for assistance during a necessary period of adjustment. 4. Controls on direct foreign investment.-The national chamber recommends that the mandatory controls on private direct foreign investment be terminated no later than the end of 1968. We believe these controls have a vital relationship to the foreign trade policy issues now before this committee. The chamber is concerned that the temptation to look good on the balance-of-payments accounts will cause the current investment restraints program to be continued de- spite the knowledge that the temporary reduction in capital outflow through these controls is achieved at the expense of repatriated earn- ings and of exports which are generated by investments. Both U.S. exports and repatriated earnings, resulting from U.S. direct foreign investments, are the most promising factors in the balance-of-payments picture. The outflow from initial investments is much more than offset by the accompanying inflow from interest and dividends, royalties, and fees resulting from such foreign investments. Gentlemen, between 1950 and 1966, for example, direct U.S. private foreign investments totated $39 billion-a lot of outflow. During the same period, direct foreign investments returned $58 billion to the United States. In short, the capital outflow yielded a net balance-of- payments gain of $19 billion (an average of approximately $1.2 bil- lion per annum). It seems overwhelmingly clear to us that unless these mandatory investment controls are terminated soon, a serious blow PAGENO="0443" 1713 would befall America's long-term prospects for balance-of-payments equilibrium. 5. General Ag'ree'irtent on Tariffs and Trade.-In the longer range, the national chamber recommends that Congress instruct the Office of the Special Representative for Trade Negotiations to review the adequacy of the present General Agreement on Tariffs and Trade in specific areas. Revisions could be proposed which would enable: (`a) Negotiation on such discriminatory and trade-diverting policies of member nations as `border taxes, export su'bsidies, and other non- tariff barriers; (b) wider future use of "sector" or industry-by-indus- try negotiations for more "balanced bargains" (`such approaches would embrace both tariff and nontariff barriers); (c) new mechanisms for more effective relationships wi'th state trading countries, with the aim of involving these countries in free world multilateral trade machinery (this would not only expand peaceful trade between di- vergent economic systems, but would `also serve to further decentralize state economic authorities); and (d) consideration of establishing a new Business `and Industry Advisory Council (BIAC) to the GATT, along the lines of the BIAC to the Organization for Economic Co- operation `and Development (OECD). Such a Business and Industry Advisory Council would enable the leading private enterprise orga- nizations within e'ach GATT country to monitor the GATT proceed- ings on `a systematic basis, report back to their members, `and sim- ilarly advise GATT negotiators on trade expansion policies. This BIA~-GATT could satisfy a growing need for systematic com- munication on trade policy between Parliaments and business com- munities throughout the industrialized world. Finally, Mr. Chairman and committee members, `the national ch'amber is convinced that for the United States to reverse its tradi- tional course of reducing barriers to the free flow of trade and pay- ment and that the views of the National Chamber of Commerce are matching restriction for restri'ction in the trade field would not `only be retrogressive but self-defeating. Thank you. Mr. FULTON. Thank you, sir. I would certainly like to say that I think this is an excellent state- ment and that the views of the National Chamber of Commerce are always welcome. Mr. CERF. Thank you. Mr. FULTON. Are there `any questions ~ I certainly want to thank you and your colleagues for your appear- ance before the committee today. That being the last witness, the committee will be `adjourned until 10 a.m. tomorrow morning. (The following letters and statements were receive4, for the record, by the committee:) DEPAISTMENT OF STATE, Washington, D.C., June 18, 1968. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, House of Representatives, Washington, D.C. DEAa Mn. CHAIRMAN: The Department of State has received from Carlos Sans de Santamaria, Chairman, Inter-American Committee on the Alliance for ,Prog- rem, a statement which he has prepared in connection with the current public hearings before the Committee on Ways and Means on tariff and trade proposals. PAGENO="0444" 1714 Mr. Sanz de Santamaria has requested that his statement, together with points VI, VII, and VIII of the attached Declaration of the Inter-American Committee on the Alliance for Progress, be transmitted to the Committee for its considera- tion for possible inclusion in the record of the hearings. I am, therefore, pleased to forward three copies of the enclosed statement and attachment for your consideration. Sincerely yours, II. G. TORBEET, Jr., Acting Assistant Secretary for Uongressiona~l Relations. STATEMENT OF OAJILos SANZ DE SANTAMARIA, CHAIRMAN, iNTER-AMERICAN COMMITTEE ON THE ALLIANCE FOR PROGEESS (ClAP) SUMMARY The Chairman of the executive committee of the Alliance for Progress calls attention to the ClAP Declaration of May 3, 1968, which emphasizes that adverse trends in Latin America's trade are hampering regional development recom- mends that adjustment assistant to the TJ.S. industry be given priority over pro- tectionist legislation, and urges the Congress to take no action that would harm the Alliance for Progress or inter-American relations. The Inter-American Committee on the Alliance for Progress (ClAP) is the central, multilateral, coordinating mechanism responsible for promoting Latin American economic and social development under the Alliance for Progress. Since trade is the lifeline of Latin American development, ClAP must be con- stantly concerned about the impact on Latin America of trade developments around the world. But as I pointed out in a statement submitted to Chairman Russell B. Long of the U.S. Senate Finance Committee during trade hearings last October, "my positon as ClAP Chairman requires me to represent all the member countries of the Inter-American System, including the United States, in the en- deavors of the Alliance." I emphasized that ClAP's concern over restrictive pro- posals being heard by the Finance Committee was motivated "not only by a real- ization of the harm that they could do to Latin America's effort to expand its export income-an expansion that is crucial to its capability for purchasing the U.S. goods and services needed to accelerate its development-but also by a con- viction that they would harm the United States." In the same spirit I am directing this communication to the House Ways and Means Committee which has just opened an important series of hearings on the future of U.S. trade policy. ClAP declaration Over the past year, ClAP has viewed with increasing concern the reemergence of protectionist sentiment in the United States and other trends and policies in trade and finance on the international level that are working against Latin American development and the purposes of the Alliance for Progress. In its most recent meeting, held in Washington at the beginning of May, ClAP adopted a declaration emphasizing the need for joint action by Latin America and the United States to counter adverse trends in world commerce. I enclose a copy of the declaration for the information of Committee members and request that, if the Committee's rules permit, points VI, VII and VIII be printed after my statement in the record of the hearings. Recent trends in Latin America's international trade In the past decade a spectacular expansion of world trade has taken place. From 1958 to 1966 world exports doubled. But Latin America did not share fully in this boom. Its exports increased by only 66% and its share of world trade declined. In 1967, moreover, for the first time in more than a decade, Latin America's earnings from international exports not only failed to increase but dropped by about one percent. Only the increased developmental capacity of the Latin American countries, reflected in a record level of public investment, which in turn reflected progress in budget making and tax reform, prevented this decline from having disastrous consequences. But the drop in export earnings is not the only blow that Latin America has suffered. The Second UNCTAD conference produced only meager practical results for developing countries. This constituted a setback for Latin America. The declining volume of long term development loan assistance and the rise of interest rates on development loans constitute a further threat to Latin American development. PAGENO="0445" 171~' Protectionist legislation harm to United states The House Ways and Means Committee will be hearing testimony in favor of imposing import quotas on many products. Bills already Introduced cover petroleum, meat, lead, zinc, textiles, steel, frozen strawberries, fi~hmeal dairy products, footwear and electronic products. In 1966 Latin American exports of these products to the United States amounted to $1.2 billion or 31 percent of Latin America's total exports to the U.S. If such measures were adopted they could well have the effect of offsetting the total amount of Alliance for Progress authorizations likely to be forthcoming in fiscal year 1969. In ClAP's view, however, such legislation would be not only harmful to Latin America but to the United States. In its trade with Latin America, the United States enjoys a large and favorable balance. Any action that reduces Latin America's dollar earnings will reduce its purchases of United States goods. But the harmful effects of protectionism go beyond the trade surplus. Inevitably the result of quota restrictions will be to protect a few U.S. producers at the expense of the many U.S. consumers. Restrictions will also inevitably encourage other industrialized countries to counter with restrictions against U.S. exports. There could be a chain reaction precipitating a contraction of world trade and economic activity detrimental to the whole world. Protectionism would be preferable to chaos if these were the only alternatives. Fortunately they are not. We note with interest President Johnson's recent trade message to Congress proposing to strengthen the adjustment assistance provisions of the Trade Expansion Act. It seems to us that this is the right approach both from the point of view of the United States and from that of the Alliance for Progress community as a whole. Latin America's need for increased ewport earnings The American Presidents last year gave top priority to Latin American ec- on~mic integration, a process that will be difficult and costly. The United States recently ratified the Protocol of Buenos Aires which makes the Alliance for Progress the basis of the economic and social policy of the Inter-American System. It is fundamental that Latin America's self-help efforts cannot succeed if the region's export earnings decline while simultaneously the availability of international development financing decreases and terms become harder. But in the final analysis, the success of the Alliance, from the point of view of the U.S. as well as of Latin America, must depend on expanding Latin American trade~ This is so simply because there is a limit to the burden of external debt at rising interest rates that Latin America can service and still step up its investment in development. Furthermore, the need for an improve- ment in export earnings will become even more critical as the process of creating the Latin American Common Market advances. Therefore, ClAP urges that the U.S. Congress take no action in the field of trade that could cripple Latin American development and undermine the Alliance for Progress and inter-American relations. DECLARATION OF THE INTER-AMERICAN COMMITTEE ON THE ALLIANCE ron PRoGREss The Inter-American Committee on the Alliance for Progress, in its Fifteenth Plenary Meeting, reviewed the performance of the Alliance for Progress during 1967, together with the elements of judgment provided by the cycle of country reviews carried out in that year and the documents submitted by the Executive Secretariat and the Panel of Experts. This evaluation of the situation and pros- pects, of the progress made in domestic efforts and the role to be played by inter- national cooperation leads to the following conclusions and recommendations for action: I. The prospects of the Allitance depend, to a greater degree than in previous years, on the evolution of the international economy and especially at this time, on the solution of the difficulties affecting international moneta'ry relations. The United States balance-of-payments problem and the difficulties In interna- tional liquidity, which reached a climax with the March gold crisis, have brought about a risk of economic recession in the developed countries, the stagnation or reduction of financial aid within the Alliance, an even greater increase j~n interest rates, and greater restrictions on trade and on other international transactions. An increase is also observed in protectionist pressures. If these threats are trans~ lated into policies, they could seriously hamper the economic and social develop- ment of Latin America. For this reason, ClAP places special emphasis on the following points: PAGENO="0446" 1716 1. The efforts which the United States may make in order to solve its balance- of-payments problem deserve the support of the countries participating in the Alliance for Progress, but the measures proposed in order to directly increase the favorable balance of trade should take into consideration the interests and needs of the member countries of the Alliance and, when appropriate, the need for adequate exceptions to avoid serious repercussions on their development potential. 2. The international community should begin to implement, as soon as pos- sible, within the framework of the International Monetary Fund, the Special Drawing Rights system, since this is a prerequisite to achieving an adequate expansion of international liquidity, a matter of decisive importance to world trade in order to return to less burdensome levels of interest and to resume the rising trend in financial cooperation provided to Latin America by both public and private sources. 3. It will be necessary to make an effort toward cooperation among developed countries in order to maintain a high level of economic growth and employ- ment in an atmosphere of stability; without this effort to maintain the pace of activity and employment in industrialized countries, it will be difficult to achieve economic and social progress and political stability in the developing areas of the world. II. The `uncertainties and risks to wMch foreign trade and financial coopera- tion are now eceposed shonld not obscure the responsibility of Latin America to intensify its efforts to accelerate development and carry ont the profound eco- nomic and social reforms which are a prerequisite for achieving ma~vimum par- ticipation by the people and building a society in which the fruits of develop- ment are adequately distributed. Although external aspects may be a powerful influence regarding the speed with which Latin America may fulfill the objectives of the Alliance for Progress, this fact does not in the final analysis, relieve the countries of the region from being responsible for reforming the economic and social structure for purposes of progress and justice, mobilizing internal resources, and creating an in- stitutional basis for development. At this time in which urgent action is more needed than ever before, the ClAP wishes to reiterate the overriding need to grant preferential consideration to the following elements of the economic and social development policy: 1. The social content of the development policy should be expanded and strengthened, as the essential basis of lasting economic progress and political stability. This social content should not be sought merely through the expan- sion of public services with government expenditures, but also through social reforms designed to achieve improvements in the structures and in income distribution. 2. More attention should be devoted in the near future to strengthening the various elements of a planning system which would simultaneously contemplate development needs with a view to the long-term horizon, together with the re- quirements for action in the immediate future. It is also indispensable to per- severe in the efforts to gradually adapt the institutional base and the adminis- tration to the requirements of development policies. III. Noteworthy progress was made by Latin America in 1967 in mobilizing its financial resonrces and rationalizing its tacs systems and, in general, in its fiscal policies. These forward steps are among the most important achievements of the Alliance for Progress and, in 1967, were responsible for maintaining a rate of development comparable to that of 1966, despite adverse eceternal events. In addition, growth rates, by themselves, are not an adequate indece o~f the rate of development, especially in periods of strong investment in social development. With few exceptions, Latin American countries in 1967 increased their public investments, thus temporarily compensating for the decline in exports and the resulting effects on development. There was an increase in the region's public investment, which constituted the fundamental factor behind the rapid incre- ment in fiscal resources which followed the tax reforms-in some cases quite thorough-carried out in recent years. Public expenditures, nevertheless, gen- erally rose at an accelerated rate, bringing about imbalances in some countries, especially in those which have not given adequate priority nor depth to tax reform. The characteristics of the economic and social development programs promoted by the Alliance for Progress naturally create intense pressure for cx- pansion of public expenditures, which can only be satisfied and controlled by PAGENO="0447" 1717 means of constant effort toward fiscal reform and a sense bf priorities and discipline in development policy. In view of the above, ClAP recommends that: 1. Those countries particularly affected at the present time by a deterioration of their public finances, shbuld urgently undertake fiscuil reforms designed to simultaneously achieve greater receipts for the government and an improved distribution of the fiscal burden. Without these reforms the situation may be- come critical in various cases and require even more drastic and far-reaching measures. 2. In general, more attention should be given to the preparation of budgets and to the control of their implementation. Experience indicates that a violent expansion in current public expenditures, which arises largely because of the immediate need to increase social outlays, is partly the result of errors in plan- ning of programs and weakness in the selection of priorities. It is therefore imperative today to emphasize a sound budget policy. IV. The ecepansion in educationai services in 1967 is another noteworthy achievement of the AU'tance for Progress, constituting the seed of the just `and dynamic society which should rise from development efforts at this stage. The broa4enlug of education is very demanding in terms otf fiscal resources, requiring intelligent reform measures in order to adapt it to a changing society, and also creates rising ecepectations. All these factors requlire ever-increasing effective- ness in the mobilization of resources land in development planning. Expansion of educational coverage, on its three basic levels, is one of the more general features of the effort of the state within the Alliance for Progress. Almost without exceptIon, 1967 saw a growth In the share of fiscal resources devoted to education, while the increase in enrollment reached a pace, in some countries, which, if generalized at these levels, could achieve nearly total cover- age in elementary education and the consolidation of modern educational systems in the overwhelming majority of the countries of the region. This accelerated expansion has in some cases been carried out at the expense of necessary reforms In the quality of education, and has produced a rising pressure on budgetary resources which is not expected tO diminsh in the next few years. The effects of this increase in primary school enrollment will show up in coming years in even greater demands on secondary and higher education levels, where structural reforms are therefore, even more urgent. In view of this, ClAP emphasizes the importance of: 1. Devoting priority attention to consolidating the progress made, through implementation of required reforms designed to raise the quality of education. In many cases it is urgent to undertake needed structural changes In secondary and higher education in order to anticipate future demand. 2. MaxImum attention should be given to adequately foreseeing the expansion of state expenditures derived from the broadening of educational services, as well as to the proper and judicious usage of fiscal resources. This is another reason to insist upon tax reform, budgetary control, and, from the viewpoint of external cooperation, on the imperative need to provide more flexible financing on less burdensome terms. - V. Despite a substantial increase in agricultural production in 1967, agricul- tural development is not yet being carried out on the scaie required in order to assure a sustained increase in the supply of foodstuffs and higher farmer in- come; with a few ececeptions, progress in agrarian reform was slower in voun,- tries where this problem ewists. The year 1967 was a good one for agricultural production, though it hardly reached the level of 1965. In several countries carrying out stabilization pro- grams, the tightness of agricultural supply has created growing obstacles to the success of these efforts, while in others having high population growth rates, in- come redistribution policies may be cancelled out by high food prices. Despite its importance, the region, except in a few cases, has not yet succeeded In carrying out the necessary structural reforms, nor in putting together the agricultural policy required in order to satisfy these demands. There is, in regard to this policy, a lack of administration and planning, both of which are evidently of high priority in development action. In view of the above, ClAP makes the following recommendations: 1. To concentrate efforts on granting priority to improvement in agricultural planning in those countries where land tenure constitutes an economic and social problem, and on making the necessary administrative changes in agricultural policy formulation. 2. To expand agricultural credit, as a fundamental element In the accelerated development of the agricultural and livestock sector in the next few years. 3. To prepare a larger number of agricultural projects and programs, and to PAGENO="0448" 1718 consider granting a larger share of the financial and technical assistance re- quired for the purpose. 4. To grant more active and direct participation to the farmer and the farm community in agricultural development. The projected Inter-American Agricul- tural Conference should, to this end, undertake, on a priority basis, the formula- tion of the necessary policies and mechanisms. VI. Economic integration and ewport promotion are of special importance at this time of uncertainty in the region's eoternal trade. Although the proce~is has been slower in 1967, the countries haive begun to face the problem realistically and have initiated the difficult task of making the institutional and juridical foundations more adequate with respect to the decisions of the Presidents of America, while their economy and ecoternal trade has become more vulnerable. For the first time, intrazonal trade figures for LAFTA, during the first nine months of 1967, show a significant decline in trade levels. This is a symptom of the ineffectiveness of the instruments employed thus far and makes it urgent to seek decisions and procedures to revitalize this vitally important process in regional development. Despite the continued expansion of trade, difficulties are also encountered in Central American integration, above all due to the balance- of-payments problems in the countries of the region. This, therefore, appears to be a decisive, perhaps critical point in Latin American integration, requiring di- rectional changes and a more intense action both in the field of trade negotia- tions and in that of carrying out investments which should facilitate and pro- mote integration. In this sense, ClAP has taken up with interest President Johnson's sugges- tions on the establishment of a working group on multinational projects, to which it is ready to provide its fullest cooperation. ClAP also recommends that: 1. Priority be given in domestic policy to identification of export potential and, in general, to the promotion of existing industrial exports. ClAP hopes that the services of the Inter-American Export Promotion Center, which will begin operating soon, may be reflected in greater interest within each country in order to lay new foundations for exports in the region. 2. A concerted and effective action be, undertaken to develop the Hemisphere's infrastructure, in accordance with the Declaration of the Presidents of America, the suggestions of the President of the United States and the Resolution of the Board of Governors of the Inter-American Development Bank. VII. The results of the Kennedy Round tariff negotiations and of TJNOTAD II were not very favorable to Latin America, and present trends in world trade and in capital flows are unfavorable to the development of the region. The Kennedy Round only produced concessions of minor importance for a small number of commodities of interest to Latin America, and had no effect at all on the liberalization of trade for tropical products in industrialized country markets. UNCTAD II, on which Latin America, and developing countries in general, had placed such high hopes, closed without any specific decisions on matters as fundamental as basic financing and supplementary financing, creation of regulatory stocks, establishment of a system of nondiscriminatory preferences for imports of manufactures and semimanufactures on a nonreciprocal basis, and broader application of commodity agreements. Although the discussion on the aforementioned matters and on others of interest to international coopera- tion will continue in the forums of UNCTAD, it is deplorable that the rigid posi- tions adopted by some developed countries and the differences existing even among the poorer nations, have resulted in the wasting of this singular oppor- tunity to carry out long-needed reforms in the system of international trade and in capital flows. In the light of these events, it is alarming to note the renewed strength of protectionist attitudes in some sectors in the United States. Finally, it Is a matter of concern to observe the prospects for Latin American foreign trade. In the face of this picture: 1. ClAP recommends an analysis of the possibilities for initiating a supple- mentary financing system for the region, until such time as a worldwide mech- anism can be established on the terms set forth in UNCTAD II. 2. ClAP requests the executive power in the United States to continue its efforts to contain protectionist pressures within that country. In this respect, ClAP requests it to transmit to the pertinent government agencies and to private enterprises in the United States, its concern regarding the threat implied with regard to the possibilities for the success of the Alliance, since if such pressures prevail the result would be a weakening of development and consequent political and economic instability. 3. ClAP requests the Government of the United States, In conformity with PAGENO="0449" 1719 the statements made by President Johnson at the Meeting of Chiefs of State of America, to study, in conjunction with the other members of the Alliance, the possibility of creating a system which will enable the Latin American coun- tries to enjoy, with respect to exports, advantages not inferior to those presently enjoyed by other developing regions, and which will insure, through this or other procedures, that no discrimination Is practiced against Latin American products. / 4. ClAP requests the member governments to study the establishment of an inter-American fund to finance regulatory stocks for some of the commodities exported by Latin America. 5. ClAP requests the governments of the region to make arrangements for consultations and make other necessary efforts to formally present the view- points and matters of concern of Latin America to the member countries ~f the European Economic Community and to the competent bodies of this entity. The Chairman of ClAP will propose to the Committee and to the member countries of the Inter-American System, the manner, procedure and time in which such efforts will be made, in accordance with the resolutions adopted in the Fifth Annual Meetings of the IA-ECOSOC. VIII. The reduction in the allocations for the Alliance for Progress approved by the U.S. Congress for fiscal 1967/68, the higher interest rates i~' capital markets and the uncerta4nty surrounding foreign trade, have created an atmos- * phere unfavorable to Latin America's development efforts, at a time in which the region shows evident progress in various fields of economic and social policy. The U.S. appropriation for technical and financial cooperation within the AUiance for Progress for the present year totalled US$469 million, while the amount allocated for the previous fiscal year was US$508 million. Although the cut was smaller than that of other areas, a decline of about one percent in Latin American exports took place, thus recording the first absolute decrease since 1958. At the same time, terms for public and private credit tend to become more burdensome. The substantial increase in fiscal receipts in a good number of countries was the only factor which made it possible to maintain. a high level of public investment during 1967, which prevented, in the growth rate for the region as a whole, a drop from the rate of activity achieved in 1966. The pos- sibility of stagnation or decline in financial aid, coinciding with extremely un- certain export prospects, is a dangerous prospect which, should it materialize, would sharply weaken the mobilization of internal resources in Latin America and significantly check its rate of development, and its social progress and stability. For thes~e reasons, ClAP proposes: 1. That the Government of the United States provide increasing financial support to the Alliance for Progress in fiscal 1968/69. 2. That a study be initiated, in cooperation with the 1DB, the World Bank, AID and other institutions, relative to the establishment of a financial mecha- nism, regional or international in scope, along the general lines of the so-called Horowitz Plan, designed to reduce the burden of interest rates on development loans. 3. That the growing burden of Latin America's debt service and the trends and prospects of exports should be subject to continuous analysis and observa- tion. Sharp declines in export receipts which cannot be compensated by other means, should bring about the implementation of systematic procedures in order to decide upon the possibilities for a parallel reduction in debt service, through changes in the repayment schedule or postponement of installments, without affecting the possibilities for private investment. The Chairman of ClAP will initiate consultations with the competent authorities in connection with the feasibility of such a system. _______ STATE or WASHINGTON, Olympia, June 7, 1968. Hon. WILBUR D. MILLS, Chairman, Committee on Ways and Means, U.S. House of Repre&entatives, Longworth~ House Office Building, Washington, D.C. DaAR CONGRESSMAN MILLS: It is with pleasure and concern that I submit a written statement for your committee's consideration, in contribution to the public hearings, now in progress, on proposed U.S. foreign trade legislation. It is a pleasure because I believe that the states can and must cooperate closely with our Federal Government in evolving and implementing mutually equitable foreign trade policy. It Is our difficult task to maintain, safeguard and 95-159 O-6&-pt. 4-29 PAGENO="0450" 1720 help expand the framework within which our private enterprise can continue to develop a foreign trade, investment and travel climate in support of a viable industrial and agricultural economy such as we have today in Washington State. I submit this brief with concern because the "protectionist" attitudes now much in evidence, should they prevail, could have a severely detrimental effect on states such as ours, much of whose industry, agriculture, service sectors and port facilities depend intrinsically on foreign trade. On October 1, 1967, my administration, with full legislative support, inaugu- rated an Office of Foreign Trade within our Department of Commerce and Eco- nomic Development. We look forward to the positive contribution we may make in expanding and streamlining our trade with the world and most particularly with our trading partners in the vital Pacific Rim area. I sincerely hope that the outline of our plans and proposals as contained in our brief will be of positive value to your efforts to chart the future course of a U.S. foreign trade policy of long-range benefit to us all. Sincerely, DANIEL J. EVANS, Governor. Oun INTERDEPENDENCE WITH U.S. FOREIGN TRADE POLICY AND PERFORMANCE- POSITION PAPER SUBMITTED BY DANIEL J. EvANS, GOVERNOR, STATE OF WASH- INGTON, DEPARTMENT OF COMMERCE AND EcoNoMIc DEVELOPMENT, BUSINESS AND ECONOMIC RESEARCH DIVISION, AND OFFICE OF FOREIGN TRADE "FEDERAL/STATE": CONFLICT OR COOPERATION This country's spending abroad over the years has resulted today in depletion of our gold reserves to about $10 billion, and In Short-term debts to foreigners of over $30 billion in currency. As our debts abroad now far exceed the official value of our gold back-up reserves, a "run on the bank" by our foreign creditors would put us into dire straits. Such a development may not be likely-but it is possible. The very existence of this possibility puts our dollar in a threatened checkmate 7 position. Various solutions proposed deal with possible means to restrict the outflow of dollars and increase our earnings. In the first category it Is said we could limit imports In several direct and indirect ways, limit travel, reduce foreign aid, restrict investments abroad, and curtail our military presence and activities abroad. In the second category we could boost exports, attract more travelers, trades and investors to the U.S., increase repatriation of prodts from our invest- ments abroad and further tighten our tied procurement requirements. It is important to note that of all the measures mentioned, only three are positive and expansive: export development and inducement of foreign travel and investment to the U.S.A. All other measures mentioned In both categories are immediately restrictive and eventually contractive. Furthermore, only those three expansive measures fall within the jurisdiction and competence of the individual states. In fact, It is mostly up to the individual states to "produce the goods" in terms of increased exports, travel Inducements and investment climate. The federal government can work at cross purposes to these efforts through implementation of the restrictive measures mentioned earlier-all of which fall outside the control of the states Individually. The federal government can contribute passively to the states' export per- formance by refraining from implementing such national cost-saving devices as would, Immediately or eventually, exert restrictive pressures on trade, invest- ment and travel. On the other hand our federal government can contribute con- structively throwrh continued sincere and consistent effort to further liberalize international trade and further promote streamlined and responsible trade and business practices. Our federal government can also substantially aid the states in their efforts through the provision of a national umbrella of policy, cost reductions and tax incentives (such as employed by many other countries), as well as the continued and expanded services of the various departments and bureaus (Commerce, State, Agriculture, Census) in sunnlying foreign market data, business contact opportunities and and market intelligence. WASHINGTON STATE FOREIGN TRADE: PERFOI~MANCE & POTENTIAL For Washington State, 1967 was a banner year In several ways. International trade moving through Washington ports reached an all-time high. Exports re- corded an increase of 22 percent over 1966. In six years they have more than PAGENO="0451" 1721 doubled In value and our contribution to the national trade surplus has more than tripled. As late as 1959 there was still a trade deficit, with imports exceeding exports. Now Washington is responsible for almost a third of all Pacific Coast exports-and still gaining. Since 1966 the State has been among the top ten exporting states in the United States and also ranks among the top three fastest growing exporters in the nation. Last year our State turned out an over $2 billion trade performance and pro- duced half a billion dollars in trade surplus for the U.S.A.; one sixth of the national surplus. With no more than one sixtieth of the country's population, our export performance stacks up as ten times the national average on a per capita basis and was realized in primarily "hard" currencies. The rapid development of containerization, the exciting concept of the sea-land transportation bridge, the burgeoning world need for sophisticated sea/aixjland transport and handling systems for both freight and passengers, the streamlini~ig of shipping and travel procedures, the scarcely tapped potential of oceanographic exploration and exploitation, the dire need in much of the world for more food, less' spoilage and better nutrition-each of these areas represent a pressing need and an exciting potential. Washington State's increasing stature as a Pacific Northwest and national pacemaker In many of these areas is reflected dramatic- ally in our foreign trade performance, to the benefit of our State, our country and our trading partners. Yet we have really only scratched the surface in filling the need or realizing the potential. WASHINGTON STATE FOREIGN TRADE: OTJR STAKE Today, foreign trade contributes substantially and increasingly to Washington State's economic growth and prosperity. For instance, we found that Washington State exports contributed a billion dollars in personal income to our economy in 1966, and fully supported the living standard of the' equivalent of more than a hundred thousand households. In 1967, obviously, that contribution was even higher, and foreign trade even more important to our well-being. In fact, we cannot stop now, or even stagnate. Our growth momentum has to be maintained:, our stakes are too high. Let's look at two of our better known export products, diverse as they are: airplanes and wheat. Without markets abroad our commercial aerospace Industry would be much more cyclical than It is today and certain planes would not be built at all. Without export, where would we sell our Washington wheat? In short, the economies of scale-rather, the lack thereof-would quickly take effect. Supportive and derivative industries and services would be severely affected, even dry up. Much of our standard of living now directly or indirectly paid for from foreign trade revenue and profits would painfully evaporate. THE NATION: TROUBLED TIMES AHEAD The year 1967 was a banner year for Washington State foreign trade, and 1968 looks good, so far. (Our exports are still growing twice as fast as our imports.) With the nation, it's another matter. An international dollar crbmis was narrowly averted or hastily and temporarily patched up. The dollar outflow continues. Domestic economic growth is distended by inflation. Record GNP advances are only half real. An unrelenting wage-price spiral has negated pro- ductivity increases. Inflation and industrial complacency have eroded our export competitiveness and swollen industrial and consumer imports until, today, the national trade surplus is melting away with alarming rapidity. The immediate future appears still cloudy and disturbing. Positive and constructive measures are urgently needed if we are to achieve more than to buy time. FOREIGN TRADE POLICY: FEDERAL/STATE INTERDEPENDENCE With the advent of air cargo, all states become "international ports" in the strict sense of the word. However, those states with seaport facilities have a more direct and vital interest in U.S. foreign trade policy and the few seaport states with deep-draft capability and backup land, of which Washington Is one, must play an ever bigger role in future foreign trade and policy. Our stake has become such that we as a State can no longer afford to leave the formulation of a national trade policy entirely to our federal government; there, too, we have to be innovators. Our policies have to be as modern and dynamic as the tech- nology of our free enterprise establishment, if we are to maintain our hard-won PAGENO="0452" 1722 position and momentum of pacemaker in the Pacific Northwest, preserve our economic health and expand our contribution to the national effort. Most of our major markets are basically healthy, yet almost all are under increasing inflationary pressures and can be expected to intensify efforts to balance their own international transactions. On the whole, import demand overseas will keep on building in 1968, but with most of these countries running a trade deficit already, it will be hard work to even preserve our current trade surplus. In effect, measures to not only increase exports but also lessen the U.S. balance of payments deficit through restrictions on imports could quickly provoke retaliatory action from our major trading partners. This danger of retaliation by foreign governments, exercising their rights under G.A.T.T., is obvious. The result could be a general stagnation-possibly a contraction-of international trade. A rising trade surplus from increased exports has been counted on to help achieve a payments equilibrium. This is impossible to achieve in a world of trade restrictions. For years our country's foreign trade has been developed and maintained by thousands of individual members of our free enterprise establishment, in a rather unstructured battle with the elements: favorable or unfavorable "trade winds" and the "barometers" of policy, support, incentive and restriction in the various departments of our Federal Government and in our Congress. State gov- ernments, for the most part, were not or barely involved. Now, nationally, our momentum of unstructured growth may no longer be profitably sustainable, while on the state `level it is becoming clear that representation of a constituency in uniquely regional conditions now includes as well the taking of a stand on foreign trade and trade policy. FOREIGN TRADE POLICY: SOME PROPOSALS State governments are finding themselves increasingly concerned with what appears to be a developing turmoil of confusion and conflict between national policy and regional interest. As our state's spokesmen here we are prepared to participate constructively in a fruitful federal/state discourse on such matters of vital interest to all of us. While our private enterprise supplies the ammuni- tion for our efforts, we can supply the advance troops. We have a State De- partment of Commerce and Economic Development, an Office of F~oreign Trade, and a Business and Economic Research Division. They stand in service to pro- mote trade contact, initiate studies and proposals, support national programs, share the responsibility. It is in these middle areas of coordination and liaison that we in Washington State Government feel we may most constructively `aid our local and regional interest and the national aim `as well. We have formu- lated a ten-point program proposal for trade development `and federal/state cooperation and coordination. 1. "We will continue and intensify our efforts to locate' foreign markets, analyze their potential, coordinate trade contact, and promote our exports. 2. "We will research and promote additional `sister-community' concepts suit- able to mutual development of trade, educational exchange and cultural exchange. 3. "We will develop research assistance and planning coordination for our ports' expanding efforts to prepare for tomorrow's sophisticated passenger and freight transportation systems. 4. "We will continue and expand our efforts to research and coordinate the development of resources, land-use, and facilities designed to create an increas- ingly attractive climate for both investment and tourism. 5. "We will welcome and assist continued and closer cooperation and ex- change with the various federal intelligence gathering, fact-finding and informa- tion dispersing agencies, such as the Department of Agriculture, Department of Commerce Field Offices, Bureau of the Census, and the Department of State and its foreign service. 6. "We will actively participate in national efforts for the promotion of intei- national trade, travel, investment, and cultural and educational exchange. We do not favor policy restrictions in these areas, beyond those in regard to national security. 7. "We will explore and develop the possibility of increased trade with less developed and so-called soft-currency countries through the instrument of whole or partial `trade in kind' or barter, be it in goods, services or both. It is here that the triangular service function of state government conies prominently into play. Our Research Division must determine suitable markets and `commodities or products, upon which our Foreign Trade Office must establish contact and coordinate negotiations between potential trading partners and with foreign PAGENO="0453" 1723 government representatives on matters of ~urrency equivalent, terms, time pe- riods and means of delivery, and future contacts. 8. "We will continue and expand our efforts, as a state government, to give Washington State a face abroad; an image and identity, as an economic entity justly proud of its unique products and features of interest and benefit to traders, tourists and inveators. This may be accomplished through publications, encour- aged personal cQntact, sister community projects, and increased `participation in U.S. or international exhibits abroad. Our Foreign Trade staff will increasingly be called upon to represent, under the umbrella of a state exhibit, many smaller firms new to exporting or otherwise not sufficiently equipped to participate in- dividually or personally. Only~as a state with a personal, unique identity can we rate equally with our friends in the marketplace, most of which, as sovereign nations both developed and developing, already~have such identities. 9. "We wish to participate in the formulation of a policy whereby the federal government offers a federal/state share or matching formula on various taxes or inëentives to exporters, foreign investors and foreign visitors, utilizing the best features of comparable programs in effect in many foreign countries. 