PAGENO="0001"
MULTILATERAL TRADE NEGOTIATIONS
HEARINGS
BEFORE THE
SUBCOMMITTEE ON TRADE
OF THE
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
NINETY-SIXTH CONGRESS
FIRST SESSION
ON
LEGISLATION NECESSARY TO IMPLEMENT THE MULTI-
LATERAL TRADE AGREEMENT CONCLUDED IN GENEVA,
SWITZERLAND
APRIL 23, 24, 25, 26, AND 27, 1979
Serial 96-13
Printed for the use of the Committee on Ways and Means
*0
/ - I) j-~r: ~
U.S. GOVERNMENT PRINTING OFFICE
44-998 0 WASHINGTON: 1979
PAGENO="0002"
COMMITTEE ON WAYS AND MEANS
DAN ROSTENKOWSKI, Illinois
CHARLES A. VANIK, Ohio
JAMES C. CORMAN, California
SAM M. GIBBONS, Florida
J. J. PICKLE, Texas
CHARLES B. RANGEL, New York
WILLIAM R. COTTER, Connecticut
FORTNEY H. (PETE) STARK, California
JAMES R. JONES, Oklahoma
ANDY JACOBS, JR., Indiana
ABNER J. MIKVA, Illinois
JOSEPH L. FISHER, Virginia
HAROLD FORD, Tennessee
KEN HOLLAND, South Carolina
WILLIAM M. BRODHEAD, Michigan
ED JENKINS, Georgia
RICHARD A. GEPHARDT, Missouri
RAYMOND F. LEDERER, Pennsylvania
THOMAS J. DOWNEY, New York
CECIL (CEC) HEFTEL, Hawaii
WYCHE FOWLER, JR., Georgia
FRANK J. GUARINI, New Jersey
JAMES M. SHANNON, Massachusetts
BARBER B. CONABLE, JR., New York
JOHN J. DUNCAN, Tennessee
BILL ARCHER, Texas
GUY VANDER JAGT, Michigan
PHILIP M. CRANE, Illinois
BILL FRENZEL, Minnesota
JAMES G. MARTIN, North Carolina
L. A. (SKIP) BAFALIS, Florida
RICHARD T. SCHULZE, Pennsylvania
BILL GRADISON,Ohio
JOHN H. ROUSSELOT, California
W. HENSON MOORE, Louisiana
CHARLES A. VANIK, Ohio, Chairman
GUY VANDER JAGT, Michigan
BILL ARCHER, Texas
BILL FRENZEL, Minnesota
JAMES G. MARTIN, North Carolina
L. A. (SKIP) BAFALIS, Florida
RICHARD T. SCHULZE, Pennsylvania
W. HENSON MOORE, Louisiana
HAROLD T. LAMAR, Professional Staff
DAVID B. ROHR, Professional Staff
MARY JANE WIGNOT, Professional Staff
WILLIAM K. VAUGHAN, Professional Staff
AL ULLMAN, Oregon, Chairman
JOHN M. MARTIN, Jr., Chief Counsel
J. P. BAKER, Assistant Chief Counsel
JOHN K. MEAGHER, Minority Counsel
SUBCOMMITFEE ON TRADE
SAM M. GIBBONS, Florida
DAN ROSTENKOWSKI, Illinois
JAMES R. JONES, Oklahoma
ABNER J. MIKVA, Illinois
JOSEPH. L. FISHER, Virginia
KEN HOLLAND, South Carolina
ED JENKINS, Georgia
THOMAS J. DOWNEY, New York
WILLIAM R. COTTER, Connecticut
RAYMOND F. LEDERER, Pennsylvania
FRANK J. GUARINI, New Jersey
JAMES M. SHANNON, Massachusetts
AL ULLMAN, Oregon
(II)
PAGENO="0003"
CONTENTS
Page
Press release of Friday, April 6, 1979, announcing hearings on the multilateral
trade negotiations 2
WITNESSES
Office of the Special Representative for Trade Negotiations, Ambassador Rob-
ert S. Strauss, Special Representativefor Trade Negotiations, and Ambassa-
dor Alonzo McDonald, Deputy Special Representative 482
Ad Hoc Committee of U.S. Distilling Companies, Leo Vernon 283
Ad Hoc Subsidies Coalition, Charles R. Carlisle, Stanley Nehmer, and Donald
deKieffer 21
Aerospace Industries Association of America, George C. Prill 577 t'~
Agricultural Technical Advisory Committee on Livestock and Livestock Prod-*
ucts, Peter E. Marble 175
AMF, Inc., Charles Owen Verrill, Jr 106
American Color & Chemical Corp., Julius Goldman 74
American Dinnerware Emergency Committee, David S. King and William K.
Ince 347
American Federation of Labor and Congress of Industrial Organizations,
Rudolph Oswald 409
American Imported Automobile Dealers Association, Robert M. McElwaine,
Fred 0. LaFevers, and Bart S. Fisher 508 -~
American Importers Association, Richard A. Maxwell, Gerald O'Brien, David P.
Houlihan, and Donald B. Cameron, Jr 212 ~
American Iron & Steel Institute, Robert B. Peabody and Dominic B. King 233
American Paper Institute, J. Stanford Smith and Irene W. Meister 363
American Restaurant China Council, Inc., John C. Heebner, Samuel D.
Magavern, and Irving J. Mills 350
Archie, Peter B., Semiconductor Industry Association 586
Automobile Importers of America, Inc., Ralph T. Millet and John B. Rehm 82 ~
Barlow, Wallace D., Share the Work Coalition 397 ~,-
Bauman, Morton, National Outerwear & Sportswear Association 305
Buchanan, Hon. John H., Jr., a Representative in Congress from the State of
Alabama, on behalf of the Congressional Steel Caucus 331
Buffalo Broadcasting Co., Sheldon Cohen and Bart S. Fisher 573
California Almond Growers Exchange, Steven W. Easter 167
California-Arizona Citrus League, William K. Quarles, Jr 562
California Cling Peach Advisory Board, Willis R. Hoard and Charles
Herrington 453
Cameron, Donald B., Jr., American Importers Association 212
Carlisle, Charles R., Ad Hoc Subsidies Coalition 21
Carriuolo, Christopher W., Distilled Spirits Council of the United States, Inc.,
and Heubleinlnc 249
Chamber of Commerce of the United States:
William D. Eberle 11 p-
Ronald K. Sheip, Gordon J. Cloney, and Elizabeth Perkins 458
_C~p~ey, Gordon J., Chamber of Com~~çë of the United States 458
Coelho, Hon. Tony, a Representative in Congress from the State of Cali-
fornia 166, 452
Cohen, Sheldon, Wom~c6Entei~prisé~1iic., and Buffalo Broadcasting Co 573
(III)
PAGENO="0004"
Iv
Congressional Steel Caucus: Page
Hon. Joseph M. Gaydos, a Representative in Congress from the State of
Pennsylvania, chairman 322
Hon. John P. Murtha, a Representative in Congress from the State of
Pennsylvania 325
Hon. Barbara A. Mikulski, a Representative in Congress from the State of
Maryland 328
Hon. John H. Buchanan, Jr., a Representative in Congress from the State
of Alabama 331
Consumers Union, Mark A. Cymrot 403 V
Cooper, Mitchell, Footwear Division, Rubber Manufacturers Association 399
Cooper, Morton, National Outerwear & Sportswear Association 305
Cunningham, Richard 0., Washington, D.C 93
Cymrot, Mark A., Consumers Union 403
Davis, Jane P., Electronic Industries Association 391
deKieffer, Donald, Ad Hoc Subsidies Coalition 21
DeRose, Joseph, Joint Industry Working Group 200
Distilled Spirits Committee for International Trade, William Jay Schieffelin III
and James H. Lundquist 300'
Distilled Spirits Council of the United States, Inc.:
John F. McCarren 246
Christopher W. Carriuolo 249
Easter, Steven W., California Almond Growers Exchange 167
Eberle, William D., Chamber of Commerce of the United States 11
Edwards, Ralph L., Ralph Edwards Sportswear, Inc 315
Electronic Industries Association, Jane P. Davis, Peter F. McCloskey, and
Jonathan H. Lasley 391
Elliott, David J., Joint Industry Working Group 200
Emergency Committee for American Trade, Lawrence D. McQuade and Robert
McNeill 4
Esserman, Susan, Syracuse China Corp 352
Evans, Hon. Melvin H., a Delegate to Congress from the Virgin Islands 68
Ferroalloys Association, George A. Watson and Thomas M. Lemberg 581
Fisher, Bart S.:
American Imported Automobile Dealers Association 508
Wometco Enterprises, Inc., and Buffalo Broadcasting Co 573
Rice Millers' Association 185
Francis, Amadeo, Government of the Virgin Islands 68
Frederick, Robert, the National Grange 124
Gabbert, J. Stephen, Rice Millers' Association 185
Gaydos, Hon. Joseph M., a Representative in Congress from the State of
Pennsylvania, and chairman, Congressional Steel Caucus 322
General Aircraft Association, George C. Prill 577
Goldman, Julius, American Color & Chemical Corp 74
Goldwater, Hon. Barry M., Jr., a Representative in Congress from the State of
California 117
Goodman, Charles S., Syracuse China Corp 352
Gorson, James R., Joint Industry Working Group 200
Hahn, Bruce N., National Tool, Die & Precision Machining Association 519
Hampton, Robert N~., National Council of Farmer Cooperatives 119
Hauck, Sheldon J., National Soybean Processors Association 130
Healy, Patrick B., National Milk Producers Federation 134
Heebner, John C., American Restaurant China Council, Inc 350
Herrington, Charles, California Cling Peach Advisory Board 453
Heublein, Inc., Christopher W. Carriuolo 249
Hoard, Willis R., California Cling Peach Advisory Board 453
Hobbs, Claude, Westinghouse Electric Corp 377
Houlihan, David P., American Importers Association 212
Hummel, Fred H., Passaic Color & Chemical Co 342
Hurlbert, Gordon C., Westinghouse Power Systems Co 377
Imperial Arts Corp., Tom Kossel on behalf of Irwin Schneider 597
Ince, William K., American Dinnerware Emergency Committee 347
Independent American Whiskey Association, Leo Vernon 283
International Association of Machinists & Aerospace Workers, George Poulin,
Helen Kramer, and Jerry Thompson, on behalf of William W. Winpisinger.. 441 ~"
International Economic Policy Association, Samuel M. Rosenblatt 467 V
Joint Industry Working Group, Richard D. Langer, Saul L. Sherman, Joseph
DeRose, James R. Gorson, and David J. Elliott 200
PAGENO="0005"
V
Page
Kentucky Distillers Association, John F. McCarren 246
King, David S., American Dinnerware Emergency Committee 347
King, Dominic B., American Iron & Steel Institute 233
Kossel, Tom, on behalf of Irwin Schneider, Imperial Arts Corp 597
Kramer, Helen, International Association of Machinists & Aerospace Workers . 441
LaFevers, Fred 0., American Imported Automobile Dealers Association 508
Lagomarsino, Hon. Robert, a Representative in Congress from the State of
California 129
Langer, Richard D., Joint Industry Working Group 200
Lasley, Jonathan H,, Electronic Industries Association 391
League of Women Voters of the United States, Ruth Robbins 187
Lemberg, Thomas M., Ferroalloys Association 581
Lubenson, Herbert, Small Business Legislative Council 519 `-~
Lundquist, James H., Distilled Spirits Committee for International Trade 300
Macrory, Patrick F. J., West Mexico Vegetable Distributors Association, and
Union Nacional de Productores de Hortalizas 542
Magavern, Samuel D., American Restaurant China Council, Inc 350
Marble, Peter E., Agricultural Technical Advisory Committee on Livestock and
Livestock Products 175
Maxwell, Richard A., American Importers Association 212
McCarren, John F., Distilled Spirits Council of the United States, Inc., and
Kentucky Distillers Association 246
McCloskey, Peter F., Electronic Industries Association 391
McElwaine, Robert M., American Imported Automobile Dealers Association .... 508
McNeill, Robert, Emergency Committee for American Trade 4 ~
McQuade, Lawrence C., Emergency Committee for American Trade 4
Medley Distilling Co., Leo Vernon 283
Meister, Irene W., American Paper Institute 363
Mikulski, Hon. Barbara A., a Representative in Congress from the State of
Maryland, on behalf of the Congressional Steel Caucus 328
Millers' National Federation, Wayne Swegle 569
Millet, Ralph T., Automobile Importers of America, Inc 82
Mills, Irving J., American Restaurant China Council, Inc 350
Murtha, Hon. John P., a Representative in Congress from the State of Pennsyl-
vania, on behalf of the Congressional Steel Caucus 325
National Cattlemen's Association, Samuel H. Washburn 171
National Council of Farmer Cooperatives, Robert N. Hampton 119
National Customs Brokers & Forwarders Association, Morris V. Rosenbloom
and M. Sigmund Shapiro 594
National Forest Products Association, J. Stanford Smith and John Ward 363
National Grange, Robert Frederick 124
National Milk Producers Federation, Patrick B. Healy 134
National Outerwear & Sportswear Association, Morton Cooper, Morton
Bauman, and Stanley Nehmer 305
National Soybean Processors Association, Sheldon J. Hauck 130
National Tool, Die & Precision Machining Association, Frank Wikstrom, and
Bruce N. Hahn 519
Nehmer, Stanley:
National Outerwear & Sportswear Association 305
Ad Hoc Subsidies Coalition 21
Semiconductor Industry Association 586
O'Brien, Gerald, American Importers Association 212
Oil, Chemical & Atomic Workers International Union, AFL-CIO, Local 8-406
(New Jersey), Eugene Wyatt 345
Oswald, Rudolph, American Federation of Labor and Congress of Industrial
Organizations 409 `-~"
Passaic Color & Chemical Co., Fred H. Hummel 342
Peabody, Robert B., American Iron & Steel Institute 233
Perkins, Elizabeth, Chamber of Commerce of the United States 458
Poulin, George, on behalf of William W. Winpisinger, International Association
of Machinists & Aerospace Workers 441
Prill, George C., Aerospace Industries Association of America, and General
Aircraft Association 577
Publicker Industries, Leo Vernon 283
Puerto Rico, Commonwealth of, Hon. Carlos Romero-Barcelo, Governor 55
Quarles, William K., Jr., California-Arizona Citrus League 562
Rehm, John B., Automobile Importers of America, Inc 82
PAGENO="0006"
VI
Page
Rice Millers' Association, J. Stephen Gabbert and Bart S. Fisher 185
Robbins, Ruth, League of Women Voters of the United States 187
Romero-Barcelo, Hon. Carlos, Governor, Commonwealth of Puerto Rico 55
Rosenblatt, Samuel M., International Economic Policy Association 467
Rosenbloom, Morris V., National Customs Brokers & Forwarders Association. 594
Rubber Manufacturers Association, Footwear Division, Mitchell Cooper 399
Scalise, George M., Semiconductor Industry Association 586
Schieffelin, William Jay, III, Distilled Spirits Committee for International
Trade 300
Schneider, Irwin. (See Imperial Arts Corp.)
Semiconductor Industry Association, George M. Scalise, Stanley Nehmer, and
Peter B. Archie 586
Shapiro, M. Sigmund, National Customs Brokers & Forwarders Association .... 594
Share the Work Coalition, Wallace D. Barlow 397
Shelp, Ronald K., Chamber of Commerce of the United States 458
Sherman, Saul L., Joint Industry Working Group 200
Small Business Legislative Council, Frank Wikstrom and Herbert Lubenson ... 519
Smith, J. Stanford, American Paper Institute and the National Forest Products
Association 363
Steinberg, David J., U.S. Council for an Open World Economy, Inc 78 ~V
Swegle, Wayne, Millers' National Federation 569
Syracuse China Corp., Charles S. Goodman and Susan Esserman 352
Thompson, Jerry, International Association of Machinists & Aerospace
Workers 441
Udall, Hon. Morris K., a Representative in Congress from the State of Arizona.. 293
Union Nacional de Productores de Hortalizas, Patrick F. J. Macrory 542
U.S. Council for an Open World Economy, Inc., David J. Steinberg 78
Vernon, Leo, Independent American Whiskey Association, Ad Hoc Committee
of U.S. Distilling Companies, Publicker Industries, and Medley Distilling Co.. 283
Verrill, Charles Owen, Jr., AMF, Inc 106
Virgin Islands, Government of, Amadeo Francis 68
Ward, John, National Forest Products Association 363
Washburn, Samuel H., National Cattlemen's Association 171
Watson, George A., Ferroalloys Association 581
West Mexico Vegetable Distributors Association, Patrick F. J. Macrory 542
Westinghouse Electric Corp., Claude Hobbs 377
Westinghouse Power Systems Co., Gordon C. Huribert 377
Wikstrom, Frank, National Tool, Die & Precision Machining Association, and
Small Business Legislative Council 519
Winpisinger, William W. (See International Association of Machinists & Aero-
space Workers.)
Wometco Enterprises, Inc., Sheldon Cohen and Bart S. Fisher 573
Wyatt, Eugene, Oil, Chemical & Atomic Workers International Union,
AFL-CIO, Local 8-406 (New Jersey) 345
MATERIAL SUBMIVI'ED FOR THE RECORD
Amalgamated Clothing & Textile Workers Union, and Retail Clerks Interna-
tional Union, joint statement 614
American Farm Bureau Federation, John C. Datt, letter 617
American Fine Wire Corp., Daniel Younkins II, statement forwarded by
Congressman Shelby 619
American Textile Manufacturers Institute, Inc., statement 620
Arter Hadden & Hemmendinger, William H. Barringer, statement 228
Barringer, William H., Arter Hadden & Hemmendinger, statement 228
Benjamin, Hon. Adam, Jr., a Representative in Congress from the State of
Indiana, statement 623
Burley and Dark Leaf Tobacco Export Association, Frank B. Snodgrass; and
Tobacco Associates, Inc., Kirk Wayne, joint statement 624
California Avocado Commission, statement 625
Casale, Frank, International Leather Goods, Plastics & Novelty Workers'
Union, AFL-CIO, statement 649
Casey, Joseph, Valve Manufacturers Association, statement 758
CITC Industries, Inc., statement 626
Consumers for World Trade, statement 627
Cook, 0. E., NCR Corp., letter forwarded by Congressman McCloskey 733
Corning Glass Works, Henry F. Frailey, letter 630
PAGENO="0007"
VII
Page
Corn Refiners Association, Inc., Robert C. Liebenow, statement 629
Council of United States Feed Ingredient Processors and Exporters, statement 632
Cumins,j~jl T. Sharretts, Pal~y, Carter & Blauvelt, letter 744
Datt, John C., American Farm Bureau Fed~eration, letter 617
Diamond/Sunsweet, Inc., statement 638
Frailey, Henry F., Corning Glass Works, letter 630
Fraser, Douglas A., International Union, United Automobile, Aerospace, &
Agricultural Implement Workers of America, letter 655
Great Plains Wheat, Inc., Michael L. Hall, statement 642
GTE Products Corp., statement 646
Hall, Michael L., Great Plains Wheat, Inc., statement 642
Hayenga, M. K., National Corn Growers Association, statement 736
Hehir, Rev. J. Bryan, United States Catholic Conference, letter 758
Hernandez Agosto, Senator Miguel A., Puerto Rico Popular Democratic Party
Minority Leader, statement 741
Hiram Walker & Sons, Inc., statement 302
International Leather Goods, Plastics & Novelty Workers' Union, AFL-CIO,
Frank Casale, statement 649
International Union, United Automobile, Aerospace & Agricultural Implement
Workers of America, Douglas A. Fraser, letter 655
Jimenez Juarbe, Hector, Puerto Rico Manufacturers Association, statement .... 743
Joint Retail Committee on Free Trade, statement enclosing study by William R.
Cline 658
Jones, Charlie W., Man-Made Fiber Producers Association, Inc., Letter and
attachment 730
Kiger, Hugh C., Leaf Tobacco Exporters Association; and Tobacco Association of
United States, joint statement 724
King, Frank L., Writing Instrument Manufacturers Association, Inc., state-
ment 722
K Mart Corp., James C. Tuttle, letter 722
Leaf Tobacco Exporters Association; and Tobacco Association of United States,
Hugh C. Kiger, joint statement 724
Liebenow, Robert C., Corn Refiners Association, Inc., statement 629
Luke, Hugh D., Reliance Electric Co., letter 744
Man-Made Fiber Producers Association, Inc., Charlie W. Jones, letter and
attachment 730
Melex USA, Inc., Carl W. Sc~warz, letter 734
Mirro Aluminum Co., C. W. Ziemer, letter 736
National Cotton Council of America, statement 737
National Corn Growers Association, M. K. Hayenga, statement 736
NCR Corp., 0. E. Cook, letter forwarded by Congressman McCloskey 733
New York State Grange, Chester Smith, statement 739
Puerto Rico Manufacturers Association, Hector Jimenez Juarbe, statement 743
Puerto Rico Popular Democratic Party, Senator Miguel A. Hernandez Agosto,
minority leader, statement 741
Reliance Electric Co., Hugh D. Luke, letter 744
Retail Clerks International Union, and Amalgamated Clothing & Textile
Workers Union, joint statement 614
Sharretts, Paley, Carter & Blauvelt, Peter 0. Suchman and Gail T. Cumins,
letter
Schwartz, Norman C., Siegel, Mandell & Davidson, statement 751
Schwarz, Carl W., Melex USA, Inc., letter 734
Siegel, Mandell & Davidson, Norman C. Schwartz, statement 751
Smith, Chester, New York State Grange 739
Snodgrass, Frank B., Dark Leaf Tobacco Export Association, joint statement
with Tobacco Associates, Inc 624
Society of the Plastics Industry, Inc., David S. Weil, letter 752
Special Committee for U.S. Exports, statement 754
Suchman, Peter 0., Sharretts, Paley, Carter & Blauvelt, letter 744
Texas Citrus Mutual and Texas Citrus Exchange, statement 755
Tobacco Associates, Inc., Kirk Wayne; and Burley and Dark Leaf Tobacco
Export Association, Frank B. Snodgrass, joint statement 624
Tobacco Association of United States; and Leaf Tobacco Exporters Association,
Hugh C. Kiger, joint statement 724
Tunick, Abraham, Wine & Spirits Wholesalers of America, Inc., statement 760
Tuttle, James C., K Mart Corp., letter 722
PAGENO="0008"
VIII
Page
United States Catholic Conference, Rev. J. Bryan Hehir, letter 758
Valve Manufacturers Association, Joseph Casey, statement 758
Wayne, Kirk, Tobacco Associates, Inc., joint statement with Dark Leaf Tobacco
Export Association 624
Weil, David S., Society of the Plastics Industry, Inc., letter 752
Wine & Spirits Wholesalers of America, Inc., Abraham Tunick, statement 760
Writing Instrument Manufacturers Association, Inc., Frank L. King, state-
ment 722
Younkins, Daniel, II, American Fine Wire Corp., statement forwarded by
Congressman Shelby 619
Ziemer, C. W., Mirro Aluminum Co., letter 736
PAGENO="0009"
MULTILATERAL TRADE NEGOTIATIONS
MONDAY, APRIL 23, 1979
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON TRADE,
COMMITTEE ON WAYS AND MEANS,
Washington, D.C.
The subcommittee met at 10:05 a.m., pursuant to notice, in room
1100, Longworth House Office Building, Hon. Charles A. Vanik
(chairman of the subcommittee) presiding.
Mr. VANIK. The subcommittee will come to order.
First, I would like to thank the witnesses who have requested to
testify at this hearing. Formal public views on the results of the
multilateral trade negotiations concluded on April 12 are impor-
tant to the Subcommittee on Trade in its responsibility for consult-
ing with the executive branch on the agreement reached, and on
the nature and content of the legislatior necessary and appropriate
to implement these agreements. This is the first public hearing
since the text of the international codes were signed in Geneva and
released to the public.
This subcommittee, on behalf of the Committee on Ways and
Means, in cooperation with the members of other interested House
committees, has been meeting in executive session, examining
these codes, and reaching tentative decisions on the provisions of
legislation which will both approve and give domestic effect to the
agreements.
These procedures are set forth in section 102 and 151 of the
Trade Act of 1974. They present unique challenges to cooperation
among the executive branch, the public, and the Congress.
I would like to make one or two observations about where we are
in these unusual procedures.
First, although we have received texts of the international codes
and have been informed of the nature of other nontariff agree-
ments reached in the negotiations, we have not yet been informed
of the final tariff reduction agreed to in the negotiations. Thus, any
final assessment of how our major sectors fared in sectorial equiv-
alence of competitive opportunities remains to be seen, and I hope
this hearing will throw some light on that subject.
Second, while we have reviewed most of the codes and the broad
outlines of the administration proposals for implementing legisla-
tion, our decisions are tentative and the subcommittee and other
members of the interested subcommittees must still review the
areas of government procurement, antidumping, commercial air-
craft, and other elements of the agreements and implementing
legislation, including future negotiating authority. Thus, I would
like to reiterate that the testimony the subcommittee will be hear-
(1)
PAGENO="0010"
2
ing this week is important, and we expect to give it great
significance.
I would like to note, there have been no questions that the
tentative decisions by the subcommittee are consistent with the
provisions of the agreement reached with our trading partners in
negotiating these new and significant codes of conduct in interna-
tional trade. Nor should there be any question that our decisions
must provide an effective base for sound and balanced administra-
tion of trade law domestically and active pursuit of a U.S. economic
and commercial interest internationally.
I ask unanimous consent that the press release announcing these
hearings be placed in the record at this point.
[The press release follows:]
[Press Release of Friday, Apr. 6, 1979]
CHAIRMAN CHARLES A. VANIK (D. OHIO) SUBCOMMIrrEE ON TRADE, COMMITTEE ON
WAYS AND MEANS ANNOUNCES MAJOR HEARINGS ON THE MULTILATERAL TRADE
NEGOTIATIONS
Chairman Charles A. Vanik of the Subcommittee on Trade, Committee on Ways
and Means, today announced that the Subcommittee on Trade will hold major
hearings on the Multilateral Trade Negotiations beginning Monday, April 23, 1979,
in room 1100 Longworth House Office Building, at 10 am.
As previously announced by Chairman Vanik, the Subcommittee is inviting public
testimony on all aspects of the agreements that the President notified to the
Congress in his message of January 4, 1979, and on the domestic implementation of
those agreements under sections 102 and 151 of the Trade Act of 1974. It is
anticipated that the final texts of the agreements soon to be completed in Geneva
will be made public prior to the hearings. Attention of witnesses is also called to the
press releases of the Subcommittee on Trade announcing tentative decisions taken
on implementing legislation on March 13, 19, and 20 and April 5.
Specifically, to the extent possible, witnesses are requested to address themselves
to the following:
1. The advantages and disadvantages, overall and by agreement of U.S. accept-
ance of the international codes, and of the other agreements contemplated, which
obtain benefits for the United States and grant U.S. concessions (tariff and non-
tariff).
2. The treatment the agreements will accord developing countries as signatories
and nonsignatories to the codes, the significance of special and differential treat-
ment for developing countries, and the implications of conditional, non-discriminato-
ry (MFN) treatment for the trading system.
3. The legal implications of Congressional approval of the agreements for future
national, state and local legislative action.
4. The necessary and appropriate statutory criteria which should be included in
domestic law relating to United States rights and obligations under the internation-
al codes and other agreements.
5. The necessary and appropriate statutory procedures for implementing the
multilateral trade negotiations, in terms of agency responsibility, timing require-
ments, burden of proof, judicial review, etc.
6. The need for further statutory guidance respecting international dispute settle-
ment procedures under the General Agreement on Tariffs and Trade and the
international codes to assure effective pursuit of U.S. rights and to strengthen such
international procedures.
7. The extent to which the results of the negotiations respond to the Congression-
al directives in the Trade Act of 1974, including those specified in: Section 103-
overall negotiating objectives; section 104-sector negotiating objectives; section
121-steps to be taken toward GATT revision.
As previously announced, Chairman Vanik is inviting the participation in the
hearing of members of other committees which have direct jurisdictional interest or
which have indicated an interest in the results of the multilateral trade negotia-
tions and the implementing legislation.
For those who wish to appear and testify, the requests to do so must be received
by the close of business April 18, 1979. The requests to be heard should be submitted
to John M. Martin, Jr., Chief Counsel, Committee on Ways and Means, Room 1102
PAGENO="0011"
3
Longworth House Office Building, Washington, D.C. 20515, (202) 225-3625. Notifica-
tion to those scheduled to appear will be made as soon as possible after the filing
deadline.
It is urged that persons and organizations having a common position make every
effort to designate one spokesman to represent them in order for the Subcommittee
to hear as many points of view as possible. Time for oral presentations will be
strictly limited, with the understanding that a more detailed statement can be
submitted for the Subcommittee's review and for inclusion in the printed record of
the hearings. This will afford more time for interrogation of the witnesses by the
members of the Subcommittee. If it becomes necessary, the staff will group the
witnesses into panels to expedite the hearings and will establish strict time limita-
tions for each panelist.
There follows an outline of the procedure to be followed by organizations and
individuals who may either want to appear and testify during this hearing or file a
written statement for the printed record of the proceedings.
All requests to be heard should contain the following information:
1. The name of the witness, his title, address, firm affiliation and/or organization
he will represent.
2. If appearing in an individual capacity, a list of any clients at whose request or
in whose employ the witness appears.
3. Which proposal or proposals will be discussed.
4. A topical outline or summary of comments and recommendations.
The above information should also be incorporated in the prepared statements to
be presented in person as well as those filed for the printed record of the hearings.
Witnesses will be required to submit 50 copies of their prepared statement to the
full Committee office, Room 1102 Longworth House Office Building, 24 hours in
advance of the appearance. For those who wish to file a written statement for the
record of the hearings, five copies are required for this purpose and will be accepted
until close of business April 25, 1979. An additional supply of at least 70 copies of
either type of statement (for a personal appearance or for the printed record) may
be furnished for distribution to the press and public.
Mr. VANIK. Before we proceed with the first witness, I would like
to stress we have a very full schedule. The witnesses must summa-
rize his or her statement and not read it in its entirety, with the
assurance that the statement will be placed in the full record. I
would like to engage in as much of a colloquy as is possible in
connection with the witnesses that are appearing before this com-
mittee.
As you know, the record of this proceeding will be carefully
studied and reviewed by each and every member of the Ways and
Means Committee, and if there are very sharp issues of inquiry
that are brought up during this public hearing, we will endeavor to
try to get them cleared up.
I am hopeful that the climate that seems to be evident today
indicates that there is broad support for the MTN.
In this complex and very difficult agreement that has been con-
cluded, I believe our American bargaining team has done an exem-
plary job. Most of the Europeans that I have met have told me they
thought they were done in. Others may feel they were done in. I do
not know. Some sectors of our American economy may feel that
they are going to suffer adverse impacts as a result of this. As is
customary with such a large and complex agreement, there is
reason for practically everyone to have some objection to it. That is
in the nature of things.
My hope is that in the overall consideration of it that my mem-
bers will come down on the side that there is more good than there
is harm and that the decisions will weigh in favor of supporting it.
I expect in my own area there are going to be some problems, and
they may be very difficult. I think there probably are going to be
some inflictions of hurt on some parts of the American economy
PAGENO="0012"
4
and perhaps some American workmen. We cannot legislate a per-
fect agreement in which everybody comes out ahead.
I think most agreements in this world involve everybody giving
something. In the final analysis, the whole object of a trade agree-
ment is to establish a free flow of commerce between the nations
with the thought that this free flow of commerce is going to stimu-
late other constructive agreements between the nations and firm
our relationships among all of the nations of the world.
I firmly believe that, in the final analysis, trade is the currency
of peace. There may be some other agreements, talk about limiting
armaments, doing other things, but I think when we come down to
the final issue, I think we will probably have to conclude that trade
is the currency of peace and we ought to stimulate it, we ought to
make that currency work for the world in providing the goods of
mankind freely and openly, so that the people of the world can
have the benefit of the best of every nation offered in the market-
place.
So our first witness this morning will be the Emergency Commit-
tee for American Trade, Mr. Lawrence C. McQuade, senior vice
president, W. R. Grace and Co.
Mr. McQuade, if you are ready to proceed.
Mr. McQuade is accompanied by Mr. Robert McNeill, who is
frequently before this subcommittee.
STATEMENT OF LAWRENCE C. McQUADE, ON BEHALF OF THE
EMERGENCY COMMITTEE FOR AMERICAN TRADE; ACCOMPA-
NIED BY ROBERT McNEILL
Mr. MCQUADE. Ready to go?
Mr. Chairman, I appreciate this opportunity to appear before
your subcommittee in support of the trade agreements negotiated
in Geneva.
As you know, I am here representing the Emergency Committee
for American Trade, whose members are 64 U.S. business leaders.
Their companies had sales in 1977 of $325 billion and employed 5
million people worldwide.
ECAT companies have extensive international operations. We
support the ideas which you have outlined of international econom-
ic cooperation and an open system of trade and investment. For
our part, we are very pleased with the outcome of the Geneva
negotiations. We think such a move is badly needed and that it will
increase the volume of world trade, and that it will lead to greater
openness, and fairness in the world economic community.
Having said that about the totality of the negotiation, we will
say that the greatest achievement of the negotiation is the subsi-
dies code, which is badly needed. The trade effects of subsidies are
a growing concern for those of us in the international trading
community. They could undermine the international trading
system unless they are brought under surveillance and control.
The primary benefit of the new code on subsidies is recognition
that competitive advantage in international trade should not be
derived from domestic subsidies, that is, subsidies on production. If
the code comes into being, such subsidies can be legally offset by
QQUfltervailing duties~ and that will be for the United States a step
forward.
PAGENO="0013"
5
In return for that and the other benefits of the code, the United
States has agreed to accept an injury test for countervailing duties.
We really have three recommendations for this subcommittee on
the subject of the subsidies code.
We understand that a tentative decision has been made by this
subcommittee to accept most of the language of the code defining
injury for the implementing legislation. The code itself, however, in
a footnote on page 4 of the GATT text, notes that the term
"injury" is taken to mean material injury in accordance with arti-
cle 6 of the GATT.
It is our understanding that the subcommittee has tentatively
made a decision on the definition of injury which does not specify
the "material" test. We strongly recommend that this particular
decision be reconsidered and that you either add the word "materi-
al" or consider a formulation which will make it clear that injury
determinations pursuant to the code should demonstrate that the
injury must be found to be important and consequential.
If the United States makes its injury test too easy to meet, then
the injury test of our trading partners will also be too easy-since
they likely will emulate our test-and that could potentially harm
U.S. exports. This is doubly important since the injury test in the
international dumping agreement will be the same as that for the
subsidies code. That is our first point.
Our second point on the subsidies code is that ECAT understands
that a tentative decision has been made to set time limits for
factfinding and decisionmaking.
Mr. VANIK. On that one point you state that your understanding
of the subcommittee's decision on injury does not specify material
injury. While the drafting is not complete, we did adopt the lan-
guage of the code with respect to injury. Your reading of the
committee decision is not quite in--
Mr. MCQUADE. I am delighted to hear that.
Mr. VANIK. You might check that with staff after you finish.
Mr. MCQUADE. I am getting good news before I have gotten
started.
Mr. VANIK. That is the purpose of this interchange, so that we
clear up our understandings.
Mr. MCQUADE. As to time limits for countervailing and dumping
investigations, we fear that if you set too rigid a time limit that
you may get in the position where you cannot really get the facts,
especially in this awkward international situation where you have
to go to another country and very often their ability to bring facts
together is poor. We would like to be sure there is enough time so
that all the data can be before Treasury or the International Trade
Commission before decisions are made. We think that is a subject
which deserves some additional exploration.
Our third point is really a suggestion dealing with the interna-
tional antidumping code, which presently requires that remedial
action be taken in dumping cases only after the dumped goods
have been found to be a "principal" cause of injury, with quota-
tions around principal.
As they conform the international dumping code to the just-
negotiated subsidies code, that test of principality will be dropped,
making it easier for other governments to apply dumping duties to
PAGENO="0014"
6
U.S. exports. While I do not think you can do it this time around,
we do hope that you will urge that a future effort be made by U.S.
negotiators to seek to renegotiate the subsidies code for the purpose
of adding a test such as "substantial" or "principal" to that causal
link between the dumping and injury.
On the procurement code, we are strongly in favor of that. It
offers great opportunities for U.S. exports. It should open about $20
billion of foreign government purchases to U.S. bidders, and I
believe that we will be able to get a substantial share of that. We
certainly will pursue it with vigor.
The standards code again is of great importance--
Mr. VANIK. Do you have any comment on the story that was
reported in today's newspapers on the Japanese utility industry?
Mr. MCQUADE. I can only say that it strikes me as good news
that the Japanese seem to be coming to the United States on May
2, with $7.2 billion of potential government procurement which
they seem prepared to open to U.S. bidders.
I always have a little fear, however, that the Japanese will be
able to frustrate the apparent opportunities, but I think it is a step
forward.
Mr. VANIK. How do you feel about the problem that has been
raised by some of the producers of heavy electronic equipment,
that since the American public utilities industry is 85 percent
privately owned, that this creates some special problems since
there is more public ownership there?
Mr. MCQUADE. I would hope that these things can be brought
within the code in the future, but my short-run feeling is that we
should take this step forward while we can. I think we will contin-
ue to have to work with the Japanese, and that is one of the more
frustrating experiences for American business and the American
Government.
I strike a note of hope without a high note of confidence.
On the subject of standards, we do see this as of great impor-
tance to exporters and investors, because it can help stop the
practice of using standards to inhibit or prevent imports. In the
case of standards, the United States shares with other countries
the fact that we will have some conflicts with some standards and
regulations of our own which have been adopted for domestic
policy reasons.
For example, we have a regulation requiring foreign chemical
companies to disclose proprietary information before marketing
their products here. We can urge that such U.S. laws and regula-
tions in conflict with the code be reviewed, giving due weight to
considerations of cooperation with our international trading part-
ners so that we can abide by this code and not use these regula-
tions in a discriminatory way internationally. It is one of those
cases where we give and we get.
The final point I will note is on safeguards. We regret that this
code has not yet become final because it is one of the more desir-
able of the potential pieces of the total package. It would prevent
import restrictions from being imposed without first conducting
public investigations and determinations of serious injury to do-
mestic producers. It would be desirable to have the code cover both
offical and the unofficial import restraints.
PAGENO="0015"
7
The subcommittee had made a tentative decision shortening the
period of time for escape clause investigations and when the safe-
guards code comes into being, I hope you will bear in mind the
issue we discussed a few minutes ago, that is, not to impose unreal-
istic time constraints.
Mr. VANIK. On that point, the time limits decision is reflective of
how the antidumping and countervailing duty provisions have been
administrated. If we can be assured of better administration, we
shall be glad to consider timing requirements.
Mr. MCQUADE. I would like to see that happen. And I hope that
the Treasury and others will make that commitment.
Mr. VANIK. You might urge the Treasury to expedite that.
Mr. MCQUADE. We will urge them, too.
Mr. VANIK. All right.
Mr. MCQUADE. To bring my summary to a conclusion, the Emer-
gency Committee for American Trade very strongly supports the
Geneva trade agreements. We are very grateful to this subcommit-
tee for the constructive work it is doing on this. The value of the
agreements ultimately will have to be determined upon how they
work in practice.
U.S. traders simply will have to push our rights under the codes
once they come into effect. We will need U.S. Government support
to do that. I hope that the Government will consider having adviso-
ry groups for each of the codes from U.S. business. I think that
might be a helpful combination.
Basically, as you said, Mr. Chairman, trade can be the currency
of peace and I think this is a step in the right direction which
ECAT strongly supports.
[The prepared statement follows:]
STATEMENT OF LAWRENCE C. MCQUADE, ON BEHALF OF THE EMERGENCY
COMMITFEE FOR AMERICAN TRADE
Summary
1. Mr. McQuade expresses the strong support of ECAT for the multilateral trade
agreements recently concluded in Geneva, and notes that the agreements are neces-
sary to ensure greater fairness and openness in the International trading system.
2. ECAT believes the subsidies code to be the centerpiece of the MTN, and
recommends that the implementing legislation define injury under provisions of the
code be "material" or to be "important and consequential". Other governments are
likely to emulate U.S. injury and other tests. If too loose, U.S. exports could be
considerably damaged.
3. Particularly for antidumping investigations, ECAT recommends that the trade
subcommittee reconsider its tentative decision concerning the time-period for inves-
tigations to ensure that adequate time is provided for sound decision-making.
4. ECAT recommends that the link between foreign government subsidies and
resultant injury to U.S. producers be strengthened through future renegotiaton of
the subsidies code.
5. ECAT supports the government procurement valuation, and licensing codes but
opposes proposals to change the FOB basis of U.S. Import valuation to a CIF basis
since this would raise the effective level of U.S. import protection and require a
renegotiation of the whole U.S. tariff schedule.
6. ECAT supports the standards code and recommends a review of U.S. laws and
regulations to ensure that they conform to the new international code.
7. ECAT regrets that a code on safeguards has not been concluded and suggests
that Congress defer legislative action on the U.S. "escape clause" until a safeguards
code is submitted for any necessary congressional action.
8. ECAT suggests that Congress might want to provide for advisory groups to help
monitor the codes.
PAGENO="0016"
8
Statement
Mr; Chairman and members of the Ways and Means Trade Subcommittee, I am
Lawrence C. McQuade, Senior Vice President, W. R. Grace & Co., and I am pleased
to be here to testify for the Emergency Committee for American Trade in support of
the international trade agreements recently initialed in Geneva. ECAT is made up
of 64 U.S. business leaders whose companies in 1977 had total sales of about $324
billion. These companies employed nearly 5 million workers in that year. The
economic vitality of ECAT companies is fundamentally dependent on international
economic cooperation. All have very extensive international business operations and
ECAT members are committed to policies that will protect and encourage interna-
tional trade and investment.
We are pleased with the outcome of the Geneva trade negotiations. Ambassador
Strauss and his colleagues can be proud of a difficult job very well done. We also
believe this subcommittee deserves credit for its surveillance of the negotiations and
for its many positive contributions to sound U.S. trade policies.
The recently-concluded trade package is very much needed. The tariff reductions
should increase the volume of world trade and the international trade codes can
help ensure that trade will be conducted on the basis of greater fairness and
openness. This aspect of fairness is critically important. The Congress wisely includ-
ed in the Trade Act of 1974 directives to seek improvements in the international
trading rules in order to place American producers on an equal footing with their
international competitors. While all the improvements in the General Agreement
on Tariffs and Trade (GATT) contemplated in section 121 of the 1974 Trade Act
were not secured, many were. Perhaps the most important is the code on subsidies
and countervailing duties.
SUBSIDIES CODE
American business has been increasingly concerned with foreign government
subsidies and their international trade effects. Production costs over the years have
become more alike internationally. This phenomenon is attributable in large part to
the burgeoning of international trade. But, as a result, governments have interject-
ed themselves more and more into the marketplace to provide competitive advan-
tages to their producers through various forms of subsidies. In many cases govern-
ments have become direct or indirect owners of industries. These industries may be
subsidized for social and political reasons. However, one result can be unfair advan-
tage in international trade. Subsidies cause producers in other countries to call on
their governments either to protect the home market from subsidized imports or to
provide offsetting subsidies for themselves, or both. There is thus a risk that unless
brought under international surveillance and a measure of control, subsidies could
undermine the foundations of the international trade system.
ECAT welcomes subsidies code. We believe it to be the centerpiece of the MTN
package and believe that the obligations and disciplines it sets forth can bring order
in the use of subsidies by governments. We see as the primary benefit of the
subsidies code the recognition by signatory governments that competitive advantage
in international trade should not be derived from domestic subsidies-subsidies on
production. If this happens, as it easily can, the advantage can be offset by the
application of countervailing duties or by other trade-protective measures by im-
porting countries. With very few exceptions, over the years, the U.S. countervailing
duty statute has been used against foreign export subsidies and not against foreign
domestic subsidies. There has been legal argument as to whether the U.S. statute
was intended to be applicable to domestic subsidies. If the MTN package is approved
by the U.S. Congress, any such legal questions will be moot.
In return for this and other benefits afforded by the code on subsidies, the United
States has agreed to accept an injury test as a condition for applying countervailing
duties. As members of this subcommittee well know, we have had no such test and
its absence has been a major irritant in our international commercial relations. Use
`of our countervailing duty statute was practically nil throughout most of this
century. But beginning in about the mid-1960's, application of the statute became
most frequent. As this happened, the concerns of our trading partners grew. The
acceptance by the United States of an injury test-which is required by the GATT-
became a primary objective of our trading partners in the Geneva negotiations.
We find the formulation of the injury test in the subsidies code a loose but
reasonable one. We understand that a tentative decision has been made by this
subcommittee to accept most of the language of the code defining injury for the
implementing legislation. The code itself, however, in a footnote on page 4 of the
GATT text, notes that the term "injury" is taken to mean material injury in
accordance with Article 6 of the GAT1~. it is our understanding that the subcommit-
PAGENO="0017"
9
tee's tentative decision on the definition of injury does not specify the "material"
test for injury. We recommend that in reconsidering this tentative decision the
subcommittee either add the word "material" or consider a formulation that will
make clear that injury determinations pursuant to the code should demonstrate
that injury must be found to be important and consequential.
We do not make this recommendation for theological GATT reasons or for reasons
of arguing definitional legalisms. Rather it is our firm judgment that other coun-
tries will emulate whatever is done here in formulating their own injury tests and
their administration of the subsidies code. If the U.S. injury tests under this code
are to be overly easy to meet, then so will be those of our trading partners. This
potentially could be most harmful to U.S. exports, a consideration that cannot be
overlooked.
Our recommendation here is doubly important since the injury test for the
international dumping agreement will be the same as that for the subsidies code.
Because the Euopean Communities are now beginning to rely more heavily on their
antidumping statute, the injury question becomes all the more crucial.
Another concern that ECAT has regarding the subcommittee's tentative decisions
on the subsidies code is with the time limits for fact-finding and decision-making.
Most of us are frustrated with the time it takes our government to do things. It is
all the more frustrating if one's business is being adversely affected while the
government is making up its mind. We thus are most sympathetic with this subcom-
mittee's desire to be helpful through shortening the time in which countervailing
duty investigations and decisions are to be completed. Our caution is that shorten-
ing the period could well mean that the quality of the investigatory product will be
worsened, that due process might be denied simply because of the lack of time and
that unwise decisions could be made. Much of the information required for counter-
vailing and antidumping duty decisions has to be acquired from abroad, in many
instances from countries whose information-gathering facilities are poor. We, there-
fore, suggest that the subcommittee reconsider its tentative decisions in order to
allow more time for investigations, particularly for antidumping cases. These cases
generally involve several different foreign and domestic firms. Gathering necessary
information from them is usually difficult and is always time-consuming.
Our final comment on the subsidies code has to do with the terminology describ-
ing the relationship between foreign subsidies and injury to domestic producers. The
code itself only calls for "a casual link".
Our concern with this wording also has to do with the international dumping
code, which is to be brought into harmony in this and in other respects with the
subsidies code. The international dumping code presently requires that for remedial
action to be taken dumping must be found to be a "principal" cause of injury. In
conforming the international dumping code to the just-negotiated subsidies code, the
"principal" test will be dropped, meaning that it will be easier for governments to
apply dumping duties. And, as noted earlier, the Europeans are placing heavier
reliance on their antidumping regulations.
What we recommend is a future effort by U.S. negotiators to seek to renegotiate
the subsidies code for the purpose of adding "substantial" to the causal link. This
would apply both to countervailing and to dumping cases. If this could be accom-
plished, then the implementing legislation could be subsequently amended to in-
clude the "substantial" link of causality. We do not recommend that the Congress
add "substantial" at this point since to do so would bind only the U.S. Governent.
As I said, the international subsidies code itself only call for "a causal link".
PROCUREMENT CODE
American producers for years have thought it unfair that their foreign competi-
tors were able to bid for U.S. government procurement contracts whereas they were
precluded from bidding for the purchases by foreign governments. The governments.
The government procurement code removes this unfairness on the part of signatory
foreign governments by enabling U.S. firms for the first time to bid for certain of
their purchases.
We in ECAT support this achievement and recommend that Congress pass the
necessary implementing legislation. It appears to us that all necessary reservations
have been made in the code to deal with policies concerning national security
purchases and purchases from small business and minority enterprises.
We note with regret that Japan and the United States were unable to agree on a
reciprocal procurement agreement. A bad agreement, however, would have been far
worse than none. Because the purchases of the Japanese government agencies offer
a significant potential for U.S. exports, we hope that the United States and Japan
will soon be able to conclude an agreement.