10. "In general, we wish to suggest Increased constructive state government participation in the formulation of national policy regarding matters of inter- national trade, travel, and investment." CONCLUSION The national balance of payments problem, our foreign trade, our State's con- tribution and stake-all these factors interact with one another through the common denominators of market forces and governmental balancing attempts. We have made some proposals designed to stimulate the former and modulate the latter. It is our intent and hope to make a contribution, to the formulation of a progressive long-range U.S. foreign trade policy. At least twenty-six states have now staff personnel specifically and officially designated to deal with foreign trade matters. .A number of these states make a substantially above average contribution to our national trade performance. Any `significant change In federal policy regarding exports, imports, travel or invest- ment affects these states most immediately and severely. Washington State, as one of this group, wishes and is prepared to be an active partner with the other states and the federal government in the determination of matters and policies which affect us so greatly. Foreign trade can not exist except for the principle of reciprocity. We cannot justly call for liberalization of trade without stressing forcefully the necessity for other countries to join us in our efforts to achieve reciprocity in all trading practices and regulations. With the recent conclusion of the "Kennedy Round" of GATT negotiations the current major area of concern is the equalization of non-tariff barrjers. There appears to be a natural opportunity for cooperation between the federal government and Washington State pertaining to specific commodities and market areas. There appear to be many ways in which a new framework of federal/state cooperation and coordination in matters of trade policy, trade practice and trade promotion could be most helpful, but it will take all of us together to maintain our momentum, preserve our stake and reap our future in foreign trade poten- tiaL More than that: foreign trade may well mean tomorrow the real difference between prosperity and stagnation. STATEMENT OF NATIONAL AssoOlATlox OF MANUFACTURERS We welcome this opportunity to express our views as a contribution to these hearings on Tariff and Trade Proposals. It is our understanding that the Com- ihittee's concern is not only with the proposed Trade Expansion Act of 1068, H.R. 17551, but with broader questions of United States policy and the trade balance. Our comments are offered In this broad context. We believe that they have a significant relationship to the development of a sound'foreign trade policy. The National AssociatiOn of Manufacturers is a voluntary organization of in- dustrial and business firms, large and small, and located in every state. Due to the diversity of its membership and the consequent divergent viewpoints, thiS Association does not attempt to speak for its members on specific tariff matters. The NAM does, however, urge its members to express their views on tariff mat- ters as individual corporations and through their respective trade associations. PAGENO="0454" 1724 We are confident that the Committee will consider their recommendations care-* fully. International trade among the free nations of the world should be promoted in a manner that benefits the economics of, and promotes private enterprise in, the countries involved. There are various factors which have a direct bearing on the successful conduct of international trade. We urge that the Ways and Means Committee consider these factors carefully while deliberating and reaching deci- sions on the proposed legislation and related matters. We urge further that, in formulating policy, Congress give due regard to the increasing role which intellectual property plays in overseas operations. Intel- lectual property, in a broad sense, includes the uses of managerial, technical, scientific, and other skills often referred to as "know how." One of the probable reasons for the acceleration of concern in this area is the newly imposed restric- tion on direct investment. Another reason is that previous direct investment in a foreign environment produces an immediate market for "know how" in many of the components of the overseas operation. The main inhibiting element of market- ing "know how" is the question of the protection of patents and other intellectual property. The NAM, through its Patents Committee, has worked closely with the U.S. Patent Office and the President's Patent Commission in order to achieve a uniform and efficient world patent system. We hope that the United States will endorse a world patents system, and take all appropriate steps for its develop- ment through international negotiation. In the view of a preponderance of experienced U.S. international traders, an important problem blocking the orderly growth of international trade is the im- position of non-tariff barriers by trading countries. The elimination of these impediments to international trade should be a primary objective of U.S. policy. Each year the list grows larger and the solutions become more complex. Such artificial manipulations of the trade environment by governments can only invite pressure for countervailing actions by other trading nations and Inhibit orderly expansion of trade. The negotiations already started by the Office of Foreign Trade Representative through the General Agreement on Tariffs and Trade to reduce and eliminate these non-tariff barriers should be supported to the fullest extent. The tax aspects of trade policy are of the highest importance to the members of the NAM and to the country generally. In the remainder of this statement, we will present our views on this subject. TAX ASPECTS OF TRADE POLICIES The NAM believes that there are some basic inconsistencies between the tax treatment of foreign business activities and the objective of maintaining and fostering international trade. For the purposes of this discussion, these can be divided into two categories: one involving international border taxation, and the other involving domestic income tax policy on foreign source income. We do not think that action should be taken in either area solely on the grounds that it might improve our immediate balance-of-payments deficit. In the recent past, that deficit has been used to justify a series of controls on private investment abroad-some of which have aggravated tax-trade policy inconsis- tencies. We do not want to seO any precipitous changes in tax policy without regard for their long-term implications. The NAM would like to see a change in the present system of international border taxation and a change in our own tax laws affecting export trade. Both can serve the long-term objective of providing a more equitable international marketing environment and help to improve our balance-of-payments position at the same time. Border ta~vation Under the General Agreement on Tariffs and Trade (GATT), indirect taxes are eliminated from exports and imposed on imports. These indirect taxes in- clude value-added taxes as in France and Germany, turn-over taxes as in other EEC countries, and the United States' excise taxes. The adjustment for taxes at the border treats all indirect taxes as identical assuming these taxes increase product prices but direct taxes (income, payroll) do not. These assumptions are not supported by economic evidence. The real effect of indirect taxes on price is controversial but it is clearly not consistent with the maximum allowance given under GATT to countries with high indirect taxation PAGENO="0455" 1725 and minimum allowance to those with relatively little inUrect taxation, such as the United* States. To the extent that driect taxes do raise product prices or Indirect taxes do not raise product prices by the full amount of the tax, the present system overcompensates for indirect taxes. The United States, which relies primarily on direct taxes, is thus put at a disadvantage. This is being compounded, of course, by the spread of value-added taxes within the conntries of the European Economic Community to replace turn-over tayes of lower rates. Germany recently raised its import charge and export rebate to 10% from an average of 6% to reflect its new 10% value-added tax. Other EEC coun- tries are following suit even before the change-over to value-added taxation becomes effective domestically. Also, as tariffs themselves have been lowered con- siderably over the years, the impact of border tax adjustments on trade and trade diversion has become relatively greater. There appears to be Increasing awareness that United States exporters clearly face a competitive disadvantage in marketing products in countries which apply border taxes to a wide range of imported products, particularly Western Europe. Since the NAM published a study in 1965 entitled, The Logic of Border Taves, many articles have been written, and comments made, by tax experts, economists, and Congressmen reaching the same conclusion as our study-that the present system is inequitable and illogical. Various studies on particular products and product groups have been conducted to show the cost-of-entry effects of the EEC border tax adjustments on U.S. exports. Correcting the present system of border tax adjustments is proving much more difficult than recognizing its faults. The United States, by agreeing with the GATT arrangements on border adjustments in the first place, is not in the best of bargaining positions. In the early post-war period, of course, the issue did not appear too significant in comparison with other problems. We allowed the border tax system to become well entrenched and absorbed its effect on exports and export prices without noticeable complaint. It was hardly surprising, therefore, that when the Administration was reported to be actively considering a request for a U.S. border tax last winter, much con- cern was voiced abroad by some of our trading partners. With some justification, they viewed this as a frantic~ attempt on the part of the United States to main- tain our trade surplus by indiscriminately squeezing imports. In the context of our rapidly deteriorating balafice-of-trade and balance-of-payments position and the drift toward exchange controls, it was natural that these partners, partic- ularly Canada and the United Kingdom, would fear a U.S. border tax, Imposed under these conditions, as a precursor to even harsher restrictions on their exports to the United States. * The proposal under discussion last winter was a 2-3% border tax to be levied on imports and rebated on exports. This was adjudged all that would be permitted under GATT rules applying to our existing tax structure. Regardless of the pos- sibilities of foreign retaliation, we doubt that a border adjustment of such magni- tude could have any significant effect on Our trade balance over either the short or long term. Certainly, it would not remove the basic marketing disadvantage of U.S. exporters~ Therefore, we think the Administration was correct in not making a formal request for a U.S. border tax of such character at this particular time. On the other hand, we do not think the American business community should be satisfied with vague promises to try to negotiate away the problem. Certainly, it should not be allowed to linger on indefinitely. U.S. negotiators have been trying to get a freeze on border tax changes pend- ing a new study Of the whole Issue by GATT. The difficulty here is that countries within the EEC have been moving toward tax harmonization for years now, and border tax adjustments reflecting the adoption of taxes on value-added in place of turn-over or cascade type of taxes* are considered part and parcel of their domestic tax planning. To date, the United States has had no success in stopping This process. The alternative proposal presented by GATT-that Western Europe, Canada and Japan accelerate their Kennedy Round Tariff cuts by one year and allow the United States to delay implementation of its reductions-might have a lim- ited benefit on our short-term trade balance, but would offer no long-term solu- tion to the border tax problem. Certainly, we should support a thoroughgoing study by GATT of the present rules, how they came about, and bow they should be changed. The basic ques- tion of whether or not there should be any border tax adjustment for bread- based internal tax burdens shoudl be explored. At the very least, the question PAGENO="0456" 1726 might be raised as to whether only taxes demonstrating a clear and direct impact on prices should be eligible for border adjustments. If the results of such a study cannot be used to reduce the arbitrary advan- tages that the European tax system enjoys in international trade, then perhans we should argue for allowing a portion of direct taxes on business enterprise also to be eligible for border adjustment. Assuming such authority, with or without the sanction of GATT, the United States still need not impose a uniform border tax. If the intent is to accomplish tax neutrality in international trade, we could deem a U.S. border tax equiva- lent to the tax which is rebated/imposed by the foreign country involved on similar transactions with the United States. With regard to Germany, for in- stance, a U.S. exporter would receive a rebate of 10% from the United States and pay 10% to Germany. A German exporter to the United States would re- ceive a German rebate of 10% (as is now the practice) and pay 10% to the United States. With countries such as Canada and the United Kingdom, there would be no rebates or charges since these countries do not now have such taxes. We believe that such a procedure should be considered as a last resort-that we first should make every possible effort to achieve reduction or elimination of border tax inequities without unilateral action on our part. If all attempts along these lines fail, however, at some point we should actively consider our own action to establish a more neutral international marketing environment. A lower tae rate on ecoports Unlike the tax systems of many countries which tax only domestic and not foreign source income, the United States has always taxed its citizens and do- mestic corporations on their worldwide income. Thus, income derived from ex- ports by U.S. citizens or corporations is subject to immediate tax at full rates, in the same manner as if the income had been earned domestically. An exception to this general rule, at least insofar as tax rates are concerned, applies in the case of a Western Hemisphere Trade Corporation (WHTC). A WHTC is a domestic corporation which enjoys a corporate income tax rate 14 points below the regular corporate rate, which is to say that If the corporate rate is 48%, the WHTC is taxed at 34%. In order to qualify for the reduced rate the WHTC must conduct all of its business in the Western Hemisphere, with 95% or more of its gross income being from sources outside the United States and with 90% or more of its gross income derived from the active conduct of a trade or business. The activities of WHTC's are not, however, limited to exports; many of them engage in manufacturing or extractive industries. The NAM ordinarily looks with disfavor on the use of tax incentives to attain non-tax objectives. It is also opposed to the use of stop-gap measures and tempo- rary expedience as solutions to basic problems. However, in an effort to achieve a better degree of market neutrality vis-a-vis foreign competition, some reduc- tion in the U.S. tax rate on income derived from exports would appear justified by way of an offset to the many restrictions that foreign countries impose on U.S. goods and to the subsidies they confer on exports to the United States. Even if the border tax problem can be settled to our satisfaction, there remain a host of other non-tariff barriers and export incentives employed abroad which bear upon the competitive position of U.S. manufacturers. There is considerable evidence, moreover, that the competitive condition of the United States in world markets has declined in recent years, and that much of this is attributable to non-tax factors. Nevertheless, for the reasons mentioned above, it is believed that the United States, with its almost total reliance on the income tax as its principal source of revenue, places its exporters at a disadvan- tage, vis-a-vis foreign competitors, as a result of its own tax system. The NAM believes that consideration ought to be given to a lower tax rate on income derived from exports-a rate at least as low as that pertaining to a WHTC. To qualify for such lower rate, it would not be necessary to set up a separate corporation as in the case of a WHTC; it would seem that appropriate departmental accounting by an existing corporation should be sufficient to iden- tify the amount of income qualifying for the lower rate. For purposes of qualifi- cation, source of income in a legal sense (which under existing law is based upon where title passes) would be disregarded-a destination test requiring use, con- sumption, or disposition outside the United States would be controlling. Further more, since exports often require the performance of technical, managerial, en- gineering, and other services directly related to the sales of export property, PAGENO="0457" 1727 income derived from these functions should likewise qualify for the lower tax rate. In addition, where a portion of the consideration received for the export or for any related technical and know-how services consists of a non-cash item such as an equity investment in a foreign enterprise, provision should be made for the taxpayer to elect treatment of such Items as in constituting receipt of in- come for the taxable year in which acquired, with a corresponding provision that would treat these proceeds from any subsequent disposition as ordinary income. The Nation's balance-of-payments deficit has continued for 17 of the last 18 years and, therefore, can fairly be viewed as a chronic condition which must be corrected by permanent, and not stop-gap remedies. The suggestion of a lower income tax on exports, as described `above, Is therefore offered as a permanent feature of our taxing system. STATEMENT OF TIlE INTERNATIONAL ECONOMIC POLICY AssOCIATIoN The International Economic Policy Association is vitally interested in trade policy because of the Importance which foreign trade has in our international accounts. We are in favor of steps which would increase exports and assure con- tinuing surpluses in our international trade account. H.R. 17551, "Trade As8istance Act of 1968" The orderl~V management of our `trade relations requires the President from time to time to make adjustments in tariffs. We, therefore, recommend that such portions orf the authority granted In Section 201 of the Trade Expansion Act of 1902 as are necessary for these housekeeping purposes should be ext~nded. I trust that our failure to comment on the other portions of HR. 17551 will not be considered as reflecting opposition. We are refraining from commenting on them simply because we have not given them sufficient study to justify taking a thoughtful position on them. E3~po'rt inoentive8 Foreign trade should represent an important plus factor in our balance of pay- ments. It did so over the years 1960 through 1965, wheir our commercial surplus was at an annual average of $2.7 billion. However, the evolution of trade blocs, the effects of nontariff barriers, such as variable levies and border taxes, and the erosion of our competitive position are having their effect. In 1966, our commer- cial trade surplus, arrived at by subtracting government-financed exports, slid to $646 million. In 1967 It slid further to a mere $250 million. (See Table I.) Preli- minary figures for the first four months of 1968 show further deterioration. (See Table IL) Unless this situation can be reversed, efforts to solve our urgent bal- ance of payments problem will be difficult. The recent adoption of the surtax and reductions In government expenditures Will, hopefully, contribute to improving our competitive position with an accom- panying reduction in imports and increase in exports. It will, however, be some time before these effects are felt. The decline in our trad.e surplus results from the fact that our exports have not expanded as rapidly as our imports. Although our exports have expanded, our share of world trade has steadily declined. (See Table III.) This has been particularly notable with our major trading partners who have organized Into blocs. Over the period 1958 to 1967 the members of the European Economic Community increased their exports to the United States by 166 percent while our exports to them increased by only 109 percent. The failure of our exports to keep pace with the growth in world trade and our own increase in imports does not reflect simply the erosion of our competi- tive position. It also results from the fact that our exporters are at a disadvan- tage compared with their foreign competitors. If we are to Improve our foreign ~trade position, we must provide our own exporters with compensating advan- tages and incentives. We therefore propose that legislative action should be taken to authorize U.S. firms to organize International Trade Corporations for export purposes only. Provision should be made that the profits of such corporations would be taxed at a rate of 14 points less than the tax rates usually applied to domestic business corporations. Such an incentive should induce those now engaged in evportlng to step up their efforts and many not now so engaged to become Interested. PAGENO="0458" Merchandise Net -- excluding military. V757 i~. i \\ ~ J ~ %,.- ~ Ad i ~ J I ~\ ____________ -.-i~ ~ ~ ~ ~ UNITED STATES MERCHANDISE I * ~ J~ TRADE NET 11Y8 i1i~? iUo J7~/ !76Z yy~5 /UY //~ nu' J?i?' 1958 - 1967 (in millions of dollarsL Merchandise Net -- excluding military & Gov't financed exports. -5-- liLa ~7~( 7~ 17S3 ifl/ lTs~ $~ P = preliminary Source: Survey of Current Business, U. S. Dep't. of Commerce, June1967; March, 1968 PAGENO="0459" 1/~~ 3.. a.. S.. ,0 I.e. .3.. - U. S. MERCHANDISE TRADE~ EXPORTS & IMPORTS -1967 THROUGH ~y 1968. (month by month in mil- lions of dollars) TABLE II ~ionth by month in mil lions of dollars) 1-*' S. S S a.. 7~.i. N. h.~ 4s asy ~L ~ A~. S.~siiez J~ D.C 7v~ FiI j~nr ~,. *,, /968 /?~ 7 ~ exports = exports~ excluding Coy t financed exports ***Estijn~te (of commercial exports)= exports eiccluding Gov't financed expoits running at the same monthly rate ($269.4 million) as the previous twelve months. s..'.-*~ / \ 4s As k 4.~i.'.,,L ~ J~ J.t )., ~L As. s,tj *U~ S. Merchandise Trade Excluding Military, Seasonally Adjusted, Census Basis. SOURCE: U. S. Department of Commerce, Bureau of the Census, Release # CB68-55 of May 31, 1969. u. a. me MLAN~E MAY 1968. ~Npibb isiuj~ - 1967 to PAGENO="0460" 1730 TABLE III UNITED STATES SHARE OF WORLD TRADE 1948 1967~ STATEMENT OF Gisonon S. BULLEN, LEGISLATIVE DIRECToR, NATIONAL FEDERATION OF INDEPENDENT BUSINESS The National Federation of Independent Business appreciates the opportunity to submit this statement regarding the Trade and Tariff proposals now under examination by your Committee. 1948 49 50 51 52 53 54 55 56 57 58 * Merchandise excluding military. P = Preliminary SOURCE: U.S. Department of Commerce, Balance of PaymentR Statistical Supplement (rev. ed.) 1963. Survey ~fCurrent Busiiiese, June 1967, and International Financial Statistics (IME), 1968 issues. PAGENO="0461" 1731 The Federation, founded twenty-five years ago, now represents more than 250,000 independents in all fields of enterprise. This means that, within the~ small business community of this country, as presently constituted, almost one out of every nineteen existing small businesses is a member of the Federation. Our membership is representative of all facets of the business spectrum. A check of membership percentages In each business category will show that the com- position of the National Federation of Independent Business falls within a very few percentage points of the overall makeup of the entire small business com- munity. Therefore, we feel that we can reasonably say that the views expressed by our members do represent a valid cross section of the views of the whole small business community. The legislative policies of the Federation are determined by the direct vote of Its membership, using the Mandate ballot. GENER&L Regarding experience, Federation Economic Surveys show that while the vast majority of small businesses are unaffected by or indifferent to import competi- tion and export opportunities, a substantial minority is invOlved. For Instance, in our 1962 survey we asked pointedly whether respondents were "affected" by import competition. Sixteen percent replied "yes," 73% "no," and 11% were not responsive. In our 1967 survey we asked, "Do you manufacture or sell goods for export ?" Four percent of all respondents (ranging from 1% among retailers to 20% among manufacturers) replied "yes." Rather interestingly, in a 1963 survey 89% of those who, Indicated their busi- nesses harmed by import competition ascribed the harm to "price competition." The balance, 11%, ascribed the harm to the style or type of foreign products. Additionally, in the same survey we asked, "As an importer or exporter, have you used SBA, Commerce, State Department aids?" The pitifully small "yes" response (4% of those styling themselves as "Importers or exporters") suggest that a large number of small businesses involved in foreign trade either are unaware of these governmental helps, or do not understand them fully, or know- ing and understanding them, do not feel they meet `the needs of small business. As we have stated many times, this would indicate a need to publicize these pro- grams more than has been done to date. We of the Federation are trying to do our part in the news section of The Mandate. Additionally, our News Depart- ment has at various times, through both print and broadcast, called attention to the work of the Department of Commerce in seeking to assist the smaller busi- nessmen In exporting. SPECIFIC WAGE DIFFERENTIALS Over the years, the Federation has presented to its members at least ten legislative propqsals aimed at tying tariff rates to wage differentials between the United States and the country of origin. In each and every case, the Federa- tion members have voted, hy a substantial `majority, to support such a proposal. Accordingly, the Federation recommends that wherever possible this wage differential be considered and resulting tariffs be sufficiently high so, as to remove the competitive advantages enjoyed by low cost labor areas over prices charged by domestic producers who find that their selling prices are being steadily driven upward due to continued Increases In labor costs. TIMELY COMPLETION OF INVESTIGATIONS On several occasions the Federation has polled its members on bills which would require the Treasury Department to complete Its Investigations within 120 days of complaints that foreign producers are selling their goods at lower prices In the United States than in other Nations. Every time such a proposal has been presented for a vote, our members have overwhelmingly supported It.' Therefore, In order that those businesses who lodge such complaints with the Treasury Department may be granted relief before irreparable damages are done, we recommend that the Treasury Department complete its Investigations as expeditiously as possible after receipt of the complaint. EXAMPLES So that Committee may see examples of how the above mentioned proposals were presented to our members, we are reproducing bekkw the Information given and the resulting vote totals: PAGENO="0462" 1732 [From the Mandate, Bulletin No. 282] (5) H.R. 587. Adjust tariffs to protect American businesses from price advan- tages foreign producers gain through lower wage costs (Rep. Pucinski, Ill.). Under this bill, the lower the wage rates in foreign nations, the higher our tariffs, to equalize competition. Following are brief arguments "For" and "Against" which we asked our members to read before voting: 5. Arguments for H.R. 587: Many key American industries face serious prob- lems due to increased imports from low wage areas. They've been forced to fire a significant number of their workers. Fact is they're simply unable to compete with areas where wages are only a fraction of those in the U.S. This bill doesn't aim to put U.S. international trade policies back in the "model T" age. It is a moderate, reasonable approach to getting a fair break for our businessmen and workers. All other nations protect their own. We should do no less for our own. 5. Argument against H.R. 587: A lot of tears have been shed over the plight of the poor American producers who suffer due to low wage cost foreign imports. But not enough thought has been given to the fact that many of these people haven't been doing much to help themselves. They've forgotten that trade goes to him who produces what consumers want. They've forgotten how to merchandise aggressively. Atop this, too many American workers have forgotten the meaning of "an honest day's work for an honest day's pay." Not all of them, but many. The results of this poll were: 5. H.R. 587. Adjust tariffs to offset lower foreign wage costs: Percent For 76 Against 16 No vote 8 [From the Mandate, Bulletin No. 285] (3) H.R. 2575. Require treasury department to complete its investigations within 120 days of complaints that foreign producers are selling goods at lower prices in the U.S. than in other nations (Rep. Dent, Pa.). Following are brief arguments "FOR" and "AGAINST" which we asked our members to read before voting: 3. Argument for H.R. 2575: Existing law permits American firms to seek relief when foreign producers dump goods in the U.S. at cut prices. Complaint can be made to the Treasury, which investigates, and if it finds the facts warrant action forwards the information to the Tariff Commission. The Tariff Commission can then enact special tariffs on these goods to restore fair prices. Trouble is that the Treasury Dep't is so slow that serious damage is done U.S. firms before it reaches its decision. In one industry where complaints were made, it required an average 15 months before acting. This bill would speed matters by placing a time limit on the Department. 3. Argument against H.R. 2575: This bill doesn't offer a cure-all for American firms which feel they are being hit by unfair foreign price competition. It merely seeks to shorten the period in which Gov't agency decisions `on complaints must be made. It has a good aim, but is very unrealistic. To begin with, the facts in one situation may be more complex than in another and may demand more time and attention. Who can say that 120 days is enough time for the job to be done in all cases? Further, it overlooks the fact that this is but one duty of the Treasury Dep't. The agency can't be expected to drop all other work when it re- ceives complaints of unfair competition. The results of this poll were: 3. hR. 2575. Put time limit on actions concerning charges of cut~price foreign competition: Percent For 76 Against 16 No vote 8 CONCLUSION As to the attitude of small business toward international trade, responses to The Mandate polls, which experience suggests reflect generally the views of small business as a whole, indicate the following convictions: 1. That Congress itself should exercise greater interest in and authority over international trade agreements, and that the authority of the Executive in this area be correspondingly curtailed; and PAGENO="0463" 1733 2. That the Congress should develop mechanisms for preventing undue injury to United States firms through import competition, such as in proposals to require clearer marking of foreign goods to identify the country of origin; to provide adequate tariff protection, and to require that the Treasury Department complete its investigations into complaints of dumping within a shorter period of time than is now the practice. In connection with the foregoing, it must be noted especially that members have expressed approval in many Mandate polls of measures which would base tariffs on differentials in wage costs between foreign and United States indus- tries, in each line of manufacturing. RADIO TALK BY ED WIMMER, PRESIDENT, FORWARD AMERICA, INC., PUBLIC RELATIONS DIRECTOR, NATIONAL FEDERATION OF INDEPENDENT BusINEss, INC. NEEDED: A POLICY FOR INTERNATIONAL FAIR TRADE A few years ago I attended a large convention of importers and exporters, and after seeing the high quality of foreign products on display, and talking to repre- sentatives of numerous importers whose salesmanship was superb, I asked the conventioners the following questions: 1. Will you accept the charge that no trade is good trade that isn't fair trade, either domestic or foreign? 2. Are you afraid to meet American competition at home or abr~ad, under tariff regulations or agreements that take into consideration the high taxes and high standard of living In the United States, and thus prevent any importing country from exercising the competitive advantage of low wages and low taxes prevail- ing in your own land? 3. If you had a wide-open market in the United States, and if your success depended on your merchandising technique and the quality of your goods, do you believe you could capture a satisfact~$ry share of our market, and would you be willing to offer American exporters the same opportunities in your own land? 4. Do you believe that if we allow you to endanger or destroy our toy indus- try-our steel, shoe, office equipment, textile, glove, motorcycle, plumbing supplies, cattle, creameries, dairy farms, dishes, tile or almost any other line, that you eventually will endanger or destroy the best market you have in the world? At the end of my talk the wife of a Japanese importer asked: "Why doesn't your government l~a1k to us like this, Mr. Wimmer?" An executive of a Swedish corporation got to his feet and told the audience that he would not only favor any and every attempt to establish a basis for fair trade between nations, but added it could become one of the biggest and most important educationki pro- grams ever carried out between nations. In contrast to this view, we are hearing from all sides that if we fail to allow billions of dollars worth of goods to flow over our borders, at prices no Amer- ican business can meet, that foreign nations will shut off our exports. We are told that whole industries in the United States must be considered "expend- able"; that Congress must appropriate funds to pay off the bankrupt~ owners, and retrain or keep on welfare, the workers who lose their jobs and the value of their special training-whatever it may be. Free traders who are challenged on this theory, call the people who believe in a fair exchange of goods and services, protectionists and obstructionists. Congressman Tom Curtis, Missouri, says that free trade has become some sort of sacred cow which to attack is to be "against Motherhood and Christmas." Mr. Curtis inserted a speech by John Morrill, former president of the Electrical Manufacturers Association, In the Congressional Record, which challenged util- ity companies and other purchasers of low wage, low tax produced eqttipmeflt with b~ing blind to the long-range benefits of keeping Americans on jobs and American companies in business. Since the end of the last World War, we pumped billions into foreign nations to help them rebuild their mills and factories. We gave them the know-how; brought them over here to train them in our ways of doing business. In one single industry: textiles, we aided 49 countries, none of which will allow a pound of our textiles to cross their borders. We have bought their tile, steel, shoes, gloves, wallboard, tools, dishes, plastics-you name it-at prices no manu- facturer could meet. To make matters worse, hundreds of American manufac- PAGENO="0464" 1734 turers bought into, took over, or established plants in low wage nations to produce goods to ship back to their home-based markets at prices the home-based factory could not meet. Compare this outrageous situation with the attitude taken by Japanese indus- trialist Yosornatsu Natsuabara who said that "chaos would reign in Japan if U.S. industries are allowed to enter our country unhampered by tariffs." He continued (and please keep these words in mind) "Our smaller businesses would be ruined by the thousands." This is what you call nationalism: my country first, then maybe yours. Ken O'Kubo, president of giant Mitsubishi industries, stated that the "Japanese distribution system would be plunged into serious confusion by an invasion of American capital goods if we did not limit American investment in Japan." Yet, Japanese steel is pouring over our borders in an ever increasing flow. Japan has captured the shipbuilding leadership we held. Our toy and transistor and camera business is going to Japan, Germany and other nations. Japan is selling us over 80 percent of our motorcycles, and within two years, Japan ought to be leading in foreign car sales in the United States-despite the fact that Chrysler has grabbed off a big slice of the French auto industry; Ford in Eng- land and General Motors in Germany. My point is, if Japan is making a good motorcycle and one that is better or will compete with American cycle makers, would it not be reasonable to assume that we maintain some part of the bicycle-motorcycle industry by regulating foreign trade according to our own cost levels that are set by our high standard of living, and our huge tax burdens, and, yes, our wars and defense establish- inents all over the world? "I ask you, and I ask any Member of Congress, if the British government or the German or Russian governments, Japanese or any other, would consider making their own industries expendable and condemning their own workers to a loss of jobs and wasted talents, to favor an American industry? I would ask also if the labor leaders from Germany who visited this country and. flatly told us that no foreign country will buy our goods once it is producing those goods in quantity, were stating a true situation? One labor leader ridiculed the whole idea that an American held factory in Germany would tolerate com- petition from its own American based plants. Yet, on the other hand, we read the testimony of Dr. Barry Johnson, formerly of Chicago University and lately with the London School of Economics. He argues that by dropping tariff walls, America will be reducing the need for foreign aid. The thing that is wrong with this dumfounding suggestion is, that American workers and factory owners would have to be put on relief to supply this trade advantage, and at what cost? In talking about protective tariffs, I am fully cognizant that our American workers in industry after industry are not only demanding more and more fringe benefits, higger pensions, longer vacations, shorter hours, and turning out shoddy merchandise, but they are the first to head for the discount house to buy a cheap foreign lawn mower, pair of gloves or boots, and pass up their inde- pendent merchant as if he weren't there. During the last several months we are witnessing one rash of strikes after the other, with leaders demanding huge hourly wage increases, pricing our depressed and bankrupt farmers out of one market after another, and opening every door to a bigger flow of imports, with taxes and inflation blowing through our ceilings; our deficits greater than the taxes of most nations; our boys being killed by the thousands to keep this fiasco going. Congressman H. R. Gross, Iowa, calls the cry for free trade a ringing cry for one woridism. Congressman H. R. Dent, Pennsylvania, another great voice for international fair trade policies, says he was not elected to help liquidate the businesses in his District, many of which are already gone. Congressman Horace Kornegay, North Carolina, tells' how the live and let live arrangement with foreign textile mills who reduced their shipments voluntarily, probably saved the textile industry of the South (last year). To promote the live and let live approach to the trade problem, Congressman Herlong of Florida, and other Members of Congress, have introduced bills which incorporate the international fair trade philosophy. Mr. Herlong's bill is not a tariff bill. It is merely a restriction against wild expansion of imports from any country. It recognizes the need of importing if export trade Is to be maintained, but he sees, with us, the destructive potential PAGENO="0465" 1735 In attitudes that in order to export We must give the low wage countries an almost open field. To go along with this theory is to say that we ought to repeal our antitrust laws so the big discounters and chains can run hog-wild over the market place, dumping loss leaders on the public until all the small manufac- turers, suppliers, independent retailers and smaller farmers are liquidated. By not enforcing our antitrust laws earlier, we have already accomplished this liquidation of free enterprise in many lines of business, closing the doors to our youth In one line and then another. Exporters who think only of what will happen to them if a foreign country retaliates by cutting down on its purchases, had better consider what is going to happen if we cannot answer our Appalachian problems, our civil rights prob- lems, the problem of training and finding jobs for the millions of people who will be displaced with the coming of peace. These exporters and importers need tO realize, too, that they have done a miserable job of selling any American idea of what constitutes a live and let live policy of doing business. They must realize that an overwhelming majority of businessmen, both big and small, have stood back and watched the destruction of the family farm and the independent store- keepers through merger, cutthroat competition, trading stamps, games, discrimi- natory tax burdens, bureaucratic red tape and trends to socialistic govern- ment-without writing a letter to their Congressmen, without taking time to talk to the youth of their communities; without showing a sign of effort in behalf of the fundamental principles set forth by the Founding Fathers who gave them their freedoms and their opportunities. Free enterprise in this country does not mean the freedom of anyone to exploit Workers or the buying public. It does not mean that we should even tolerate the idea of building the dynasties of Europe and Asia by patronizing their sweat shops, and what is wrong, I ask, with our buying the things from Latin America, Europe, Asia and Canada, that they can make well or that we do not make at fair prices, and why cannot we spread this idea Into foreign lands? Are we not just as bad as the maker of a sweat shop product when we buy It, actually glorying in the fact that we got it so cheap, when maybe it was produced by people living under starvation conditions who could never purchase anything we produce? Ladies and Gentlemen, you have great decisions to make. Congress has great decisions to make on this whole matter of domestic and foreign trade. Within the next few years, Russian businessmen and their highly trained, many language emissaries will be streaming over the world to move the goods of their growing industries, and Japan, China, India, Latin America, all will have markets for their goods and services, and if we allow our industries to be weakened, and some to disappear entirely as they are now doing, we could end up not only as a have-not nation, but lower on the economic ladder than the British Empire is today. I urge you to think about this idea of fair play in the market place; to weigh the benefits of international fair trade, and to keep ever In mind that the destiny of goods determines the destiny of nations as much as the structure of their government and the philosophy that lives in their hearts. What Congress does to build a fair trade "freedom of opportunity" system In America, may determine America's course for generations to come. NATIONAL CouNcIL OF FARMER COOPERATIVES, Washington, D.C., July 12, 1968. Hon. WILBUR D. MILLS, Chairman, Co~n4n4ttee on Ways and Means, U.s. House of Representatives, Washington, D.C. DEAR Mu. MILLs: The National Council of Farmer Cooperatives, a nationwide association of farmer-owned, private enterprise businesses engaged In purchasing and marketing of farm supplies and farm products, is vitally concerned with recent developments in international trade matters-Including adverse trends in the U.S. trade balance, widespread drift toward new non-tariff barriers which further restrict U.S. export opportunities or threaten unfair import competition, and other policies or actions by nations of the world which conflict with prin- ciples of the General Agreement on Tariff and Trade or heighten risks of a dam- aging, perhaps uncontrollable trade war. 9~-159 O-e8---pt. 4-~lO PAGENO="0466" 1736 Trade is of critical Importance to the welfare of our country, as it is to. U.S. agriculture. Opportunities for expanded farm export markets are vital to our farmers, our agri-business sector, and our national welfare. We oppose the uni- lateral establishment of trade barriers which restrict world trade growth, in- cluding such insidious non-tariff barriers as variable levy systems and arbitrary or unfair import regulations which seriously disrupt efficient and desirable trade patterns. The National Council has consistently endorsed the principle of trade liberal- ization through reduction of trade barriers, by GATT negotiations to the maxi- mum extent possible, to the benefit of all nations through expanded world trade. We support the principle of reciprocity as a basis for negotiating trade barrier reductions, and we favor the extension of Presidential authority for continuing multilateral efforts to expand trade opportunities. Fi~rm commodities must also be considered as an integral part of the net reciprocal concessions made by all nations In multilateral negotiations. Even though we recognize the strong representations made and commend U.S. Ken- nedy Round negotiators for their efforts on behalf of U.S. farm exports, we deplore the circumstances which limited our agricultural gains to only a small fraction of gains made in industrial sectors. The strong interest of our membership in expanded trade is reflected in the fol- lowing National Council policy statement on "Expansion of Foreign Trade in Farm Products": "The National Council of Farmer Cooperatives endorses the objectives of expanded world trade and encouragement of market opportunities abroad for American agricultural products. We recognize also that the lowering of barriers which now limit world trade may create serious economic dislocations and that adjustments in trade patterns must normally come through careful and gradual reduction of trade barriers." Under GATT (General Agreement on Tariffs and Trade) or other international trade negotiations, expanded trade to benefit all countries is possible only if offers by all trading partners represent comparable concessions. This principle of economic reciprocity must continue to be the keystone of U.S. trade agree- ment policy. The National Council recommends renewal of Presidential authority under the Trade Expansion Act of 1962 to enter into further trade agreements based on true reciprocity. Many forms of non-tariff barriers, such as quotas, embargoes, unrealistic inspection procedures, and lack of uniformity of grade regulations and tolerances hamper efforts to achieve such reciprocity and severely limit U.S. export opportunities.. Negotiations toward trade agreements should be focused on reduction of such non-tariff barriers, and particularly on the variable levy system widely used by the European Economic Community (EEC). We are unalterably opposed to the recognition of the variable levy system as a valid policy for trade liberalization, and request that U.S. negotiators press vigorously for its elimination. The National Council is concerned over increasing use of international market- ing subsidies which are disruptive of long establIshed UnIted States markets abroad. Such practices lead to chaotic marketing patterns which tend to allocate resources on a political rather than a most economic basis. We recommend that United States agencies or negotiators involved in such matters view such practices wherever they exist as a serious disruption of attempts to increase world trade on a fair and equitable competitive basis and work to have such practices stopped immediately. We favor and urge that if attempts to eliminate such unfair practices are not ~successful, programs providing funds already available to perishable com- modity industries be used (to the extent such funds are available) to meet such unfair trade practices in order to maintain historical marketing opportunities in the markets of the world. We also deplore those unilateral increases in tariffs or introduction of other trade barriers which have been made since the termination of the Kennedy Round negotiations. We urge that positive actions be taken by the U.S., through GATT channels insofar as is practical and reasonably prompt, to offset trade losses and damaging effects to our balance of trade through such unfair practices. Trade agreement bargaining which is limited to farm products alone would be ineffective. Farm commodities must be considered an integral part of the broad spectrum of international trade. If we are to grant import concessions on indus- PAGENO="0467" 1737 trial goods, farm products must be part and parcel of the trade package for which we, In turn, must secure concessions. Any concessions granted by us on industrial and other goods should be accompanied by corresponding reduction of market barriers on commodities for which the U.S. has important historical markets, or by other arrangements which would give satisfactory conditions of access for U.S. farm products. Undue protectionism on the part of the EEC will reduce opportunities for world wide relaxing of trade barriers, rational growth of world markets and the consequent economic benefits of specialized production. It will `increase the incentives for uneconomic production of many commodities within the Common Market area and will simultaneously exclude competing commodities from the U.S. and other countries. We urge that all possible advantage be taken of legislative provisions which may be useful in reducing or withdrawing concessions in order to implement the purpose of expanded trade, where such purpose is being impeded by action not in conformity `with the rules of GATT or where there has been arbitrary refusal to fully implement concessions which have been granted .to us. Before concluding specific trade agreements, full consideration should be given to the possible effects of the extension of the agreement to other countries under the Most Favored Nation Policy. The National Council favors the passage of H.R. 17551, the proposed "Trade Expansion Act of 1968," to expand trade and strengthen adjustment assistance provisions for firms and industries which are unfairly damaged by foreign com- petition. We believe that procedures for relief of U.S. groups damaged by trade agreements or by abrupt or arbitrary trade actions `by trading nations are now inadequate. Substitution of the concept of a "substantial cause of injury" criterion for assistance is a distinct improvement over the current requirement that increased imports, "as a result in major part of concessions granted under trade agreements," have been "the major factor" in causing injury. We also support other amendments or administrative actions designed to streamline procedures for petitioning for relief, hearings, and application of findings. Removal of the American Selling Price system for applying certain chemical and other tariffs would offer special benefits to U.S. farmers as well as possible speed-up in the schedule for lowering European and Japanese tariff cuts agreed on in the Kennedy Round. Since ASP `is seen by many of our trading partners as the epitome of American non-tariff protectionism, its removal would help our negotiators to move more aggressively toward reduction of non-tariff barriers on a wide front. The provisional "ASP package" offers gains for U.S. agriculture through reduced barriers to some U.S. tobacco and fruit exports. Perhaps of greater significance, though, is the opportunity for lowered costs for pesticides, drugs and feed supplements having benzenoid chemical components. A billion dollar farm supply market is involved and substantial reductions in farm costs could be pos~~ib1e if tariff reductions were even partially passed on to farmers. The National Council is also urgently concerned about extensive use of non- tariff barriers which threaten many of our export markets for American poultry, grains, fruits, and, other farm products. Regrettably, these trade barriers seem to be proliferating since the conclusion of the Kennedy Round, particularly those occasioned by or at least concurrent with further harmonization of the trade and tax poliç~ies of the EEC. Major international efforts are needed to measure and agree upon the impact of these barriers on world trade. Before effective progress can be made in reducing these trade impediments, there must be better agreement on the degree of trade restraint imposed by such complex barriers as indirect subsidies, food additive controls, import licensing requirements, and many other damaging or cumbersome procedures, taxes or other trade regu- lations. One of the most notorious and damaging barriers to expanded world trade is the variable levy system of the European Economic Community, which we have vigorously opposed as a violation in spirit, if not in substance, of the basic objec- tives of the General Agreement on Tariffs and Trade. We continue our strong opposition to the EEC variable levy. Its damage and its t.hre~its are not limited to the harm it does to worldwide efforts toward liberalizing trade. It threatens many U.S. farm export markets and establishes a dangerous precedent in the international trade policy arena. It has already PAGENO="0468" 1738 done great harm to the American poultry export trade and has hampered tT.S. grain export opportunities, in both instances resulting in industry dislocations and uneconomic allocations of European resources which in the long run will likely hurt EEC farmers more than it will help them. The latest threat of an EEC application of the variable levy system to canned fruits and vegetables is another matter of particular concern, since it would do further serious damage to established and efficient U.S. suppliers, add to Euro- pean consumers costs and undercut the accomplishments of the Kennedy Round in `this field. We have urged that U.S. negotiators make the strongest possible efforts to forestall this development, and we believe that an expression of Con- gressional concern on this point, through a resolution, or other legislative history, would help our negotiators take the firmest possible stance on this critical issue. Export subsidies in various forms have posed increasing problems for a num- ber of U.S. farm commodity interests in recent months. Established U.S. mar- kets at home and abroad have been threatened by such actions as the Australian subsidy program for canned fruit exports, Israeli citrus subsidies, and European subsidies for certain dairy products, canned ham, and tomato products. Administrative relief has been possible for some of these damaging situations, but imposition of legally authorized quotas of countervailing duties or subsidies has been too slow. More prompt action and relief is urgently needed by damaged Industries. Unless such administrative actions can he speeded up, the clamor for new import quotas or other U.S. "retaliatory" trade barriers is likely to grow. The case of our badly hurt export markets for canned fruits is a notable example of the difficulties in offsetting damage done to our markets by foreign subsidies. For over a year, the California peach industry has been making appeals for relief from an Australian subsidy campaign which Includes direct payments for exports to key foreign markets, heavy government-financed foreign market promotion efforts, and other tax or domestic policy benefits to the Australian peach export industry. A substantial Australian advantage in ocean freight rates also is very harmful to U.S. exporters. The extent of damage to this $70 million export market for ITS, canned fruits is highlighted by an accelerated rate of loss of the prime West German market in recent months to less than one-fourth of the 1966 level. In the June-December 1967 period U.S. exports of peaches, our biggest canned fruit export item, to West Germany were 280,372 eases, compared to 1,322,466 for the sqme period in 1966. This loss in revenue of about $5 million for one item alone is significant to our national balance of payments, as it is to our U.S. fruit industry. Strong efforts have been made by the U.S. peach industry to obtain relief through Australian action or through use of countering U.S. subsidies from funls legally authorized by Section 32, PL 320. We commend the Administration for its support of these efforts, toward a solution by easing of the Australian subsidy program, or failing that, toward appropriate relief for this industry. Again, the National Council. protests vigorously against the threatened u"e of variable levies by EEC for processed fruits and vegetables. Such action would be a disastrous blow to U.S. opportunities for building and maintaining well- established European markets for our `canned fruits. For products on which bindings have been established during the recent Kennedy Round, it would also represent a further and flagrant abuse of the trade-liberalizing objectives of GATT. Use of the variable levy should be opposed at every step if we are to avoid the risks of a disruptive trade war which might re~ult if such obstructionist trade barriers are allowed to mushroom following the Kennedy Round conclusion. We wish to express our support for the objectives and the continuation of PTA 480, our Food' for Peace program. While the primary thrust of this program has been changed from that of "surplus disposal" to encouragement of self-help for economic development, Pr2 480 remains vital to export markets for such U.S. products as cotton. Furthermore, through the market development activities carried out under this law, broad new commercial markets for U.S. farm products have been opened up. The policy of the National Council with respect to problems relating to exces- sive imports is set forth in the following current policy statement: "The National Council of Farmer Cooperatives recognizes the need for safe- guards in any nation's trade policy against excessive imports of commodities already produced domestically in substantial quantities. Provisions of Section 22 of the Agricultural Adjustment Act and of the Trade Expansion Act of 1962 should be promptly invoked when necessary to protect PAGENO="0469" 1739 domestic producers or industries against undue import competition. United States legislation pertaining to international trade negotiations or arrangements should include: 1. Reaffirmation of the "peril-point" principle, with such deterthination to be made by the Tariff Commission, and mandatory requirements that the executive branch be accountable to Congress for exceptions made in peril- point proceedings. 2. Strong endorsement of "escape clause" provisions, with emphasis o~ procedures for prompt review and action to protect domestic producers and industries against abrupt or critical damage from imports. 3. Specific recognition that the growers of any agricultural product used in the manufacture of a commodity involved in peril-point or escape clause proceedings shall be considered a part of the domestic industry producing that commodity, and any organization or group of such growers shall be considered to be interested parties in such proceedings." In summary, the National Council has consistently endorsed the principle of trade barrier reduction and other measures for expanded ~world trade. We favor reciprocal actions toward this end, preferably through multilateral negotiations under the General agreement on Tariffs and Trade. In such negotiations, reci- procity should be considered and applied for all products in international trade, specifically including agricultural items. We recognize the risks involved in current threats to establish quotas or other arbitrarily imposed barriers, in the U.S. or other countries. We believe that inequitable, arbitrary or unilaterally Imposed non-tariff barriers represent the greatest present threat to a continued healthy growth in world trade. We urge all possible efforts through GATT or through other avenues, to identify, measure and negotiate for reduction of these barriers. We particularly object to the use of the variable levy system of trade re- strictionism as applied by the European Economic Community in contravention of the trade liberalizing aims of GATT. We express strong opposition, too, to non-tariff protectionist barriers unilaterally applied or increased by some nations since the conclusion of the Kennedy Round, including extreme and unfair export subsidies which have been increasingly used by several countries as basic devices for export expansion. Particularly as a means of protecting U.S. industry groups against the undue losses or sudden dislocations which may result either from unilateral trade policy actions, or in some instances from negotiated trade barrier reduction, we urae that provisions for relief under trade polie.y legislation be liberalized and streamlined for more prompt and equitable relief. We ask, too, that growers of any agricultural commodity used in the manufacture of a commodity involved in such relief proceedings be recognized as a part of that domestic industry. We commend you and your Committee for conducting extensive hearings on trade policy matters of crucial importance to U.S. agriculture and to our nation, We would appreciate the Inclusion of this statement as a part of the hearings record on H.R. 17551 and other trade bills and issues. Sincerely, ROBERT N. ~!AMPTON, Director of Marketing and International Trade. CONSUMER FEDERATION o~' AMERICA, Washington, D.C., July 12,1968. Hon. WILBUR MILLS, Chairman, Committee on Ways and Means, TJ.~. House of Representatives, Washington, D.C. DEAR Mu. CHAIRMAN: Consumer Federation of America Is a federation of local, state, regional, and national consumer and consumer-oriented organiza- tions renresenting millions of Americans. OFA members are both rural and urban people, living In most of the 50 states. We believe in the farmer's right to produce his crops and livestock and to sell them both here and abroad. We believe in the American businessman's right to make and sell his product both here and overseas. And above all, we believe in the consumer's right to choose both American-made and imported products. During the past 30 years, America's ability to produce has consistently grown. Our standard of living has consistently improved. Our international trade has consistently expanded. Both business and consumer's have reaped the benefits PAGENO="0470" 1740 of our liberal trade policies. To deliberately cut our foreign trade would hurt both business and the consumer. That a country as great and powerful as ours should be frightened into build- ing trade walls against other countries is incredible. We know from past e~- perience with `the Smoot-Ilawley tariff how dangerous such trade barriers are to our own economy. CPA urges the enactment of the Trade Expansion Act of 1968 and requests that this letter be made a part of the hearing record. Respectfully submitted. (Mrs.) ERMA ANGEVINE, E~vecutive Director. STATEMENT OF PAUL JENNINGS, PREsIDENT, INTERNATIONAL UNION OF ELECTEICAL, RADIo, AND MACHINE WoRKnxS, AFL-CIO-CLC My name Is Paul Jennings, and I am President of the International Union of Electrical, Radio, and Machine Workers, AFL-CIO-CLC. I am very pleased to have this opportunity to file this statement setting forth TUE's position on the current trade situation in general and the Trade Expansion Act of 1968, in particular. The TUE represents more than 340,000 workers in plants throughout the United States and Canada. Products manufactured by these workers range from miniature tubes to huge generators and motors and include all electrical machinery and electronics products found in between. Jobs performed by these workers are also of great variety, from highly skilled technical work to those jobs requiring much less skill and training. To all these workers, international trade and U.S. trade policy is of great concern and consequence. The position of the TUE and its members, like that of organized labor generally, has been to favor the greatest feasible increase in international trade. Our support for expanded trade involves the expansion of employment at home and among those with whom we trade. The objectives of our support are to promote improved living standards and working conditions here and abroad. We have taken this position because experience has shown very clearly that where trade barriers are reduced on a sound and equitable basis, everyone bene- fits-consumers have a wider choice of products; greater access to foreign mar- kets is made available; job opportunities are encouraged in our export indus- tries; production efficiency is increased, and monopolistic prices are undercut. We are aware that many jobs in this country are due to our export trade. Recent statistics have shown that in manufacturing industries as a whole, almost seven percent of total employment Is directly related to exports. In the machinery industry, we are told the percentage Is even higher. The importance of export trade to our economy cannot be overstated. In support of increased world trade, the TUE strongly endorsed the efforts of the Kennedy Round to reduce tariffs even further with the hope that these reductions, including those scheduled for July 1st, will lead to an Increase in International trade which in turn will help to bring about the mutual benefits we mentioned above. We must emphasize these mutual benefits if trade is to serve a useful purpose to us as well as to our trade partners. Unfortunately, as you have been told, T am sure, by many who came before you, several problems have arisen in regard to U.S. imports. None of us can overlook the fact that some imports have caused dislocations, reduced employ- ment, brought about plant closings to mention only a few problems whioh have been created. Let us consider several different problem areas with which we are faced today: Adju8trnent A,q.qistance In the Trade Expansion Act of 1962, Congress gave recognition to the principle that adverse impacts of increased imports must not lfe shouldered by a few, when the benefits accrue to the many. In that Act, Congress incorporated adjustment assistance provisions to help firms and workers faced with problems caused by the competitive challenge of increased imports. The TUE lent its support to this Act because just such a provision was in- cluded. However, while constituting a notable effort on the part of the United PAGENO="0471" 1741 States to help firms and workers, it failed completely to serve Its purpose. Pests for assistance under this Act have proven to be too rigorous and too complicated. Under the Trade Act of 1962, not one petition for help has been approved to date. One notable example of this involved the TUE-Philco Ford plant in Sandusky, Ohio. This plant, which had employees of many years of service, was shut down and production was transferred to Philadelphia. Prior to this shutdown, we showed that there had been a large increase in the importation of radios by Philco because they could be made more cheaply abroad. Desi~ite these facts, the Tariff Commission refused to certify this case for Adjustment Assistance. One of the grounds for this refusal was that the increased Imports were not the major cause of injury. We find it difficult to believe that in the entire six year period that there has not been one single case which met the standards for ad- justment assistance. On the other hand, cases handled under the Automotive Products Trade Act of 1965 (an implementation of the U.S.-Canada auto agreement) prove that adjust- ment assistance can work. Since 1965, certifications for eligibility to receive assistance have been issued in 14 of the 21 cases where petitions for adjust- ment assistance have been presented. This shows, we think, that adjustment assistance can work. In light of problems confronting many industries as well as segments and individual plants of others, adjustment assistance is vital. It appears that the Trade Expansion Act of 1968 recognizes this need. It cer- tainly offers a more realistic approach to adjustment assistance and how' It should be handled. The bill would eliminate the requirement that tariff concessions be shown to be the major cause of increased imports which cause or threaten injury; sub- stituted instead is language making relief available whenever increased imports have been a substantial cause of injury. This substituting meanS that it would not be necessary that the effect of the in- creased imports 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. This section of the 1968 Act also gives authority to the President, rather that the Tariff Commission to determine the eligibility of firms and workers to apply for assistance. Determinations of eligibility will be made jointly by the Secre- taries of Labor, Commerce, and Treasury. The TUE supports these provisions and believes they represent steps in the right direction to help ease the fears of workers that increased imports will mean not only loss of jobs, but considerable ecomonic suffering to them and their families. According to Secretary Wirtz, about 10,000 workers per year would be- come eligible to apply for adjustment assistance; 10,000 less collecting unernploy- ment Insurance. International Fair Labor A~tandards Another problem area which has been of major concern to the TUE in the development of U.S. trade policy has been the need to establish International Fair LaI~or Standards. This is not a new idea, having been hashed and rehashed time and time again resulting in many distortions of actual facts. Industry, including many com- panies represented by IUE, repeatedly points out to American unions the great discrepancy in pay between U.S. wages and wages of other countries. And be- cause of this great difference, Industry cannot compete. Certain production lines are halted and employers are displaced. The overall impression created is that American labor Is overpriced in world competition. - The truth of the matter is that wages alone are meaningless. Of greater con- cern is the cost of a unit of labor to the domestic employer which may even be less than it is in other countries where total wages are far less than in the United States. This factor may place such an employer in a better trading position. As we see International Fair Labor Standards, it is a part of the concept of a code of fair competition. This would bring a halt to production being moved to lower wage countries to seek the advantage of lower wages. By adoption of International Fair Labor Standards, we would make certain that when goods enter this country they will have some sort of seal that they have been produced on the basis of fair labor standards. We have no information as to the results of any discussion that took place in the Kennedy, round on this matter. We hope this question can be pursued PAGENO="0472" 1742 vigorously. We suggest some conference be held to try to develop guidelines to govern Fair Standards. For without these labor is too often forced to accept unfair competition heaped upon employer complaints that American wages are "just too high." A current case in point is the Mexican border situation. As you know, a pro- gram called PRONAF was established in 1961 by the Mexicans as a means of attracting capital to the Mexican side of the U.S. border. Under Section 807 of our Tariff Act such programs are helped by our per- mitting goods produced across the border to be shipped back to the United States with the shipper paying a tariff only on "value added." In this case, "value added" consists largely of low wages paid to the Mexican workers, so the tariff paid is small in relation to the value of the goods. U.S. firms have been moving across the border at a tremendous rate during the past year. We have received reports of many electronics plants which have followed this course. Some of our organized plants have reported movement of complete production lines to plants at the Mexican border with resulting dis- placement of American workers in our plants. According to our information this expanding program is based on wage rates which hover about 40~ an hour for unskilled workers. These products made at this rate are then sold in the United States in competition with goods made under U.S. labor standards. Such operations result in runaway shops and lead to a loss of jobs for American workers. We believe that this PRONAF program, as it Is now operating, is the wrong way to promote trade. It wilj bring no permanent good to Mexicans who are ex- ploited by American industry and certainly none to American workers who are deprived of jobs going across the border. At the recent AFL-CIO Convention, I was appointed as a member of an Execu- tive Council Subcommittee which was given the responsibility to look into the border problem. We have met with representatives of organized labor in Mexico and conveyed our concern. We recommended, in part, the creation by the Mexi- can trade union movement of a counterpart subcommittee to meet with the AFL- ClO Subcommittee on Border Problems. In the Subcommittee's report, which the AFL-CIO Executive Council has adopted, we urged that the State Department negotiate a comprehensive trade agreement with Mexico to eliminate existing unfair competition. Our report also urged that Congress and the Executive Branch give considera- tion to both administrative and legislative changes in the section of the Tariff Law which encourages this program and further, should tighten existing laws regarding the operation of U.S. companies abroad. Tackling another aspect of the ill effects caused, by exploitation of Mexican workers, our report called on the Justice Department `to res'train the commuting daily `to jobs in the U.S. by low- paid, wage-depressing workers from Mexico-commuters who hold "green cards" as alien residents but who live in Mexico and work in the U.S. This Mexican border problem represents a prime example of where interna- tional fair labor standards are required. Non-tariff barriers The existence of non-tariff barriers should be of major concern in developing U.S. trade policy. Even where tariff barriers are lowered between nations, if non-tariff barriers remain, the trade between the countries involved is not improved. `The IUE expressed concern back In 1964 at the time of the active start of the "Kennedy Round". We called' attention then to these barriers as they affected heavy electrical equipment and suggested at that time action should be taken to eliminate these. According to the electrical industry these barriers take the fol- lowing forms: (a) In the EEC and in most of the EFTA countries of Europe, and to some extent in Japan, the protection of domestic electrical equipment industries to the point of a practical refusal to permit foreign producers (in this case American producers) to bid or receive orders. Our producers claim that in many cases `they had no knowledge of the bids that were requested and received no opportunity to bid. For example, in the field of steam and turbine generator units-over 10,000 kilowatts-in the period 1964 to 1967, we had no exports at al~ in the EEC and EFTA countries. Our sales to Japan dropped from $14 million in 1964 to $1,400,- 000 in the first three months of 1967. PAGENO="0473" 1743 In the field of power transformers over 10,000 kilowatts, our sales in these countries were minimal. We recognize well the intense desire of countries to pro- tect such an important industry as equipment which supplies their electric power industry, especially where that industry is nationalized. However, it is not equitable that they should do this while we open up our opportunities to others to bid and receive orders on American goods. (b) Special taxes. Most nations have various kinds of taxes which are placed upon electrical goods, whether in the form of turnover or border taxes, or equalization taxes. The electrical industry also argues that the various kinds of taxes placed on electrical goods by other countries present a barrier to our sales. They make the point that American producers who wish to sell to co~1ntres that have these taxes must not only pay the duty and transportation, but pay a tax, in most cases, on the entire price landed in the importing country. Thus, the tax is compounded. However, the local producers only pay the tax on the cost of production in that country. They also takes the position that in selling to third countries, the exporter from these other countries, notably in Europe, gets the turnover tax remitted. This enables them to have a 2-price system. Because they do not face serious competition in their own countries, they can have a high price there and can afford to bid low on their exports, thus underbidding American producers. We are suggesting that this whole field is one in which there should be much more Investigation to secure many more hard facts, and vigorous actions should be taken to eliminate any inequities that exist against American producers. INVESTMENT OF CAPITAL ABROAD BY U.S. FIRMS Another area which should be of major concern in the development of trade policy is the tremendous expansion abroad of U.S. capital. Attention must be given to the effects of such investment on America's trade position and the U.S. economy also. From a figure of under $12 billion in 1950, direct investments rose to over $54 billion in 1966. In spite of the `voluntary restraint program Instituted by the Administration the capital outflow in 1966 was $31/2 billion, higher than the previous year. Expectations for 1967 and 1968 are even higher. This took place when the Administration was asking industry to exercise restraint in the exporting of capital. The effect of this tremendous influx of American capital into other countries, particularly the highly developed countries of Europe, may have serious conse- quences for international trade and for the general economic and employment situation, and it may have very important consequences for the relations of the United States with other parts of the world. The reasons given by industry for this great export of capital to Europe has been the need to get inside the tariff wall of the Common Market or of the EFTA group, and thus be able to sell their products within these expanding economies. However, the increases In U.S. capital investment in the area that needed it the most-the underdeveloped areas of the world-were relatively modest. While our direct investments in 1966 rose by $1.6 billion in Canada and by $1.3 billion in Europe, they rose only by $500,000,000 In Latin America; by $160,000,- 000 in Africa and by approximately $300,000,000 in Asia-including the Far East and the Middle East. While American capital investment and the export of "know-how" more fruitfully might be directed to underdeveloped nations rather than to the developed areas of Europe, there ought to be safeguards on such investment to make them socially responsible, to avoid both the exploitation of the peoples of these areas and the creation of economic and political problems for the U.S. Certainly the negotiation of an International Fair Labor Standards agreement, creating some equitable relationship between the labor element of the cost of production in the various countries, would be a key factor in meeting tl~e need for socially responsible conduct of enterprise by American capital exporters. We have seen the situation in which large segments of American production have been moved to lower wage countries such as rapan; then moved from Japan to still lower wage countries such as Hong Kong; and then moved from Hong Kong to still lower wage areas such as Formosa and Korea. As wages rise PAGENO="0474" 1744 in those countries from their present miserable levels, employers may be quick to find areas of still lower wage rates to which to move. This introduces tremendous instability not only for the workers in the un- derdeveloped countries being exploited but also for these countries, economically, in their 4evelopment of social institutions, and politically. It also introduces in- stability into the economies of other countries, including the U.S., since they also are not able to determine whether, at a given time, jobs and resources will be available. It also forces upon other U.S. employers the competitive imperative to meet the prices of products from such low-wage areas, and for some em- ployers this may impel them to join in seeking lower-wage areas Instead of tech- nological efficiencies, and so this race for lower and lower wage areas accelerates. A key strategy of employers has been to tell workers in each country that if they ask for wage rates higher than those offered, they will make themselves non-competitive in international trade and so may lose jobs. The same employ- ers and groups of employers may tell this to their workers in the U.S., Japan, Korea, Taiwan, or some other country. An International Fair Labor Standards agreement would be a safeguard against the coupling of the export of American capital and the technique of the international runaway shop, by introducing the element of social responsibility in the conduct of the enterprise. Under such a program, goods would not be acceptable for international trade if made under unfair conditions. In 1961, the International Metaiworkers' Federation, with a membership of unions representing nearly 10 million workers, adopted a resolution which used the following tests of unfairness: 1. Total hourly wage costs in the exporting firm substantially below the aver- age for its industry in the exporting country, or 2. Both hourly and unit labor costs in the exporting firm unjustifiably below the same industry in the complaining country. The resolution provided for the right of complaint by employers or unions which could raise the question of unfairness in international forums and provide a basis for action. We would like to see evidence of vigorous pursuit of this matter by the Office of the Special Representative for Trade Negotiations and by other U.S. govern- ment agencies. We have been informed by Mr. John B. Rehm of OSR, in a com- munication May 8, 1967, that "there has been a strong interest in this office concerning International Fair Labor Standards." Of the capital outflow in 1966 of $3.5 billion, about half of it-$1.7 billion- was for manufacturing alone. And again, Canada and Europe got a total of $1.4 billion, Latin America got $130,000,000, Africa got only $17,000,000 and Asia only $15,000,000. Companies important in the electrical industry, such as General Electric, Westinghouse, RCA, ITT, Sperry-Rand and others, have been expanding in all parts of the world at a rapid rate, producing many new problems for their em- ployees here and abroad for our nation and for the nations where they carry on their activities. Plant movement is no longer a problem confined within the United States borders. Plants of large corporations are located all over the world and in many instances, producing those items once produced within a U.S.-based plant. In many instances U.S. exports represent intra-company transactions. Many exports are semi-finished products shipped for final processing in plants of foreign subsidiaries. And many of these finished products, as well as parts, from the foreign subsidiaries are returned as imports to the U.S. This may be in the best pecuniary interest of the companies involved in such operations, but is it in the best national interest of the U.S. to have these multi-national companies not only supplant some U.S. exports by selling abroad from their foreign plants but also add to U.S. imports? In addition, these international operations of multinational companies, which may shift production and plants from nation to nation, not only give these companies a great power in the U.S. They also give them a great power over the ecenomies and even the institutions of the host countries which may become dependent upon the U.S. company for jobs and income. Further, there is no question that these exports of capital have been damaging to our balance of payments. The IUE supports expanded trade, because we feel it is in the best national interest. PAGENO="0475" 1745 We have supported export of U.S. capital, especially where such capital is of benefit abroad as well as of value to our national interest. But we believe very strongly that Congress should view with grave concern this sharp rise of foreign investment by U.S. firms and the impact of these firms' foreign operations and the extent of their subsidiaries and other relationships abroad, on the U.S., on foreign nations, and on U.S. relationships with other nations. We believe there should be a far-reaching investigation of the actual extent and character of this American capital investment penetration of the markets of the world and of U.S. company activities abroad to determine how they can best be contrOlled in the national interest. One expert concluded that within the next ten years or so, the world's means of production will be in the hands of six or seven hundred international com- panies-many of them being American. The impact of this upon the world is something that should cause us to reflect very carefully. Trade Evpansion Act of 1968 The Trade Expansion Act of 1968, HR 17551, represents what the TUE feels are useful suggestions for improving the U.S. trade policy. The purposes stated in the bill's Title I are, first, "to continue and strengthen the trade agreements program of the United States," second, "to establish a viable program of adjust- ment assistance for firms and workers affected by imports," and third, "to promote the reduction or elimination of non-tariff barriers to trade." To accomplish these purposes will necessitate understanding and cooperation here in the United States and the same relationship between the United States and the rest of the world. We in the IUE hope that changes outlined in the adjustment assistance sec- tion of this Act will provide the help and assistance to the many workers ad- versely affected by imports. Non-tariff barriers must be reduced or eliminated before any effective trade policy emerges. This means a reciprocal relationship-not removal of barriers by some, but by all. American exports, as we. have tried to point out, are hindered by non-tariff barriers. Countries must be willing to remove these barriers which in many instances are more subtle than some with which we are more familiar. We support Title II which sets forth the basic authority for trade agreements as well as the amendment to authorize money to finance the budget of GATT. This is only proper since it is the procedure followed in meeting financial respon- sibilities to other international organizations. As I mentioned earlier, we strongly support the changes in Adjustment As- sistance in Title III. According to President Johnson's statement of May 28, 1968, the test should be simple and clear-relief should be available whenever increased imports are a substantial cause of injury. Title IV deals with the elimination of the American Selling Price system. Here we will quote the AFL-CIO Convention resolution which states: "No tariff- cutting authority, beyond the authorization of the Trade Expansion Act; should be approved if there is any change of method of valuation of imports, such as the American Selling Price." If the ASP is removed, the effective tariff reduc- tions in products affected should not exceed the 50% cut authorized in the 1962 Trade Act. We recognize that the elimination of the ASP system would result in important reciprocal concessions from our trading partners. We would hope that If the system is removed, the long run result will be an increase in U.S. employment. We support Title V which would extend the Adjustment Assistance provisions of the Automotive Products Trade Act of 1965. I have attempted to set out the TUE's response to the Trade Expansion Act of 1968 and to emphasize those areas which should be given primary considera- tion in the establishment of U.S. trade policy. We do not advocate the so-called "protective" measures that have come to the forefront recently. We sincerely believe that voluntary agreement to remove non-tariff barriers to trade and greater cooperation among nations towards International Fair Labor Standards will do much to help resolve some of the difficulties our trade policy faces. The United States has been the principal proponent of action to reduce unneces~ sary restrictions on movement of goods and services. This kind of action is necessary by all who wish to improve the flow of trade. The U.S. must, there- fore, view all the issues and problems of the world today in charting its world trade policy. The events of the past few days give further indication that the U.S. should stay on the road on international mutual reduction of restrictions on trade by negotiation, rather than take the road of so-called "protectionism." PAGENO="0476" 1746 The French Government's action of June 26, aimed at coping with that na- tion's economic problems, in increasing governmental assistance to exporters and setting import quotas, is the sort of action which in former times might have loosed a spate of counter-measures by other nations, which in turn might have triggered more counter-measures, in a widening tide of trade-crippling moves. Many workers and enterprises in many lands are in line to be hurt by such spirals of restrictionism. Nations including the U.S. doubtless will take some countervailing measures under international agreements, but these probably will be limited, because of the existence of a history and pattern of international negotiations and because of the stabilizing effects of these agreements. On July 1, tariffs dropped "in at least 18 nations," according to the New York Times, "improving prospects for further expansion of world trade and a pickup in American exports," as most West European nations put into effect their first tariff cuts agreed upon in the Kennedy Round. As a result, "American goods will be moving more cheaply into Europe while European goods will pay the same duties to enter the United States," the Times article adds, because while the U.S. made one-fifth of its total tariff cuts Jan- uary 1, the European nations which didn't cut then,~ now have made cuts of two-fifths. Even France, with its problems, is making the tariff cuts, and the French say that their quota and subsidy moves are temporary. The U.S. will make another cut of one-fifth of its agreed cuts next January 1. On January 1, 1970, both the U.S. and the European nations will make the third cut of one-fifth. So mutually beneficial increases of trade may be expected. The revised Adjustment Assistant program, under Title III of the bill before you, should help meet the needs of the few who may need help because of imports. The road of negotiated reduction of restrictions on trade, as exemplified by the July 1 tariff cutting, rather than the road of unilateral quotas and other pro- tectionist devices, is the more promising road for the U.S. and for the world. But coupled with the elimination of both tariffs and non-tariff restrictions on world trade must come the development of internationally negotiated and effec- tive means of assuring that the benefits of trade and Investment are broadly shared. I associate myself with the testimony given to your committee on June 13, 1968, by Andrew J. Biemiller, Director of the Department of Legislation of the AFL-CIO, accompanied by Nathanial Goldfinger, Director of the AFL-CIO Department of Research. I especially would like to quote from that testimony, and adopt as my own, the following remarks from that testimony. "The time for determining a series of workable mechanisms for developing fair labor standards-or adequate development standards-is long overdue. The early adoption of such mechanisms is an essential part of a rational U.S. trade policy. Modern technology now makes it possible for international corporations to exploit labor for the company's advantage, without concern for the effects on other nations or our own. Many international forums should be used to deal with this problem and these forums should include negotiating forums, such as the GATT. "An effective system of assuring that the benefits of international trade flow to workers in various countries is a necessity. If trade is to be viewed only as an exchange of goods between nations, efforts will grow to restrain trade. There must be assurance of rising standards for labor." PRONAF: A HAVEN FOR RUNAWAYS SOUTH OF THE BORDER IS YOUR PRODUCT HIGH IN LABOR CONTENT? Producing all or part of it South of the Border could involve great savings. Let the leading consultant firm for the Baja California area help you plan and execute such a move efficiently and eco- nomically. The above advertisement, taken from a recent West Coast edition of the Wall Street Joswnal, is one of the lures to which American businessmen are respond- ing increasingly in a new wave of plant piracy that bids fair to make the U.S. southern states runaways look like peanuts by comparison. What's been happening in Mexican cities and towns just over the U.S. border is a fairly recent development, but it's growing fast. And it has a lot going for it, including (up to now) cooperation from the governments of both countries, promotion by trade groups on both sides of the border, an4 such appeals to profit- PAGENO="0477" 1747 stalking U.S. businessmen as a large reserve of cheap labor and immunity from import duties. The basic setup is fairly simple. Within a 12%-mile strip along its border, plus the entire state of Baja California, Mexico permits the introduction from the U.S. of machinerV, other facilities, materials and goods without normal im- port duties and taxation. On the other side, U.S. tariff laws permit goods to coiiie back into this country from this border area without payment of duties except on whatever value has been added to them in Mexico. As a result, U.S. firms have been setting up runaway plants in such Mexican border communities as Tijuana, Mexicali, Juarez and Nuevo Laredo, and hiring Mexican workers at wages like $24 a week (six days) to perform such oper- ations as sewing, soldering and assembling. The companies ship materials from the U.S. to these conimunities for such operations and then return the finished or partly-finished products to the U.S. for sale or for completion before sale. The border industralization program, actively promoted by the Mexican Gov- ernment, is called PRONAF from the Spanish, El Programa Nacional Fronterizo. Here are some of the just-south-of-the-border operations that have sprung up: Litton Industries, two plants in Tijuana, 150 Mexican workers assembling magnetic memory cores. International Manufacturing, Electronics and Consulting Corp. (IMEC) in Tijuana, 50 to 300 Mexican workers assembling computer circuits. Fairchild Camera, two plants in Tijuana, up to 400 workers assembling electronic components. Raytheon, two plants in Mexicali, over 150 workers assembling integrated circuits. Solitron Devices In Mexicali, over 150 workers assembling semiconductors. Transitron in Neuvo Laredo with up to 1,500 workers assembling electronic components. Sarkes Tarzian Co. in Nuevo Laredo and Piedras Negras, 150 workers assembling TV components, including base sets for VHF tuners used by General Electric in its sets. Curtis Mathes in Nuevo Laredo with 100 people working on transformers and electronic components. Motorola in Nogales where at least 150 employees assemble and test semi- conductor components. Electronic Control Corp. in Matamoros, employing 70 MexIcans to assemble semiconductors, light switches and temperature controls for air conditioning. Phese are some of the electrical and electronics firms that have responded to PRONAF. There are other companies, such as apparel makers (Kayser-Roth, 225 workers sewing in Mexicali), service industries (A. C. Nielsen, 300 people sorting grocery coupons in Nuevo Laredo and Juarez), toymakers (Mattel, 200 assem- blers employed in Mexicali), small products manufacturers (Kanar, Inc., 280 Mexicans making hair clips, in Tijuana), and food processors, furniture manufac- turers and wig makers. Estimates of the total investment and employment by U.S. firms in Mexico's border area vary, but there's general agreement that it's grown fast and, given a continuation of present conditions, will continue to grow. The number of com- panies involved may already exceed 100, according to the AFL-CIO Research Department. One observer sees a Mexican payroll of $400-$600 million by mid-year. One incomplete city-by-city breakdown of the U.S.-owned plants, the number of people employed for all industries and for the electrical-electronics Industry runs like this: All industries Electrical-electronics Plants Workers Plants Workers Mexicali Juarez Tijuana Nuevo Laredo 30 16 11 5 1, 522 1,570 741 856 13 4 7 3 758 172 463 800 tecate 4 258 3 180 Piedras Niegras Matamoros 4 4 305 301 2 2 125 101 Nogales 2 128 1 118 Total 76 5,681 35 2,717 PAGENO="0478" 1748 While these figures do not give the full picture, they do show where the con- centration's of runaways are located. They also indicate that around 50 percent, and perhaps more, of the plants and employment relate to TUE's industry. Wages to the Mexican workers run from $2.25 (unskilled) to $2.70 (skilled) per day. Added to this is 75 cents daily social security tax, paid by the em- ployer. The workers work six days a week, but are paid for seven. Thus, a skilled electronics worker is paid around $24.15 a week, including the layaway for social security. If one hunts, however, he can find even cheaper rates. Transitron, for instance, hired its first Mexican workers-34 women-to train as assembly line supervisors at a rate of $2.08 per day. Mexico requires that PRONAF companies pay wages 50 percent higher that the regional minimum. Nevertheless, U.S. employers aren't breaking any records- even by local standards. Bus drivers in Tijuana, for instance, earn $10 a day. Some of the factory Owners niggling out those pennies are (in the old pater- nalistic tradition) quite generous in their praise of the intelligence and produc- tivity of the people on the receiving end. One knowledgeable Tijuana entrepre- neur said he was "absolutely astounded" by the efficiency of his Mexican "help." "What it takes eight weeks for American assembly workers to learn required just six weeks in Tijuana," he said. As for profits, well, there's not much information available, but Enrique Meier, a Mexican who helped set up four PRONAF operations, put the average return on investment at 120 percent in two years! The shortage of hard, verifiable information about the border runaways partly stems from the fact that neither the Mexican Government nor U.S. managements are eager to tell the U.S. labor movement who's there and to what extent. Part of it (a lesser part) probably is attributable to a U.S.-Mexican (or English-Spanish) communications gap. But even our government, which should be ready to serve the workingman and his unions, has no publicly available collected body of in- formation on American firms operating along the border. IUE District 12 President Bill Drohan, who has visited the PRONAF scene at Mexicali, Tijuana and Nuevo Laredo, says many of the plants are hard to find and harder to identify, even with the help of a Spanish-speaking staffer. What with many of the companies operating under Mexican names, neither phone books nor signs on buildings help much. Reporters from daily newspapers also have noted the secrecy angle. After commenting last year that its two Tijuana plants were quite successful, Litton Industries turned back followup inquiries and refused to permit reporters and photographers to come inside. The fact is, the fast growth of this industrial weed patch, the exploitation of Mexicans involved and its real and potential devastation of U.S. jobs and benefits is a subject that cries out for Congressional airing. Letters from union members to their Senators and Representatives are called for. TWIN-PLANT OPERATIONS DEVELOPING One aspect of the border expansion has been the development of twin-plant operations in which both initial and final production stages are handled on the U.S. side, with intricate band-labor operations performed in Mexico. An example of the twin-plant setup is ~ransitron's at Laredo, Texas (75 people) and Nuevo Laredo, Mexico (1,500). American business groups and municipalities have been seeking federal funds for studies that would help advance the development of more such operations. While our government does not officially promote PRONAF, federal officials provide advice and information to potential runaways. Moreover, the govern- ment's response to U.S. labor's calls for action to stop this plant piracy has been unenthusiastic, to say the least. Although the AFL-CIO had brought the problem to government officials months before, the best the State Department could report following the December meeting of the Joint Mexican-United States Trade Committee was this pallid paragraph: "Among other matters related to trade, the Committee discussed the Mexican programs related to industrialization of the border areas. In this connection, it was agreed that the two delegations would recommend to their governments the fullest possible exchange of information on the progress of the programs, and their economic and social effects on both sides of the border." PAGENO="0479" 1749 Ambassador to Mexico Harry Turkal reportedly made a confidential report to the White House last year, calling for fenced-in industrial parks straddling the border. The fences apparently would have something to do *ith customs matters, but one can see they'd also be ideal for keeping out union organizers. One wonders if they might also serve to keep out U.S. fair labor standards. The Mexican government and some Mexican and U.S. business organizations work hard to encourage firms to come into the border area. Seminar-type meet- ings have been held in California, Texas, New York City and Washington, D.C., to sell PRONAF to manufacturers. Glorified labor contractors have sprung up to provide consultant and manage- ment services aimed at overcoming the shyness of some U.S. businessmen toward moving Into a foreign area. Cal Pacifico of Newport Beach, Calif., for instance, will handle the whole Mexican operation for a U.S. manufacturer, charging $1.25 to $1.40 per hour for each man hour of work performed In the plant. The ad with which this article begins is another example. With so many of the border-jumping U.S. companies in ouy industry, the IUE has been extremely active in seeking information and alerting the labor move- ment to PRONAF. Says President Paul Jennings: "We want Mexico to industrialize, but not on an unsound, runaway basis. If U.S. companies can flee to Mexico to exploit the low wages prevalent there, then they'll surely up and run elsewhere if labor costs go up in Mexico." INVESTIGATION MADE LAST YuAn Last year, Jennings appointed District 12 President Drohan to conduct an in- vestigation of the border problem. Largely as a result of information uncovered by Drohan with the help of District 9 Administrator Charles Snodgrass and Dis- trict 10 Secretary-Treasurer Ben Dolan, and coordination and contacts by Dave Lasser, President Jennings' assistant for international affairs, the AFL-CIO Executive Council adopted a resolution calling for: Congressional repeal of Section 807 of the Tariff Code, which provides im- port advantages to the U.S.-owned border strip plants. Major considerations by the U.S. and Mexican border commissions to the interests of workers, and formal consultations by the commissions with the labor movements of both countries. A U.S. government policy in opposition to this type of unregulated, low- wage operation; government refusal to assist such runaways, and federal officials' making information publicly available concerning them. The council noted that the AFL-CIO "has consistently supported efforts to improve economic, social and political relations between the U.S. and Mexico" and "will continue policies based on mutual benefit to workers in both countries." "Since U.S.-owned PRONAF plants are, in effect, operating within the U.S. economy, it is our conviction that U.S. labor standards should prevail." Mary Callahan, chairman of the IUE Electronics Industry Conference Board, expressed our union's concern in a speech at the AFL-CIO Convention in Decem- ber. Following her remarks, the convention unanimously adopted a resolution in line with the position taken by the counciL In addition, AFL-CIO President George Meany appointed a committee to in- vestigate further and seek remedies. The committee, headed by Amalgamated Clothing Workers President Jacob Potofsky, includes IUE President Jennings, former International Ladies Garment Workers President David Dubinsky and International Brotherhood of Electrical Workers Secretary Joseph I~eenan. In her speech to the AFL-CIO Convention~ Mary Callahan called for coopera- tive efforts between the labor movements of the two countries. She also spelled out just why we are concerned. "We are attempting to organize the Transitron Company, an important manu- facturer of semiconductors in Massachusetts," she said. "They have just estab~ lished a plant employing 1,500 people on the Mexican side of the border, paying those miserably low wage rates. This gives the company a weapon against orga- nizational efforts by the threats of moving production to Mexico." One runaway IIJE fought hard to expose was Motorola's Nogales plant, opened last fall to handle work sent from the firm's facilities in Phoenix, Ariz. As in the case of most PRONAF operations. Motorola's was a hush-hush affair. The company refused to confirm or deny initial reports on its plans. PAGENO="0480" 1750 TUE SOUGHT COUNCIL ACTION District 9 Administrator Snodgrass issued a press release condemning the Nogales move and John Haynes, then assistant administrator, appeared before the Phoenix City Council to urge action to protect the johs and wage rates of Phoenix residents. Snodgrass and }Iaynes pointed out that Motorola would be paying Mexicans about as much in a day as it paid U. S. workers in an hour for the same types work. They charged that this would deal a death blow to the Phoenix economy because, "if the initial plants proves successful, then obviously Motorola will either place more of its work into Mexico, or move to slash wage rates in Phoenix." JUE's attack brought a response, although not a City Council resolution, sought by IUE, condemning Motorola and asking Congress to close the tariff code loophole. What happened was that Motorola finally found its voice and started talking publicly about the planned Nogales operaton. At first, in confirming the Nogales plant reports, Motorola stressed the amount of business it does selling products to Latin Americans and also cited plans for expansion in Arizona. It didn't say much about those Mexican wage rates. (Motorola's average annual pay per worker in Nogales comes to around $1,800). By the time the plant opened In late October, the newspapers were quoting Dr. Lester Hogan, company vice president, to the effect that lower labor costs were the main reason for going to Mexico. He said he hoped the Nogales division would grow as large as Motorola's Phoenix operations. And he issued a warning that this country would lose much of its industry unless wage costs are held down. In short, he all but confirmed TUE's position. * In TUE's recent successful organizing campaign at Technitrol, Inc., in Dur- ham, N.C., Field Representative Joe Williams says the workers were told at cap- tive audience meetings that the company came South to find cheap wages and that if the plant went union, management would move even farther south-to Mexico or Puerto Rico. * With the U.S. federal minimum wage going up 20 cents an hour to $1.60 this month, clothing manufacturers in El Paso, across the border from Juarez, were reported eying PRONAF. The clothing industry employs some 15,000 per- sons in the Texas city. . When Electronic Control Corp., shifted all its assembly operations from Dallas to Matamoros, Company President Ed Kile said he wanted to take ad- vantage of the lower labor costs in the border area. "A fraction of a cent per unit" in production cost savings, he noted with a straight face, "can result in significant overall cost reduction." Such "businesslike" thinking seems strangely out of tune with recent com- ments by President Johnson about the need for jobs in U.S. cities. On Nov. 30, 1967, the President called upon U.S. corporations to remember the "forgotten labor force . . . the unenlisted legion" and make an effort to hire and train the 500,000 U.S. hard-core unemployed. On Jan. 24, 1968, the President sent to Con- gress his proposal for a $350 million government-business partnership known as Job Opportunities in Business Sector (JOBS), noting that "the special talents of American businPss can make this program work." MExCAN-AMERICANS ARE VIOTIMS Ironically, Mexican-Americans are among the minority groups especially in need of greater job opportunities in this co~intry. Bert Corona, president of the Mexican-American Political Association, has pointed out that the one million of his people living in Los Angeles County have the lowest income of any group there. The California association has passed a resolution opposing the PRONAF exploitation. Drohan, whose IUE District 12 includes Los Angeles, is particularly aware of this problem. "With the unemployment problem in our cities," he points out, "how are we going to find jobs for the people who need them if industry is siphon- ing work to the low-wage border area ?" According to reports, many of the large numbers of unemployed in Mexico's border cities and towns are former braceros who once worked seasonally in U.S. agriculture. But this work wa~s cut off by Congressional action, urged by the AFL-CIO, several years ago. Thus, U.S. labor's efforts to solve one problem may have helped to create another. PAGENO="0481" 1751 But that doesn't make the* second problem any easier t~ take. Nor does it excuse the runaway companies from their fast buck approach. More than any- thing, It points up the fact that localized, self-interest, exploitative approaches to unemployment hurt all workers and the only sound programs are those which meet the needs of all workers. In a recent television program on the unspoiled wonders of Baja, California, naturalist Joseph Wood Krutch noted that this area of Mexico is inching into the modern world and the changes are not necessarily for the better. His final comment ~was; "I' flatter myself that I value Baja for what it is and not for what I might find exploitable there." That seems a good approach to nature. And to people. (From the IUE News, May 80, 1968] AFL-CIO PRESSES ACTION ON GREEN CARDS, PRONAF Employer exploitation of cheap Mexican labor on both sides of the U.S. Mexi~ can border is under stepped-up attack by the labor movement. The AFL-CIO Executive Council this month adapted a resolution against two government-aided programs under which Mexican workers are being exploited in ways that hurt U.S. and other Mexican workers. The reSolution was pre- pared by the council's 4-man committee on border problems, of which IUE President Paul Jennings Is a member. In connection with the PRONAF program under which the Mexican govern- ment is luring runaway U.S. shops to, its border areas, the AFL-CIO resolution called for cooperation with Mexican unions to seek Mexican minimum wages nearer U.S. levels; changes in the U.S. regulations that permit the runaway to ship Into this country at bargain tariff rates; taxes on capital export `and ~profits under the `program, `and a trade agreement with Mexico to eliminate unfair competition with U.S. labor. The resolution declared that PRONAF hurts efforts both to improve the stand- ard of living on the U.S. side of the border and to raise Mexican wage levels. "The only beneficiaries," it said, "are profit-hungry companies." The resolution also dealt with the practice of bringing in Mexican "green card" workers, who commute to low-wage jobs in the U.s. on government-issued immigration cards. Pointing out that the "green carders" have been used "to undermine orga- nizing drives and' to break legitimate strikes;" the council urged `that immigration authorities act to "prevent exploitation of Mexican commuters to undermine U.S. standards." TJ.S.