L~L~_998 - 79 - 2
PAGENO="0018"
10
We believe that the procurement code offers great possibilities for enhancing U.S.
exports. By initially opening about $20 billion of foreign government purchases to
U.S. bidders, the agreement should enable those of us in the U.S. business communi-
ty to gain considerable new business. The opportunities are there and, if the pro-
curement code is approved, we shall actively pursue them.
VALUATION AND LICENSING CODES
ECAT supports these codes as well. The manner in which imports are valued for
customs purposes affects the level of import protection. The current array of import
valuation and licensing systems used by governments is, in many instances, suffi-
ciently bewildering to discourage or impede international trade. The United States,
for example, has nine different bases for determining customs value. By establishing
five agreed methods of determining customs value, the valuation code provides the
international trading community a welcome service.
We understand that thought is being given to changing the FOB basis of import
valuation used by the United States to a CIF basis. We oppose this since by so
raising the effective level of U.S. import protection a major renegotiation of the U.S.
tariff schedule with all of our trading partners would be required.
STANDARDS CODE
While it may sound uninteresting, the standards code is of vital importance to
exporters and investors. Stories are legion of how standards, testing and certifica-
tion system are used to discriminate against foreign products. This code is particu-
larly welcome in that it is intended to help ensure that the setting of standards will
not be used to keep foreign products out of signatory countries' markets.
Undoubtedly, the provisions of the standards code will conflict with some U.S.
regulations adopted for public policy reasons. One case, for example, involves U.S.
laws and regulations that would require foreign chemical producers to disclose
valuable proprietary information in order to market their products here. We recom-
mend that U.S. laws and regulations in conflict with the code be reviewed and that
considerations of the importance of international trade cooperation be given due
weight.
Signatories of the standards code agree not to allow standards, testing and certifi-
cation sytems to be adopted in a way that would create unnecessary obstacles to
international trade. While the obligation applies only to national governments, it is
hoped that local units of government and also private bodies that set standards
would comply with the purposes of the code. As with the government procurement
code, all standards and rules of certification systems would be published and thus
open to public scrutiny. We in ECAT welcome this code and recommend approval by
the Congress.
SAFEGUARDS
We very much regret that a code of safeguards has not been completed. From our
knowledge of what the proposed code offered, it seemed one of the most desirable
parts of the multilateral trade negotiations. It offered the promise of GATT signato-
ry nations returning to the safeguard provisions of Article 19, which requires
openness in safeguard actions. Its obligations would have prevented nations from
restricting imports from other signatories without first going through the steps of
public investigations and determinations of serious injury to domestic producers.
Many of our trading partners restrict imports without such investigations and
determinations. The result often has been that the nation whose trade has thus
been curtailed has sought alternative markets for its exports. This has usually been
the U.S. market.
ECAT hopes that a safeguard code can yet be completed. We believe that it would
be particularly desirable to include in it a stipulation that governments report not
only official restraints on trade but unofficial ones as well. Under present GATT
provisions, so-called voluntary agreements made by governments or worked out
among industry groups are not subject to reporting requirements. They should be.
We note that the trade subcommittee has made a tentative decision to shorten the
time period for "escape-clause" investigations. We suggest that the subcommittee
defer this decision until such time as a safeguard code has been concluded and
submitted to the Congress for whatever action might be necessary.
In concluding I would like to emphasize the great importance that ECAT attaches
to the Geneva trade agreements and to the vital and constructive work that this
subcommittee is doing in fashioning the legislation that will give these agreements
the necessary legal basis in the United States. How good the codes are will only be
determined through experience. It will be incumbent on American producers to seek
PAGENO="0019"
11
enforcement of their rights under the codes with the necessary help of the U.S.
government. In this regard, the Congress might want to provide for advisory groups
to help monitor the codes and provide necessary assistance to government officials.
Thank you, Mr. Chairman.
Mr. VANIK. On the principal cause of establishing injury from
subsidized imports, are you certain that either the subsidies code or
the amended antidumping code requires that subsidized imports be
the principal cause of injury?
Mr. MCQUADE. I think the antidumping code presently does, but
that will be knocked out by the subsidies code, as I understand it.
Mr. VANIK. Thank you.
Should a similar change be made in the antidumping code?
Mr. MCQUADE. That is right. We would like that not to happen
because we feel it is important not to have trivial relationships
give cause for having--
Mr. VANIK. Well, my objective, as one member of this committee,
is that what we have to establish is some rules that are going to be
recognized that everybody understands.
Mr. MCQUADE. Yes.
Mr. VANIK. I think uncertainty adversely affects trade more
than any other element. Even if something is painful with certain-
ty, it is better sometimes than uncertainty.
Mr. MCQUADE. I agree with that. That is why we are asking for a
standard. I think it would be helpful to have such a standard.
Mr. VANIK. Mr. Jenkins.
Mr. JENKINS. No questions, Mr. Chairman, thank you.
Mr. VANIK. Thank you very much.
Mr. MCQUADE. Thank you very much.
Mr. VANIK. We would like to hear the summary reactions from
every witness when we get the tariff schedules. We would like to
have some communication with the subcommittee to give us some
reaction if there is any problem in that aspect.
The next witness is Chamber of Commerce of the United States,
Mr. W. D. Eberle, Chairman of EBCO, Inc., and former Special
Representative for Trade Negotiations.
We are happy to have you here, Mr. Eberle. You are an old
friend of the committee.
STATEMENT OF WILLIAM D. EBERLE, ON BEHALF OF THE
CHAMBER OF COMMERCE OF THE UNITED STATES
Mr. EBERLE. Mr. Chairman, we thank you for this opportunity to
appear today. I will submit the statement for the record and
merely cover the highlights, as you suggested.
Mr. VANIK. Without objection, your entire statement will be
inserted in the record.
Mr. EBERLE. In addition to the U.S. Chamber of Commerce, the
U.S. Council of International Chamber endorses the testimony
today.
Mr. Chairman, the National Chamber has followed these negotia-
tions since the very beginning, and I would like to start by saying
that we approve, and recommend approval by Congress, of the
entire nontariff barrier agreement package-that is all the codes
that have been completed.
PAGENO="0020"
12
However, we have not yet seen the tariff package and we do
reserve the right to comment on that at a later time. Let me first
try to put in perspective the fact that these codes are very impor-
tant and will be very helpful for the American business communi-
ty, as well as labor and the public. However, if they are to work,
the key issues are: One, how will they be implemented domestical-
ly; and two, how will they be enforced internationally? I think
those are the two key issues your subcommittee and Congress will
be facing.
We have several recommendations we would like to make. If the
codes are to be effective, there must be a well-enforced set of
domestic laws to combat unfair trade practices. One of the major
achievements of the Tokyo Round has been the development of
these codes. How they will be implemented will be critical to their
enforcement.
First of all, there must be a strong coordinating force within the
U.S. Government for trade policy, supported by adequate analytical
staff. Unless there is a staff to support a coordinated effort within
this administration and any future administration, the benefits of
these codes simply will not be realized. Although we do not suggest
that this should be part of the bill today, as soon as possible after
the implementing legislation is passed, we must face how there will
be a coordinated effort within the administration to carry out these
codes.
Second, Mr. Chairman, international enforcement of these agree-
ments will be very important. We would urge that there be close
consultations with interested private parties throughout any inter-
national dispute settlement process. The dispute process must have
not only the oversight of Congress and the administration, but also
the private parties who are affected must be involved in that
dispute process. We urge that the administration take an active
stance to develop strong procedures, as well as international case
law, to see that these codes are in fact carried out and implement-
ed.
Our third recommendation is that the private sector advisory
committees which were established in the Trade Act of 1976, which
have proven to be an effective mechanism in helping carry out
these negotiations, be continued in order to monitor and assist in
carrying out the codes.
We hope that the administration will continue to give great
weight to the private sector advisors, and that the committees be
essentially sectoral. While we oppose substantial reduction in
sector representation on the private sector advisory groups, we
recognize there needs to be some consolidating and streamlining.
The objective would be to maintain the sectoral groups about the
same as they are today, but if there needs to be functional advisory
committees on particular codes, they could be set up on an ad hoc
basis. But the primary support should come from the sectoral
committees.
Our fourth general recommendation, Mr. Chairman, relates to
the prompt judicial review which must be provided for all partici-
pants in any of the proceedings under this legislation. Particularly,
in countervailing and dumping cases, we would hope to see that
the private trade associations, labor unions, other participants who
PAGENO="0021"
13
are now excluded, be included in this process. It is important if
they are to maintain an open trading system that the participants
to any proceedings all have the same right of appeal.
Mr. Chairman, I would now like to turn to the subsidy counter-
vailing duty code and antidumping code implementation.
We have a number of specific recommendations. Prior testimony
has focused on the first issue, but let me go back first to some
general comments.
It is very clear that the Treasury Department has not carried out
it's responsibilities under the current laws. Our first recommenda-
tion is that sufficient staff and other resources be reallocated to
insure the effective administration of these statutes. The legislative
history should make it very clear that Congress intends that these
deadlines be met.
Second, we favor the timely enforcement of the countervailing
duty and antidumping legislation. We strongly urge that the maxi-
mum time limits not be shortened to the point where meeting the
timetables becomes impossible. If you insist that the statutory time
limits are met, the present 12 months for countervailing cases and
13 to 16 months for antidumping cases are adequate.
The problem is that if you do not have time to gather the
information necessary to make decisions, you will get bad decisions.
Although we understood that there were some preliminary recom-
mendations by this committee on the countervailing duty time
limits, we hope you will reconsider the issue.
Next, as far as the suspension of liquidation is concerned, we
believe that after a preliminary determination the posting of bonds
should provide sufficient assurance of an effective remedy.
A major advantage of the new subsidy code is the provision of a
second track to pursue code violations through GATT machinery in
lieu of, or in addition to, domestic countervailing duty proceedings.
If this procedure is to work, the implementing legislation should
designate a maximum time period-we are suggesting 90 days-for
a decision on whether the Government will initiate the internation-
al dispute settlement procedures. Only if there is this kind of a
time limit can we be sure that the international procedures will in
fact be carried out. International dispute settlement should be
handled in a timely process parallel to the domestic procedures.
Let me move on to the question of the definitions in these codes.
As the prior witness has discussed, we believe the term "material
injury" should be included in the implementing legislation's injury
definition, as it is in the subsidy and dumping codes.
As I understood the colloquy between you and the prior witness,
this seems to be the general direction that you are proceeding, so I
will not go into it any further.
The other area of concern is the definition of "bounty" or
"grant," and a list of examples of subsidies. I would only point out
that in developing a list of bounties and grants, you should take
into consideration that our trading partners will also make a list. If
we are unreasonable in what we include in that list, they may be
reacting by adopting similar laws. We must have a balanced defini-
tion here, one that is consistent with the code.
The third point in the area of definitions relates to causation.
While we recognize that a requirement that the subsidy be a
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14
"major" cause would be too stringent, we do not want to adopt the
lowest possible test of causation. Therefore, we feel the implement-
ing legislation should establish a "substantial" cause test before
dumping and countervailing duties are imposed.
Mr. VANIK. I was going to ask you whether, in your opinion, the
subsidies code or the amended antidumping code required subsi-
dized or dumped imports to be a substantial cause of injury? Are
you not familiar with the major cause criteria that made our
escape clause ineffective from 1962 to 1975?
Mr. EBERLE. Mr. Chairman, I am. I think this walks that line
and that substantial cause, which will give us an effective code.
This is the kind of test that would be consistent for both codes.
Mr. Chairman, if I could move to the agricultural subsidy side.
Mr. VANIK. I had one other question on your second paragraph
on page 8. Are you of the opinion that under existing law the
injury test under antidumping is a minimal standard, different
from the injury standard agreed to in the subsidies code and the
amended antidumping code?
Mr. EBERLE. What we are trying to do is to have some middle
ground between the two extremes. The injury test should be great-
er than a minimal test. We think that was the intent of the code,
and we think it should be clarified here.
In the agricultural area there are two points that we believe
were intended by the negotiators when they developed the code.
Therefore, we recommend two clarifications in the legislative histo-
ry. At a minimum, the provision that subsidies should not be used
to gain more than an adequate share of the world trade should not
imply the freezing of market shares to a base period.
Second, Congress should make clear that trade growth derived
from natural advantages and efficiency is legitimate. It is our
understanding that this was what the negotiators intended at the
time, and we feel it is important to include it in the legislative
history.
Mr. Chairman, on the customs valuation code, I would simply
say that you will be hearing from an ad hoc joint industry group
on certain clarifications that are needed.
The National Chamber has been represented on the joint indus-
try working group on customs valuation. They will be making
specific recommendations to you and we support their testimony in
this area.
We also understand that consideration is being given to switch-
ing the U.S. customs valuation system in the implementing legisla-
tion from f.o.b. to c.i.f. While we recognize that either method is
satisfactory under the code, we believe it would be a mistake at
this time to make this change as part of the implementing legisla-
tion. The negotiations have been carried out on the basis of f.o.b. It
would require a complete recalculation and probably some major
adjustments by negotiation to make the change now. At a later
date it could certainly be considered.
We have several important recommendations for carrying out
the Government procurement and standards codes, Mr. Chairman.
First of all, the key feature of both codes is transparency. For the
transparency requirements to be effective, it will be necessary for
our Government to publish all of the various opportunities to bid
PAGENO="0023"
15
on procurement contracts, country-by-country. American producers
need to know what contracts are available so they can in fact bid.
The second point is that this code is different from all the others.
In the past, our policy has been based on the most-favored-nation
principle. This code was negotiated not on a most-favored-nation
basis, but on a reciprocal basis, and it must be clear we only grant
the code benefits to countries that grant open procurement to us.
Mr. Chairman, we recognize the safeguard code is not before you.
We certainly hope that you would urge our negotiators to continue
their efforts to bring back a safeguards clause. In the meantime,
we urge you to make no change in the U.S. law sections 201, 202,
and 203. It is important for our negotiators to have your support in
continuing these negotiations, and we hope they can bring back a
safeguards code as a second package sometime this summer.
There is one area, though, in which both the administration and
the congressional committees seem to be considering changes in
domestic import relief procedures-that is, to reduce the time limit
from 6 months to something less. We feel that 6 months is an
adequate and necessary time limit for many of the complicated
cases. However, that time limit should not in any way preclude
earlier decisions whenever possible.
Once the information is available, there is no reason why the
time cannot be shorter, and we certainly would urge that the
legislative history show that Congress expects that where that
information is available, earlier decisions will be made. Where
adequate information is not available, an expedited investigation
could provide an industry with needed relief sooner in critical
cases. Any legislation creating a fast track provision should spell
out limited criteria for its use.
So we would make two points. One, the 6-month limit is sound,
but there should be earlier decisions where possible. Second, if you
have a fast track, be sure it is limited. We have tried to spell out
the criteria that should be met in a fast track case.
As far as the continued negotiations are concerned, Mr. Chair-
man, we would urge that continued negotiating authority not be
granted at this time until we have a chance to thoroughly test the
congressional approval procedures. When the implementing legisla-
tion is finished, consideration should be given to continued negoti-
ating authority.
Mr. Chairman, this completes our testimony. Again let me em-
phasize that we do support the codes fully. We are only focusing on
two issues: One, the domestic implementation and, two, how to get
international implementation so the codes will be effective.
Thank you very much.
[The prepared statement follows:]
STATEMENT OF WILLIAM D. EBERLE, CHAMBER OF COMMERCE OF THE UNITED
STATES
I am William D. Eberle, Chairman of EBCO, Inc. and former Special Representa-
tive for Trade Negotiations. I am testifying today for the Chamber of Commerce of
the United States. We appreciate this opportunity to comment on legislation to
implement the far-reaching Multilateral Trade Negotiation (MTN) agreements.
The National Chamber's membership consists of more than 79,000 large, medium
and small businesses, 2,600 local and state chambers, 1,200 trade and professional
associations and 42 American Chambers of Commerce abroad. Because the results of
the MTN agreements will have a significant impact on our members, the U.S.
PAGENO="0024"
16
economy and the world trading system over the next decade, the National Chamber
has monitored the negotiations since their inception in 1973 and has supported a
successful conclusion of the Tokyo Round.
The National Chamber has concluded that the nontariff agreements that have
been negotiated offer potentially significant benefits to the entire U.S. economy.
While we reserve judgement on the tariff cuts until we have had time to examine
the final results, we urge Congress to look closely at the advantages the nontariff
agreements offer and then to approve the nontariff package. The question we must
now address is how to ensure that we reap the potential benefits that our negotia-
tors have labored so long to provide?
The National Chamber has a number of specific recommendations for what
should be included in the implementing legislation. Under the unique procedures
for Congressional approval of the MTN agreements, the relevant committees have
already been working on the legislation with the Administration. This Subcommit-
tee is to be commended for providing this opportunity for public input into the
legislation which cannot be amended once it is introduced. However, we are con-
cerned that many of the key decisions have already been made. Some of your
preliminary recommendations differ significantly from what the National Chamber
would recommend. We encourage the Subcommittee to reconsider several issues in
light of the information presented in these hearings and we urge that our sugges-
tions receive serious consideration when the legislation is written.
GENERAL RECOMMENDATIONS FOR IMPLEMENTING LEGISLATION
The National Chamber is convinced that an effective, well-enforced set of domes-
tic laws to combat unfair trade practices is essential. As we continue to negotiate
lower barriers to trade in all countries and work to achieve a progressively more
open world trading system, we must ensure that others do not take advantage of
our reduced barriers by violating internationally agreed upon rules and engage in
unfair trade practices that injure U.S. producers. Nevertheless, we urge that MTN
implementing legislation be carefully drafted to ensure that agreements which were
designed to expand world trade do not have an anticompetitive effect.
One of the major achievements of the Tokyo Round is the development of codes
governing issues which have never before been subject to international regulation.
The impact these agreements will ultimately have on the United States will depend
on how they are interpreted by others and whether they are effectively enforced
internationally. Therefore, we urge the U.S. government to vigorously promote
compliance with the agreements by all signatories. U.S. implementing legislation
must provide mechanisms to carry out the agreements within this country and to
facilitate full acceptance of code obligations internationally. To this end, it will be
necessary to more effectively coordinate trade policy within the U.S. government.
At the very least there should be a strong coordinating focus for all trade policy
decisions, supported by adequate analytical staff. This staff must be prepared to
gather the facts and comprehend developments in international trade, by product
and by sector, in order to develop sound international and domestic policy. Congress
must provide oversight to ensure that the job gets done and should encourage the
reallocation of adequate resources.
Because international enforcement of the agreements is such a major determinant
of the impact of the MTN package, the U.S. implementing legislation must provide
a mechanism that enables private interests to bring complaints of foreign code
violations to the U.S. Government for pursuit through the international dispute
settlement procedutes and that allows private participation in the defense of U.S.
practices against foreign complaints. There should be close consultation with inter-
ested private parties throughout the international dispute settlement process.
The system of private sector advisory committees established under the Trade Act
of 1974 has proven to be an effective mechanism for public input into the develop-
ment of trade policy and has provided our negotiators with essential information to
evaluate how various sectors of the economy would be affected by different negotia-
tion proposals. The private sector advisory process should be continued to assist in
monitoring the implementation of the MTN agreements and to advise in future
trade negotiations. We urge the Administration to give even greater weight to the
advice of its private advisors. The implementing legislation should establish adviso-
ry committees which are essentially sectoral, and which are broadly representative
of the entire economy as possible, including wholesaler, retailers, the service indus-
try and consumers, as well as industrial producers, labor and agricultural interests.
While we oppose any reduction in the number or size of the current advisory
structure that would eliminate the representation of any major interest, we recog-
nize that some consolidating and streamlining may be necessary. The burden of
PAGENO="0025"
17
administering the advisory system can be further reduced by convening the commit-
tees only as needed. Functional advisory committees should be established on an ad
hoc basis, drawing from the membership of the sectoral committees, as well as
outside experts, again ensuring that all relevant interests are represented.
It is important that the right of prompt judicial review be provided to any
participant in proceedings brought under the implementing legislation. In the case
of countervailing duties and dumping allegations the implementing legislation
should broaden the right of judicial review to allow trade associations and labor
unions to appeal decisions immediately following a final determination. If U.S.
exporters are accorded the same rights, representatives of foreign exporters should
also be allowed to appeal. Procedures for judicial review of other issues such as
customs classifications and valuation should be handled separately in Customs
Court legislation.
RECOMMENDATIONS FOR SUBSIDIES/COUNTERVAILING DUTY AND ANTIDUMPING CODE
IMPLEMENTATION
The subsidies/countervailing duty code is a potentially valuable tool to limit
foreign subsidies that adversely affect the ability of U.S producers to compete in
subsidizing countries, and in third country markets as well as at home. The anti-
dumping code has been amended to conform to the new subsidy code. It is essential
that U.S. countervailing and antidumping laws be administered effectively. All
parties benefit by the timely resolution of disputes, and decisions that are based on
legal criteria and factual economic analysis, rather than on domestic political or
foreign policy considerations. In the past, there has been widespread criticism of the
way the Treasury Department has administered the dumping and countervailing
duty statutes. Delays have at times been unwarranted, the effect of which has been
to impair the rights of some parties.
Administration and time limits
In light of the additional responsibilities created by the new codes, it is essential
that sufficient staff and other resources be reallocated to ensure effective adminis-
tration of the statutes regardless of the identity of the administering agency. The
implementing legislation or legislative history should establish that, as a matter of
public policy, the government intends to meet all statutory deadlines for dumping
and countervailing duty cases. There must be active Congressional oversight of the
administration of the new laws.
However, while we favor timely enforcement of countervailing duty and dumping
legislation, we strongly urge that the maximum time limits not be shortened to the
point where the chance of meeting the statutory timetable is reduced and/or due
process is denied in an effort to comply with unrealistic deadlines. The current
designation of 13 to 16 months for antidumping cases and the subsidy codes limit of
12 months for countervailing duty cases are reasonable maximum time periods as
long as the statutory time limits are scrupulously met. In many cases shorter
investigative periods would significantly reduce the quality of deliberations neces-
sary to make often complex determinations of dumping, subsidies, injury and causa-
tion. This is especially true when verification is necessary. Shortened time limits
will prevent effective verification of submissions. Although the countervailing duty
limits recommended by this Subcommittee are preferable to those of the Senate
Finance Committee, we respectfully urge you to reconsider and recommend the
subsidy code's 12 month limit, as well as no change in dumping limits.1
The time allotted for preliminary determinations becomes particularly crucial if
provisional dumping and countervailing duties are to be assessed after a prelimi-
nary positive determination. Although we favor suspension of liquidation at that
point, provided there has been enough time to make a reasoned determination, the
posting of a bond should provide sufficient assurance of an effective remedy. The
amount of the duties can only be a rough estimate after the preliminary investiga-
tion, and a requirement that full estimated duties be paid in cash could seriously
disrupt trade.2
A major advantage of the new subsidies code is the provision of a second track to
pursue code violations through GATT machinery in lieu of, or in addition to,
domestic countervailing duty proceedings.
The U.S. government should actively promote the development of international
case law governing all the new codes, and particularly the subsidies code, by
bringing apparent violations into the international arena on the basis of its own
1 Three of the 23 members of the National Chamber's MTN Task Force believe the time limits
for both antidumping and countervailing duties should be shortened.
2 Task Force members did not agree with posting of a bond and recommended instead
posting cash deposits.
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18
information or complaints by private citizens. The implementing legislation should
designate a maximum time period-perhaps 90 days-for a decision on whether to
initiate the international dispute settlement procedures.
Definitions
Any definitions or illustrations of what constitutes a subsidy should be carefully
drawn considering the possibility that other countries will emulate our definition to
exclude U.S. exports. "Bounty or grant" should be defined so as to authorize
imposition of a countervailing duty only when the foreign government program has
an adverse effect on the trading interests of other countries.
The implementing legislation should clearly define both material injury and
causation in order to provide greater certainty in the administration of the counter-
vailing duty and antidumping laws. Such definitions should conform to the language
of the codes and should not turn procedures designed to combat unfair trade
practices into tools which encourage anticompetitive behavior.
The term "material injury" is the internationally agreed-upon language that we
have accepted in the subsidy and dumping codes. It is only appropriate that it be
included in the U.S. implementing legislation, along with the code's list of factors to
take into account in determining injury. Material injury should be further defined
as less than the "serious injury" required for escape clause actions, but greater than
the minimal standard under current U.S. antidumping interpretations.
In order to provide some guidance to the administering authorities in determining
whether dumped or subsidized imports have actually caused injury to U.S. produc-
ers, the necessary level of causation should be further clarified. While a require-
ment that the subsidy is a "major cause" of injury would be too stringent, the
national interest is not served by the lowest possible test of causation. Therefore,
the implementing legislation should establish that the dumped or subsidized imports
must be a "substantial" cause of injury before dumping or countervailing duties are
imposed.'
Agricultural subsidies
The National Chamber has consistently argued that agricultural export subsidies
should be prohibited in the same way that nonagricultural subsidies are. We are
disappointed that the subsidiy code fails to achieve this goal. Nevertheless we
recommend clarification of two code provisions on agriculture. At a minimum, the
code's provision that subsidies should not be used to gain more than an equitable
share of world trade should not imply the freezing of market shares to a base
period. Congress should make it clear that trade growth derived from natural
advantages and efficiency is legitimate. Shares acquired in the "representative
period" as the result of export subsidies should not be considered "equitable shares."
Secondly, in order to clarify what is meant by "prices materially below those of
their suppliers to the same market," the phrase should be defined in the implement-
ing legislation as "prices which cause sales diversion or price disruption."
It is also important to recognize that in certain instances the practices of interna-
tional lending institutions, which are supported in part by U.S. contributions, may
have the effect of subsidizing products of other countries which compete with U.S.
agricultural commodities and with U.S. industrial products.
Certain tax practices
It is unfortunate that the subsidy code proved unable to deal with a variety of
direct and indirect tax matters. Congress should direct the Administration to contin-
ue active international negotiations on these issues. Furthermore, the implementing
legislation should make it clear that pending the successful conclusion of such
future negotiations, it is the understanding of the United States that the subsidy
code will not prejudge certain direct tax practices of the United States or of other
countries, particularly the U.S. Domestic International Sales Corporation (DISC)
provisions, which are the subject of pending action under GATT.
RECOMMENDATIONS ON CUSTOM VALUATION
If fully implemented, the new customs valuation code will provide significant
benefits to U.S. exporters who now face arbitrary uplifts under many counties'
valuation systems. U.S. implementing legislation should further clarify certain in-
terpretitive notes to the code. The Joint Industry Working Group on Customer
Four Task Force members did not agree with the recommended definitions of material injury
and causation. They believe the creation of a higher threshold of injury than at present under
U.S. antidumping law and the requirement that the dumping or subsidy be a "substantial
cause" of injury are unwarranted.
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19
valuation, on which this Chamber is represented, has made specific recommenda-
tions on implementing legislation.
Apparently, some consideration are being given to switching the basis of U.S.
customs valuation from FOB. to C.I.F. While either method is allowed under the
code, we believe it would be a mistake to attempt to make such a change at this
time. Aside from any questions of port, exporting country or mode of transport
discrimination, adopting C.I.F. would require reopening the complex tariff rate
negotiations which have just been completed. U.S. tariff levels would have to be
adjusted to compensate for the different valuation method.
RECOMMENDATIONS ON GOVERNMENT PROCUREMENT AND STANDARDS
The government procurement and standards codes offer U.S. producers the poten-
tial for major benefits by the opening up foreign government purchasing to competi-
tive bidding and reducing technical barriers to trade. A key feature in both codes is
increased transparency-the requirement that announcements of bids and stand-
ards development are made public and that procedures are open to participation by
foreign as well as domestic interests. In order to make these provisions meaningful
for U.S. producers, it will be necessary for the U.S. government to play an active
role in collecting published announcements and making the information on foreign
government contracts and standards available to interested parties. The implement-
ing legislation should clarify the responsibility of appropriate U.S. agencies is fulfill-
ing these functions
Application of the government procurement code should be truly reciprocal so
that we treat other countries as they treat us, except for certain special treatment
for less developed countries (LDCs) as authorized by the code. The ultimate goal
should be to expand the entities covered by the code and increase the number of
signatories. To this end, it may be necessary to maintain domestic preferences for
contracts under noncovered entities and, after a grace period, to allow no bids from
suppliers in countries that do not adhere to the code.
RECOMMENDATIONS ON LICENSING
The National Chamber opposes granting the President authority to auction
import licenses, except perhaps for oil import licenses and those required under
section 22 of the Agricultural Adjustment Act. While this proposal may have merits,
we believe that it should be the subject of separate legislation to permit considera-
tion of the impact of an import license system on various programs.
We oppose the adoption of an "automatic licensing system," now or in the future,
because it would place an additional burden on business, require the establishment
of a new bureaucracy and increased government expenditures, without any perceiv-
able benefits.
RECOMMENDATIONS ON SAFEGUARDS
Until the safeguards code is completed and it is possible to design U.S. legislation
that conforms to its requirements, we recommend that no changes be made in U.S.
law (Sections 201, 202, and 203 of the Trade Act of 1974). Meanwhile, we encourage
Congress to support the U.S. negotiators in their efforts to conclude successfully the
safeguards negotiations as soon as possible.
One area where both the Administration and Congressional committees are con-
sidering changes in U.S. import relief procedures is in reducing the six month time
allowed for injury investigations made by the U.S. International Trade Commission.
While we oppose any such changes at present, it is important that all import relief
investigations be completed as rapidly as the availability of information and the
excercise of prudent judgement by the ITC (concerning both the existence of injury
and the fashioning of a remedy) allows. The statutory six month deadline is only a
maximum limit; in many cases, especially those concerning products with which the
Commission is familiar as a result of previous investigations, sound decisions should
be possible in a shorter time frame.
If however, the Congress does decide to change the six month time limit, now or
at a later date, the Senate Finance Committee recommendation for a shortened
"fast track" procedure in unusually critical cases is preferable to the initial propos-
al of this Subcommittee and the Administration that all cases be decided in four
months. Again, the key ingredient is availability of information. Four months will
be inadequate in complex cases where data is not readily available. A hasty deter-
mination would impair the quality of the decision and would be to the advantage of
neither the importer nor the domestic producer.
Where adequate information is available, an expedited investigation could provide
an injured industry with needed relief sooner. Legislation creating a fast track
PAGENO="0028"
20
provision should spell out the criteria for its use. We propose that a decision to
conduct an expedited investigation should be granted only when the International
Trade Commission has concluded that the evidence presented clearly leads to the
conclusion that such an expedited investigation is necessary to avoid irreparable
damage to the industry. Among the indicators (others may be appropriate) of
irreparable damage would be the convergence of:
(1) a rapid, substantial increase in imports both absolute and relative to domestic
production;
(2) a serious, rapid decline in profits or increase in losses; and
(3) plant closings which result in layoffs of a significant proportion of an indus-
try's employees with poor chances of reemployment in the industry.
Having embarked upon a fast track investigation, the Commission must be free to
decide to revert to a normal investigation if the information necessary to its deci-
sionmaking is unavailable or if the Commission decides that the petitioning indus-
try does not, after all, qualify for an expedited investigation.
CONTINUED NEGOTIATING AUTHORITY
It has been proposed that the President's authority to negotiate additional tariff
reductions and nontariff barrier agreements subject to congressional approval under
the procedures of the Trade Act of 1974 be continued. While it may be necessary for
there to be further negotiations, we would recommend considering the necessary
authority in separate legislation after the current unique approval procedures have
been tried and can be evaluated.
MULTILATERAL TRADE NEGOTIATION TASK FORCE, 1979-W. D. EBERLE, CHAIRMAN,
CHAIRMAN, EBCO, INc.
Donald G. Brotzman, Vice President, Government Relations and Economic Af-
fairs, Rubber Manufacturers Association.
Thomas A. Christiansen, Manager, International Trade Relations, Hewlett-Pack-
ard Co.
Paul H. DeLaney, Jr., DeLaney and Patrick.
Charles Derecskey, Program Manager, Governmental Programs, IBM Corp.
David J. Elliott, Manager, Customs and International Trade Affairs, Procter and
Gamble Co.
Edward Florkoski, Vice President, International Trade and Economics, American
Iron and Steel Institute.
Myron Foveaux, Legislative Representative for Trade and Economic Policy, Man-
facturing Chemists Association, Inc.
Theodore R. Gates, Consulting Economist.
Allan Grant, President, American Farm Bureau Federation.
Richard Goodman, Vice President, Continental Grain Co.
Harry W. Jones, Vice President and Director, Overseas Affairs, Westinghouse
Electric Corp.
Dr. William Kling, Washington Representative, American Soybean Association.
Will E. Leonard, Busby, Rehm & Leonard.
Richard Lyng, President, American Meat Institute.
Irene Meister, Vice President, International American Paper Institute.
John V. Moller, Assistant Director, Government Affairs Division, Motor Vehicle
Manufacturers Association.
Stanley Nehmer, Director, Economic Consulting Services, Inc.
Waring Partridge, McKinsey & Co.
John Pellegrini, Senior Attorney, J. C. Penney, Inc.
Alan B. Spurney, Director, International Business Council, Electronic Industries
Association.
T. D. Taubeneck, President, Rockwell International Trading Co.
C. William Verity, Jr., Chaiman of the Board and Chief Executive Officer, Armco
Steel Corp.
Dr. Elizabeth V. Perkins, Executive Secretary MTN Task Force, International
Division, U.S. Chamber of Commerce.
Mr. VANIK. Mr. Ambassador, there is a question that occurs to
me on another subject. The Chamber has a cross-section of mem-
bership, both large and small corporations. Ar~the smaller corpo-
rations satisfied with what we have worked out and what has been
done on the set-aside question?
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21
Mr. EBERLE. I am not sure I can give you an answer that says
everybody is satisfied. Obviously, when there are over 80,000 mem-
bers, you have to look at majority opinions. I think one can say
that there has been very little opposition to what has been done.
Therefore I assume that they are basically in favor of it.
Mr. VANIK. Yes. I felt that that decision was imperative in order
to get the MTN adopted and approved. I just wanted to know
whether there is settlement on that issue or whether you hear
some rumblings in your organization that might indicate that we
may have troubles.
Mr. EBERLE. There is no question, as you indicated when you
started, that you are not going to satisfy everybody but I think on
balance it was a reasonable settlement.
Mr. VANIK. Thank you very much.
Mr. EBERLE. Thank you.
Mr. VANIK. Are there any questions?
Mr. JENKINS. No.
Mr. HOLLAND. No.
Mr. VANIK. Thank you very much.
We will be pleased to hear from Charles R. Carlisle, vice presi-
dent, St. Joe Minerals Corp.; Stanley Nehmer, president, Economic
Consulting Services, Inc.; and Donald deKieffer, Collier, Shannon,
Bill, Edwards & Scott.
We would be pleased to hear from you. Your entire statements
will be entered into the record as submitted.
We would be pleased to have you excerpt from them or speak
from them in any way that can get the issues before the subcom-
mittee in the most expedient manner.
Who will proceed first? Mr. Carlisle?
STATEMENT OF CHARLES R. CARLISLE, ON BEHALF OF THE
AD HOC SUBSIDIES COALITION, ACCOMPANIED BY STANLEY
NEHMER, AND DONALD deKIEFFER
Mr. CARLISLE. Yes, sir, I will.
I am Charles Carlisle. On my right is Mr. Stanley Nehmer,
President of Economic Consulting Services here in the city; on my
left Mr. Donald deKieffer, Collier, Shannon, Rill, Edwards & Scott.
Both of these gentlemen have had extensive experience with the
trade statutes.
As you suggested, sir, I would like to request that my entire
statement be submitted for the record and I will try and summa-
rize it in my own words.
Mr. VANIK. Without objection, it is so ordered.
Mr. CARLISLE. Mr. Chairman, our testimony this morning makes
six principal points:
First, we think that our negotiators, Ambassador Strauss and his
colleagues, Mr. Rivers and Mr. Greenwald, have done a good job of
negotiating the subsidies code in Geneva under trying circum-
stances. The important thing, however, sir, is the implementing
legislation which will give practical effect to the code under Ameri-
can law.
The second point is that amendments to the countervailing duty
statute are necessary regardless of what happens to the trade
PAGENO="0030"
22
package, because in our judgment the present statute and Trea-
sury's administration of it are seriously inadequate.
Third, we believe that this subcommittee as well as the Senate
Finance Committee, has made good progress on a number of key
amendments.
Fourth, however, we are concerned about certain tentative deci-
sions which this subcommittee has taken and we would like to
address those a little bit later on.
We also wish to focus briefly on two other major issues. One is
the issue of the amendments to the antidumping statute as a result
of amendments made in the GATT antidumping code, and also, our
sixth point is that we are concerned about the Senate Finance
Committee decision to give the executive branch new authority to
cut tariffs and negotiate on nontariff barriers.
I would like to turn now, Mr. Chairman, to the subsidies question
and the amendments to the countervailing duty statute. Let me
explain why, first of all, we think that the implementing legisla-
tion is of paramount importance.
First, there can be little doubt that subsidies are pervasive, that
they affect many important American industries and that they
probably are increasing. Attachments 2 and 3 to our prepared
statements come from two highly respected publications, Fortune
magazine, and the Harvard Business Review. They outline this
problem much better than I could.
Second, as I have said earlier, we believe that the current law
and Treasury's administration of it are seriously inadequate: they
have missed statutory deadlines; they have calculated the net
amount of the subsidy in very questionable ways-that is why we
would like to return to this issue in a few minutes; they have
conducted ex parte meetings with foreign representatives and they
have not verified the information which has been supplied to them;
and they have changed rulings without adequate opportunity for
interested parties to comment. Attachment 4 to our testimony lists
a number of specific instances.
Now in order to correct this kind of abuse and to deal in a really
effective way with the widespread subsidy problem, Mr. Schulze of
this subcommittee has introduced H.R. 3307, Senators Heinz and
Moynihan have introduced identical legislation in the Senate.
We strongly support this legislation which conforms, and I think
this is an important point, to the Geneva subsidies code in all
important respects.
As I noted in my introductory remarks, this subcommittee has
already done, we think, much useful work. Because of its great
importance I would like to mention just briefly one of the key
issues which has been mentioned by other witnesses this morning
and which the subcommittee has already addressed satisfactorily in
our judgment; that is the question of the determination of injury.
Of course, under current law, a domestic complainant does not
have to demonstrate injury except in the case of duty-free mer-
chandise. Many of us believe that the law should not be changed
on this point because subsidization constitutes a per se violation of
fair trade concepts and injury should be presumed.
I might mention parenthetically that export subsidies are essen-
tially illegal under the newly negotiated code.
PAGENO="0031"
23
In return, however, for international recognition of the fact that
internal subsidies can adversely affect industries in other coun-
tries, and recognizing that countervailing measures may be em-
ployed against those internal subsidies, American negotiators, and
this has been a key compromise, have agreed to accept an injury
test.
A number of organizations in our coalition are prepared to
accept, reluctantly, an injury test in the code and in the imple-
menting legislation, provided that the matter is handled in the way
that this subcommittee has agreed that it should be handled. And
that is that the statutory language should require that the injury
test applied in countervailing duty investigations be no different
than that applied under the Antidumping Act since January 3,
1975.
Let me say, Mr. Chairman, speaking as one who has had person-
al experience, that it is not an easy injury test.
Now some persons have argued that the injury test should be as
rigorous as that required in escape clause proceedings under sec-
tion 201 of the 1974 Trade Act. In our view there simply is no
justification for making the determination of injury in unfair trade
cases more stringent than that applied now under the Antidump-
ing Act.
We would like to be very frank with you on this key point. To
require an escape clause type injury test under the countervailing
duty statute would in our judgment make the statute virtually
unworkable as far as domestic petitioners are concerned.
Now I would like to turn to three other points which this sub-
committee has addressed and to two which it has not.
First, one of the three points which the subcommittee has ad-
dressed. That is the question of offsets as they are sometimes called
or, as the subcommittee called it, the definition of net subsidy. Our
general view is that these offsets should be very few and defined
precisely in order to prevent abuse. We believe that the subcommit-
tee has handled the matter well except that included in the defini-
tion is the phrase "direct and verifiable costs actually assumed" to
qualify for the subsidy.
Bearing in mind what you said earlier, Mr. Chairman, about the
desirability of avoiding uncertainty, I would like to say we do not
know what that phrase means. We are most concerned, however,
that it would allow the administering authority to deduct from
duties directed against regional development subsidies many of the
costs incurred in establishing facilities in depressed regions. Re-
gional subsidies to compensate for the comparative disadvantages
of locating in such regions are extremely common and often equal
a substantial fraction of the total cost of a facility.
Leaving this phrase in the definition of net subsidy would, we
believe, leave a potentially very large loophole in the definition.
We therefore urge that that phrase be stricken from the definition.
Second, on the question of price or other assurances to terminate
countervailing duty cases, as you know the subsidies code permits
such assurances but does not require them. Nor has Treasury
permitted such assurances in the past. We believe that they are
inappropriate now because it is very difficult to link these assur-
ances to the subsidy itself.
PAGENO="0032"
24
Now the subcommittee has dealt with the question by, in effect,
saying the assurance should be sufficient to remove the injury and,
by providing for appeal to the International Trade Commission, to
determine whether the assurance would have that effect. It seems
to me this presents two problems.
First, it could present, I am sure inadvertently, a double injury
test, and I spell out on the top of page 8 what I mean by that.
Second, it raises the question of what tests, what benchmarks
would the ITC employ to determine whether the injury would be
removed. We believe, really, that price and other assurances should
not be used. But if the subcommittee believes there are compelling
reasons to provide for price assurances, then we recommend that
certain safeguards be established: First of all, that only price assur-
ances be accepted; second, that the price assurance equal the subsi-
dy in its total amount; third, that the price assurance be accepted
only if the foreign government is a party to the assurance; and
finally, that the price assurance be monitored very closely on an
entry-by-entry basis.
I would like to turn briefly to the question of filing fees or cash
or bonds or deposits of $1,000. We do believe, sir, it is wrong in
principle to require the posting of any bond or fee to have the law
enforced. Now the $1,000 may seem very small.
Mr. VANIK. On that issue of price assurance, I addressed a letter
to Ambassador Strauss on that point, which I will have available
here in a few moments if you have not had it. I have personally
taken a position on that which you have urged. So I want to give
you notice that I have made an effort to take care of that problem.
Mr. CARLISLE. Thank you, Mr. Chairman. I am delighted to hear
that. I have not seen the letter, but I would certainly welcome
seeing it.
On the $1,000 fee I mentioned that we do think it is wrong in
principle. Also, it could prove burdensome to some small firms and
unions. We would again recommend that the question of frivolous
petitions be handled in other ways and we think it can be easily
done.
Now two issues, Mr. Chairman, which your subcommittee has
not addressed as yet. That is, first of all, which agency should
administer the countervailing and antidumping statutes. We know
this does raise very knotty problems and there is sentiment to put
the matter over to another time. But we urge, nonetheless, that the
subcommittee take up this admittedly vexing problem now; we are
in the concluding stages of a major revision of the international
trading system.
Mr. VANIK. You know my problem on this point. My problem on
that point is I did not know where the function ought to be because
my experience is that no matter where you move a function, you
end up with the same bureaucrats doing it. I just do not want to
shuffle them into a job grade increase in recognition of what they
have failed to do in the past.
Now under our system, as you know, wherever we place this
function you are pretty much going to end up with the same people
handling it. They are the very people that have done such a miser-
able job in the past, about which I have complained. So I see no
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25
solution, I see no ready solution to the problem. I am very troubled
about this point. I know it is important.
It does not complete the resolution of our business, but I sure
have to have a better handle or some assurance that whatever we
do does not end up with simply a movement of desks from one
building to another with the same inherent problems of ineptitude
and indifference manifested in the new shift.
Mr. CARLISLE. Let me say a word or two on that, Mr. Chairman.
First of all, it might be worth taking a look at the proposal to
establish a new trade department as certain Senators have urged.
Second--
Mr. VANIK. How do they get around my problem of having the
same bureaucrats, another supergrade bunch of people up there
drawing salaries and crowding the highways, taking up parking
spaces? I am getting very sensitive about this.
Someone said when are you going to leave Washington? I said
when they charge me for my parking space.
Mr. CARLISLE. All points well taken.
Mr. VANIK. He is going with me. There might be an exodus.
Mr. CARLISLE. We hope not.
Mr. VANIK. We have problems because public transportation does
not serve the long extended hours that we work here.
Mr. CARLISLE. I think your points are perfectly well taken. I
think it is probably a matter though of the leadership at the top,
too. I do think that even if certain bureaucrats as you described
them, are shifted, if they come under the right kind of leadership,
we can have better administration of our fair trade statutes.
Mr. Nehmer wants to add a comment.
Mr. NEHMER. There are today, I understand, only four profession-
al members of the staff of the Treasury Department's Office of
Tariffs and Trade. In order to do an effective job under the new
countervailing duty statute, it cannot be done with four profession-
al people. You can transfer the bodies to a new office. I would like
to think that the new agency would be able to infuse a larger
amount of `resources to do an effective job so that there will in fact
have to be new people brought into the picture other than those
who have been administering this task.
I should also say that the burden and responsibility for the poor
job that Treasury is charged with really cannot rest on the shoul-
ders of these four professional people. It is the leadership in the
Treasury Department, from the Secretary to the Under Secretary,
the General Counsel, the Deputy Assistant Secretary of Treasury,
who have not provided it with the kind of effective leadership
necessary and those people would not move with the function.
Mr. VANIK. I just want to point out that after we created the
Department of Energy, I think it is going to be difficult for this
Congress to ever again, within any reasonable period of time, estab-
lish any new departments. I think that was the department to end
all departments. I think there is rather broad-scale opinion about
that. So you have a political problem about that kind of a solution.
Go ahead.
Mr. CARLISLE. We do not differ at all with you, Mr. Chairman,
about the difficulty of it; we just hope that some time can be spent
on this admittedly difficult question.
T~-998 - 79 - 3
PAGENO="0034"
26
Let me mention one other issue which I do not believe the
committee has addressed on the subsidies issue to date. That is, as
you know, section 301 of the Trade Act provides for relief when
subsidies cause trade diversion in the U.S. market or result in the
loss of U.S. export sales. We would like to see this section amended
so that there would be time limits and a requirement to take
retaliatory action.
Senators Heinz and Dole have made some suggestions over in the
other House which involve the ITC in the procedure and put a time
limit on the procedure. It seems to me this is a good way, perhaps,
of handling the matter. We would like to commend it to your
attention.
I would like to make one other point, Mr. Chairman, before I
turn away from the subsidies issue. It is a short point, but I think a
fundamental one, and that is this: That to urge strict measures
against subsidies is the very antithesis of protectionism. The con-
cept of free trade rests on allowing market forces to determine
investment decisions and trade flows. Subsidies, no less than tariffs
and quotas, and perhaps more, distort free trade, and I was pleased
to hear what Mr. McQuade, of the Emergency Committee, had to
say on this point.
In the interest of saving time, I am not going to try to summa-
rize the points that we make about implementing legislation and
antidumping. We have four points to make addressed briefly on
pages 10, 11, and 12 of our testimony, and I would like to go to the
final point, which is the extension of the authority to negotiate
tariff cuts and agreements on nontariff barriers.
It is the last point I have to make.
We agree with Ambassador Eberle on this point. As you know,
the Senate Finance Committee has recommended, as part of the
trade package of agreements and implementing legislation, extend-
ing the President's authority for 5 years and making permanent
the authority to negotiate on all nontariff barriers. Further, the
committee has recommended that future trade agreements and
implementing legislation become effective in the way that this
trade package will become effective, that is, an up-or-down vote on
the floor with no amendments permitted.
In our view, Mr. Chairman, this implementing legislation should
have nothing to do with the granting of future authority. Whether
such authority is necessary is debatable, but if it should be consid-
ered, it should be handled, we think, in the customary legislative
fashion after full hearings are held.
We do urge very strongly that the Congress not grant new trade
negotiating authority at this time.
Mr. Chairman, my concluding remarks are these: Congress has
engaged, or is now engaged, in one of the most far-reaching revi-
sions of American trade statutes in modern times, and we heard
what you said in your opening remarks. We want to support this
trade package. We really do. We always have. We have been work-
ing with the administration and with the Congress for well over a
year on the issues which we have been discussing this morning.
We are now coming to the end of a very long process, and we do
hope that the key issues will be addressed in such a way that the
PAGENO="0035"
27
organizations represented in our coalition can give full support to
the trade package.
Thank you very much, sir.
Mr. VANIK. We are glad to have your analysis, and I think we
will prove to be responsive to what you have recommended. The
letter that I referred to is a letter of April 11, 1979, which I will
place in the record at this point. The gist of my letter to Ambassa-
dor Strauss concerns the position of the subcommittee, specifically:
It is our view that foreign price assurances should be adequate to eliminate the
full margin of dumping or the full amount of the net subsidy, not merely the
indeterminate amount of injury deemed to be taking place.
That is the thrust of the letter. If you have any comment on
that, I would be pleased to have it, but we will make it part of the
record.
Mr. CARLISLE. We are quite delighted with that letter.
Mr. VANIK. Without objection, the letter will be entered in the
record at this point.
[The letter follows:]
SUBCOMMITTEE ON TRADE,
COMMITTEE ON WAYS AND MEANS,
Washington, D.C., April 11, 1979.
Hon. ROBERT S. STRAUSS,
Special Representative for Trade Negotiations,
Executive Office of the President, Washington, D.C.
DEAR MR. AMBASSADOR: We wish to call to your urgent attention a potential
loophole in the procedures being developed to obtain more effective countervailing
duty and antidumping procedures. This issue was not fully addressed in our review
of the subsidies-countervail code, but will certainly arise when we consider the
antidumping code. Our concern relates to the question of discontinuance of counter-
vail and antidumping procedues on the basis of foreign price assurances.
Specifically, it is our view that foreign price assurances should be adequate to
eliminate the full margin of dumping or the full amount of the net subsidy, not
merely the indeterminate amount of injury deemed to be taking place.
In order that there be a basis for determining the margin of dumping or the net
subsidy, price assurances should not be accepted until a preliminary determination
has been made. Compliance with price assurances should be monitored on the same
basis as a final determination. Breach of an assurance should result in imposition of
regular duties.
Failure to condition price assurances along the lines indicated above will result in
the type of unbridled Administration discretion which has plagued the enforcement
of these statutes and which, as a result, has given justifiable cause to complaints
that trade policy is being poorly administered.
There is currently no provision in these existing laws to require less than the full
amount of dumping margin or net subsidy. To open to subjective determination the
acceptance of a lesser amount on the theory that it would be adequate to remove
future injury would result in settlements at less than the full amount of the margin
which could actually foster rather than deter dumping or subsidization settlements
at lesser amounts and would incur a loophole in these statutes which would impair
them to a point of little or no utility.
As you can recognize this assurance is of primary concern to industry in general
and to labor and the resolution of this issue is absolutely essential to successful
Floor action of the entire MTN package.
We would very much appreciate your early response.
Sincerely,
CHARLES A. VANIK,
Chairman.
GUY VANDER JAGT,
Ranking Minority Member.
Mr. VANIK. Yes, Mr. Jenkins.
Mr. JENKINS. Mr. Chairman, I might have missed part of-the
testimony. With regard to the problem of dumping by socialist
PAGENO="0036"
28
government countries, what is your recommendation in that field-
that we go back to the prior law?
Mr. CARLISLE. Yes, sir, Mr. Jenkins. Well, the prior regulations.
As I understand it-and, incidentally, we didn't intend to gloss
over this important point; it was just to save time-as I understand
it, prior to August of 1978, in order to construct the cost of industry
in a socialist country, say, Poland, for example, the Treasury would
examine a like industry in another country, in a so-called free
market economy country.
Since August of 1978, under a new regulation, they have been
comparing economies, say, going from Poland to Spain, and even if
Spain doesn't have an industry comparable to the Polish industry
under question, they construct hypothetically the industry and the
cost. It seems to us that the Treasury should be required by law to
go back to the old method, a method that was used for over 20
years.
Mr. JENKINS. Based upon prices of the commodity, itself.
Mr. CARLISLE. Yes, sir.
Mr. JENKINS. One other thing: You do oppose the granting of the
additional 5-year authority to the President to negotiate further?
Mr. CARLISLE. Yes, sir, very strongly.
Mr. JENKINS. Thank you, Mr. Chairman.
Mr. VANIK. Mr. Fisher?
Mr. FISHER: No questions.
Mr. VANIK. On the nonmarket economy countries, last week I
was in the Soviet Union, and I urged the Soviets to become a part
of GATT, to become signatories to the proposals, particularly these
codes which were so vitally important to the flow of trade, and I
also pointed out that their participation was essential so we can
develop a rather substantial policy of dealing with the problems of
cost and production in the nonmarketing economy.
Have we had any reactions that you know of from the nonmar-
ket economy countries?
Mr. CARLISLE. I don't know of any, sir.
Mr. VANIK. Who is agreeing to the codes? Is Hungary the only
country that is agreeing to the codes?
Mr. CARLISLE. We can find out. I just don't know.
[The following was subsequently received:]
Subject: Signatories to the MTNProces-Verbal and Attachments
1. As of COB April 17, GATT Secretariat records show that the Proces-Verbal has
been initialled by 24 countries, including the U.S., EC (counted as 9), Japan, Canada,
Australia, New Zealand, Sweden, Switzerland, Austria, Finland, Norway, Argentina,
Spain, Hungary, Czechoslovakia, and Bulgaria.
2. The attachments have been initialled by the countries indicated below:
(A) Standards: U.S., EC-9, Japan, Canada, Australia, New Zealand, Sweden, Swit-
zerland, Austria, Finland, Norway, Argentina, Spain, Hungary, Czechoslovakia, Bul-
garia.
(B) Government procurement: U.S., EC-9, Japan, Canada, Australia, New Zea-
land, Sweden, Switzerland, Austria, Finland, Norway, and Argentina (with reserva-
tion).
(C) Subsidies/CVD: U.S., EC-9, Japan, Canada, Australia, New Zealand, Sweden,
Switzerland, Austria, Finland, Norway, Argentina (with reservation), Spain (with
reservation), Hungary and Bulgaria.
(D) Meat: U.S., FC-9, Japan, Canada, Australia, New Zealand, Sweden, Switzer-
land, Austria, Finland, Norway, Argentina, Hungary, and Bulgaria.
(E) Dairy: DC version was initialled by U.S., EC-9, Japan, Canada, Australia, New
Zealand, Sweden, Switzerland, Austria, Finland, Norway, Argentina, Spain (with
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29
reservation), and Bulgaria. Hungary initialled dairy with no designation whether it
was DC or LDC version. There were no known signatories to the LDC version.
(F) Customs valuation: DC version was initialled by U.S., EC-9, Japan, Canada,
Australia, New Zealand, Sweden, Switzerland, Austria, Finland, Norway, and Bul-
garia. Argentina and Spain initialled the LDC version. Hungary and Czechoslovakia
initialled the valuation attachment with no indication whether it was DC or LDC
version.
(G) Licensing: U.S., EC-9, Japan, Canada, Australia, New Zealand, Sweden, Swit-
zerland, Austria, Finland, Norway, Argentina, Spain (with reservation), Hungary,
and Bulgaria.
(H) Agriculture framework: U.S., EC-9, Japan, Canada, Australia, New Zealand,
Sweden, Switzerland, Austria, Finland, Norway, Argentina, Spain, Hungary,
Czechoslovakia.
(I) Group framework: U.S., EC-9, Japan, Canada, Australia, New Zealand,
Sweden, Switzerland, Austria, Finland, Norway, Argentina, Spain, Hungary, and
Czechoslovakia.
(J) Tariff negotiations: U.S., EC-9, Japan, Canada, Australia, New Zealand,
Sweden, Switzerland, Austria, Finland, Norway, Argentina, Hungary, Czechoslova-
kia, and Bulgaria.
(K) Civil aircraft: U.S., EC-9, Japan, Canada, Australia, New Zealand, Sweden,
and Switzerland.
(L) Antidumping: DC version was initialled by U.S. EC-9, Japan, Canada, Austra-
lia, New Zealand, Sweden, Switzerland, Austria, Finland, Norway, and Spain. Hun-
gary and Czechoslovakia initialled the antidumping attachment without designating
DC or LDC version. There were no known signatories to the LDC version.
Mr. VANIK. I would appreciate any help I could have on this
point, because I think it is something we have to deal with more
and more because there is a serious possibility we will be increas-
ing our volume of business with the nonmarket economies, and I
think we should have a policy. I think if we adopt a policy, it will
probably apply to all of them, because they are all interrelated,
and I think that policy should include some of the other things
they do that we don't. They provide housing at very nominal cost
to their employees, and they provide health services, so I think all
those things should be somehow calculated into the true cost of
production so we have a common denominator and common
method.
In the MTN we have the problem, of course, of the less-developed
countries, and I think we have to deal separately with the issue of
nonmarket economies. I hope we could arrive at a consensus on
this point that would give us some assurance of a more reasonable
understanding and a greater international involvement.
I told them every agreement signed and made with the rest of
the world was a constructive step toward peace, which is their
principal concern, and I thought these codes should be easy for
them, something they should be able to adjust to and understand.
So I would appreciate any help that your group can give on this
critical issue, because so many of your members are faced with the
special problems in this category of commerce.
Mr. CARLISLE. We shall try to provide help and also try to supply
some information for the record, Mr. Chairman, within a few days.
[The following was subsequently received:]
CONTROLLED ECONOMIES
The Ad Hoc Subsides Coalition recognizes that it is very difficult to apply the
Countervailing Duty Law to exports from non-market controlled economies. Such
countries such countries do subsidize their domestic and export production, often on
a pervasive scale. However, calculation of the amount of such subsidization is
extraordinarily difficult, if not impossible, because records are not kept in generally
accepted accounting format and the general disinclination to divulge such data. For
PAGENO="0038"
30
these reasons, there must be effective recourse to the Anti-dumping Act to counter
unfairly priced imports from the controlled economies, particularly in the event
MFN treatment is extended to Russia and China.
Treasury has, however, effectively emasculated the Antidumping Act in the case
of imports from non-market economies by adopting 19 C.F.R. § 153.7, which in most
cases will require a hypothetical cost of production analysis of the "fair value" of
such imports. This regulation vests virtually complete discretion in Treasury, with a
consequent expansion of the role of diplomatic and political considerations to the
almost certain detriment of domestic industries that are being injured by non-
market imports.
To restore efficacy to the Antidumping Act in non-market economy cases, the Ad
Hoc Coalition strongly supports a legislatively mandated return to the practice that
preceded the revision of § 153.7 last August. Specifically, the Coalition endorses the
amendment proposed by AMF during testimony before this Committee on April 23,
1979. This amendment would require the use of market economy prices of compara-
ble industries, including those in the United States, as the primary determinant of
fair value and is more fully explained in the attached memorandum.
The Ad Hoc Coalition is also of the view that the legislative history of the
implementing legislation should contain guides to the selection of surrogate indus-
tries in market economies. For example, subsidized prices of a market economy
industry should not be utilized. Such guidelines would be useful in limiting the
discretion of Treasury in administration of the Act.
In summary, since the Countervailing Duty Law is probably functionally incapa-
ble of dealing with non-market economy imports, it is vital that the Antidumping
Act be so amended that it will be administratively possible to deal with such
imports in a fair, nondiscretionary fashion. The Ad Hoc Coalition believes that the
proposed amendment to § 205(c) would be an important step in this direction.
Mr. VANIK. Thank you very much. We appreciate your useful
testimony.
[The prepared statement follows:]
STATEMENT OF THE AD Hoc SuBsIDIEs COALITION
Mr. Chairman, my name is Charles R. Carlisle. I am a Vice President of St. Joe
Minerals Corporation which has its headquarters in New York City. Today I am
appearing on behalf of an ad hoc coalition of 33 industrial and labor organizations
(Attachment 1) that are working for amendments to make the countervailing duty
statute more effective against foreign subsidies. Our coalition began its work over a
year ago.
With me are Mr. Stanley Nehmer, President of Economic Consulting Services,
based in this city, and Mr. Donald deKieffer of the Washington law firm of Collier,
Shannon, Rill, Edwards and Scott. Both Messrs. Nehmer and deKieffer have had
extensive experience with the trade statutes and both have represented a number of
clients who have filed cases under the 1974 Trade Act and other statutes.
PRINCIPAL POINTS
Our testimony makes the following principal points:
1. Our negotiators, working in a difficult situation, have done a good job of
negotiating a Subsidies Code at Geneva. The important thing, however, from the
standpoint of American labor and industry is the implementing legislation, i.e., the
amendments to the countervailing duty statute, which will give practical effect to
the Code under American law.
2. Amendments to the countervailing duty statute are necessary, regardless of
what happens to the trade package of Geneva agreements and implementing legisla-
tion, because the present statute and Treasury's administration of it are seriously
inadequate.
3. We believe that this Subcommittee, as well as the Senate Finance Committee,
has made good progress on certain key amendments, for example; the determination
of injury (although many organizations in our coalition continue to believe that
there should be no injury test under the countervailing statute), the definition of
subsidy, confidentiality, verification of submissions, time period for investigations,
and judicial review.
4. We are concerned, however, about certain tentative decisions which this Sub-
committee has taken on: first, the critically important subject of "offsets," i.e., the
amount by which countervailing duties can be reduced; second, the equally impor-
tant matter of accepting certain assurances from foreign interests in order to
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terminate a countervailing case; and, third, requirements for filing. We also believe
that this Subcommittee, and the Congress, should address the question of adminis-
tering the nation's trade laws, and we strongly urge that the authority to adminis-
ter both the countervailing duty and antidumping statutes be removed from the
Treasury Department.
5. Although our testimony will be focussed mainly on subsidies, we also wish to
address briefly two other major issues. One is the amendments to the antidumping
statute as a result of amendments made in the GATT Antidumping Code. Here, the
important points are, again, the determination of injury, time limits, price assur-
ances to end a proceeding, and the treatment of dumped goods from socialist
countries.
6. Finally, we are most concerned about a Senate Finance Committee decision to
give the Executive Branch new authority to cut tariffs and negotiate on non-tariff
barriers. This grant of authority, which comes as a surprise and on which the
Finance Committee held no hearings, would be given as part of the trade package,
which itself is non-amendable and subject only to an up-or-down vote. Whether such
new authority is needed is debatable. And if there is a grant of new authority, it
should come about through the regular legislative process with hearings, mark-up
sessions and amendments in committee and on the floor.
SUBSIDIES
I have noted our belief that the implementing legislation is of paramount impor-
tance and that the countervailing duty statute would require a number of important
amendments even if there were no Subsidies Code. Let me explain why.
First, while no one really knows the extent of foreign subsidy practices because
they are constantly changing and many are hidden, there can be little doubt that
they are pervasive, that they affect many important American industries and labor
organizations, and that they probably are increasing. As partial evidence, we have
attached to our testimoney (Attachments 2 and 3) copies of recent articles from two
highly respected publications: "U.S. Companies in Unequal Combat," from Fortune,
April 9, 1979; and "State-owned Businesses Abroad," from Harvard Business Review,
March-April 1979 issue.
Second, we believe, as I said earlier, that the current law and Treasury's adminis-
tration of it are seriously inadequate. Let me give you a few examples.
Treasury frequently has-
Missed statutory deadlines, not by just a few days but often by many months,
in at least two cases extending to almost a year;
Reduced the calculated amount of a subsidy, and hence the countervailing
duties in questionable ways not specifically authorized by the statute, and
regulations have never been promulgated under this statute;
Conducted ex parte meetings with foreign representatives at which allegedly
confidential information has been submitted to the Treasury Department. The
difficulties which domestic petitioners have in rebutting such information is
obvious, nor does Treasury verify such information;
Changed rulings without adequate opportunity for interested parties to com-
ment.
Attachment 4 to our testimony lists a number of specific instances in which the
Treasury has not administered the countervailing duty statute in the manner
required by law. This information also was submitted in March for the record to the
International Trade Subcommittee of the Senate Finance Committee.
In order to correct this kind of abuse and to deal really effectively with the
widespread subsidy problem Representative Schulze of this Subcommittee has intro-
duced H.R. 3307. Senators Heinz and Moynihan have introduced identical legisla-
tion (5. 538) in the Senate. We strongly support this legislation which conforms to
the Geneva Subsidies Code in all important respects, and commend it to the atten-
tion of the Subcommittee.
As I noted in my introductory remarks, we believe that in its consideration of the
implementing legislation, this Subcommittee already has done much useful work.
Because of its great importance, I would like to discuss briefly one of the key issues
which the Subcommittee already has addressed, satisfactorily in our judgment. That
is the issue of the determination of injury.
Of course, under current law a domestic complainant does not have to demon-
strate injury except in the case of duty-free merchandise. Many of us believe that
the law should not be changed on this point because subsidization constitutes a per
se violation of fair-trade concepts and injury should be presumed.
In return, however, for international recognition of the fact that "internal" subsi-
dies (such as regional development grants and the underwriting of losses by state-
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owned enterprises), as well as export subsidies, can adversely affect industries in
other countries-and recognition that countervailing measures may be employed
against those internal subsidies-the American negotiators agreed to accept an
"injury test."
A number of organizations in our coalition are prepared to accept, reluctantly, an
injury test in the Code and implementing legislation provided that the matter is
handled in the way this Subcommittee has agreed it should be handled: that is, the
statutory language should require that the injury test applied in countervailing
duty investigations be no different than that applied under the Antidumping Act
since January 3, 1975.
Some persons have argued that the injury test should be as rigorous as that
required in "escape-clause" proceedings under Section 201 of the 1974 Trade Act.
This argument ignores the fact that neither the international obligations of the
United States in the new Code nor the need to deal effectively with unfair trade
practices, warrant the creation of a higher threshold of injury than under the
present antidumping law. There simply is no justification for making the definition
of injury in unfair trade cases more stringent than that applied under the anti-
dumping act.
We wish to be very clear and frank on this point. To require an "escape-clause"
injury test under the countervailing duty statute would make the statute virtually
unworkable as far as domestic petitioners are concerned.
I now would like to turn to three other points which the Subcommittee has
addressed and to two which it has not. First, the question of "offsets," amounts by
which the administering authority can reduce countervailing duties, or, as the
Subcommittee called it, the "definition of net subsidy."
Our general view is that these offsets should be very few and defined precisely in
order to prevent abuse of the types practiced by the Treasury Department. We
believe that the Subcommittee has handled this matter well, except that included in
the definition is the phrase, "direct and verifiable costs actually assumed" to qualify
for the subsidy.
We do not know what that phrase means. We are most concerned, however, that
it would allow the administering authority to deduct from duties directed against
regional development subsidies many of the costs incurred in establishing facilities
in depressed regions. Regional development subsidies to compensate for the com-
parative disadvantages of locating in such regions are extremely common and often
equal a substantial fraction of the total cost of a facility.
Leaving this phrase in the definition of net subsidy would, we believe, leave a
potentially very large loophole in the definition. We urge that the phrase be strick-
en from the definition.
Second, the issue of price or other assurances to terminate countervailing duty
cases. The new Subsidies Code permits such assurances but does not require them.
Treasury has not permitted such assurances in the past, and we believe that they
are inappropriate now because it would be very difficult conceptually to link such
assurances to the subsidy itself.
This Subcommittee has dealt with the question by, in effect, saying that the
assurance should be sufficient to remove the injury and by providing for an appeal
to the International Trade Commission to determine whether the assurance would
have that effect. It seems to us that this would present two problems.
First, it could present, inadvertently, a double injury test. The petitioner would
have to demonstrate injury caused by subsidized imports. Then there would be a
determination as to the degree of injury caused by the subsidy-note that the causal
agent would have been shifted from subsidized imports to the subsidy itself. Second,
what tests, what benchmarks should the ITC employ to determine whether the
injury would be removed?
We believe that price and other assurances should not be used. They would
present all sorts of problems and provide the Executive Branch with discretion that
would be easy to abuse.
If this Subcommittee believes, however, that there are compelling reasons to
provide for price assurances, then we recommend that the following safeguards be
established-
Only price assurances should be accepted because they are more relatable to
a subsidy than a quantitive restriction;
The price increase should be equal to the subsidy in toto, thus finessing the
degree of injury question;
The price assurance should be accepted only if the foreign government (or
private organization) providing the subsidy is a party to the assurance; and
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The price assurance should be monitored by U.S. Customs on an entry-by-
entry basis as price assurances are monitored in antidumping cases.
Third, I would like to turn filing bonds or fees. This Subcommittee has agreed
that petitioners should be required to post bonds or deposits of $1,000 at the time of
filing.
We believe that it is wrong in principle to require the posting of any bond or fee
to have the law enforced. Moreover, although the $1,000 bond may seem small, and
certainly would not deter major corporations, it could prove burdensome to some
small firms and unions. We recommend that this requirement be deleted altogether
since frivolous petitions can be dealt with easily in other ways.
There are two matters which the Subcommittee has not yet addressed on which
we wish to comment. First, there is the question: which agency should administer
the countervailing and antidumping statutes?
We realize that this can raise knotty questions of Executive Branch reorganiza-
tion and that there is sentiment within the Ways and Means Committee to put the
matter over to another time.
We strongly urge, however, that the Subcommittee take up this admittedly vexing
problem now. We are in the concluding stages of a major revision in the interna-
tional trading system. The proper administration of the countervailing and anti-
dumping statutes, and perhaps other statutes, is at stake. Not to address this
problem now would, it seems to us, leave the job undone.
Certain Senators have proposed that a new Trade Department be created. We
support that proposal. In any case, we urge that the administration of the fair trade
statutes be removed from the Treasury Department and given to another agency, if
only temporarily, until Congress can determine which agency should have the
administering authority permanently.
Also, Section 301 of the Trade Act should be amended so that there would be a
time limit on the processing of 301 cases and a requirement to take retaliatory
action in those cases when foreign subsidies cause trade diversion in the U.S.
market or in foreign markets or when those subsidies cause the loss of U.S. export
sales.
We understand that Senators Heinz and Dole have proposed that the Internation-
al Trade Commission become involved at the same time that a petition is filed with
the Special Trade Representative. Their investigations would be concurrent and
there would be a time limit of up to 10½ months. the ITC would be required to
prepare a report for STR on (a) findings of fact and (b) application of the Code to
those facts. It seems to us that this is a very good way to handle the matter, and we
commend it to the Subcommittee's consideration.
I would like to make just one more point-but a fundamental point-before
turning away from subsidies.
To urge strict measures against subsidies is the very antithesis of protectionism.
The concept of free trade rests on allowing market forces to determine investment
decisions and trade flows. Subsidies, no less than tariffs and quotas and perhaps
more, distort free trade.
ANTIDUMPING
This Subcommittee has not yet taken up the implementing legislation resulting
from change in the GATT Antidumping Code. We wish to make suggestions on four
points for the Subcommittee's consideration when it gets to this matter.
First, the determination of injury. Much of what we said about this matter in
discussing the countervailing duty statute is relevant here. There should be no
change in the test that has been applied since January 3, 1975.
Second, time limits. We believe that the time limits should be shortened some-
what, although unrealistically tight time limits could be damaging to everyone
concerned. Much of the administration of the fair trade statutes centers on good
management practices and devoting sufficient resources to the job. We urge that the
Congress see to it that the agency administering the fair trade statutes has suffi-
cient resources-and uses them-to do the job properly.
Third, price assurances, which are appropriate under the antidumping statute
because it is a price-discrimination statute. They can be abused, however.
To guard against abuse, we urge that:
1. An assurance should be accepted only after a preliminary determination of
dumping, and it should eliminate the dumping margin by increasing the price of the
imported product (not by lowering the home market price). It should not be less
than the foreign market value during the term of the assurance.
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2. Imports following a price assurance should be monitored in the same way that
imports subject to a dumping finding are monitored (by means of master lists, entry-
by-entry examination, and semi-annual reporting by exporters).
3. If there is default in the performance of a price assurance:
(a) The default should be treated as an infraction of the Customs laws to which
civil penalties apply under 19 U.S.C. 1592. Since the importer would be liable for the
penalty, just as he would be liable for dumping duties, the price assurance should
include a commitment by the exporters to notify their importers of this liability.
(b) A dumping finding should immediately be published and duties collected.
4. The price assurance should last not less than three years. At the end of that
time, the case should be reviewed to determine whether the assurance should be
continued, modified or ended.
Fourth, dumping by socialist countries. The obvious problems arising from differ-
ent accounting concepts in determining the amount of a dumping margin on im-
ports from socialist economies have been exacerbated recently by a new Treasury
Department regulation which compares economies rather than industries. Unfortu-
nately, Article 15 of the recently-initialled Subsidies Code does nothing to alleviate
the situation.
Prior to August 1978, Treasury established a foreign market value (for purposes of
finding a dumping margin) by examining an industry in a free-market country.
That made sense because a centrally planned, controlled economy can develop
industries comparable in scale and efficiency to those in more advanced market
economies.
The new Treasury regulation rests on a fallacious principle which states that if
two countries have the same GNP, then it follows that they will have comparable
costs. Rather than examining comparable industries, the new regulation compares
supposedly comparable economies (e.g., Spain-Poland). Rather than calculating the
margin of dumping by comparing export prices of comparable industries, Treasury
is now comparing export prices with a constructed value in a comparable economy,
whether or not the comparable economy has a like industry.
This is contrary to the law's stated preference for comparing prices rather than
using a constructed-value calculation. We urge the Subcommittee to rectify this
situation in the implementing legislation by requiring Treasury to abolish the new
regulation and return to that used for 20 years prior to August 1978.
EXTENSION OF TARIFF AND NON-TARIFF BARRIER NEGOTIATING AUTHORITY
The Senate Finance Committee has recommended, as part of the trade package of
agreements and implementing legislation, extending the President's current tariff
cutting authority for five years and making permanent the authority to negotiate
on all non-tariff barriers. Further, the Committee recommended that future trade
agreements and implementing legislation become effective in the way that this
trade package will become effective, i.e., an up-or-down vote on the floor with no
amendments permitted.
ENDORSING ORGANIZATIONS
Amalgamated Clothing & Textile Workers Union, AFL-CIO.
American Apparel Manufacturers Association.
American Footwear Industries Association.
American Pipe Fittings Association.
American Textile Manufacturers Institute.
American Yarn Spinners Association.
Bicycle Manufacturers Association.
Cast Iron Soil Pipe Institute.
Clothing Manufacturers Association.
Copper and Brass Fabricators Council, Inc.
Industrial Union Department, AFL-CIO.
International Ladies Garment Workers Union, AFL-CIO
International Leather Goods, Plastics & Novelty Workers Union, AFL-CIO.
Lead-Zinc Producers Committee.
Luggage & Leather Goods Manufacturers of America, Inc.
Man-Made Fiber Producers Association.
Metal Cookware Manufacturers Association.
National Association of Chain Manufacturers.
National Association of Hosiery Manufacturers.
National Cotton Council.
National Federation of Fishermen.
National Handbag Association.
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National Knitted Outerwear Association.
National Knitwear Association.
National Outerwear & Sportswear Association.
Northern Textile Association.
Retail Clerks International Union, AFL-CIO-CLC.
Scale Manufacturers Association, Inc.
Synthetic Organic Chemical Manufacturers Association.
Tanners Council of America, Inc.
Textile Distributors Association.
Valve Manufacturers Association.
Work Glove Manufacturers Association.
[From Fortune, Apr. 9, 1979]
U.S. COMPANIES IN UNEQUAL COMBAT
(By Hugh D. Menzies)
American businessmen who have to contend with foreign competitors often feel
that, like the fellow on the left, they are engaged in an unequal struggle. They lack
the extra armament that many foreign companies have, in the form of government
aid and cooperation far beyond what Washington provides for U.S. companies.
Accordingly, many American executives strongly favor the subsidies code that is
being hammered out as part of the international trade talks now winding to a close
in Geneva. The code would reduce the prevalence of export subsidies in world trade,
banning their use by developed countries and restricting their use by developing
countries.
The task of drafting the code is nearly done, but that is not the final chapter. The
code is an integral part of a trade package that must pass the U.S. Congress. That
package calls for a considerable reduction in tariffs and is expected to receive
intense congressional scrutiny because of the mounting clamor of American busi-
nessmen and labor leaders demanding protection from foreign imports.
Even if it gets past that obstacle, as is likely, the code will not be a panacea. As
U.S. trade negotiators point out, it is relatively easy to spot direct export subsidies,
such as tax exemptions or outright cash grants for exporters. It is far harder to
draw a clear, enforceable distinction between a legitimate government investment
in industry and a subsidy aimed at enabling a company to undersell its competitors
in world markets. British Steel, for example, lost $824 million last year and received
more than $1 billion to keep it going. Subsidy or legitimate investment? At any
rate, with such lavish help, British Steel occasionally undersold even the efficient
Japanese in U.S. markets.
THE KEY ISSUE OF THE NEXT DECADE
With competition in international markets becoming more intense, a new set of
rules is required if the world is to avoid a destructive round of protectionist meas-
ures reminiscent of the 1930's. One American businessman who gives a lot of
thought to these matters is William Sneath, chairman of Union Carbide Corp. and
the chemical industry's representative to the U.S. negotiating team at Geneva.
"The trade area will be the key issue of the next decade," he predicts. "And the
subsidies code will be the heart of that issue."
The major industrial nations will go along with the code. But they will also
continue to pour money into their fledgling or failing industries to help them
compete in world markets. Foreign governments often give aid to private businesses,
but the favored beneficiaries of government largess are their own state-controlled
enterprises. Governments endow them with guaranteed markets, tax breaks, and
interest-free loans. In return, state-controlled companies are expected to perform
such unprofitable activities as continuing to operate inefficient plants in order to
protect jobs and selling abroad at a loss in order to earn foreign exchange. It is
often said, with some justice, that many U.S. companies complain about government
aid to foreign businesses as an excuse to hide their own competitive shortcomings.
But even a doughty competitor is likely to have trouble if it's up against a company
that can afford to operate at a loss.
State companies are not exactly new and neither is this type of support for them.
The British Treasury has propped up British Steel for a good many years. Italy
eternally bails out its giant industrial holding company IRI, and even the Germans
keep the government-owned Salzgitter steelworks going at a loss. What is new is the
enormous growth in the number of state companies in recent years. Most of the
newcomers are in the developing world-often formed from foreign companies,
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many of them American, that were nationalized in the late 1960's and early 1970's.
Says John B. Rhodes, president of Booz-Allen & Hamilton International: "I can't
think of a major company that has emerged in the developing world in the last five
years that has not been state-controlled."
TO KEEP THE PREMIUMS AT HOME
State-controlled companies, whether or not the government owns a majority of
the shares, have become a powerful presence on the international business scene.
They produce 85 percent of the non-Communist world's oil, 40 percent of its copper,
and 33 percent of its iron ore and bauxite. In manufacturing, they turn out 54
percent of the steel, 35 percent of the polyethylene, and 20 percent of the autos.
Aside from autos, state companies remain relatively insignificant in the consumer-
goods area. Governments leave food processing or furniture production to the pri-
vate sector because they do not regard such activities as strategically important
from either a political or an economic point of view.
Governments do, however, consider the high-technology sectors important. So
state-controlled companies are battling the private sector, if only with mixed suc-
cess, in computers, semiconductors, and aircraft. State companies are becoming
more evident in the service industries too. State banks flourish, and country after
country is establishing its own state insurance company to "keep the premiums at
home," notes V. Lee Barnes, an executive vice president of Continental Corp.
Even all this does not convey the entire story. Figures for state production do not
include Japanese companies, which work closely with the government even though
nearly all of them are privately owned. Says Conference Board economist David
Bauer, who recently completed a survey of the state challenge to U.S. companies:
"Most American businessmen consider the Japanese to be state-controlled competi-
tors, particulary in the international sphere."
Then there are the Communist state agencies that are moving steadily into world
trade. Soviet shipping, for example, carries $2 billion worth of American cargo, up
from $38 million in 1971. Soviet ships also transport most of that country's growing
trade with Japan, West Germany, and Britain. East-bloc chemicals, autos, and even
golf carts are moving into Western markets at an increasing clip. Soon wares will be
flowing from China too.
Communist state agencies do not have to live by profit-and-loss statements, so
they can set prices to gain market share. The Soviet merchant marine wins business
by pricing at up to 40 percent below the competition. Nor are Communist countries
alone in this strategy. A state company that has a mandate to provide jobs or earn
foreign exchange at any cost will not worry very much about profitability.
Amercian copper companies know that only too well. Those with overseas mines
thought they had it rough when various nations nationalized those lucrative hold-
ings a decade ago. But then came 1974 and the recession that sent demand for
copper plummeting. The Americans cut back domestic production, but the new state
copper companies in Chile, Peru, Zambia, and Zaire did no such thing. Needing
foreign exchange, they kept pushing the metal out into the marketplace, and the
price sank from 85 cents a pound in 1974 to 60 cents in 1977. At that price, few U.S.
companies could break even.
For the four years that prices remained near rock bottom (they have rebounded
dramatically in recent months), the Americans had to keep producing or lose
market share to imports. That necessity came at a time when the companies had to
spend heavily to meet new U.S. environmental regulations. So they were forced to
borrow large sums. Even so efficient a producer as Phelps Dodge, which was virtual-
ly debt-free in 1968, today owes $665 million. Last year it took $53 million to service
that debt.
Copper-company executives are not the only Americans muttering about competi-
tion from state-controlled companies. Every new nation wants its own steel industry
as a first step toward industralization, and the state is normally the only institution
capable of financing so costly a project. Often it builds excess capacity to take care
of future demand. So a slew of new state steel industries ae looking for export
markets. Coincidentally, many European state companies, also with excess capacity,
continue to produce more than the home market will bear, because it is cheaper to
produce at a loss than to lay off workers. These companies want to step up exports
too.
The U.S. offers the largest and most accessible export market, and last year
foreign steelmakers grabbed off a record 18 percent of it, despite quota restraints.
American steel executives are most perturbed about losing market share to state
companies that lose millions of dollars every year but still price competitively.
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Indeed, Lukens Steel has brought antidumping charges against several European
companies, most of them state/owned.
While U.S. companies in basic industries bear the brunt of the new state chal-
lenge, their brethren in high-technology businesses are not entirely immune. The
British government leans on its own agencies and their suppliers to buy computers
produced by Britain's ICL, Ltd., rather than an American manufacturer. The state
has a 25 percent stake in ICL.
Even that American stronghold, the semiconductor business, is far from unassail-
able. The French government is forming a consortium to develop products in the
microtechnology field. Much to the disgust of Texas Instruments President J. Fred
Bucy, Britain's National Enterprise Board has set up a state company in the United
States to purchase American technology and hire away expert personnel. "This is
something new," complains Bucy. "A foreign government has set up a company
specifically to drain off our technology. I think there is something unfair about
that."
THE AIRBUS FLIES HIGH
Especially dramatic is the state-enterprise push into civil aircraft. American
manufacturers have ruled the commerical skies since World War II, and they still
dominate, but a dogfight is in the making. Observes George Prill, former president
of Lockheed International and now aircraft-industry representative to the U.S. team
at Geneva: "All of the U.S's competition in the civil-aviation field is government-
owned or -controlled." By far the most formidable challenge so far comes from the
A-300 Airbus. Airbus Industrie, the state-controlled international consortium that
makes the A-300, has sold 132 of the planes, and potential customers hold options
for an additional fifty-seven.
American competitors admit the A-300 is a fine plane, but point out that state
ownership gives Airbus several advantages. Right off, it got a $1-billion interest-free
loan from the sponsoring governments. Then, there were a number of guaranteed
customers waiting, including Air France and Lufthansa. State financial support,
moreover, allows the company to offer customers attractive purchasing arrange-
ments. Eastern Air Lines got to test four planes free for six months. When Eastern
President Frank Borman decided to buy twenty-three A-300's, very low-cost financ-
ing was available.
Brazil, too, has a state-controlled aircraft company, Embraer by name. To protect
Embraer, the government has slammed the door on competitive imports. "The U.S.
aircraft industry sold 628 planes in Brazil in 1974," recalls an executive of the
General Aviation Manufacturers Association. "And we could see a market for
1,000." But then the door shut, and last year U.S. exports came to a dismal sixty-
two. Now Embraer is taking on American manufacturers such as Swearingen and
Beech in the own skies. It just sold a dozen of its eighteen-seat Bandeirantes to Aero
Industries, a West Coast operator of commuter airlines, on more favorable financial
terms than any U.S. competitor could match.
American supremacy in commercial aircraft is hardly in jeopardy. But the U.S.
share of new orders has dropped from 90 percent to 80 percent since the early
Seventies, notes George Prill, and is likely to slip some more. "The state companies
in Europe, Russia, and Japan will prove formidable competitors, he says. "The
produce good planes, and they can set prices at what it will take to win a share of
the market and then work back to their cost."
BUT WILL PRIVATE HANDS WANT IT BACK?
There are crosscurrents, to be sure. Several European governments, even some
that are socialistically inclined, are backing away from nationalization as an ideo-
logical cause, and have begun to wonder about the economic wisdom of bailing out
every failing company. The British are particularly worried about the cost. Last
year, the Treasury had to lay out $1.8 billion just to help two troubled companies-
British Steel and Leyland.
Across the Channel, French Prime Minister Raymond Barre recently proclaimed
and end to large-scale government bailouts. (See "Giscard's New French Revolution:
Capitalism," page 66.) The bold statement was somewhat undermined when the
government turned around and took control of the ailing steel industry in order to
rationalize it. Barre vows that the industry will be returned to private hands once
that has been done-assuming private hands want it back.
But whether any European government is willing to let a major industry or
company go under-especially if a lot of jobs are at stake-remains open to ques-
tion. The matter will be tested if European economies move into a period of slower
growth, as expected. Certainly, few state companies are likely to be returned to the
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private sector. Even the British Conservatives, who are given a good chance of
regaining power at the next elections, admit that they would do little denationaliz-
ing, however. The Brazilian regime, for example, is talking of selling off a few of its
holdings-forty-five of the hundred largest companies are state-owned. The sugges-
tion has met opposition from Brazilian businessmen, who fear that only foreign
multinationals will be able to meet the asking prices.
American multinationals are not waiting around to see which way the trend goes.
They are far too busy joining forces with state companies. Even the oil and mining
companies that were rudely stripped of their forieign properties just a decade ago
are jumping into ventures with state enterprises. Now that tempers have cooled,
each realizes that it needs the other The state companies want the managerial skills
and technology of the Americans and are willing to pay handsomely for them. The
Americans realize that a venture with the state will give them access to raw
materials or the local marketplance, or both.
Boeing Aircraft, for one, has done very well out of a marketing venture with
Rolls-Royce, Ltd., the aircraft-engine maker, all the stock of which is held by the
British government. British Airways, the state airline, just awarded Boeing a $600-
million contract for nineteen 757's that will be equipped with Rolls-Royce engines.
One competitor was Airbus Industrie, in which the British government now has a
stake.
The American companies facing the toughest competition from State enterprisers
are those that operate in basic industrial sectors, where the technology if mature,
and are heavily dependent upon the U.S. market. For despite their moves into high-
technology areas in the industially advanced countries, state-controlled companies
will be most prevalent in the basic sectors for quite some time. There they have
access to the same technology as the Americans while variously enjoying such
advantages as cheaper labor or raw materials, new plants, and large-scale govern-
ment financing.
State companies will continue to be heavily export-oriented. Renato Mazzolini,
professor at Columbia University's School of Business and author of the soon-to-be-
published book, Government-controlled Enterprises, notes that most state companies
follow the export route even when it would make more sense to go multinaitonal
and build plants overseas. He notes that politicians can make points with the voters
by adding to the number of jobs and helping to keep the balance of payments in
good shape. But they are open to the charge of exporting jobs and damaging the
currency if they let state companies the currency if they let state companies shift
major operations abroad.
HEAVIER COMPETITION AHEAD
The huge U.S. market is an obvious target, and the next major industry likely to
come under attack is basic chemicals. American companies enjoy a $6.3-billion trade
surplus with the rest of the world, but imports are growing faster than exports, and
developments abroad make it likely that this trend will continue.
Several state chemical companies in Europe are adding capacity to do their part
in government anti-recession programs. This, despite excess capacity in may sectors
of the European industry and the rising stream of East-bloc chemicals into that
market. Then, there are the plans of oil-producing countries, notably Saudi Arabia,
to build big petrochemical complexes that will be almost totally export-oriented.
Chemical executives expect that the Saudis will want their oil customers to take
substantial amounts of what the oil companies refer to as "product."
The prospect of increasingly heavy state competition has helped to change the
watchcry of American businessmen-and union leaders who see their members
losing jobs-from "free trade" to "fair trade." This represents a potentially danger-
ous retreat, but an understandable one. Unless there is fair, or at least fairer, trade,
more American industry leaders will be following the steelmen, textile producers,
and shoe manufacturers to Washington to ask for protection or subsidies of their
own.
STATE-OWNED BUSINESS ABROAD: NEW COMPETITIVE THREAT
AS MANY OTHER GOVERNMENTS EXPAND THEIR NATIONALIZED SECTORS, U.S. BUSINESS
SUFFERS
(By Kenneth D. Walters and R. Joseph Monsen)
U.S. companies face many forms of international competition, but a growing
competitive threat comes from state-owned companies abroad. These companies are
heavily subsidized by their governments and are not required to earn profits compa-
PAGENO="0047"
39
rable to those of their privately owned competitors. More and more U.S. companies
now face such competition, and the size and international scope of state-owned
companies abroad increase each year. These authors point out that, with the U.S.
balance of trade suffering, our official trade policy needs to address explicitly the
problem of subsidized, state-owned enterprises abroad. Executives in private compa-
nies that compete with such enterprises have a special responsibility now to inform
public officials of this new threat to fair competition.
Mr. Walters, a lawyer and an economist, is associate professor of business, govern-
ment, and society at the Graduate School of Business Administration, University of
Washington, Seattle. Mr. Monsen is professor and chairman of the department of
business, government, and society, Graduate School of Business Administration,
University of Washington, Seattle and the author (with Mark W. Cannon) of
Makers of Public Policy: American Power Groups and Their Ideologies (McGraw-
Hill, 1965) and of Modern American Capitalism: Ideologies and Issues (Houghton
Mifflin, 1963).
Why should private American companies observe the rules of free trade when a
growing number of state-owned competitors are increasingly protected from the
rigors of competition by government subsidies and preferential treatment? Execu-
tives of more and more U.S. corporations are asking this question as government
ownership of business expands in Europe and through the world. U.S. companies
find it increasing difficult to compete against state-owned companies that are not
required to earn profits and that receive numberous direct and indirect subsidies
from their governments.
Although foreign state-owned companies have not in the past posed a serious
competitive challenge to U.S. business, the spread of state ownership during the
1970s is rapidly changing the rules of the game of international competition. Wil-
liam Sneath, chairman of Union Carbide, recently predicted that by the mid-1980's
companies owned or controlled by governments would account for nearly 50 percent
of the U.S. chemical industry's competition in export markets in such important
sections as petrochemicals, fertilizers, and plastics. He concluded that this spread of
government ownership is contributing to the further erosion of America's share of
chemical export markets.1
William T. Seawell, chairman of Pan Am, notes that many foreign flag airlines
are government owned and virtually all are government financed or otherwide
aided.2 In congressional hearings on world steel trade, William H. Knoell, chief
executive officer of Cyclops Corporation, states that 55 percent of the non-commu-
nist world steel production is owned outright by government and that the trend is
toward more government ownership.~
Although European Economic Community officials have a strong mandate to
enforce fair com~etition, the EEC is fighting a rearguard action against most
European nations policies of nationalization and subsidization. The EEC has been
especially reluctant to take effective action against uncompetitive practices of state
enterprises, knowing that such action would receive a hostile reception in member
states. It is one thing for the EEC to charge private companies with anticompetitive
behavior; it is quite another to bring action against governments themselves, charg-
ing that the policies of companies they own are anticompetitive. The Financial
Times of London declared: "The European Commission's attempt to tackle state aids
to publicly owned industry has foundered almost totally upon the rocks of political,
technical, and legal difficulties."
SPREAD OF STATE OWNERSHIP
In a wide variety of industries, state ownership is a pervasive feature of Western
Europe's economic landscape (see Exhibit 1). The state has an ownership take in 19
or Europe's 50 largest industrial companies.~ Investment in government-owned en-
terprises accounts for more than 25 percent of all investment in Sweden, 50 percent
in Austria, and 35 percent in Italy. The basic industries of coal, steel, and petroleum
are partly or wholly nationalized in most countries. Government companies also
produce automobiles, airplanes, chemicals, paper, textiles, ships, aluminum, electri-
cal and nonelectrical machinery, and electronics goods. The largest industrial com-
1 Bureau of National affairs, International Trade Reporter's US. Export Weekly, March 7, 1978
p. C-2.
2 William T. Seawell, "Airline Economic Influence." Aviation Week and Space Technology,
July 4, 1977. p. 9.
World Steel Trade: Current Trends and Structural Problems, hearings before the Subcommit-
tee on Trade of the Committee on Ways and Means, U.S. House of Representatives, Ninety-fifth
Congress, September 20, 1977, p. 142.
"Subsidies and Trade," Financial Times [London], November 23, 1977.
The Economist, December 30, 1978, p. 51.
PAGENO="0048"
40
pany in their respective countries is owned by the governments of France, Italy,
Great Britain, Austria, Mexico, Brazil, and India. Exhibit II gives a listing of the
major European state-owned industrial companies.
Although much nationalization occurred in Western Europe in the 1930's and
1940's, and 1970's have seen a new wave of government ownership sweep through
European industry. The new government-owned enterprises fall into three patterns:
rescues, diversifications, and high-risk ventures.
Rescue takeovers
Governments have seen nationalization as a politically popular way to fight
unemployment in ailing or declining industries, such as steel, shipbuilding, and
textiles. Even where an industry was growing (as the automobile industry), individu-
al companies faced financial problems-such as British Leyland (now called BL
Ltd.), Alfa Romeo, and most recently Volvo did. Each turned to increased govern-
ment ownership as a solution to its financial problems.
The traditional free market response to slower growth and new competition is the
old-fashioned shakeout, where capital flows out of relatively unprofitable activities
into newer and more profitable ones. The economist Joseph Schumpeter called this
capitalism's process of "creative destruction," where removing the deadwood of
industry was necessary to facilitate the recovery and establishment of healthy
producers.
PAGENO="0049"
41
Enh~brtI
Scope otsiate ownership
Oil Molar Slap
~
~
~ C C CCCQ~E Q
r r.r.(L:r:C Ci(i ~(~:
\- `- \-. `~-.. `~~~~1 ~ `~- \_j \~
~ ~
~
C C.. ~E~:!°~°~C CC C5 0
~ ~CC;C C:CiC CC HC.;
C C E C
C C ~ C `C
E~O~OO
C U.(~,
C :00c. 0
CC :Q ~ NA 0
M~c~ ~ cO OC
CC E~ 0~ NA ~3l
S~w ~ a 0 E' 0
S~ed,fl ~ C NANA
C C 0 U C
CG0~t
Scdzerland c ( ,.~ ~ (~ ~.Q:.O NA
~MI~.Q(~JQ:QQ.~:QQ
QP~ale~& ~ PobAclyoaaed ~1 .1~~~
alorn.adyal aNOrn.311731 75% 50%
-~
- NA_oNN0MaNWoNO,~9wOwOAO~
D.cw,bn30lO7$oN.P.,la0o$PN*&P0"'~~
- 79 -
PAGENO="0050"
42
EuhrbdIt
Ma~Oe sLate-coned industrial companies in Western Europe
Compvrerssnd Masng(coal Pape~ard
Aerospace Aksnn,sae Auiosob.les Chemaralo elecl:o'ncs and matals) 0000P(Odl'Cta Pnt,o4eu~,, St.,t
Ae,abaie AdatoQ ACa Romeo ANIC Cli-Hoceysel Charbcrnapes Eeso-Gc'.oed B,sshloahonat Bc.s,sh Stoat
France SonstOalbect fla~r ftaly Ru! Ce Franca Fo,!and O,4Corpo'at~on &nan~
A~aha °°~` ~ i~ BP~C~IO Franc," Franc, Statsfocetap &daar Cockeril
kaJy VIAG Btilaa, Brdas,' t~sc~ Limled Enbepsse S.eeden Brosir B.lp*an"
Blisli Cnerarry Renau! chaboloapen ~ `~"~ P1l:ole:rn Ealsd~
Ae.yspace Veenyto F'ance Ce France brlencatocal Cheque &raar ?raie
Lle:a~neke C~nae Cor'pir,n ~ France CFP-Tot~
Dassaue Ar,s!ta ~ Fr.nce' &i:aa" Pa1onatCcat France" Joroerk
F:anc,' ~ OSM ~ ELFAq4aine M,i..ay
Sreder,- n. es S `~`~ P~JA
6ne'io~ ~ ~ ELF-A-inc Saabrprerke (Ut S;cden
L39) Franc,' "7 S~edsh Steel
G.e-any' (repine S:rtslore:ag Ee~te Sceden"
VFWFcikar MiiCeal F,-.!and S.arbegneke
Cnn-any' * Chincqe ow Gaarq~
~ ,
8r:ao, Mrrrledlnoe 5byp~,r~, Cen,any
Fr~noe Ne51 Gnrrar~y . VOEST.Mpie.