-MExICAN CONFERENCE Before drafting Its recommendations, the committee met with the' joint U.S.- Mexico trade union committee. The representatives agreed On a 18-point plan for protecting workers on both sides of the border and Increasing union coopera- tion between the two nations. Members of the AFL-CIO border committee included, in addition' to President Jenpings, Joseph Keenan of the IBEW, David Dubinsky of the Ladies Garment Workers and Jacob Potofsky of the Amalgamated Clothing Workers. REPORT OF THE SUBCOMMITTEE OF ExECUTIVE COUNCIL ON UNITED STATES- MEXICAN BORDER PROBLEMS The statement issued last week following the meeting of the Joint U.S.-Mex- ican Trade Union Committee could not, because of the nature of the meeting, deal as candidly as we would like with pressing issues which confront the two labor movements. We agreed to establish a mixed comniittee for interchange of information and work for better labor conditions and to seek representation on Joint U.S-Mexico Border Development Commission. One issue is the use of Mexicans holding permanent resident alien status, but living in Mexico, to undermine U.S. working conditions across the border. These Mexicans-so-called "green carders"-by living' in Mexico and working in the U.S. are largely beyond the reach of the trade union movement. Because~of the differences in national living standards and costs, they `have little motivation to participate in the struggle of their fellow workers in the U.S., most of theni also of Mexican origin, to raise' their living standards through collective bar- 95-159 0-OS-pt. 4-31 PAGENO="0482" 1752 gaining. While unemployment rates are at depressed levels and per capita in- come is below poverty levels on the TT.S. side of the border, commuters ilave been exploited on occasion to undermine organizing drives and to break legiti- mate strikes. This reflects seriously on U.S. immigration policy. We strongly urge the Immigration Department to take the administrative steps necessary and possible to prevent exploitation of Mexican conunuters to undermine U.S. standards. The other issue is the effort of the Mexican government to encourage U.S. (oniparnes to establish branch plants across the border to take advantage of low Mexican wage levels. Such companies not only pay wages far below U.S. standards, but also benefit from favorable U.S. tariff and Mexican tax treat- ment. Under the program, all products must be exported, in large part back to the U.S. We do not believe that any program based on low wage standards is defensible. It obviously damages the U. S. effort to improve its standard of living and em- ployment along the border area, both of which are below national levels. It also harms the Mexican drive to improve its own wage levels. The only beneficiaries are profit-hungry companies which are seeking to improve their competitive position at the price of labor standards on both sides of the border. The answer to the threat is to solicit and obtain the cooperation of the Mexican trade union movement and to press the Mexican government to raise its mini- mum wages closer to the U.S. level and to insist on effective Federal enforce- ment. We also urge consideration of both administrative and legislative changes in the section of the Tariff Law which encourages this program, as well as the imposition of a tax on the export of capital and the profits of firms enjoying benefits of the program. The Subcommittee therefore recommends the following action: The creation by the Mexican trade union movement of a counterpart Subcom- mittee, to meet with the AFL-CIO Executive Council Subcommittee on Border Problems. The AFL-CIO Executive Council should call for a meeting at the highest level of the Executive Branch of our government, the U. S. State Department, and other U.S. government agencies involved, to coordinate solutions to these problems at the administrative level. The State Department should negotiate a comprehensive trade agreement with Mexico to eliminate existing unfair competition with U.S. labor. The Treasury Department should be required to enforce Section 303 of the Tariff Act of 1930 (a duty on subsidized exports to the U.S.), to obtain specific customs declarations and to re-examine U.S. tax provisions and their enforcement. The Justice Department should administer the immigration law to restrain the green-card influx. Congress should repeal Sec. 807 of the Tariff Code and otherwise should tighten existing laws regarding the operation of U.S. companies abroad. Action by our government and the government of Mexico cannot be delayed while further studies are undertaken. JOSEPH D. KEENAN. DAVID DUBINSKY. JACOB S. POTOFSKY. PAUL JENNINGS. STATEMENT OF EDWARD E. KENNEDY, RESEARCH DIRECTOR, INTERNATIONAL UNION OF DISTRICT 50, UNITED MINE WORKERS OF AMERICA Mr. Chairman and Members of the Committee, my name is Edward E. Kennedy. I am Research Director of the International Union of District 50, United Mine Workers of America (Independent), and my appearance here is in behalf of some quarter of a million members represented by our organization in about 45 of the 50 states. Our Union represents employees in some twenty-five industrial classifications of manufacturers-the products of which are affected by the currents of inter- national trade which, in turn, affects the employment opportunities and employ- ment security of our membership. About one-half of our total membership is employed by manufacturers of chemical and allied products and a substantial number of these are employed by chemical companies engaged in whole or in part in the production of benzenoid chemicals. PAGENO="0483" 1753 therefore, our organization has a rather broad "across the board" interest in the ~fleld of international trade, and this statement is concerned i)rimarily with the matters involving foreign competitive imports and their effect upon domestic ~mpioyment, upon our economic well-being and, among other thinge, the manner, form and degree of regulation of our foreign commerce which is to be exercised by the Congress of the United States. Our position on these matters may be summarized briefly, as follows: (1) We are opposed to the repeal of the American Selling Price basis of valu- ation under the Tariff Act of 19~2. (2) We are in support of H.R. 16986, introduced by Congressman Sydney Herlong, and companion bills introduced by several members of the House of Representatives referred to as the "Fair International Trade Act of 1968." (3) We are not opposing import quotas-either those currently in effect or those being proposed. It is entirely possible that in some cases they may be nec- essary to afford proper regulation of a competitive import. We would emphasize the imperative need for a broad approach covering a wide range of competitive imports of industrial and agricultural products in order to properly regulate the degree of such penetration of our market. fl.R. 16936 would not impose a ceiling until a competitive Import, or a group of~i1ke or similar competitive imports was climbing too fast and taking too large a share of the American market. A ceiling investigation may be made to the Tariff Commission by the Presi- dent, the Senate Finance Committee, the House Ways and Means Committee, a trade association, a National Labor organization or other interested party. The purpose of H.R. 16936 is to stabilize imports and to eliminate their de- structive effects while providing for their expansion in equal proportion to the growth of the domestic market for the product concerned. The United States and our trading partners have lived under the Anmrlcau Selling Price system of valuation., as it applies to benzenold chemicals, for the last 46 years. Employers have made their investments in plants and equipment, scheduled employment of workers and through negotiations with our union and others have established pension programs and other benefits for the long-time security of our workers. Under the ASP system, the employers of our member- ship know from day to day the extent of protection afforded them in the market place and our membership (the American workers) has reasonable knowledge of the extent to which their jobs are secure and their standard of living Is pro- tected from the outside forces of low wage producers bidding for our jobs and markets. A quick look at some of the converted rates of duty as compared to the most favored nation rate of duty (T.C. Publication 181, duly 1, 1966, T. S. US Items 403.02 through 409.00 inclusive), indicates that there is a substantial difference between the American Selling Price valuation and the foreign invoice or export valuation to reflect the ad valorem equivalent of the converted rate. For example, an item where the current ad valorem duty is 19 percent and the converted rate is 36 percent would indicate that an article having a fOreign export value of $1.00 would have an American Selling Price of $1.89; or, an item where the current ad valorem duty is 40 percent and the converted rate is 72 percent would indicate that an article having an export value of $1.00 would have an American Selling Price of $1.625. The arguments advanced by our European and Asiatic trading partners that the American Selling Price system should be yepealed are quite unconvincing to the American workers or to all of us who have a ~r1ghtful concern with correcting our balance of payments deficit, the stability of our dollar and the war on poverty. More than 115,000 workers are employed by some 724 producers of benzenoid chemicals. In 1965, general imports of benzenoid intermediates totalled 38 mil- lion pounds with an invoice value of $19.5 million. This is compared with 18.8 million pounds with an invoice value of $14.4 million in 1964-an increase of 102.1 percent in quantity and 35.4 percent in value. All of this should give pause to this Committee and to the Congress in con- sidering the repeal of our American Selling Price system of valuation, which would imperil our domestic benzenoid industry and the jobs of our workers in this industry, encourage domestic producers to abandon operations here afl(l set up shop overseas, and export our jobs overseas and supply our market from abroad. PAGENO="0484" 1754 Whatever we do to encourage commercial intercourse between and among the free nations of the World, we think the Congress has a continuing respon- sibility to establish reasonable standards under which competing imports enter our markets-sufficiently well-defined so that competing imports will not under- mine our domestic wage standards, our American standard of living, our em- ployment opportunities, our domestic production enterprises, and the internal revenues of the United States. Here in the United States, .our Fair Labor Standards Act is the basic instru- ment we use to regulate fair competition between and among the States and our outgoing foreign commerce. The level of wages paid to labor in an industrial economy above the subsistence level determines whether that economy is viable or dependent on those who are viable. The average hourly earnings in twelve foreign countries are as follows: AVERAGE HOURLY EARNINGS IN UNITED STATES AND IN 12 FOREIGN COUNTRIES Average hourly earnings Country Date - In national currency In U.S. dollars United States - - - - 1967 average Belgium March 1967 49.79 Belgium francs (men) Canada 1967 average...-- 2.37 Canadian dollars China (Taiwan) 1966 average.....- 6.36 yuan France 1967 average__.... 3.39 new francs Italy March1967 419 ira Japan 1967 average__... 206.5 yen Korea April 1967 6,470 won (monthly) Netherlands 1967 average~.... 3.72 guilders Sweden do 9.30 krona Switzerland 1966 average~.~ 5.29 Swiss francs (men) West Germany 1967 average..~~_ 4.58 Deutsche marks United Kingdom do 116 pence (men) $2.83 .996 2. 192 . 159 .69 .67 . 578 1 23.62 1.034 1.80 1. 223 1. 145 1.36 Source: U.S. Department of Labor, Conversion rates as of December 1967. 1 Month. Among the principal industrial nations of the free world, the United States currently exports only 5.8 percent of its Gross National Product; and, notwith- standing all the efforts and the price which has been paid to achieve increasing exports through tariff reduction and trade agreements, our exports are no larger a percentage of our Gross National Product than they have heen over a long period of years as may be seen from the following: Ratio of exports to gross national product Year: Exports to GNP Year-Continued Exports to GNP 1950 4. 8 1959 5. 2 1951 5. 7 1960 5. 4 1952 5. 2 1961 5. 5 1953 4. 6 1962 5. 4 1954 4. 9 1963 5. 5 1955 5. 0 1964 5. 9 1956 5. 6 1965 5. 7 1957 6. 0 1966 5. 8 1958 5. 2 1967 5. 8 Our principal trading partners among the European Economic Community ex- port about 20.5% of their Gross National Product. Using 1965 figures, France exported 10.7% of its GNP, West Germany 15.9%, Italy 12.8%, The Netherlands 34.0%, Belgium and Luxemburg 36.8% and the United Kingdom 13.5% and, in the case of Japan, they exported 10%. Some significant information was developed by the Trade Relations Council of the United States and presented before the Office of the Special Representa- tive for Trade Negotiations on May 13th of this year. The data revealed that in 1966 there were 144 selected United States indus- tries with a trade deficit. Of these trade defij~it industries, 121 employed 5,234,900 workers with ship- ments totaling $137,964,400. Imports competitiVe with the8e industries totaled $9,528,500, and exports from these industries totaled $2,752,200. PAGENO="0485" 175~5 In making comparisons o~f the above figures with the average of the years 1958-1960, we find the following: From 1958 to 1960, employment in these 121 industries rose only 4.0%-ship- ments rose 36.6%-imports increased 72.8%, while exports were up only 40.9% and the balance of trade deficit increased 90.3%. This same source (Trade Relations Council) estimates that selected industries among the 144, having a special potential for employment of the poor, had a trade deficit in 1966 that cost American workers between 89,000 and 90,000 jobs. Our union represents the employees in a number of companies engaged in the manufacture of electronic components. One of these plants located in Pennsyl- vania employed 413 production workers in December 1966, but this month em- ployment at the plant is down to 234-a reduction of nearly 44%. The vice president of the company says that massive imports destroyed these jobs. The 180 workers who lost their jobs at this plant can not hope to find em- ployment in another electronic component plant because the jobs they would be seeking there have been exported overseas also. To further illustrate the problem facing a worker whose job is replaced with imports is found in the trade position of the Electronics Component Industry. In a statement presented to the Senate Finance Committee last October, Mr. Edward Butler, Chairman of the Parts Division of the Electronic Industries Association, which employs some 126,253 workers in 636 establishments in ~1 states, stated that this industry had a ratio of imports (units), to commercial production ranging from 30.9% for T.V. receiving tubes to as high as 215.2% * in the case of transistors. In accord with this estimate, the 1966 imports of some 12 categories of elec- tronic components valued at some $1,184,500,500 was the production worker job equivalent of 79,763 workers. It is well that we keep in mind that most of our competitive imports are pro- duced by workers overseas who are being paid low money wages and are working under conditions that would not be tolerated here in the United States or under our system of free collective bargaining. To be realistic, when the going gets too tough for a company to operate here because of competitive imports produced by cheap labor abroad, it can close up shop in this country and move its operations overseas and then feed its produc- tion back into our market. The worker does not have these choices and they would be no good if he did. We have the continuing problem of correcting our balance of payments deficit, protecting the stability of the American dollar in the money markets of the World, and effectively waging war on poverty by defending ourselves against poverty waging war on us. There is nothing wrong with our relatively high Wage levels here in the United States that would even suggest that they be abandoned in favor of any sub- standard level of wages. High wages and a high standard of living are an inte- gral part of our industrial economy and the keystone of the arch that supports our vast industrial enterprise. On the contrary, higher wage levels and higher standards of living should be encouraged and extended to include the vast army of workers in the industrial enterprises among our trading partners overseas. It is becoming increasingly clear that we can not indefinitely extend foreign aid to industrial nations that could be or are self-supporting through the devices of balance of payments deficits and balance of trade deficits. In summary, District 50 on behalf of its members strongly urges that the American Selling PrIce system of valuation of imports as it applies to benzenoid chemicals as well as to the other commodities should not be repealed. Congress should provide the broad instrinnent under which a National organi~ zation of workers, an industry association, or the instruments of government could by affirmative action or petition trigger the imposition of a ceiling on the further penetration of our market by competitive imports and the further loss of our jobs to additional competitive imports. In our opinion, H.R. 16936, if enacted into law, would contribute substantially toward these ends., F STATEMENT or WALTER P. REUTHER, PRESIDENT, UNITED AUTOMOBILE, AERosPACE, AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW) The UAW, which represents auto workers in both the United States and in Canada, supports President Johnson's proposal to extend the adjustment assist- ance provisions of the Automotive Products Trade Act of 1965. PAGENO="0486" 1756 For a long time the UAW has fully supported the principle of removing arti- ficial trade barriers between the United States and Canadian automobile industry. This support was evidenced in 1960. In that year a Royal Commission, ap- pointed by the Canadian Government, examined the problems of the automobile industry in Canada. The Canadian section of the UAW made a proposal to the Commission similar in many respects to the provisions which were finally em- bodied in the Automotive Products Agreement of 1965. The Canadian section of the Union had the full support of the International Union In making its proposal. This support was evidenced again in 1965. On April 29, 1965 Vice-President Leonard Woodcock appeared before this very Committee and urged approval of the Automotive Products Trade Act of 1965. On September 15 of the same year Nat Weinberg, Director of the UAW's Special Projects and Economic Analysis Department, filed a statement on behalf of the UAW urging support of the Automotive Products Trade Act of 1965 before the Committee on Finance of the United States Senate. Skyrocketing automotive trade between the United States and Canada has certainly resulted from the implementation of the Automotive Products Agree- ment of 1965. Total two-way trade in automotive products was over four and one-half times as great in 1967 as it had been in 1964, the year before the agree- ment was made effective. As shown by the figures on page 51 of the Second Annual Report of the President to the Congress on the Operation of the Auto- mobile Products Trade Act of 1965, the value of trade in automotive products between the United States and Canada totaled $3,363 million in 1967. This in- cluded products exported to Canada from the United States valued at $1,801 million and products exported to the United States from Canada valued at $1,562 million. In 1964, on the other hand, automotive trade between the two nations was valued at only $730 million, including exports from the United States to Canada of $654 million and exports from Canada to the United States valued at slightly less than $76 million. The UAW's support of the Automotive Products Trade Act of 1965 was condi- tioned on inclusion in the final bill of the adjustment assistance provisions in the proposed Act at the time the union's witnesses testified. The union's position was based on a number of arguments. Our position, now, urging that the adjust- ment assistance provisions of the Act be extended are based on a number of the same arguments. As UAW Vice-President Leonard Woodcock stated it to this Committee In 1965: "In spite of the problems it presents, we believe that the automotive products agreement is sound in principle and that it will provide substantial benefits for both the United States and Canada. It will permit a more efficient use of pro- ductive resources and a corresponding reduction in costs. The sooner these cost savings are passed on to consumers, the sooner they will be reflected in rising sales and higher employment in the auto industries of both countries. These in turn will make their contribution to greater economic health and a rising standard of living. "We in the UAW recognize the fact that these changes cannot be made without requiring some adjustments in the auto industry, adjustments which will affect some of our members. We welcome the recognition given in this bill to the prin- ciple of special assistance for workers who may be adversely affected by such adjustments. We do not take the parochial view that private interests take precedence over the public interest. But we do insist that when the national in- terest requires that the private interest of some individuals be subordinated to the general good, then the nation has a special obligation to protect those individ- uals from harm. We would like to have seen the bill go further in that direction than it does, but we welcome the principle, we support the bill, and we urge approval of the bill by this Committee." The UAW takes the same position today. When the national interest requires that the private interest of some individuals be subordinated to the general good, then the nation has a special obligation to protect those individuals from harm. The principle of adjustment assistance is recognized in Europe. In situations similar to those covered by the adjustment assistance provisions of the Auto- motive Products Trade Act of 1965, the European Coal and Steel Community PAGENO="0487" were the same as the communities from *hicb `obs have moved to Canada. The question is often asked ivhy not rely on the assistance provisions of the Trade Expansion Act of 1962? Why was it necessary to write special assistaneS provisions into the Automotive Products Trade Act. There are two good reasons for this. First, the adjustment asaistance prO- visions of the Trade Expansion Act of 1962 have been a complete failure. If autoworkers had been forced to rely on that Act for protection they would have had no protection whatsoever. Under the Trade Expansion Act of 1962 assitsance cannot be provided until the Tariff Commission has made a determination that injury has been suffered. To date there have been 2 requests for such determinations-6 of them initiated by workers, 8 by individual firms, and 12 by representatives of industry groups. In not a single one of these 26 cases has the Tariff Commission made a favorable determination. Secretary of Labor Wirt~ has recognized this failure When he testified be fore this Committee on June 4 1968 Secretary Wirtz said with resI~ct ta thO adjustment assistance provisions of the Trade Expansion Act of 1962: "These provisions have not had the effect intended by the logislatlon and anticipated 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 peti- tion has been approved to date. The bill now before you proposes that the PAGENO="0488" 1758 criteria for eligibilty to apply for adjustment assistance be made more realistic and equitable." The second reason why it was necessary to write special adjustment assistance provisions into the Automotive Products Trade Act was that the Automotive Products Agreement is quite different from the kind of trade agreement which the Trade Expansion Act of 1962 was designed to cover. The Trade Expansion Act provided for benefits only if injury to workers or firms was due to increased imports. But as UAW Vice President Woodcock has pointed out the injuries covered by the adjustment assistance provisions of the Automotive Products Trade Act might be due to causes other than increased Imports. In 1965, Vice President Woodcock said to this committee: "This agreement is expected to lead to a substantial reintegration of auto- motive production as between Canada and the United States. In consequence, workers and firms may be injured, not only through an increase in imports to the United States, but through a decrease in the export of certain products when Canadian production is coiiiinenced, or by reallocation of operations within this country or between the United States and Canada as a direct result of the operation of the agreement. Such situations would not come under the provisions of the Trade Expansion Act at alL" That UAW Vice President Woodcock was right is borne out in the testimony of Secretary of Labor Willard Wirtz before this Committee on June 4 of this year. Secretary Wirtz not only asked for changes in the adjustment assistance provisions of the Trade Expansion Act of 1962 as indicated above, he also asked for a- three-year extension of tIi~e adjustment assistance provisions of the Auto- lresluerlL vv alicer states ~ c~ari tTf~\~i~ lull llnpleliielltaiioii w. tue agreement will take some time. This makes sense. The companies have Invested millions of dollars in production facilities prior to the agreement which they won't close down merely in the interest of integration. But as facilities are re- placed or expanded and as new facilities are built they will be built in accordance with an integrated plan, the completion of which might take many years. PAGENO="0489" 1759 CONOLUSION The UAW supports President Johnson's request that the adjustment assistance provisions of the Automotive Products Trade Act of 1965 be extended. As the Automotive Products Trade Act between the United States and Canada Is jIll- plemented dislocations have and will continue to occur. The workers who lose jobs and the small businessmen who are hurt as a result of these dislocations should not be asked to pay the costs of a program which is designed to benefit the entire nation. Both in the United States and in Europe government has as- sumed a responsibility for losses to certain citizens resulting from dislocations brought about as a result of actions beneficial to an entire nation. The adjustment assistance provisions of the Automotive Products Trade Act of 1965 represented a further assumption of that responsibility. The Trade Expansion Act of 1962 would have been of no help to the persons hurt by the implementation of the Automotive Products Trade Act of 1965, Not even the proposed Trade Expansion Act of 1968 would solve the problem. Dis- locations have occurred during the past 3 years and are likely to continue to occur. Hundreds of workers have been aided by the adjustment assistance pro- visions of the Automotive Products Trade Act of 1965. AddItional hundreds may need this type of help in the future. For these reasons, therefore, we ask the Congress to extend the adjustment assistance provisions of the Automotive Products Trade Act of 1965. A STATEMENT BY THE AUTOMOBILE MANtTPAOTTJRERS ASSOOIATION ON INTER- NATIONAL TRADE AND INVESTMENT INTRODUCTION The Automobile Manufacturers Association historically has supported efforts to expand trade among the countries of the world in the belief that the principles of free competition are as valid In world markets as In the domestic market. In the early 1920's, the Association established a committee to encourage expansion of United States automotive markets abroad. tIn 1934, the AMA endorsed the newly enacted "Trade Agreements Act and pledged to support the efforts of the United States Government under that law. The "Trade Agreement Act," which initiated reciprocal trade agreements between the United States and other countries, marked a significant step on the part of the United States toward lowering of trade barriers. Since that time, the Association has publicly supported ensuing Government measures of a similar type. In lihe with the foregoing, the automobile industry favors removal of non-tariff as well as tariff barriers to international trade. Removal of both types of barriers, with the resultant expansion In trade and investments, is vital for the achievement of stable, continuous growth of the world economy and an increased standard of living. Moreover, expanding trade can be an influence in reorienting economies not presently committed to free consumer choice or private ownership. In order for world trade to be an effective catalyst for world economic growth, it has to move on a two-way street. Free and fair competition can Improve the distribution of production facilities and mitigate the disadvantages of uneven distribution of natural resources among countries. On the other hand, protectionism by any trading nation undermines the principles of reciprocity and endangers the long- term growth of any economy which retreats behind its arguments. Policies assuring expanding trade and investments benefit not only lrivate enterprise and the national economy but particularly the consumer. The effect of these policies is to provide the consumer wider selection and to stimulate greater price competition from which be also benefits. If American automobile manufacturers are to maximize their contribution to the welfare of the nation, they need an expanding world market in which to fully employ their competitive skills and resources. The worldwide demand for cars and commercial vehicles is expected to increase from a present level of approxi- mately 25 million units, to about 33 million units by 1975 and nearly 40 million units by 1980. United States manufacturers want to be accorded the opportunity to compete for a fair share of this growth. PAGENO="0490" 1760 The individual states of the United States~ have long proved the benefits of liberal trade, which has encouraged better resource allocation, specialization, and large-scale production. Regions and continents can benefit in the future in the same way. Note that when the principles of liberal trade are applied abroad, the United States participates in the benefits, not only from direct trade earnings, but also from the remittance of earnings from its foreign investments, The following sections of this paper document the automobile industry's constantly growing role in the world economy and cite the industry's position on topics having a direct effect on the international activities of its members and those of many other industries engaging in international commerce. The Role of the United f~tate8 Automobile Industry in World Trade As is pointed out below, the automobile industry had made, and is making a significant contribution to the international commerce of the United States. While this contribution is growing, fettering the industry's ability to compete for the markets of the world will endanger the growth of that contribution. In the postwar years, 1947 through 1967, the value of United States auto- mobile exports exceeded imports by more than 20 billion dollars (see Table A). This has been accomplished in a period when United States automotive tariff rates were, and still are, only about one-fourth of those in the major European industrial countries and even lower in relation to the tariffs in most of the major markets of Asia, Africa and South America. Even at the height of automobile imports in 1967, when the level reached 2.6 billion dollars, exports exceeded im- ports by 12.5% leaving a net trade surplus of close to 322 million dollars. For the years 1962 through 1966, the net, favorable contribution to the United States balance of payments of the major vehicle producers exceeded 6.3 billion dollars. This represents the excess of automobile exports over imports plus all other transactions affecting the United States balance of payments. In view of the new mandatory regulations governing foreign direct investment, it is impor- tant to note that much of this cash inflow represents the present contribution to the United States balance of payments resulting from past investments. Moreover, this industry also plays an important role in the economy of the entire free world, conducting business in virtually every nation. The importance of this point is shown by the fact that automotive exports have increased more than twofold, from 1.3 billion dollars in 1947 to 2.9 billion dollars in 1967 (see Table A). In addition, the mass-production technology of the American automobile indus- try has become the foundation of automobile manufacturing throughout the world. The United States share of total world vehicle production in 1966 totaled 10.4 million cars, trucks and buses out of a total world production of 24.9 million units. However, of the 14.5 million units produced outside of the United States, 4.6 million, or 31.7%, were accounted for by United States affiliates. As outlined below, these United States direct overseas investments in motor vehicle assembly and manufacturing facilities, reflect the special demands of overseas markets. In the early stages of the automobile industry, the limited demand of over- seas markets was met by shipping fully assembled cars and trucks. As the over- seas demand expanded, the Industry kept pace by shipping unassembled vehicles abroad for local assembly. This was a necessary development In order to meet local commercial and governmental requirements most economically. Recognizing that assembly alone would not be sufficient to sustain American competition in overseas markets, the United States producers began to establish manufacturing facilities in Europe, beginning in the mld-1920's. A principal rea- son for this move abroad was the fact that roads, traffic conditions and -the cost of fuel necessitated a different vehicle from that used in the United States. It is important to note that while U.S. producers have been building vehicles abroad since early in this century, U.S. automotive exports have continued to set new records. Another reason was the realization that, unless United States manu- facturers became an integral part of the foreign markets, this country's parti- cipation in these markets would decline because of the protective policies of their governments and the natural economic advantages enjoyed -by indigenous manufacturers. Concurrent with the establishment of foreign-based manufacturing operations was the development of a system of distributing automobile products. The nature of the product puts special emphasis on a financially healthy and geographically well distributed network of dealei~s. This system is a ~~ey link in building for PAGENO="0491" 1761 long-term growth; but, it can be developed only if volume sales are a reasoi~able prospect. Despite the problems, U.S. automobile manufacturers have demonstrated that they are willing to accept the commercial risks inherent in liberal trade, both in the United States and overseas. They have always preferred to meet com- petitors in a market uninhibited by -artificial restraints such as import `quotas, border taxes or similar protectionist devices. This attitude has been maintained despite the rapid development of automotive Industries In Europe and most recently in Japan (see Table B). In keeping with this attitude, the automobile Industry believes that ascendancy of protectionists forces within the United States could result in a s~rlous crippling of the future expansion of business for all American industry. The Imposition of any restrictions on inlports Into the United States would substantially undo the hard-won agreements of the recent GATT (General Agreement on Tariffs and Trade) negotiations, and vitiate the tremendous benefits to the U.S. economy gained from its long-standing policy of trade liberalization. Our trading partners have warned of retaliatory action, should the United States take steps to restrict imports. Should a "quid pro quo" atmosphere of this type be allowed to direct the commercial policies of trading nations, a devastating blow will have been dealt the expansion of world trade and the pace of economic development. New import laws, most assuredly, would result In higher domestic prices for raw materials through a reduction In supply and competition; thus adding fuel to already strong inflationary pressures. The U.S. automobile industry urges Congress to carefully weight protectionist legislation in terms of its impact on the U.S. economy as a whole, international trade and investment, and its effects on the U.S. balance of payments if retalia- tory measures are taken by other countries. RECENT TRADE NEGOTIATIONS Basically, the AMA seeks to obtain for its members, treatment In foreign markets comparable to that accorded foreign companies in the United States market. The achievement of full reciprocity in international trade relations, remains a primary objective of AMA trade policy. Consistent with that objective, we believe that trade negotiations should be directed toward the reduction and ultimate removal of nontariff barriers. The Trade Expansion Act of 1962 provided the basis for the GATT negotia- tions, held from 1964 to 1967. These negotiations mark an accomplishment of considerable magnitude and benefit in the history of international trade. On balance, all the participants to the agreement should reap greater gains from freer exchange of goods and Increased competition in the international market- place. Tariff reduction were achieved in both agricultural and industrial prod- ucts. Among the latter, automotive products received significant cuts in tariff rates in most of the major automobile markets. The United States concession on automobiles exceeded that of any other coun- try, dropping from 6.5% to 3% ad valorem, a reduction of almost 54%. Three of the participants, the European Economic Community, Japan and the United Kingdom agreed to 50% reductions, while four others granted reductions rang- ing from 13.5% to 40.5%. Most of the participants which granted tariff conces- sions on automobiles extended some, but overall smaller, reductions to trucks and to automobile parts and accessories. However, the GATT Round did not include negotiations on larger trucks. In addition to the above tariff concessions, the United States obtained agree- mnent from Austria to revise the Austrian road tax base on passenger vehicles with an engine cylinder displacement greater than 2500 ccm (152.6 cubic inches); thereby reducing, but not eliminating, the discrimination in the tax rate applied largely against American type vehicles. 1~elgiumn, France and Italy have made a somewhat similar agreement, subject to repeal by the United States of the American Selling Price (ASP) system of customs valuation. The achievements resulting from United States trade policy since 1934 clearly demonstrate that substantial tariff reduction can benefit the national economy without serious injury to domestic interests. The- experience of the European Common Market (E.E.C.) and of the European Free Trade Association bears out this same conclusion. A `major accomplishment was the negotiation of the anti-dumping code which will provide greater uniformity in anti-dumping procedures by all countries. The industry commends this achievement and recommends that the U.S. Govern- ment. implement the necessary regulations to conform with the code. - PAGENO="0492" 1762 TRADE LEGISLATION The AMA endorses the Administration's proposals calling for- Continuation of the Presidential "housekeeping" authority; Improvement of the trade adjustment assistance criteria; and It also recommends that Congress give careful consideration to the pro- posed repeal of the American selling price system of customs valuation. Time expiration on June 30, 1967, of the Trade Expansion Act of 1962 has placed severe limitations on the United States Government's present powers in foreign trade policy. There appears to be only a limited need at this time for major tariff negotiation authority in view of the recent completion of the GATT Round and the current study by the President's Special Representative for Trade Negotiations of the principal issues and long-term objectives of this coun- try's foreign trade policy. While the study is being conducted, the Administra- tion should be provided with "housekeeping" authority to cope with interim tariff changes. This authority is needed to negotiate compensatory concessions, as re- quired under GATT rules where a negotiated tariff reduction is to be wholly or partially withdrawn, by invoking the escape clause in view of actual or threat- ened injury to domestic interest. The Trade Expansion Act of 1962 recognized that existing remedies were inadequate and inappropriate when a domestic industry suffered or was threat- ened with serious injury as a result of a reduction in trade barriers. The Act accepted the premise that action In the national interest to expand foreign trade entailed a national responsibility to assist those who were or might be affected adversely by reduction of tariff duties. Wherever possible this responsibility was to be met in a positive way by providing producers or workers with technical and financial assistance for their adjustment to other fields. This approach was intended to spur more efficient use of domestic resources with attendant benefits for United States economic growth. It represented a marked departure from the traditional remedy of tariff increases by resort to the escape clause. The automobile industry believes that liberalizing the applicable criteria and their administration can provide needed reassurance that tariff concessions, wI~iether made in the GATT Round or negotiated in the future, would not sud- d~nly be allowed to jeopardize livelihoods. As noted previously, Belgium, France and Italy, during the recent GATT Round, agreed conditionally to a modification of their discriminatory automobile road use tax schedules, subject to the elimination by the United States of its A~neriean Selling Price (ASP) system of customs valuation. Modification of these di~mcriminatory road taxes would benefit United States exports of automotive pi~oducts. The removal of non-tariff barriers abroad will, as a practical matter, pm~obably depend on whether the United States is able to take reciprocal action re- gm~rding non-tariff barriers to trade with this country. I If it can be demonstrated that the elimination of the ASP system would not ~ork manifest and unfair hardship on other domestic industrles-a matter which t~ie automobile industry is not in a position to judge-we believe that the system s!lould be eliminated. PROBLEMS FOR FUTURE TRADE NEGOTIATIONS While the last six GATT Rounds have made substantial progress, there is Still much to be done to remove tariff and especially non-tariff Impediments to world trade. The United States received substantial tariff concessions from her principal trade partners. However, at the conclusion of the staged reductions, January 1, 1972, all of the other major vehicle producing countries will have retained tariff levels substantially above those of the United States. For example, the Japanese tariff affecting most American cars will be 17.5%, which will be almost six times greater than the United States rate of 3.0% (see Table C). Moreover, a number of specific trade impediments remain for future resolution: A. TRUCK TARIFFS Although the recently concluded GATT Round resulted in significant tariff cuts on assembled automobiles, it had only very limited impact on the truck tariffs of the major participants. Duty reductions for trucks were limited to light vehicles with gasoline engine capacity of less than 2.8 liters (170.9 cubic inches) or diesel engine capacity under 2.5 liters (152.6 cubic Inches) ; for these vehicles, Import duty rates will be halved by January 1, 1972. The European Community made no tariff reductions on trucks with large engine capacity. The United Kingdom granted a slight reduction from 24% PAGENO="0493" i763~ to 22% on this item to bring it in line with the E.E.C. level. The virtual exclu- sion of these vehicles from the negotiations leaves intact high tariff levels and deprives buyers of potentially significant benefits that would accrue to them from a lowering of the duty and attendant competitive pressures on national producers. The United States maintained unchanged its tariff rate for automobile trucks valued at $1,000 or more. The applicable rate remained at 25%, which reflects the retaliatory increase (from 8.5%) imposed on January 1, 1964, followIng international determination of the damage sustained by this country through the E.E.C. duty increase on imports of American poultry. The United States truck tariff rate is designated as temporary and would revert to its former level, provided appropriate concessions were offered by the European Economic Community. Trucks with a dutiable value of less than $1,000 are treated In the same way as cars, i.e., the rates are scheduled to decline to 3.0% by January 1, 1972. B. NON-TARIFF BARRIERS (NTB) As the GATT Round's tariff reductions go into effect, other barriers become more important as governments are tempted to make greater use of non-tariff devices in order to offset the impact of tariff cuts. The most common of those devices affecting trade in automobile products are discriminatory taxes, freight rates, basis of duty calculation, import license procedures, import quotas, local content requirements, and investment restrictions. In a number of important markets abroad, as well as In many lesser ones, United States vehicles for many years have been subject to highly discriminatory car purchase and ownership costs. These disproportionate charges are partic- ularly inequitable in countries that are large-scale automobile exporters to the United States. These charges greatly increase the cost to the retail buyer. They severely impair the competitive position of American passenger cars and com- mercial vehicles in many markets and effectively bar United States vehicles in others. The widespread practice of basing ownership or use taxes on vehicle size or horsepower creates highly discriminatory or even prohibitive levies (see Table D), by the assessment of each additional power or weight increment at a sharply increased rate of tax. Since these imposts are almost universally annual levies, their cumulative burden in many cases can exceed even relatively heavy import duties. The imposition of severely discriminatory registration fees by such countries as France and Italy, for example, is in especially marked contrast to the practices of the United States; where most French and Italian automobiles are taxed at the lowest existing rates. Different types of sales taxes, levied at particularly high rates, such as those imposed by the United Kingdom and France; also add a considerable cost burden to American cars competing for sales in those markets. These taxes are partic- ularly burdensome, as they are computed either on the duty paid value of the vehicle or In some Instances on this vali~e augmented by a fixed percentage markup. It should be noted also that the duties abroad are imposed on the value of the vehicles including insurance and freight (c.i.f.). Insurance and freight charges are higher on automobile exports from the United States than on imports of comparable products to the American market. To illustrate, on an assembled United States vehicle the freight factor alone adds $350 and more per vehicle to its landed cost at major European ports, while European producers pay less than one-half of this amount on shipments to the United States. The calculation of import duties by ft~reign countries on the c.Lf. basis is in direct contrast to the practice of the United States of applying the duty on approximately the wholesale value of the vehicle in the source country. While not necessarily selective in nature, import license deposits can also be used in a highly discriminatory manner. Although ultimately refunded, deposits of many times the value of the imported goods can operate to reduce the im- porter's cash position by tying up large amounts of capital. As a consequence, the importer is put at a competitive disadvantage. Import quotas, which are either arbItrary or discriminatory by definition, set specific limits on the producing countries' ability to compete for the market to which the quotas apply. Japan is a case in point. Quotas are adopted most ire- quently for reasons