Fidar~ ~ AoSSr,*
P4orsb Hydrc
Normay
.
oIly Se-edna"
Audi, VEBA
Ssarbergrnerbe G.rnany
Canary
VERA
Gerntany"
Fenchetenrnh~.ea2t%s~keicapianddcblencle-~;9h~s. "Sl%sate-oet-nd.
43.on-'reFbyGe:rrtarrstaten cfhanariaandHarrtbrrp. "437%s:ste-osed.
`26.4'.oonedbyGerna~sranotSemen. "Horeyse0cons47..dMathinrSBUir'sIAChCGEanCFICnCOSISe
75%srare-ooa*d . aresharehcders)53%.
`40'.uate-o,ored. "Popsed m.cropr000ssor lobe oocuofledbyNat.ocal E'e:prse board.
`P.oposenetataacn~oirgNooce~~nporer,n,en,oplo40%sake `Natoral Enterprise Boa,do,u,,s24%.
ons.eceyretacedbysookho0e~i;'.btros Dslchsobsirkar'.htnoCari `51%state-o'rned.
45'.. osred by Dstrthponerron.n,Suroe January 197L `40% slate-oared.
`Subsid.a,yoIB,ninhPeroleun,. "SO%slate-osred.
`Sobsid.aryolChabomragusd. Franca. "Stale has atunoorcedarrintenlorrlotaIn a 60% slakourflus. thelarpesI ul
7~. alatn-oomed Beg.unsteelpro,oens. arCs lo.ror s~,anotOlhn, slenlcomparum.
"San Pa~5p., ureenre,00mparlyu conDolIng syrAcals. "50% slate-oared.
But in Europe today the tendency is not to let companies languish or die but to
resuscitate them by means of state takeovers and by massive injections of state
funds. In nearly all European industries-including steel, aluminum, shipbuilding,
aerospace, chemicals, automobiles, pulp and paper, and heavy engineering-one
government or more has nationalized ailing companies and is keeping them afloat.
Although public opinion polls in Europe now suggest that most people oppose new
nationalization, when a particular company faces bankruptcy, political instincts tell
even right-wing politicians to nationalize to save jobs. When Conservative Party
leader Margaret Thatcher criticizes British Prime Minister James Callaghan and
the Labor Party for favoring nationalization of what the British call "lame ducks,"
Callaghan reminds the public that it was Edward Heath's Conservative government
that set the precedent for such policies when he nationalized faltering Rolls-Royce
in 1972. A nonsocialist government in Sweden came to power in 1976, committed to
turn the tide of socialism, but it was forced to bring into public ownership the steel
industry, the shipyards, several textile and clothing companies, and a computer
company.
Rescue nationalizations of the 1970's are in theory temporary measures, induced
by the recession that followed the 1973 oil crisis. But no one suggests that denation-
alization would occur if growth rates were to rise. The rescue nationalizations
represent a permanent extension of government ownership into industry. If present
trends continue, each new major company or industry that has financial problems
will become a prime candidate for nationalization, posing new competition to those
companies that remain in the private sector.
Expansion by diversification
State-owned companies are committed to expansion, and internal growth and
diversification are less controversial ways of expanding state ownership than forced
nationalization. M. Edouard Bonnefous, president of the French senate's finance
commission, has traced the process of what he calls the "creeping nationalization"
of French industy via the diversification of state-owned companies. He points out
PAGENO="0051"
43
that, while the number of French state-owned companies has declined from 170 to
130 in the past 20 years, their subsidiaries have multiplied from 266 to 650.6
Renault, the French state-owned automobile giant, has diversified into numerous
industries throughtout the world, such as agricultural machinery, machine tools,
trucks, and most recently, agricultural products. Renault's subsidiaries are rapidly
expanding into Austria, Mexico, Portugal, Rumania-and Renault is just beginning
to make its move into the U.S. market.
Three large state-owned companies in Europe have recently announced independ-
ent plans to diversify into developing and producing car components-Ardal og
Sunndal Verk, Norway's largest aluminum producer, Salzgitter, the German steel
and construction company; and Vereinigte Metallwerke, the Austrian aluminum
company.
Britain's National Coal Board is aggressively moving into new businesses all
around the world. British Shipbuilders, nationalized just in 1977, recently an-
nounced a major diversification program into offshore engineering, undersea assem-
blies for oil-related work on the ocean floor, and nonmarine engineering. British
Petroleum continues to expand aggressively, recently acquiring stakes in coal
mining, chemicals, and bleach and detergents. Many state-owned airlines are diver-
sified into air freight shipping, travel agencies, restaurants, and hotels.
These are just a few examples of the silent but relentless expansion of state
ownership through diversification. The competitive effects of this trend are not
widely appreciated but are still significant.
High-risk ventures
Nationalization also occurs through government establishment or takeover of
companies that carry high risks in the marketplace or that require heavy research
and development expenditures. In the past few years, Britain's Nationial Enterprise
Board purchased stock in 40 different enterprises, including 15 companies that are
now direct subsidiaries, employing 276,000 workers. Recently, the National Enter-
prise Board announced that it will make an initial investment of $47.8 million to set
up a new state-owned company to manufacture integrated circuits and compete with
major Japanese and U.S. companies.7
The British government decided in December 1978 to quadruple the amount of
money that can be borrowed by the state holding company, National Enterprise
Board, and its regional counterparts, to an unexpectedly high total of $12 billion.
Following the government's instructions to help expand exports, the National Enter-
prise Board's new corporate plan envisages an expanding role in product develop-
ment in key strategic areas of industry.
The German and French governments both provide equity capital to assist small
and medium-sized companies that wish to launch new products and techologies.
The proposed DeLorean Motor Company, brain-child of John Z. DeLorean, the
former General Motors executive, is to rely heavily on a mixture of loans, equity,
and cash grants from government sources in Northern Ireland. The British govern-
ment is willing to invest more than $104 million in the company, or about $53,000
for each job to be created.8 Since the amount of total support includes $13.2 million
in loans, $34.9 million in equity, and $57 billion in outright grants, it is no wonder
that DeLorean chose Northern Ireland over Puerto Rico, whose offer largely prom-
ised loans.
UNFAIR COMPETITION?
Today no industry is immune to competition from state enterprises. All three
types of expansion of state ownership-rescues, diversifications, and high-risk ven-
tures-bring government companies into more active competition with private cor-
porations. The question that needs to be asked is how to meet this new form of
competiton.
In comparison with their privately owned competitors, state-owned companies
have a number of distinct advantages, which we shall now discuss.
No need to earn profits
The biggest advantage of state-owned companies is their ability to succeed and
even thrive without earning profits. Although political goals can deter the state-
6 "The State Sector: Purge Gets Under Way," Financial Times [London], June 11, 1978.
"Britian Plans to Invest $47.8 Million to Spur Advanced Electronics," Wall Street Journal
[Western edition], July 24, 1978; "NEB Confirms Go-Ahead for Microprocessor Plan," Financial
Times [London], July 27, 1978.
8 "DeLorean Car Plant to Get $103 Million of Aid from Britain," Wall Street Journal, Novem-
ber 17, 1978; "Government to Put [illegible] into [illegible] Car Plant," Financial Times [London],
November 26, 1978.
PAGENO="0052"
44
owned company from operating efficiently, even an inefficient company can pose
formidable competition when it is subsidized and when its deficits are covered by
the government.
U.S. Treasury Department data show that, in 1977, the British Steel Corporation,
whose production facilities are widely recognized to be old, overstaffed, and ineffi-
cient, was underselling the efficient Japanese steel companies on the U.S. West
Coast.~ Since British Steel's losses last year were over $800 million, the decision to
sell steel at such low prices was interpreted as being a political decision to maintain
employment rather than a commercial decision.
In July 1978, the British government requested new aid of $930 million for British
Steel.
The laws of capitalism dictate that a company unable to operate profitably is
eventually forced out of business. Profitability is necessary to attract new capital
and maintain support of investors and creditors. Private companies must rely on the
capital markets for funds, and lending depends on past financial strength and
potential profit performance.
But state-owned enterprises in Europe operate on totally different principles.
Although governments and managers there talk bravely of making their operations
profitable, the financial records show that most state-owned companies incur sub-
stantial losses or just break even. Occasional profits are indeed modest.
For example, in the past three years the British government has spent well over a
billion dollars making up for British Steel's losses. Private companies would find it
difficult to survive under such circumstances and would feel that British Steel-
despite its poor financial performance-poses a competitive threat. Exhibit III
shows net income for some of the largest state-owned manufacturers.
Oversight of the Antidumping Act of 1921, hearings before the Subcommittee on Trade of the
Committee on Ways and Means, U.S. House of Representatives, Ninety-fifth Congress, Novem-
ber 8, 1977. p. 36.
PAGENO="0053"
45
Exhibit (8
Net income or toss of the 14 largest state-owned manufacturers in Western Europe, 1973-1977
Comperry
Cooniry
tndoslry
~n73
1974 1975
1976 1977
/erospaha(e
Are Rotrixo
France
rely
Arrcratt.mi5Siies
St9n.942)
5(76569) 5(113.016)
5(129.902) 5(91.045)
Aolotrtobites
(1.544)
(09.423) (170.632)
102.632 (169.039)
OtitishLeyerrdt
0,0cm
Acinwobfles
170455 171.867
61.205 (90.562)
(541.209) (164.727)
(158.132) (86.907)
42.985 ~.96t
(157.609) (246.619)
122.870 4.070
Bot,shSteef
Britain
(tori sleet
120.831
Cretbo-tt49e5 de
France
Cootw5tiog. chentoats
(8.789)
(2.573) (136.769)
192995 56.935
50.413 (110,654)
OSM
Nethet!atds
Chewinats. tetlit'&oprs.
50.838
t:atsder
(tat)'
Steel .
.. 34030
RettooS
France
Aotowobfles.ttaoIcts,
12.902
7.261 (128.702)
Rctts'Royce
Otilain
7iir~r~1t et'gStes
2.323
28.650 65.970
16530 25 503
5.059 12.100
.
Saarbet;..ertro
Gewatry
CoatwSittg. robb~r
ptcdoots
(36.234)
(16.157) . (2.555)
.
S»=trçtrtn
Getwany
Steel. shipboitdng
wachittery
tl009
20503 6.567
16.869 (25.555)
(18.51?) (40.119)
Setstoeta8
S.-.eden
Minuttg.popet ptcdocls.
31561
40.682 (945.827)
Gtort8
stool
50kG
Getroony
Attiwitrim. chetrrkots
8.971
`
,23,864 (17.970)
96.096 14.071
VO6ST'AtpSre
Austria
Steel
19
9.901 86
1.100 56))
PAGENO="0054"
46
No fear of loss or bankruptcy
Just as state-owned companies need not earn profits to prosper, neither do their
losses lead to bankruptcy. Judging by all the evidence, state ownership confers
immortality on an enterprise. Governments rarely allow their companies to go
bankrupt, regardless of how staggering their losses may be. In fact, large losses are
as likely to be followed by massive new injections of investment funds as by
cutbacks in production, as the Italian state-owned enterprises have shown. Despite
large losses, Italian state-owned steel companies have continued to add to capacity,
in violation of EEC directives, and Italian state-owned textile companies that have
been reporting losses for ten years or more still live to compete another day.
No need to pay dividends
While dividends are almost considered to be a cost of doing business in many
large privately owned corporations, state-owned companies rarely pay dividends to
the government, even when they do have profits. The flow of funds is usually in the
opposite direction-from the state to the company.
Renault, known as the superstar of European state/owned enterprises because of
it high growth rate and entrepreneurial vigor, has never been very profitable. In
fact, Renault's major competitor, Peugeot, has paid as much in taxes to the govern-
ment in the past five years (1.8 billion French francs) as Renault has been paid in
subsidies by the government (1.7 billion French francs).b0
Preferential access to state financing
State-owned companies enjoy ready access to the state purse. Their top executives
meet regularly with the finance minister to discuss cash and investment needs.
Although private banks sometimes provide loans to state companies, the govern-
ment usually guarantees repayment, which ensures a low interest rate on the loans.
The annual state budget in Great Britain provides for major financial assistance
to state-owned companies. sometimes the aid is for immediate cash needs (as in the
case of much recent assistance to British Leyland, British Steel, and some other
state-owned companies), but more often funds are earmarked for investment pro-
jects. Employment, not profitability, is the dominant concern in deciding where new
investment funds are to go. Governments also are eager to finance exports of the
companies they own. Indeed, competition in export financing has become a preoccu-
pation of most countries.
Boeing recently lost a Pam Am order to Lockheed, partly because Lockheed's
TriStar was fitted with Rolls-Royce engines, and the British government agreed to
finance both Pan Am's purchase of the engines and the planes. Thus government-
financed investment is based more on such political factors as maintaining employ-
ment and exports than on economic considerations of profitability. State companies
can readily adopt such "political" investment criteria without risking their futures,
whereas private corporations that ignore profitability will not survive-at least as
private companies. Hence the willingness to follow the government's investment
criteria gives the state-owned enterprise special access to the government's purse.
Monopoly power
Governments have often chosen to nationalize entire industries by placing com-
peting businesses under single state ownership. Great Britain is particularly known
for this strategy, such companies as British Steel, British Aerospace, National Coal
Board, and British Shipbuilding having a dominant position in their respective
industries. Even though this policy has encouraged monopoly power, these compa-
nies have still had diffculty achieving financial health. In addition to a status of
domestic monopoly, subsidies and grants from the state have been necessary to
protect these companies from foreign competition.
Built-in markets
Governments encourage state/owned companies to give preference in their pur-
chasing to domestic sources. Although this practice is a direct violation of EEC rules
on competition, examples of direct government influence in procurement decisions
of state-owned enterprises abound. And as more companies come under state owner-
ship, governments acquire power to influence or control purchasing decisions of
large sectors of the economy-a power not even imagined a few decades ago.
For example, when managers of two major European state/owned airlines-Air
France and British Airways-announced their preference for U.S-manufactured
airplanes, political repercussions were instantaneous. The French government per-
suaded the management of Air France to agree to a compromise by which the
company would purchase most of its planes from the French state-owned aerospace
`° Oliver Giscard d'Estaing, Le Social-[illegible]
PAGENO="0055"
47
firm Aérospatiale.11 The announced preference of the British Airways deputy chair-
man for a U.S-made plane was followed by calls in Parliament for his immediate
dismissal, and a British aerospace union adopted a resolution demanding that the
publicly owned aerospace industry be given preference on all future contracts.'2
Private companies can be expected to join the unions in vociferously opposing
foreign purchases by state-owned companies. For example, private paper companies
in Britain recently called on the government to instruct all the nationalized compa-
nies to purchase domestic paper products.
Governments themselves are the largest purchasers of good and services in every
major country today. Representing a growing share of world trade, they are in-
volved in purchasing practically every kind of good and service, ranging from
computers, automobiles, and office machines to every type of military equipment.
Bids for this vast amount of business are in many cases not open to foreign
competitors, and in other cases there may not even be a bidding process. Many
U.S. companies are complaining that the huge Japanese state/owned company,
Nippon Telegraph and Telephone Corp., has not considered buying from U.S.
manufacturers.
Public opinion runs strongly against having governments purchase from foreign
companies. Employees in domestic companies feel that government purchases from
a foreign competitor are almost acts of treason-and to pass-over a state-owned
producer in favor of a foreign producer is to compound the offense. Government
ownership of a company virtually ensures that government will be a customer.
When the French and British governments became major owners of computer
companies in their respective countries, they assured these businesses of a healthy
number of orders from state bodies. Government campaigns to encourage the public
to purchase domestic products (such as the British government's current "Buy
British" campaign) require a government to buy domestic products itself-and the
pressure is doubly compelling when a state-owned enterprise makes the product.
Hidden subsidies
Subsidies to corporations are more easily disguised than are tariffs or quotas.
Though subsidies are hard to detect or trace in any case, it is nearly impossible to
try to unravel the tangled financial relations between governments and state enter-
prises. Although Japanese institutions are unique, Japan has many types of state-
owned "public corporations," many of which are used to subsidize national economic
endeavors. A new study notes that most areas of technological expertise in which
Japan is preeminent-shipbuilding, railroads, steel, electronics, cameras-were de-
veloped by mixed public and private enterprises or under official auspices.'~ A lack
of consistent accounting standards has made it especially easy for governments to
hide subsidies to state-owned businesses.
A controversy rages now in Great Britain over the exotic accounting standards
used in auditing state-owned companies' accounts.'4 Not only do different companies
adopt widely differing accounting practices, but these practices often change from
year to year. Thus it is next to impossible to know how performance is being
measured or what the company's true goals are. This chaotic situation moved The
Economist to proclaim: "Shoot the nationalized auditors-no one would notice." 15
The EEC has been struggling to correct the problem it calls "transparency"-
government money and policies that benefit a state-owned enterprise yet are diffi-
cult to trace and measure. For example, is a government cash grant really going for
new plant and equipment, or will it subsidize the price of a product in foreign
markets? The EEC treaty states that the same rules of competition apply to state as
to private companies, but by the EEC's own admission attempts to attack state aid
to state-owned companies have met with little success.
The problem is not that governments are unaware of the anticompetitive impact
of such subsidies but that they zealously guard their right to set national economic
policy. State-owned concerns are extremely convenient political tools to influence
the economy for short-run political purposes, especially when a government is in
some political difficulty or when an election is imminent.
""Air France Near Solving Problems with State." Financial Times (London), January 6, 1978,
"Air France: For 24 Pieces of Silver," The Economist, January 21, 1978, p. 85, "Air France's Re-
equipment Programme," Financial Times (London), January 20, 1978; `Air France Cancels an
Option to Lease to Boeing Co. 717," Wall Street Journal (Western Edition) April 18, 1978.
"Buy British Aircraft Call by Engineers," Financial Times (London), May 12, 1978.
~3 Johnson, Japan's Public Policy Companies [Washington, D.C., and Stanford, Calif.:
American Enterprise Institute and Hoover Institution on War Revolution and Peace [illegible],
p. 16.
`~ "The State Industry Accounts Muddle," Financial Times [London], August 2, 1978. Ku Piza,
"The Nationalised Industries' Accounts Say Enough?" Account, September 1976, p. 72.
"The [illegible], July 24, 1972, p. 73.
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Support for domestic industiy
State-owned companies help subsidize other domestic companies. Governments
often use state-owned companies to assist domestic corporations by, for example,
selling goods or services at lower than cost. The price of state-supplied coal has been
subsidized for many years in France (as shown by the consistent losses of Charbon-
nages de France), benefiting coal users.
State-owned banks are called on to give special support to exporting companies.
M. Maurice Laure, chairman of state-owned Societe Générale (one of the large
French banks, 80 percent of which are state-owned), said that the banks "are
absolutely in the front rank" in their aid and support of French exports.16 Two
state-owned banks have lent the loss-ridden French steel industry the bulk of some
56 billion it has received in loans.
The Swedish government has directly increased purchases of state-owned compa-
nies to avoid layoffs in the private sector. When the large Swedish telecommunica-
tions business, L. M. Ericsson Co., threatened to close down some of its operations,
the government gave its telephone company an extra $70 million to place additional
orders for new equipment from Ericsson.17
Revenues from state-owned natural resources can go directly to subsidize domestic
industry. In the debate on what to do with the. revenues of the state-owned British
National Oil Corporation (which controls North Sea oil operations), current British
political sentiment seems to be to use the oil monies to "revitalize" British industry.
No one appears to be objecting to such a subsidy on the grounds that it would be
anticompetitive.
The competitive threat of state-owned enterprises is widespread, since many of
them are major exporters. State-owned giants such as Renault, British Steel, DSM,
BL Ltd., Alfa Romeo, and British Petroleum are among the largest exporters in
Europe, and some of them export over half their output. Thus private competitors
must vie with them not only in their home markets but throughout the world.
Furthermore, the fact that more and more export-oriented state enterprises are
diversifying abroad will mean that new industries must contend with this new form
of state-owned and state-assisted competition.
State-owned companies distort the free market and competition in many ways.
They have advantages in their home markets. They are arms of the state, with
special preferences in dealing with their owner, the government. They are used to
support and subsidize local enterprises. And, most important of all, they operate at
home and abroad without the need to earn profits, which governs the private sector.
Losses and new investment needs are financed from a seemingly bottomless cornu-
copia of government grants, subsidies, and loans (sometimes at favorable low inter-
est rates).
The fear, of course, is that the number of state enterprises will continue to
expand, that the special treatment they receive will continue, that nationalization
to solve economic crises or save jobs will continue, and that natural competitive
forces will not be allowed to respond and adapt in the face of new pressures to
nationalize.
Regardless of whether the spread of state ownership is a consciously planned
development or a series of ad hoc decisions, the unmistakable trend in Western
Europe and in many developing countries is toward a large and growing number of
government-owned enterprises whose policies and export pricing behavior cannot
possibly be characterized as commercially motivated. When increasing trade with
the Comecon (Council for Mutual Economic Assistance) world is added to this, the
forces of state ownership promise to be even more formidable in the future.
Role of the EEC
The European Economic Community is keenly aware of the competitive threat of
the rising tide of state ownership and has undertaken several investigations into
subsidies to such companies. Article 90 of the EEC treaty says that state-owned
companies may not distort competition by their policies, but EEC officials readily
admit that no major cases have arisen under Article 90. The commission's 1977
Report on Competition Policy notes that the Court of Justice "has as yet had very
little opportunity to elaborate" on Article 90.
The numerous advantages and subsidies of state-owned companies have continued
to be allowed, and the EEC has been perplexed about how to put teeth into Article
90 in view of the strong political opposition from member states, nearly all of whom
now have large state-owned sectors.
16 "Banking: The Seats of Empire." Financial Times [London], June 13, 1978.
17 "Government Allocations Helps Ericsson," Financial Times [London], April 14, 1977.
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There are, of course, pressures to enforce Article 90 from private corporations
within the EEC that must compete with subsidized, state-owned companies. Yet on
the basis of past performance, the EEC is unlikely to have the power or the
inclination to take the drastic steps that would be necessary to effectively enforce
Article 90. All the evidence suggests that Article 90 will merely remain a declara-
tion of principle, having no significant role in fundamentally changing government
policies toward state-owned companies.
Possible solutions
What can the United States do to ensure that state-owned enterprises will not
unfairly undermine the competitive position of private industry? The U.S. govern-
ment should recognize and explicitly resist the protectionist policies of foreign state-
owned companies much more firmly than it has in the past. State ownership itself
may cause companies to require subsidies, since the normal pattern for European
state-owned companies has been never-ending government intervention and subsidi-
zation.
Although every nation subsidizes some industries, the United States is still a
remarkably open economy compared with our major trading partners. An open
economy indeed has advantages, but openness can make an economy vulnerable to
unfair competition when trading partners do not observe the same policies of
fairness and openness.
The advantages of free trade are spread thinly and widely, but the benefits of
protectionism are politically highly visible. Politicians can point to jobs saved in an
industry kept alive by subsidies, but, in the end, no one can win an international
game of competing to nationalize and subsidize more and more industries. Competi-
tion for trade, not for subsidies, is a vastly more efficient goal to strive for. But to
promote free trade, trade negotiations and legislation must deal specifically with
the special problem of state enterprises that pose unique considerations of subsidiza-
tion and trade restrictions.
However, given recent history, we are not optimistic that American business will
be adequately protected by our government's policies toward foreign state-owned
companies. In the post-World War II era, American foreign policy has usually
subordinated American economic interests (particularly those that would foster
American exports and competitiveness abroad) to political objectives-such as build-
ing up the economies of Japan and Western Europe. This policy is sometimes
referred to as a continuation of "Marshall Plan mentality." Given the current
foreign trade imbalance and the relative value of the dollar, the policy has worked
very well.
The question that remains is, "How long will the United States continue its policy
of `beggar thyself-and not thy neighbor?" The U.S. government appears to be still
operating under the illusion that to compete internationally all that American
companies must do is produce goods that people want to buy. But, in an age of
proliferating government subsidies to foreign state-owned and private corporations,
that is not enough.
Unless U.S. policymakers recognize that trading practices of our chief competitors
often grossly violate standards of fair competition, and that bold and unequivocal
actions are necessary to counter these anticompetitive practices, one can expect still
further erosion of U.S. markets at home and abroad.
Especially discouraging for American companies has been the repeated indiffer-
ence and even outright hostility that so many U.S. government policymakers and
bureaucrats show toward our own corporations.18 Even when the existence of many
direct and indirect subsidies to state-owned companies has been known, U.S. policy-
makers have not moved aggressively to levy duties against imports from these
companies. Past enforcement has been so timid that it has mainly served to encour-
age the Europeans and Japanese not to take our laws seriously. The discretionary
powers that might help American business compete against foreign state-owned
competitors are seldom used to foster American sales and protect American jobs.
Current proposals for a "material injury test" to determine whether U.S. compa-
nies are truly injured by foreign subsidies are a new and additional obstacle that
American trade negotiators have reportedly agreed to. This suggests that the ad-
ministration is not as concerned as it has professed to be about protecting American
manufacturing companies from unfair foreign competition. American companies in
the past have already had little chance of seeing countervailing duties imposed on
subsidized imports. But, if the material injury test does indeed become law, Ameri-
can business and labor will see yet another encouragement to foreign state-owned
companies to become more aggressive.
~ John J. Nevin, "Can U.S. Business Survive Our Japanese Trade Policy?" HER September-
October 1978, p. 165.
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Regardless of precisely what trade treaties are finally agreed to, can American
business realistically hope that our government will act against imports from subsi-
dized state companies? For instance, despite Japan's suggestions that it may permit
American companies to compete internally for business of its 115 state-controlled
companies (whose budgets are estimated to total about one-half of Japan's official
national budget), do we actually think such sales on any but a token basis will ever
occur?
Likewise, who can be so optimistic-or naive-as to expect that European state-
owned companies will become major customers of American companies where do-
mestic suppliers exist? To avoid embarrassment it is best not to put such questions
directly to our trade negotiators and government officials.
Public awareness
If American companies can expect little protection in the future from their recent
round of trade negotiations and from their own government officials, what, indeed,
can business do? Since American awareness of the growing anticompetitive impact
of state ownership around the world is still virtually nonexistent, American busi-
ness must mount a campaign to educate all levels of American society-beginning
with the president, Congress, those responsible for enforcing our trade laws, govern-
ment bureaucrats and extending to the public at large.
The message must be that the American "beggar thyself' policies dating back t~.
the Marshall Plan era have long ceased to be in the best interests of business and
labor, and increasingly will be detrimental for consumers as well, as more of our
domestic producers are forced out of business by subsidized foreign competitors.
It is time we recognize that while other nations bravely talk of free trade, they
have in fact moved further from market forces in favor of subsidized state owner-
ship of business as a form of veiled but active protectionism. American business has
been forced increasingly to compete against highly subsidized companies that are
not effectively required even to make profits-let alone show a rate of return
required by the market of American companies.
A special office
The U.S. government can take a further step to counter the anticompetitive
impact of foreign state ownership. A special office is urgently needed to have
exclusive responsibility for studying and monitoring the changing scope, behavior,
and competitive impact of state-owned companies abroad. If U.S. businesses are to
be protected from the increasing unfair competition of these companies, those
responsible for the enforcement of U.S. trade laws must possess what they have
lacked in the past-appropriate data for determining the scope and magnitude of
government subsidies to state enterprises.
Disclosure policies
An admitted obstacle to the systematic collection of data on foreign state enter-
prises is the present unwillingness of many governments to disclose their intimate
financial dealings with state-owned companies. In Japan, for example, the financial
dealings of the state-controlled companies are often cloaked in secrecy. In Great
Britain, a current political debate rages over whether Parliament itself has the
right to examine the records of the National Enterprise Board, the holding company
of many of the state enterprises.
Accountants in Europe continually complain about the muddled state of accounts
of nationalized companies and the lack of consistent accounting standards for meas-
uring the companies' performance. Until greater transparency exists, the total
extent of subsidies is hard to measure indeed.
U.S. trade officials and those charged with enforcing our trade laws, however,
have every right to insist on full disclosure of the financial statements of state-
owned companies and of government policies and financial dealings toward the
companies-insofar as they may affect competition. U.S. trade law should explicitly
state that state-owned companies whose financial records and government dealings
are kept secret are presumed to be subsidized and anticompetitive in purpose or
impact.
State-controlled economies
U.S. policymakers should consider treating imports from state-owned companies
on the same basis as we have those from centrally controlled economies. Trade with
any state-owned enterprise does pose essentially the same problems in policy as does
trade with the communist nations. The policies of state-owned companies outside
the Iron Curtain are remarkably similar to those of most socialist countries, which
specifically disavow profit as a legitimate goal for companies, and which not even
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explicitly put prices on their factors of production. State-owned enterprises every-
where are so regularly used as instruments of national economic and political policy
that they appear to be a significantly different species from the private, profit-
maximizing company.
Thus, since we now have to estimate what the real costs of Iron Curtain country
goods are, and adjust duties accordingly, a strong case can be made that goods from
state-owned companies throughout the world should be analyzed accordingly. In
short, our experience with setting tariffs for Eastern European imports should be
considered as a model in developing new laws to protect private business from the
unfair competition of state-owned companies. Indeed, U.S. law and policy should
explicitly recognize, at a minimum, that state-owned companies which are not
making the same level of return on investment as their private counterparts are in
fact being subsidized.
After all, companies that enjoy so many special benefits of state ownership-the
direct financial backing of the government, the low-interest loans which are often
not repaid, the explicit subsidies to cover losses, the periodic injections of equity
capital that demand no dividends, and the assurance of the government as a major
customer-and yet still fail to achieve profits comparable to the private sector-are
scarcely playing by normal competitive rules. As the nationalized companies grow
in number, size, and diversity around the world, and U.S. trade policy continues to
ignore their heavily subsidized character, American business will increasingly face
this most insidious form of unfair competition.
ADMINISTRATION OF THE COUNTERVAILING DUTY STATUTE BY THE TREASURY
DEPARTMENT
The Treasury Department has:
1. missed statutory deadlines;
2. reduced the calculated amount of a subsidy, and hence the countervailing duty,
in questionable ways;
3. accepted unverified information from foreign representatives as a basis for its
determinations; S
4. changed rulings without adequate opportunity for interested parties to com-
ment;
5. stretched the authority of the Trade Act of 1974 with regard to the granting of
waivers.
These charges are detailed in the following sections.
1. Treasury has missed statutory deadlines
One of the important changes intended to strengthen the countervailing duty
statute as incorporated in the Trade Act of 1974 was the 12-month time limit
established for the Treasury Department's consideration of countervailing duty
petitions. This time limit was established as part of the legislative "deal" which
gave the Secretary of the Treasury authority to waive countervailing duties under
certain circumstances. Under the amendment, the Treasury Department has six
months from the time of receipt of a valid petition to make a preliminary determi-
nation with respect to the existence of foreign countervailable practices and then it
has an additional six months in which to make a final determination. Notwithstand-
ing the statutory time limits, Treasury has missed deadlines, particularly for pre-
liminary determinations which deadlines are consistently missed as in the case of
Swedish rayon staple where the preliminary determination came three months after
the six-month deadline.
Two cases in particular come to mind, one involving Argentine leather apparel
where the statutory deadline for a final determination was January 21, 1978 and
the other involving Argentine footwear, where the deadline was February 11, 1978.
The decisions on both products were finally issued January 17, 1979; that for leather
apparel was negative and the decision on Argentine footwear was affirmative. Thus,
Treasury took twelve months and eleven months longer, respectively, than mandat-
ed in the statute to make its determinations in these two cases.
The effect of failing to make determinations within the statutory deadline is to
deny petitioners due process, particularly where considerable time has elapsed since
the deadline. Thus, when an affirmative decision is finally made, petitioners have
suffered from Treasury's failure to institute countervailing duties earlier. When a
negative determination is finally made, a petitioner has been denied the opportuni-
ty to challenge such determinations at an earlier date, in accordance with Section
516 of the Tariff Act of 1930, as amended.
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Even a simple publication in the Federal Register of a notice of appeal of Treas-
ury's countervailing duty determinations encounters unnecessary delay despite the
provision in Section 516(d) of the Tariff Act of 1930 that such publication be made
upon receipt. On December 15, 1978 the Amalgamated Clothing & Textile Workers
Union filed with Treasury notice of its intent to appeal six such determinations.
Treasury did not publish notice to this effect in the Federal Register until February
27, 1979. The appeal process cannot move forward without such notice. Once again
due process has been delayed by Treasury.
2. Treasuiy has reduced the calculated amount of a subsidy, and hence the counter-
vailing duty, in questionable ways.
Treasury has pursued a policy which they justify as provided for in the counter-
vailing duty statute of reducing the gross amount of subsidy by various offsets.
Although in most cases the reductions are in the form of indirect taxes related to
the product which receives the subsidy, Treasury has found some rather exotic
items with which to reduce the subsidy. These include, in the case of the waiver on
handbags from Colombia, the effects of the devaluation of the foreign currency on
the grounds that the Colombian Government allows as much as nine months to
elapse before subsidies are paid. In this case Treasury even reduced the subsidy by
the cost of the interest on the money not received by Colombian handbag producers
and exporters during this nine-month period. Treasury describes this offset in the
Federal Register of May 2, 1978 as "the present value effect of the (exporter's tax
certificates) resulting from the inflationary impact on . . . delayed payment." Fur-
thermore, since these exporter's tax certificates are sold in the Bogota Stock Ex-
change, Treasury also allowed a "discount paid by holders of (exporter's tax certifi-
cates) in the stock exchange, thus effectively not providing full value of the (export-
er's tax certificates) once sold." It is interesting to note that several of these offsets
were disallowed in a more recent case involving Colombian textiles and apparel, but
Treasury has not bothered to go back to its earlier decision to recompute the
countervailing duties on Colombian handbags. The Colombian handbag case is not
untypical.
It is so important to recognize that the reductions which Treasury makes in the
subsidy through subtracting the indirect taxes related to the products ignore com-
pletely the fact that in virtually all of the foreign countries concerned these indirect
taxes would have been borne by the manufacturer even in the absence of the
subsidy program, and that the subsidy program clearly is intended to give the
foreign manufacturers an edge in selling to the U.S. This is exactly what the
countervailing duty statute is aimed at offsetting, but Treasury nevertheless goes on
deducting these indirect taxes to the point where many negative or de minimis
determinations result or the countervailing duty is significantly smaller than it
should be.
3. Treasury has accepted unverified information from foreign representatives as a
basis for its determinations.
Treasury makes most of its determinations with regard to the size of a counter-
vailing duty or a waiver of a countervailing duty on the basis of data submitted by
foreign governments and by foreign firms or associations of firms. In neither case
are the data verified by Treasury. Admittedly, it is difficult for Treasury to verify
data submitted by foreign interests, but at least an effort should be made to assure
the American petitioner that, indeed, the data on which a determination is made by
Treasury are reliable. Treasury says that it must take the word of a foreign
government. Yet in a case involving Argentine footwear, the word of a foreign
government was not good enough. It reneged on a commitment which had been
made to Treasury. In that particular case, Treasury said "but they had a change of
governments in Argentina." Unfortunately the new government in power did not
bother to advise Treasury that it had reversed the commitment made by its prede-
cessors, and Treasury did not reopen this case for a considerable period of time after
the subsidies were reinstated. When Treasury finally acted five and a half years
after the initial petition was filed, it imposed a countervailing duty of less than 1
percent.
As the result of a request through the Freedom of Information Act, it has been
learned that although Treasury waived countervailing duties on Uruguayan hand-
bags and footwear at the end of January 1978 based on certain assurances from the
Uruguayan Government, the factual information on which to base the waiver was
not available to Treasury at the time of the waiver action. On May 15, 1978 the
Minister of the Uruguayan Embassy in Washington was told by Treasury that in
October 1977 Treasury had requested of the Uruguayan Government "a detailed
description . . . of the laws providing for the various offsets accepted by Treasury
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as well as a detailed itemization of how the offsets were calculated for each of
the product sectors." That had not yet been furnished by the Uruguyana Govern-
ment as of mid-May 1978.
Treasury pointed out that the Uruguayan Government had promised in December
1977 to furnish by the following month "a detailed enumeration of the program to
eliminate the entire `reintegro' system by 1983 That, too, had not been
furnished by the Uruguayan Government by mid-May 1978.
Apparently a copy of the December 28, 1977 decree of the Uruguayan Govern-
ment reducing the "reintegro" was also not submitted in January 1978 before
Treasury waived the countervailing duties. At least Treasury was still inquiring
about it from the Uruguayan Government in mid-May 1978.
4. Treasury has changed rulings without adequate opportunity for interested parties
to comment.
Even when Treasury once announces a net subsidy, taking into account the
reduction for indirect taxes, it continues to amend those calculations mostly on the
downside based upon new information which it receives from the foreign govern-
ment. For instance, in the case of Spain, Treasury announced a 4 percent counter-
vailing duty on unwrought zinc in April 1977. In June 1978, Treasury reduced the
existing countervailing duty on zinc and on several other Spanish products subject
to U.S. countervailing duties by revising its method for calculating indirect tax
subsidy offsets. This action was taken after consultation with Spanish authorities
but without consultation with U.S. industries involved. Despite the controversy
Treasury aroused over the basis for this reduction, Treasury reduced the counter-
vailing duty but without suspending the liquidation of entries until all views could
be heard.
Treasury later realized the views of the U.S. industries had merit and that it had
made a mistake on its revised method for calculating the countervailing duties. Six
months later Treasury reverted to the basis of calculations it used prior to June
1978 with the effect that the countervailing duty was now raised again, although
not quite to the original levels.
In the interim, between June 15, 1978 and January 17, 1979, because Treasury
had not suspended the liquidation of entries on Spanish zinc, nonrubber footwear,
and bottled olives, importers benefitted from a lower rate of countervailing duty
which gave them a windfall they certainly did not merit.
It is of interest to note that the American Footwear Industries Association had
requested Treasury to reconsider and revise upward the 3 percent countervailing
duty on Spanish footwear some four years ago. It has never received a reply to its
request.
While Treasury acted speedily, without consultation with domestic industry, to
reduce duties in the Spanish cases, and without suspension of liquidation, it took
Treasury almost five months to revoke a waiver and institute a countervailing duty
in a case involving Uruguayan leather apparel and almost eleven months to revoke
waivers on Uruguayan footwear and handbags. (The waiver action on leather appar-
el is discussed more fully below.) But in these cases where Treasury was acting to
impose duties, it suspended liquidation of entries to give the Uruguayan Govern-
ment more time to protest Treasury's action.
Thus, on the downside, Treasury appears to act with haste, but on the upside,
Treasury clearly takes its time.
5. Treasury has stretched the authority of the Trade Act of 1974 with regard to the
granting of waivers.
The Trade Act and the temporary four-year waiver authority which expired
January 3, 1979, provided the Secretary of the Treasury with authority to waive the
imposition of countervailing duties when he determines that:
1. adequate steps have been taken to reduce substantially or eliminate the ad-
verse effect of the bounty or grant on domestic producers;
2. that there is a reasonable prospect that trade agreements to reduce or elimi-
nate non-tariff barriers will be entered into; and
3. the imposition of countervailing duties would be likely to seriously jeopardize
the satisfactory completion of such negotiations.
Treasury Department officials have consistently interpreted these three criteria-
all of which must exist before a waiver can be issued-so loosely as to permit them
to justify any action administratively decided upon.
In one case, involving the imposition on January 12, 1976 of a 14 percent counter-
vailing duty on Brazilian handbags, the Secretary of the Treasury undertook subse-
quently to waive this duty as part of a "package agreement" on trade issues which
he personally negotiated during a visit to Brazil in May 1976. That waiver on
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Brazilian handbags was made effective July 1, 1976. Can it be said that at that time
there was a "reasonable prospect" that successful trade agreements were to be
entered into? Could it have been said in May 1976 that the imposition of the
additional duty was "likely to seriously jeopardize the satisfactory completion of
such negotiations?" Hardly, on both counts.
A recent glaring example of a new horror story is that related to Treasury's
finding that Uruguayan subsidies on leather wearing apparel were equivalent to 12
percent of the f.o.b. price for export to the United States.
In its final determination issued January 30, 1978, Treasury noted as intent to
waive the imposition of countervailing duties on the basis that it had received
assurances from Uruguay of a phase-down of only one subsidy-the "reintegro"
program of cash rebates which alone amounted to 20 percent or more of the value of
the goods exported. However, because leather wearing apparel from Uruguay en-
tered the United States free of duty under the Generalized System of Preferences,
the International Trade Commission was called upon (as required by Section 303(b)
of the Trade Act) to determine whether Uruguayan subsidies on leather wearing
apparel injured the United States industry. Following a comprehensive investiga-
tion, the ITC in April 1978, announced an unanimous injury finding. Nonetheless,
even in the face of such a unanimous decision by the Commission with respect to
the subsidized Uruguayan leather apparel, the Treasury Department carried out its
planned waiver, which was duly announced in the Federal Register of June 30, 1978.
Treasury justified its waiver on the basis of Uruguayan assurances that it would
phase out its major "reintegro" subsidy program by January 1, 1979. In agreeing to
waive the countervailing duty on this basis, Treasury did not require the Govern-
ment of Uruguay to reduce or eliminate other countervailable trade practices which
the Treasury had determined to exist in Uruguay. Treasury's justification for per-
mitting a waiver while the Uruguayans would leave these subsidies intact, was that
they were very small, perhaps in the order of 2 percent, whereas the major subsidy
program, which provided a subsidy of at least 20 percent was netted down to around
12 percent.
The domestic industry argued with Treasury officials that they were ignoring an
additional subsidy benefitting Uruguayan tanners equal to 8 percent of the value of
the leather content in various products exported. Treasury decided differently.
However, more recently, Treasury discovered that, indeed, it has made a mistake
and that the 8 percent subsidy on the leather content of products exported to the
United States was a countervailable duty. Thus, instead of a residual of 2 percent
after the scaling down of the major subsidy, Treasury found that the remaining
subsidy on Uruguayan leather apparel added up to a total of 13.3 percent. It decided
to impose this subisdy effective November 13, 1978 and revoked its former waiver.
Even after Congress failed to extend the countervailing duty waiver authority last
October, Treasury went ahead and waived the countervailing duty of almost 38
percent on Brazilian textiles and apparel on assurances that subsidies would be
reduced by half by January 1, 1979 and by the remaining half by January 1, 1980.
In the interim of one year, Brazil is being allowed to continue subsidies of a
substantial amount without having countervailing duties applied, to the detriment
of American firms and workers.
CONCLUSION
The foregoing documents what our group considers to have been a mismanage-
ment of the countervailing duty program by the Treasury Department. This record
does not support the assertion of the Secretary of the Treasury to the Joint Econom-
ic Committee on January 31, 1979 that Treasury does its "best to administer the
statute fairly and efficiently." It is for these reasons that our group of 33 organiza-
tions believes that the administration of the countervailing duty statute should be
removed from the Treasury department.
Mr. VANIK. The next witness is the Commonwealth of Puerto
Rico. I understand Governor Barcelo is here.
Governor, we are pleased to have you here. First I want to tell
you many of us are special friends of Puerto Rico. Many of us,
when we can't be found in Washington, are enjoying some of the
better advantages of life in the winter that are available in the
Commonwealth, and we have always been very, very much con-
cerned of what impact the actions that we take here have on the
business and commerce of the Commonwealth. We are very sensi-
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tive to this. We want to be sure that whatever we do is not
disruptive to the very warm and fine and effective working rela-
tionship we have developed over the years.
I would be pleased to hear your testimony.
STATEMENT OF HON. CARLOS ROMERO-BARCELO, GOVERNOR,
COMMONWEALTH OF PUERTO RICO
Governor ROMERO-BARCELO. Thank you, Mr. Chairman. I appreci-
ate the opportunity to testify before the committee.
I would like to first mention the fact that the Trade Act of 1974
is but the latest extension of the Reciprocal Trade Agreements Act,
originally enacted in 1934. As with all previous negotiations, the
current trade negotiations are based on the principle of reciprocity.
The administration, in general, and the Special Trade Repre-
sentative, in particular, have been highlighting the regional bene-
fits which will be gained from these agreements. This is not the
case with Puerto Rico. Not a single instance of specific regional
benefit to Puerto Rico can be pointed out.
In fact, the complete opposite is true. The elimination of the
wine gallon method of assessment and the proposed 20-30 percent
reduction of the foreign rum tariff may seriously threaten the
fiscal health of the Government of Puerto Rico and the people it
represents and services.
The manufacture of rum is very important to the island's econo-
my. It provides jobs for more than 5,600 U.S. citizens residing in
Puerto Rico at a time when the official unemployment rate is
about 16 percent. When we started our administration, the employ-
ment was as high as 22 percent in 1977. Although we have had a
considerable reduction to 16 percent, still 16 percent is extremely
high unemployment.
The Puerto Rican Government has spent more than $70 million
to advertise, promote and help develop the domestic rum industry,
over 90 percent of which is located in Puerto Rico. The purpose of
this investment is primarily to help develop our own economy,
thereby lessening our dependence on the Federal Government.
Puerto Rico's situation warrants special attention. In order to
maintain the principle of "no taxation without representation,"
since Puerto Rico has no vote in national elections, nor are we
allowed to elect voting representation to Congress, the Federal
excise taxes and tariffs collected on the sale of Puerto Rican rum
in the United States, by law, are rebated back to Puerto Rico. In
1978, the revenue from these taxes amounted to $200 million and
accounted for 13 percent of the entire local government's revenues.
In addition, a second source of government revenue is derived from
the covering over into the Puerto Rico Treasury of customs duties
collected on goods imported into the island. Over the last two
years, these revenues were in excess of $110 million. This source of
funding for the local government could be materially impaired by
the proposed elimination of the wine gallon method and the rum
duty reduction. You can see how important these revenues are to
us. As a matter of fact, I would like to point out here, right now,
that the concessions supposedly made by the Federal Government
in this multilateral trade negotiation are not being made by the
Federal Government. The concessions are being made by Puerto
PAGENO="0064"
56
Rico. The costs are to Puerto Rico. They come from the resources of
Puerto Rico, and we are not even participating in the negotiations,
and these concessions have been made against our desire, against
our interest, and with our funds.
Today, in Puerto Rico, we are striving to take action, economic
and otherwise, to help ourselves. This wisdom and the necessity of
this course of action is the main focus of a report on the economy
of Puerto Rico, which, at my request, was commissioned directly by
the President and coordinated through Secretary of Commerce Jua-
nita Kreps. We want to reduce as much as possible our dependence
on Federal transfer payments. However, the inclusion of the rum
duty reduction and the elimination of the wine gallon method of
assessment in the trade package will have serious, adverse conse-
quences for the fiscal integrity of our local economy, and could set
back much of the progress we have made.
The rum market is a highly competitive one. Companies are
constantly seeking an edge which will allow them a greater share
of what has been recently an expanding market. In spite of Puerto
Rico's current large share, over 90 percent, we are concerned that
the elimination of the wine gallon method, coupled with the rum
duty reduction, will provide an economic incentive for distillers to
shift their domestic operation to ancillary foreign facilities where
they could take advantage of lower tariffs, cheaper labor, raw
materials and lower environmental regulatory costs. We are fearful
that domestic producers may take advantage of these lower off-
shore costs to relocate production outside of Puer.to Rico, or in the
worst case, close down their Puerto Rican distilleries and leave the
island. The measure of risk of dislocating the Puerto Rican rum
industry cannot be overemphasized, as well as the substantial
damage to our public fiscal revenues which could result.
It is important to note that in the Clean Water Act, Congress
directed the President to take necessary actions, if need be,
through multilateral treaties, to ensure that water pollution regu-
lation by foreign countries is equivalent to that of the United
States. To my knowledge, little or no action has taken place to
bring this about. In spite of this lack of action, I am firmly con-
vinced that the United States should use its trade negotiating
leverage to ensure the application of equivalent water pollution
standards to the foreign rum industry. We agree with the fact that
we have to have clean water acts and clean air acts, and we must
protect our environment-and we support those efforts, and the
Environmental Control Board in Puerto Rico is very progressive
and has been very forceful in its control of the damage to the
environment. However, we have to bear those costs, and industry
in Puerto Rico has to bear those costs, whereas the rum industry in
other Caribbean islands or countries which pollute the same ocean,
the Caribbean Sea, are not subject to those restrictions. I think free
trade is a wonderful thing, but it must also mean fair trade, and
where there is unfairness in the competition, I think it should be
removed, and in this case there will be unfair competition from
those islands and countries that don't have to meet the clean air or
clean water standards.
Mr. VANIK. Those competitors, Governor, are principally the
other island countries, are they?
PAGENO="0065"
57
Governor ROMERO-BARCELO. Yes, at this moment, as I said, the
Puerto Rican industry has 90 percent of the market. The Virgin
Islands rum industry has about 6 percent of the market, and the
rest is foreign rums. We now have an advantage of, I think, $9.74
per case because of the tariff and the excise tax.
Mr. VANIK. Do you think you have that advantage because of the
tax or because of the better quality of your product.
Governor ROMERO-BARCELO. We do think definitely--
Mr. VANIK. When I go out, I usually ask for some Puerto Rican
rums, by choice. I found them all over Europe, too, very widely
used, and preferred, and there were some other discoveries I made
in this industry, and that is there was tremendous affection for
American bourbon in some other countries. Particularly in Russia,
bourbon was a very popular product, challenging the popularity of
Scotch.
As I understand your testimony, the risk of harm is two-fold; the
first hits at the rum industry, itself, while the second is aimed at
the ability of the local government to pursue a sound fiscal policy.
Is that correct?
Governor ROMERO-BARCELO. That is correct, Mr. Chairman.
Mr. VANIK. Do you have any more information you can give us
on that point with respect to how it affects your local economy's
ability to pursue a sound fiscal policy?
Governor ROMERO-BARCELO. Yes, I can. The revenues that we
receive, giving back to Puerto Rico the excise tax--
Mr. VANIK. You will suffer a loss in the rebate of the tax, won't
you?
Governor ROMERO-BARCELO. That is correct.
Mr. VANIK. No way out of that. That is going to be a loss of
revenue. Have you estimated what that is?
Governor ROMERO-BARCELO. We estimate within the next 6 years
it will mean an average of about $53 million a year.
Mr. VANIK. This country, itself, our Treasury, will be losing, I
guess, $135 million. That was the principal objection that I had to
the wine gallon issue.
To your knowledge, assuming injury to the rum industry and
Puerto Rico's revenues, are there native industries which will
stand to benefit?
Governor ROMERO-BARCELO. At this moment, we don't know of a
single one.
Mr. VANIK. You don't see any chance for benefit?
Governor ROMERO-BARCELO. We haven't heard Mr. Strauss' office
indicate any of those.
Mr. VANIK. We better ask him.
Governor ROMERO-BARCELO. There was an article in the newspa-
per recently where they pointed out region-by-region what would
be the industries that would receive the benefits in the multilateral
trade negotiations, and none included Puerto Rico.
Mr. VANIK. I think I am going to ask my staff to run down that
point and address the trade negotiator to try to point out specifical-
ly what benefits for other industries there are with the adoption of
the MTN as far as Puerto Rico is concerned, and you may as well
include the Virgin Islands, because they have the same problem,
and the Commissioner of the Commerce of the Virgin Islands is
`4~4-998 - 79 - 5
PAGENO="0066"
58
going to follow you, so we may as well check with respect to both. I
think we should explore that and try to find out how the loss is
counterbalanced by gains, and I think at present we should know
what they are.
We understand that, Governor. I didn't mean to interrupt your
testimony, but I did want to get to the bottom of that issue. Are
you finished?
Governor ROMERO-BARCELO. I have some more.
Mr. VANIK. Go ahead. I am sorry. I didn't mean to interrupt.
Governor ROMERO-BARCELO. The disruption of a major industry
would affect Puerto Rico as it would affect any State; namely, loss
of jobs, higher unemployment, loss of payroll taxes, and others. But
the crucial difference is that, unlike the States, the Government of
Puerto Rico would have to bear the additional burden of loss of
excise tax revenues which are collected by the Federal Government
and covered over into our treasury. Since there is a direct relation-
ship between the rebate of the Federal excise tax and local expend-
itures, the Puerto Rican Government will be a clear loser if the
rum duty reduction and the proof gallon method of assessment
provisions are implemented.
I am here before you today, not only to alert you to the unique
danger we face, but to suggest a series of alternatives for your
consideration.
First, we would like to see the existing law, as it applies to
distilled spirits, remain unchanged. It is our understanding that
the negotiations with foreign rum-producing countries are not yet.
finalized and until that time the opportunity for changes remains
open. No reduction in the rum duty should be conceded, and there
should be no change in the method of tax assessment. We don't
know whether rum can be considered exclusively from other dis-
tilled spirits, but we would like to point out that, again, the conces-
sions here, the financial concessions here, are being made by
Puerto Rico and by the Virgin Islands, exclusively.
Second, we do recognize the complexities of international negoti-
ations and, therefore, should these concessions be implemented, we
would like to see some sort of "hold harmless" provision be includ-
ed which would take into account the uniqueness of Puerto Rico's
economic situation. If, as a result of increased imports, a market
share disruption, or a loss of revenues for the Government of
Puerto Rico, the territories or the possessions occurs, I believe that
appropriate Federal actions, including but not limited to quantita-
tive restraints, increased duties, or any combination thereof, should
be provided.
Third, we would also like to suggest that the full tariff cut phase-
in period for possessions be delayed beyond the suggested limit of 8
years, perhaps even beyond the 10-year limit enumerated in the
Trade Act of 1974.
As I mentioned earlier, the rum excise tax revenues flowing to
Puerto Rico comprise 13 percent of the entire local government's
budget. The necessity of insuring the fiscal health of the local
government was clearly recognized by the Senate Finance Commit-
tee in its report on the Trade Act of 1974, where it states that
preferences should not be granted "if the granting of such prefer-
ences would have a detrimental effect on the economies of Puerto
PAGENO="0067"
59
Rico or the territories." (Sen. Rept. 93-1298, p. 224.) Although these
comments were made in the context of a discussion on the general-
ized system of preferences for developing countries, the committee's
logic can undeniably be applied to other tariff and nontariff conces-
sions which adversely impact on the economy of Puerto Rico.
While we share our Federal Government's interest in assisting
the developing countries, it must be remembered that Puerto Rico,
the territories, and the possessions constitute developing economies
within our own Nation. The subcommittee should be aware that
the concessions that would be granted by the trade agreements
may in the future favorably affect the importation of Cuban rum
into the United States. Are we to. favor other countries, and in the
future, Cuba, to the detriment of our own developing economies?
This reality means that special and differential treatment must
sometimes be accorded to Puerto Rico, the territories and the pos-
sessions. The committee was already cognizant of this when it
enacted special tax legislation to help ease Puerto Rico, the terri-
tories and the possessions' difficult economic situation. Since a
tariff is a tax on goods, it is my judgment that the factors which
compelled the enactment of the past legislation are equally applica-
ble to the current situation.
In closing, I should like to offer to this subcommittee the full
assistance of our Government in devising all appropriate measures
to safeguard the rum excise tax revenues which are so critical to
our economic well-being.
I would like to add one more thing before I close. We talked to
Mr. Strauss and to his aides some time ago, and we explained the
situation. They were very sympathetic and told us they would get
back to us before anything final was done. In the meantime, we got
word from them that the change that was going to be made was
only the 30-percent reduction on the import tariffs, and that would
be on a long-term basis. We had no indication at all about the wine
gallon being changed to the proof gallon, and when we did find out
was when informed markup was already underway in the Senate.
So we didn't have an opportunity for input, and here is where we
feel the unfairness lies, because we are the ones who are really
making the economic concessions, and Puerto Rico has not been
consulted. Those economic concessions are at this moment being
forced upon us.
Thank you very much.
[Attachment to the prepared statement follows:]
THE IMPACT OF A 30-PERCENT TARIFF REDUCTION ON PUERTO RICAN RUM
RECOMMENDATIONS
1. The Commonwealth of Puerto Rico should try to have the proposed 30 percent
tariff reduction on rum either reduced and/or its term of implementation length-
ened.
2. Aggressive action should be taken to prevent the proposed switch from wine
gallons to proof gallons in levying import duties and federal excise taxes on foreign
bottled distilled spirits.
SUMMARY
1. The proposed 30 percent reduction in the current tariff over a six-year period
will place Puerto Rico s dominant position as a supplier to the bulk rum market in
jeopardy with the distinct possibility of losing 20 percent-30 percent (1-1.3 million
proof gallons) of this price sensitive market to foreign suppliers.
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2. The proposed tariff reduction will reduce the duty per case of fifths of foreign
bottled rum from $4.20 currently to $3.00 a case in year 6. The "savings" are not
likely to be passed on to the consumer, but rather used by the importer as a
marketing promotional supplement.
3. A proposal to alter the method of levying both import duty and federal excise
taxes collected on foreign bottled imports is a greater concern than the proposed
tariff reduction. By switching from the current wine gallon assessments to a proof
gallon levy, the reduction in tariff duty and excise taxes collected on a case of
foreign bottled 80~ rum will decline by $6.04, thus increasing the price competitive-
ness of foreign bottled brands and probably augmenting the marketing funds availa-
ble to promote foreign brands.
4. The combination of summarial points (1, 2 and 3) plus the added costs of
producing in Puerto Rico and the uncertainties of the EPA and molasses discharge
could result in the second tier distillers curtailing or abandoning Puerto Rican rum
production in favour of an alternative source.
THE IMPACT OF A 30 PERCENT TARIFF REDUCTION
A six year reduction of the current import duty on rum from $1.75 per gallon to
$1.25 per gallon (8.3 cents per year for 6 years) will result in an exceptionally
competitive situation for bulk rum. Over 40 percent of the 17.5 million gallons of
rum entering the mainland was shipped in bulk in 1977.
Puerto Rican bulk rum has an insurance dollar value of $2.63 a gallon and enters
the U.S. at 100 to 110 proof gallons-a level which research has proven ensures the
qualities of taste and aroma of Puerto Rican rum. The foreign bulk rum arrives in
the U.S. at approximately 150 to 180 proof degrees. The additional 50 to 70 proof
degrees provide the importer with an opportunity of attaining more fluid gallons for
bottling purposes as well as a greater tax savings. For example, as the following
table shows, one gallon of 150 proof rum produces 1.87 fluid gallons at 80 proof for
bottling purposes, thus increases the yield by 87 percent and lowers the effective
cost of importing, e.g., fluid cost of Jamaican rum becomes $1.13 a gallon versus
$2.11 in bulk proof gallon. In contrast, the lower proof bulk Puerto Rican rum
increases its fluid yield by about 30 percent.
BULK RUM-JAMAICAN VS. PUERTO RICAN
[Per gallon]
Proof content
150
150
Cost
Import duty
$2.11
$2.63
$2.63
Proof content
Yield in fluid gallons
$4.74
80
1.87
$2.63
80
1.30
Cost per fluid gallon:
Ex. duty
$1.13
$2.54
$2.02
$2.02
Inc. duty
Excise tax savings in boffling in U.S.A.:
Per fluid gallon
$1.86
$3.48
$1.86
$2.42
Per proof gallon
An excise tax savings occurs because the bulk product, when bottled, is reduced to
80 proof and incurs a federal excise tax of $8.64 a fluid gallon (at 80 proof) versus
$10.50 per gallon if it had been imported in glass. This $1.86 a fluid gallon savings
magnifies itself to $3.48 on a proof gallon equivalence for Jamaican rum. Due to the
lower yield of Puerto Rican rum, its tax savings amounts to only $2.42 per gallon.
With the 30 percent tariff reduction spread out over 6 years, the cost per fluid
gallon of Jamaican rum begins to approach the current cost of Puerto Rican rum.
PAGENO="0069"
61
NEW TARIFF IMPACT ON BULK RUM
Jamaican
Current
Year 1
Year 6
Puerto Rican
Proof content
150
150
150
105
Cost
$2.11
$2.11
$2.11
$2.63
Import duty
Proof content
$2.63
$4.74
80
$2.50
$4.61
80
$1.88
$3.99
80
$2.63
80
Yield in fluid gallons
$1.87
$1.87
$1.87
$1.30
Cost per fluid gallon
$2.54
$2.46
$2.13
$2.02
When one combines this very competitive fluid price for Jamaican rum with the
greater excise tax savings mentioned above, the Puerto Rican run industry finds
itself in a very difficult situation as bulk rum could be lost.
The extend of this loss is difficult to quantify. The Liquor Handbook estimates
that 14.5 percent of rum sales occurred at a price below $5.14 in 1977. This price
sensitive sector represents 2.5 million gallons and is virtually entirely serviced by
the producers of Puerto Rican and Virgin Island rum. In six years' time this market
is expected to be 4.9 million proof gallons. By year 6 of the tariff reduction program,
it is not unlikely that 20 percent-30 percent of this market could be lost to foreign
producers.
The bulk rum situation becomes more alarming if we consider the strong possibil-
ity of Cuban run being available in the U.S. market in the not-too-distant future.
We have the strong conviction that as soon as Cuban run gains access to the U.S.
market, it will be offered at lower prices than Puerto Rican rum, even with the
prevailing import duty on rum. This conclusion is based on observations in other
markets where both Puerto Rican and Cuban rums are subject to the same import
duties or where there are no duties at all. In such places, Cuban rum is sold at a
lower price than Puerto Rican rum.
As production costs in Puerto Rico and the Virgin Islands continue to rise in the
1980s due to EPA requirements, minimum wage hikes, etc., to which the foreign
producers are not subject, it is possible this entire 4.9 million proof gallon price
sensitive market will be totally supplied by foreign producers with the aid of the
tariff reductions.
BOTTLED SHIPMENTS
The proposed tariff reduction will result in $0.20 per case savings per year for
importers of foreign bottled rum. It is unlikely that this saving will be passed on to
the consumer, but rather one should expect the money to be used either to augment
the importers' profit margins or more likely to be used as a supplement to the
advertising and promotional budgets for these foreign produced brands.
Import duty per case of bottled rum
Current tariff $4.20
New tariff:
Year 1 4.00
Year 6 3.00
A greater concern is the possibility of assessing the duty on the basis of proof
gallon, i.e., tariff rate times proof content, as opposed to the current method of wine
(fluid) gallons times the tariff rate.
By switching from a wine to proof gallonage approach to duty collection, the
proposed $0.50 per gallon reduction in duty over 6 years is really $0.75 for foreign
bottled 80~ rum, or a 43 percent reduction of the tariff.
The duty savings for the importer by using the proof content method jumps to
$1.00 a case in year 1 and swells to $1.80 by the end of year 6. It is likely that the
importer will be able to postpone price increases at the wholesale and retail levels
and/or use the additional duty savings for marketing programs.
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62
IMPORT DUTIES-WINE VERSUS PROOF GALLON
[1 case of fifths at 80']
Unit
Current tariff
New tariff
*
Year 1 Y
ear 6
Wine gallon
$4.20
$4.00
$3.00
Proof gallon
3.36
3.20
2.40
The short term price sensitivity concern is for Puerto Rican rum brands other
than Bacardi. These brands, such as Seagram's Ron Rico and Schenley's Carioca,
have not created the brand loyalty that Bacardi enjoys and are price sensitive.
Preliminary industry research has indicated that a 1 percent change in the existing
price differential between these brands and other rum results in a 3 percent volume
change; therefore, if the change in import duty results in a 1 percent decrease in
the price of foreign rums (approximately $0.05 per fifth) the loss in sales of these
two brands could be 3 percent of existng volume or 25,000-30,000 cases.
THE IMPLICATIONS OF PROOF GALLONAGE APPLICATION TO EXCISE TAXES
A proposal being supported by many importers to alter the method of levying the
federal excise tax on foreign botttled imports from a wine gallon standard to proof
gallons has serious marketing implications for Puerto Rican rum. Under the current
method of assessing the federal excise tax of $10.50 per gallon, all foreign bottled
imports below 100 proof are assumed to be equal in alcohol content and are taxed at
the same rate of $10.50 per gallon. Under the proposed method, the alcohol content
(proof) will be used. For example, the federal excise tax levied on Appleton's 80'
rum from Jamaica would fall from the current $10.50 per gallon to $10.50 x 80 proof
or $8.40 per gallon.
The following table presents the possible permutations and combinations if proof
content is used for excise taxes only, tariff duties or for both.
PROOF CONTENT CHANGES ON A CASE OF FIFTHS OF FOREIGN BOTTLED IMPORTS AT 80°
Current situation:
Wine gallon standard
Import duty ($1.75 gallon) $4.20
Excise Taxes ($10.50 gallon) 25,20
29.40
Year 1 Year 6
Tariff reduced $0.50. per gallon over 6 years:
(a) Wine gallon standard:
Import duty $4.00 3.00
Excise taxes 25.20 25.20
Total 29.20 28.20
(b) Proof gallon standard on duty only:
Import duty 3.20 2.40
Excise taxes 25.20 25.20
Total 28.40 27.60
(c) Proof gallon standard on excise taxes only:
Import duty 4.00 3.00
Excise taxes 20.16 20.16
Total 24.16 23.16
(d) Proof gallon on both duty and taxes:
Import duty 3.20 2.40
Excise taxes 20.16 20.16
Total 23.36 22.56
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If proof content is applied to both the new duty and the excise tax, situation (d) in
the table, the total tax and duty collected on a foreign bottled case of 80' rum, will
fall from today's $29.40 to $23.36 ($6'.04 a case) in the first year of implementation.
Assuming that this reduction is totally applied to the wholesale price, price reduc-
tions of 8%-16% will occur.
Brand and origin
Current price 1
per case
Possible new
price per case
Percent
decrease
Lemon Hart-Jamaica
$69.17
$63.11
9.1
Meyers-Jamaica
70.94
61.86
52.40
64.90
55.82
46.36
8.5
9.8
11.5
Appleton-Jamaica
Ron Bermudez-Dominican Republic
Tai-lndia
57.69
51.65
10.4
Ron Ricardi-West Indies
37.72
31.68
16.0
1 New York State prices ton 1 case ot titths, Beverage Media, November 1978.
A case of Bacardi Silver 80' wholesales for $52.49 in New York State. Thus, the
switch to proof content assessments will result in many foreign bottled brands
becoming quite price competitive with the leading Puerto Rican produced rum.
A greater concern for the government of Puerto Rico is the possible departure
from the island by a second tier producer such as The Seagram Corporation or
Schenley Distillers who have production facilities in other Caribbean islands. The
switch to proof assessing for duties and excise taxes creates a marketing opportuni-
ty for the distiller who wishes to differentiate his product from the leader, Bacardi.
That marketing opportunity is the word "Imported". With lower tariffs and excise
taxes being applied to foreign bottled products, a major distiller could possibly seize
upon this opportunity to either introduce a new foreign rum or re-emphasize a
foreign brand already owned and imported into the U.S.A.
For example, while Seagram produces and markets Ron Rico, a Puerto Rican
rum, it also owns, produces, imports and markets Meyers from Jamaica. Industry
statistics indicate that Seagram has not had success in reducing the gap between
Ron Rico and Bacardi; however, modest success is currently being enjoyed by their
efforts with Meyers. This proposed switch to proof gallonage levies could accelerate
this drive by Seagram (and others) at the expense of Puerto Rican rum. Possible
opportunity case sale losses could reach into the 100,000s by the mid-1980s.
COST AND PROFIT CONSIDERATIONS
When one considers that currently the cost of producing rum in other Caribbean
islands is significantly lower than in Puerto Rican due to lower molasses costs and
labour rates, a declining tariff rate on foreign rums could very well economically
justify a move by a distiller from Puerto Rico to another island. In addition to the
prospects of lower operating costs on other islands, the distillers would no longer
have to conform to all federal regulations for EPA, OSHA, etc., as Puerto Rican
distillers eliminate 94% of Biochemical Oxygen Demand in molasses discharge.
Bacardi estimates that the additional capital expenditures to construct evaporation
and storage facilities will amount to almost $5 million with annual operating costs
in excess of $500,000.
It is apparent that the current tariff of $1.74 per gallon has prevented the
distillers located in the Puerto Rico and Virigin Islands from importing or produc-
ing rum from lower cost alternative sources. At some future point as the tariff is
reduced and the cost of doing business in Puerto Rico and the Virgin Islands
continues to escalate, the distillers will have no alternative but to abandon Puerto
Rico (and the Virgin Islands) and produce or procure rum elsewhere.
The second tier distiller (such as Don Q, Schenley and Seagram) who account for
about 38% of Puerto Rico rum production, are likely to be the first to do so. Either
production curtailment or plant closures would have a severe impact on the fragile
Puerto Rico economy as jobs would be lost, unemployment increased, and U.S.
excise tax revenues returned to Puerto Rico lost.
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In the next few years, Bacardi is less likely to consider obtaining its rum from
any of its other production facilities in Latin America since it is still in the early
years of a 15 year income tax free status in Puerto Rico. However, at some time in
the next decade the combination of:
(1) added costs associated with complying with EPA standards for molasses
discharge.
(2) rising operating costs in Puerto Rico, and
(3) a reduction in the tariff on rum
will likely offset the tax concessions that Puerto Rico is currently providing to
Bacardi and enhance the profitability of one or more of Bacardi's world scale rum
plants in other Caribbean and Latin American locales as the sources of rum in the
American market.
Mr. JENKINS [presiding]. Thank you, Governor.
Let me ask you, which of the issues is the most detrimental to
your industry, to your government?
Governor ROMERO-BARCELO. Changing wine gallon to the proof.
Mr. JENKINS. On the excise tax, itself, let me see if I understand
that. Excise tax of what percentage, how much?
Governor ROMERO-BARCELO. The excise tax returns to Puerto
Rico represented $200 million last year, out of a total revenue to
the government of $1,562,000,000, about 13 percent.
Mr. JENKINS. That is a tax collected here?
Governor ROMERO-BARCELO. That is correct.
Mr. JENKINS. And that tax is paid by the consumers here?
Governor ROMERO-BARCELO. Right.
Mr. JENKINS. And then rebated to Puerto Rico?
Governor ROMERO-BARCELO. Right, in order to comply with the
principle of no taxation without representation.
Mr. JENKINS. In effect, of course, what is happening is that our
consumers here are paying the tax, and it is being rebated to
Puerto Rico, so by eliminating that or reducing that, how does that
compare with other imports in this country, as far as rum is
concerned? Is there exicse tax on that, also?
Governor ROMERO-BARCELO. On other imports?
Mr. JENKINS. Yes.
Governor ROMERO-BARCELO. The distilled spirits have excise
taxes.
Mr. JENKINS. Is there any difference between the taxation on
rum made in Puerto Rico, and any other country?
Governor ROMERO-BARCELO. Rum made in a foreign country pays
the import duty and the excise tax. We don't pay import duty we
pay the excise taxes.
Mr. JENKINS. So, as far as a price consideration, Puerto Rico
would still be in a better position than importers from other na-
tions?
Governor ROMERO-BARCELO. Yes, but the advantage would be
reduced from $9.74, or $9.24, a case, to about $2.24 a case, meaning
a $7 loss. We don't feel there will be an advantage to the consumer
at all, that the additional benefit of that accrued to the foreign
importers, or producers, plus part of that additional money would
be used for advertising to promote their products, but I don't think
it would be reflected in the cost of rum to the consumer eventually.
Mr. JENKINS. With the exception of the Virgin Islands and
Puerto Rico, what other country is involved as far as rum?
Governor ROMERO-BARCELO. At this moment, basically Jamaica
and some from Barbados, maybe some from the Bahamas. In the
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future, however, if normalization of trade is established with Cuba,
that will be the real threat. I suppose, also, the possibility of rum
being produced in Brazil in large quantities cannot be overlooked.
Mr. JENKINS. Thank you very much, Governor. I think your
testimony is excellent. I understand the importance of rum to your
country now, and I appreciate your testimony.
Mr. VANIK. Mr. Fisher?
Mr. FISHER. No questions.
Mr. VANIK. Mr. Guarini?
Mr. GuARINI. Thank you, Mr. Chairman.
Governor, in view of the fact that 13 percent of your economy
depends on this $200 million that is derived from the excise taxes,
were you ever consulted by the negotiating team for your input
into these negotiations?
Governor ROMERO-BARCELO. That is what we were asking all the
time, to have input, and we never got the opportunity. We were
received cordially and very well, and they told us they would keep
us abreast, and the last thing we heard before the private markup
sessions in the Senate were being held was when we were told
there is going to be a reduction in the import tariff down to 30
percent, and it would be made in a matter of 5, 6, or 8 years.
We said when you get around to having something more definite,
let us know so we can have input, but that didn't happen.
Mr. GuARINI. In a sense, the uniqueness of your position was
never present at the negotiating table, in your opinion?
Governor ROMERO-BARCELO. As far as I am concerned, I don't
think it was.
Mr. GuARINI. How can you make up for this loss of revenues, if
you have a loss of revenues as a result of this type of trade
concession?
Governor ROMERO-BARCELO. I really don't know how we could
make up for that loss. In the import tariffs aspect, which would be
about $17 million, we could make that up by local excise taxes on
liquor, but on the Federal excise duty returning to Puerto Rico, we
couldn't make that up, other than by increasing taxes, which at
this point we are in the process of reducing our income taxes
because they have gone up as high as levels of 83 percent.
Mr. GuARINI. Do you think this would be an additional strain
that the economy could not afford?
Governor ROMERO-BARCELO. I think it definitely would be.
Mr. VANIK. I might also suggest that you try to provide some
development for people who want to go to Puerto Rico and enjoy
the weather, not the gambling, but a place where they might go
and pay $35 a night instead of what is generally charged there. I
think you set your economy for the high-priced people. You miss a
lot of wonderful business. People are in traffic jams in the southern
coast of Florida. They would be very happy to come and just have a
modest accommodation without a lot of elaborate things, just a
simple place where they might get the warm sunshine and maybe
get near the ocean. They will walk to it, if you give them that.
There is a great market that I think is underdeveloped in the
Commonwealth, and I think it would serve you well to consider
that. There are a lot of people of middle and lower income groups
in America who have never been to Puerto Rico, and I think if
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they became acquainted with it, it would provide for a tremendous
source of inflow. You haven't touched the tremendous market in
tourist revenues, I think, that would be available. The high cost
factors apply to all the islands. My friend from the Virgin Islands
will deal with that, too.
You have so much to offer and so much unutilized resource that
I would just urge you to look into, because I know the Common-
wealth very well. I have been over it many times, and I know all
the roads that lead to the beautiful places. I think you have a very
fine resource that we are very happy to be able to utilize, and I
would commend to your attention doing some mass planning to
reach this tremendous market of middle income America and
lower income America, which now includes the Members of Con-
gress.
Go ahead.
Mr. GuARINI. Following that thought, Governor, tourism is one of
your major industries there, and I imagine your tourism is going to
be further hurt by the excursion of Atlantic City into the gambling
field.
Mr. VANIK. You won't lose anything by that.
Mr. GuARINI. What is your opinion on that?
Governor R0MERO-BARcEL0. I feel that we should change our
tourism attraction in Puerto Rico to make more use of the beauty
of the island, of our climate, and we have changed all our propa-
ganda and publicity in the Nation, as I know Mr. Vanik was not
aware of that, but it is precisely what he has suggested, that we
are doing. We are gearing our tourism efforts to attracting middle
income and lower income groups to come to Puerto Rico.
We are no longer offering special incentives for luxury hotels
being built, only the small type hotels out of San Juan, out of the
metropolitan areas, and we feel a great area there has been un-
tapped.
As a matter of fact, I was a hard critic of the slot machines when
they were brought into Puerto Rico, but now part of the hotel
financing depends on the slot machines, and we would be hard put
to get rid of them.
Mr. VANIK. If the gentleman will yield, I hope you get some
outer island direct transport. You have that field at Ramey. The
Canadians are using that area a great deal more than Americans
and providing more stimulation for your tourism. That is the sort
of thing--
Governor ROMERO-BARCELO. Southeast Airlines is flying in there.
Mr. VANIK. I think that is an essential step. One of the terribly
difficult things to do is to circumvent San Juan traffic. It takes 2
hours to get through the city, and if you have a half hour beyond
that, you begin reaching the basic beauty of your Commonwealth.
I didn't mean to interrupt, but I wanted to get a plug in for that
idea.
Mr. GuARINI. I see you have some travel agent experience.
Mr. VANIK. I have some personal experience. I never use travel
agencies.
Governor ROMERO-BARCELO. Southeast Airlines is flying in there
now.
Mr. VANIK. Where from?
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67
Governor ROMERO-BARCELO. From Miami.
Mr. VANIK. I think you need the major carriers to use that
wonderful air strip at the northwest part of your island.
Mr. GuARINI. Governor, because of the loss of income, can you
make any statement as to whether or not this would create a
greater reliance on Federal assistance in order for you to help your
economy further?
Governor ROMERO-BARCELO. It would have to. Out of the $200
million we get rebate from the excise tax, a little less than $10
million is used for publicity for the rum industry. The rest is used
for the payment of the bonds for capital improvements, for educa-
tion, for the general government expenditures, so with a reduction
of the resources, we would either have to cut back on services or
cut back on what we can do for the people, and the only way we
can get the money that is needed would probably be a greater
dependence on transfer payments.
Mr. GuARINI. Do you think the rest of the trade bill, the tariff
schedule will help in any way? Have you had an opportunity of
reviewing what impact the multilateral trade agreement would
have on Puerto Rico, particularly in view of products that may
have high export potential for you?
Governor ROMERO-BARCELO. Congressman, most of our trade is
with the rest of the Nation. The big bulk of our exports, so-called,
from Puerto Rico, are to the mainland. We have very little export
trade with foreign countries.
Mr. GuARINI. So, therefore, you don't see much potential as far
as trade would be concerned with foreign countries that would help
the economy under this lowering of the tariff barriers?
Governor ROMERO-BARCELO. Precisely the products that we would
be increasing the production of in the near future would be prod-
ucts that would be wanted by other countries, but probably would
not have barriers, such as pharmaceuticals and medical and profes-
sional instruments and electronics. These are products that most of
the other countries are eager to receive.
Mr. GuARINI. Would this have any particular effect on your
bottling industry in Puerto Rico? Do the plants that manufacture
the rum do their own bottling, or are there outside industries and
employment?
Governor ROMERO-BARCELO. There is a bottle industry in Puerto
Rico, and they provide the bottles for the rum, and it would have
an impact.
Mr. GuARINI. Thank you, sir.
Mr. VANIK. Mr. Shannon?
Mr. SHANNON. I have no questions.
Mr. VANIK. Governor, we want to thank you very much for your
very fine testimony.
Governor ROMERO-BARCELO. Thank you very much.
Mr. VANIK. The next witness will be Mr. Amadeo Francis, Com-
missioner of Commerce for the Virgin Islands. We will be happy to
have your statement.
Mr. JENKINS [presiding]. We are pleased to have you and also Mr.
Evans. We appreciate his being with you, and I believe he is going
to introduce you.
Mr. Evans?
PAGENO="0076"
68
STATEMENT OF HON. MELVIN H. EVANS, A DELEGATE TO
CONGRESS FROM THE VIRGIN ISLANDS
Mr. EVANS. Good morning, Mr. Chairman. My duty this morning
is to have the privilege of presenting our new Commissioner of
Commerce, Commissioner Amadeo Francis, who has spent many
years in Puerto Rico and is familiar with the situation from the
bottom up.
STATEMENT OF AMADEO FRANCIS, COMMISSIONER OF
COMMERCE, THE VIRGIN ISLANDS
Mr. FRANCIS. Thank you very much.
Mr. Chairman, I have been asked to appear before you at the
specific request of Governor Juan Luis, who, unfortunately, could
not be present at short notice, but I want to express his apprecia-
tion. He also thought it was most appropriate I appear on this
subject, because I did direct the rum-of-Puerto-Rico problem for 4
years, and I was also the Commonwealth of Puerto Rico's repre-
sentative in Geneva during the final stages of the trade negotia-
tions in 1967.
Our situation is quite similar to that of Puerto Rico and in this
current fiscal year we will receive $26.8 million in returned excise
taxes. This will represent 17 percent of the net government rev-
enues. These revenues are important to us because we have made
several bond issues over recent years and others have been author-
ized on which the debt service is guaranteed by the income to be
derived from the returned excise tax duties on rum shipments to
the U.S. In addition, due to the fiscal situation, fiscal crisis facing
the Government of the Virgin Islands for a number of years, the
return taxes currently constitute approximately 7 percent of the
government's operating revenues for the current fiscal year, since
we have found it necessary to unfortunately transfer funds from
what have been our capital budget into our operating budget in
order to meet our obligations to our citizens.
The area of greatest concern to us, as is the case of Puerto Rico,
is the change in the method of tax assessments, and on this I would
like to reiterate the experience in 1967, when the Commonwealth
of Puerto Rico was allowed to have a representative right up to the
last stage of the negotiations-in other words, in Geneva, itself,
where I was sent for 2 months. In this instance, the numerous
communications and telegrams from the Governor of the Virgin
Islands and Delegate Evans, himself, have not resulted in what we
feel would have been the appropriate consultation consideration of
our interest.
My statement includes a calculation of the impact of change
from wine gallon to proof gallon measures and for foreign produc-
ers who are largely our neighbors in the Caribbean, the change of
assessment alone will result in the reduction of $5.88, which we are
afraid will be used in one of two ways, either to lower the cost of
the competing liquids in the national market or alternatively to
markedly increase the advertisement and promotional budgets of
these producers.
This is an area where, unfortunately, we are not fiscally in a
position to compete. As a matter of fact, the fiscal crunch that the
PAGENO="0077"
69
Virgin Islands faces has resulted in our having to cut back on the
resources that were used for rum promotion. For instance, in 1976,
we allocated $475,000, but, frankly, in fiscal 1978 we had no alter-
native but to cut that to $210,000, less than half the amount that
had previously been allocated.
The Organization of American States, on behalf of the Caribbean
states interested in this issue, had a study done by American
University for them in 1976, which was entitled "Caribbean Rum
in the U.S. Market." I excerpted from that report, and I would like
to particularly draw your attention to the last sentence, which
says, "The rum shipments to the U.S. are vital to Puerto Rico and
the Virgin Islands, but are many times less significant to Trinidad
or any other rum exporting country. With the national interests
this desperate, the development of a `quid pro quo' is highly unlike-
ly if tariff reductions result in sales decline."
In fact, gentlemen, there is no quid pro quo for the Virgin
Islands or Puerto Rico in these trade negotiations and specifically
in the administration proposal to modify the tax assessment and
reduce the existing tariff. Our economy, as you are undoubtedly
aware, is an even more fragile economy than that of Puerto Rico,
being basically dependent on tourism, being basically dependent on
being able to offer goods to visitors at what are called duty-free
prices. The trade negotiations, as a matter of fact, will adversely
impact our competitive posture in this particular area, where I fear
that many of the goods that are now being purchased by visitors to
the Virgin Islands in our gift shops, and so forth, will now be
available to them in stores within the U.S. at prices which will not
make shopping in the Virgin Islands as interesting a feature as in
the past.
In addition, gentlemen, I would like to note that industry in the
Virgin Islands, as with Puerto Rico, is required to meet the envi-
ronmental, occupational, and labor standards which are imposed by
the Federal Government on all U.S. manufacturers. These are
conditions that our competitors do not face. Our foreign competi-
tors in the Caribbean are not required to meet any of these envi-
ronmental standards which can be very costly. To further increase
the comparative advantage enjoyed by our Caribbean competitors
by markedly reducing the costs of their products' entry into the
U.S. marketplace, through the proposed changes in the duties and
manner of their assessment, and that of assessing the related
excise, will be a serious setback to the efforts of the U.S. Virgin
Islands to satisfy its residents' legitimate demand for improved
public services, as well as the prospects for sustained economic
growth, and thus for an enhanced level of socioeconomic well-being
for the well over 100,000 fellow Americans who inhabit this terri-
tory.
Thank you very much.
[The prepared statement follows:]
STATEMENT OF THE GOVERNMENT OF THE U.S. VIRGIN ISLANDS
This statement is being presented by Amadeo I. D. Francis, Commissioner of
Commerce of the U.S. Virgin Islands. I appear before you today at the specific
request of Governor Juan Luis who unfortunately, could not, at short notice, be
present. He has requested, however, that I convey to the subcommittee his sincere
appreciation for your willingness to accommodate us and schedule our appearance
PAGENO="0078"
70
before you at such relatively short notice. In appearing before you this morning I
wish to stress to you, ladies and gentlemen, the exteme damage to the Virgin
Islands' economy and prospects for its future development and growth that could
result from the administration's proposal to markedly reduce the taxes imposed on
foreign rums entering the U.S. marketplace, through a change in the method of
assessing the applicable duties and excises coupled with a reduction in the prevail-
ing duty.
THE IMPORTANCE OF RUM TO THE V.1. ECONOMY
The rum industry has historically played a very important role in the Virgin
Islands economy. In recent years, its importance, particularly in terms of fiscal
revenues to the territorial government has grown to a level of immense significance.
Under section 28(b) of the revised Organic Act, the excise taxes imposed, and
collected, by the federal government on Virgin Islands' rums sold in the U.S.
market, are returned to the Virgin Islands treasury. In fiscal 1979, it is anticipated
that the territorial treasury will receive $26.8 million in returned excise taxes on
rums shipped to the U.S. mainland. This will represent approximately 17% of net
government revenues. A major component of the capital budget of the Virgin
Islands, these funds have enabled the government to construct such essential public
facilities as hospitals and schools.
In 1976, federal legislation was passed which authorized the Virgin Islands gov-
ernment to float a $61 million federally guaranteed bond issue in order to finance
critically needed capital project. The legislation stipulated that the returned excise
taxes must be used to fund the debt service on these bonds. Any serious reduction,
or termination of revenues from the excise taxes collected on the rum manufactured
in the Virgin Islands, and sold in the U.S., could result in the Government of the
Virgin Islands defaulting on its obligation to meet the mandatory debt service
requirements imposed by the aforementioned statute.
The need for adequate capital funds cannot be overemphasized. The territory's
infrastructure is woefully inadequate to meet the current demands that are placed
upon it. Schools are overcrowded and on double sessions because of lack of adequate
space. Water, for St. Thomas' basic needs, is now being barged in from Puerto Rico
because of the decrepitude of present desalination facilities. Electrical power is
unreliable and the current generators are in desperate need of extensive repair. The
capital needs of the territory far outstrip the government's financial capabilities,
even with the most optimistic projection on the growth of U.S. bound shipments of
locally produced rum.
In addition to capital projects which are funded through rum excises the returned
taxes constitute approximately seven percent of the government's operating rev-
enues for fiscal 1979. In recent years the government has been forced to transfer
capital funds to the operating budget in order to close the gap between revenues
and expenditures in its General Fund. Since the mid/seventies, the Government of
the Virgin Islands has had an increasingly difficult time in balancing its budget.
With falling revenues, an expanding population, the erosion caused by unabated
inflation and an increasing demand for public services, the excise tax returns have
played a pivotal role in enabling the territorial government to meet its commit-
ments. If the excise taxes being received by the government were to be reduced as a
consequence of increased foreign competition, the level of public services would be
adversely affected. Particularly hard hit would be the areas of health care, educa-
tion, public safety and social services. A major drop in government revenue would
also result in a significant loss of employment in the territory, further impacting
the already fragile insular economy.
There are two aspects of the recently concluded multilateral negotiations that are
of particular importance to us, as regards this primary source of territorial rev-
enues. These are (1) the proposed change in the manner of assessing customs duties
and excise taxes on foreign alcoholic beverages, including rum, and (2) the reduction
in the customs duties on rum imports. These will each be dealt with separately.
But, first, a quick examination of the rum market is in order. In 1968, the U.S.
Virgin Islands shipped 1,492,400 proof gallons of rum to the U.S., while Puerto Rico
shipped 5.2 million gallons. In that year, entries of foreign rum into the U.S.
amounted to 284,229 (of which Jamaica provided 195,448) gallons. Ten years later, in
1978, shipments of Puerto Rican rums had increased to 18,143,531 gallons (up 349
percent), while Virgin Islands rum shipments rose to 3,503,201 proof gallons, an
increase of 235 percent. Meanwhile, foreign rums entering the U.S. increased to
873,561 gallons (up 307 percent), of which Jamaica supplied 644m359 (a 330 percent
increase).
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71
The significance of these increased shipments to the Government of the Virgin
Islands is evidenced by the fact that excise tax revenues returned to the Virgin
Islands rose from just under $13 million in 1968 to $24.5 million in 1978 and, as
noted earlier, are forecasted at $26.8 million in fiscal 1979.
PROPOSED CHANGES IN THE METHOD OF TAX ASSESSMENT
The proposed modification in the method of assessing excise taxes and import
duties on imported distilled spirits (from wine gallon to proof gallon) will have the
largest single negative impact of any of the proposals which are being considered
here today, on the competitive position of Virgin I~ilands rums in the U.S. market-
place, and thus maximization of the revenue potential of this feature of our rela-
tionship. Foreign rum producers who ship one case of 80 proof rum in % quart
bottles to the U.S., today pay a total of $29.40 in excise taxes and customs duties.
Even without implementation of the 20 percent reduction in the duty (to be dis-
cussed below), such a shipper would pay $5.88 less per case of bottled goods, or
$23.52 (vis-a-vis $29.40 today) if taxes were assessed on the basis of the proof of the
bottled contents rather than the volume.
Whereas most Virgin Islands rum is currently shipped to the United States in
bulk at over 100 proof and subsequently bottled in the United States, efforts have
been pursued over the past several years to increase the shipments of branded case
goods which not only add more value to the territorial product and create desperate-
ly needed jobs, but also permit our rum to maintain a separate and distinct identity
within the market place, which is ever more critical to survival in the exceedingly
competitive liquor market today.
The proposed change in the method of tax assessment would markedly reduce a
price advantage which our product currently enjoys in the U.S. marketplace, result-
ing in a decrease in Virgin Islands cased goods sales from the level they would
otherwise have reached. This, in turn, will reduce the revenues from an extremely
important source of funding for the Virgin Islands government.
We must reiterate that such a development will run directly counter to the efforts
being pursued by the territorial government aimed at increasing the case sales of
Virgin Islands rum in the United States. Under the Virgin Islands Industrial
Development Program, Schenley Industries, Inc., the largest rum producer in the
Virgin Islands, has been granted certain fiscal benefits from the Virgin Islands
government, in the form of tax rebates, which it is required to spend on advertising
its Cruzan rum brand in the United States. Approximately $400,000 was spent by
the government and Schenley for this purpose in 1977 and nearly $600,000 in 1978.
As a result, case sales of Cruzan rum have increased by approximately 120%
between 1976 and 1978. Increased case sales competition from foreign rums, made
possible by the change to the proof gallon method of tax assessment may well result
in a major downturn in Schenley's case sales, despite the Government's support
through tax concessions.
Foreign rums, faced with this windfall benefit that will be derived from the
drastic modification in the method of tax assessment, may choose to either lower
their prices or invest the windfall in additional advertising of their product. Alter-
natively, they may choose to pocket part of their windfall benefits, and reinvest the
other part in advertising. This would enable the foreign producers interested in
expanding the U.S. mainland sales of their products, to expand their current adver-
tising and promotional budgets by as much as $4 million. The current budget for the
promotion of Virgin Islands rums pales besides this bonanza of potential advertising
revenues. The Virgin Islands is not in a position to dedicate the sizeable resources
that our neighbor, Puerto Rico has to this effort at improving the competitive stance
of their product, with such outstanding success. In fact, the fiscal constraints facing
the Government of the Virgin Islands forced drastic declines in the budgetary
allocations for rum promotion over the past few critical years, from $475,000 in
fiscal 1976 to $210,000 in fiscal 1978.
THE IMPACT OF A 20 PERCENT REDUCTION IN IMPORT DUTIES
The Virgin Islands duty-free access to the U.S. market has been a key factor in
establishing the product as the most competitively priced rum dominating the lower
price range (under $5.14/bottle). The domestic market for rum has expanded greatly
in the last several years. According to a recent market survey by Clark-Gavin
Associates, sales of rum in 1978 increased by 26.8 percent over 1977. The Virgin
Islands share of that market is currently 11.7 percent.
The current duty on foreign rums entering the United States is $1.75. As demon-
strated in the annex, a 20 percent reduction in this duty, coupled with the adminis-
tration's proposed change in the manner of imposing the duty on bottled goods,
PAGENO="0080"
72
would result in a tax savings per case of $1.51. While this reduction would not be
realized immediately (as would the change to the proof gallon method of assess-
ment), but rather over a period of eight years commencing in 1981, it would
nevertheless serve to seriously compound the readily anticipated erosion of the
posture of Virgin Islands rums in the U.S. marketplace, and represent a gross tax
savings of $6.55 per case of bottled goods for the foreign producer by 1989.
A 1976 study commissioned by the Organization of American States, entitled
Caribbean Rum in the United States Market, observed that "while Puerto Rico and
the Virgin Islands are in an apparent position of strength in the rum industry,
these countries are actually in relatively vulnerable and sensitive positions"' (em-
phasis added). The study recognized that a loss of sales for Puerto Rico and the
Virgin Islands resulting in diminished revenue from excise taxes would have a
profound impact on their economies. The study concluded:
"It is highly unlikely that a concession to Puerto Rico could be developed that
would compensate them for a reduction of Puerto Rican rum shipments, since this
would mean, in effect, a reduction in government revenue because of decreased
rebate of the excise tax. Since there is no other source for this amount of revenue, it
is understandable why the United States is reluctant to jeopardize the situation.
This concern also holds true for the Virgin Islands. . . . The rum shipments to the
United States are vital to Puerto Rico and the Virgin Islands but are many times
less significant to Trinidad or any other rum exporting country. With the national
interests this desparate, the development of a "quid pro quo" is highly unlikely if
tariff reductions result in sales decline. "2
It has been suggested that a reduction in the import duty would have little impact
on the predominant market share now enjoyed by rums from Puerto Rico and the
Virgin Islands. Sales of foreign rums, it is alleged, have historically been low
because the foreign producers have not had the resources or the distribution to
effectively market their products. This represents a naive view. Industry experts
have predicted that as a consequence of the tremendous growth in U.S. rum sales,
non-American producers will be stepping up their efforts to grab a share of that
market, which has been so carefully developed over the past two decades by the U.S.
Carribean governments and producers. This effort will be facilitated by the substan-
tial windfall benefits which will accrue to the current foreign producers, as a result
of the proposed changes, enabling them to markedly increase their advertising and
promotion budgets without affecting their current returns.
It is the position of the Virgin Islands government that the net impact of lowering
tariffs on foreign rums shall be detrimental to the economic development of the U.S.
Caribbean region. It would be a concession which would harm the economies of
Puerto Rico and the Virgin Islands without contributing significantly to the GNP of
the non-U.S. Caribbean countries. As noted in the O.A.S. sponsored report, there is
no quid pro quo for the U.S. Caribbean rum producers, so dependent on this
revenue, in the administration's proposal to modify the manner of tax assessment,
and reduce the existing tariff. These concessions will increase the trade of the non-
U.S. Caribbean countries by a few million dollars. The impact on the socio-economic
well-being and the prospects for the continued (hopefully accelerated) development
of these two areas will be hurt many, many fold, more than the economies of the
beneficiary countries will be enhanced.
CONCLUSION
To summarize, the Virgin Islands economy is heavily dependent on the rum
excise taxes, of $10.50 per gallon, which are returned to the Virgin Islands govern-
ment pursuant to section 28(b) of the Revised Organic Act. Continued revenues from
this source depend on maintaining or increasing current Virgin Islands rum sales in
the United States.
The combination of changes in the manner of assessing these levies coupled with
a reduction in the tariff will result in a total per case tax advantage to our foreign
competitors of $6.55 by 1989, or a 22 percent savings of the taxes which are
presently paid. The great majority of this decrease, or $5.88, will result from the
change from a wine gallon to a proof gallon method of tax assessment, which will
occur, presumably, at the beginning of the phase-in period for the tariff reductions.
This windfall decrease in the cost of entry into the U.S. marketplace will enable the
foreign producers to markedly improve their current share of U.S. consumption by
reducing prices or increasing advertising and promotional budgets or a combination
1 Glazer, Sood, Striner, Caribbean Rum in the United States Market, November 1976, Ameri-
can University, Washington, D.C., p. 13.
2lbid, p. 12.
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of both, in a measure that cannot conceivably be countered by the insular producers
and governments.
Industry in the Virgin Islands is required to meet the environmental, occupation-
al and labor standards imposed by the federal government on all U.S. manufactur-
ers. These are conditions that our competitors do not face. In fact, Schenley is
presently engaged in a prolonged adjudication procedure with the Environmental
Protection Agency, with regards to the disposal of the effluent from their distillery,
the resolution of which may well require extremely expensive new installations.
Our foreign competitors are not required to meet any of these standards. To further
increase their competitive advantage by markedly reducing the costs of their prod-
ucts entry into the U.S. marketplace, through the proposed changes in the duties
and the manner of their assessment, and that of the related excises, will be a
serious setback to the efforts of the United States Virgin Islands to satisfy its
residents' legitimate demands for improved public services, as well as the prospects
for sustained economic growth (so dependent on improving the community's basic
infrastructure) and, thus, an enhanced level of socio-economic well being for the
well over 100,000 fellow Americans who inhabit this territory.
IMPACT OF CHANGE FROM WINE GALLON TO PROOF GALLON MEASURES FOR CALCULATION OF
DUTY AND EXCISE TAX ON IMPORTED BOIIIED RUM (PER CASE)
1 case of 12-%-quart bottled of 80 proof rum contains 2.4 wine gallons or 1.92
proof gallons.