of national economic policy largely unconnected with the automotive market as such. The United States should pursue further negotla. tions with other countries toward the reduction or elimination of instances of PAGENO="0494" 1764 governmental authorities resorting to quotas or other wholly artificial methods of market control. The substantial duty reductions recently negotiated in many major overseas markets gives the impact of subsequent levies much greater importance. For these duty reductions to effect the full influence intended for freer trade, every effort should be made to reduce, as far as possible, the discriminatory aspects of border taxes, license fees, road taxes, sales or purchase taxes, as well as the great variety of less widely-used levies; as for example, the Oommodity Tax in Japan and many other special ownership or use assessments. Finally, in many developing nations, there is an understandable, if not always practical, desire to force the pace of industrialization. Many of these countries, for example, have adopted policies requiring that, over a period of time, the por- tion of a vehicle that is imported must be reduced and the portion manufactured locally must be increased. High tariff penalties are stipulated for those who fail to meet the schedule. From a business point of view, these national programs have created serious questions. In many of the developing countries, the market potential is limited. The consumer could be supplied at a substantially lower cost with vehicles im- ported from the United States or from other national sources with a high- volume/low.cost output, than out of a relatively low.volume/hlgh-cost local facility. With the Import opportunity increasingly limited, uneconomic invest- ment becomes the necessary method of market supply. Each nation has the right to determine its own route to the future and those who would do business must respect that right. It should be recognized, how- ever, that economic progress and stable growth will be impaired unless indus- trialization is based on sound economic principles. INVESTMENT RESTRICTIONS The benefits of expanding international commerce can best be realized by un- restricted movement of capital, technology, and goods. The AMA, therefore, urges the earliest discontinuation of investment restrictions wherever they exist as detrimental to the best economic interest of all the nations. Investments of the United States automobile industry have consistently made positive contributions to the United States balance of payments and to living standards of the host countries. One reason for this is the fact that United States companies manufacturing abroad have requirements for production equipment that is often unavailable in foreign countries with low levels of technology. These requirements are often filled in the United States treating additional ex- port volume. The introduction of this new equipment often results in a con- siderable upgrading of local job skills. Thus, it appears there Is a need for the United States to orient its balance of payments and related Investment policies to the expansion of world trade and, consequently, to the benefit of the United States economy. Whatever short-run benefit the new direct investment regula- tions may have on the United States balance of payments, their longer-run con- sequence could be to inhibit future growth of U.S. industry, both domestically and abroad, as well as to restrict growth of exports and remittances of dividends and profits. Unfortunately, these regulations come at a time when some of American industry's most formidable competition abroad is receiving capital assistance, both direct and indirect, from their governments. ECONOMR~ INTEGRATION The AMA welcomes economte Integration at any level, regional or subregiOnal, when snch integration contributes to greater economic strength and prosperity of the participating nations and is directed to an overall expansion of inter- national trade and investment. The AMA supports the efforts of economic blocs to discourage protectionist tendencies and to expand trade multilaterally be- tween members and non-members. Integration should help to create, not merely divert trade. One route to economic integration is a sector approach which establishes free trade for specific industries. The United States-Cfinadian Automotive Products Agreement of 1965 can be considered a first step in this direction. The objective of the Agreement is to encourage the long-term growth of production and em- ployment in both the United States and Canada by facilitating the free flow of automobiles and components between the two countries. While United States automobile manufacturers did not Initiate the negotia- tions which led to the conclusion of the Agreement, the industry has continued PAGENO="0495" 1765 to cooperate with the governments of the United States and Canada In imple- inenting the terms of tbe Agreement and the related legislation. This ir~dustry supports continuation of this Agreement. The expansion of this arrangement into other products and Industrial, sectors deserves study. In principle, the sector approach merits serious consideration when trade blocs find it temporarily difficult to integrate their economies entirely. Another constructive step toward Improving the conditions for growth is the negotiation of industry complementation agreements which do not restrIct com- petition, such as those between various Latin American countries in the chemi- cal, machinery and electronic fields, which pormote effective and beneficial international specialization of labor. The results of the United States-Canadian Automotive Products Agreement should provide motivation for similar arrange- ments between other countries, especially those whose economic base does not lend itself to integrated large-scale production of products such as automobiles INTERNATIONAL MONETARY SYSTEM The international monetary system Is under unprecedented stress of declining monetary gold stock and decreased willingness to hold balances of reserve cur- rency. The apparent desire of all member countries to Increase, or at least maintain, reserve levels Is incompatible with the rules of the present system and with recent reserve developments. Attempts to reduce payments deficits by major nations has developed a very real threat to progress~ toward freer trkde and Investments. In recent years, it has been recognized that a need existed for an evolutionary reform of the international monetary system. In 1967, the member countries of the International Monetary Fund took a significant first step toward the goal of Introducing a higher degree of flexibility into the international monetary system by means of Special Drawing Rights. The AMA endorses the plan to create these units for added flexibility. Under the system currently in use, certain national currencies are considered reserve currencies and the accumulation of these reserve currencies has been a fundamental part of the western world's economic environment for a substan- tial period of time. Today, the countries where these reserve currencies originate are reducing their balance of payments deficits by reducing the supply of these assets beyond their national borders. A sudden sharp contraction of the supply of these currencies would entail serious economic repercussions In foreign trade flow. The economic effects of policies leading to an abrupt reduction in the supply of reserve assets can cause reduced economic growth rates, slower rates of Income growth and higher levels of unemployment The AMA fully recognizes the benefits to trade and Investment of the present international monetary system. The AMA also takes cognizance of the disad- vantages that are inherent in the system and recommends discussions of meth- ods of providing additional flexibility so as to minimize the employment and output costs of the present adjustment process. SUMMARY 1. The AMA historically has promoted and supported efforts to expand trade among countries, In the belief that the principles of free competition and private enterprise are as valid In the world market as they are in the domestic market. 2. Primary among AMA policies is the continued support for the removaj of restraints of International trade both in the tariff and non-tariff categories. 3. The industry believes that restricting the ability of the automobIle industry to compete for world markets could endanger what has historically been a favor- able contribution to the United States balance of payments and trade surplus. 4. The AMA seeks to obtain for Its members treatment in foreign markets com- parable to that accorded foreign companies in the United States. 5. Faced with increasing competition in the world market, the members of the AMA endorse the Administration's proposals calling for continuation of the Presidential "housekeeping" authority and improvement of the trade adjustment assistance criteria. Congress should also consider carefully the proposed repeal of the American Selling Price system of customs valuation. 6. Important subjects for future trade negotiations should be removal of non- tariff barriers and further reduction of tariffs, particularly truck tariffs. 7. The AMA hopes for the earliest discontinuation of investment restrictions imposed on United States firms abroad. The industry recognizes the need for PAGENO="0496" 1766 measures to improve the balance of payments but warns that in the long term the consequences of this policy will be diminution of the industry's contribution to the United States balance of payments. 8. The AMA affirms its position of welcoming economic integration of regional or subregional levels as positive steps toward global free trade. It supports efforts to achieve integration of trading partners in certain industrial sectors before more complete integration is possible. 94 The AMA believes that the international monetary system is becoming an increasingly important topic in international business. This industry believes there should be continued examination of the various alternatives for providing additional flexibility to the international monetary system. TABLE A.-VALUE OF U.S. AUTOMOTIVE EXPORTS AND IMPORTS, 1947-67 tin millions of dollarsj Years Exports Imports Export surplus 1947 1,279 2 1,277 1948 1,006 31 975 1949 842 10 832 1950 794 28 766 1951 1,306 38 1,268 1952 1,124 57 1,067 1953 1,082 58 1,024 1954 1,157 1,104 1955 1,367 85 1,282 1956 1,516 144 1,372 1957 1,467 335 1,132 1958 1,227 551 676 1959 1,281 844 437 1960 1,411 626 785 1961 1,300 378 922 1962 1,401 515 886 1963 1,567 564 1,003 1964 1,900 719 1,181 1965 2,198 826 1,372 1966 2,474 1,825 649 1967 1 2,887 2,565 322 Total 30,586 10,254 20,332 1 PrelimInary figures. Source: U.S. Department of Commerce. TABLE B-VEHICLE PRODUCTION AND REGISTRATION FOR SELECTED COUNTRIES, 1957-67 Year France Germany Italy Japan United Kingdom United States PRODUCTION 1957 927,814 1,212,206 351,815 181,977 1,149,095 7,220,431 1958 1, 127,761 1,495,221 403,560 188, 303 1, 364,407 5, 121,269 1959 1,283,305 1, 718, 544 500,784 262, 814 1, 560, 427 6,723, 588 1960 1,349, 213 2, 055, 127 644,633 481, 551 1, 810, 700 7,905, 117 1961 1,204,409 2,147,797 759,140 813,879 1,464,134 6,652,938 1962 1,507,533 2,356,594 946,793 990,706 1,674,530 8,197,311 1963 1,706,731 2,667,896 1,180,536 1,283,531 2,011,720 9,108,776 1964 1,582, 129 2,909, 657 1, 090,078 1,702, 475 2, 332,376 9, 307, 860 1965 1,616,153 2,976,477 1,175,548 1,875,614 2,177,261 11,137,830 1966 2, 024, 220 3, 050, 708 1, 365, 898 2, 286, 399 2, 042, 354 10, 396, 299 1967 2,009,672 2,482,319 1,542,669 3,146,486 1,937,119 9,023,736 REGISTRATION 1 1957 640,885 720,463 222,580 171,774 595,658 6,840,427 1958 698,365 863,973 237,477 178,335 758,738 5,381,218 1959 665,863 1,011,819 284,742 240,726 871,134 6,983,408 1960 762,361 1,162,414 427,751 355,142 1,074,360 7,520,135 1961 837,988 1,308,664 553,844 511,444 1,008,022 6,773,355 1962 1,044,893 1,419,471 704,474 606,032 1,020,349 8,007,588 1963 1,190,993 1,476,176 1,038,438 810,900 1,272,166 8,800,941 1964 1,211,658 1,554,102 894,029 1,057,371 1,481,384 9,426,922 1965 1,202,791 1,733,117 939,580 1,182,313 1,424,296 10,842,771 1966 1,367,815 1,709,068 1,074,690 1,491,057 1,357,051 10,618,938 1967 1,382,758 1,671,347 1,186,544 1,746,356 1,376,919 29,777,418 I Source for U.S. registrations: R. L. Polk & Co. Permission fQr further use must be obtained from R. I... Polk & Co. 2 Includes Connecticut registrations, January through April only. PAGENO="0497" 1767 TABLE C-AUTOMOBILE TARIFF RATES FOR SELECTED COUNTRIES SUMMARY OF TARIFFS GENERALLY AFFECTING ASSEMBLED U.S. PASSENGER CARS IN SELECTED COUNTRIES lIn percentj . Country Tariff rate as of Jan. 1, 1968 Tariff rate as of Jan. 1, 1972 1 Australia 35. 0 35. 0 Brazil 80.0 80.0 France 25.2 11.0 Germany Italy Japan United Kingdom 22.0 29.2 35. 0 25.2 11.0 11.0 17. 5 11.0 1 The applicable rate after the phasing period as agreed to in the 1964-67 Conference of the General Agreement on Tariffs and Trade (GATT). Source: World Trade Department, Automobile Manufacturers Association. AUSTRALIA I lIn percenti Tariff rate as of Dec. 31, 1967 Tariff rate as of Jan. 1, 1972 All vehicles: UptolotonsGVW 10 tons GVW or more 35 223/2 35 223/2 I No .GATT round concessions were granted by Australia for automobiles. NOTES Import taxes: Sales tax: 25 percent on cars. 123/2 percent on commercial vehicles, based on the duty paid value In- creased by 20 percent. Customs valuation: Duties are applied on the higher of the current domestic value in country of origin or the sales price. BRAZIL 12 tIn percenti Tariff rate asof Dec. 31, 1967 Tariff rate asof Jan. 1, 1972 Passenger cars: Wetghing up to 800 kg. (1,766 lbs.), valued at US$1,800 c.i.f Weighing 800 kg. to 1,100 kg. (2,428 lbs.), valued at US$3,000 c.i.f Weighing over 1,100 kg. (2,428 lbs.), valued at US$4,000 c.i.f Commercial vehicles 65 80 100 80 65 80 100 80 I Importation prohibited for vehicles valued when new in excess of US$3,500 list price. 2 No GATT round concessions were granted by Brazil for automobiles. NOTES Import taxes: Surtax: 10 percent c.i.f. value. Port assessment: 1 percent of c.i.f. value. Marine assessment: 5 percent of ocean freight. Industrialized products tax: 18 to 24 percent of duty paid value. Customs valuation: Duties are applied on the wholesale value in country of origin plus cost, insurance, and freight (c.i.f.) charges. 95.459 O..-6$.~pt. ~ PAGENO="0498" 1768 FRANCE tin percenti Tariff rate Tariff rate asof asof Dec. 31, 1967 Jan. 1, 1972 Passenger cars Commercial vehicles: 25.5 11 Heavy trucks Light trucks 25.2 25. 2 22 11 - NOTES import taxes: Stamp duty: 2 percent. Duty-tax: 0.2 percent of duty. Customs valuation: Duties are applied on the f.a.s. value plus a 3 percent uplift, plus freight and insurance. GERMANY tIn percentj Tariff rate Tariff rate asof asof Dec. 31, 1967 Jan. 1, 1972 Passenger cars: Up to 2 000 c.c. (121.9 cu. in.) Over2OOOc.c Commercial vehicles: 20 22 11 11 Heavy trucks Light trucks 22 22 22 11 NOTES Import taxes: Import equalization tax: 6 percent of the duty paid value including uplift. Customs valuation: Duties applied to the c.i.f. value, for sole distributors this amount is increased by 3 percent. ITALY tin percentj Tariff rate as Tariff rate as of Dec. 31, of Jan. 1, 1967 1972 Passenger cars: Up to 1.5 litres (91.53 cu. in.) 1.5 litres to 4 litres (244.1 Cu. in.) Over 4 litres Commercial vehicles: Up to 4-litres Over 4 litres 31.2 29.2 27.2 J 29.2 27.2 11 122 1 Applies only to heavy vehicles, others subject to duty of 11 percent. NOTES Import taxes: Equalization tax: 7.8 percent of the duty paid value for cars and commercial vehicles, and 7.5 percent on all other vehicles. Administrative tax: 0.5 percent dutioble value. Stamp tax and miscellaneous charges: Averages 0.2 percent of c.i.f. value. Turnover tax: 4 percent of duty paid value including uplift and administrative fee. Customs valuation: Duties are applied on the c.i.f. value plus a 3 percent uplift. PAGENO="0499" 1769 JAPAN (in percentj Tariff rate as Tariff rate as of Dec. 31, of Jan. 1, 1967 1972 Passenger cars (4-wheel): Not more than 270 (105.3 in.) cm. wheelbase 40 130.0 More than 270 cm. wheelbase 35 17. 5 Commercial vehicles: Buses and trucks with a capacity of less than 18 metric tons 30 15. 0 Other 27 13.5 1 This figure could be reduced to 20 percent if Japan reaches agreement with Italy. NOTES Import taxes: No taxes are applied solely to imports. Customs valuation: Duties are applied on the c.i.f. value plus a 5 percent uplift. UNITED KINGDOM tin percentj Tariff rate Tariff rate asof asof Dec. 31, Jan. 1, 1967 1972 Passenger cars Commercial vehicles: Heavy trucks Light trucks 25.2 24.0 24.0 11 22 11 Note: Customs valuation: Duties are applied on the c.l.f. value of the vehicle. Noted below are the U.S. tariff rates on a basis comparable with those presented above. UNITED STATES tin percenti Tariff rate Tariff rate asof asof Dec.31, Jan.1, 1967 1 1972 Passenger cars 6.5 3.0 Commercial vehicles: Trucks 2 8,5 8. 5 Buses 7.5 4.0 1 New vehicles and parts for original equipment produced in Canada may be imported duty free by original equipment manufacturers. 2 Trucks valued in excess of $1,000 are dutied at a temporary rate of 25 percent No GATT round concession was made by the United States on these trucks. NOTES Import taxes: No taxes applied solely to imports. Customs valuation: Duties applied on the foreign value at factory plus any customary trade discounts. PAGENO="0500" 1770 C,) ~0>- 2 ~ L() 0) N.~ 0)0') 00 00 N. Ct) C') N) N. N) CC) 00 C- N. ~ 00 a)(W ~ ~ ~ C') ~* CO N. C') = ~ ~-~odCr~r CO N) N) ~ N) Ct)LC) CC) C)))Ø C~ CC) N. 00 C~ 0) .~ C') ~ wN.00~g~~ C') 0< >< CO 0 ~ CC) ~ N) ~ © CC) CC) CC) CC) N)~ N) CC) CC) C')C') > 0 -j 0 C') C') 0'J0'JC') C') NJ = ~ N)N~ `-CC CO N. N. CC) 00 0)O0C1~ CC) N. 0 ~ (DC') CC) CO .E~2~' N)N)~~~(DN. ~ CC) LQ~ U < f~0~ *N >- .-~ !~ ~& o C.) CC)))) C * C-) 0 o I C,)) C `o ~O~L~D0C~ PAGENO="0501" 1771 UNITED STATES AUSTRIAN CHAMBER OF COMMERCII, INC,, New York, N.Y., May 29, 1968. Mr. JOHN M. MARTIN, Jr., Chief Counsel, Committee on Ways and Means, Longworth House Office Building, Washington, D.C. DEAR Mn. M~nTIN: With reference to the invitation extended by the. Chair- man of the Committee on Ways and Means of the House of Representatives, Mr. Wilbur D. Mills, in connection with the public hearing on tariff and trade proposals to any interested organization or person, I have the honour to submit, on behalf of the United States Austrian Chamber of Commerce, Inc., New York, the enclosed Memorandum on Protectionism and International Trade, for con- sideration for inclusion in the printed record of the hearing in lieu of a per- sonal appearance. This Memorandum reflects the views of the business circles interested in Austro-Anierican trade. While it contains some comments on world trade in general, it more specifically deals with the consequences to be feared in case import quotas would be imposed by the United States as envisaged by the spon- sors of numerous quota bills which have been introduced in Congress. The United States Austrian Chamber of Commerce would highly appreciate if the Committee could give due consideration to the views presented in this Memorandum. May I, on behalf of the organization I represent, express the sincere hope, that the Committee will be guided in its deliberations of trade policy by the same con- structive spirit that characterizes the proposal made recently by Austria along with other members of the European Free Trade Association, namely to attempt to overcome temporary difficulties that might arise in international economic re- lations by international cooperation rather than by unilateral measures tending to impede the further growth of world trade and prosperity. Sincerely yours, Dr. ERNST ROTT, Ea'ecutive secretary. MEMORANDUM ON PROTECTIONISM AND INTERNATIONAL TRADE PRESENTED BY THE UNITED STATES AusnuAx CHAMBER OF COMMERCE, INC., NEw YORK The successful conclusion of the Kennedy-Round which came about only few months ago after long years of hard bargaining was hailed by the leaders of all participating countries as a significant achievement in the field of international trade. In the final phase when negotiations seemed on the brink of failure all partners had to make great efforts setting aside selfish interests for the sake of a greater common goal, namely a further step in the direction of a more liberal world trade. The willingness on the part of all countries concerned to make the necessary sacrifices gave reason to hope that a new phase of closer economic cooperation In the interest of a further expansion of world trade was about to be initiated. Due credit was given to the United States for their role in this round of negotiations. The late President Kennedy had taken the initiative which found strong support particularly on the part of the American Trade Unions, and Congress gave him the negotiating authority by adopting the Trade Expansion Act of 1962. Now, only five years later, a campaign is being conducted in the United States aiming at a frustration of the promising results of all these efforts. The increasing flood of protectionist bills that are being Introduced in Congress is therefore not only a matter of grave concern but also of consterna- tion for all the other countries which have placed high hopes in the leadership of the United States toward a freer world trade. Trade is not a one-way street. Experience has shown that protectionist nieas- ures taken by one trading partner have seldom failed to provoke strong retalia- tory measures on the part of the other countries. There is no reason to believe that such a highly regrettable process would not be iwecipitated this time if the proposed measures which do not aim only at the protection of one branch of the economy or the other but at an all-out protectionist trade policy would come into effect. What would be gained by such a conflict? Perhaps a certain profit for certain limited groups over a limited period of time. But in the long run there can be only losers, no winners. PAGENO="0502" 1772 The following considerations will prove this point: 1. ECONOMIC CONSIDERATIONS In the course of the past years both American importers and American ex- porters have profited from the considerable increase in American foreign trade. In 1960 U.S. exports amounted to over $20 billion. In 1966 they rose to over $30 billion. Imports into the United States totalled about $15 billion in 1960, and over $25 billion in 1966. Hence, both exports and imports have shown an almost identical increase of about $10 billion over this period. The most characteristic aspect of U.S. foreign trade is the structural surplus in the balance of trade in favor of the United States. This is true not only for the overall pattern of U.S. trade, but also for U.S. trade with Western Europe and with Austria in particular. So for instance in 1966 Austrian exports to the U.S. amounted to $77 million, Austrian imports from the U.S. to $101 million: the surplus in the balance of trade was $24 million in favor of the United States. In other words, Austria buys by about 25 per cent more merchandise in the United States than she sells on the U.S. market. The cited example is by no means an exception: similar trade balances are characteristic of the preceding years. U.S. imports from the countries of the European Economic Community (Com- mon Market) and the European Free Trade Association (EFTA) combined amounted to $7.1 billion in 1966, U.S. exports to these two trading groups to $9.5 billion. The surplus in the balance of trade was $2.4 billion in favor of the United States. One can easily foresee that a curtailment of imports on the part of the United States that will in all probability provoke similar measures on the part of the trading partners will eventually affect the interests of American ezporters to a much greater degree than those of foreign importers. There is another important aspect of the problem: in view of the considerable share of U.S. exports and imports in world trade any significant restriction of U.S. imports will inevitably affect the earning power of many countries so that they in turn will be compelled to limit their imports. Furthermore, while the American economy as a whole depends only to a relatively limited degree on International trade, the international ezchange of goods is of vital importance for the economies of the smaller industrialized countries. About 25 to 30 per cent of the Austrian production goes into export. Any sizeable reduction in exports must therefore have strong repercussions both economically and socially. 2. SOCIAL CONSIDERATIONS One of the immediate effects of protectionist curbs on Imports is the restric- tion or complete elimination of foreign competition. Thus the advantages of an international division of labor cannot be enjoyed any longer. One result Is a rise in prices which will eventually have to be borne by the consumer. Protectionism is therefore also detrimental to consumer interests. One of the reasons frequently given for protectionist measures is the necessity of protecting jobs in industries which would otherwise succumb to foreign competition. This argument can be a justification only in special cases, as for instance with regard to new industries in their initial phase, particularly in developing countries. But it can hardly be invoked in the case of the most highly developed industrial nation with the highest productivity in the world. However, those who advocate such measures for the reason mentioned above should not overlook the fact that not only those in the United States who are directly profiting from imports like importers, banks, shipping interests, port authorities, longshoremen etc. would suffer from a curtailment of imports ;` pro- tectionism as has been demonstrated above would also seriously impair the exports of the United States which in turn would mean the loss of numerous jobs in ewport-oriented branches of the economy. All these developments must ultimately have their effect on the economy as a whole and may lead right into an economic depression. The hey-day of protectionism in the Thirties is connected with the dire memories of the most serious economic depression and the highest rate of unemployment in history. Austria can be cited as a striking example. Lack of confidence in the economic viability of this small country, lack of meaningful international coopeliltion as PAGENO="0503" 1773 a result of economic egoism, repercussions of the general economic crisis, all this led to a desperate situation for which the rate of unemployment was per- haps the most symptomatic: 600,000 unemployed in a population of not even seven million! This was not the least among the reasons for the collapse of the First Austrian Republic in 1938. 3. POLITICAL CONSIDERATIONS After the Second World War, when the economy of most of the European countries literally lay in ruins, the United States took a most remarkable initia- tive: the Marshall-Plan. This ingenious plan not only offered the most generous financial aid supplied by the American tax-payer, it also tied `this aid to the requirement that the European countries help themselves on the basis of close economic cooperation. The progressing abolition of trade barriers among the European countries in the framework of the Organization for Euopean Economic Cooperation' was viewed by many European protectionists, among them many Austrians, as a road leading to certain disaster. The positive results surpassed the expectations of even the greatest optimists: in the course of a few years the European economy not only recovered from the damages inflicted during the war years, it flourished to such an extent that the expression "economic miracle" was coined for some of these European countries, Including Austria. Austria today is no longer the "sick man" in Central Europe as it was in the period between the Wars; Austrians are enjoying now an eco- nomic prosperity and social and political stability unsurpassed in her hi~tory. This most fortunate state of affairs which is one of the results of the Marshall- Plan has convinced Austrians in particular and Europeans iii general that Americans have taught the Europeans a most profitable lesson in liberal trade policy. From a political point of view It can be said without exaggeration that the outcome of the Marshall-Plan was one of the most outstanding achievements of American foreign policy in the post-war period. Austrian leaders and the Austrian population are still grateful for the Marshall-Plan aid, and this gratitude is a firm basis for the friendly feelings Austrians have for the United States. However, in view of historic experiences, they are keenly aware of the vital importance of economic and social stability In Austria and in Europe. Any strong setback in the economic development that could for Instance be caused by strong restrictions of export opportunities could seriously endanger this stability which could have especially grave consequences on account of Austria's particular situation on the border line between East and West. The spirit of the Marshall-Plan should not be abandoned. Another aspect should be taken into consideration: as a result of the impres- sive economic progress made by the Western European countries in the past twenty years they are in a position now t~ assume a growing share of the burden of economic aid to developing countries. Austria for instance is approaching the goal of one per cent of her GNP set for the UN Development Decade. In propor- tion to GNP Austria is already giving more in development aid than the United States. In case the Austrian economy would be weakened by a loss of export markets as a result of a resurgence of large-scale protectionism it is safe to predict that development aid is one of the items in the lntdget that would have to be adjusted accordingly. The same is true for other European countries. CONCLUSION On the basis of all these considerations it can be said that the protectionist measures envisaged by certain groups would be harmful both from the point of view of internal and foreign I)Olicies. The protection of certain group interests would by no means justify the damage that would be done to a ninch wider range of interests In the United States and abroad. STATEMENT BY RAYMOND ~I. PICARD, PRESIDENT, FRENCH CHAMBER OF COMMERCE IN THE UNITED STATES, INC. The French Chamber of Commerce in the United States. Inc. (the "Chamber"), a non-profit, non-political, and independent service organization established in 1896, duly incorporated in the State of New York, submits the following state- PAGENO="0504" 1774 ment in lieu of personal appearance before the Committee on Ways and Means of the United States House of Representatives (the "Committee"), scheduled for Monday, June 17, 1968. The Chambers' chief purpose is to further the development of trade between France and the United States, and to foster economic, commercial and financial relations between these two countries. The Chamber's current membership in- cludes about 300 Active Members, all of whom are businessmen and corporations in the United States. In addition, the Chamber has approximately 1200 Associate Members, numbering approximately 150 members in the United States and the balance in France. The Chamber therefore represents American and French businessmen who have a substantial `interest in trade between France and the United States. All the Associate Members in France are interested in exporting French products to the United States. Many of the Active Members in the United States export Amer- ican goods to France or are service companies and banks deriving substantial benefits from the United States export trade. It is appropriate, at this juncture, to point out that the balance of trade be- tween France and the United States not only weighs heavily in favor of the United States but, during the past few years, the United States share has singu- larly increased. In fact, the trade ratio last year was almost two to one in favor of United States exports. In 1965, the United States sold to France $971 million worth of goods while France's exports to the United States were valued at only $615 million. The following year, 1966, American sales to France for the first time exceeded the billion-dollar mark and were again more than $300 million greater than French sales to the United States. Last year, 1967, France's purchases from the United States amounted to $1.025 million while French exports to th~s country fell to $690 million, thus showing an excess of $335 million in favor of the United States. What is even more significant Is the fact that, last year, in proportion, each Frenchman bought for $20.50 worth of American goods while each American spent only $3.45 on imports from France, the per capita ratio being thus six to one. These figures illustrate the favorable position of the United States in its trade with France. With the proposed asymmetrical and accelerated application of the conces- sions granted at the conclusion of the Kennedy Round, the outlook for higher American exports to France is even greater and the balance of trade between the two countries should improve further in favor of the United States. Because we have much experience in foreign trade, we know that there is an absolute co-relation between Imports and exports. The present imbalance in the French-American trade is undoubtedly hard to face for France, but apparently is still at a tolerable level. We believe that the proposed restrictive measures investigated by the Committee would indirectly have an adverse effect on the export trade of the United States. First, the source of currency available In France for importing American goods would be considerably reduced. Second, retaliation would seem inevitable. There are private interests everywhere in the world which smart under the competition of the American goods. If private interests have their way in the United States, the gate will be open for a flood of restrictive legislation everywhere which will harm American exporters more than the domestic protectionists will benefit. The Chamber strongly believes that International commerce is essential and that It should flow, unobstructed, in both ways between nations. For these reasons, the Chamber views with deep concern the imposition of all restrictive trade barriers, irrespective of their form, nature and origin, as they would be a step backward from the beneficial results achieved during the Ken- nedy Round of negotiation. Additionally, the Chamber having examined the proposals known as the "Proposed `Trade Expansion Act of 1968'" approves the principle of Section 401 to the effect that the American Selling Price system be eliminated. PAGENO="0505" 1775 KENTUCKIANA WORLD COMMERCE COUNCIL, INC., Louisville, Ky., June 25, 1968. Congressman WILBUR D. MILLs, Chairman, Ways and Means Committee, House Office Building, Washington, D.C. DEAR CONGRESSMAN MILLS: Attached is copy of a resolution passed at the April 3 meeting of the Kentuckiana World Commerce Council. Your efforts to protect the interests of the members of the Council will be very much appreciated. Very truly yours, WILLIAM E. BENNETT, President. RESOLUTION RE H.R. 17551, ET AL. Whereas the Kentucklana World Commerce Council, mc., 300 West Liberty Street, Louisville, Kentucky, acknowledges that any quota or particular trade legislation at this time would prove devastating to Louisville and its surround- ing area; and Whereas conditions are such that import quotas would stiffle competition; limit the consumer's choice; and, in general, violate the principles of free en- terprise; and Whereas would tend to legislate other countries out of the American market and drive them to open other markets, such as mainland China and the Soviet Union: Therefore be it Resolved, That it is the consensus of this Council that it go on record to op- pose any such legislation; and be it further Resolved, That any individual member of the Council participate according to his own individual need. (The following material was submitted for the record by: Danish American Trade Council, Inc.; Finish American Chamber of Com- merce, Inc.; Norwegian-American Chamber of Commerce, Inc.; and Swedish ,Chamber of Commerce of the United States, Inc.:) NEw YORK, March 14, 1968. Mr. LOUIS KRAUTHOFF, Chairman, Trade Information Committee of the Office of the special Representa- tive for Trade Negotiations, Washington, D.C. DEAR MR. KRAUTHOFF: The below mentioned organizations decided to submit joint testimony on trade policy to the Trade Information Committee because of the importance of the Nordic area in world trade and as a trading partner of the United States. Although the aggregate population of Denmark, Finland, Norway and Sweden is only 20 million people, the total imports of the area are now more than $12 billion a year. This compares with the $27 billion imports of the United States in 1967, with its population of more than 200 million persons, Put another way, the four Nordic countries import goods each year to the value of over $600 per head of population. The corresponding figure for the United States is about $135. It is clear from these figures that the four Scandinavian countries depend fundamentally on foreign trade for their livelihood. As a consequence, they have strongly supported all international moves to free the channels of world trade. They took part in the successive GATP negotiations, and in the Kennedy Round were able to play an important part in securing the success of the negotiations becatise the four countries sank their individual differences and negotiated in Geneva as a single unit working for maximum tariff reductions. It follows also that we, as trading organizations representing the industries and traders of our countries, have solid reason to admire and appreciate the liberal trade policies which have been followed by the United States throughout the postwar years. We believe that this attitude on the part of the United States has spurred other countries on to follow her example. The Kennedy Round itself was a United States initiative and proved to be the single most successful tariff- cutting negotiation in the history of world trade. PAGENO="0506" 177~ The benefits to all concerned from the progressive freeing of trade over the postwar period can clearly be seen from the trade results (see attached tables I and II). On a f.o.b. basis, United States exports to the Nordic area have risen from $227 million in 1953 to $787 million in 1967. When insurance and freight are added, this means that our four countries paid almost $1 billion for U.S. goods last year. In the same period, United States imports from the Nordic area rose from $257 million to $737 million. Again, if transport and other costs are added, the cost to the United States was over $900 million. This growth of mutual trade has, of course, been subject to fluctuations, largely dependent on changes in the economic climate in the United States and in the Nordic area. The trend nevertheless has been steadily upward. While the United States has shown favorable balances in commodity trade f.o.b. with the Nordic area in each of the past nine years, too much should not be made of these figures. The real balance of trade between our countries and the United States includes very important invisible items-shipping, insurance, interest payments, capital transactions, tourism, etc.-which radically affect the annual balance. To take one example, Finland Is also a large borrower in the U.S. capital market, and the annual interest payments, in excess of $50 million a year outweigh the small trade surplus which Finland is able to earn. The following pages contain brief descriptions of the make-up of the trade of each of our countries with the United States. Since commodity figures are not yet available for 1967, the tables show 1966 results, the source being the EFTA Secretariat, based on OECD statistics. Approximately the same pattern of trade remained valid last year and will continue to be the pattern this year and In 1969. The figures present a satisfactory picture of a successful trading relation- ship. The sucess has been built on increased freedom of trade and it is our earnest hope that the United States will continue along a path which has been of such benefit to herself and to the world as a whole. Although the organizations sub- mitting this testimony represent private industry rather than government, we are confident that our governments will continue to do everything In their power to support international initiatives of freer trade. Specifically, we believe our governments are ready to take part in international discussions directed at reduc- ing non-tariff barriers as well as more orthodox barriers to trade such as tariffs and quotas. UNITED STATES-N~RDIC TRADE TABLE 1 EXPORTS (f.o.b.) tin million U.S. dollarsj 1953 1959 1960 1961 1962 1963 1964 1965 1966 1967 importing countries: Denmark 38.3 105.6 109.2 109.4 124.3 146.0 151.2 183.6 179.9 205. 3 Finland 22. 1 43.2 56.4 56. 0 57. 5 56.6 69. 0 75. 7 63. 5 58. 6 Norway 64.6 76.8 88. 8 90.4 94. 3 96. 1 110. 5 129. 5 143.6 137. 8 Sweden 101. 7 206.4 298. 8 258. 1 258. 1 251.6 297. 5 326.9 354. 8 385. 4 Total 226.7 432.0 553.2 513.9 534.2 550.3 628.2 715. 7 741. 8 787. 1 IMPORTS (fob.) Exporting countries: Denmark 39. 7 105. 6 99.6 109. 7 119.3 127. 8 128.6 150. 7 206.9 175.3 Finland 42.4 49.2 51.6 46.0 59.9 61.6 74.4 83.6 97.1 90.2 Norway Sweden 66.9 107.8 74. 4 183.6 87.6 170.4 92. 2 140.2 90.4 169.3 105. 8 181.3 119. 5 203.2 142.3 241.9 127.8 299.3 140. 5 330.9 Total 256.8 412.8 409.2 388. 1 438,9 476. 5 525. 7 618. 5 731. 1 736.9 PAGENO="0507" 1777 TABLE 2.-UNITED STATES-NORDIC BALANCE OF TRADE, 1959-67 tin millions of U.S. dollarsj 1959 1960 1961 1962 1963 1964 1965 1966 1967 Balance of trade (f.o.b.) with- Denmark +9.6 -0.3 +5. 0 +18.2 +22.6 +32.9 -27.0 +30. 0 Finland -6.0 +4.8 +10.0 -2.4 -5.0 -5.4 -7.9 -33.6 -31.6 Norway +2.4 +1.2 -1.8 +3.9 -9.7 -9.0 -12.8 +15.8 -2.7 Sweden +22. 8 +128.4 +117.9 +88.8 +70. 3 +94. 3 +85. 0 ±55. 5 +54. 5 Total +19.2 +144. 0 +125. 8 +95.3 +73. 8 +102. 5 +97.2 +10. 7 +50.2 Denxm,ark's trade with the United ~States Between 1953 and 1967, U.S.-Danish trade, both ways (f.o.b.), has grown fivefold, from $78 million to $389 million a year. In the past nine years the U.S. ran a surplus in TJ.S.-Danish trade in six years, a deficit in two, and there was equilibrium in otie year; the cumulative trade balance shows a surplus in the United States favour of $91 million. Denmark's imports from the U.S. have generally followed much the same trend as Denmark's total imports. Whereas imports of food and beverages have fallen, the U.S. share rose in raw materials and all major groups of industrial commodities. In absolute terms, the biggest increase was recorded in machinery and, transportation equipment; imports from the U.S. rose from $24.1 million in 1959 to $62.7 million in 1966, raising the U.S. share in this `group from 6.9 percent to 7.9 percent. Aircraft and office machinery rose particularly sharply, but gains were also recorded in most other types of machinery. Imports of cars from the U.S. are lower-largely because they were replaced by cars made by U.S. corpora- tions in European subsidiaries-but the U.S. share also declined for power- generating machinery, including turbines and piston engines. Commodities show- ing substantial increases In share include scientific instruments and oil seeds. PAGENO="0508" TABLE 3 DANISH IMPORTS FROM THE UNITED STATES AND THE WORLD, BY COMMODITY GROUPS Food and live animals Beverages and tobacco Crude materials except fuels Mineral fuels Animal and vege- table oils and fats Chemicals Manu- factured goods Machinery and transport equipment MisceI- laneou~ manu- factured articles Other Total (0) (1) (2) (3) (4) (5) (6) (7) (8) (9) (0-9) Share of United States in imports (percent) 1959-66.... 25.7 34.6 12.9 4.2 1. 1 8.8 1.6 6.9 5.2 9.2 ..~ 16.5 31.2 16.9 1.4 2.2 9.0 2.0 7.9 6.7 20.0 7.9 ~ Imports from the United States (dollars) 1959-6& - - - 59.7 12.3 21. 0 8. 5 . 1 11.9 6.3 24. 1 3.4 147.4 ....~ 54. 1 16.2 43.5 4.5 .3 23.9 14.8 62.7 15.5 .9 236. 5 ~ Percentage increase in imports from United States, 1959-66 -9.4 31.7 107. 1 -47. 1 200.0 100.8 134.9 160.2 355.9 60.4 Percentage increase in total imports, 1959-66 41.0 46.2 58.7 59.3 48.4 27.0 80. 1 126.4 254.4 87. 5 DANISH EXPORTS TO THE UNITED STATES AND THE WORLD, BY COMMODITY GROUPS Share of United States in exports (percent) 1959-6&.... 5.6 14.4 19.7 4.7 12.9 6.4 25.0 3.6 15.0 8.2 9.6 12.9 16.3 2.4 4.4 5.9 4.0 9.5 1.3 8.1 Exports to the United States (dollars) 1959-66 45.0 2.5 15.3 .2 2.2 3.2 26.7 8. 1 10.0 113. 1 104.6 4.7 28.3 .6 5.6 11.6 21.1 18.3 .1 195.0 Percentage increase in exports to United States, 1959- 66 132.4 88.0 85.0 75. 0 -56.6 160. 5 83.0 72.4 Percentage increase in total exports, 1959-66 36.4 109.2 124. 1 48. 8 150. 5 82.3 130.3 188.0 10.0 74. 8 PAGENO="0509" 1779 Finiand's trade with the United States Since 1953, U.S.-Flnnish trade, both ways, has Increased from $65 million to $150 million a year. From 1959 to 1967, FInnish trade with the U.S. was in surplus in almost every year; this surplus amounted in total over the period to $77 million. Over the same period, however, imports from the U.S. rose more than imports from the EEC and other non-EFTA countries. The U.S. share in Finnish imports has remained more or less constant at about 6 per cent. Industrial goods account for two-thirds of Finnish imports from the U.S., the remainder being made up largely of food, tobacco, cotton and oil seeds. Within the group of industrial goods, machinery and cars represent over half. Due to a switch to EFTA sources for agricultural machinery, U.S. exporters have not been able to maintain their share in machinery imports, but have by contrast slightly raised their share in the market for cars. In chemicals the United States share rose from 5.0 per cent to 7.5 per cent of total imports, and an increase in the share for finished goods (SITC 8) has also been recorded. Finland's exports to the U.S. just about doubled between 1959 and 1967, but this expansion did not start until 1962. These exports are heavily concen- trated on forestry products and mink skins. The demand for plywood in the U.S. rose very strongly over this period, enabling Finnish exporters to increase their sales by about 170 per cent. Sales of paper and paperboard, which made up over half of total Finnish exports to the U.S. in 1959, rose much less and the share for this group fell. Pulp exports fell even In absolute terms as a result of stronger competition from Canadian and U.S. producers. Fur skin sales developed satisfactorily and Finland's share in the U.S. market grew. In the last five years significant exports of metallic oxides and pig-iron have also been developed. In total, Finnish exports to the U.S. were 6 per cent of total exports in 1959 and in 1967 and there were no major variations in the intervening years In a general pattern of trade growth. PAGENO="0510" TABLE 4 FINNISH IMPORTS FROM THE UNITED STATES AND THE WORLD, BY COMMODITY GROUPS (In millions of U.S. dollars; and percentages) Food and live animals Beverages and tobacco Crude materials except fuels Mineral fuels Animal and vege- table oils and fats Chemicals Manu- factured goods Machinery and transport equipment Miscel- laneous manu- factured articles Other Total (0) (1) (2) (3) (4) (5) (6) (7) (8) (9) (0-9) Share of United States in imports (percent): 1959 3.2 32.3 7.8 1.0 5.0 2.9 &8 4.3 5.5 1966 8.6 28.8 6.6 0.8 7.5 2.4 7.2 5.8 1.4 5.6 Imports from the United States: 1959 $3.7 $3.0 $5.1 $0.9 $3.8 $5.4 $22.6 $1.2 $45.7 ~ 1966 $13.8 $4.5 $10.7 $1.4 $12.9 $8.8 $39.2 $5.9 $0.2 $97.4 ~ Percentage increase in imports from United States, 1959-66 273.0 50.0 109.8 55.6 239.5 62.9 73.5 391.7 113. 1 Percentage increase in total imports 1959-66 40.7 67.7 146.6 102.3 -59. 0 126.9 98.4 112.3 262.4 495.8 106.4 FINNISH EXPORTS TO THE UNITED STATES AND THE WORLD, BY COMMODITY GROUPS Share of United States in exports (percent): 1959 1.9 4.0 6.0 10.8 0.4 3.5 5.8 1966 5.2 4.1 14.2 8.6 S.4 7.3 20.0 6.4 Exports to the United States: 1959 $0.7 $15.0 $0.3 $31.9 $0.5 $0.2 $48.6 1966 $2.9 $20.9 $4.4 $58.8 $5.8 $3.7 $0. 1 $96.6 Percentage increase in exports to United States, 1959-66 314.3 39.3 84.3 98.8 Percentage increase in total exports 1959-66 50. 1 35.5 360.0 130.8 47. 5 80.0 PAGENO="0511" 1781 Norway'e trade with the United State8 Between 1953 and 1967, two-way trade between the U.S. and Norway grew from $132 million to $284 million a year, and has been approximately in bal- ance. The cumulative balance over the nine years, 1959-1967 shows a U.S. deficit of only $7 million. Norway's imports from the U.S. have, on the whole, followed developments in her total Imports. Norway increased her purchases from the United States to meet the rise in Import demand during the general economic recovery in 1960, and for similar reasons there was again a spectacular rise in 1966. The share of U.S. supplies has grown slightly to 8 percent of total Norwegian imports. An Important part of Norway's Imports from the U.S. has traditionally con- sisted of agricultural products, cereals, oil seeds and kernels, tobacco and fruits. Although these products have declined in relative importance, imports of In- dustrial commodities from the U.S. have increased more than enough to com- pensate for this development. In 1966, industrial commodities (SIPC 5-9) rep- resented 53 percent of total imports from the U.S. Almost all the Increase in Norwegian imports of aircraft, specialized industrial machinery and inorganic chemicals came from the U.S. In office machines and power generating machinery, U.S. exporters also increased their shares of the market, but they lost ground in motor cars-because of U.S. production in Europe-agricultural machinery, electrical machinery, plastics and organic chemicals. More than half of Norway's exports to the U.S. consist of semi-manufactures and, of the remainder, fish and fur skins éonstitute the major part. The most significant increases in recent years have been In unwrought aluminum and in fur skins, as a result of substantially higher U.S. demand. Nickel exports have suffered from strong Canadian competition. Canned fish sales to the U.S. have gone up in recent years, but not as much as other markets. The general picture is one of a steady growth of trade in both directions. PAGENO="0512" TABLE 5 NORWEGIAN IMPORTS FROM THE UNITED STATES AND THE WORLD, BY COMMODITY GROUPS LIn millions of U.S. dollars and percentagesj . Food and live animals Beverages and tobacco Crude materials except fuels Mineral fuels Animal and vege- table oils and fats * Chemicals Manu- factured goods Machinery and transport equipment Miscel- laneous manu- factured articles Other Total (0) (1) (2) (3) (4) (5) (6) (7) (8) (9) (0-9) Share of United States in imports (percent): 1959 17.9 46.7 0.5 8.1 18.3 9.5 3.2 4.3 5.1 7.0 1966 17.6 41.8 10.4 6.3 11.0 10.7 3.4 5.7 5.0 4.5 7.5 Imports from the United States (dollars): 1959 23.8 5.0 9.2 9.3 2.6 7.7 9.6 21.6 3.6 92.3 ~ 1966 35.9 8.9 26.7 11.6 0.9 20.4 15.7 50.3 8.9 .4 179.6 t~ Percentage increase in imports from United States 1959-66 50.8 78.0 190.2 24.7 -65.4 164.9 63.5 132.9 147.2 94.6 Percentage increase in total imports 1959-66 53.4 99.1 193.0 59.2 -42.3 134.6 58.1 74.7 152.9 82.8 NORWEGIAN EXPORTS TO THE UNITED STATES AND THE WORLD, BY COMMODITY GROUPS Share of United States in exports (percent): 1959 9.7 25.0 9.6 1.5 5.1 14.4 1.9 18.0 10.3 1966 9.9 28.0 10.3 .6 5.0 12.4 2.2 13.9 8.9 Exports to the United States (dollars): 1959 14.3 .1 12.9 1.1 3.9 47.2 1.2 2.9 83.6 1966 22.1 .7 19.6 .3 6.9 75.9 5.8 7.3 138.6 Percentage increase in exports to United States 1959-66 54.5 51.9 76.9 60.8 383.3 151.7 65.8 Percentage increase in total exports 1959-66 52. 8 41.2 -28.8 79. 1 86. 1 313. 5 227. 3 93. 