Excise tax on imported rum
Present method-$l0.50/gal. times 2.4 wine gallons equals $25.20.
Proposed method-$10.50/gal. times 1.92 proof gallons equals $20.16.
Reduction under proposed method or 20 percent equals $5.04.
Customs duty on imported rum (without 20 percent reduction in duty)
Present method-$1.75/gal. times 2.4 wine gallons equals $4.20.
Proposed method-$1.75/gal. times 1.92 proof gallons equals $3.36.
Reduction under proposed method or 20 percent equals $0.84.
Customs duty on imported rum (with 20 percent reduction in duty)
Present method-$l.75/gal. times 2.4 wine gallons equals $4.20.
Proposed method-$1.40/gal. times 1.92 proof gallons equals $2.69.
Reduction under proposed method or 36 percent equals $1.51.
Total of excise tax and customs duty (without 20 percent reduction in duty)
Present method-$10.50 plus $1.75/gal. times 2.4 wine gallons equals $29.40.
Proposed method-$10.50 plus $1.75/gal. times 1.92 wine gallons equals $23.52; or
20 percent equals $5.88.
Total of excise tax and customs duty (with 20 percent reduction in duty)
Present method-$10.50 plus $1.75/gal. times 2.4 wine gallons equals $29.40.
Proposed method-$10.50 plus $1.40/gal. times 1.92 proof gallons equals $22.85; or
22 percent equals $6.55.
Note: The proposed 20 percent decrease in duty is to be phased in over an 8 year
period beginning in 1981.
Mr. VANIK. I want to thank you very much for your testimony.
You have heard my colloquy with the Governor of Puerto Rico, so
what I have instructed my staff to do is we are going to get a
communication off to Ambassador Strauss today, immediately, so
we can have some response to the so-called advantages for the
Commonwealth of Puerto Rico and for the Virgin Islands, so we
can have some response to that very issue.
You were one of the important people during the negotiations in
the Kennedy Round, so you are familiar with all of this, so I hope
that our request will be helpful and that you can be watching
carefully to see what kind of response we get.
Mr. FRANCIS. Thank you very much.
Mr. VANIK. Are there questions?
Mr. Jenkins?
Mr. Guarini?
- 79 - 6
PAGENO="0082"
74
Mr. GuARINI. What percentage of your economy, sir, is depend-
ent upon rum for excise revenues?
Mr. FRANCIS. I can't tell you what proportion of our economy,
but I can tell you of our revenues, and that is where the impact is.
In this current fiscal year it is 17 percent. In other words, we
expect to be collecting revenues during the current fiscal year of
$153 million, of which $26 million will come from returned excise
duties.
Mr. GuARINI. Did you give your input to the negotiating team, or
were you consulted at any time by the team that negotiated for us,
so that your position would be present?
Mr. FRANCIS. In the Kennedy Round, yes, sir. In the Tokyo
Round, no. We have sent several communications to the President
and to the Special Trade Representative, but we frankly feel that
our representation seems to have fallen on deaf ears.
Mr. GUARINI. And you have no other potential export that you
could replace this loss of revenue with?
Mr. FRANCIS. Not in the Virgin Islands. As a matter of fact, our
economy really is dependent on tourism and free-port shopping,
and that is another area where I fear our position is going to be
adversely affected; so we are going to get a double whammy on this
one.
Mr. GUARINI. That is understandable. Thank you.
Mr. VANIK. Mr. Shannon?
Mr. SHANNON. No questions.
Mr. VANIK. Thank you very much for your helpful testimony.
Mr. FRANCIS. Thank you.
Mr. VANIK. I am going to ask that the testimony of the Auto-
mobile Importers of America be deferred for a few moments. I have
to personally leave for the floor to make a speech about the subject
we are discussing, so I would hope that Mr. Jenkins, you could
proceed with the rest of the witnesses, and if you gentlemen don't
mind, I would like to have the order changed a little bit. So I
wonder if we might hear at this time from Julius Goldman, indus-
trial sales manager, the American Color & Chemical Corp.
It is my intention that we will proceed with this testimony until
it is concluded this morning.
Mr. Jenkins?
Mr. MARTIN. Mr. Chairman, if I may, I would like to present to
the committee and welcome my constituent, Mr. Julius Goldman.
He is with us today to address and discuss the American selling
price. We are pleased to have you today.
Mr. JENKINS. Thank you.
Mr. Goldman, we are delighted to have you. We will have your
entire statement submitted for the record and would be pleased to
hear from you at this time.
STATEMENT OF JULIUS GOLDMAN, INDUSTRIAL SALES MAN-
AGER, AMERICAN COLOR & CHEMICAL CORP., CHARLOTTE,
N.C.
Mr. GOLDMAN. Thank you very much, Mr. Martin and Mr. Jen-
kins. I am Julius Goldman, industrial sales manager for American
Color & Chemical Corp., Charlotte, N.C.
PAGENO="0083"
75
American Color & Chemical Corp., is jointly owned by North
American Philips Corp., who has 52 percent ownership, and by
Koppers Co., who has 48 percent ownership.
Our company, manufactures synthetic organic dyes, dye interme-
diates and chemical auxiliaries. We have four manufacturing
plants located in each of the following locations: Lock Haven and
Reading, Pa.; Beaufort, S.C.; and Charlotte, N.C. Our total employ-
ment at these plants is 600 people. Approxiamtely 80 percent of
our business involves synthetic organic dyes.
I appear today relative to the item which appeared in the Feder-
al Register, dated January 8, 1979, Part VIII, Volume 44, No. 5,
inserted by the President of the United States under the heading
"International Trade Agreement."
We are specifically interested in the changes being made by the
Office of the Special Trade Representative relative to customs valu-
ation shown on pages 1942-43.
As stated above, we are manufacturers of synthetic organic dyes.
Our products are listed under TSUS No. 406.10 and 406.50. New
TSUS numbers will run from 409.50 to 410.20. We also produce
organic intermediates shown under TSUS No. 403.48-403.50 and
403.60 with new numbers ranging from 402.36 to 406.61.
We are most concerned that in the area of organic `dyes, this
agreement, we feel, will not yield substantially equivalent competi-
tive opportunities stipulated as one of the purposes in the Trade
Act of 1974.
We are particularly interested and very much concerned in the
section of the agreement dealing with the issue of the American
Selling Price.
We have received a copy of converted rates from the Internation-
al Trade Commission which will go into effect if ASP is eliminated.
The exchange of these rates in place of ASP, we feel, will not be
reciprocal, for the following reasons:
(A) These rates were computed based on imports of dyes for the
year 1976. If you will refer to USITC publication 828, dated August,
1977, showing imports of benzenoid chemicals and products for
1976, you will notice it only includes approximately 85 percent of
all imports. Considering the number of import entries not fully
finalized at the time of computation of converted rates, it certainly
could not be considered completely accurate.
(B) The number of competitive dyes-that is the area that we are
specifically interested in, competitive dyes, and these dyes are
based on the "American Selling Price," and accounted for less than
50 percent of the total quantity and less than 30 percent of the
total invoice value of all imported dyes for 1976. We ask how could
the ITC compute these rates which would yield equivalent protec-
tion on these dyes?
And, last, we have tried to verify whether any of these rates
would yield equivalent protection as we presently obtain with ASP.
In order to do so-and only on certain cases were we able to get
some, but in most cases they were not possible since, as we all
know, price lists do not exist in the major foreign countries that
manufacture dyes, specifically countries in Europe, Japan, and
India.
And this was also verified by our embassies in these countries.
PAGENO="0084"
76
Mr. Chairman, we are aware that the chemical industry does
show a trade surplus. However, the only specific category in the
list of chemicals that do not show a trade surplus is synthetic
organic dyes. We have constantly shown an import deficit, and I
have shown statistics for the last 3 years where imports of dyes
exceeded exports, and please bear in mind that this existed while
ASP was in operation.
[The table follows:]
TRADE STATISTICS ON SYNTHETIC ORGANIC DYESTUFFS
[In thousands]
1976
1977
1978
Imports
$100,176
76,629
$1
15,705
76,817
$134,353
80,382
Exports
(Imports, #146, Commence) (Exports, FTC-410, 1976-77, and FTC-546 for 1978).
Mr. GOLDMAN. I would now like to discuss what actually is the
American selling price. Under ASP valuation, the duty paid is
based on the wholesale price of the comparable domestic product
rather than the price of imported goods. If there is no comparable
product, ASP valuation does not apply. The main difference be-
tween ASP and the other methods mentioned under changes in
customs valuation shown on pages 1942-43 is that the duty is tied
to the prices and the costs in this country rather than those
abroad.
I would like to emphasize this. It eliminates the possibility of
price manipulation that could exist using foreign export values and
it doesn't discriminate in providing low wage countries with a
tariff advantage in addition to a cost advantage.
If ASP is going to be traded away, shouldn't the dyestuff indus-
try receive something in return?
I would now like to refer to an issue which arose during the
Kennedy round of negotiations. In 1967, an agreement was signed
by the United States negotiators agreeing that the duties of the
chemical section be reduced by 50 percent; while, Europeans re-
duced their tariffs by only 20 percent.
The negotiators then entered into a second agreement, the so-
called "Separate Package," whereby the Europeans would further
reduce their tariffs by 30 percent upon the elimination of ASP.
This "Separate Package" was rejected by the 90th and 91st Con-
gress and as a result this special agreement expired. This 30 per-
cent should be available to the United States negOtiators if they
agree to the elimination of the American selling price. We feel that
the 96th Congress should make this item an issue in order for all
these negotiations to be reciprocal in all respects.
We must support a strong United States dyestuff industry whose
products go mainly to the textile mills (approximately 70 percent)
with the balance of 30 percent to the paper, leather tanning, plas-
tics and other industries.
We manufacture dyes for the armed forces for such important
uses as markers and dye sea markers as well as dyes used by
textile mills doing work for the armed forces in the dyeing of
uniforms and blankets.
PAGENO="0085"
.77
Dyes are highly competitive and, as we have shown, sensitive to
import growth even under present duty regulations. Any further
reductions in duty can result in our having to close some of our
plants due to our inability to produce products on a competitive
basis. Most of our plant employees have been in this industry for
many years. To try to incorproatë them in a retraining program
would be difficult.
We at ACCP believe that international trade should be free and
fair. All laws governing trade should be equitable.
In line with this, we would like to refer to the country of Japan
who we all know possess a very strong dyestuff industry. Their
Fair Trade Commission, whose objective is to administer Japan's
antitrust laws, has allowed their two largest industrial chemical
producers-Mitsubishi and~ Sumitomo-and three other dyestuff
producers to operate as a dyestuff cartel, from August 1978 until
March 1, 1979. This cartel could start up at any time in the future.
Japan, as we well know, is a large exporter of goods into the
United States. How can we at American Color and other dyestuff
manufacturers in this country compete when similar conditions in
the United States are considered illegal?
In conclusion, since synthetic organic dyes are sensitive to im-
ports, as the trade statistics prove, we would like to recommend
that no further system of customs valuation be instituted on dyes
until such time as a proper substitute can be formulated which
would yield similar protection as American selling price.
I do appreciate the time allotted me in presenting our views on
this very important subject.
I would be very happy to answer any questions that anyone
would like to propose.
Mr. JENKINS. Thank you very much, Mr. Goldman.
How large is this industry, the organic dye industry, domestical-
ly?
Mr. GOLDMAN. The latest figures will show approximately $700
million worth of dyes sold in the United States.
Mr. JENKINS. As far as the domestic industry, itself, does your
company have a rather sizable portion of that domestic business?
Mr. GOLDMAN. We have less than 10 percent.
Mr. JENKINS. Of the domestic production?
Mr. GOLDMAN. Yes.
Mr. JENKINS. Thank you very much, Mr. Goldman.
Mr. Martin?
Mr. MARTIN. Yes.
Dr. Goldman, I am told that--
Mr. GOLDMAN. Excuse me-Mr. Goldman. I think there was an
error in the witness list.
Mr. MARTIN. I have promoted you in any case. You might as well
keep it. I have had the same problem sometimes myself.
I wanted to ask you further about the point that you made
regarding the trade off that is inherent in what the administration
is proposing in abandoning the American selling price but adopting
other features.
You have indicated that you don't believe that that would ade-
quately hold your industry harmless. I am told by staff that there
PAGENO="0086"
78
is provision in there to have an offsetting tariff adjustment that
would be to your benefit.
If you could explain further your thoughts as to why this is
inadequate, I would appreciate it greatly.
Mr. GOLDMAN. Thank you.
Mr. Martin and Mr. Chairman, as we all know, the final package
has not been submitted, and we certainly have no idea what is
going to be available to us. We do know one thing, that whatever
comes out of these negotiations is something we are going to have
to live with for at least the next 10 years.
The only basis that we have, which shows that the new system
that would take its place, is a list of converted rates which was
submitted to the industry during the latter part of 1978 by the
International Trade Commission. We don't know whether these are
the final rates, but we can only go by these rates.
These rates were computed based on history of imports for 1 year
of 1976. And in reviewing the imports for 1976, we found, No. 1, the
import bulletin for that year only showed approximately 85 percent
of the history of imports on dyes; No. 2, there was a fair number of
dyes that weren't finalized as far as the importation of these dyes;
and third, less than 50 percent of the imports are competitive
products which we are most concerned with. And we tried to verify
most of the converted rates that were issued by the International
Trade Commission, and we could not obtain any foreign prices on
the majority of these rates since these countries that are presently
exporting and will, more so, export dyes, do not publish price lists
in order for us to determine if rates are equivalent or will yield
equivalent protection as ASP.
Mr. MARTIN. I want to thank you for that elaboration on that
point because I would want to see that your testimony is brought
to the attention of the Special Trade Representative, Ambassador
Strauss, and to see that as quickly as possible we can get that
cleared up from his point of view.
Mr. JENKINS. Mr. Fisher?
Mr. FISHER. No questions.
Mr. JENKINS. Thank you very much for your testimony, Mr.
Goldman.
Our next witness is Mr. Steinberg of the U.S. Council for an
Open World Economy.
We are happy to have you before the committee.
Your entire written statement will be made a part of the record.
STATEMENT OF DAVID J. STEINBERG, PRESIDENT, U.S.
COUNCIL FOR AN OPEN WORLD ECONOMY, INC.
Mr. STEINBERG. Thank you, Mr. Chairman.
I am David J. Steinberg, president of the U.S. Council for an
Open World Economy.
Our council speaks for no special commercial interest involved in
these hearings. Our sole concern is what the board sees as the total
national interest.
Although we feel that the multilateral trade negotiations have
not gone as far as we would have liked, just as the Trade Act of
1974 did not go as far as we would have liked, nevertheless, on
balance, the multilateral trade negotiations in our view deserve
PAGENO="0087"
79
congressional support and legislation that fairly implements the
provisions and purpose of those negotiations.
I would very briefly, Mr. Chairman, like to point out just a few
areas which we regard as shortcomings in the MTN.
We feel that the tariff cuts will not be adequate, consistent with
the authorizations of the Trade Act of 1974. We believe that there
have been too many exemptions, and we believe that the special
deals that have been made to accommodate the problems and the
special interests of certain industries constitute subsidies without
coherent Government strategies addressing the real problems and
the real needs of these industries. Such subsidies are hence objec-
tionable.
We also believe that the problems and needs of the developing
countries of the world have not been adequately addressed in these
negotiations. This is not just a matter of the responsibilities of the
rich to the poor; this is not just a matter of compassion for the
poor, less developed parts of the world; this is also a matter of
export expansion of the United States. The less developed countries
are a major market today for American exports. They are a major
dimension of U.S. potential in export expansion. We regret to see
that the earning capacity of those countries of the world has not
been adequately addressed in these negotiations.
I recall vividly the attention that was given in 1973-74, when the
Trade Act was before the Congress, to the need for adequate access
to the raw materials of the world. The need to work out a special
arrangement to insure equitable access to raw materials was, I
recall, a major dimension of the trade bill dialog of those years.
Yet, Mr. Chairman, I have heard nothing about that issue in the
course of these negotiations. The matter apparently has been rel-
egated to benign neglect.
I would like to conclude, Mr. Chairman, by saying that a major
shortcoming in the negotiations will be the inadequacy, as we see
it, of what may come out in the so-called safeguard code. The
safeguard policy of the United States and the safeguard provisions
of the General Agreement on Tariffs and Trade today include a
major flaw, a flaw which we see no indication of being corrected, if
indeed there is a safeguard code later added to the MTN. That flaw
takes the form of the omission of a requirement that no import
restrictions may be imposed for the benefit of any industry except
in the framework of a coherent government strategy addressing
constructively the real problems and the real needs of that indus-
try.
Today, under our escape clause policy, where an industry proves
serious injury from import competition, import restriction or some
form of trade restriction is provided if serious injury has indeed
been confirmed, not as part of any government strategy pulling out
all the stops of suitable government attention to the real problems
of the industry but, rather, in the vague hope that the industry
will make a successful adjustment to import competition with the
assistance of whatever trade restrictions have been provided. This
is akin to a pig-in-a-poke policy.
The time has come for government assistance to an ailing indus-
try to take the form of a coherent adjustment strategy. I do not see
that this need will be stipulated in the multilateral trade agree-
PAGENO="0088"
80
ment. Failure to proceed in this fashion will be a major failing in
U.S. trade policy and in world trade policies for many years to
come.
Thank you very much, Mr. Chairman.
[The prepared statement follows:]
STATEMENT OF THE U.S. CouNcIL FOR AN OPEN WORLD ECONOMY, INC.
(Summary: This testimony urges approval of the new multilateral trade agree-
ment in the total national interest, notwithstanding the Council's concern over
certain shortcomings including omission of a suitably reformed "safeguard" code.)
The U.S. Council for an Open World Economy is a private, nonprofit organization
engaged in research and public education on the merits and problems of achieving
an open international economic system in the overall public interest. The Council
speaks for no private, commercial interest, only for what its Board of Trustees
regards as the total national interest in this policy area. The Council believes that
freer and fairer international trade advances the national interest. The Council
advocates attainment, with deliberate speed, of the most open and most equitable
world trading system. It also advocates effective adjustment strategies to backstop
such a policy.
OVERALL VIEW OF THE TRADE AGREEMENT
The multilateral trade agreement, just negotiated, merits Congressional approval
including the enactment of implementing legislation that fosters the freest and
fairest international trade consistent with the new codes which are a major feature
of the agreement. To the extent that domestic industries are deemed likely to suffer
dislocation from freer import access to the U.S. market, such concern should be
expressed, not through procedural and other strictures aimed at curtailing or dis-
couraging imports, but rather through coherent government attention to the real
problems and needs of these industries.
The statutory and other product exemptions from further trade liberalization
under this agreement are regrettable features of these negotiations. Together with
the specal import-restrictive arrangements on other products (including the greatly
reduced tariff cuts on some items), these exemptions (a) constitute subsidies outside
the framework of coherent adjustment strategies of balanced, cost-effective govern-
ment assistance to these industries, and (b) lessen U.S. leverage in negotiating freer
U.S. access to foreign markets.
Inadequate attention to the needs of the less-developed countries is another disap-
pointment, as is the failure to reform the "safeguard" provision of the General
Agreement on Tariffs and Trade in the manner this Council considers essential. The
"safeguard" issue is discussed in some detail below.
On balance, however, the new trade agreement will foster a more equitable
international trading system and achieve many significant reductions in world trade
barriers. The agreement will bring important benefits for U.S. export expansion, a
major national priority, and for more effective international cooperation across the
board. Failure to approve this agreement, and to enact implementing legislation
consistent with its provisions and purpose, would be a serious setback for avowed
U.S. trade objectives and for other U.S. policy goals both foreign and domestic.
The agreement, like the 1974 trade legislation that provided the U.S. negotiating
authority, is not all we had hoped for and all that the national interest requires. It
nevertheless merits equitable and expenditious implementation.
THE "SAFEGUARD" ISSUE
A basic flaw in import-relief or "safeguard" standards, both in U.S. policy and in
the General Agreement on Tariffs and Trade, remains uncorrected and will encum-
ber world trade for many years to come. There is no indication that the safeguard
code which may possibly be added to the new agreement at a later date will
incorporate the reform we consider essential.
The flaw is the absence of a requirement that no trade restrictions of any kind
may be imposed to assist an industry seriously injured by legitimate imports except
as part of (and if found indispensable to) a coherent, balanced, industry-adjustment
strategy addressing the real problems and needs of that industry. Such a strategy
PAGENO="0089"
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should be developed by the industry, approved by the government (if government
aid is indeed to be provided), and monitored by the government to ensure that aids
provided at public expense fully advance the public interest and effectively serve
the adjustment objective for which they are intended. The adjustment strategy
should include reassessment of all government policies materially affecting the
industry to make sure that none of these policies unfairly impedes effective adjust-
ment and to determine the possible need for special assistance in these policy areas.
Industry adjustment should not, as now, be just a vague hope, a result that is
passively expected from the beneficiary of the import restrictions which are the
only industry-wide remedy provided under the safeguard provisions of existing trade
legislation. This approach is something akin to a "pig in a poke." What the industry
does with the adjustment time provided by trade restrictions should be the subject
of a publicly delineated commitment. The government does not permit a pig-in-a-
poke approach in adjustment assistance to firms, workers and communities: it
should not do so in import relief-in essence a form of adjustment assistance-to
import-impacted industries. Thus, there should be no textile import restrictions
without a coherent textile policy, no steel import restrictions without a coherent
steel policy, and so forth.
Failure to move along these lines would be an error of omission. There also
appears to be an error of commission in the proposed safeguard provisions-namely,
permitting selective, discriminatory action against imports from particular coun-
tries when these imports are deemed the cause of the serious injury that is found to
have occurred. To permit selective action against imports from some countries (but
not all as now required) in cases where the issue is not unfairness of trade but
rather injury to a domestic injury from legitimate imports would penalize exporters
legitimately making the most of their opportunities in the importing country. More-
over, it could open the way for import controls not totally related to the industry
situation for which relief was found necessary-that is, for ulterior motives involv-
ing the exporting country's trade or other policies. Permitting discriminatory import
controls would be a Pandora's box.
Requirement of an industry-adjustment strategy as the framework for import
controls should also extend to "buy national" policies in government procurement
(except where "buy national" policies may be necessary to deal with national
emergencies such as a serious economic depression). It should also extend to the use
of import controls for national-security purposes. The U.S. could have prevented or
at least alleviated the present energy problem if a quarter century ago the national-
security clause written into the trade legislation had required a coherent industry-
development strategy as the framework for any import controls considered essential
for national-security purposes. Twenty years ago the government imposed oil import
controls but without a coherent oil policy aimed at strengthening this sector of the
mobilization base. This flaw in the national-security clause still exists-making the
national-security clause a threat to national security in the sense that simplistic
recourse to import control tends to divert attentk~ñfr6m the search far real solu-
tions to real security needs.
Although special efforts to assist the developing countries are urgently needed, it
is not clear how import restrictions against developing countries in import-injury
cases can be avoided or ameliorated where imports from such sources are substan-
tial without impairing the adjustment effort of the domestic industry found to
require import restraint to provide adjustment time. Help for the developing coun-
tries would best be achieved through the adjustment-strategy reform proposed in
this testimony, inasmuch as this reform would aim at the earliest removal of
whatever trade restrictions are necessary.
Mr. JENKINS. Mr. Martin?
Mr. MARTIN. I have no questions, Mr. Chairman.
Mr. JENKINS. I have no questions.
Thank you very much for your testimony, Mr. Steinberg.
Mr. STEINBERG. Thank you.
Mr. VANIK. Mr. Millet, we would be very glad to have your
testimony now. We will be very happy to hear from you.
Mr. MILLET. Thank you, Mr. Chairman.
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Mr. VANIK. Your entire statement will be put in the record as
submitted. You may read from it or excerpt from it, in whatever
way you wish.
STATEMENT OF RALPH T. MILLET, CHAIRMAN OF THE BOARD,
AUTOMOBILE IMPORTERS OF AMERICA, INC., ACCOMPANIED
BY JOHN B. REHM, SPECIAL COUNSEL
Mr. MILLET. My name is Ralph T. Millet, chairman of the board
of Automobile Importers of America. I am also associated with the
Swedish manufacturer, SAAB.
With me is our special counsel, Mr. John Rehm.
AlA consists of 17 automobile importers, including representa-
tives of all major manufacturers of imported cars, except Volks-
wagen and Mercedes-Benz.~ A list of these companies is attached to
this statement. The members of AlA account for over $5 billion of
imported automotive products each year, and their stake in the
continuation of a liberal trade policy is therefore substantial.
Before I ask John Rehm to take up the specific issues related to
the International Antidumping Code and the Antidumping Act, I
should like to make several general points.
First, we certainly applaud this country's liberal trade policy,
which has fostered healthy and vigorous competition among both
domestic and imported cars in the U.S. automobile market.
Second, we believe that the multilateral trade negotiations
(MTN) represent a major step forward in establishing "rules of the
game" for international trade. In particular, the MTN should pro-
mote the objective of having all major automobile-producing coun-
tries import as freely as they export.
Third, we believe that the MTN will provide the foundation of
world trade for the next generation. Over the past 30 years, im-
ports of automobiles have never taken an annual share of more
than about 18 percent of the U.S. market. Moreover, they have
never disrupted the domestic industry, which is currently making
record profits. We hope to continue to benefit the American con-
sumer for at least another 30 years.
Fourth, we are concerned lest the bill to implement the MTN
codes contain provisions that are injurious to the continuation of a
liberal trade policy or inconsistent with our international obliga-
tions under those codes. Both this subcommittee and the Senate
Finance Committee have taken up the countervailing duty statute
and the escape clause, and the Senate Finance Committee has
already dealt with the Antidumping Act.
The decisions to date are distinctly troublesome. The time al-
lowed for proceedings under these three statutes is quite inad-
equate. Moreover, the substantive criteria of injury in the case of
countervailing and dumping duties are in our opinion, far too lax.
Finally, the timing and amount of these duties would render the
countervailing and antidumping statutes no longer remedial but
clearly punitive.
PAGENO="0091"
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In light of AlA's concerns, John Rehm will now discuss AlA's
proposed amendments to the Antidumping Act.
Mr. John Rehm.
Mr. REHM. Thank you.
Mr. VANIK. We will be pleased to hear from you.
Mr. REHM. Mr. Chairman, let me summarize what we regard as
the key amendments we would like to propose to the Antidumping
Act, and let me start off with the issue of timing.
I recognize that your subcommittee has not yet dealt with the
question of timing under the Antidumping Act, but the Senate
Finance Committee has. Under present law, in a typical case, a
total of 11 months is allowed for an antidumping proceeding: 7
months for a preliminary determination, 3 more months for a final
determination by the Treasury Department, and then another 3
months with respect to the question of injury on the part of the
International Trade Commission.
The Senate Finance Committee has cut that back to a total of 8
months including, most disturbingly to us, only 4 months allowed
to make a preliminary determination with respect to the question
of sales at less than fair value. Four months in our view and in our
experience-and as you know the imported automobile industry
has had experience with the Antidumping Act-4 months is clearly
in our judgment inadequate and insufficient.
We would agree with your comment earlier this morning, Mr.
Chairman, that perhaps some reduction in the time now allowed is
appropriate. We would like to propose a reduction in the overall
time from 11 months to 10, allowing 6 months for the preliminary
determination, and then just 2 months for the Treasury Depart-
ment to make a final determination with respect to the issue of
sales at less than fair value, and then another 2 months for the
International Trade Commission, recognizing of course that the
ITC would have had at least from the time of the preliminary
determination to begin meaningfully to address the question of
injury.
But 8 months, we do want to repeat, Mr. Chairman, is in our
judgment clearly inadequate, and something like 10 months along
the lines we propose we think is the minimum required to assure
that the facts are properly identified, discovered and analyzed.
Perhaps we all, or many of us, do believe that these proceedings
can be expedited to a degree, but surely not at the cost of virtually
requiring that the decisions be arbitrary one way or the other.
Mr. VANIK. I think we would want to avoid that. I think we will
take a good look at that recommendation.
Proceed.
Mr. REHM. Thank you.
Timing is an important issue because it goes to the heart, it
seems to me, as to how responsibly these statutes will be adminis-
tered.
Let me now turn to two issues that have been particularly dis-
cussed this morning, namely, what we call the quantum of injury
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that should be required in an antidumping proceeding as well as
the issue of the degree of causality. While we are in our testimony
addressing the Antidumping Act, what we have to say would apply
equally in our judgment to the new countervailing duty statute.
We were delighted to hear, Mr. Chairman, that you told us
earlier this morning that the subcommittee had agreed, if we un-
derstood you correctly, to putting the words, all very, important
words, "material injury," into the bill. That is not the position of
the Senate Finance Committee as we understand it today.
Mr. VANIK. The drafting has not been completed but we have
agreed to the definition.
Mr. REHM. We appreciate that. But we have been arguing long
and hard for several weeks now, both downtown and on the Hill,
that if the international agreement provides for material injury as
article 6 of the GATT does, as the international antidumping code
does, and now as the new countervailing duty code does, then
surely it is not only appropriate but required for the United States,
if it takes its international obligations seriously, to include that
term in the statute.
However, in all candor, Mr. Chairman, if the Ways and Means
Committee in its version of the bill-I am using conventional par-
lance although I realize this is not a conventional process we are
going through-includes the term "material injury," it is my feel-
ing very frankly that there will be an effort on the Senate side to
define those words in a way which would leave us just where we
are. And where we are, I submit, is not adequate.
Now your subcommittee several weeks ago agreed, as I recall,
from its press release, that the test of injury to be applied under
the new countervailing duty statute would be the same as is now
applied by the ITC under the Antidumping Act. That definition,
that minimal threshold of injury now applied by the ITC is not, I
repeat, not consistent with what I think is a fair and reasonable
interpretation of the word "material."
If you turn to the dictionary, Webster's dictionary will tell you
that material means "important, of consequence." The ITC now,
and I am not criticizing the Commission, since it is wholly consist-
ent with the legislative history established by the Senate Finance
Committee in 1974, the ITC presently applies a definition of any-
thing more, however slightly more than de minimis. That is to say,
a trifle more than a trifle of injury is sufficient as they now
interpret the Antidumping Act in the light of the legislative histo-
ry of that act.
That in my view is in no way consonant with the notion of
"material" or "important" or "consequential." In short, Mr. Chair-
man, if you are to include this term in the bill we would urge you
to be terribly attentive to the manner in which either the bill or
the legislative history defines the term "material injury."
We think material injury should be defined either statutorily or
in the reports as something important, of consequence. That is not,
I repeat, not the standard now being applied by the ITC.
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- Oñ~ the Issue of causality, here we face a somewhat different
situation, admittedly. The chairman asked earlier this morning
whether the concept of "a substantial cause," which you heard
ECAT and the U.S. Chamber urge earlier, is required by the codes.
In all candor I cannot say it is required. The test of causality in the
codes, as under our domestic legislation presently, is left unre-
solved. It simply provides for some degree of causality.
However, our analysis of the decisions of the International Trade
Commission, particularly since January of 1975, clearly reveals
that they have applied-again I am not criticizing, since it is
consistent with the legislative history of the 1974 act-a concept of
"identifiable cause." As long as the dumped imports are an identifi-
able cause, that should suffice, even though, and I can cite them
for you if you wish, in a number of cases both the majority and
dissenting opinions clearly acknowledge there were other causes,
one or more, clearly more important than the dumped imports.
Now I fail to see how it is consistent with the national interest to
have dumping duties imposed where the dumped import are not at
least as important a cause as any other cause determined by the
ITC.
Therefore, we are proposing that the concept of "a substantial
cause" be written into the bill or, if not in the bill, the legislative
history. We are drawing, as I am sure you know, upon the prece-
dent established in the escape clause, which defines "a substantial
cause" to mean an important cause, no less important than any
other cause.
If, as Mr. McQuade said earlier this morning, dumped imports
are only a slight or trivial cause contributing to the injury, and
there are clearly more important causes at work, then I would
suggest, to use a medical analogy if you will, it is like applying the
wrong medicine for the wrong illness. If there are other more
important causes of the problem, then surely dumping duties
should not be resorted to, which are inflationary and anticompeti-
tive; rather, the real problem should be addressed.
I am not going to deal with all the proposals we have made in
our testimony, Mr. Chairman. I just want to highlight the most
important ones, and that takes me to price assurances. We would
agree, Mr. Chairman, with the substance of the letter you ad-
dressed to Ambassador Strauss, as we understood the letter. We
have not seen the text, but you did read what you felt to be the key
passage.
We think that foreign exporters in an antidumping proceeding
should have the opportunity to provide price assurances to the
Treasury Department as a way of closing out the proceeding. We
fully agree that the price assurances should be subject to monitor-
ing. We are not asking that the Treasury Department accept the
price assurances on blind faith. Past experience, I think, would
probably also be relevant. If prior experience indicated that the
foreign producer had not complied with earlier price assurances, I
dontt think it would be fair for us to say that the Treasury Depart-
ment would have to accept them in the new situation. -
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But what we are really pleading for is ample discretion on the
part of, if not the Treasury Department, whatever agency turns out
to administer this part of the Antidumping Act, to accept price
assurances, whatever the margin of dumping, and that is key here.
As you know, presently under the antidumping regulations, the
Treasury Department will entertain price assurances only if the
margin of dumping is 1 percent or less. That is a rule of thumb
they apply.
We don't understand that at all. If the object of an antidumping
proceeding is to do away with the margin of dumping, it seems
there are two effective alternative ways of doing so: First, the
imposition of antidumping duties; second, price assurances. Wheth-
er the price drops in the home market or the price increases in the
United States, the margin of dumping is eliminated, and, therefore,
the injury to the domestic industry.
I also want to make it clear that, with respect to price assur-
ances, we are prepared to accept the notion that the price assur-
ances must cover the full margin of the dumping. It has been
suggested, and there is some logic to it, frankly, that the price
assurances cover only that part of the margin of dumping which is
found to be injurious. That is a worthwhile idea to which I want to
come later, but for the purpose of price assurances we are prepared
to accept the notion that the price assurances cover the full margin
of dumping.
As to the amount of the dumping duty, we see both the anti-
dumping and countervailing duty codes as establishing a very fair
and logical and sound principle. I don't want to mislead you. It is
not a requirement; it is a hortatory provision in both codes, and
,they both indicate it is desirable that the amount of dumping duty
or countervailing duty be only that amount found required to avoid
injury. That is a function, as you know, that the ITC presently
carries out under the escape clause. Under the escape clause, if it
makes an affirmative finding, it must recommend to the President
that amount of import relief needed to avoid injury. If injury is the
game, and it seems that now, reluctantly or otherwise, all parties
are agreeing that both the antidumping and countervailing duty
statute should include the criterion of injury, doesn't it flow logical-
ly and inexorably that the amount should be only that amount
required to avoid the injury? If the margin of dumping in a hypo-
thetical case is a dollar, and the ITC should find 75 cents is suffi-
cient to avoid the injury, I don't know how to label the 25 cents
except protectionist, unnecessary, harmful added import restric-
tions. So we would hope-and I am realistic; I don't think we would
find this as a mandatory provision in the new legislation-that the
concept that the dumping or countervailing duties be only in the
amount needed to avoid injury, might be accepted.
Finally, and this is quixotic on our part, but it seems to us that it
goes to the heart of what we like to call a balanced trade policy,
and that is the element of Presidential discretion. I know that is an
anathema today in the Congress. You feel, and there is reason for
your feeling that there has been abuse of discretion downtown in
some of the statutes. Nevertheless, if we are trying to fashion, as I
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hope we still are, a balanced trade policy, then surely there can be
cases, and might be cases, where all the statutory criteria have
been satisfied and an imposition of dumping or countervailing
duties would simply not be in the national interest. If the Presi-
dent should so conclude with his advisers, surely it seems to us
that a balanced trade policy would suggest that he have the au-
thority not to impose those duties.
Now, in proposing this at all, and I know this is not a popular
idea, we would certainly emphasize that the authority would not be
a blank check. It would have to be carefully circumscribed. We
have in mind a Presidential determination dealing only with do-
mestic, not international, adverse economic effects I think Congress
would probably fear that, cOnsidering international effects would
take the President too far away from the issues at hand.
It seems to us that such a limited narrow authority does make
sense if you are trying to fashion a balanced trade policy. And in
conclusion, Mr. Chairman, that is our theme. Free trade is not in
fashion; I am not sure liberal trade is in fashion any more. Unfair
trade is very much in fashion as a symbol of what we all ought to
be fighting. Yes, we agree unfair trade should be fought, but only,
it seems to us, if the conditions for imposing these additional
import duties are fair and reasonable and don't so tilt the whole
statutory framework that domestic industries can obtain relief and
in the way of dumping or countervailing duties when it doesn't
make sense for them to obtain that relief when it does not respond
to the national interest.
[The summary of proposed amendments to Antidumping Act and
Mr. Rehm's statement follow:]
SUMMARY OF PROPOSED AMENDMENTS TO ANTIDUMPING ACT
The Automobile Importers of America, Inc. (AlA), urges that the Antidumping
Act, 1921, as amended, be further amended in the following respects in order to
assure that the Act complies with the International Antidumping Code and also
constitutes a fair and reasonable measure for dealing with dumped imports.
1. A typical antidumping proceeding should last 10 months, with 6 months for the
preliminary determination of sales at less than fair value, another 2 months for the
final determination, and another 2 months for the injury determination.
2. The injury suffered by the domestic industry should be "material".
3. Dumped imports should be "a substantial cause" of the material injury.
4. The domestic industy should constitute those firms that make those products
that are "like and directly competitive with" the imported product.
5. The threat of material injury should be "clearly imminent".
6. The Treasury Department should be authorized to accept bona fide price
assurances regardless of the extent of the margin of dumping.
7. Following a finding of dumping, an importer should be required to post only a
bond-until such time as his own goods may be found to be dumped.
8. Dumping duties should be imposed only in the amount required to avoid
material injury.
9. The President should be authorized to waive dumping duties if he determines
that they would have serious domestic economic consequences.
STATEMENT OF JOHN B. REHM
AlA's proposed amendments to the Antidumping Act, 1921, as amended, are all
consistent with the letter and spirit of the International Antidumping Code (IAC).
That is, they are either required by the provisions of the IAC, or they are wholly
appropriate, given the purpose of the IAC. Moreover, AlA believes that these
proposed amendments will ensure that the Antidumping Act constitutes a balanced
response to the problem of dumped imports and will avoid its becoming a protection-
ist measure. For it is simply not in the national interest to impose dumping duties
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when a domestic industry is not significantly injured or, if it is, when factors other
than imports are more important causes of such injury.
TIME FOR ANTIDUMPING PROCEEDING
The IAC does not prescribe the amount of time an antidumping proceeding shall
take. Its provisions make it quite clear, however, that the governmental authorities
concerned shall make a full and thorough investigation of the facts and that the
parties to a proceeding shall have a full opportunity to present their views. The Act
now allows 13 months for a typical antidumping proceeding-7 months for the
preliminary determination with respect to sales at less than fair value (LTFV), 3
months for the final determination, and 3 months for the injury determination.
The Senate Finance Committee has decided to recommend a total time period of 8
months-4, 2½, and 11/2. This is seriously inadequate, both in terms of the total
time allowed and in terms of the time provided for each of the three stages. 6
months from the date of the filing of the complaint is the absolute minimum time
in which to make a preliminary determination with respect to sales at LTFV.
Within this time, the complaint must be found to warrant an investigation, re-
sponses to questionnaires must be received from abroad, the responses must be
verified abroad and then analyzed, supplemental information must be obtained, and
factual and legal issues must be resolved. If 6 months are allowed for the prelimi-
nary determination, AlA believes that 2 months is sufficient for the final determi-
nation, but at least 2 months must be allowed for the injury determination follow-
ing the final determination of sales at LTFV. Only after the final determination
concerning sales at LTFV, can an informed determination be made whether the
imports sold at LTFV are the cause of whatever injury the domestic industry may
have suffered. Two months is needed for this purpose, particularly in order to give
the parties to the proceeding a reasonable opportunity to address the issue of
causality.
QUANTUM OF INJURY
Both the IAC (13(a)) and the Subsidies Code (121 footnote 1), like Article VI of the
GATT itself, provide that the requisite quantum of injury be "material". But the
Act only asks whether a domestic industry "is being or is likely to be injured".
The Act should therefore be amended to require that the domestic industry is
experiencing at least "material injury". Moreover, the legislative history should
make clear that "material injury" means injury that is important and consequen-
tial, consistent with the dictionary definition of "material".
At present, the International Trade Commission (ITC) generally interprets the
Act to require a quantum of injury that is only slightly more than de minimis-or a
trifle more than a trifle of injury. This is not only legally wrong, in that it
contravenes our international obligation under the IAC, but it is also economically
unsound, since the Government should intervene in the marketplace only when a
domestic industry is injured to a significant or important degree. Governmental
intervention should be and remain exceptional, if we believe in the benefits of
competition. It therefore follows that such intervention should be limited to those
cases where significant or important injury is afflicting the domestic industry in
question.
DEGREE OF CAUSALITY
The IAC (13(a)) provides that dumped imports, that is, those sold at less than fair
value, should be "the principal cause" of material injury. The Subsidies Code does
not specify the degree of causality and simply requires that the subsidized imports
"are causing" material injury (164). The Act is in substance identical to the Subsi-
dies Code.
AlA believes that the test of the IAC is perhaps too demanding, but that the test
of the Subsidies Code and the Act is clearly too lax. If dumped imports are only
slight cause of material injury, and other factors are more important causes of such
injury, governmental intervention is not justified.
We therefore urge that both Codes and the Act adopt the test of "a substantial
cause" now embodied in the escape clause. As you will recall, section 201(b)(4) of the
Trade Act of 1974 defines "a substantial cause" as "a cause which is important and
not less than any other cause". This, we believe, is a modest and fair standard.
At present, the ITC generally interprets the Act to require that the dumped
imports be only an identifiable cause of injury, even though they are clearly a lesser
cause than one or more other factors. From January of 1975 through March 1979,
the ITC made 18 affirmative injury determinations under the Act. In at least 13, in
our judgment, the ITC made such affirmative determinations even though the
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industry did not suffer material injury, or, if it did, the dumped imports were a less
important cause than one or more other factors. Our conclusion is based upon a
review of uncontroverted facts set forth in the majority and dissenting opinions.
DEFINITION OF DOMESTIC INDUSTRY
The IAC (14(a)) defines the domestic industry to refer "to the domestic producers
as a whole of the like products or to those of them whose collective output of the
products constitutes a major proportion of the total domestic production of those
products". The Subsidies Code (165) contains a substantially identical definition.
Moreover, both the IAC (12(b)) and the Subsidies Code (161 footnote 2) define a "like
product" to mean a product which is identical to, or has characteristics closely
resembling those of, the product under consideration. The Act, on the other hand,
provides no definition whatsoever of the domestic industry.
We believe that the domestic industry should consist of those companies that
make products that are like the imported product, the companies that make prod-
ucts that are directly competitive with the imported product, and the companies
that make both the like and directly competitive products. We further believe that
this definition is consistent with the definition of "like product" in the Codes. We
therefore urge that the Act be amended to incorporate the concept of "like and
directly competitive" for purposes of defining the domestic industry.
THREAT OF MATERIAL INJURY
The IAC (13(e)) provides that the threat of material injury shall be based on facts
and not merely allegation, conjecture, or remote possibility, and must therefore be
clearly foreseen and imminent. The definition of injury in the Subsidies Code (121
footnote 1), on the other hand, includes "threat of material injury", but it does not
define "threat". Similarly, the Act refers to the likelihood of injury, but without any
definition of likelihood.
The Subsidies Code and the Act should therefore both be amended to incorporate
the definition of threat in the IAC. A threat that is not clearly foreseen and
imminent should not call for the imposition of extraordinary duties.
PRICE ASSURANCES
The JAC (17(a)) provides that antidumping proceedings may be terminated without
imposition of antidumping duties upon receipt of a voluntary undertaking by the
exporters to revise their prices to eliminate the margin of dumping or to cease to
export to the area in question. The Subsidies Code (145) provides for a similar
procedure. The Act is silent on this question, and the practice of the Treasury
Department under the existing antidumping regulations is to accept price assur-
ances only if the margin of dumping is less than one percent.
We urge that the Act be amended, consistent with the two codes. The purpose of
the Act is to eliminate the dumping margin. If it can be eliminated by voluntary
action on the part of the exporter, instead of by the imposition of dumping duties,
then the purpose of the Act is equally served.
IMPOSITION OF DUMPING DUTIES
The IAC (18(a)) makes it clear that a dumping duty may be imposed only "where
all requirements for the imposition have been fulfilled." The Subsidies Code (141)
contains identical language. The Act is consistent with this principle.
However, the Treasury Department is of the view that the Act confers upon it the
authority, following a finding of dumping, to impose provisional dumping duties
upon entries that come within that findig but prior to a determination that those
entries have, in fact, been dumped. This violates basic principles of fairness and due
process and may well be unconstitutional. An importer should have to pay dumping
duties only when his own goods are, in fact, found to have been dumped. The Act
should therefore be amended to authorize the Treasury Department only to require
the posting of bonds following a finding of dumping and prior to an entry-by-entry
determination of a dumping margin.
AMOUNT OF DUMPING DUTIES
Both the IAC (18(a)) and the Subsidies Code (141) provide that "it is desirable.
that the [dumping or countervailing] duty be less than the margin [or total amount
of the subsidy] if such lesser duty would be adequate to remove the injury to the
domestic industry."
We believe that this principle is sound, since the imposition of a dumping or
countervailing duty is justified not because an unfair trade practice exists but
because that practice is a cause of injury to the domestic industry. Therefore, for
~~998 - 79 - 7
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example, if the margin of dumping is one dollar, but a dumping duty of 50 cents will
prevent further injury, it obviously makes no sense to impose a dumping duty of one
dollar. We therefore urge that the Act be amended to incorporate this principle.
PRESIDENTIAL WAIVER OF DUMPING DUTIES
Both the IAC (18(a)) and the Subsidies Code (141) provide that "it is desirable that
the imposition [of dumping or countervailing duties] be permissive . . .". Contrary
to this provision, the Act requires that dumping duties be imposed following a
finding of dumping, with no exceptions allowed.
We urge that the Act be amended to give the President limited discretion to
waive the imposition of dumping duties if he determines, and so reports to the
congress, that such imposition would have specific adverse domestic economic conse-
quences. It is simply unwise, in our judgment, to require that each and every
finding of dumping be implemented regardless of the severity of its impact upon the
domestic economy. For example, the President should be able to waive dumping
duties if their imposition would have serious anti-competitive effects that clearly
outweigh the benefits of such duties.
This concludes AlA's prepared statement. We will be happy to answer any ques-
tions you may have.
Attachment.
MEMBERS OF AUTOMOBILE IMPORTERS OF AMERICA, INC.
Alfa Romeo Lotus Rolls-Royce
BMW Mazda Saab-Scania
British Leyland Mitsubishi Subaru
Fiat Nissan Toyota
Honda Peugeot Volvo
Isuzu Renault
Mr. VANIK. You have indicated neither that the subsidies code
nor anti-dumping require imports to be a substantial cause. You
are familiar with the major cost criteria in the escape clause. What
you are asking is that the domestic industry, having unfair trade
practice, prove that injury from imports be more important than
any other cause?
Mr. REHM. No, Mr. Chairman, I am glad you have asked for that
clarification. If I seemed to say that, I didn't mean to do so. The
present test under the escape clause is not "major cause" but a
"substantial cause," and that is defined in the statute as-I think I
am quoting accurately-an important cause, no less important
than any other cause.
We are not asking that the dumped imports be a cause greater
than any other cause-only that they be no less important than
any other cause, and, as I said earlier in my testimony, we can cite
at least seven or eight decisions of the International Trade Com-
mission since 1975, when both sides, majority and dissenting com-
missioners, found other causes more important than the dumped
imports. But if they are at least as important as any other cause,
we think that warrants the imposition of dumping duties.
Mr. VANIK. On page 10, you advocate we provide the President
the authority to waive the collection of dumping duties. How can
we protect U.S. industry from the consequences of unfair trade if
we allow a political consideration to enter in each decision on
imposed dumping duties?
Mr. REHM. Fair question, but, as' I was trying to say in my
testimony -mind you, I have not drafted language, but we might
try to do so-I would have in mind that the statute avoid, to the
greatest extent possible, and I think it is possible as a matter of
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statutory drafting, taking into account political factors. I would
agree with that. It seems to me that, if the authority is to be given
at all, it should be limited to situations where the President can
cite adverse domestic economic consequences, and I would have in
mind that he report his determination to Congress and identify
with real specificity the specific domestic adverse economic conse-
quences. I would agree that the proposal would certainly not fly,
but also not be justified, if it turned on political factors.