1 PAGENO="0513" 17~ S'Weden's trade withY the Tin4ted Statee As the most populous and richest country of the area, Sweden is naturally the largest Nordic trading partner of the U.S. Whereas two-way trade was $210 mil- lion In 1953, last year the total was $716 million (f.o.b.). In each of the nine years from 1959 to 1967 there was a U.S. surplus in this trade, totalling $718 million for the whole period. Swedish Imports from the United States are spread over a wide commodity range and it Is hard to find examples of significant changes in sources of supply. A large part of Sweden's imports from the U.S. consists, moreover, of agricul- tural products, which are often subject to substantial fluctuations In total value. For industrial commodities, (SITO 5-9) the share of the U.S. In total Imports fell from 10.9 percent to 9.2 percent between 1959 and 1966. There were decreases In organic chemicals, pharmaceuticals, plastics, Iron and steel plates and sheets, power generating machinery and agricultural machinery. On the other hand, there are also cases where U.S. suppliers strengthened their position on the Swedish market, e.g. in office machines and metal*working machinery. Motor vehicles represent the most important single item in Sweden's exports to the U.S., accounting for 21 percent of the total in 1966. Sweden has been able to maintain~its small (4 percent) share of the U.S. import market for cars. Pulp, paper and paperboard occupy the second place in Sweden's exports to the U.S. During the period under review, half of the U.S. pulp market was lost to Canada, `which with 92 percent of the market against Sweden's ~ percent, enjoys a 4uasi-' monopoly. Part of this loss In pulp exports was offset by Increasing exports of paper which, however, did not exceed the growth in U.S. tátal Imports of paper. The U.S. market also represents an important outlet for some specialized Swedish iron and steel products. In at least one group in this category, `hoops and strips, Sweden has gained in the U.S. market in competition with the United Kingdom, Benelux and Japan. For office machines also, the U.S. constitutes an important outlet for Swedish exporters. Sweden Is a traditional supplier of fur skins to the U.S. which is her most important single market for this commodity. 95-159 O-68-pt. 4-33 ` PAGENO="0514" TABLE 7. SWEDISH IMPORTS FROM THE UNITED STATES AND THE WORLD, BY COMMODITY GROUPS tIn million U.S . dollars and percentagesj Food and live animals Beverages and tobacco Crude materials except fuels Mineral fuels Animal and vege- table oils and fats Chemicals Manu- factured goods Machinery and transport equipment Miscel- laneous manu- factured articles - Other Total (0) (1) (2) (3) (4) (5) (6) (7) (8) (9) (0-9) Share of United States in imports, percent: 1959 10.9 38.3 11.2 5.8 17.2 15.4 7.1 13.8 8.0 20.0 10.5 ~. (966 9.9 36.7 11.5 4. 3 25.6 10.3 4.9 12. 1 9.5 3.9 9.3 Imports from the United States, dollars: 1959 31.6 10.8 20.5 21. 0 3. 1 28.2 38. 5 86. 1 13.9 . 1 253.7 1966 47.2 24.8 36.2 22. 4 5.7 37.2 50.3 160.8 42.3 .6 427.5 Percentage increase in imports from United States: 4959-66 49.4 129.6 76.6 6.7 83.9 31.9 30.6 86.8 204.3 68. 5 Percentage increase in total imports: 1959-66 65. 0 139.4 71,7 43.7 23.9 97.6 87.4 112. 2 156. 1 89.9 SWEDISH EXPORTS TO THE UNITED STATES AND THE WORLD, BY COMMODITY GROUPS Share of United States in exports, percent: 1959 2.6 25.0 6. 5 2.3 4.7 9. 1 9. 1 12.7 8. 0 1966 2.8 5.6 3.7 4.8 5.2 7.5 9.0 9.0 .7 6.9 Exports to the United States, dollars: (959 2.0 .2 47. 5 .2 3. 1 53.7 60.3 8. 5 175.6 1966 -- 3.4 .1 38.4 .6 8.3 89.2 136.3 17.6 .1 294.0 Percentage increase in exports to United States: 1959-66 70. 0 -19.2 167. 7 66. 1 126. 0 107. 1 67.4 Percentage increase in total exports: 1959-66 60. 5 125. 0 42.7 191.2 44. 2 141. 7 100. 2 130.3 191. 1 93. 7 PAGENO="0515" protectionist measures at best would be short range at this tinie. We believe that quotas and restrictions should be avoided. Increased foreign trade is vital and the President must be given authority to negotiate. A favorable balance of trade is necessary. Due to the size and scope of the ~ domestic market, many American firms lack interest in international markets. Conversely, the United States presented opportunities to other countries. In order to increase our exports our Government should continue and expand present programs. Non-tariff barriers are major problems and in furture trade negotiations should be the prime target of our Representatives. If their removal is unsuccessful, then and only then, should retaliatory meast~res be used to an equal extent on products originating from such countries that discriminate against United States exports. We are attaching our views relative to the above mentioned hearings and re- spectfully request that they be considered by this Committee. Yours, very truly, MURRAY C. FINCHER, President. Quotas.-Quotas, whether absolute or not, imposed by any country are the most vicious form of protectionism. Imposition by the United States of across the board quotas or item by item, must be avoided. The textile, steel and footwear industries, among others, claim that quotas are necessary to protect their industry. They argue that the quantities imported represents jobs lost by American labor. Invariably, they failed to point out that these Industries in general are in. a healthy, financial state and actually increased employment during the past years. The ultimate loser in the imposition of quotas is the consumer. Such quotas ~tifie or eliminate competition, which in turn causes increased prices. Retaliation 4 is always expected when quotas are imposed. This will always result in a reduc- tion of exports. We believe that not only should the United States avoid this trade barrier, but our representatives should do their utmost to have similar barriers imposed by other countries against our exporteremoved. PAGENO="0516" 1786 The Propo$ed Trade J3lopansion Act of 1968.-This organization fully supports the proposals as outlined by the Administration in the President's message to the Congress of May 28th, 1968. A. Since the inception of the original Reciprocal Trade Act in 1934, not only has the volume of foreign trade increased tremendously, but the prosperity and standard of living of our own citizens is unprecedented. The increase in foreign trade was undoubtedly a substantial contributor to this condition. It would be shortsighted and catastrophic to return to a trade policy of protectionism as experienced under the Smoot-Hawley Act of 1930. B. We believe that valuation based upon the American selling price is unreal- istic and contrary to the basic concept of foreign trade. Even if we grant that such procedure was necessary at the time of its inception, this is not the case today. This is a form of protectionism to a few industries and is unnecessary and unwarranted. The elimination is necessary to enable us to take advantage of Kennedy Round concessions. C. It is inevitable that in pursing a libei~al foreign t~O f~t~aom~, ~sifoutU will be hurt. Inc es~J `i'1~è'd only ~n a case-by-case basis and only in re- - ~ `~uViA15 biloUl taliation against a country which has taken action not in the national interest of the United States. Our great industries in the textile, steel, footwear and many other fields should certainly be able, by technology and the superb manage- ment ability available to them, to meet free foreign competition. In fact, this competition will certainly act as a catalyst to keep our industry efficient and competitive. 2. We strongly subscribe to the proposed trade expansion act of 1968 as out- lined by the President in his Message to Congress on May 28, 1968. We believe that the President must be given authority to negotiate and the power to cancel or withdraw privileges in foreign trade, and we also believe that he is in a much better position to accomplish this on a day-to-day basis in the best interest of our country than is the Congress. 3. In regard to non-tariff barriers, we take the same position as stated above regarding quotas. These barriers should be used on a case-by-case basis and tile threat of these barriers should be available in order to improve the bargaining position of the United States. I respectfully request that our views, as contained herein, and in the enclosure, be considered by your committee in their important deliberations regarding the enlightened national interest of our country and its people. Sincerely, E. M. ROWLEY, President. Enclosure PAGENO="0517" 1787 RESOLUnON Whereas over 1,000 bills have recently been introduced In the U.S. House of S Representatives and Senate, threatening tariff increases, import quotas and other non-tariff barriers against United States foreign trade, and Whereas, our country experienced the severe impact caused by protectionism in the Smoot-Hawley days of 1930, a repeat of which would threaten to nullify a great proportion of the foreign trade gains made during the past 30 years, and Whereas foreign trade has been called the lifeblood of the Mississippi Valley, and Whereas our vital interest in foreign markets is matched by our constant belief In the merits of free trade, as opposed to the credo of protectionism and its con- comitant crippling of the enterprising spirit of our nation since its founding, and Whereas International House strongly believes that favorable congressional action on these bills would be extremely detrimental to U.S. world tra'de and U.S. prosperity, and would spur inflationary pressures, aggravate our balance of payments problem's, limit consumer selections, handicap orderly commerce of supply and demand, disrupt domestic manufacturers' use of import components in their production processes, sharply increase governmental controls over trade and commerce and hence increase costs of government, and provoke i~etaliatory and restrictive measures by our worldwide trading partners: therefore be It Resolved, That International House strongly condemns the proteetipnist meas~ tires new pending in Congress, and urges national legislators `to oppose such restrictive trade legislation in the best interests of the United States and their constituents. S STATEMENT OF INTERNATIONAL TRADE CLUB OF CHICAGO, RE U.S. FoREIGN TRADE POLICY PREFATORY NOTE S The International Trade Oluib of Chicago originated as the Export Managers Club of Chicago shortly after World War I. The International Trade Olub, `as now constituted, comprises over 800 executives, representing some 700 firms wltI~ inter- national business in'terests. The companies which these executives represent are engaged in all of the major field's of international trade and Investments, inciud- lug manufacturers, exporters and Importers, transportation companies and organizations which provide various services to companies engaged in interna- tional trade and investments. S The primary objective of the International Trade Club of Chicago is to main- tain the position of the Middle West as the leader in United States world trade and to make certain that its industrial and agricultural products move into world markets. In this connection, It should be noted that the State of Illinois ranks as the leading export state in the United States with two and one-half billion dollars of exports in 1966. At the same time, the Club recognizes that world trade is not a unilateral concept but requires that United States businessmen give adequate consideration to bringing Imports into the United States from foreign countries. - It should be apparent from the foregoing that the International Trade Club of Chicago represents a broad background of business engaged in international trade, as far as the Midwest is concerned. At `the same time, the Club represents the opinions and thinking of these midwestern business leaders who are vitally concerned with international trade. Due to this fact, the International Trade Club of Ohicago must necessarily present Its views regarding international trade in general terms. Any specific statements or references could only be representative of a small portion of our membership. We have requested our members to submit individual statements to be considered at this hearing. Such statements could express specific positions regarding various facets of international trade. I. THE FUTURE OF' U.S. FOREIGN TRADE POLICY The United States has' always been a leader in the establishment of a world climate of opinion In which nations would have free . ulthainperedS access to world markets. This position has been, to a large degree, based on the American philosophy of free trade and the right of each Individual to have equal oppor- PAGENO="0518" 1788 tunity for success and happiness. The United States has applied this basic democratic principle to its relations with foreign nations. Unfortunately, some segments of American business are now attempting to persuade congress that certain restrietious should be placed on free world trade. This movement comes on the heels of the United States' successful participation in the Kennedy Round of Trade Negotiations. By withholding tariff or non.tariff restrictions now, we should be in a stronger bargaining position, from a psychological standpoint, to insist that foreign countries drop their barriers to free trade. Certain countries have offered to unilaterally speed GATT tariff cuts if the U.S. will refrain from restrictive action. The basic philosophy which must underlie the United States foreign trade policy is one which will accept the fact that competition in the world market is keen, but necessary. At the same time, the International Trade Club of Chicago believes that the skills of the American businessman are unexcelled anywhere in the world and that most American businessmen are willing and able to take on any and all competition anywhere in the world. This faith has already been tested and proved throughout the course of American history. It is clearly evi- denced by the U.S. balance 0f trade which continues to be in our favor. Artificial restraints on free world trade do nothing to assist the state of the American economy over the long run. In fact, such restrictions result in retalia- tory action by foreign nations and the loss of American leadership in world trade. Aside from our basic faith in the abilities of the American businessman, we be- lieve that the democratic credo by which our society is governed is one which abhors the types of restraints which are contemplated by those opposed to free world trade. Such restraints will undoubtedly handicap American businessmen in world trade and provide an unprecedented advantage to foreign firms which will he able to move in the `foreign market unchecked by competitive American business. Worldwide price inflation, and the eventual loss of American income now being earned abroad, both in terms of exports and investments, would result. If the United States foreign trade policy is restricted to any considerable extent, it will be necessary to provide financial assistance in the future to U.S. companies doing business abroad, in order for them to regain the leadership in foreign markets which they now possess. The national economic situation `would be considerably worsened by such a turn of events. The dissatisfaction in certain segments of American business is due to rea- sons other than "unfair" practices of foreign businessmen. The causes lie in the nature of modern technology and the structure of the world economy. As recently noted, the level 0f production is rising more `rapidly than the purchasing power of the consumer. The average factory worker in the `United States contributes 60% more production today than `he did ten years ago. At the same time, the number of people who can absorb the greater production has increased by only 15% in the same span of time. This disproportion is of even greater magnitude in many foreign countries. Domestic markets are no longer sufficient for the level of production with which modern technology has endowed man. Therefore, naturally, world markets become crucially important to any nation. The United `States is no exception. America needs the world market just as much as any other country whose modern technology has enabled it to achieve these high levels of production. IL TIlE EFFEOT OF PROTECTIONISM ON LABOR AND COSTS IN THE NATIONAL ECONOMY There is little question that trade protectionist measures such as import restric- tions and restrictions on `direct `foreign investments will adversely affect estab- lished patterns of world trade. In addition, such measures `will directly affect the U.S. economy. U.S. consumers will be denied the benefits of lower prices resulting from the competitive challenge of import's to U.S. business and labor. U.S. firms which require small orders or specialty items should not be penalized by tariff and non-tariff barriers in purchasing foreign goods, especially `when U.S. manufacturers are unwilling to fill small orders or specialty item's. In quite anether `aspect, approximately 4.5 million jobs which are directly related to imports will be seriously endangered by protectionist measures. World trade, especially imports, is significantly meaningful for the national economy by assisting to hold down prices, by creating gainful employment for a substan- tial segment of the U.S. population `and `by triggering dynamic competitive drives PAGENO="0519" 1789 in U.S. industry. These' countervailing considerations should -be included In any reai~stic appraisal of the various arguments propounded in support of trade- restrictive measures. - III. RECOMMENDATIONS Rather than become a party to damaging trade restrictions, the International Trade Club of Chicago makes the following recommendations, to insure both growing international trade and increasing American participation in it: (a) that existing and proposed restrictions on foreign trade, direct investments and foreign business travel be objectively reexan~ined in terms of their over-all effects on the American economy; and that any which present formidable bar- riers to freer trade be modified or disapproved. - (ib) that the United States continue to seek `~vays and means by which cast- West trade might be increased with respect to non~strategic materials. The `theadstart" position and increasing activity of Western European countries in this regard cannot be ignored (c) that the United States continue to seek to eliminate all non-tariff barm~lers to free world trade both within the United States and abroad; and assure that the mandatory controls on direct foreign investment be terminated before lasting damage to our trade position results. (d) that future trade negotiations be conducted on the basis of increasing world trade in continuation of the tremendous advances established by the I~ennedy Round of Trade Negotiations. (e) that the United States provide full cooperation and assistance in aiding de~eioping countries to enter world `markets. (f) that the United States continue to encourage and assist state governments to promote international trade. (g) that the United States expand the administration of U.S. foreign trade policy by greater coordination of private and public efforts to `expand Americah business interests' in world trade. iv. CONOLUSION The International Trade Club of Chicago submits the above recommendations, not only as the eonsensu~ of its members, but as a voice against any move that would cause our nation to curtail its international development goals and violate GATT treaties to mollify a minor but vocal segment of American business. Protectionism does not represent the majority of opinion, and therefore, does not foster the greatest good for the greatest number. LONG ISLAND ASSOCIATION or COMMERCE & INDUSTRY AND TIrE WORLD TRADE CLUB OF LONG ISLAND, Jerioko, Long iskl4md,,N.Y., June 26, 1968. COMMITTEE ON WAYS AND MEANS, T]JJ. House of Representatives, Longworth House Office Building, Washington~, D.C. GENTLEMEN: In reference to your consideration of HR. 17551, please note the position paper issued by the Board of Directors of the Long Island Association of Commerce & Industry and the World Trade Club of Long Island which reflects the thinking of a major portion of the business community of this region. Most cordigily, FRED B. MERRELL, t~ecretary. FOREIGN TRADE, INVESTMENT, AND TRAVEL Foreign trade, investment and travel policy issues now pending in Congress have been reviewed by the World Trade Club of Long Island. The following are, the conclusions and recommendations of the club: A. National foreign trade policy 1. A national policy of trade liberalization is essential to the economic and social progress of the United States and other nations throughout the world. 2. While protectionist measures may serve the short run interests of some segments of our society, these protections are obtained at the expense of the well-being of the nation, are inconsistent with our mores and traditions, and should be eliminated wherever feasible. PAGENO="0520" 1790 3. Non-tariff barriers now raised by foreign governments are deplored and all efforts should be made through negotiations with other nations tO eliminate existing barriers to the world-wide flow of goods and services. 4. More emphasis should be placed on exploring means to increase the flow of U.S. goods and services to overseas markets. B. Foreign investment restriction policy The policies set forth in Executive Order 11387 of January 1, 1968, and in the regulations promulgated by the Secretary of Commerce and the Federal Reserve Board can be regarded only as short-term measures. In the long run they will not cure the causes of our balance of payments problems, will advensely affect American earnings from foreign investments and invite discriminatory and re- strictive credit and financial policies by foreign governments towards American interests abroad. For this reason, more study should be given to the underlying causes of our international payments situation, to the adverse effects of the present foreign investment restrictions, with a view towards their replacement with more acceptable and effective long-range policies. C. Proposed foreign trarel taw and allied restrictions To be truly effective, the proposed travel restrictions would have to be strin- gent enough as to actually discourage foreign travel. This would risk invalidation of such travel restrictions by the courts on constitutional grounds. If the re- strictions, however, fall short of their target, they will only amount to a "nui- sance tax" which will be ineffectual but irritating. For these reasons the tax is opposed. Approved by LIA Board of Directors, March 8, 1968. STATEMENT ~F PACIFIC AMERICAN STEAMSHIP AssoCIATIoN Pacific American Steamship Association, an organization comprised of the major U.S.-fiag steamship lines operating in the foreign trade to and from the Pacific Coast, strongly supports the Administration's bill, H.R. 17551-The Trade Expansion Act of 1968. The main purpose of this bill is to extend to 1970 the President's authority to negotiate multilateral agreements to reduce non-tariff trade barriers and to strengthen the adjustment assistance features of the 1962 Trade Expansion Act to insure aid is given to any firm or workers which the President determines to be drastically affected by imports. It follows from this that we are perforce opposed to the statutory imposition of any quotas on* imported goods, proposals for which are now pending before your Committee involving two-dozen or more imported products aggregating over 45% of all U.S. imports. Ours is a classic case of an industry which thrives on, and whose economic survival depends upon, two-way international trade. We also operate our ships from a regional part of the United States which is equally committed to, and dependent upon, a balanced export/import relationship. California's foreign trade now totals nearly $6 billion and is favorably balanced on the side of exports. We find in the President's bill an essential set of legislative proposals whereby the United States continues to reflect its 34-year national policy of trade facili- tation and promotion through reciprocal agreements. And we find in the various quota proposals a step backward into the abyss of political tariff and quota swapping, which, if the experience during the infamous Smoot-Hawley Tariff of the early 1930's is any indicator, sets region against region, industry against industry, and faction against faction on the floor of the House and Senate. We do not challenge the quota advocates upon the validity of their argument that sales of some products suffer substantial price competition with equivalent imported products. We have our own daily battles with low-cost foreign competi- tors. We do, however, challenge calling upon the Congress itself for redress of whatever grievance, however valid, that they have. The trade agreements pro- gram provides for an administrative agency-~The Tariff Commission-~to study and decide upon whatever tariff and non-tariff types of adjustments that are necessary to preserve or assist an American industry. Whatever inconveniences or frustrations a particular industry may have experienced in past decisions of the Tariff Commission pale by comparison with the national economic setback which will prevail if even a few quota-seeking industries get a quota law on the books and thereby nullify the administrative approach to the problem. PAGENO="0521" I 1791 Even if Congress were to be selective in passing one or two quota bills, what criteria will be adopted for deciding that one industry's case for a quota is more meritorious than another? Will it be based on economic consideration and on a careful weighing of all factors, including the consumer's Interest? Or will it be based on political accommodations? Clearly the end would never be In sight once one quota gets on the books. Under the discredited Smoot-Hawley Tariff of 1930, U.S. foreign trade fell from a 1929 high of $3 billion to a low of $1 billion in 1933. From 1934 onward, under the trade guidelines and tariff procedures in the Reciprocal Trade Act, U.S. foreig4 commerce has risen to over $90 billion annually. This rate of growth far exceeds the growth in our national product ove.r the same span of years. Most certainly the national economy has benefited from reciprocal tariff ad- justments through the earlier bilateral Reciprocal Trade Agreements and the more recent multilateral adjustments through our participation In the General Agreements on Tariffs and Trade. And most certainly the nation has benefited from keeping specific tariffs and quotas out of the political arena. It would be national folly, and would be viewed abroad as national hypocrisy to turn inward now and adopt a unilateral set of non-tariff barriers such as the quotas pending before your committee. It would be substituting failure for success. It would harm hundreds of millions of farm and factory workers who produce our exports and market our imports. The dedicmtted work of the American delegation at the two-year trade nego- tiations with other GATT Countries ending in 1967 while, of course, not com~ pletely satisfactory to certain United States industries, was a major step toward trade liberalization and lnclpded many concessions from our foreign customer nations. These concessions in turn make possible the expansion of existing exports and open up markets for United States products previously barred by tariff barriers of various kinds. The balance of payments will benefit if these conces- sions open up new markets. The President's bill, H.R. 17551, is designed to honor the United States commitment at~ GATT; failure to enact certain featureS of this bill will deny to our exporters the new marketing epportunities which these concessions will open up. Our industry has been in the forefront of our Export Expansion Program, and has Itself contributed nearly $1 billion annually to the plus side of the United States balance of payments. Our contribution is as much a result of increased import cargoes as It is expanded export cargoes. And however exporters view the level of current freight rates on exports from the United States, they would inevitably have to be higher if the import freight revenue were to be decimated by means of quotas. A healthy two-way freight revenue is an essential element in preserving and encouraging Investments in U.S.-flag vessels and the Government itself has a stake, through subsidies to most foreign trade vessels, in the outcome. We therefore urge, not only from the standpoint of our own particular role as a servant of foreign trade, but from the standpoint of our concern for the overall national benefits and freedom of trade, that the Committees of Congress enact in substantial manner the President's bill, HR. 17551, and reject pnequivo- cally any quota legislation now pending. STATEMRNT or FARRELL LINES, INC. Farrell Lines is an American-flag steamship company with forty years exjeri- ence in U.S. Atlantic Coast/Africa trade. We recently entered the Australla/ New Zealand-U.S. Atlantic and Gulf service by purchase from the UnIted States Lines Company of their Australian ships and service. Farrell Lines appreciates the opportunity to pr~sent its comments to the House of Representatives Committee on Ways and Means on a timely subject vital to the Interests of the United States, Australia/New Zealand and our organization. The remarks are directed to the overall aspects of Import quotas and to the quantitative aspects of the U.S. Australia/New Zealand trade. In summary, we note- Inflation will be encouraged by limiting alternative sources of supply. The balance of payments problem will increase as other nations are unable to purchase American goods and services. PAGENO="0522" 179~ Australia/New Zealand consumers are important customers who purchased over $746 million worth of American products in 1966. U.S. imports of Australia/New Zealand wool, lead and zinc are not expected to increase and become a threat to American producers. The imports of Australia/New Zealand meat products are not in competition with the American beef products. ECONOMIC IMPLICATIONS The introduction of protectionist legislation will affect U.S. domestic prices, the terms of trade and the balance of payments. U.S. domestic prices: Consumer price levels are dependent on the relationship between quantity demanded of given product and the amount supplied. When the two are in equilibrium, the market price is established. Market demand for a product is a function of buyer preferences, income and the price of substitute products. Supply is viewed in the cost of production and the prices offered for the product. If either of the variables (demand or supply) is shifted, a change in the market price will occur. The introduction of protective legislation affects the supply schedule offered to U.S. consumers because alternative sources are artificially limited. This creates an imbalance as the same quantities are demanded, but the quantity offered by domestic suppliers will not increase at the existing price level. To induce sufficient supplies, the market price is raised and the domestic supplier will then offer more products. At this point a shift in supply occurs and the imbalance between demand and supply is corrected. The equilibrium, however, is achieved at the expense of the consumer and the net result is inflation and higher market prices to the American public. Terms of trade: The imposition of quotas will affect the relationship between a nation's exports and imports because the reciprocal demand between trading nations is reduced. This occurs because the ability of the importing nation is directly related to its ability to earn foreign exchange. Therefore, to increase U.S. exports we must allow other nations to earn monies, which will, in turn, be available to purchase American goods and services. Batance of Payments: A national imbalance of payments occurs when a nation is importing more goods and services than. it is exporting. The net result of this disequilibrium is a dissipation of a country's international reserves, i.e., gold, foreign deposits, drawing rights against the International Monetary Funds, etc. One of the classic means of correcting a fundamental imbalance is to increase the exports. This can be achieved only if the customer (importing nation) has the foreign exchange to purchase the exports. Thus, if `the quotas are introduced, the customer (importing country) will not have sufficient funds to increase imports from the nation with `a balance of payments problem. Therefore, Protective Quota Legislation will be a negative influence on export efforts and is a complete con- tradiction of the U.S. policy promulgated at the recent GATT negotiations. UNITED STATES/AUSTRALIA/NEW ZEALAND TRADE An examination of the current U.S.-Australia/New Zealand trade and future trade projections will `add perspective to proposed imj~ort quota legislation and provide specific data to reinforce the theoretical arguments advanced in the first section of this submission. U.S. Exports: American products have become a major source of Australia/New Zealand imports. Specifically, this is illustrated by Exhibit "A" which shows a percentage share of the Australian market and a percentage share of the New Zealand market. During the 1959/1966 period, the value has risen from $313 mil- lion to $746 million, or an increase of 138%. In addition to the commercial trade, Austrilian defense import expenditures are expected to increase 65% in 1967/ 1968. The cost of the American military hardware will be over $500 million during the next decade and make Australia the third largest purchaser of U.S. defense equipment. Turning to the future, Farrell Lines and the Arthur D. Little Company pre- pared a preliminary trade forcast for cargoes carried by our vessels. For the American-export/Australian-import moving through the United States Atlantic and Gulf ports, we found the estimated annual compound growth pattern to range up to 11.5%. The accuracy of this forecast is borne out by the relation- ship between predicted and actual data, as illustrated in Exhibits "B" and "B". PAGENO="0523" 193 A few comthents on methodology may be helpful: A historical comparison is appropriate, as the maxinnun error (1962) is only 13% and the average error is approximately `7%. By analyzing this historical data, which is limited to the last nine years, cert~tin relatiouships between the stated' factors (National Income and Terms of Trade) are evident. For a 1% increase in Australia's national income, the average value of cargo has increased 1.5%. The same direct relationship applies to a change In the terms of trade (Australian wholesale price index and U.S. exports price index) as a'l% positive change results in an average 2.5% increase in the value of Australian general cargo import traffic. For the 1957/1965 perIod, the Independent variables have been on `the average positive and increasing. Thus the trend for valve and general cargo weight ton- nage is projected at 11.5% annual increase for the 1966/1975 period. One should remember this is a trend line which expresses a prevailing tendency of the data and individual values for a given year will fluctuate around this line (11.5%). With regard to the future, it is always possible that the independent variables (national income, wholesale price index, and United States export price index) could change, i.e., new trading partners, tastes, war, major depression, etc., and alter the trend. Nevertheless, the economic model has proven to date to be cor- rect and can, for the present, be considered a reasonably reliable guide, provided artificial controls are not imposed. Australian eeports: In the next decade, exports of primary products (wool, lead, zinc and meat) from Australia to U.S. Atlantic and Gulf are not expected to expand as dramatically as Australian imports, with the notable exception of meat industry exports. (Exhibit "C") Wool market projections indicate that Australian `exports to the United States will decline. Three causes are evident: Continued substitution of synthetic for natural fibers coupled with a predicted slowdown in the rate of growth of United States national income. Continued growth of imports of wool fabrics sustituting for raw wool imports. A probable slowdown in the decline of United States domestic wool production due to higher prices of Australian wool and lamb. Therefore, it is indicated that: Imports of raw wool in 1967 should be sixty-two million pounds or 32% of the 1965 level. Imports of raw wool in 1970 should be sixty-seven million pounds or 35% of the 1965 level. (`Please see Exhibit "F") Lead and zinc exports from Australia to the UnLted States can be expected to remain at low levels. Lead and zinc virtually always occur `together in nature and, therefore, the fortunes of one inherently affect the other, although their markets are widely different. Nevertheless, they both have tended to exhibit only very slow growth over the long term. We expect a continuing slow growth in United States consumption of lead, while zinc consumption will probably level off and perhaps decline. In addition, production capacity is being greatly expanded in both the United States and Canada. The outlook for the meat trade is most encouraging for the American con- sumer. Our analysis indicates `that: Total meat imports will rise 66%, or an average annual increase of 11.7% between 1965/1970. The growth ra'te would not be sufficient to trigger current quotas until the 1970's. Again, a commentt on methodology: Our forecasts are based on a mathematical model of United States consump- tion, productions and imports of meat which was specifically prepared for this analysis by Arthur D. Little, Inc. The principal variables in the `model are United States disposable personal income, the price of meat in Great Britain and the price of meat in the United States. Two alternative assumptions were made about the future direction of United Kingdom meat prices to span the feasible range of United Kingdom's prices over the coming years. From this we have generated two forecasts of United States meat imports. The high forecast assumes' that United Kingdom meat prices will continue to grow at the rate they have been growing for the short term during the last year. The low forecast assumes that price will conform to the lower levels of the long-term trend. The range of pro- jected meat exports is shown in Exhibit "D". The range between the high and low projections' is seen to be relatively small because the high projection bumps PAGENO="0524" 1794 against the quota toward the end of the 1960's when the difference between the two projections becomes negligible. The imports of larger quantities of Australian meat must be examined further and not considered purely in quantitative terms. In brief, there are four con- vincing arguments for not imposing additional quotas on imported Australian beef. Imports Not Affecting U.Ei. Cattle Industry: The current plight of American livestock farmers is related to a cost-price squeeze. In short, this means the cost of producing beef on American farms has increased more than the market prices for the product. Thus it is not a drop in prices that has depressed earning, hut rather an increase in operating costs. Therefore, increased imports are not the cause of low earnings. Different Products: The American home consumer has a preference for high fat content in beef products. This is the so-called "marbled meat" which has 25% to 30% fat content. The demand for this is satisfied by the American farmer. By contrast, the Australian imported beef is a grass-fed product with a fat content of around 10%. These lower Australian fat content meats are used for manu- factured or industrial purposes and thus the imported product is not directly competitive with the domestic product. Increased Retail Prices: If the lower priced imported products are not avail- ible to the United States industrial manufacturers, a higher price will have to be paid to American farmers to produce the deficit supply. In turn, the manu- facturer must charge the consumer high prices and the net result is an increase in low priced beef products which are used by the lower income families-those least able to afford it. Current Quotas Eufflcient: Under Public Law 88-482, imports have never reached the level to trigger quotas. In fact, it is estimated by the Secretary of Agriculture that total meat imports for 1967 would be approximately 860 million pounds or 135 million pounds less than the previously established quota level. CONCLUSION In summary, the net effect of the proposed quota legislation will be to reduce U.S. trade to the Australia/New Zealand area. This would appear to be an unjust penalty for our longtime allies and a negative influence on American economic development. Specifically, we would: (1) encourage retaliatory trade restrictions by our best customers; (2) aggravate the balance of payments problem; (3) increase American consumer prices; and (4) limit the employment opportunities of the segment of the American economy involved in foreign commerce. PAGENO="0525" NEW ZEALAND Source: THE GALTATIN LETTER Vol. 2 No. 28 Oct. 6, 1,006 iiI~ 1967 1961 1795 EXHIBIT A Imports of Australia and New Zealand, Total and Chief Suppliers' Shares TOTAL IMPORTS SHARE OF THE MARKET (5 Millions) 1111 VAY4~~~~1i 1961 1965 1966 U.S. Japan Europe Other 3,373 A 2,096 ~Tr~ AUSTRALIA PAGENO="0526" 1796 300 200 EXHIBIT B Exports from the United States to Australia & New Zealand Millions of Dollars 700 600 500 400 100 `63 `64 `65 `66 source: FT420. U.S. Imports Country by CommodIty-P U.S. Departmentof Commerce PAGENO="0527" 1797 EXHIBIT C Imports to the United States from Australia & New Zealand Millions of Dollars 400 1960 `61 `62 `63 `64 `65 `66 Source: FT 120, U.S. Bureau of Census PAGENO="0528" 1798 EXHIBIT D U.S. Imports of Meats, Australia and New Zealand Mifilons of pounds Carcass weight 1000 900 800 700 600 500 PAGENO="0529" 1799 800 700 500 500 400 300 EXHIBIT E USNA & Gulf Exports to Australia &New Zealand Total Tons (less bulk) in thousands Source: Arthur D. Little Ca., Mano 14 & FT 420 U. S. Imports Country by Coninodity - U. S. Department of Coninerce Tons 900 200 1960 `61 `62 `63 `64 `65 `66 `67 `68 `69 `70 95-159 O-6&-pt. 4-34 PAGENO="0530" 1800 EXHIBIT F U.S. Imports of Wool from Australia Imports Millions of pounds Clean scOwed basis 70 60 50 40 30 20 1955 `56 `57 `58 `59 `60 `61 `62 `63 `64 `65 `66 `67 `68 `69 `70 Source: A.D.L. Working Memo #9 and Bureau of Census ~T 120 PAGENO="0531" 1801 WAREHOUSEMEN'S ASSOCIATION OF THE PORT OF NEW YORI~, INC., New York, N.Y., June 18, 1968. Hon. WILBUR D. MILLS, Chairman, Ways and Means Comni4ttee of the House of Hepreseatcsti'ves, Washington, D.C. HONORABLE Sin: I am counsel to the Warehousemen's Association of the Port of New York, Inc. This Association wishes to record its opposition to the quota bills for foreign manufactured products which are now under consideration by your honorable body. It appears that the introduction of, these bills was impelled, principally, ~ those members of Congress who believe that the United States trade balance will be improved thereby. It is submitted, however, that the adoption of quotas might well have an effect opposite to that which is desired or intended. As the imple- mentation of the quotas (if enacted) takes its toll in terms of frustrating foreign manufacturers in their United States trade, retaliation by the foreign countries thus affected seems inevitable. In the face of the probability of such retaliation, it is difficult to see how the balance of payments deficit can be eased. In addition, it is fair to expect that the enactment of quotas would have the result of raising the prices of protected products thus providing an additional economic impedi- ment to our export markets, and the flow of foreign-held dollars back into our economy. Even if quotas result, at least initially, in strengthening our trade balance, the long range implication is an exacerbation rather than an easing of the problem. In addition to the above-mentioned likelihood of foreign retaliation, and higher costs, vested interests having an enormous stake in the protectionlsm~ afforded by quotas, would undoubtedly seek to have the quotas made more or less permanent, even in the event of a disappearance of the balance of payment deficit. The liberal foreign trade program which has been the keystone of foreign trade policy during the last five national administrations, and which has been beneficial to our national economic* interests, would thus be endangered. The international community has been served well by this liberality. Import quotas superimposed upon the import surcharges can well Induce a regressive movement toward the evils of unbridled protectionism, i.e., economic isolationism and trade warfare. It is to be hoped that your distinguished Committee will thoroughly ponder the unfortunate consequences of such a reversion. Moreover, the resultant curtailment of imports would adversely affect the imports industry, and other industries which are dependent upon the importers for their very existence. The creation of unemployment in these Industries is too high a price for a questionable short range benefit to our trade balance problem. I am transmitting simultaneously herewith a copy of this letter to each mem- ber of the Committee as well as to its Chief Counsel and Assistant Chief Counsel. Respectfully yours, ARNOLD IT. SHAW, Counsel. STATEMENT OF FRED S. ITABER, PRESIDENT, OCEAN FREIGHT CONSULTANTS INC. In accordance with specific requirements set forth by your Committee, Ocean Freight Consultants Inc. submits the following statement: 1. Ocean Freight Consultants Inc. (hereafter OFC), located at 112-15 Northern Boulevard, Flushing, New York 11368, a firm incorporated under the laws of the State of New York. Its principal function is the auditing of freight bills, and consultation in the field of International Transportation. These services are offered to the shipping public and among its clients, are such organizations as: The United Nations, Burroughs Corporation, A. S. Bçck Shoe Co., Esso Ipterna- tional, Gimbel Brothers, International General Electric, Johnson & Johnson. 1\~ead Johnson International, R.C.A. International, and many others~ Worldwide contacts are kept with principal trading centers to extend our ad- visory services to our clients in as many areas as possible. 