Mr. VANIK. You note that the President should be able to waive
dumping duties if their imposition has a serious anticompetitive
effect, but under your theory, dumping duties would never be
assessed.
Mr. REHM. No, I really have in mind what I think would be a
fairly rare situation, where the President's advisers would find that
there was such, I would tend to use a word like overwhelming, or
clearly predominant contrary economic consequences flowing from
the imposition of dumping duties that they could not be justified. I
would see this as a rare situation.
Mr. VANIK. The final point I want to make is that I have no
problem with the sales in the U.S. of some of the cars and auto-
mobile products that have prestigious labels that people buy for
elevating their egos in a society that sometimes has a lot of depres-
sion about it, but I am concerned about something else. After the
Iranian crisis, Americans began to come to some sense of reality
that they have to limit their consumption of gasoline. My feeling is
that it is time for the administration and all of us to take a strong
position and deal with the problems, because our imports are going
up, and OPEC pricing has no restraint whatever. We will be totally
owned in a few years if we just let this go on.
So, just before the Iranian problem, I know that the Japanese
had almost a half a million cars on the docks-and unsold. I don't
know what the Europeans had, or other producers had, but there
was quite a supply of automobiles, and then after the Iranian
crisis, suddenly this great supply disappeared, went into the
market, and sales are so brisk you folks are not even advertising
any more. You are letting people come in and buy them.
Mr. MILLET. I wouldn't say that.
Mr. VANIK. There is very little. I watch this carefully. I don't
care whether you advertise or not, whether they have advertising
or not isn't my concern, but what I get the feel of is a tremendous
surge in the purchase of gasoline-efficient cars. I have no criticism
of the import industry. It has served very well to push the Ameri-
can industry out of the age of indifference to some sense of reality
about the energy crisis and the need to get gasoline-efficient auto-
mobiles, but my point is that we are going to have serious problems
later this year.
Our deficit with Japan currently runs at three-quarters of a
billion dollars a month rate. While it has gone down a little, I look
for the year-end to be a terrible picture, when the record reflects
the sale of the highly-gasoline-efficient automobiles that are now
being recognized by the American consumer as something they
should have been buying for the last several years. While in the
import field you have 40 or 50 choices in these automobiles, you
have some beautiful designs, and attractive ones, in the American
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scene you have very little competition in that critical area of
business.
The result of that will be that we are going to have a tremendous
push on the trade deficit when these figures are computerized into
the total effect of our import/export imbalance.
So what I suggest is that you should be very mindful of this,
because if there is an automobile industry worker retaliation or
awakening, with the levels of these sales, I think you could be
getting into a situation in America where there might be serious
reactions by the American people through their Congress and
through this problem which has arisen, not entirely without the
fault of the American industry, as I said at the outset. But it seems
to me it is time to realize what effect this is going to have on the
trade balance issue, and I think that even the wise and prudent
importer or wise and prudent foreign producer should realize the
sociopolitical consequences of this imbalance. I don't know what
you can do about it, but I think you should be aware of the effect
this has on the American economy.
Mr. MILLET. I certainly shall take that message to the member
companies, Mr. Chairman, and let them know of your concern.
Mr. VANIK. You can sell all of the Rolls Royces you want to; that
isn't going to bother us. And the Alfa Romeos. If possession of
those cars helps strengthen a weak ego in America, maybe we will
make it up by the added productivity of that ego. But I am con-
cerned about the mass market and the effect of those half-million
cars, for example, I was talking about. If the trend continues
without some concern on the part of your industry, then you may
be back here facing up to a very serious barrage of real trouble
which could develop when the domestic industries end their prod-
uct year next week and things begin getting a little rough in
automobile employment.
Mr. MILLET. At least we have the introduction this past week of
some exciting cars from General Motors.
Mr. VANIK. I don't know what the cost is. They are almost in the
Rolls Royce range. They are not competing with other things. They
are competing with the Rolls Royce. There is always a galaxy of
American automobile purchasers who like the new and unusual
thing until they find out what the cost is, but when you divide up
the original cost into the cost efficiency of how much they are
going to save over a long period of time with the new automobile,
that may just wear off. I am concerned about the mass market, the
people who are driving every day, and driving themselves, and who
probably have no other way to get to their place of employment.
We have a very difficult problem in the U.S. on that. So I just hope
you are mindful of that, because it could very, very quickly change
the climate in which the membership of your organization does
business in the U.S. There is always a possibility if the situation is
sufficiently aggravated you might end up with a very instant tax or
some other kind of device that may put you out of business, and
deal directly and probably passionately with the problem instead of
more reasonably. Thank you very much.
The next witness is Mr. Richard 0. Cunningham of Steptoe &
Johnson.
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STATEMENT OF RICHARD 0. CUNNINGHAM, ATTORNEY,
WASHINGTON, D.C.
Mr. CUNNINGHAM. Good afternoon, Mr. Chairman, and members
of the committee. My name is Richard Cunningham. I am a
member of the law firm of Steptoe & Johnson. I want to emphasize
at the outset that I am not appearing today as a representative of
my firm, nor should my testimony be taken as representing views
of any of the clients, whether foreign or domestic firms, which my
law firm has represented in trade cases over the years. Rather, I
am appearing here today as an individual practitioner who has
spent the last 10 years working with the Antidumping Act and
countervailing duty law, and the reason I am here today is I am
very concerned at what is happening with these laws now and
what may happen to them if certain proposals now being advanced
are adopted by the Congress.
Mr. Chairman, early today, you focused on a crucial issue which
runs throughout the somewhat lengthy statement which I have
submitted to the subcommittee, which I will not read in full, but
which I will summarize.
Mr. VANIK. The statement will be entered in the record as
though you read it, so you may proceed.
Mr. CUNNINGHAM. In an interchange with the first witness you
said that uncertainty affects international trade more adversely
than anything else. Nowhere is that more true than in dumping
and countervailing duty cases. Here I want to say I disagree em-
phatically with Mr. Rehm on this subject. These are laws, Mr.
Chairman, which deal with unfair trade practices, laws which
should be objectively and fairly and predictably enforced against
those unfair trade practices. These are not laws which should be
resolved through negotiated solutions or through administrative
discretion.
The statement which I have submitted for the subcommittee
focuses specifically on the Antidumping Act. It urges the Congress
to take decisive action to eliminate uncertainty in the enforcement
of that law by clarifying the price comparison rules used by the
Treasury Department in such critical areas as selling expenses,
cost adjustments, use of allocations, and the rules applicable to
dumping from state-controlled-economy countries.
In that latter regard, state-controlled-economy country dumping,
I note that Congressman Jenkins asked another witness what his
proposal was on this subject. I have attached to the back of my
statement a proposed amendment to section 205(c) of the act, which
would, in effect, put back in the law what Congress tried to do in
the 1974 amendments.
My statement also urges that the resources of Customs and
Treasury be substantially increased, that new and effective verifi-
cation procedures be adopted, and that investigative time periods
not be shortened.
Let me add one thing about the investigative time periods. If the
Treasury time for determining whether sales occurred at less than
fair value is substantially shortened, this committee should realize
that the losers will be U.S. complainants. Most dumping cases are
complex cases, and, moreover, the information upon which the
decision is based is information prepared and submitted to the
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Treasury by the foreign producer. Whether a dumping case is won
or lost frequently depends upon whether the U.S. complainant and
its counsel have adequate time to review the information submitted
by the foreign producers, to advise Treasury of defects, shortcom-
ings or omissions in that information, and then have sufficient
time left for Treasury to go and get new information or additional
information needed for a successful resolution of the case.
If there is not sufficient time for that to be done, and there
would not be sufficient time if the Treasury time periods are sig-
nificantly shortened, then many cases which are now won by U.S.
complainants would, I fear, be lost.
In view of the time pressures under which this committee is
operating, I won't go into detail here as to those aspects of my
statement which I have just mentioned, although I would be happy
to answer any questions which the committee might have. What I
want to focus on primarily today is the proposal for expanded use
of a new type of price assurance settlement procedure, a proposal
which I regard as the single most undesirable element of the entire
MTN negotiations.
Time permitting, I would like also to say a word or two about the
material injury issue which was raised this morning.
Mr. Chairman, I was delighted to hear today about your letter to
Mr. Strauss on this issue of price assurances. The position which
you and the committee took in that letter is precisely the right
position, and I hope you will hold firm to it no matter how vehe-
mently Treasury or other voices in the administration seek this
change to a new procedure.
Mr. VANIK. Would your objection to the use of price undertak-
ings be partially met if such undertakings could not be accepted
prior to a preliminary determination of the dumping margins?
Mr. CUNNINGHAM. I certainly think that should be the rule. The
reason I say that is because I agree with the committee that a price
assurance should serve the function of fully eliminating the dump-
ing margin or the amount of subsidy, and you can't do that, obvi-
ously, until you have determined what the dumping margin is or
what the amount of subsidy is.
Mr. VANIK. In your opinion, how difficult would it be to deter-
mine the precise increase in price necessary to offset not the total
dumping margin but only that part of the margin which is injuring
the domestic industry? Is such a calculation possible?
Mr. CUNNINGHAM. I think it is possible, but only in theory. In
practice, I think that is a very difficult determination to make. It is
one which certainly Treasury is not in the business of making, one
which I doubt even the International Trade Commission could do
on a basis sufficiently precise to provide relief to a U.S. industry.
Beyond this, there is another problem with the practicality of an
elimination of injury price assurance as opposed to an elimination
of the dumping margin price assurance, and that is that we live in
inflationary times.
Mr. VANIK. That is the understatement of the whole year.
Mr. CUNNINGHAM. Quite so. The costs and prices of most produc-
ers are on rising trends. What is contemplated here in this new
proposal for a no-injury-type price assurance is that the foreign
producer would be asked to sell hereafter at a certain price, deter-
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mined to be a noninjurious price. But as time passes, U.S. produc-
ers' costs will increase, U.S. producers' prices will increase, and
what will happen then? The price which was originally perhaps
noninjurious, if it is possible to determine what a noninjurious
price becomes now, is much more substantially below the prices of
U.S. producers.
The question should be posed, then, is Treasury going to ask
foreign producers to continue to increase their prices as U.S. pro-
ducers' prices and costs increase through inflation? That would
seem to be a necessary corollary of any noninjury price procedure,
but I think the committee knows the answer to the question. I
don't think the Treasury contemplates any progressive increase in
foreign producers' prices. Yet what you would have, then, would be
a price assurance which the foreign producer could freely sell at,
yet which would soon become an injurious price. That is a problem
unique to this type of new proposal and one which seems to me to
be a fatal and unavoidable flaw in it.
I think this committee, in considering that proposal, should ques-
tion Treasury, STR, or whoever in the administration proposes it,
as to precisely how they plan to determine what sort of price
increase is necessary to eliminate injury. I have had some conver-
sations with Treasury people on that, and I must say I haven't
heard any explanation of it. I think the reason is that there isn't
any way they are planning to do it. I think what they are contem-
plating is negotiated deals, and I don't think that is the way we
want to enforce a law against unfair trade practices.
Mr. VANIK. I agree with you. I think that is exactly right. I am
afraid of it.
Mr. CUNNINGHAM. Let me turn for just a moment to that ques-
tion of material injury, which we have been discussing. I want to
make just one brief comment on it. Several witnesses have taken
positions on whether or not the code's word "material" should be
inserted in the U.S. dumping and countervailing duty laws, but I
submit this committee should be aware that there is another and
more fundamental issue, namely, what does "material" mean? I
would suggest to the committee that to a certain extent you are
stuck with the word "material" whether you like it or not. It is in
both of the codes, dumping and countervailing duties. Both codes
are going to be approved by the Congress, if the MTN package is
legislated, which will give them the force of U.S. law, so unless
Congress specifically rejects the word "material," which I do not
recommend, the standard used by the International Trade Commis-
sion is going to be "material" injury.
But the real question remains: What is "material"? And I submit
that unless Congress acts to define the amount of injury represent-
ed by "material" or by any other word that is in the statute, then
we will have just the sort of uncertainty we all view as undesirable
in this area. Earlier today, I think I heard the chairman refer to
the material injury standard contained in the codes as a minimal
standard. On the other hand, when Congress last considered insert-
ing the word "material" in the Antidumping Act, which took place
in 1951, this committee specifically rejected the use of a "material
injury" standard on the ground that it was an undesirably high
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standard, and I would refer you to this legislative history at pages
24 and 25 of my written statement.
My point here is not that Congress should lower the injury
standard or it should raise the injury standard. My point is that a
new word, "material," is going to work its way into these two laws
whether directly by insertion in the statute or indirectly by adop-
tion of the codes. Moreover, that word is nowhere defined, and no
one really knows what it means.
I strongly urge that Congress give a very specific definition of
the injury standard. If Congress wants to continue in effect the
standard which it enunciated in 1974, then something like the
following sentence should be incorporated in the legislative history:
For purposes of this law, "material injury" is any injury which is more than
frivolous, inconsequential, insignificant, or immaterial.
I take those words from the Senate finance report, last time
around. If Congress wants to adopt some other standard, higher or
lower, it should do so by equally specific language, but, above all,
please don't leave us in confusion or uncertainty on this very
important issue.
Thank you, Mr. Chairman.
[The prepared statement follows:]
STATEMENT OF RICHARD 0. CUNNINGHAM
This statement represents my own views as a practitioner of international trade
law, and should not be taken as representing the views of my law firm or of any of
the foreign or domestic clients which my firm now represents or has represented.
SUMMARY OF RECOMMENDATIONS
1. Congress should take this opportunity to clarify, and perhaps overhaul, the
Treasury Department's rules for the making of price comparisons, especially in the
areas of a. selling expenses, b. adjustments for differences in the characteristics of
the merchandise, c. use of allocations, and d. dumping from Communist countries.
2. Customs' investigative procedures should be totally revised. An investigative
team should be sent to the exporting country in each case.
3. The manpower and funding devoted to Treasury's investigation of dumping and
countervailing duty cases should be raised to at least 4 times the present level.
4. There should be no shortening of the time periods for Treasury's dumping
investigations. Any such shortening will work to the disadvantage of U.S. complain-
ants.
5. Congress should firmly reject the new price assurance procedure which is being
proposed by the Administration.
6. If Congress accepts the new International Antidumping Code, which requires a
showing of "material" injury, Congress should issue a clear statement defining what
"material" means.
STATEMENT
This is a personal statement, intended solely to set forth the views of an attorney
who has spent most of the last ten years representing both U.S. complainants and
foreign respondents in Antidumping Act and other trade law proceedings. The views
expressed herein do not necessarily represent those of any client or clients on whose
behalf I have appeared in those proceedings, nor do they necessarily represent the
views of my law firm, Steptoe & Johnson.
My statement today will focus on the Antidumping Act of 1921. In my view, that
Act in its present form leaves much to be desired as a vehicle for relief from unfair
import pricing. Moreover, there is a very real danger that acceptance of the newly-
negotiated International Antidumping Code will weaken the Act still further, unless
Congress acts decisively to maintain an effective law. I want to suggest some of the
areas in which the Act is in jeopardy of being weakened by new proposals, and also
to urge changes in some other areas in which a strengthening of the Act is needed.
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For convenience, the analysis below is divided into two parts. The first will deal
with the Treasury Department's investigation of LTFV pricing. The second will
focus on the International Trade Commission's injury investigation.
I. THE TREASURY LTFV INVESTIGATION
The various proposals now being advanced in Congress for amendment of the
Antidumping Act focus almost exclusively upon procedural changes in the Treasury
investigation-earlier withholding of appraisement, shortened time periods, expand-
ed use of price assurances to "settle" cases, use of protective orders to permit
participating counsel to obtain access to confidential data submissions, more effec-
tive verification, and the like. These procedural changes (with the exception of the
shortened investigative time periods and the new price assurance proposals, both of
which will be discussed below) are generally constructive. However, they fail to
reach two major problem areas which should be central to any revision of this Act:
First, The Treasury Department's rules for the making of price comparisons
should at least be clarified, and perhaps greatly overhauled.
Second, the Customs Service's investigative methods need to be radically changed,
both by altering the method of investigation and by vastly increasing the Service's
budget and resources.
The issues which I feel should be considered in these two areas are discussed
below, along with some suggestions for amendment of the Act.
A. Treasury's rules for making price comparisons
At present, the rules used by the Treasury Department for the making of Anti-
dumping Act price comparisons are so imprecise and uncertain that it is awfully
difficult (in all but the most extreme cases) for a U.S. industry aggrieved by low-
priced imports to know whether or not it can obtain relief under the Act. By the
same token, it is often very difficult for a foreign exporter to know whether or not
its sales to the United States are at LTFV prices-despite the fact that the exporter
has within its possession complete data concerning its home market and export
prices and all expenses incurred in connection with its sales in the two markets.
The difficulty, obviously, does not lie in the prices themselves. Rather, the prob-
lem is that no one can know, until a given investigation has run its full course,
precisely what "adjustments" Treasury will make to the prices which the foreign
firm charges to its U.S. customers and to its customers in the home market. The
imprecision in Treasury's rules centers on three principal areas: selling expenses,
adjustments for differences between the U.S. merchandise and the home market
merchandise, and the use of allocations in making adjustments.
1. Selling expenses
The selling expense issue is perhaps the thorniest of all problems in the adminis-
tration of the Antidumping Act. In almost every investigation-certainly in all
investigations involving consumer products-the foreign exporter argues that any
apparent difference between its U.S. prices and its home market prices is attributa-
ble to the fact that it incurs much greater selling expenses in its home market sales.
These claimed expenses in the home market include the maintenance of a much
more elaborate distribution system, higher warranty costs, larger expenses for serv-
icing the merchandise, etc. In principle, it seems logical that an adjustment should
be made if home market selling expenses are in fact greater than the selling
expenses incurred in the U.S. market. However, the issue is nowhere near that
simple. Consider, for example, the following questions:
Should an adjustment be allowed for a more elaborate home market distribution
system, if a major reason for having such an elaborate distribution system is not to
increase sales, but rather to provide a retirement for the firm's elderly employees,
as is often the case in Japan?
If the exporter engages heavily in home market advertising which is not designed
to promote specific products, but rather to promote the company's "image" (for
example, "Imperial Chemical Industries leads the world in chemical technology"),
should the cost of such "image advertising" be deducted from home market prices?
If the foreign company provides day care facilities for children of women who
work in its sales department, is that a deductible "selling expense"?
The current Antidumping Regulations, as well as the questionnaire which the
Customs Service sends to foreign exporters in dumping cases, require that a selling
expense must be shown to be "directly related" to sales of the merchandise under
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investigation, in order for that expense to be deductible from the price of the sale.1
In the last several years, however, the Treasury Department has been increasingly
willing to classify as "directly related"-and thus deductible-more and more types
of expense. A vivid example of how far Treasury has gone in this direction occurred
last year in the investigation of Motorcycles from Ja~pan, where the cost of "mobile
medical units" was allowed to be deducted as a `directly related" home market
selling expense. In the same case, "image advertising" was also placed in the
deductible "directly related" category.
Treasury's adoption of this more expensive allowance of selling expense deduc-
tions represents a major change in the meaning of the Antidumping Act. Cases
which would have been won by the complainant three years ago are now lost or
result in a finding of minimal dumping margins. Yet that change has not been
accomplished through an amendment of the Act by the Congress. Rather, it has
been accomplished administratively.
It may well be that the Congress concurs in the new meaning which Treasury has
given to the Act. After all, foreign respondents have for years argued that all
costs-not merely those which are "directly related" to sales of the merchandise
under investigation-should be taken into consideration in making the price com-
parisons. But it is also quite possible that Congress does not agree with Treasury's
present approach. Complaining U.S. industries take the position that expenses
which are not a part of the actual selling function and/or are not related specifical-
ly to the product under investigation should be regarded as general overhead items,
and spread evenly over all of a company's sales-home market and export-thus
resulting in no pricing adjustment in LTFV comparisons. The resolution of this
issue involves questions which are both complex from an accounting standpoint and
fundamental to the philosophy of the Antidumping Act.
But if the proper resolution of the selling expense issue is not clear, it is clear
that the issue is of such importance that it should be decided by the Congress and
not by the administrative agency. It is no exaggeration whatsoever to say that most
cases today are won or lost on the selling expense issue. The price adjustments in
this category can easily result in a swing of 20 percent or even 30 percent in the
comparisons, which is generally enough to change a determination from affirmative
to negative, or vice versa. If there is to be any meaningful revision of the Antidump-
ing Act, I strongly urge that the Congress closely examine the selling expense issue,
hold hearings on it, study its impact on decisions over the past several years, and
make the policy judgments necessary to lay out clear and precise rules as to what
expenses are deductible and what expenses are not deductible.
2. Adjustments for Differences in the Characteristics of the Merchandise
In almost all dumping cases involving manufactured products, the foreign export-
er will argue that the merchandise which it sells in its home market differs in
characteristics from the merchandise sold in the United States, and that an adjust-
ment should be made for the cost differences attributable to these differences in
characteristics. This proposition is unexceptionable in principle, but the application
of that principle in dumping cases has proven horrendously difficult.
What happens in practice is that the foreign manufacturer presents to Customs
two computer printouts purporting to show the costs at producing the export ver-
sion of the merchandise and the version sold in the home market. The Customs
representative can do little more than compare the cost of the bottom of one
printout with the cost at the bottom of the other, and make the pricing adjustment
on this basis. In only a few cases-the duty assessment phase of the color television
case being a prominent example-has Customs gone into real detail in analyzing
the relative costs of the home market merchandise as compared to the costs of the
U.S. merchandise.
- Since there is usually no really meaningful investigation of this cost adjustment
issue, there is no way of knowing with certainty whether the adjustments have or
have not been accurately made. However, many U.S. complainants feel that errors
in making these adjustments have resulted in-or at least contributed to-the loss
of cases which should have been won.
1 Where the foreign seller maintains a U.S. distribution subsidiary-in which case the so-
called "exporter's sale price" method of computation is used-Treasury applies a somewhat
different rule. "Directly related" selling expenses are fully deductible from both home market
and U.S. prices. However, all other selling expenses (no matter how remote) are also deducted
from the U.S. price. Then an offsetting deduction from home market prices is allowed for
"indirect" selling expenses, but only up to the point where the per-unit amount of home market
"indirect" expenses equals the per-unit amount of such expenses incurred on the U.S. sale. This
type of computation gives rise to another cluster of problems which also merit detailed examina-
tion, but which are beyond the limited scope of this statement.
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This problem is a particularly difficult one to solve, because the analysis of costs
is always more difficult than the analysis of prices. However, the cost adjustment
process could be greatly improved by three changes, two relating to the criteria for
the making of adjustments and the third relating to Customs' analytical procedure:
First, adjustments for cost differences should be predicated only on cost differ-
ences which are directly related to differences in the characteristics of the merchan-
dise. Where a difference in cost of production arises from the fact that one article is
produced in a different plant than the other, or from the fact that more overtime is
used in the production of one of the articles, or for some other cost variant unrelat-
ed to a difference in the specifications of the two articles, then there is no logical
basis for making any cost adjustment. It should therefore be incumbent upon the
exporter claiming a cost adjustment to demonstrate that that adjustment is directly
related to a difference in the characteristics of the U.S. article and the home market
article.
Second, adjustment should be made only for differences in direct costs of materi-
als and labor, and not for overhead expenses. This is a derivative of the first
proposal. Overhead costs are inherently general in nature, and not related to
differences in specifications of the merchandise. Moreover, analysis of overhead
expenses is exceedingly difficult and is dependent upon the uncertainties of alloca-
tion principles.
3. Use of Allocations in Computing Adjustment
Many dumping cases now involve foreign exporters which are multi-product com-
panies. In such cases, analysis of discounts, selling expenses, and the like in home
market sales is often complicated by the foreign producer's contention that it does
not break its financial statements down into the categories required for this investi-
gation. Assume, for example, that the foreign producer sells products A, B, C, D, E
and F in its home market, but that the dumping case involves only product C. The
foreign producer states that it keeps no separate expense records for product C, but
rather groups the product C expenses in the same category as products A, B, D and
E. In such circumstances, the foreign producer generally proposes that it be permit-
ted to allocate to product C a percentage of the total expenses for products A, B, C,
D and E equal to the percentage of sales of those five products represented by sales
of product C. This seems reasonable at first glance, but consider the following
examples:
Home market sales of product C represent 20 percent of the foreign producer's
total home market sales. The foreign producer proposes to allocate 20 percent of its
home market television advertising expense to sales of product C. However, the U.S.
complainant states that its investigation has revealed that the foreign producer does
substantially no home market television advertising of product C. Should the alloca-
tion be allowed? What, if any, further documentation should be required?
The foreign producer gives an annual bonus to each of its home market dealers
who attain a certain volume of sales. However, the producer's home market sales of
the product covered by the dumping investigation represent only 5 percent of its
total home market sales. Accordingly, the dealers invariably obtain their bonus
primarily by making sales of products other than the product covered by the
investigation, and some dealers will be receiving bonuses despite the fact that they
have made no sales whatsoever of the product under investigation. Should the
foreign producer be allowed to allocate 5 percent of its bonuses to sales of the
product under investigation? What, if any, further documentation should be re-
quired?
In recent years, Treasury has been increasingly willing to accept allocations as
the basis for computing price adjustments. American complainants have vigorously
protested this trend, arguing that the foreign producer should be required to sub-
stantiate fully any claim for an adjustment which would eliminate (or tend to
eliminate) apparent dumping margins. The foreign producer, on the other hand,
argues that it cannot be expected to maintain its records in precisely the categories
covered by the dumping investigation, and hence an allocation of some sort is
essential.
There are at least three possible resolutions of this problem:
First, the U.S. complainants' position could be adopted, requiring the foreign
respondent to demonstrate the actual amount of any expense, discount, etc. actually
paid or incurred with respect to sales of the merchandise under investigation.
Second, Treasury's current policy could be retained, allowing the foreign producer
to use any reasonable method of allocation of expenses, discounts, bonuses, etc.
Third, an approach could be adopted similar to that used in exporter's sales price
cases. If the foreign producer is able to demonstrate the actual amount of expense
incurred, discount paid, etc. on sales of the item under investigation, then that
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amount would be fully deductible. If an allocation were required, however, the per-
unit amount deductible from home market prices could not exceed the per-unit
amount deducted for the same category of expense (or discount, bonus, etc.) in the
U.S. market.
Whatever resolution is finally reached, the issue is one of major importance, and
thus should be resolved by the Congress, rather than by the administrative agency.
4. Dumping from Communist Countries
In recent years, imports from state-controlled-economy countries have become an
increasingly significant factor in U.S. trade. This trend is undoubtedly going to
continue and accelerate, not only because of natural economic forces, but also
because this Administration is determined to expand trade with Eastern Europe,
Communist China and other socialist countries. To date, affected U.S. industries
have included the producers of clothes pins, light bulbs and golf cars. In the future,
U.S. watch producers face competition from Russian watches and it is understood
that the Lada-a Russian automobile-will soon be introduced in substantial
volume into the U.S. market.
Competition from Communist country exporters poses unique difficulties for
American industries, because of the involvement of the foreign government in the
activities of the exporting firm. If past experience is repeated, the problem is likely
to be one of low prices-prices which the American producer cannot meet on any
profitable basis-rather than simply a volume situation. Logically, such problems
should be handled under the Antidumping Act.2
After the enactment of Section 205(c) by Congress in 1974, it seemed that the
methodology for applying the Antidumping Act to Communist country imports had
been settled. Since then, however, the Administration has determined in its own
mind that Section 205(c) as enacted by Congress is overly restrictive and cannot
fairly be applied to Communist country imports. There are two issues here:
First, what should be the basis for determining foreign market value when the
product in question is not produced anywhere except in the United States and in
the exporting Communist country? The legislative history of the Trade Act of 1974
states rather explicitly that the basis of comparison in such circumstances is to be
the price at which such merchandise is sold in the United States by U.S. producers.
However, Treasury regards this as unfair, and has instead promulgated an incredi-
bly complex regulation requiring a hypothetical cost of production analysis.
Second, where the same type of merchandise is produced in several countries
besides the U.S. and the exporting Communist country, which of those third coun-
tries should be chosen as the basis for determining foreign market value? Again, the
legislative history of the Trade Act states explicitly that Section 205(c) is intended to
codify previous administrative practice, and the Customs Service in past cases has
invariably looked to that country in which it found a producer of size, complexity
and technology comparable to the producer in the Communist country. Here again,
Treasury has changed the law, by promulgating a new regulation which requires
that foreign market value be determined on the basis of prices in a country "compa-
rable in terms of economic development" to the exporting Communist country.
Once, again, the effect of Treasury's change is to slant the price comparisons in
favor of the Communist exporters.
The reason that Treasury's new approach has a built-in bias in favor of the
Communist exporter requires a bit of explanation. The nubbin of it is that the
country in which you will find an exporter comparable in size and sophistication to
the Communist exporter is likely to be a country which is more advanced-and
therefore in which prices are higher-than in a country "comparable in terms of
economic development" to the Communist country. The reason is that the Commu-
mist country government often creates an exporter which is larger and more sophis-
ticated than one would normally expect to find in that country. The goal is to earn
hard currency by increasing exports, and therefore the government wants as large
and as sophisticated a producer as possible. In s free-market economy comparable in
economic development to the Communist country, on the other hand, producers
would tend to be smaller and less sophisticated, both because the size of the
2 Some observers feel that, because of the difficulty in ascertaining prices and costs in a state-
controlled economy, the Antidumpting Act should not be a remedy for Communist country
imports. I disagree strongly. The only alternative remedy is an escape clause-type proceeding
based upon the disruption of the U.S. market by these imports, without regard to whether they
are fairly priced or not. Such a remedy is not particularly well suited to price (as opposed to
volume) problems. Moreover, escape clause-type remedies are discretionary on the part of the
Executive Branch, and it is not realistic to expect that an Administration which is intent on
expanding trade with the Eastern Bloc will be much inclined to restrict imports in cases where
it has discretion not to do so.
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domestic market would not justify a large-scale producer and because low labor
rates would make a high degree of automation unncecessary.
In effect, then, the new Treasury regulation has precisely the result which Con-
gress sought to avoid in enacting Section 205(c). What Treasury will rely upon under
the new regulation is not the normal prices and costs which would exist if the
exporter were located in a non-Communist country. Instead, Treasury will use the
significantly lower prices which prevail in a country in which the exporter in
question would not normally be located. The not effect of this is to produce a price
comparison which is more beneficial for the exporter-more beneficial precisely
because of the involvement of the Communist government.
I urge this Committee to correct this perversion of Section 205(c). That can be
accomplished by amending the Section to make it clear that enforcement of the Act
against imports from state-controlled-economy countries will be predicated on the
prices charged by a free market producer whose size and degree of sophistication
are comparable to that of the state-controlled-economy producer. A proposal for
such an amendment is appended to this Statement.
Beyond this, the Committee should make it absolutely clear to the Treasury
Department that the Antidumping Act is to be enforced fairly and objectively,
letting the chips fall where they may. Perhaps the most disturbing aspect of the
new Communist country regulation is that it is so clearly a response to diplomatic
pressures and an implementation of a diplomatic policy of cultivating political and
economic relations between the United States and certain Communist countries.
Such policies are undoubtedly well-intentioned, and I have no quarrel with them
whatsoever. I believe very strongly, however, that such diplomatic and political
goals must not be allowed to interfere with vigorous enforcement of the Antidump-
ing Act.
B. Customs Service investigative procedures and the necessity for commitment of
greater resources
By this time, it should be apparent to all observers that an effective Antidumping
Act is essential to protect U.S. industries from unfair import pricing. It is no
exaggeration whatsoever to say that the prosperity of hundreds of industries and
the security of literally millions of American workers' jobs depend on vigorous
enforcement of this law. Yet I am constantly amazed that our government has been
unwilling to commit the resources which are absolutely essential to effective Anti-
dumping Act enforcement.
My testimony before this Committee last Fall dealt at length with the utter
inadequacy of the Customs Service's present procedures for "verifying" information
submitted by foreign producers. If the United States is serious about enforcing this
Act, it should totally revise the verification process, along the lines which I suggest-
ed to the committee. In each case, a team should be dispatched to the foreign
country for purposes of checking the information submitted by foreign producer.
That team should consist of the Customs case handler, at least one accountant, a
technical advisor who is familiar with the product in question, and-in those cases
where the response is computerized-a data processing expert. Instead of a one day
visit to the facilities of the foreign company, this team should be prepared to spend
as much as a week, in order to conduct a thorough examination for purposes of
verifying the data.
Obviously, such an investigative procedure will require a major increase in both
the manpower and the funding of the administering agency. Adequate procedures
for assessing dumping duties after a finding has meen entered-another area in
which all observers agree that present procedures are woefully lacking-will also
require a much greater commitment of resources. In all, I submit that we are not
talking about a 50 percent increase in funding, or even a doubling of funds. If we
want effective enforcement of this law, we need an administering agency with
something like four to five times the manpower and funding now allocated to the
offices in Treasury and Customs which deal with this Act. I think that this law is
worth that investment.
C. Shortening the Treasury investigation-A serious mistake
Most of the proposals advanced for reform of the Antidumping Act-including the
STR proposal for implementation of the new Antidumping Code-feature substan-
tial reductions in the period of time allotted for the Treasury investigation of LTFV
pricing. I want to make it clear to this Committee that any such change will work
to the disadvantage of complaining U.S. industries.
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Ironically, these proposals are said to be advanced on behalf of potential U.S.
complainants, in the interest of "expediting" the obtaining of relief under the Act.
Although the desire for quicker relief is certainly understandable, these investiga-
tion-shortening proposals are misguided for reasons which I will discuss in a
moment. If quicker relief is deemed desirable, I suggest that it could best be
obtained by overlapping the International Trade Commission investigation with the
second phase of the Treasury Department investigation. Under such an overlapping
procedure, the ITC would begin its investigation at the date of Treasury's tentative
determination (assuming that that determination is affirmative) and would continue
its investigation for four months, until one month after Treasury's final determina-
tion. The extra month after Treasury's final determination is necessary in order to
permit the ITC to consider the final dumping margins. Such an overlap procedure
would shorten the total investigative period by two months. If this is not deemed
sufficient, consideration could be given to withholding appraisement at some earlier
point in the Treasury investigation, perhaps at the three month date, conditioned
upon Treasury determining that there is substantial evidence of LTFV selling.
The difficulty with shortening Treasury's investigation is that such shortening
will prevent complainants from winning many dumping cases. In any but the most
clear and egregious case, whether a complainant wins or loses is primarily depend-
ent upon the ability of its counsel to persuade Treasury to reject the initial conten-
tions made by the foreign producers and gather new (and more detailed and more
accurate) price and cost data. Consider the following typical time schedule in a
dumping investigation:
The Customs questionnaire is served upon the foreign producer a few days after
the commencement of the investigation.
The foreign producer submits its response to the U.S embassy located in the
country of exportation about nine or ten weeks after receipt of the questionnaire, so
that now about two and a half months have passed in the investigation.
That questionnaire response is subjected to preliminary review at the embassy
and in Washington, and the verification of the response usually does not take place
until after the three month point in the investigative period.
After verification, the Verifying Officer prepares his report, which is generally
submitted to Customs in Washington a week or so before the four month point of
the investigation.
There is then a two or three week delay (at least) before the verification report is
"sanitized" (i.e., confidential data is removed) and placed in the public files so as to
be available for inspection by counsel for the complainant.
At this point, almost five months of the initial six month investigative period
have elapsed, and only now does the counsel for complainant have access to all of
the data necessary to analyze the foreign producer's questionnaire response.
As the foregoing scenario demonstrates, it is not until 4-½ to 5 months into the
investigation that the issue is really joined. Only at that time can complainant's
counsel analyze the questionnaire response, question various portions of it, and urge
Customs to seek additional information where necessary. Even today, with a six
month period until the tentative determination, it is often not possible for Customs
to obtain needed additional data in time for use in that first decision. It is small
wonder that Treasury misses so many of its deadlines for both tentative and final
determinations, and small wonder that there are so many changes in LTFV margins
between tentative determination and final determination.
Conceivably, the use of additional resources at Customs could expedite the above
scenario by two weeks or perhaps even a month-but not more. Even then, the
original six month investigative period should be kept in effect, to allow Treasury
time to obtain additional data at the urging of complainant's counsel, where such
data is necessary for the decision.
Who will be the loser if time periods are shortened to the point where Customs is
not able to obtain additional data at the urging of complainant's counsel? Obviously,
the losers will be U.S. complainants. Treasury decisions will be based, not on full
and accurate data, but rather upon the foreign producer's initial and sometimes
faulty submissions. In other words, cases will be lost where they should be won.
D. Expanded use of price assurances-An even more serious mistake
The most disastrous weakening of the Antidumping Act now being proposed is the
effort by the Treasury Department to gain authority to negotiate settlements on a
basis which would deprive U.S. industries of full relief. This proposal is masquerad-
ing under the name of "price assurances," but in reality it is something very
different and highly pernicious.
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At the outset, the Committee should recognize that this new proposal bears little
resemblance to the price assurance procedure which Treasury now uses in dumping
cases. The existing procedure, in keeping with the purpose of the Act, aims at
eliminating dumping. It is employed at the end of Treasury's investigation, where
dumping has been found but the LTFV margins are minimal.' The "assurance"
given by the foreign exporter is that no future sales will be made at prices below
fair value. Treasury then monitors imports from that exporter for at least two
years, to ensure adherence to the price assurance.
The new proposal, in contrast, has nothing whatsoever to do with the elimination
of dumping. No longer will the foreign exporter promise to refrain from dumping.
Rather, it will agree to "adjust its prices so as to eliminate any injurious effects."
Indeed, this settlement procedure will be utilized early in the Treasury investiga-
tion, at a point where there has been no determination of the size of the dumping
margins. If you don't know what the dumping margin is, you can't very well
eliminate it.
What, then, is the purpose of this proposal? You are going to be told that
Treasury needs a way of settling cases early, without full investigation, in order to
conserve its resources and "enforce" the Act more effectively. I suggest to you that
that is not the motive at all, and that if Congress were to provide Treasury with all
the funding and manpower in the world, this Administration would still seek
authority for this new price assurance procedure.
The people who are proposing this radical departure don't really believe that
dumping is something unfair, something that should be eliminated. They are leery
of the Antidumping Act because it is-in their way of thinking-something which
restricts their flexibility to manage international trade. They fear that cases will
come along from time to time in which a strict enforcement of the Act would result
in very large dumping duties being assessed against imports which are important in
trade relations with one or more other countries-something like television sets
from Japan or automobiles from any of a number of countries. In such a case, this
Administration wants to have a means of not enforcing the law fully, of negotiating
a deal which will mollify-perhaps not satisfy or even fully protect, but mollify-the
U.S. industry while at the same time avoiding undue offense to the government of
the exporting country.
In evaluating this new concept, there are a few things this Committee should
understand:
First, these assurances are specifically designed to provide less relief than would
be obtained if the case were prosecuted to conclusion. The new Code specifically
provides that: "Price increases under such undertakings shall not be higher than
necessary to eliminate the margin of dumping."
Second, the new procedure would be wholly unworkable as a means of providing
meaningful protection to U.S. industries. One reason is that there will be no
realistic determination of what price increase is necessary to eliminate injury to the
U.S. industry. Rather, a deal will be struck between Treasury and the foreign
producer. In this connection, I urge the Committee to question Treasury and STR
closely as to precisely how they plan to determine what price increase is necessary
to eliminate injury. If they can provide you with some formula, then you will have
something tangible on which you can base your evaluation of this bizarre scheme.
But if they tell you instead that there is no single method or formula, that each
case will have to be evaluated on its own merits, then I submit that you should
conclude that this is in fact nothing more than a means for the government to
administer prices in international trade.
But even if one were to assume that a price could be and would be set which
would genuinely eliminate injury, consider what happens as time passes in this
inflationary world. As U.S. producers' costs and prices rise, imports will again
become injurious unless their prices rise along with the prices of the U.S. firms.
Will Treasury require the foreign companies to keep raising their prices as U.S.
prices rise? I think you know the answer to that question.
I urge the Committee to look long and hard at this new price assurance idea. Find
out exactly how it's going to be used before you adopt it. But if you do adopt this
idea, I suggest that we change the name of the law, because it won't be an
Antidumping Act any more.
There is a legitimate question whether this type of price assurance procedure should be used
where larger LTFV margins are found. My view is that the effectiveness of the current
procedure depends on how closely Treasury monitors the price assurance-and at present that
monitoring is not thorough, although it is improving. Until really thorough monitoring can be
relied upon, price assurances should be accepted only where margins are minimal.
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II. DETERMINATION OF INJURY BY THE INTERNATIONAL TRADE COMMISSION
I am extremely concerned at what is going on today with respect to the injury
portion of the MTN legislative package. What concerns me is that the Congress is
being urged not to take a clear position on the most important injury issue raised by
the agreements which have just been signed. That issue, of course, is the question of
how much injury must be found to justify imposition of dumping duties.
This issue is particularly important because the ITC has already significantly
increased the requisite level of injury beyond that prescribed by Congress in 1974.
Adoption of the new Antidumping Code-with its requirement that injury be "mate-
rial' -will accelerate this trend, unless Congress issues a clear statement as to the
necessary quantum of injury.
Yet this is just what the Administration does not want Congress to do. In the
Geneva negotiations, they have accepted Codes on both dumping and countervailing
duties which require showings of "material" injury. While those Codes do not
contain any definition of what "material" means, there is no doubt that the Europe-
an and Japanese negotiators regard "material" injury as a higher standard than
now exists in the U.S. Antidumping Act. Indeed, our trading partners have long
criticized the U.S. precisely because our dumping injury standard was lower than
the "material" injury requirement of the International Antidumping Code (which
the U.S. has never, until now, unqualifiedly adopted).
The situation, therefore, is as follows. The Codes require "material" injury. They
don't define "material," but other countries interpret it as an increase in our
Antidumping Act standard. And those other countries have achieved a situation
where they are going to hold off their ratification of the Codes until after they see
what Congress does with this and other issues in the implementation process. The
Administration fears that if Congress defines "material," it will define it as being no
change from the standard which the Congress enunicated in 1974-i.e., any injury
"which is more than frivolous, inconsequential, insignificant, or immaterial." That
interpretation, they fear, might offend the European and Japanese negotiators.
So the Administration is urging that Congress say nothing about the required
quantum of injury, leaving this issue to the administrative interpretation of the
International Trade Commission. But what I want to be sure this Committee under-
stands is that the consequences of that abdication of decision-making will be:
First, to give tacit approval to an increase in the quantum of injury which has
already been adopted by the Commission; and
Second, to ensure that the trend toward an even higher standard will continue as
"material" injury becomes the criterion.
The inevitability of these two consequences is apparent from an analysis of the
history of this issue:
The administrative intepretation which Congress approved in 1974 had its origin
in the analysis of the law by Commissioner Clubb in the 1967 decision of the
Commission on Cast Iron Soil Pipe from Poland.~ After analyzing the legislative
history of the 1921 Act and concluding that Congress intended only the most
minimal of injury tests, Commissioner Clubb went on to demonstrate that Congress
in 1951 had specifically determined that "material" injury was too restrictive a test:
The subsequent history of the Act tends to confirm that dumping duties are to be
applied in response to anything more than trifling injury. In 1951 the Administra-
tion sponsored a bill (H.R. 5505) which, if enacted, would have required a finding
that a domestic industry was being "materially injured," rather than merely "in-
jured." This provision was stricken by the House Ways and Means Committee which
noted in its report that: "The Antidumping Act now provides for impostion of
antidumping duties when American industries are being "injured" by certain im-
ports, section 2 as introduced in H.R. 1535 [HR. 5505 was introduced as a clean bill]
would have changed "injured" to "materially injured." The Committee decided not
to include this change in the pending bill in order to avoid the possibility that the
addition of the word "materially" might be interpreted to require proof of a greater
Report of the Committee on Finance to Accompany H.R. 10947, Senate Report No. 93-1298,
93d Cong., 2d Sess., at 180. Curiously, the Finance Committee's Press Release No. 112 of April 5,
1979 characterizes this 1974 Report language as "suggesting" that injury "must be `more than
inconsequential or insignificant,' but does not indicate how much more.' That characterization
not only ignores the clear meaning of the words themselves, but ignores the fact that the 1974
Report was specifically approving the way in which "the term `injury,' which is unqualified b~
adjectives such as `material' or `serious,' has been consistently interpreted by the Commission.'
(Report No. 1298, at 180) As discussed below, the Commission in 1974 was consistently interpret-
ing the law as requiring only a harm which is "more than de minimis."It was this interpreta-
tion which Congress approved in 1974, and which the Administration fears Congress would
again approve today.
Investigation No. AA1921-50, TC Publication 214 (September, 1967).
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degree of injury than is required under existing law for imposition of antidumping
duties. The committee decision is not intended to require imposition of antidumping
duties upon a showing of frivolous, inconsequential, or immaterial injury." [HR.
Rep. No. 1089, 82nd Cong., 1st Sess. 7 (1951).] 6
The Commissioner went on to state specifically the quantum of injury required
under this Act: ". . . frivolous, inconsequential, or immaterial injury would not call
for application of dumping duties, but anything greater would."
These, of course, are the same terms which the Committee on Finance adopted
with approval in 1974. In so doing, therefore, the Committee was specifying an
injury test which is less than "material" injury, just as Commissioner Clubb had
done seven years before. If Congress now approves a Code containing a "material"
injury standard, that can only be interpreted as a raising of the injury require-
ment-unless Congress states clearly that it does not desire such an interpretation.
It is certainly clear that the Commission is strongly inclined toward an increase
in the injury requirement. Since 1974, in fact, the Commission has not been follow-
ing the Congressional standard of "more than insubstantial," but has instead been
requiring an increasingly higher quantum of injury. Even in those cases where li~
service is given to the "more than insubstantial" or "more than de minimus'
standard, it has been evident to most observers that the standard has in fact been
significantly higher. As a consequence, a higher percentage of cases are resulting in
"no injury' determinations.
One particularly clear manifestation of this new approach to the injury issue is
the Commission's requirement today that the affected U.S. industry show perform-
ance trends which are actually declining. As everyone knows, the last two years
have been strong years for the U.S. economy. In such an economic climate, most
U.S. industries can normally be expected to be enjoying rising sales, profits, employ-
ment, etc. In some industries, however, domestic producers argue that dumped
imports have deprived them of much of the benefit which they had every right to
expect from these rising trends in the economy. Although the U.S. producers'
profits, sales and other indicators may well have been stable or even rising slightly,
they point out to the Commission that LTFV imports have captured an increasing
share of their markets and have deprived them of the substantially larger gains in
sales, profits, etc. which they otherwise would have enjoyed. In the late 1960's and
early 1970's, such an argument-if properly substantiated-would have resulted in
an affirmative injury determination. Today, that is not the case. Rather, the Com-
mission is likely to find that the U.S. industry in not "injured" unless its perform-
ance indicators have actually declined.
My point here is not that Congress should reduce the injury standard, or that
Congress should raise the standard. My point is that Congress should make the
decision and not abdicate its authority. And I want you to realize that if you say
nothing, the result will be a much stiffer injury test. Indeed, that will also be the
result if Congress adopts the approach taken by this Subcommittee in its Press
Release No. 14 (issued March 19) with respect to the "material" injury test in the
Subsidy/Countervail Code:
The Subcommittee agreed that statutory language should express the Congres-
sional intent that the injury test applied in countervailing duty investigations be no
different than that applied under the Antidumping Law since January 3, 1975.
If the Subcommittee meant by this language to reiterate the injury test which
Congress enunciated in 1974, the language is not adequate. The problem arises from
the use of the word "applied," which would have the effect of writing into the law
the higher injury standard which the ITC has been "applying" in the last few years.
If Congress wishes the injury standard to be "any injury which is greater than
frivolous, insubstantial, immaterial or de minimis" then it should say exactly that.
If it wants a higher standard, then it should define what that new standard will be.
To do otherwise would be to relinquish the lawmaking authority on this crucial
issue to the trade negotiators or to the ITC.
PROPOSED ANTIDUMPING ACT AMENDMENT RE IMPORTS FROM STATE-CONTROLLED-ECONOMY
COUNTRIES
To ensure that the enforcement of the Act against imports from state-controlled-
economy countries (a) will be predicated upon analysis of prices rather than costs
whenever possible, and (b) will be predicated on the prices charged by the producer
whose size and degree of sophistication are more nearly comparable to the state-
controlled-economy country producer but without the distortion or subsidization
inherent in government control of the economy, it is proposed that Section 205(c) of
6 TC Publication 214, at 17.
TC Publication 214, at 17-18.