2. OFC has actively participated in proceedings before the Federal Maritime CommIssion (`hereafter FMC) and is presently a petitioner and intervenor In Docket 65/5, which is now being considered in the pending rulemaking proceed- ing for issuance of an initial decision. OFC was also an active participant in Fact Finding Investigation No. ~. A report was issued by the Federal Maritime Commission on August 16, 1967. PAGENO="0532" 1802 We are very pleased to have the opportunity to present our views being directly and ritally involved in issues in which this Committee has shown interest. Although this hearing covers seven subjects, we will only comment on Subject 3 and 5 of which we can speak from experience. SUBJECT NO. 8-PROPOSALS FOR INCREASING OUR EXPORTS Much has been written in the past years about this subject and it is certainly a most important point to make America a more active and competitive exporter. We are certain, from past experience, that in matters of oceanfreight rates the American shipping public is not nearly enough protected from the Conferences and the Carriers as they should be. The total landed cost factor must be considered to make our products com- petitive, and, in our opinion, the oceanfreight as we will show is part of the often noncompetitivenes.s of our products to foreign markets. The giant U.S. corpora- tions have, in many instances, this burden on their hands, which however only cuts profits. But, for the smaller U.S. firms this uphill fight against foreign com- petition is made so much more difficult because of the discriminatory rates leveled against our exporters, and often results in the nonparticipation of many firms in marketing our goods in foreign lands. During several proceedings before the FMC the carriers have made much of the fact that the freight in Itself is Insignificant in its total cost picture and thus has really no bearing on the capability to have more U.S. firms compete in foreign trade. While this do doubt is true in some areas, as perhaps was brought out in the inquiry dealing with the reciprocal rates from and to Japan, it must be stated that the affected U.S. oceanfreight rates indeed have a considerable effect on landed costs and possibly our noncompetitive pricing. Oceanfreight rates have a tendency to shift constantly upward. If one examines carefully the rate increases that have taken place over the past several years, we would readily see that the picture has become an alarming one. Rates are normally increased on a general level including almost all tariff items and the level of such increases is from 5 to 10%. There are various categories which are exempt, often because more organized and knowledgeable exporters succeed In having their own commodity exempted. This results in a subsidy where some commodities bear the burden of others, and it naturally would be detri- mental to encourage new exporters to enter the field. It is most unfortunate that the FMO has no control at the present time over the rate making level of the ocean carriers, who, as an industry exempted from the anti-trust legislation of this country, are setting rates as "groups of conferences". We do not wish to give the impression, or want it to be on record that we are against Conferences as such. We are aware that it has been established that their function as a `whole is In the public interest. One of the mandates of the Shipping Act is the filing of tariffs, which carriers and conferences regularly do. Unfortunately the Commission has no jurisdiction or control over the level of rates, or the justification of Increases, either for in- dividual items or on a general rate increase. The FMC has stated that the filing of a tariff Is a ministerial act only and, as such,, does not indicate approval of anything contained therein. The recent initial decision by a hearing examiner of the FMC In Docket 65/45 setting a rate level and declaring certain rates unreasonably high and detri- mental to U.S. exports, is presently contested by foreign interests claiming that the FMO has no jurisdiction over the rate level. It is historically proven that the investigation of a rate to be declared un- reasonably high is a long and drawn out process and when eventually so found, it has no retroactive power. Therefore, the carriers are In fact fully protected by any rate increase, and can often have the guarantee of such application, which lawfully it must under the provisions of Section 18(b) (3), which `reads as follows: "No common carrier by water in foreign commerce or conference of such car- riers shall charge or demand or collect or receive a greater or less or different compensation for the transportation of property or for any service in connection therewith than the rates and charges which are specified in its tariffs on file with the Commission and duly published and in effect at the time; nor shalT any such carrier rebate, refund, or remit in any manner or by and device any portion of PAGENO="0533" 1803 the rates or charges so specified, nor extend or deny to any person any privilege or facility, ~except in accordance with such tariffs." (Italic ot~rs.) When an increased rate was found to be unreasonable, the carriers sometimes collecting this rate for years do `not fear paying back such difference between the rate charged and that which should have been charged. Apathy on the part of many shippers is' unfortunately a proven fact. Regu- latory agencies such as the F.M.C. have been asking for `assistance and only of late more and more individuals are coming forward to complain about inequities. These few complaints are mostly from large and knowledgeable shippers, but almost never do complaints come fro~m small or potential exporters. It is, `therefore, important that all industries, large and small, have the same measure of protection of law's that will not permit the penalization for whatever reason of having to pay a higher price for oceanfreight in detriment to the interest of `U.S. shipping. Rate increases are normally connected with Increased costs of carriers. This is understandable. One can not expect any industry to absorb additional costs witho'ut raising prices. But `are the "level" of such increases justified? While the domestic Industries must justify such increases `and are under considerable pressure by Government to consider carefully the effects of such increases for con- sumers and the potential Inflationary effect, carriers and their conferences have no such pressures. They simply file a rate increase and if no one complains, it goes into effect. OFC in its years of operation, has seldom seen any increase being contested. But we have seen numerous instances where application for rate re- ductions to carriers and conferences have fallen on deaf ears. And most shippers would shy away from formal complaints to the FMC to have a rate declared unreasonably high due to the considerable efforts and time Involved in such proceedings. Most conferences have a special form which they issue to shippers who seek a rate reduction. Such forms request information which many customers are reluctant to give. It is information often considered classified by a client and really immaterial in considering a rate request. The statistical data is often `most difficult to produce or predict. If we draw an analogy of the power of the I.C.C. versus the F.M.C. we readily see that the F.M.C. due to regulating "foreign flag carriers" has lesser power than the I.C.C. If we compare a general rate increase that may be published by a railroad or motor truck with the I.C.G. we can see that invariably the I.C.C. will look into the justification of such a general rate increase. Such general increases are almost immediately the subject of a protest by sh:ipping associations, Commerce of In- dustries, or shippers themselves, who are much more alert than their inter- national counterpart. While a large U.S. manufacturer may readily protest a rail rate increase, they simply accept as unavoidable an Increase on oceanfreight for identical merchandise they export. It Is the unknown area that they rather not trespass. The result is often that exports are curtailed when they could be increased or in case of CIF quotation, the profit is Invariably reduced. It is not uncommon at all to run Into freight rates that are 50% or more of the factory or seaport selUng price. Trades `and their conferences normally follow soit; once one conference Issues a rate inctoase ethers will do likewise. It would `seem to us `that such increases ~houid not be `made on `such a basis, but rather for legitimate reasons. To cite the `history of one trade route's increase on their rates (U.S. Atlantic and Gulf Australia and New Zealand) we find `that t'he rate level for general cargo and many other npeeifi~al'ly named items which were on the rate level of general ~argo was $66.00 w/m, effective J~anuary 2, 1962. Four general increases took place ainee then. The last increase will become effective August 26, 1968 and the rate now will reach $91.00 w/m, or a total increase' of 37.8%. It is highly questionable that the additional costs to the operator `i's equal to t'he rate in- crease level. At any rate the Oommi'ssion `has no power over the increase; it only `~aecepts" the rate increase filing. To `further `show the detriment of rates to U.S. exporters, we cite `that in the reciprocal trade from Australia `to New York the general cargo rate is $55.00 w/m, while on exports of general cargo `the rate is presently $86.75 (`and will go to $91.00 on 8/26/68). `If we compare other rate situations such a:s `the charge for a minimum Bill of Lading, we find that the rate from U.S. `ports to Australia is $25.00. The British exporter pays about $10.00 for `the same minimum shipment. PAGENO="0534" 1804 STJRCHAROES One of the item's of additional revenues we question l's the so-called "sur- charges". Reviews of tariffs on file with the C'omm:ission show us that such surcharges are often questionable as to their- 1. "timely justifidation"; 2. percentage. A typical pcint in question is the surcharge Situation that existed immediately after the outbreak of the Arab-Israeli war in June 1907. The North Atlantic Mediterranean Freight Conference `set a 25% surcharge on all goods exported to Moroccan, AlgerIan, Tunisian, Ly~bian, Egyptian, Lebanese and Syrian ports. It became effective 6/23/1907. To show the penalty that American exporters were exposed to without the possibility of recourse or refunds, one has to look at the sequence of these sur- charges. Apparently realizing the unjustication of the original application, surcharges were suspended for Moroccan, Algerian and Tunisian ports, effective 6/27/1967. Consequently all cargoes that moved between 6/23 and 6/27 were obviously without justification charged the 25% surcharge. A further change ap- peared effective 7/11/1967, where surcharges to "certain Lybian ports" were sus- pended, but still maintaining the 25% surcharge to the Port of Tripoli, notwith- standing the fact that European conferences did not have such surcharge at all. * Therefore exporters shipping from 6/23/1967 to 7/11/1967 to the ports of Ben- ghazi, Marsa el Brega were subjected to the 25% surcharge. OFO had the opportunity to audit the freight bi'il~ of one of America's largest firms, who had considerable freight going to these destinations and was subjected to these surcharges without any poss'itbil'ity for adjustment. Effective 9/22/1967 the Port of Tripoli was r6moved from the sureharge. Therefore again any ex- porter shipping to Tri'poli from 6/23/1907 until 9/22/1967 was subjected to the surcharge without any possibility of refund. The `surcharge maintained to Egyptian and `Syrian ports was reduced to 15% effective 10/24/1907. This surcharge `is still applicable. When one compares the action of European based conferences serving the same area and obviously facing the `same hazards, t'hey acted entirely more reasonable. So did the Pacific C~a'st European Conference. For example the Gulf Mediterranean ~bnference never assessed a surcharge info th'e Algerian, Moroccan, Tunisian and L~bi'an ports. The Pacific European Freight COnference advised us th'at their only sur- charge was to Egyptian, Lebanese and Lybian ports, amounting to only 5% effective 9/6/67 until 12/6/67. The `different treatment of `surcharge emergencies is clearly demon'sti~ated here and is considered unreasonable and certainly discriminating as between ports and shippers. A proposed `solution could well work in `the same manner as "general avera'ge". Each shipper is aware that in case of dam'age to the vessel they have to face the declaring of "general average" and therefore `protect themselves by proper marine insurance Coverage. In a warlike situation we can understand the immediate protection and sur- charge application. But as t'he present sutcharge works in the Middle East, it is continuously assessed regardless of whether the vessel completes its' voyage and discharges `at these ports without having any problems or facing any dangers during voyage. It would seem to us that the principle of "general average" would be more applicable than a generhily applied surcharge. OFO has brought this situation to the attention of `t'he FM'C. Unfortunately at present `all the Oom'mtissi'on can `do `l's to communicate with the carrier or confer- ence on an "informal basis" urging reconsideration. While this may at times be `successful, it is not sufficiently protective to the American exporter, as we are still witnessing `today. Surcharges in most trades are shown in percentages of the applied freight rate. There are exceptions such as in the River Plate Brazil trade, where the surcharge is expressed in dollars per ton, therefore applying it in a nondiscriminatory fashion to all shippers utilizing the traderoute where a surcharge is in effect. T'he percentage method is~to be challenged when one knows what a surcharge dovers. If for example the surcharge is applied due to congestion a't a foreign port of PAGENO="0535" 1805 unloading, causing a longer layo~ time for a vessel, its cargo revenue earning capacity is naturally curtailed. The surcharge should be expressed in actual costs and should not permit the carrier, as it often does, to earn additiohal profit. The carriers' revenue is obviously compensatory to them when they set their base rate which should be reasonable and competitive and such rates are on file with the FMC. Surcharges should only cover the costs and/or pro rata losses due to the circumstances causing a surcharge. If we take as an ex'ample a situation whereby a surcharge is set due to the slow unloading of cargo, we can readily see that a 25% surcharge based on the base rate applied for a particular cargo, works in detriment to the higher rated cargo. In the chemical industry it is not uncommon that standardized drums are used. The stowage factor of such drums is the same, and so the labor costs involved. When we talk about such cargo, we base our comparison on the fact that no infiamntable or dangerous cargo is involved, whIch may require special handling. Based on existing rate structures the rates for various chemicals packed in identical drums (if rated by measurement ton the measurements are idei~tical), vary considerably. To assess a uniform 25% surcharge or whatever percentage level has been set, is unrealistic and unreasonaible and in our opinion discriminatory, Fact Finding Investigation #6, in which OFC participated, devoted a special chapter to sur- charges, starting with page 69 to and including page `Ti. OFC has at times ob~ jected to certain surcharge levels and notified the FMC, since we feel that this is definitely detrimental to the interest of U.S. commerce. With the increase of containerization and the further developments and trend oI~ through rates, it will become more and more important to educate and protect small and medium sized firms needing government help to keep rates down. They also need legislation to protect them from loopholes within existing laws. The Shipping Act of 1916 was amended in 1961 to include Section 18(b) (3) which wa's very important to the American shipping p~thllc. It has, however, also worked to the detriment of the public as pointed out before. To illustrate how important the oceanfreight and its correct application is, we should look at Docket 65/5. The FMC after our organization officially com- plained, has instituted proceedings to abolish an artificially-set time limit for filing of overcharge claims against the carriers which presntly has to be done within six months. The Shipping Act of 1916 clearly spelled out two years time for reparation, but could not be enforced without going into `a lengthy, costly Section 22 Proceeding. This the carriers were and still are able to do by having inserted into their tariffs, filed with the FMC, a rule which is more or less uni- formly followed by conferences and carriers. A typidal example reads: Overcharges: Claims for adjustment of freight charges', if based on `alleged errors in weight and/or measurement, will not be considered unless presented to the carrier in writing before the shipment involved leaves the custody of the carrier. Any expenses incurred by the carrier in connection with its investiga- tion of the claim Shall be `borne by the party responsible for the error, or, if no error be found by the claitaant, All other claims for adjustment of freight charges must be presented to the carrier in writing within si~v (6) months after date of shipment. (Italic ours.) The above self-serving clause in violation of Section 18(b) (3) may have caused millions of dollars in overcharges denied to U.S. shippers, mostly by foreign flag carriers simply `as a result of including this rule in their tariffs. RECOMMENDATIONS A. To further strengthen the FMC in its control over rates and illegal appli- cation of rules rather than Its present function of accepting filed tariffs. A gen- eral Increase should have to be supported by sufficient evidence why the per- centage of increase should be authorized. Increases should work in such a way that all shippers should be treated fairly. B. To further strengthen the control by the FMC over the surcharges in its percentage level. The treatmertt of surcharges by some conferences assessing a dollar cost per freight ton is much ntore realistic than a percentage level, for it should represent the additional cost only without added profit potential. 0. The time has come where the small and medium sized companies must be stimulated to become export minded. It is the reluctnncy of the unknown which prevents them from entering into It. Many of these firms do not have `a traffic PAGENO="0536" manager on their staff and need information and education. We believe that the U.S; Government-may best help them by distributing on the very local level to the Chamber~f Commerces a narrated film Which shows step by step: 1. How to get an export order. Sales leads available from port authorities' various trade publications, commerce and industry and foreign chamber of commerces. 2. Detailed explanation of terms of sale and restrictions, such as license requirements. 3. The Banks' function in an export transactiQn. The issuance of Letters of Credit, sightdra!ts, etc. 4. The role of the foreign freight forwarder. His liaison with steamship com- panies and airlines, the issuance of dock receipts, B/L's, and other export related documents. 5. The function of the documents and their relationship to the avtual receipt of a shipment at destination. While all the information and guidelines have been made available to potential exporters in reading matter, we believe that the visual aid will, be much more helpful to anybody seeking information without any prior knowledge of inter- national trade. SUBJECT NO. 5-PROPOSALS ON TARIFF MATTERS GENERALLY In our auditing service covering leading importers, we have found that the manner in which dutiable values are arrived at seem to vary, which could be. and most likely are, discriminatory between importers. Depending on the sales terms, in numerous instances the appraisers allow the costs from ex factory to FOB seaport to be deducted as a nondutiable item, while making it a dutiable item in other sales. For example, on shipments from Spain in almost all cases all expenses up to FOB seaport become dutiable. This also happens very often on shipments from Japan. We understand that presently investigations are being held to solve this problem as far as Japanese Imports are concerned. While the price of an item is often fixed for more than one prospective pur- chaser and thus represents the basis for dutiable calculation, the additional costs for delivering goods up to FOB seaports can vary considerably. In many cases the supplier will leave the transportation in the hands of a forwarder he appoints, whose rates may vary. While the inlandfreight rates in the U.S. are I.C.C. controlled, the rates abroad can vary considerably. If a consolidator is involved, he may give one customer a better rate than he gives another. It would seem to us that to eliminate any possible discrimination, the first cost of the Item, Includ- ing the charge for packing, constitutes the only basis for calculation of duties. All related expenses, in bringing goods up to FOB should be treated as for example, oceanfreight or Insurance, namely a nondutlable item. RECOMMENDATION We therefore suggest that all Inland transportation costs from cx factory up to FOB sea- or airport be afforded the same status as oceanfreight and marine insurance and be exempt from U.S. customs duties. To request the Treasury Department, Bureau of Customs to investigate the suggestion of appraisements to establish a uniform practice and thus prevent possible and most likely existing discrimination among importers in the assess- ment of U.S. cutom duties. J. E. BERNARD & Co., INC., Chicago, Ifl., June 27, 1968. Hon. WILBUR MILLS, Chairman, House Ways and Means Committee, House of Representatives, WashMgton, D.C. SIR: It is our understanding that the President's trade policy proposals and - the bill which has been introduced is now under consideration by your Committee and we wish to urge you to support and try to pass the Bill as it is extremely important in submitting thefollowing features: (1) Support the Administration's proposed Trade Expansion Act which extends the authority of the President to negotiate Tariff reductions PAGENO="0537" 1807 (2) Support the repealing of the American selling price provisions as a part of the valuation of Section 402 of the Tariff Act (3) Oppose all attempts to improvise import quotas and/or other orderly marketing devices which have the same effect as limiting the amount of imports In our years of both importing and exporting services rendered to American business, we have found that any attempts to curb imports only make it harder to export and at the same time effects the delicate balance of our relationships with other countries which increases the problems of the State Department and other agencies of the U.S. Government. Very truly yours, V. J. BASS, Vice President. STATEMENT or WILLIAM B. EDGERTON, FRIENDS COMMITTEE ON NATIONAL LEGISLATION Mr. Chairman, my name is William B. Edgerton. I make this statement as a representative of the Friends Committee on National Legislation, a Quaker organization that has been at work here in Washington for the past twenty-five years in an effort to interpret Quaker concerns about legislative issues relating to peace, human welfare, and justice. While the highly individualistic structure of the Society of Friends makes it impossible for any person or organization to speak officially for all Friends, a fairly broad cOnsensus exists among all members of the Society as a result of three hundred years of Quaker efforts to deal with the problems of practical life through the application of our religious beliefs about the nature of man and his relation to God. On behalf of the Friends Committee on National Legislation I submit this statement in support of the elimination of the restrictions on the President's trade agreement authority that now exist in Section 231 (a) of the Trade Expan- sion Act of 1962. To say essentially the same thing in positive terms, we support passage of the legislation originally proposed in the East-West Trade Bill of 1966. which would have authorized the President to negotiate most-favored-nation tariff treatment with individual Communist countries. The principal reason why we favor the elimination of Section 231 (a) of the Trade Expansion Act of 1962 is that we believe it is based upon an unrealistic and inaccurate assessment of the present world political situation, and as a result is an obstacle In the way of our own national interests and the Interests of human welfare at home and abroad. This section requires that "The President shall, as soon as practicable, suspend, withdraw, or prevent the application of the reduction, elimination, or continuance of any existing duty or other import restriction, or the continuance of any existing duty-free or e~cise treatment, proclaimed in carrying out any trade agreement under this title or under section 350 of the Tariff Act of 1930, to products, whether imported directly or indirectly, of any country or area dominated or controlled by Communism." AMERICAN CONFUSION ABOUT COMMUNISM Nowhere in the act is the term "communism" defined. SectIon 231 (b), which exempts Poland and Yugoslavia from this restriction, appears to imply some recognition that there are at least two kinds of Communist countries, but no statement is made about how these two kinds differ. The general confusion among lawmakers as well as the American public at large about the nature of coIn- muism has perhaps nowhere been more aptly described than by Representative Otto E. Passman, of Louisiana, at the hearing on the military assistance program for Korea conducted under hi:s chairmanship on April 8, 1968, by the Subcom- mittee on Foreign Operations of the House Appropriations Committee. Repre- sentative Passman said: "Some day I hope we can take the time and run around the world and find out actually bow many brands of communism we have and why a lot of Communist nations don't trade, don't agree, hate each other and don't get along, and yet everything we do is designed to try to stop communism. I want to find out what brand we are trying to stop before we go completely broke trying to stop all brands of communism." (S~eond Supplemental Appro- priation Bill, 1968, page 353). NATIONALISM IN THE COMMUNIST WORLI) I would respectfully suggest, Mr. Chairman, that now is a very appropriate time to make the examination Representative Passman proposes. I have devoted most of my time for the past twenty-three years to study, research, and teach- PAGENO="0538" 1808 ing about the Soviet Union and the Communist countries of Eastern Europe. I have visited `that area fifteen times, and I speak three of its languages well enough to dispense wi'th interpreters. My acquaintance with the area and its people convinces me that an examination is long overdue of our present policy of rigid opposition to a communism as ill-defined as it is in our current legisla- tion. T'o speak in 1968 of a centrally controlled, monolithic world Communist conspiracy is as misleading as it would have been a hundred years ago, when all the monarchs on the thrones of Europe professed Christianity, `to draw. the conclusion therefrom that all the nations of Europe formed part of one centrally controlled world Christian movement. The `Communist faith has shown itself to be no `more capable of doing away wi'th nationalistic rivalries among countries ruled by Communists than the Christian faith has been among countries ruled by Christian kings and presidents. Nationalism in large nations-whether Com- munist or non-Communist--tends to be an expansionist force; and nationalism in small nations, Communist as well as non-Communist, tends to be a force for national independence. In the 1920's there actually was a world Communist movement, with its head- quarters in Moscow. By the early 1930's, when Stalin had consolidated his con- trol of `this movement, world Communism was no more than an instrument o'f Soviet nationalism, a tool of Soviet foreign policy. After the Second World War, when `Communists gained `control of eleven m'ore East European countries, the ground was prepared for the growth of eleven more kinds of Communist nation- alism, and the fruits `of those various kinds of nationalism are now beginning to ripen. ECONOMIC STAGNATION AND POLITICAL FERMENT IN THE COMMUNIST WORLD But the growth `of nationalism is not `the only thing that has thrown world Communism into disarray. Another problem it has faced is the stagnation pro- duced by `the Communist effort to maintain centralized, `bureaucratic control of each national economy. This `stagnation has forced the Communist leaders to experiment with a measure of decentralization `and with the introduction of certain elements `of a market economy. One Communist country, Yugoslavia, has led `the way in this direction, and it now has succeeded in making its currency internationally negotiable. Other East Europeon C'ommunist countries a're expressing interest in assuming the international responsibilities required for participation :~fl trade arrangements with the West. `Along with pressure for liberalization `of the economy, `Communist countries have `also begun to feel pressure for relaxation of political controls. It is highly significant that `the Soviet Union and the other Communist countries of Eastern Europe h'ave their New Left t'oo, just as we have in the United States. But wha't the New Left in the Communist c'ountries i's struggling for is freedom of speech, freedom `of `the press, freedom `to travel, freedom fr'om the arbitrary power of a bureaucracy and p'olice uncontrolled by a system of `constitutional government that guarantees justice and personal security under law. In other words, the young dissenters in the `Communist countries are `struggling to achieve the very rights that the nihilistic revolutionary Left in America seems to dismiss as bourgeois prejudices standing in the way of `its effort to `take control `of what it call's the American power stru'cture. It will help us to understand the real nature of the Communist problem if we make a clear distinction between i'ts economic aspect, which is socialism, or the ownership and con'trol of the chief means of production `by the whole community or the state; `and its political aspect, which is merely a rather efficient form of the old-fashioned despotism `tha't has appeared and reappeared all through human history. The `socialism in their economies gives Communist countries something in common with such vastly different countries as Sweden, Great Britain, and India. The despotism in their politics gives Communist countries something in common with a wide variety of so-called capitalist countries, such as Spain, Guatemala, present-day Greece, Haiti, and Paraguay. THE DECLINE OF COMMUNISM AS A PSEUDO-RELIGION In addition to the economic and political, `there is `one more aspect Qf Com- munism `that can perhaps best be called the pseudo-religious. Marxist-Leninist Communism has traditionally claimed to have in its doctrines `of dialectical and historical materialism the one infallible key to all truth. The break-up of PAGENO="0539" 1809 the world Communist movement, however, has been accompanied by a profound crisis in atheistic Communist doctrine as an all-embracing rival `to religion. "Marxism is outdated," the Yugoslav Communist heretic Milov'an Djilas recently declared in an interview with C. L. Sulzberger. "The human being and modern society are too complex to be adjusted to Hegelian dialectics. . . . All versions of Communism are becoming decadent. They must inevitably change into a democratic society" (The New York Times magazine, June 9, 1968). Communist atheism has proved unable to destroy belief in God even in the Soviet Union, where it has been ireached `more fanatically than in any other Communist country with the possible exception of China. WHAT IS THE ANSWER TO COMMUNISM? There seems to be a curious paradox in the thinking of those whose opposition to the revolutionary overthrow of our own government at `home leads them to advocate the revolutionary overthrow of Communist governments abroad. If there is one thing in which the Communists should `be able to claim real expertise, it is handling revolutionary conspiracies. The evidence of the past few years would `seem to indicate that they find it considerably more difficult to cope with evolutionary change. Violent revolution is like war: both of them are catastrophes that result from a failure to work out adequate solutions to pressing social conflicts. Our bes't hope for the future, in a world that will probably contain Communist as well as non-Communist governments as far ahead a's we can see, will be to encourage the forces within Communist countries that are working for constructive change. Even though our power to influence developments in any foreign country is severely limited, we can at least encourage `the forces `of liberalization by our own example at home, and possibly also in a number `of other ways, mostly undramatic and unobtrusive. One of these undramatic ways is through trade. If the smaller Communist countries of Eastern Europe `are to `become more independent politi- cally, `they must have an opportunity to become more independent economically. That means increased `trade with the West, including the United States. If we are to encourage the Soviet Union to move in the direction of international cooperation, then we would do well to encourage her `to assume more and more of the obligation's required by orderly `international trade. There has been a good deal of talk about the use of trade as a political tool in our bargaining with the Communist countries. I fail to see how we can bargain very effectively with trade if we have no trade to bargain with. I suspect that we would be in a much better position to use trade for political bargaining if we bad already granted most-favored-nation tariff treatment to all the East Euro- pean Communist countries, including `the Soviet Union. The threat to withdran' a privilege is a more effective to rgaining device `than `the promise to grant j't. In our efforts `to find appropriate ways of encouraging trends toward lib- eralization in 1~astern `Europe we might do well to consider the `ancient fable about the contest between `the wind and the sun over which One could force a traveler to remove his cloak. The harder the winds of American anti-Communism blow `over Eastern Europe, the tighter the cloak of Communist repression will be drawn about the population. The warm sunshine of mutually beneficial `trade offers `a much greater chance of causing the cloak of repression to fall to the ground. AMERICAN BANKERS ASSOcIATION, New York, N.Y., June 17, 1968. lion. Wn~trz D. MILLS, Chairman, Ways and Means Committee, House of Representatives, Washington, D.C. DEAR CHAIRMAN MILLS: The Administrative Committee of the American Bank- ers Association has today approved a statement on U.S. foreign trade policy which continues to endorse freedom of trade~ among nations. The statement ap- proved by the Committee reads as follows: `The American Bankers Association reiterates its strong commitment to maxi- mum freedom of trade amOng nations. PAGENO="0540" 1810 In recommending to `the American public and to Congress the need to rejeet both a general protectionist policy and provision of relief from foreign competi- tion to specific industries, the American Bankers Ass!ociation recognizes that U.S. products do n~t always enjoy free access to foreign markets. For this reason it may be necessary that our trade negotiators have a free hand in considering either* countervailing duties or quantitative restrictions on foreign goods for negotiating purposes. At times U.S. policy has failed to use the full power avail- able in order to open other markets because such powers threatened the princi- ples of free `trade. The Association believes that in cases in which we are clearly being discrim- inated against, our neg~otiators should `be encouraged to employ all measures at their command to open overseas markets for American goods. We do not feel this is a basic contradiction to our overwhelming commitment to the principles of free trade. I have been directed by the Administrative Committee to bring this statement to your attention for possible use in hearings on the subject. Sincerely yours, OHARLS B. WALKER, Eceecutive Vice President. FIRST NATIONAL CITY BANK, New York, ~ July 12, 1968. Hon. WILBUR D. MrtLs, Chairman, Ways and Means Comm~ittee, House of Representatives, Washington, D.C. DEAR MR. MILLS: The hearings before your Committee on the Administration's Trade Expansion Bill and other pending trade legislation have considered a num- ber of important questions of U.S. trade policy. I should like in this letter to offer the view of our Bank on three issues-import quotas, import surcharges, and nontariff barriers-for inclusion in the record of the hearings. May I also submit for the record an article entitled "Trade Policy at the Crossroads," which appeared in Citibank's Monthly Economic Letter for June. Let me first comment on proposals for import quotas on manufactured products. With imports growing rapidly, the rise of protectionist sentiment In some U.S. industries is understandable. But the cost of quotas to the nation would far out- weigh the benefits to the protected industries. Enactment of any of the major quota bills for manufactured products would be a signal to the world that the United States had reversed course in its trade policy. Retaliation, sanctioned by the GATT rules, would be inevitable, as other governments sought to protect their trade positions and their domestic economies against the effects of our quotas. In other words, retaliation is a way by which other countries seek to maintain the status quo in trade terms. Other countries could be expected to impose quotas on those U.S. products which are the most competitive in their markets. Thus, we would be hurting our most efficient growth industries in order to give added protection to less efficient industries. I do not, therefore, believe that protectionist quotas would improve the U.S. trade balance, as proponents sometimes claim. Quotas would be more likely to have the opposite effect, because they would raise the prices of protected products and the costs of industries using them, making our exports less competitive. The use of import surcharges as a means of improving our trade balance also seems to me Inadvisable and prdbably ineffective. This action, too, would invite retaliation, as it violates GATT rules. Japan and Canada, our major trading partners-also concerned about their trade balances-have let it be known that they would retaliate if the U.S. imposes an import surcharge. The right way to improve the trade balance is the way which the Congress, under your leadership, has courageously chosen. The trade balance has deteri- PAGENO="0541" 1811 orated, mainly because domestic demand has been growing too rapidly. Elimina- tion of excess demand by fiscal and monetary means can, in my opinion, help to restore a trade surplus of the same order of magnitude as existed in the period 1965-1967. I would expect that the income tax surcharge and spending cuts, if buttressed by sufficient monetary restraint, would accomplish this result some- time next year. In the circumstances, an import surcharge is the wrong way to attack the problem. With tariffs on most manufactured products soon to be reduced to low levels, nontariff barriers are becoming the most important problem on the trade-policy agenda. This problem raises difficult questions of policy and of technique. One difficulty is that nontariff barriers are so diverse. They include, for example, import quotas, border tax adjustments, various hidden export subsidies, excise taxes designed to discriminate against imports (such as European and Japanese automobile and "road" taxes), and protectionist custonis valuation procedures. Some of these trade barriers have been the subject of international negotia- tion and agreement. In the Kennedy Round, as you know, agreement was reached to eliminate the American Selling Price method of customs valuation (subject to approval by Congress) and to modify European "road" taxes. A uniform antidumping code was also approved. The important and thorny issue of border tax adjustments is now being considered by a working party of the GATT. Many other kinds of nontariff barriers remain to be defined and their effe~ts on trade estimated. This essential task of research and analysis should be under- taken as soon as possible-by the Executive Branch and in an appropriate inte~- national forum, such as the OECD or the GATT. Most important, perhaps, is the question of the U.S. bargaining posture oii nontariff barriers. In the past, the United States has been inclined to accept other countries' nontariff barriers. If this was understandable and even justi- fiable in the early postwar years, it is no longer so today. The United States should act aggressively, by every legal means, against other countries' non- tariff barriers which hurt our exports. But we should use a rifle, not a blunderbuss. We should attack specific bar- riers, one at a time, by means tailored to the particular objective. Ambassador Roth's threat to use countervailing duties against Prance's new export subsidies is a good example of what our bargaining posture on nontariff barriers should be. Strong U~S. action is also needed on European border taxes. For example, the United States might take the position that the GATT rule on border taxes shoald not be used to justify increases In border tax adjustments by countries with persistent balance-of-payments surpluses. If no reasonable agreement can be reached, the United States should be prepared to use countervailing duties in cases where border adjustments are increased in such a way as to thwart the balance-of-payments adjustment process. Action of this kind would not be con- trary to the GATT. As you know, the U.S. countervailing duty law antedates the GATT and comes under a grandfather clause in the Agreement. I would also advocate a much more vigorous and well-publicized use of our antidumpiug laws-in the case of steel, for example. U.S. trade policy is at a crossroads. The urgent tasks are to stave off an out- break of trade warfare and to make a start on the problem of nontariff barriers. But short-range action is not enough. The United States now has no longer- range trade-policy objectives. The Administration lacks even the legislative au- thority to engage in further rounds of tariff negotiations. We need to rethink our trade policies and to establish new goals, backed up by appropriate legis- lative authority. The definition of new goals and proposals for new legislation could perhaps best grow out of a high level reexamination of trade policy by a joint commission of the Legislative and Executive Branches, with appropriate public representa- tion. Respectfully submitted. WALTER B. WRIST0N, President. PAGENO="0542" * 1812 The heated acceleration of economic activity that marked the first quarter shows little sign of slackening. Production, sales, and profits con- tinue strong. Demands for labor, particularly skilled workers, continue to strengthen. The backlog of manufacturers' orders is again climb- ing. The rate of economic growth in the second quarter gives every evidence of matching that of the booming first quarter. Yet this growth in gross national product-at an annual rate of roughly 10 per cent, of which 4 per cent repre- sents inflation-is generally recognized as being unsustainable. Inflationary expectations are stronger and more pervasive than at any time since the Fifties. They show up in high wage settlements and rising prices, including interest rates-the price for borrowed money. Consumer spending is still growing and is ex- pected to grow further, though not at the unusu- ally expansive rate of the first quarter. Incomes are high and consumers are in a buying mood. Auto sales have been particularly brisk. During May, dealers' daily average sales of domestic cars were up 9 per cent from a year earlier. Restraint Is Needed The inflationary content in the economy shows no sign of abatement. The Federal Reserve has been exercising mone- tary restraint since late last year without slam- ming on the brakes. Demands for borrowed money continue heavy, and interest rates have reached peaks which are among the highest in~ the past century. This has provoked renewed dis- intermediation-shifts of household funds from financial institutions to direct investment. In time, this could severely squeeze mortgage lend- ers and consequently weaken the housing market. Against this background, some reduction in Government demands on the economy would be welcome. The proposal for a tax surcharge and expendi- ture restraint has become symbolic of a return to fiscal prudence. If Congress now rejects the tax surcharge and fiscal restraint, the reaction in financial communities here and abroad could be severe. So much publicity and discussion have attended the tax surcharge that high hopes are now riding on affirmative action by Congress. By itself, the fiscal restraint package will not overnight eliminate the inflationary imbalances in the economy. But failure to enact the program might overnight add fresh fuel to inflationary ex- pectations and undermine the willingness of for. eign governments to hold dollars. Amidst economic growth and general prosper- ity, the world has witnessed widespread rioting and strikes, primarily by students, but spilling over dramatically to include organized laboz in Monthly Economic Letti~i General Business Conditions CONTENTS PAGE General Business Conditions 61 Restraint Is Needed * The Economic Consequences of De-escalation * Wages, Prices, and Profits a A Nervous Money Market Pitfalls of Fiscal Fineste 65 Anatomy of a Fiscal Squeeze . An Illu- sory Tax Reduction * Tightening the Fiscal Reins Trade Policy at the Crossroads 67 The Trade Hearings * Residual Protid~ tionism Intensified Competition * The Cost of Protectionism a A Surcharge on U. S. Imfiorts? Border Tax Adjust- ments * The U. S. Responsibility PAGENO="0543" France last month. France, wh!clI more than any other country has sought to discipline the dollar, now faces a burst of inflationary pressures. There is, however, no sooth for satisfaction in this turn of events. Economic interdependence today makes economic imbalances in one country a problem for other nations, A strong France and a strong Europe are important to the well.being of our trade and foreign investment. The Economic Consequences of De.escalation The beginnings of negotiations with North Vietnam have provided hope for an end to that conflict, however far off it yet may be. The end of hostilities would be welcome on humanitarian grounds, and it might also bring welcome relief to problems of deficitsin the Federal budget and the U.S~ balance of payments. Neither problem would be solved, but their dimensions would be appreciably diminished. Negotiations are likely to be prolonged and a workable peace agreement `uncertain. Even if a truce were worked out, the ensuing demobilization would be slow and cau~ tious. Defense spending has risen $27.5 billion since mid.1965 and may go higher. Much of this rise is not easily reversed, since it reflects higher salaries and prices of defense goods. It has been estimated that the cutback, when it finally comes, will be half to two thij~ds of the rise, spread over as much as a year and a half after peace is restored. In absolute terms, an overall decline of $15. 20 billion in defense spending could provide con- 1957-59100 110 - 90 - 22 BASIC COMMODITIES - 8G I I I I `61 `62 `63 `64 65 `66 "67 `68 Changes in Consumer, Wholesale, and Basic Commodity Price Indexes source: u.s. Bureau of Labor 5taUatlcs. Latest figure shown for consumer price index Is AprIl: for others. preilmlnery May. siderable opportunity for tax reform, anti.pov. / erty programs, and other constructive measures. Relatively, however, the cutbacks in defense would be only about 2 per cent of the gross national product. Even this decline would prob. ably be offset in large part by the stimulus of an easier monetary policy and by a shift to other types of public and private spending. Such shifts in spending patterns would neces- sarily be accompanied by interindustry adjust- ments and added unemployment, but on a local, not a national, scale. The general awareness that peace in Vietnam is constructive for the economy runs contrary to the opinion~ that high military expenditures are a necessary prop to this country's econ- omin growth. At the end of World War II, there was a widespread belief that the economy, wifh- out huge military spending, would soon slip back into a depression. That view has not died easily. It was fairly prevalent in the Fifties, particularly when the Korean *ar came along to provide a new burst of demand. The extent to which we have moved away from the belief that the end' of a war brings a recession is demonstrated by the more buoyant mood of businessmen and stock market investors with each step toward ultimate peace in Vietnam. Businessmen and investors are holding confidently to the view that the long- term problem is inflation and not deflation. Today one frequently hears the comment that we cannot afford to have a business downturn bOcause it would heighten social unrest. This implies we have achieved a high degree of pre- cision in controlling our economic environment. However, there is still widespread disagreement over the causes of recessions. As long as this dis- agreement prevails, there is a chance that we can from time to time accidentally slip into a busi- ness downturn as we have four times since the end of World War II. It is worth noting that the period in which industrial activity was stimulated by rapidly ris- ing output of defense goods appears to have ended several months ago. The defense produc- tion figures implicit in the Federal Reserve index of industrial production have shown little change since last fall. One interpretation could be that the long supply pipelines are at last filled, and, barring further escalation, military demands for defense goods will henceforth be largely on a replacement basis. At the same time, output of business ma- chinery and equipment has shown very little change since the second quarter of last year. The dollar volume of capital spending has risen and further increases are anticipated, but most of this advance merely reflects higher prices. The recovery in industrial output has been 1813 IJ'.~ ~ I 120 - ` PAGENO="0544" concentrated in the consumer sector. Demand for consumer gàods has risen rapidly and has been supplemented by retailers' desires to add to their inventories after the heavy sales of the first quarter. Production of materials has been feeling the stimulus of steel stockpiling as well as the rebound after the end of the copper and glass strikes. Wages, Pdces, and Profits The rising volume of activity has helped boost corporate earnings to a new high. Pretax profits reached a seasonally adjusted annual rate of $88.8 billion in the first quarter, a gain of $3.7 billion from the fourth quarter of 1967. However, more than half of this rise-$2.2 billion-.ivas the result of inflation, reflecting the upward revalua- tion of inventories. The remainder of the gain was attributable to increased sales volume. Profit margins have not shown the improvement which is usual in the early stages of an upswing in sales. Rising wages have far outstripped the increase in productivity of labor. The U.S. Department of Labor estimates that hourly wage costs in the private economy were climbing during the first quarter at a 10 per cent annual rate. Consequently, although productivity increased at a 4 per cent annual rate-double the gain in the previous quarter-unit labor costs were escalating at 6 per cent per year. Commerce Department calculations indicate that a similar upswing in unit labor costs at nonfinancial corpo- rations more than cancelled out a rise in prices and left profit margins after taxes and allowance for inventory markups well below both the fourth quarter and year earlier levels. The increasing pressure of rising wage costs fol- lowing a period of monetary inflation has set the stage for a renewed burst of price increases. In turn, the advance in living costs and anticipation of further rapid increases have stiffened labor's wage demands. The first chart highlights the wide disparity in movements of prices at different stages of production. Spot prices of most of the 22 selected basic commodities have trended downward in the past year, and the preliminary May index is the lowest in over four years. Cur- rently, the index is 17 per cent below its February 1966 peak. Prices of wheat, cotton and metals, among others, have drifted lower since the first of this year, as increasing supplies have, in some cases, encountered declining demand. The wholesale price index not only encom- passes a `far broader range of commodities, but also includes a greater degree of processing and manufacturing costs, and thus a higher propor- tion of labor costs. This comprehensive index has risen steadily since last October at an average HOSPITAL DAILY CHARGES DOMESTIC SERVICE POSTAL CHARGES INDOOR MOVIE ADMISSIONS LOCAL TRANSIT FARES PHYSICIANS' FEES MEN'S HAIRCUTS DENTISTS' FEES FOOTWEAR TORACCO PRODUCTS FOOD AWAY FROM ROME DAIRY PRODUCTS WOMENS& GIRLS' APPAREL FURNITURE & RIDDING HOMEOWNERSHIP COSTS DEAUTY SHOP SERVICE MEN'S & ROY'S CLOTHING FRUITS & VEGETAILES ALL ITEMS GASOLINE RESIDENTIAL TELEPHONE SERVICE DEER CKREALS& FAKERY PRODUCTS RENT NEW AUTOMORILES FLOOR COVERINGS GAS & ELECTRICITY REFRIGERATORS DRUGS & PRESCRIPTIONS TV SETS MEAT, POULTRY & FISH PER CENT CHANGE Changes in Selected Items In the Consumer Price Index, March 1966-March 1968 Source: U.S. Bureau of Labor Statlotlce. Items are ranked accord. log to the overall change from Mareh 1966 to March 1968. annual rate of about 3~4 per cent. A resurgence in prices of farm products and processed foods contributed to the latest rise, but the broad- based advance in prices of industrial commodi- ties has been of deeper concern. In the seven months ended March 1968, the industrial price index rose more than it had in the seven years 1957-64. However, the pace of the rise appears to have slowed somewhat in the second quarter, 1814 PER CENT CHANGE ~-4i t PER CENT CHANGE O MARCH'66 ~MARCH'67 O MARCH `67~MARCH'65 PAGENO="0545" 1815 partly because of lower prices for'copper~and steel scrap. Consumer prices have displayed an even sharper advance over the years because of the greater importance in the index of the cost of personal services, retail distribntion, and other activities with a high labor content. April con- sumer prices were 4.0 per cent higher than a year earlier, in contrast to the advance of 2.5 per cent in fbe preceding twelve months. The past yeat's increase is the sharpest year-to-year rise in over 16 years. The large chart dramatizes the wide variety of price movements that go to make up a 4 per cent rise in the cost of living. Year-to-year changes range from the 19 per cent rise in postal charges to a 2 per cent decline in the price of television sets. It is clear, however, that the bulk of the items which ha~re had the largest advances are those involving personal service, where in- .crease(jMompensation is difficult to offset through imprp~ed productivity, whether the person in- volyèd is a surgeon, a le~\ter carrier, a maid, or a reItaurant worker. / On the oI~her hand, in items for which aug. / mented capital investment has been able to im- / prove output per man-hour and .~where competi- tion is keen-notably in durable goods such as new cars, refrigerators, and television sets-price changes have been small. The broad inflationary pressures of the past year are evident in the fact that three out of five of the prices charted here increased mOre sharply than in the preceding year. Some, including prices of refrigerators, drugs, meats, fruits and vegetables, which had been declining in 1966-67 have recently in- creased. The 1966-67 decline in food prices was a reaction from the unusually sharp rise in late 1965 and early 1966. However, the costs of resi- dential telephone service and baked goods, which ~- had been rising in the earlier period, have since declined. Unfortunately, no letup in inflationary pres- sures is in sight. Wage contract settlements have been growing larger, and the prospect is that the average first-year raise during the current quarter will equal or exceed even the first-quarter mark ~of 7.4 per cent. The steel settlement in late sum- mer could ignite a whole new pattern ot increases. Of equal importance are the growing accept- ance and anticipation of inflation which are being built into individual and business decisions on spending, saving, and investment. So far, the de- gree of monetary restraint which is feasible while there is a massive Federal deficit to finance has not been enough to stop the price advance from accelerating. Congress has not yet been willing to supplement the efforts of the monetary authori- ties with aggressive fiscal restraint.~As -CEA chairman Arthur Okuri rep6rted to President Johnson late ~kst month: "Even with tax action, the route back to price stability will be long and difficult. . . But it is crucial that we begin that journey now." A Nerve~s flfon~ke~i~~ Uncertainties about ti S fisdal and monetary policies and the. international monetary system continued to plague the money market last month. With each rumble from Washington about improvement or weakening in the prospects for a tax increase, interest rates would ease down a, little or rise. On balance, however, tbe~ general movement of rates was upward. Nevertheless, the stock market was quite strong. Commercial banks have special reason for feel. ing some uneasiness these days as yields on Treasury bills, commercial paper, and other short- term liquid assets approach or rise above the maximum rates banks are permitted to pay on time deposits under Regulation Q. Large banks, are now offering the ceiling rates on large CDs but are unable to stem a gradual decline in the volume outstanding. Consumer-type certificates of deposit, on which the ceiliug rate is 5 per cent, and ordinary passbook savings, hobbled by a 4 per cent limit, have stopped growing or are de- curing at many banks. - Loan demand, on tha other hand, is rising, as improvement in business increases working capi- tal requirements of corporations. Furthermore, there is some apprehension about the possible ef- fect of an increase in corporation taxes upon business borrowing. If taxes are incr~ased, it seems entirely likely that companies will borrow more, as well as let more CDs run off, to pay the taxes. As they did in 1966, when Regulation Q re- stricted their ability to obtain CD funds in the United States, many banks are increasing their' use ~4 dollars gathered in the Eurodollar market. Eurodt~llar rates, consequently, have risen to very high levels. This has the unfottunate effect of putting t~ie pound sterling under pressure, al- though it It~so tends to mop up dollars that might otherwise have to be absorbed by European cen- tral banks. The high level of interest rates in this country is commonly attributed to the current restric- tive monetary policy and the general expectati~on that, if there is no tax increase, monetary policy will become even mçre restrictive, The Federal Reserve is, of course, now holding expansion of bank credit and money supply to a slower rate than in 1967. This moderation is highly desirable and is necessary if price inflation is to be slowed 95-159 0-68-pt. 4-35 PAGENO="0546" 1816 down. Nevertheless, it should be recognized that interest rates are also pushed up by good busi- ness and by expectations that price inflation will continue for some time. A tax increase and expenditure cuts should re- duce the deficit and consequently reduce Trea- * sury borrowing. But this would not permit the Federal Reserve to ease its policy suddenly and to bring about substantially lower interest rates. To the extent, furthermore, that consumers and businesses offset higher taxes through drawing upon th~ir liquid assets or borrowing, interest rates are likely to be supported. Under the cir- cumstances, therefore, it would be highly desir- able to remove restrictions on interest rates throughout the economy to permit markets to make adjustments. Andrew F. Brimmer, member of the Board of Governors of the Federal Reserve System, recently made a strong a~gument for such liberalization of the markets for mortgage funds. The same prescription would be beneficial in other markets for money. Pitfalls of Fiscal Finesse Actions taken by Congress on a tax-increase ~`budget-cut package this month will have fateful consequences in the years ahead. The tax bill unveiled by the House-Senate conference com- mittee on May 8 provides for a sharp turnaround toward fiscal restraint. Even more important, its enactment would immensely brighten prospects for bringing the rapidly rising trend of Federal spending under control. Over the past several years, major miscalculations of budget expendi- tures and reliance on short-term expedients to minimize the bulging deficit have caused serious disruptions in the financial markets. Adoption of the 10 per cent tax surcharge and $6 billion budget-cut package would slash the deficit in the Federal budget from about $24 bil- lion in the current year to $5 billion or less in fiscal 1969. Despite the recent upward revision in Vietnam War spending, the budget economies called for in the bifi would limit the growth of Federal outlays to $4.6 billion. Though a signifi- cant rise, this would represent a sharp turn in the spending curve which has been climbing at an average rate of $20 billion per year over the past three years. Moreover, authorizations for future spending in fiscal 1970 and beyond are to be slashed sharply from the Administration's budget re- quests. The fiscal package would require a cut- back of $10 billion from the amount of new obli- gational authority which the President asked for in January. It would also require the President to submit to Congress next January recommen- dations for rescinding $8 billion of unexpended funds authorized by Congress in earlier years. Without such spending restraint, the 10 per cent tax surcharge could turn out to be the death knell of hopes f~r ever enjoying the full fruits of the 1964-65 tax reduction program. To a con- siderable extent, that reduction proved to be an illusion, in view of the sharp rise of Social Secur- ity taxes and the speedup in corporate income tax payments. Severe disruptions in the economy were caused by misleading estimates of Vietnam War costs at the crucial time when major non- defense programs were being put in place. A scru- tiny of the fiscal experience during the last sev- eral years is therefore very much to the point if we are to avoid these pitfalls in the future. Anatomy of a Fiscal Squeeze Back in 1964-65, it will be recalled, despite a reduction in income tax rates, the upsurge in eco- nomic activity produced a continued increase in 1!i LJULJLJ 1I~I~ - _DEFICIT *~ I I `58 `60 `62 `64 `66 `68 `70 Federal Unified Budget, Fiscal Years 1958-69 Including a 10 per cent surcharge on corporate income taxes retro- active to January 1, 1968 and on personal income taxes retroactive to April 1, 1968, but with payments beginning in fiscal `69 and a $6 billion expenditure reduction in focal `69. Without a tax surcharge and without a $6 billion expenditure re- duction. $ BILLIONS SURPLUSI I I I .oti 100*5 bOoS 5*00*5 ~p:y;.J E:o:oI 500*01 PAGENO="0547" 1817 `67 `68e `69o Annual Changes in Federal Cash Spending and Receipts, Fiscal Years 1963-1969 * $6 billion expenditure reduction Assusnen a 10 percent surcharge on corporate income taxes retro- active to January 1. 1968 and on personal income taxes retroactive to April 1, 1968 but with payonentn beginning in fiscal `69. Notes: Budget projections measure changes that would have so- ourred if estimates of receipts and payments in January budgets had been correct. Estimates of actual revenue increases in fiacal `68 and `69 are FNCB projections. revenues from individual and corporate income taxes from $72.2 billion in fIscal `64 to $74.3 bil- lion in fiscal `65. As a result, worries about the budget deficit were replaced by fears of a growth- inhibiting surplus. In mid-1964, Walter W. Belier, the President's chief economic adviser, warned that the prospects for budget surpluses posed the threat of a "fiscal drag" on the econ- omy in the years immediately ahead. Counting on the fiscal dividend from revenue growth and a projected decline in defense spend- ing, President Johnson asked Congress to launch a huge expansion of welfare program.% in his Budget Message in January 1965. By the end of the year, however, the fiscal outlook `~was `com- plétely reversed. The e~ilarged commitment' to defend South Vietnam\ made in July 1965 pushed up defense outla~s sharply. At the same time, Congress turned out to be even more expansive than the Administrati9n in eala~glng domestic programs. Coi~gress added to the re- quested Social Security-Medicare bill. The Ad- ministration's budget proposals were also topped by a $1.7 billion pay increase for servicemen and civilian personneL The serious miscalculation of Vietnam War costs occurred at a crucial time when Adminis- tration officials and Congress were pushing a major expansion of cit~lian programs that created severe budgetary problems in subsequent years. Would Congressmen have been less openhanded in approving new programs had they known how fast Vietnam costs were rising? Administratior~ officials, too, were apparently in the dark. The President's chief economic adviser Gardner Ack- ley, for example, told the American Statistical Association in September 1965 that although "further appropriation requests may be neces- sary," the rise in Government spending during the first year of our major commitment in the Vietnam War was likely to be only about $3½ billion: Figures sometimes quoted in the press-that run to $10 to $14 billion-can at this point only be pure figments of someone's imagination. The estimates we at the Council have put into our tentative projec- tions do not even approach that order of magnitude. However, the "figment" soon turned out to have a tough core of fact. Defense outlays rose $13 billion during the following year. Cash spending in fiscal `66 soared $10 billion above the original budget projections. Instead of cutting back civilian programs, however, the Ad- ministration kept the budget deficit down through sales of certificates of participation in Government-owned loans-which were entered in the budget as negative expenditures. The deficit was also held down by relying on acceleration of corporate income tax payments, by boosting the withholding rate on individual income taxes, and by speeding Treasury collections of income and Social Security taxes withheld by employers. The speedup in tax collections depleted cash balances of individuals and employers, leading to larger credit demands at a time when the demand for funds was already threatening to overwhelm the money and capital markets. The upward pressure on interest rates became so intense that in September 1966 the Govern- ment' decided to stop selling participation certi- ficates until monetary conditions eased later in the year. In fiscal `68, the budgetmakers provided a much more realistic estimate of Vietnam costs. PAGENO="0548" 1818 Revenue~s, however, were overestimated by roughly $11 billion, yielding a deficit in the new unified budget of about $24 billion. The short- fall of receipts partly resulted from the failure to win approval of a tax surcharge, which was initially counted on to provide $4.7 billion of revenue. At the same time, the business slow- down caused a $2.3 billion shortfall in corporate profits in 1967 below the Administration's fore- cast. Fiscal `68 revenues were also dented, as the Treasury had anticipated, by the cessation of the speedup in corporate income tax payments. The new bill provides for further acceleration of these payments in fiscal `69. An Illusory Tax Reduction Owing to the miscalculations of fiscal strategy and the huge increasce in welfare spending, both businesses and individuals have, in effect, been burdened with a steeply rising tax bite, This makes severe expenditure restraint in the 1969 budget necessary if future tax relief is to be plausible. When the corporate income tax rate was re- duced in two stages to 48 per cent from 52 per cent under the Revenue Act of 1964, the tax pay- ment schedule was speeded up, thus postponing the full reduction in payments for corporations with liabilities in excess of $100,000. In 1963, the Treasury promised that "in no year will any corporation with constant income have to pay more tax than it would have been paying this year." But the stepped-up acceleration imposed in 1966 violated this principle and levied even steeper payments on corporations than those under the old 52 per cent rate. As shown in the table, the percentage of income required to be paid by corporations pierced the 52 per cent rate in 1966 and jumped sharply in 1967. Individuals and smaller corporations had been led to believe that the reduction in income tax rates would provide permanent tax relief with the intention of stimulating people to greater effort and enterprise. For individuals in the middle and lower income brackets, this tax relief has proved to be short lived. In order to pay for the huge increases in Social Security benefits and the Medicare program, payroll taxes were increased sharply. The taxable wage base jumped from $4,800 in 1965 to $6,600 in 1966 and to $7,800 in 1968. The combined employer-employee Social Security tax rate rose from 7.25 per cent in 1965 to 8.8 per cent in 1967 and is scheduled to climb to 9.6 per cent in 1969. The Tax Foundation esti- mates that in 1967 roughly one quarterof typical four-person families and a third of five-person families were paying more Social Security taxes than income taxes. Tightening the Fiscal Reins Over the past decade, original projections of budget expenditures have generally turned out to have been too low. New Government programs have been added on to older and often outdated ones with little consideration of their potential costs. Rapid growth of new programs launched just before the Vietnam War became a serious burden on the budget, creating severe difficulties which were temporarily met only by fiscal finesse. The Government's financial needs were temporarily concealed by devices for maximizing revenue such as stepping up the payment of income taxes and for minimizing budgeted expenditures through sales of participation certificates. These devices, however, proved to be only expedients. The tax legislation before Congress represents the culmination of a prolonged effort by both the Administration and Congress to reach an under- standing on more effective expenditure control. If enacted, it will provide for the spending re- trenchment so badly needed if the Budget is to become a stabilizing influence. Moreover, cut- ting existing unspent appropriations as well as new money authorizations would give the next session of Congress-and those that succeed it- much more control over the Federal purse strings. There is no guarantee that this would mean slower growth of spending in the years ahead. But it would at least mean more clear cut Con- gressional responsibility, Trade Policy at the Crossroads A year after the successful conclusion of the national competition in industrial products- Kennedy Round, the accomplishments of post- partly the result of earlier trade liberalization- war trade policy are in jeopardy. Intense inter- has combined with acute balance-of-payments Corporate Income Tax Tax and Payment Rates for a Large Corporation with Constant Income, Calendar Years Tax Rate Tax P~ymenta Per Cent of Per Cent of Income Income 1968 52.0% 52.0% 1964 50.0 52.0 1965 48.0 51.4 1966 48.0 58.8 1967 4s.0 57.4 1968 present law 48.0 40.0 1968 proposed 52.8 66.7 PAGENO="0549" 1819 problems to weaken the politica! ~onseisus on which the liberal trading systen~ stands. The greatest immediate threat to the trading system is the U.S. balance-of-payments problem. Our persistent deficit has not only led to direct controls on capital exports. It has also brought forth proposals for import controls and breathed new life into U.S. protectionism. But the threats to the liberal trading system are not confined to one country. They are global and many-sided. Agricultural protectionism and the persistence of controls on capital movements by the Common Market countries, for example, thwart the adjustment of our balance of pay- ments. Trade and exchange barriers abroad have added tç our deficits and encouraged us to adopt further controls. The Trade Hearings The House Ways and Means Committee hear- ings, which began June 4, will bring all the hardest questions of U.S. trade policy to a head. The first item on the Committee's agenda is the Administration's bill to implement those provi- sions of the Kennedy Round agreements which require new legislation, includifig the difficult question of eliminating the American-Selling- Price (ASP) method of tariff valuation, which results in unusually high duties for certain syn- thetic organic chemicals. The Committee will also hear testimony on import quota bills, of which the most important are for steel and textiles. A textile quota bill passed the Senate in April as an amendment to the tax bill, but was later eliminated in the con- ference committee. Nontariff barriers, most im- portantly European border tax adjustments, are another complex issue likely to be raised. The atmosphere of the hearings will be colored by the deteriorating U.S. trade balance. The normal, large commercial trade surplus has dis- appeared. This alarming develojmfent is in part the result of special factors-the copper and dock strikes and the anticipated steel strike. But the main cause is the pressure of excess de- mand in an economy where spending has been growing nearly twice as fast as real output. The weakened trade balance lends indirect support to protectionist proposals.. It also in- creases the support in the Administration and Congress for a temporary surcharge on imports generally. The issues before the Committee are affected by a recent proposal put forward by Eric Wynd- ham White, IDirector General of the General Agreement on Tariffs and Trade (GATT), on be- half of a group of industrial countries. The pro- posal is that the Western European nations, Canada, and Japan aecelerate their ~Cennedy. Round tariff cuts by one year, while allowing the United States to. dewy its own cuts by. one year. However, the~offer is made on the "hypothe~ sea" that the United States eliminates ASP this year and adopts no new ~protectiQnist measures. Although made in response to a U.S. request for help with its trade balance, this offer is not likely to be very helpful to the Administration, The effect on the U.S. trade balance would be small, while the conditions attached to the offer have irked some members of Congress. Residual Protectionism In the United States as in other industrial countries, protectionist sentiment is always pres~ ent, because there are major industries subject to serious competition from imports. In the United States, these are for the most part older industries, where the U.S. advantage over foreign competitors in labor productivity is not large enough to offset higher labor costs. Textiles, clothing and steel are the most important indus- tries in this category, and they are in the fore- front of those now seeking more protection from imports by quotas. These U.S. industries appear to be at theIowër end of the scale of comparative advantage (see accompanying chart) mainly because of higher labor costs. Relative to their foreign competitors, these industries do not benefit to the same extent as other U.S. industries from the . large size of the U.S. domestic market. They produce largely staple products, for which domestic demand in many other countries is sufficient to permit op- eration by local producers on an economical scale. And these industries have not been characterized by the rapid technological advance, based on large-scale research and development, which so largely explains the comparative advantage of the U.S. aircraft, machinery and chemical industries. The automobile industry also appears to suffer competitive disadvantages. But this may have more to do with foreign nontariff barriers than with cost factors, although the U.S. iiidustry ap~ parently is unable to produce small cas as cheaply as its major foreign competitors. U.S. automobile exports are handicapped by excise and "road" taxes in Europe, Japan and other countries which discriminate against larger cars. The residual strength of protectionism in t)ie industrial countries is evident in the somewhat selective pattern of postwar trade liberalization. For example, many Japanese manufactured prod- ucts are still subject to quantitative import re- strictibns (in Europe) and to "voluntary" restric- tions on Japanese exports (to the United States). Japan's lower labor costs constitute a. serious PAGENO="0550" 1820 ,competit~ve problem for the more labor-intensive industries in this country and in Western Europe. Japan, itself, maintains import quotas on some manufactured products. Textiles and clothing are subject to high tariffs nearly everywhere. Textile tariffs were cut very little in the Kennedy Round. In Europe, textile imports are still subject to quotas and other non- tariff barriers, despite GATT rules which forbid the use of import quotas for protectionist pur- poses. In the case of cotton textiles and clothing, international trade is also subject to quantitative export restrictions under a multilateral agree- ment, the Long-Term Arrangement Regarding International Trade in Cotton Textiles, signed in 1962. Several European countries still main- tain import quotas on coal, pulp, paper and alu- minum, and the United States has import quotas on petroleum. Yet, despite residual protectionism, the liberal trend in postwar U.S. trade policy seemed too well established to be reversed - until recently. Intensified Competition The rapid growth of industrial capacity in Continental Europe, Japan and in developing countries has intensified international competi- tiop in industrial products. Steel is an example. Until recently, world steel-making capacity out- side the United States had not fully caught up with rapidly growing demand. But now there is substantial world excess capacity, which is likely to go on increasing as Japanese capac- ity grows and developing countries seek self- sufficiency in steel. U.S. imports of steel were negligible until 1959, and exports usually ex- ceeded imports in value until 1963. In 1967, im- ports of steel mill products accounted for 12,2 per cent of domestic consumption. In cotton textiles, too, world capacity has ex- panded more rapidly than demand, and develop- ing countries have become increasingly important exporters. The latter development made the Cot- ton `textile Arrangement possible, for it gave Japan, which would otherwise have been the low- est cost exporter and the main target of the restrictions, an interest in signing the agreement. The principal textile quota bill now before Congress is intended to induce European coun- tries and Japan to accept extension of the Cot- ton Textile Arrangement to include woolen and man-made (synthetic) textiles. The bill reflects the fact that the consensus among the industrial countries which made agreement possible in the case of cotton textiles does not exist in the case of the other textiles. The lowering of tariffs and the elimination by industrial countries of most import quotas on 0' 50 100 150 200 AIRCRAFT _________________________ MACHINERY __________ AGRICULTURE ___________ TRACTORS METALWORKING OFFICE ELECTRIC' CHEMICALS PLASTICS MEDICAL & P1 CHEMICAL MATERIA ORGANIC & IHORGA SYNTHETIC ORGANIC DYESTUFF TEXTILES WOOL YARN COTTON YARN' SYNTHETIC YARN COTTON FABRIC SYNTHETIC FABRIC WOOL FABRIC IRON & STEEL PLATES & SHEETS BARS GLASS CLOTHING AUTOMOBILES FOOTWEAR O 50 100 150 200 Competitive Strength of Selected U.S. Industries in Foreign Trade (Index of Relative Export Performance) o Arithmetic average of two classifications. Note' The index of relative export performance measures the ratio of an industry's share of the world export marhet for its products to the share of all U. S. manufacturing industries in total world exports of manufactured products, in a recent perIod. An Index greater than 100 means that the Industry's share In Its world ex- port market is greater than the aversge share of sll U. 5. manu- facturing Industries. An induetry whose Index Is less than 100 has a less-than.aversge share of the world export market. Source: Bela Balassa, Trade Liberalization Among Industrial Cons- tries (McGraw 11111 for the CouncIl on Foreign Relations. 1967). manufactured products has also intensified com- petition. Trade in manufactures has been grow- ing more rapidly than output, indicating more intense international competition as well as grow- PAGENO="0551" 1821 Ing specialization. One consequeirce~ is t~e rising concern about nontariff barriers. As tariffs have gone down and competition has sharpened, at- tention has naturally turned to other trade bar- riers-especially the European border tax adjust- ments, which in the case of some products may now have more effect on trade than tariffs. The Cost of Protectionism Understandable as the rise of protectionist sen- timent may be, the cost to the nation would far outweigh the benefits to the protected industries. Enactment of any of the major quota bills for manufactured products would be a signal to the world that the United States had reversed course in its general trade policy. Retaliation, sanc- tioned by GATT rules, would be inevitable, as other countries sought to put pressure on the United States to eliminate the new quotas. Import quotas might not, therefore, improve the U.S. trade balance. They could have the op- posite effect, because they would raise the prices of protected products, and the costs of industries using them. Protectionist quotas, originally jus- tified on balance.of.payrnents grounds, would create powerful vested interests in their continu- ation and would therefore be difficult to remove when the balance of payments improves. Import quotas are normally allocated among importers on the basis of their imports in a base period. Thus, they tend to freeze trade and in- vestment patterns and to restrict competition among domestic producers. If the quotas also are allocated among exporting countries, interna- tional political problems are raised, and an im- porter's opportunity to buy (within his quota) from the lowest cost source of supply is re- stricted. If the products subject to quotas are classified into many subdivisions, each with its separate system of quotas, these difficulties are multiplied. Experience in the administration of petroleum import quotas and the Cotton Textile Arrangement demonstrates, how- serious such problems can be. A Surcharge on U.S. Imports? Most people would readily concede the inap- propriateness of protectionist import quotas as a way of improving the trade balance. Yet with the balance deteriorating, the urge to stem the flood of imports by controls is not easy to resist The Administration has been wrestling with a pro- posal for a 5 per cent surcharge on dutiable ha- ports. On June 4, the Administration announced that this and other proposals for import controls had been rejected for the time being, because "none of them carried enough assurance of even a temporary net gain to justify the risks." Although precedents exist (Canad~'fñ 196~ and Britain in 1964-66), import surcharges are illegal under the GATT. For reasons which are -more historical than logical, the GATT author- izes a country with balance-of-payments difficul- ties to impose import quotas (if temporary, non- discriminatory and reasonably comprehensive) but not surcharges. A waiver would be difficult and perhaps impossible to obtain, since it re- quires a majority vote of the GATT member- ship. Alternatively, the United States could Im- pose the surcharge without such approvaL But this would be quite likely to ptovoke our main trading partners, Japan and Canada, themselvQs concerned about their trade balances, into taking similar action, which would partially nullify the effect on our trade balance. More important, unilateral violation by the United States of this GATT rule would seriously undermine the rule's future effectiveness. Furthermore, an import surcharge cannot be very effective in reducing imports when do. mestic output is close to capacity and the short. run elasticity of supply of domestic substitutes for imports is therefore low. In Canada's case, the import surcharge seems to have reduced imports considerably during its brief operation, because there was plenty of slack at the time in the Canadian economy. But in Britain, the sur- charge was not very effective under conditions of overfull employment and excess demand. The deterioration of the trade balance has been mainly the result of excess domestic de- mand in an economy operating at full or over- full employment Elimination of excess demand by fiscal and monetary policy would probably be sufficient to restore in time a trade surplus of the same order of magnitude as existed in the period 1965.1967. Although costs hakre risen faster in the United States than in some other industrial countries in the last two years, our competitive position on trade account has not yet been sub. stantially impaired. The U.S. share of world ex- ports of manufactures has held its own. In these circumstances, an import surcharge is `the wrong way to attack the problem. Border Tax Adjustments Countries which have indirect taxes on prod- ucts which move in international trade have long been accustomed to apply the tax to imports and to rebate it on exports. Such border tax adjust- ments, as they are called, are sanctioned by GATT rules, so long as they are no higher than the tax charged on similar products produced for domestic consumption. The economic rationale of the GATE rule is that taxes on products are allegedly passed on entirely to the purchaser. Thuø, the domestic price is raised by the full PAGENO="0552" 1822 çn,unteof the tax, and an equal border adjust- ment is necessary to prevent the tax from handi- capping exports or giving a competitive advan- tage to imports. In fact, product taxes are not always fully shifted to the purchaser, while other taxes which do not qualify under the GATT rule (income taxes and payroll taxes, for example) may be partly or entirely shifted. Tax shifting obeys no simple, hard-and-fast rules; it depends on the market situation. Border adjustments may there- fore have a considerable effect on international competition. Despite its shaky theoretical base, the GATT rule, when it was adopted in 1947, was in line with current practice and served to distinguish traditional border tax adjustments from other kinds of export subsidies and import charges which the GATT outlawed. Moreover, in 1947, the significance of border adjustments was minor. Tariffs were much higher than now, and indirect taxes were less comprehensive. Today, however, the trade-diverting effects of border adjustments can hardly be overlooked. This complex issue has been brought to a head by the decision of five Common Market members and several other European countries to change from gross turnover taxes to value-added taxes on the French model The change will mean in- creased border adjustments. This is because, under the grOss turnover tax, border adjustments have been based on an estimated tax burden which is substantially less than the actual bur- den of the tax. Under the value-added tax, the border adjustment will be higher because it will be at the same rate as the domestic tax. For example, when on January 1, 1968, Ger- many substituted a value-added tax of 10 per cent for a gross turnover tax of 4 per cent, the border adjustment was raised from around 6 per cent to 10 per cent. Austria, Belgium, Italy and the Netherlands are even raising their export rebates and import charges under their existing turnover taxes in advance of the contethplated shift to value-added taxes. These increases in European border adjust- ments will tend to reduce European imports and to increase European exports. How large the ef- fect will be-overall and for particular countries and products-is impossible to say. It will de- pend on how the tax change affects domestic prices. To the extent that domestic prices are raised, some of the trade-diverting effect of the increase in border adjustments is offset. Overall, there will undoubtedly be some trade diversion. For the changeover does not involve a general in- crease in tax burden, which would raise the aver- age level of European prices. It is tempting to argue that border adjust- ments should simply be outlawed, since it is im- possible to make a workable and fair distinction between taxes that are shifted and those that are not. But any attempt to unscramble the border adjustment omelet at this late date would stand no chance of acceptance in Europe. Moreover, border adjustments which have been in effect for a. considerable time have had their effect on international competition and trade bal- ances. They have been adjusted to through move- ments in relative price levels and exchange rates. This cannot be said for recent and prospective changes in border adjustments, however. The U.S. Administration has considered adopt- ing a system of border taxes. The difficulty is that, aside from a handful of Federal excise taxes (some of which already involve border adjust- ments), very few U.S. taxes are levied on prod- ucts that move in international trade or on ma- terials incorporated into such products. Moreover, adoption by the United States of such border taxes would probably lead countries like Japan and Canada to do the same. The final result could be a competitive escalation of border taxes from which no nation would benefit. At the end of April, the United States ap- proached GATT with a proposal that no further changes be made in present border adjustments, pending a study by GATT. The U.S. spokesman suggested that changes in border adjustments ought to be considered in the light of this coun- try's balance-of-payments position. A country with a persistent payments surplus ought not to raise border adjustments, even though GATT rules would allow it. The study itself should aim at determining whether the present rules should be changed or whether a code defining how the rules are to be applied should be adopted. The U.S. Responsibility Because the United States is the largest trad- ing nation and has assumed leadership in inter- national trade policy, other countries look to us to set the pace. What we do this year about im- port quotas and import surcharges will largely determine whether a trading system character- ized by declining tariffs and a minimum of quan- titative restrictions-a system whose basic ten- dency is toward greater freedom of international competition-will continue, or whether the world will now slide back into trade warfare and eco- nomic isolationism. Without active U.S. support, the liberal trading system which has served the world so well cannot long survive. FIRST NATIONAL CITY BANK 399 Park Av.nu., N.w York, N. Y. 10022 PAGENO="0553" 1823 $25,000 Introductory Offer. (You don!t need $2OO~OC) before our vestment menwill talk to you.) arrange fc you w - ri an accout withal ading Wall Street brokerage firm. And then we buy and sell securities as we think best, keeping you up to date on every transaction. (You'll see that every move we make reflects a performance-minded philosophy specifically designed to get the jump on inflation.) We won't over-diversify, orbe super-con- servative. We believe in a select number of common stocks, carefully chosen, as the best way to long-range growth. Which is why 1 M 1~i\ - we base our decisions on plenty of careful re- search.With scores of hard-headed investment ______ men keeping tabs on every industry. Plus a special computer for projecting corporate earn- M,,.b,, F,d,,,I Dp~sI~ ,..,,*... C,p,,ti~. PAGENO="0554" 1824 CITIZENS STATE BANK & TRUST Co., Hiawatha, Kans., June 20, 1968. Hon. WILBUR MILLS, Chairman, Ways and Means Committee, House of Representatives, Washington, D.C. DRAB CHAIRMAN MILLS: Small rural communities of this nation are having an exceedingly hard time holding populaltion. This county is known as the finest agricultural county in the state of Kansas, and yet has lost one per cent of its population annually for in excess of 50 years. Long range planners, operating under the Extension Departments of universities and financed by funds from the United States Government, inform us that the only salvation for the rural corn- muni1ty is the retention of population through the influx of small industry. United States Department of Commerce represents in its County/City Data Book that this county has only 16% of its population under the age of 21 (1960 figures). Surrounding counties are only slightly better and this in com- parison with 28% for Kansas, which does not compare favorably with the rest of the country. Conversely, this county shows about 20% of its population over the age of 65, in comparison with Kansas of slightly over 11% and this figure again exceeds the country averages. The 1960 Census figures reveal that 31.6% of rural families have incomes under $3,000. This compares with urban families of only 16.3%. Median income and per capita income figures also reveal that the rural areas desperately need to attract industry to supplement average rural incomes. This small country town has been able to attract two small industries (one hiring about 60 people; the other about 120 people) in an attempt to participate in the industrial expansion of this great nation. The smaller of these two indus- tries imports soft pine from the West Coast, manufactures and fabricates in- terior wooden shutters (movable louvers). The local community, through a Development Corporation and the assistance of the Small Business Adminis- tration is presently attempting to build a new $320,000 building to enable this firm to increase its efficiency and ultimately hire more people from this area. If import tariffs are continually reduced, then cheap labor (primarily Japan) will actually influence the hiring of marginal farm operators in this area. Addi- tionally, it is apparent that Japanese purchases of West Coast pine is accelerat- ing the rise in price of this product, even in advance of our "normal" inflationary pressures. This country has depleted its resources by vast give-away programs to many foreign countries for in excess of 20 years. We have assisted the Japanese in their giant steps to a thriving economy. Now, do we bludgeon down tariff barriers erected to protect small rural industry? Do we destroy the rural effort to survive in America? Our shutter industry must be allowed to compete! Most sincerely, WAYNE R. STARR, President. STATEMENT OF ERNEST U. LANG, CHIEF ENGINEER, NATIONAL-STANDARD Co., NILES, MICHIGAN The proposal which I am making is a single idea which encompasses and pro- vides a potentially universal solution to the subjects under discussion at these hearings. The suggestion is an import duty, import tax, tariff, or whatever it should best be called, which applies in the same way to all imports without exception. The annually determined rate for the tax on a given product would depend upon the percentage of our usage of that product that was imported in the preceding year, the higher the percentage of imports, the higher the rate. A suggested rate schedule should automatically limit most imports to between 10% and 15% of our usage while permitting a wide diversity of imports under the provision of no tax unless 6% or more of our usage was imported in the previous year. The proposal is one which we could encourage every nation to adopt. ~i ~:u' PAGENO="0555" 1825 / Propo8ed rate schedule Preceding year's imports Im rt t compared to p0 jor U.S. usage in that period: (Percent) Imports less than 6 percent of U.S. usage_~~__~ N4pe More than 6 but less than 6.2 percent 5 More than 6.2 but less than 6.4 percent ~--- 6 More than 6.4 but less than 6.6 percent ~ 7 More than 6.6 but less than 6.8 percent 8 More than 6.8 but less than 7.0 percent 9 More than 7.0 but less than 7.2 percent 10 Continuing up In similar increments with- 9.0 but less than 9.2 percent having 20 13.0 but less than 13.2 percent having 40 17.0 but less than 17.2 percent having 60 21.0 but less than 21.2 percent having 80 Until anything more than 25 percent having 100 COMPARISON TO TRADE EXPANSION ACT OF 1968 (1) The President admits inability to handle the problem universally. As- sistance to Firms and Workers must be reviewed `by a panel and then eligible recipients paid. Under my proposal no assistance need be paid. Further there need be no panel to determine if assistance is needed. On the contrary, U.S. plants idled by foreign competition would in most cases become profitable industries again and presently depressed areas would revive. (2) Elimination of the American selling price system could and should be a part of my proposal as well. If the tax were based on the importer's price the rate would be slightly different from that based on the American selling price. The actual dollar tax, however, would be the same since free enterprise would dictate the percentage of imports to the point where imported products, includ- ing the tax, would cost the same as U.S.-made products, assuming quality, de- livery, and service are equal. (3) Our needs at home would be served in the best possible manner. It is an obvious fact that imports can supply but very little of our total consumption. There is little concern over our imports as a whole. The real problem lies in the distribution of these imports. It is neither good for us nor our foreign suppliers for theni to build~ facilities to supply all, or even a large sl~are of our needs of a given product. It would* be far better for them to have a more diver- sified economy. From any angle, and particularly our defense posture, we should not depend on a foreign supplier to any great extent: The argument is raised that tariffs or taxes will raise prIces of goods from abroad. Why shouldn't they be raised? Why should American businessmen be expected to compete with foreign employers who pay one third or one fourth the wages, and, in many eases, also receive subsidies from their government? Why should a patriotic American businessman be penalized because he believes he should buy American materials when his competitor has no such concern? Why shouldn't there be an incentive to devulop substitutes for materials which we are now wholly dependent upon others? Why shouldn't an American business- man feel free to invest in new developments without worrying about his market being lost to imports from countries not operating with the same ground rules? Why shouldn't Americans compete against Americans and product against Its alternatives without begging governments for exceptions and concessions, or, as in many eases, just giving up? (4) Trade initiatives would expand if we, or better every country, adopted my proposal. Everyone would know exactly where he stood, and where he would stand after certain actions. Entrepreneurs would diligently search ~ut new markets for an extremely wide variety of products under the no-tax ~ule for imports amounting to less than 6% of a country's usage. Everyone's base would be broader and he would be less vulnerable to cyclic variations and obsolescence. Furthermore, sound planning could result in improved production facilities. (5) International relations would improve because everyone would be on the same footing and we could bring to an end the bickering and dickering for con- cessions. Devaluation of other's currencies would have virtually no impact upon PAGENO="0556" 1826 imports to the U.S. An importer would possibly buy from a different country if it had proper facilities. If no other suitable supply were available, Imports would automatically seek a slightly higher level with its appropriate tax. Admittedly large fluctuations would occur initially where there are surplus world-wide pro- duction facilities for a product. This surplus is a direct result of our unrealistic trade policies of the past and has resulted in many depressed areas in the U.S. We can revive these areas without massive government subsidy by adopting my proposal and letting free enterprise do the rest. COMPARISON TO IMPORT QUOTAS (1) Administration of my proposal should be relatively simple and automatic. I would make no ea~ceptions to my proposal. Quotas are nothing but exceptions leading to constant hearings, foreign reprisals, review, etc. Realistically the real work involved in my proposal is the defining of products, but this can be a reasonably objective process. It, of course, will need review and must be brought up to date each year. There also must obviously be a few months lag between the end of "the preceding year" and the start of the "current year" to give time to assemble figures, assign, and publish new rates. (2) Universal and equitable treatment will result from my proposal as com~ pared to that under a system of quotas, or for that matter, under the President's proposed bill. Whoever receives the quota would reap an advantage over his competitor. This may result from individuals' attitudes or simply from some bu- reau deciding who gets what. It would be far better to let free enterprise settle the issue. GENERAL CONSIDERATIONS (1) It is said that any trade restrictions we adopt will result in our exporting less. I contend that with my proposal there would be increased trade in a vastly increased variety of products. In the meantime, we would not lose any trade we would not have lost otherwise. Any country, other than ourselves, that had pro- duction facilities for their own needs which were not being used because of imports, has already corrected the matter. We do well on patented products either through direct sale or license agreements. We export some items because foreign usage has not yet expanded to the point where high volume production lines are warranted abroad, and low volume lines cannot compete. Another area is that in which technology is lacking in certain countries; but this will be true only for a time. If we could have assurance development money would not be wasted because of future imports, we could keep ahead and evpand the "technol- ogy gap." We have benefited in all of these areas, not because of our so-called "free trade" policy, but for the reasons cited. We would be ahead further in them if a graduated import tax were adopted. (2) Our balance-of-payments situation should improve for two reasons. The imports for which we have idle capacity would no longer drain our dollars. Also the added revenue on what is imported would help. Furthermore, as stated above, many more new items would be introduced which could be exported until they caught up. (3) Summary of benefits: All imports would be handled on the same fair, practical basis. Administration would be simple. Many government employees could be freed for other work. Government revenue would be increased. Our balance of payments would be improved. Patriotism would no longer be penalized in this area. The law of Supply and Demand would prevail. No competent business would be ruined by imports. Depressed areas would revive. There would be drastically less pressure by lobbyists. Foreign countries would have more balanced economies. Our national defense posture would be improved because more substitute materials would be developed for resources that are not now available in the United States. STATEMENT OF NATIONAL C~YIJNCIL OF JEWISH WOMEN, Ixc., NEW YORK, N.Y. The National Council of Jewish Women, an organization established in 1893, with a current membership of over 100,000 in all parts of the United States, has had a long standing position in support of a liberal trade policy as an indis- PAGENO="0557" 1827 pensible aspect of social and economic progress. A national resolution to that effect was adopted in 1938 and has been reaffirmed at every biennial convention since then. It states: "The National Oouncil of Jewish Women resolves to urge the United States to support economic development and expansion of economic opportunity throughout the world . . . by continuing to develop trade agreements on a reciprocal basis and by supporting international agreements for the reduc- tion of tariffs and other barriers to the free flow of trade." In accordance wit-h this resolution, we supported the Trade Expansion Act of 1962, as an urgently needed revitalization of our ~rade program designed to give the President the adequate authority to meet the demands of our national interests, as well as those of the free world. Subsequently our members followed with great satisfac- tion the progress of the Kennedy round negotiations and hailed its successful conclusion as an encouraging milestone in the further liberalization of world trade. Today, once again, we feel impelled to support fully the proposed Trade Ex- pansion Act of 1968, designed to maintain the President's authority to negotiate trade agreements, establish a viable program of adjustment assistance for firms and workers affected by imports, and promote the reduction and/or elimination of non-tariff barriers to trade. Our Organization wishes to endorse in particular, amendments to the Trade Expanslon Act of 1962 which extends the President's negotiating authority for two years; authorize specific appropriations for the U.S. contribution to GATT; liberalize the adjustment assistance eligibility cri- teria and gi-ve the President final determination of eligibility'; replace the Ameri- can Selling Price system of customs valuation by the "cost to the importer" - system. We consider all of the- above provisions as necessary to ensure the con- tinuing growth of world trade, the welfare of our own national economy and the implementation of the Kennedy Round agreements. The National Council of Jewish Women, however, is deeply concerned, as are many other segments of the citizenry-government officials, business leaders and private organizations-by the recent wave of demands for protectionist legisla- tion. It is our strong belief that affected industries should be "assisted" when necessary and "encouraged" to compete as many have, in quality and in price, with foreign goods, through the fullest development 0-f their creative and tech- nological potentials, rather than "isolated" by protective barriers. In fact, we believe that if there is to be any protectionism, it should be directed towards- pro- tecting the gains achieved in three decades of a liberal trade policy. Our strong objections to restrictive quotas are dictated not only by the ex- pectation of inevitable retaliatory quotas by other countries, in turn forcing us to adopt further quota-s to protect the industries thus affected, but the possibility of a world-wide trade war, with dIsastrous consequences to both national and foreign economies. Nor do we fear only the deterioration of the U~S. balance of payments if the volume of U.S. trade were to be significantly reduced. Our greatest concern is for the welfare of American citizens on all economic levels. The National Council of Jewish Women has devoted a great deal of effort, over the years, to the study of the problems of the consumer and the support 0-f pertinent legislation. This is why we are especially sensitive to the adverse effects of protectionist measures on the American Consumer. This Is why we cannot con- done provisions which would greatly restrict the Consumer freedom of choice in the market place as well as create a domestic market which would not re- flect the demands of the purchaser or react to the shifting conditions of sup-ply and demand. Such a market would, of course, result in a rapid increase in price not only of the -protected item but on all related industrial products as well. It is not only the consumer seeking quality and choice who would suffer, bttt also the low-income consumer who would find himself with a greatly diminished pur- chasing power for basic necessities. Economists, industrial leaders, and others acknowledge the lessons of history and accept the fact that the imposition of quotas on a substantial scale guaran- tees increased inflationary pressures. Even a limited system of quotas carries with It the dangers of a chain reaction of retaliation, additional quotas and so on. At a time when bur nation and its citizens are so deeply involved in finding ways to alleviate the problems of poverty, it seems most inappropriate and un- timely to elimiilate the natural restraints of competition on domestic price poli- cies imposed by imports. On the other hand, our Organization is concerned with the interests and wel- fare of all segments of our citizenry, and is keenly aware of the problems being PAGENO="0558" 1828 faced by certain industries which might be affected by the importation ~f foreign goods. We feel confident, however, that these problems can be helped, for the most part, by an improved adjustment assistance provision, and by a re-energiz- ing of our technological potentials. There seems to be an unfortunate,tendency on the part of some industries to "stop trying" and to consider the challenge of competition as insurmountable. We are backed in these beliefs by the public statements of many business leaders, industrial organizations and other interested and knowledgeable parties. A representative of the Textile Industry was quoted recently in the Congres- sional Record as saying: ". . . American Industry's ability to meet competition through quality, service, new technology and highly efficient facilities will go far to stem the inroads made by imports." In conclusion we wish to reiterate our statement of 1962, which emphasized our position that a liberal trade policy is an urgently needed complimentary tool to our Foreign Assistance Program. For by encouraging the economic progress of the less-developed countries, and by affording them the opportunities to sell their products abroad in a market favorable to their advancement, we would be stressing self-help and economic growth with a view to diminishing their re- liance on direct U.S. assistance. We can conclude from this that a sound U.S. trade policy which could be considered an important part of our foreign policy would also best serve our total national interests. For all of the above reasons, the National Council of Jewish Women would urge this Committee to give favorable consideration to the Trade ~xpans'ion Act of 1968 and to discourage the adpotion of protectionist legislation. (Whereupon, at 4:20 p.m., the committee adjourned, to reconvene at 10 a.m. Tuesday, June 18, 1968.) 0