L~Lt_998 - 79 - 8
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the Antidumping Act (19 U.S.C. § 164(c)) be amended to read as follows (revised
portions in italic):
If available information indicates to the Secretary that the economy of the coun-
try from which the merchandise is exported is state-controlled to an extent that
sales or offers of sales of such or similar merchandise in that country or to countries
other than the United States do not permit a determination of foreign market value
under subsection (a) of this section, the Secretary shall determine the foreign
market value of the merchandise on the basis of the normal costs, expenses and
profits of the producer which is most nearly comparable in size, sophistication and
technology to the state-controlled-economy producer, but which is located in a non-
state-controlled-economy country, including the United States. Such normal costs,
expenses, and profits shall be determined on the basis of
(1) the prices, determined in accordance with subsection (a) of this section and
section 161 of this title, at which such or similar merchandise is sold by a person,
firm or corporation which is located in a non-state-controlled-economy country in-
cluding the United States, and which is most nearly comparable in size, sophistica-
tion and technology to the state-controlled-economy exporter either (a) for consump-
tion in the home market of that non-state-controlled-economy country, or (b) to other
countries, including the United States; or, if no such prices exist.
(2) the constructed value of such or similar merchandise in a non-state-controlled-
economy country or countries, including the United States, as determined under
Section 165 of this title.
Mr. VANIK. Well, I want to thank you for your very fine testimo-
ny. It is very helpful, and I am very glad to have you.
Do you have any questions, Mr. Jenkins?
Mr. JENKINS. No questions.
Mr. VANIK. Mr. Martin, do you have any questions?
Mr. MARTIN. No, Mr. Chairman. I was just observing that "mate-
rial" is anything which is not "immaterial."
Mr. VANIK. Would you come back?
Mr. CUNNINGHAM. I wish it was that clear, Mr. Martin.
Mr. VANIK. Mr. Verrill, we would be very happy to have your
testimony. Your entire statement will be admitted into the record
as submitted. You may comment on it or from it in any way you
see fit within the time frame that we have allocated.
STATEMENT OF CHARLES OWEN VERRILL, JR., ON BEHALF OF
AMF, INC., WHITE PLAINS, N.Y.
Mr. VERRILL. Thank you.
Mr. VANIK. I just want to say with respect to the previous
witness, directed to the question of timing, we are going to address
ourselves to that problem. I want to point out that old adage that
justice delayed is justice denied. That is one of our concerns.
I am sorry to have interjected in your testimony. We would be
happy to hear from you.
Mr. VERRILL. Thank you.
I am here this morning on behalf of AMF, Incorporated. My
testimony has been submitted in written form. I will attempt to
summarize it for you.
Before reaching the main point of my testimony, I would like to
express my support as a practitioner for certain tentative decisions
that have been reached by the Senate Finance Committee and this
subcommittee relative to access to confidential materials, ex parte
meetings, and verification of submissions.
As a practitioner I believe that these measures will contribute
substantially to an effective administration of the antidumping
law.
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107
I also agree with Mr. Cunningham on the need for certainty and
clearly articulated rules to govern antidumping proceedings. Noth-
ing is more frustrating to a practitioner than rules that are not
clear, that are not concise and that allow significant discretion on
the part of the administering agency.
The main concern of my testimony is a topic not covered by the
codes negotiated in the multilateral trade negotiations, that is,
dumping from nonmarket, controlled economies.
AMF supports the position stated this morning by Mr. Carlisle
on behalf of the Ad Hoc Subsidies Coalition, namely, that the
Treasury practice of over 20 years of determining fair value in
nonmarket, controlled economy cases, which was rejected by Treas-
ury last summer by regulation, be restored as the principal meth-
odology for determining fair value in such cases.
There are two reasons for my opposition to the current Treasury
practice of, in most cases, utilizing a constructed value as the fair
value of products imported from controlled economies.
First, section 153.7 now provides that in virtually every case the
fair value of the imported product will be determined by Treasury
by constructing a value based upon its assessment of the cost of
producing that product in what is known as a comparable country.
I think that this procedure is prone to enormous discretion.
Value often is like beauty, in the eye of a beholder. I suppose that
the test could work both to the advantage or to the disadvantage of
the domestic producer who is confronted with import competition
from controlled economies. But the chance of receiving a very good
result is more than outweighed by the risk of receiving a very bad
result.
Second, and I think more important, the entire foundation of
Treasury's controlled economy regulation is an assumption; an as-
sumption that I submit has absolutely no basis in economic theory
or in fact. The assumptive basis for the regulation is this: If a
controlled economy has a per capita GNP that is comparable to the
GNP in the market economy country, then Treasury assumes that
the costs of production in both economies will be approximately the
same. Now this formulation has a superficial logic.
If Spain, for example, is regarded as roughly comparable to
Poland in terms of GNP per capita, then perhaps there is some
basis to the theory that costs would be the same in both countries.
I submit, however, that this superficial appeal vanishes once you
examine both the underlying basis for world trade, which is that of
comparative advantage, and some specific fact situations.
For example, Canada and Belgium have roughly the same GNP
per capita. Canada has abundant natural gas and iron ore whereas
Belgium has neither. If the Treasury theory were correct, it would
cost the same in both Canada and Belgium to process iron ore into
pellets suitable for use in electric furnaces, a process that requires
great amounts of natural gas. It does not make sense to assume it
would cost the same to undertake that processing in Belgium,
which has neither natural gas nor iron ore, as it does in Canada. I
submit that logic simply will not support that assumption. In fact,
the reason Canada has a place in world trade is because it can take
advantage of its comparative advantages: This is what provokes
trade and not the theory that underlies the Treasury's regulation.
PAGENO="0116"
108
Knowing the time constraints of this subcommittee I will con-
clude my statement there and he happy to answer any questions.
[The prepared statement follows:]
STATEMENT OF CHARLES OWEN VERRILL, Jr., ON BEHALF OF AMF, INc.
This statement is made on behalf of AMF Incorporated, 777 Westchester Avenue,
White Plains, New York 10604, by Charles Owen Verrill, Jr., Patton, Boggs & Blow,
2550 M Street, N.W., Washington, D.C. 20037. AMF, through its wholly owned
subsidiary, Harley Davidson, manufactures golf cars which are the subject of one of
the most interesting-and recently, frustrating-antidumping proceedings that I
have ever been associated with. Based on that experience I recommend that this
Committee insist that the legislation to implement the recently approved Trade
Agreements include amendments to the Antidumping Act of 1921, as amended, that
(i) will require a return to the long standing Treasury practice of determining fair
value in non-market controlled economies, (ii) will establish procedures for access to
confidential material pursuant to protective orders, and (iii) will curb ex parte
meetings.
Before addressing these points, I would like to comment on the subject of time
limits. While I can appreciate the impatience that many have with the delays and
apparent dilatoriness that is not uncommon in antidumping cases, I am concerned
as a practitioner that the time limits may be so shortened that it will not be
possible to be an effective advocate for either side. This is particularly so in con-
structed value determinations where the issues are often complex and require
detailed study and analysis. Moreover, if the confidentiality provisions that have
been tentatively agreed to are approved, adequate time will be required to evaluate
the data, to obtain opinion and comment from experts, and to prepare appropriate
rebuttals. These considerations distinguish antidumping cases from countervailing
duty investigations where a shorter time frame is appropriate.
1. SECTION 205(c) SHOULD BE AMENDED
Last August, Treasury announced a new regulation 1 which contemplates, in the
case of most non-market controlled economy imports, the determination of foreign
market value by a new, highly complicated and discretionary method which is
premised on a hypothetical cost of production analysis. This regulation specifically
overruled the Treasury practice which had been in effect for over twenty years and
which had been successfully utilized to curb unfair price competition from such non-
market controlled economies as Poland, Czechoslovakia, the U.S.S.R. and others.
The new regulation, however, will have the likely effect of precluding any effective
utilization of the Antidumping Act to prevent such unfair price competition. This is
particularly disturbing now that there is a serious posibility that the People's
Republic of China and Russia will be granted most favored nation status and the
resulting lower tariff rates.
Under the new procedure, Treasury plans to utilize the prices of a similar product
in a market economy country as the foreign market value of the non-market,
controlled economy product only if the market economy country is "comparable" in
stage of economic development to the controlled economy. If prices in a comparable
market economy are not available, then Treasury will establish a constructed value
by determining the cost to produce the same product in a comparable market
economy country using the factors of production (e.g., hours of labor) in the con-
trolled economy. Only if the input factors in the controlled economy cannot be
adequately verified will Treasury utilize the U.S. selling price of the domestic
product.
AMF believes that this regulation is inconsistent with § 205(c) of the Act and is
not a rational basis for determining foreign market value for the following reasons:
(i) The Antidumping Act does not permit Treasury to disregard prices if the
market economy is not comparable in stage of economic development to the con-
trolled economy. The price test is preferred under the Act and constructed value has
always been employed only if prices are unavailable or less than cost of production.
(ii) There is no adequate basis for determining comparability between controlled
and market economies because the economic reporting systems of the controlled
economies rely on a different data base than those in market economies. This lack
of comparability is apparent from the attached memorandum (Annex A) by Profes-
sor Stanislaw Wasowski of Georgetown University.
(iii) The regulation is based solely on the unsupported presumption that compara-
bly developed economies have comparable costs and comparative advantages. This
1 19 C.F.R. § 153,7.
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presumption is without any foundation in economic theory or fact, a point made
(but ignored) in our presentations to Treasury. The lack of any logical basis for the
Treasury assumption can be readily illustrated: Belgium and Canada have reason-
ably comparable per capita GNP and, according to the Treasury assumption, should
have comparable costs. This theory has superficial appeal until specific examples
are considered. Among the comparative advantages of Canada are abundant iron
ore and natural gas which are both necessary to produce iron pellets suitable for
electric furnaces. Surely it cannot be argued that it will cost about the same to
produce pellets in Belgium which has neither iron ore nor natural gas. In fact, the
very foundation of world trade is that comparative advantages, even in comparably
developed countries, will yield cost advantages and provoke trade.
(iv) Treasury practice in the past has always been to find as a surrogate for the
non-market controlled economy producer an industry in a market economy which is
comparable to the industry in the non-market controlled economy and to utilize the
prices of the market economy producer as fair value. This is a realistic test since a
centrally planned, controlled economy can develop industries which are comparable
in terms of scale and efficiency to those in more advanced market economies.
Moreover, it relies on prices charged in the market place which is the best litmus of
value. Under the new regulation, however, the test will rarely be used.
(v) By narrowly circumscribing those cases in which the price test can be utilized,
Treasury has effectively established constructed value as the principal determinant
of foreign market value in non-market controlled economy cases despite the obvious
difficulty of cost calculations for a hypothetical producer. This methodology is prone
to error and places an unrealistic burden on the Customs Service. In fact, the
General Counsel of the Treasury recently complained to Congress about the "diffi-
culty of determining an integrated manufacturer's cost of producing [a] specific
product 2 This difficulty will be compounded by the controlled economy regu-
lation where the inquiry is not into an actual producer's costs, but rather involves
hypothetical production costs. Constructed cost calculations are also subject to ma-
nipulation to achieve a result that is consistent with considerations unrelated to
unfair price competition with considerations unrelated to unfair price competition
such as sensitivity to diplomatic pressures.
(vi) Finally, Treasury ignored the admonition in the Senate Finance Committee
Report on the 1974 Trade Act that if prices are not available in a third market
economy country, then prices in the United States should be utilized in controlled
economy cases. Treasury rejected this argument on the ground that it would be
necessary to add the cost of importation and transportation to the U.S. price which
would exclude the controlled economy producer from the market. This is not a
credible argument since Treasury could, under the circumstances of sale adjustment
provision of the Act, make allowance for those costs and, as a result, the product
produced in the controlled economy could be sold in the United States at a price
equivalent to that charged by the domestic producers. Indeed if the product is
produced only in the United States and a controlled economy, it would seem that
this is precisely the result that Congress intended.
Based on these arguments, we believe that legislative action should be taken to
amend § 205(c) of the Act so as to restore the primacy of the price test in fair value
determinations and to ensure that the intentions of the Senate Finance Committee
as expressed in the Report on the 1974 Trade Act are fulfilled.
For example, § 205(c) could be amended as follows (new matter italic):
"(c) If available information indicates to the Secretary that the economy of the
country from which the merchandise is exported is state-controlled to an extent that
sales or offers of sales of such or similar merchandise in that country or to countries
other than the United States do not permit a determination of foreign market value
under subsection (a), the Secretary shall determine the foreign market value of the
merchandise on the basis of the normal costs, expenses, and profits as reflected by
either-
"(1) the prices, determined in accordance with subsection (a) and section 202,
at which such or similar merchandise of a non-state-controlled-economy country
or countries including the United States is sold either (A) for consumption in
the home market of that country or countries, or (B) to other countries, includ-
ing the United States; or if prices including those in the United States do not
provide an adequate basis of comparison, then
"(2) the constructed value of such or similar merchandise in a non-state-
controlled-economy country or countries as determined under section 206."
2 Hearing before the Subcommittee on Trade, Committee on Ways and Means, U.S. House of
Representatives, September 21, 1978, Serial 95-114, p. 5.
Sen. Rep. No. 93-1298, November 26, 1974, p. 174.
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Adoption of this proposal would require that fair value be based on prices, including
these in the United States, unless the administering authority determines that
prices are not an adequate basis for comparison.
There are good reasons to establish price as the primary determinant of fair
value, even where it is necessary to locate a surrogate as is the case in controlled
economy cases. First, prices in the marketplace may not always reflect total costs.
Small or inefficient producers cannot price their product in actual transactions
above the general price level and expect to make sales except in monopoly markets.
Thus, prices, even of small producers, reflect "normal costs" since abnormal costs
resulting from inefficiencies are borne by the seller who cannot pass them on to the
buyer in the form of higher prices. Second, constructed value involves arbitrary
minimum levels for general expenses and profits without regard to whether compet-
itive marketplace pricing would allow such elements as a component of price.
Finally, transaction prices are less subject to manipulation than are cost calcula-
tions with all the variables and allocations that are possible.
Where the product is produced only in the United States and the exporting
controlled economy, the use of domestic prices as the surrogate is readily justified.
The controlled economy product would be required to reach domestic price levels
only if a lower price would (or has been found to) injure an industry in the United
States. Since it is likely, where these unique circumstances exist, that the product
was designed and produced specifically for the domestic market, an injury produc-
ing price should be remedied under the Act. Otherwise, domestic industries serving
uniquely domestic markets would be prime targets of controlled economy producers
that can disregard costs particularly where foreign exchange objectives are impor-
tant (as they usually are).
2. NEW PROCEDURES SHOULD BE STATUTORILY IMPOSED TO ENSURE AGAINST ABUSE OF THE
CONFIDENTIALITY REGULATIONS
A critical deficiency in the administration of the Antidumping Act has been the
abuse of the confidential submission regulations. Under present practice, Treasury
uniformly accords confidential treatment to information submitted as such. While a
summary of the confidential information is technically required, parties frequently
resort to the contention that summarization is impractical or provide summaries
that are meaningless. In any case, confidential treatment of information relevant to
an investigation deprives Treasury of the benefits of advocacy and removes an
important check on the submission-under the veil of secrecy-of false or mislead-
ing data. On the other hand, failure to accord confidential treatment could impede
investigations because of a reluctance to publicly reveal sensitive information.
While AMF recognizes-and supports-the principle of confidentiality of private
information, there is also a need for access to confidential information by independ-
ent counsel and experts for opposing parties pursuant to protective orders that
prohibit further disclosure of such information. Such access would inhibit submis-
sion of false or misleading information without compromising its confidentiality. In
this connection, we propose the following amendment to the Antidumping Act:
§ Confidentiality: (1) During any investigation, information provided on a
confidential basis shall be regarded as confidential within the meaning of 5 U.S.C.
§ 442(b)(4) if so designated by the administering authority. In the event information
is designated as confidential by the administering authority, and therefore any
party to the proceeding is denied access to the confidential information, then such a
party may file a petition for a protective order with the United States District Court
for the District of Columbia or the district in which the petitioner is located or has
its principal offices. Before issuing such an order, the district court shall find that-
(A) the administering authority has denied access to the confidential information
based upon a claim of confidentiality or upon its own motion;
(B) the petitioner is a legitimate party to the proceeding before the administering
authority in which the issue of confidentiality was raised; and
(C) proper notification of the petition has been served on all parties to the
proceeding before the administering authority.
(2) Where the findings required by subsection (1) of this section have been made,
the district court shall issue a protective order requiring disclosure of the confiden-
tial information to designates of the petitioner. Such order shall-
(A) forbid disclosure of the confidential information by the designates except as
authorized by the party submitting the information;
(B) require endorsement by the designate of a conforming confidentiality agree-
ment prior to receiving the confidential information; and
(C) provide for return of the confidential information and all copies thereof to the
administering authority immediately after the investigation is finally determined.
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(3) For purposes of this section-
(A) "designate" means independently retained attorneys, accountants and experts
but shall not include any stockholder or employee of a party to the investigation;
(B) "District court" means a United States district court established under Chap-
ter 5, 28 U.S.C.
This amendment would give experts, lawyers, and accountants for the petitioners
an opportunity to evaluate confidential material and to submit comments theron to
the administering authority pursuant to court order and thus not jeopardize the
basic confidentiality of the information. Since the court has both civil and contempt
powers in the case of a violation of a confidentiality agreement, there is little
likelihood of an abuse of the system. While this procedure imposes ministerial
responsibilities on the courts, it is analagous to the immunity procedures of 18
U.S.C. §~ 6001-6005 which were upheld in Application of US. Senate Select Commit-
tee on Presidential Campaign Activities, Misc. No. 70-73, 361 F. Supp. 1270 (D.D.C.
1973).
It should also be noted that the House Ways and Means Committee and the
Senate Finance Committee have approved a similar procedure in connection with
their deliberations on implementing amendments to the countervailing duty statute
(19 U.S.C. § 1303):
"The Subcommittee agreed that submissions may be given on a confidential basis,
but nonconfidential summaries, available on request to any party, would be re-
quired. The counsel for interested parties could seek access to confidential informa-
tion under an administrative court or protective order. Parties must be kept in-
formed of the progress of the investigation. Summary records of ex parte meetings
with the administering agencies must be available to interested parties."~
A similar amendment to the Antidumping Act would enhance the credibility of
dumping determinations.
3. PROCEDURES SHOULD BE ADOPTED BY TREASURY TO INSURE FULL PARTICIPATION BY
COUNSEL FOR THE DOMESTIC INDUSTRY IN ALL PHASES OF THE LIQUIDATION PROCESS
During the six or nine month fair value investigation by Treasury, counsel for the
domestic industry and foreign producers have an opportunity to participate in the
factual and legal determinations, although the procedures could be improved sub-
stantially to ensure a greater degree of administrative due process. However, the
determination of foreign market value during the investigative phase of an anti-
dumping proceeding does not automatically become the foreign market value for
purpose of liquidating duties against imports after withholding of appraisment is
ordered. Treasury rarely, if ever, imposes dumping duties on the imports that were
at less than fair value during the investigation; it is only imports after that phase is
completed that are subject to duty. As a result, the determination of foreign market
value for liquidation purposes can be made on wholly different assumptions and
factual inputs than those that led to the less than fair value decision and the actual
dumping duty which is ultimately assessed can be significantly different than
anticipated by the dometic industry.
In order to cure this absence of administrative due process, we recommend legisla-
tion that would require the Treasury to notify counsel for the domestic petitioners
within a short period, say three months, after a formal finding of dumping of the
proposed basis for determining foreign market value, including all adjustments for
purposes of computing dumping duties. Treasury should be required to provide
domestic counsel with copies of all correspondence and information submitted by
the foreign producer in connection with its deliberations and there should be an
effective opportunity to rebut or otherwise challenge any of the calculations made.
Thereafter, Treasury should be required to follow the same procedures in the case of
a change in foreign market value.
We believe that such a procedure would enable the domestic industry to effective-
ly participate in the liquidation of duties and to insure that the relief provided by
the Act is, in fact, granted. Finally, the establishment of time limits would have the
beneficial effect of providing the domestic industry with a vehicle for, if necessary,
seeking a writ of mandamus from the federal courts to provoke Treasury action.
4. STRINGENT EX PARTE RULES SHOULD BE APPLICABLE IN ALL PHASES OF A DUMPING
PROCEEDING
In the Polish Golf Car case, AMF has, through Freedom of Information Act
requests, uncovered a variety of correspondence and memoranda of meetings be-
tween Treasury Department officials and representatives of the Polish government
and the manufacturer of Melex golf cars. These documents suggest that part of the
Committee on Ways and Means, Subcommittee on Trade, P.R. No. 11, March 13, 1979, p. 3.
PAGENO="0120"
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reason for delay in liquidations in that case has been the extraordinary amount of
dialogue about the proper resolution of the duty amount in which the domestic
industry had no opportunity to participate. While we can appreciate the sensitivity
of foreign governments, particularly where state owned enterprises are concerned,
to the imposition of duties following a dumping finding, the actual determination of
dumping duties should not be negotiated in private without the participation of the
domestic industry.
Accordingly, we urge that Treasury be required to adopt rules, common to virtual-
ly all administrative proceedings, that would provide that no communication from a
person interested in the dumping proceeding or a dumping duty would be accepted
by Treasury unless a copy was simultaneously served on counsel for the domestic
petitioners. In attition, we urge that Treasury be required to advise domestic peti-
tioners in advance of any meeting relative to the duty liquidation (other than
internal meetings) and allow them an opportunity to participate or, at a minimum,
be provided with a summary of the matters discussed by the meeting participants.
5. VERIFICATION PROCEDURES SHOULD BE IMPROVED
While verification by Customs of information submitted by parties to an investiga-
tion is routinely undertaken, the procedures utilized are, by virtually all accounts,
utterly inadequate. The following description of the "verification" actually under-
taken in proceedings was furnished to the Trade Subcommittee of the House Ways
and Means Committee during hearings last September:
"In walked the verification officer and all he looked at was a two page cost
summary which we had prepared.
"He didn't even want to see all the supporting materials. He explained he was not
an accountant and he was not qualified to do an audit.
"My client played it strainght in that case. We presented a valid constructed
value computation with full supporting data; but I must say that if we had present-
ed a totally imaginery thing, the Customs Service never would have known the
difference.
"Another example. Last year I encountered a fellow who had previously been an
officer of a foreign company during a dumping investigation.
"I was not involved in the case.
"The story he told would curl the hair of anyone who wants to see the antidump-
in~ law enforced effectively.
`What the company did was instruct their computer programer to eliminate most
of the higher priced home market sales from the computer printout that they gave
to Treasury.
"When the verification officer arrived, he did a spotcheck and he concluded that
the entries on the computer printouts were accurate. What he didn't do and
couldn't do was check whether the printout included all of the home market sales,
including the high-priced ones as well as the low-priced ones."~
Experience has shown that these are not isolated or aberrant examples; instead,
these episodes reflect the norm and unfairly prejudice the domestic petitioner.
The solution, unfortunately, is not as clear as the problem. Higher budgets, more
qualified personnel and better training would clearly help. Another way to improve
the verification process would be to require full disclosure of the methods utilized by
the verifying officer(s), including information inspected, sampling techniques, hours
devoted to the inspection, and so forth. This disclosure would enable the other
parties to challenge the verification if it appeared inadequate and would encourage
the verifying officer(s) to more thoroughly approach the task.
Respectfully submitted.
COMPARING STAGES OF DEVELOPMENT
(By Prof. Stanislaw Wasowski*)
For many reasons Polish domestic prices have no direct equivalents in world
market prices and vice versa. Because of the specific use of prices for the purposes
of the planned economy and the general use of taxes and subsidies of various types,
Polish prices have become indices without any direct significance for considerations
having to do with international trade.
~ of Richard 0. Cunningham, September 21, 1978, Serial 95-114. at 139.
*Professor of Economics, School of Foreign Service, Georgetown University, Washington, D.C.
This paper was prepared at the request of counsel for Harley Davidson.
PAGENO="0121"
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If the available Polish price and cost data are not readily translatable into
American categories, an alternative approach may be adopted that would avoid
comparisons between prices and concentrate on comparing the levels of develop-
ment. The theory behind this approach would be that countries on a similar level of
development should have, roughly speaking, similar costs of production patterns,
and therefore, the prices of their products should be comparable. In order to apply
this theory to the problem at hand, we would have to define and measure similar
stages of development and to argue that at a similar stage of development costs and
production patterns are similar.
DEFINITION AND MEASURE OF THE STAGE OF DEVELOPMENT
The most readily available and the most easily understood definition of the level
of development identifies it with the level of income per head. In a more advanced
or developed economy, people are generally better off. This is a simplistic view,
however. Since 1973 the gross national product, in such countries as Saudi Arabia
or Kuwait has increased to a level 5-7 times that achieved in the United States.
Have the two Arab countries become several times more advanced than the United
States? On the other hand, heavy importers of oil suddenly became poorer but not
less developed than they were before 1973. The difficulty can be easily resolved by
saying that some countries may enjoy a very high level of income, or for that
matter a very low one, because of the demand conditions whether they are con-
trived by a cartel or not.
In spite of possible freak demand conditions that can vitiate the determination of
development levels by means of income data, one can still recognize that a signifi-
cant correlation between development and well-being cannot be denied. As the
comparison between the level of development achieved in Poland and the level
reached in selected industrial countries is attempted, the first hurdle is found in the
existence of different systems of national accounting. The concept of the gross
national product (GNP), used by the United Nations includes the sum of private
consumption, gross business investment, government purchases of goods and serv-
ices, and net exports. On the other hand, the category of the net material product
produced (NMP for short), used in planned economies of the Soviet type, includes
final consumption of goods, net capital formation, and net exports. The difference
between the two concepts, roughly speaking, amounts to depreciation and collective
and individual consumption of the so-called non-productive services. These two
categories must be added to the NMP to obtain something approaching the GNP.
The conceptual difficulty can be overcome but one still has to price the value of
services, especially those subject to collective consumption (for instance use of
health services), and amortization, i.e. the use of capital goods in the process of
production. Because the cost of capital goods is determined arbitrarily in Poland,
therefore, an allowance must be made for this.
Should even these difficulties be overcome, there still remains the need to convert
the Polish national accounting data, expressed in zlotys, into dollars. The choice of
one of the many exchange rates and shadow prices would bring back the difficulties
that were encountered in the first section of the paper.
Instead of calculating exchange rates, researchers studying planned economies
have developed ingenious methods of comparing costs in various sectors of the
market and planned economies. The following example, taken from an unclassified
study done by the CIA,' provides the following ruble to dollar ratios in Soviet and
American construction industries. These ratios show how many cents would have to
be spent in the United States to do a construction job that could be done in the
Soviet Union for one ruble:
Hospitals $0.31 Industry $0.60
Housing .55 Roads .79
Office buildings .48 Airfields .70
Schools .54 Aggregate (weighted) .58
It is worth noting that the highest ruble to dollar ratio, 0.84 for railroad construc-
tion, is almost three times higher than the lowest one, 0.31 for hospital construction.
The example was taken from a study of Soviet costs simply because studies of Soviet
conditions are more abundant and because its aim was to illustrate the disparity of
conversion ratios between planned and free market economies. This disparity re-
quires that very thorough and detailed studies be made of the various sectors and
subsectors of the Polish economy and that an appropriate system of weights be
adopted to construct an appropriate and meaningful index of price ratios.
1 CIA, Ruble Dollar Ratios for Construction, February 1976. p. 14.
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Here an important logical difficulty is encountered. To construct a system of
weights one would have to state that a certain percentage of the national product is
spent on constructing hospitals, another on school construction, still another on
electric typewriters, and still another on porcelain washbasins and so on. The
construction of such weights implicitly defines, therefore, the level of devlopment
which we were seeking with the help of the index of national expenditures. To
determine the level of development we would have to assume that the level of
development is known. Logicians call such error petitio principi, and more common-
ly it can be referred to as the chicken and egg proposition.
Still, some researchers whose aim is not to determine the level of development,
end up estimating the national product of Poland in terms of dollars. Thad Alton
has estimated the gross domestic product distributed in 1975 as reaching 1,781.6bn
zlotys and its nearest Western equivalent, the GNP, to be equal to $82.9bn. The
implicit dollar to zloty ratio is 21.49. More importantly this calculation yields the
GNP per head in Poland in 1975 to be $2,440. Should the GNP per head be adopted
as the measure of the level of development, Poland proves to be developed about as
much as Greece ($2,525), a little less than Spain ($2,851), half as much as Austria
($5,051), 79% as much as Italy ($3,074), 55% as much as Japan ($4,425) and only
34% as much as the American level of development ($7,099).2
Many observers are of the opinion that it is not income per head that is crucial
for determining the level of development, but rather the degree of industrialization.
Using this criterion we find that industrial production provides the-following per-
centage of the gross domestic product: Percent
United States 28
Spain 30
Austria 34
Portugal 35
Japan 37
West Germany 43
Poland *59
~Thad P. Alton and others, Expenditure on Gross Domestic Product in East European Coun-
tries, 1975, Economic Studies, L. W. International Financial Research, Inc., New York, 1977, p.
29.
According to this criterion Poland is way ahead of the even the United States
which enjoys a level of development near to Spain and lower than Austria and
Portugal. The apparent paradox can be resolved by suggesting that in modern
economics it is not industry (secondary production) but services (tertiary production)
that determine the level of development. If the contribution of the service sector to
the gross domestic product were taken into account, Poland would find itself at the
bottom of the list with 8 percent, Portugal way up with 30 percent, Spain with 41
percent, and West Germany with 43 percent. The United States would then be in its
rightful place with 57 percent.3 Seen from this point of view, Poland is very little
developed and not comparable at all to any of the listed industrialized countries.
Thus we have obtained three strikingly different results. Depending on the crite-
rion chosen, Poland found itself at the top, the bottom, and in the middle, respec-
tively, of the same array of states. As nobody has yet proposed an index in which
weights would be given to industrialization, the role of services in the economy, and
GNP per head, the only conclusion that remains is: almost any relative level of
development can be ascribed to Poland or any other country, depending on the
criterion chosen.
The failure to satisfactorily define the levels of development is not a major loss,
for there is no assurance that given equal levels of development, factors of produc-
tion would be used in the same proportion and that they would be paid similar
amounts of money. Therefore, there would be no assurance that similar goods would
be produced with the use of similar techniques and that their costs would be
comparable. To illustrate this statement, one could think of two countries with
strongly developed agriculture, one being a European country with little land, say,
the Netherlands or Denmark, the other a temperate country with large expanses of
land, say, Australia or New Zealand. Assuming that their levels of development, as
measured by the level of GNP per head, are about equal, it would not follow at all
that the number of workers per acre of arable land could be the same in Denmark
and Australia, that their wages would be about equal, or that the price of an acre of
arable land in the two countries would be comparable. The cost structure and the
2 Thad p. : Alton, "Comparative Structaie and Growth of Economic Activity in Eastern
Europe," in East European Economies Post-Helsinki, op. cit., p. 224.
`United Nations, Statistical Yearbook 1.976, p. 661 and if.
PAGENO="0123"
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level of costs cannot be directly deduced from the fact that, according to some
measure, the levels of development are about equal.
The above criticism of the mistaken reliance on levels of development has brought
to the fore an issue that requires further consideration. The proportion of the
available factors of production undoubtedly has some influence on the costs of
products and the use of resources. This fact is recognized by many nonspecialists
when they compare economic performance in two different countries and stress the
amount of horsepower each worker has at his disposal.
A rough comparison of this sort can be provided in the case of the United States
and Poland. It is based on the total industrial assets being compared with the total
labor force as measured by the total wage paid to it. In each country, local currency
is used and thus the exchange rate problems can be avoided. The following figures
have been calculated for both countries for year 1975.~
[In billions of local currency]
United States
Poland
Total industrial wages
235
586
Value of capital assets
612
2.60
1,527
2.60
Ratio of line 2 to line 1
According to this unexpected result the capital to labor ratio in the United States
and Poland is exactly equal. This is contrary to what is known from such disparate
sources as direct observation of Polish industry or a good look at the level of
technology and the number and size of industrial plants in each country. The
confusion can be explained rather easily. If the social wage were added to the pay
packet of the Polish worker, his income would increase by 30% lowering the Polish
capital labor ratio to 2.00. Moreover, if one were to consider that Polish capital
equipment is older than equipment in the United States and that a proper allow-
ance should be made by reducing the figure representing industrial assets in
Poland, the ratio in Poland would fall still further. Thirdly, one would have to allow
for Polish wages being depressed by the lack of labor market and the existence of
unilateral determination of wages by the monopsonist government. An upward
revaluation of wages would be in order thus further decreasing the ratio. This
example, which I developed at some length, shoud serve to illustrate the difficulty of
dealing with non-adjusted figures and to point to a possibility of a positive solution
of the dilemma of valuing imports from Poland.
WHAT ARE WE LEF1~ WITH?
Data collected in Soviet-type planned economics, whether they refer to costs,
prices, or national accounts, are not directly comparable with their Western coun-
terparts. Many seemingly simple and straightforward methods of comparison are
insufficient for they pay attention to single aspects of economic phenomena, or, if
generalized, use index numbers of doubtful validity.
Mr. JENKINs. Thank you very much, Mr. Verrill.
Mr. Martin.
Mr. MARTIN. I have no questions, Mr. Chairman.
Mr. JENKINS. Your entire statement will be made a part of the
record and we appreciate your testimony.
Mr. VERRILL. Thank you.
Mr. JENKINS. This being the final witness, the subcommittee will
be adjourned until 10 o'clock on Tuesday in room 2172.
The subcommittee stands adjourned.
[Whereupon, at 1:05 p.m., the subcommittee adjourned, to recon-
vene at 10 a.m., Tuesday, April 24, 1979.]
Polish Main Statistical Office, Statistical Yearbook 1976, various tables, Department of
Commerce, Statistical Abstract of the United States 1976, various tables.
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PAGENO="0125"
MULTILATERAL TRADE NEGOTIATIONS
TUESDAY, APRIL 24, 1979
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON TRADE,
COMMITTEE ON WAYS AND MEANS,
Washington, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in room
2172, Rayburn House Office Building, Hon. Charles A. Vanik
(chairman of the subcommittee) presiding.
Mr. VANIK. The subcommittee will be in order.
At this time we are going to continue our hearings on the multi-
lateral trade negotiations. Our first witness this morning is our
distinguished colleague, Barry Goldwater, of California and we are
pleased to have your testimony Mr. Goldwater. I know you have
some special problems in the industries of your district, and we will
be happy to hear from you at this time.
STATEMENT OF HON. BARRY M. GOLDWATER, JR., A REPRE-
SENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. GOLDWATER. Thank you. Mr. Chairman and members of the
subcommittee, I have asked to testify this morning on behalf of the
citrus and the avocado industries of California. Both are extremely
important to my congressional district and to California agricul-
ture.
The negotiations, we are told, are almost completed. As a whole,
Ambassador Bob Strauss has kept his pledge, namely, that he
would bring home no trade package unless it included meaningful
gains for U.S. agriculture. For the citrus industry, this will mean
significant concessions from Japan and increased market access
through 1983. I am counting on this being a giant first step toward
total elimination of Japanese quotas on fresh oranges.
The picture is far less bright with regard to the European Eco-
nomic Community (EEC), however. In a recent speech on the floor
of the House, I praised Ambassador Strauss for his abilities as a
tough and able negotiator. At the same time, I expressed my disap-
pointmënt with reports that the prospects of a concession from the
EEC regarding its preferential tariff on citrus were extremely dim.
I urged Ambassador Strauss to deliver to the citrus industry the
fair shake it deserves.
Nearly two more months of intense negotiations have passed and
the urgency increases. The EEC still has not budged. I would ask
my colleagues on this committee to convey to Ambassador Strauss
that a successful conclusion to the negotiations must necessarily
include a concession from the EEC for the citrus industry.
(117)
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I would further urge this committee in its report accompanying
the trade package to emphasize the need for a quick resolution of
the pending section 301 case filed by the citrus industry on Janu-
ary 18, 1977. This is particularly important in light of the present
status of the negotiations with regard to the EEC. Section 301
provides that the President must use the full power of his office to
cause foreign governments to eliminate such discriminatory and
unreasonable trade impediments as the EEC's preferential tariff on
fresh oranges. The citrus industry's case should not be adversely
affected by any amendments to section 301 which might be adopted
as a part of the trade package. Moreover, the matter should be
resolved within 1 year of passage of the trade legislation.
The EEC's preferential tariff is also in violation of article I of the
General Agreement on Tariffs and Trade (GATT), It has had the
effect of reducing our share of exports to Europe by about half of
what they were a few years ago. This becomes extremely crucial
when one realizes that the EEC is the world's largest importer of
fresh oranges. If relief cannot be acquired pursuant to section 301
proceedings, or under GATT, then, Mr. Chairman, the United
States should retaliate.
Second, Mr. Chairman and members of this committee, I want to
lend my support to inclusion of implementing legislation which
will provide the President with domestic authority to take emer-
gency unilateral action to prevent potentially serious injury to
domestic producers of perishable crops. The Trade Act of. 1974 does
not provide for such fast track handling. Such legislation is impor-
tant to both the citrus and the avocado industries in California.
These perishable commodities have a short market life or are
harvested in only a short time period each year. Market disruption
from imports for such commodities, if not quickly corrected, could
nullify a producer's performance with that commodity for an entire
year. This disruption is not ameliorated by corrective action effect-
ed after completion of harvest or marketing. It is my understand-
ing that the U.S. Department of Agriculture has outlined proposed
statutory language providing for prompt surveillance, investiga-
tion, injury determination, report and Presidential action with
regard to perishable commodities. The committee should urge in-
clusion of such legislation in the trade package.
Finally, Mr. Chairman, I appreciate the opportunity to appear
before you this morning on behalf of the California citrus and
avocado industries. Our negotiators should not leave the negotiat-
ing table until an offer has been received from the EEC on fresh
citrus. I am confident that Ambassador Strauss' tenacity will pre-
vail. Thank you, Mr. Chairman.
Mr. VANIK. Mr. Goldwater, you certainly address yourself to a
point we have been deeply concerned about and I would quite agree
that there is a valid case that can be made for the inclusion of
legislative lanuage which is going to implement the agreement.
We have been very much concerned about the problem of the
citrus industry in general and I am certainly going to try to follow
up your recommendation.
We have the suggested language. We have it with us and in our
markup I expect we are going to address ourselves to that and in
the meanwhile I want you to know I am going to try to get a letter
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off to Ambassador Strauss to outline the extent to which he feels
that the MTN has addressed itself to this problem and get some
reaction to the advisability of stronger language than we have now
under consideration.
I think you make a very valid point. We are very much aware of
the discriminatory nature of practices of foreign countries with
respect to our citrus industry and we certainly want to address
ourselves to it.
I certainly appreciate your taking the initiative on this impor-
tant issue. Are there any questions. Mr. Fisher? Mr. Vander Jagt?
Mr. VANDER JAGT. I would like to apologize to my colleague and
friend that I was not here for his oral testimony. I do have a copy
of it and I am sure it was very worthwhile testimony and I look
forward to having a chance to study it. I appreciate the chairman's
comments.
Mr. VANIK. Thank you, Barry. We will take Mr. Lagomarsino's
testimony later.
We now have Mr. Robert N. Hampton, vice president, Marketing
and International Trade, National Council of Farmer Cooperatives
and Mr. Robert M. Frederick, legislative director, National Grange.
Gentlemen, we will be happy to have your testimony. Your
entire statement will be incorporated in the record as submitted.
You may read from it or excerpt from it, whatever you desire,
within the time frame. We will hear first from Mr. Hampton.
STATEMENT OF ROBERT N. HAMPTON, VICE PRESIDENT, MAR-
KETING AND INTERNATIONAL TRADE, NATIONAL COUNCIL
OF FARMER COOPERATIVES
Mr. HAMPTON. Thank you Mr. Chairman, and members of the
subcommittee. I am Robert N. Hampton, vice president, Marketing
and International Trade of the National Council of Farmer Cooper-
atives.
I would like to preface my statement by indicating that we
strongly support the appeal of Congressman Goldwater on behalf of
the citrus producers and the citrus exporting interest of the United
States against the unfairly discriminatory restrictions of the Euro-
pean community.
Representing the off-farm business interests owned and con-
trolled by more than 2 million American farmers, the National
Council must reconcile the views of the many farm commodity
groups affected in different ways by various details of the MTN
agreements recently initialed in Geneva. In addition, we have also
consistently reflected the prevailing overall view of U.S. agricul-
ture for many decades; namely, that fairer international trading
rules along with world-wide reduction of trade-distorting measures
such as subsidies and discriminatory standards would benefit our
farmers, our nation, and the world.
I have included-and I will not read the statement-our policy
statement reflecting our position on expansion for foreign trade as
approved in January 1979.
[The policy statement follows:]
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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 agri-
cultural products. We recognize the special importance of expanded farm markets
for our balance of payments and consequent benefit to the national economy.
We encourage multilateral and balanced trade negotiations to reduce world trade
barriers. However, we recognize that the lowering of barriers which now limit world
trade may create serious economic dislocations and that adjustments to trade pat-
terns must normally come about 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
on trade and other issues by all trading partners represent comparable concessions.
Maximum trade benefits should be based on encouragement of production and
trading patterns which are consistent with the principle of comparative advantages
of all countries. This principle of equal treatment must continue to be the keystone
of the U.S. trade agreement policy.
We also strongly encourage the U.S. and all major trading nations to agree on the
principle that the nations shall not export the costs of their internal policies, as an
important prerequisite to meaningful negotiations toward trade expansion. National
farm policies to protect and improve farm income should be designed in such ways
as to further promote international trade.
The National Council recommends continuation of Presidential authority to enter
into further trade agreements based on reciprocity. Many forms of non-tariff bar-
riers, 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, particularly
the variable levy system widely used by the European Community (EEC) and
various quotas and other trade barriers such as those of Japan.
We are opposed to the minimum import price and unfair export subsidies of the
EEC and request that U.S. negotiators press vigorously for the removal of their
trade-restrictive effects. Such undue protectionism on the part of the EEC reduces
opportunities for worldwide relaxing of trade barriers, and limits growth of world
markets with the accompanying economic benefits of specialized production.
The National Council is concerned over increasing use of international marketing
subsidies which are disruptive of long-established United States markets. Such
practives lead to chaotic marketing patterns which tend to allocate resources on a
political rather than an 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.
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 negoti-
ations. We urge that prompt and positive action be taken by the U.S. to offset trade
losses and damaging effects to our balance of trade through such unfair practices.
We recognize the need for sharper definition of our national goals for food and
fiber requirements. We encourage the development of plans to insure a fair and
appropriate balance of agricultural products for domestic and export use. Such
plans should include a strong monitoring system for worldwide products and, as a
last resort, export licensing arrangements could be used in times of threatened
world shortages. These arrangements should not involve abrogation of contracts
which are the vital links holding our world trading system together. We oppose
export controls for political purposes that are disruptive to agricultural markets.
Trade agreement bargaining which is limited to farm products alone would be
ineffective. All commodities, farm or otherwise, must be considered an integral part
of the broad spectrum of international trade and related issues. If we are to grant
import concessions on industrial goods, or make concessions on other monetary,
economic or political issues, farm products must be part and parcel of the total
package for which we, in turn, must secure concessions.
Mr. HAMPTON. Following the completion of the Kennedy round of
trade negotiations, we worked continuously with congressional and
administration leaders and with many agricultural and other
groups to gain passage of the Trade Act of 1974 which made
possible these sweeping world trade negotiations. Our primary goal
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has been to gain more open and fairer access to markets abroad,
and we believe that orderly and expanding trade in world markets
would be seriously jeopardized by a failure of the Tokyo round.
While the short-term gains for U.S. agriculture in the Geneva
agreements have been quite limited, there are important potential
long-term benefits in the more significant nontariff barrier negotia-
tions. Our negotiators led by Ambassador Strauss have worked
hard and conscientiously to bring these talks to a successful conclu-
sion in the face of extremely difficult economic and political cir-
cumstances. Like any negotiation, the Tokyo round involves costs
along with benefits, and all U.S. sectors would like less costs and
far more benefits. In the world of hard reality, however, the Tokyo
round should not be judged in terms of "wishes" or sometimes
inflated expectations. Instead, we should ask how good the results
from Geneva are in these terms: (1) How near have we come to the
maximum possible net benefits from this round? And (2) What
would be the alternative, or the consequences to United States and
world trade and to our long-term national welfare, if no broad
agreements are reached at this time?
In our view, our trade negotiators have done a remarkable job in
concluding these talks with substantial potential benefits to the
United States, especially so in view of reluctant attitudes and
difficult political pressures on the part of some of our most impor-
tant world trading partners. Ambassador Strauss and his team
deserve high marks for accomplishing a step which we believe can
be viewed in the future as a historic breakthrough in progress
toward a more open world trading system, and indeed a landmark
in developing the worldwide cooperative framework which is so
vital to dealing with the tremendous economic and political prob-
lems facing us today.
We appreciate and applaud, too, the important consultative and
advisory role which members of the subcommittee and other key
congressional leaders have played throughout the talks. The keen
and continuous interest and the congressional recognition of the
urgent national importance of the Tokyo round have been a source
of strong reassurance to those of us in the private sector who are
constantly aware of the threats as well as the potential benefits of
these talks. Congressional interest has encouraged the open and
responsive attitude which the trade negotiator's office has shown to
the various and sometimes conflicting sector concerns. We are
pleased to see the Congress attaches great significance to the im-
portance of this round, as evidenced by these hearings and the vast
amount of effort which this committee and other groups are now
devoting to trade issues and the Geneva agreements.
Our strong support for the Geneva trade agreement package,
based on the assumption that no details yet unknown will change
its essential thrust, is not primarily because of the very modest net
agricultural benefits from tariff cuts and other short-term gains.
These so-called bottom line short term benefits are not the most
important aspect of the Tokyo round, though they are often mis-
perceived as such.
The major results of the MTN will be in the potential for im-
provement of GATT trading codes, including improved institutional
arrangements and procedures for consultations and dispute settle-
L114_998 - 79 - 9
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ment. Furthermore, there are alarming risks of trade deterioration
or world economic disruption in the event of failure in the Tokyo
round. Such failure could lead, directly and indirectly, to serious
damage to our farm and agricultural sector, and to the United
States and world economy.
Our support for the Geneva package is also predicated on our
understanding that U.S. trade negotiators continue to press for
improvements, through implementing language and legislative his-
tory, and through follow-up negotiations with our trading partners,
which would deal with these key needs: (1) Provision for establish-
ment of injury test criteria and strong administrative procedures
with the subsidy/countervailing duty code which would fully
assure U.S. dairy interests of prompt countervailing duty relief
against unfair subsidy competition; (2) a formula which would fur-
ther minimize any detrimental effects of additional cheese imports
on U.S. dairy farmers; (3) improved access abroad for U.S. agricul-
tural exports which face discriminatory tariffs or other unfair
trade barriers; and (4) avoidance of any possible MTN-related grain
agreements not in conformance with the recommendations of the
Grain Agricultural Technical Advisory Committee (ATAC).
In summary, the National Council of Farmer Cooperatives is
strongly favorable to continuing world trade negotiations toward
more open markets with fairer access abroad for U.S. farm and
other products. We view the MTN Geneva agreements package as a
useful step in that direction. However, a modest but very com-
mendable success in the Tokyo round would be only a major build-
ing block, not the capstone, of an improved international trading
system.
Further bilateral and multilateral negotiations must be sought to
further improve access for American products abroad and to deal
with inequities and abuses which will continue to persist, such as
the use of unfair subsidies and other such trade-distorting meas-
ures. The codes of the Toyko round offer us an important means of
continuing to work for this fairer and more open world trading
system.
We should emphasize, however, that the benefits of the various
codes can be no greater than the major trading countries' intent to
adhere to the spirit as well as the specifics of the codes. Further-
more, it is important that the United States continue to exercise
leadership and initiative in protecting our interests under these
codes, through consulting and dispute-settling procedures. We urge
this committee and other congressional trade leaders to emphasize
not only in implementing language but in the legislative history
the need for strong administration of these provisions which pro-
mote our agricultural and our national interests.
We appreciate the opportunity to present our views on this
urgent matter.
Mr. VANIK. On page 5 of your statement you talk about a formu-
la which would minimize any detrimental effects of additional
cheese imports on the U.S. dairy farmers. Could you elaborate on
it?
Mr. HAMPTON. That is a complex issue, Mr. Chairman, and I
think perhaps in the legislative history of this act the Congress can
contribute most constructively to that by firm instructions to the
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Department of Agriculture or to any other agencies involved in
administering the Cheese Import Provision to issue and administer
regulations that would give maximum assurance that we do not
lose some of our U.S. dairy farmers because of unfairly subsidized
import competition.
Mr. VANIK. If we have that kind of a legislative history, we don't
know what might come out. I was hoping you might give me some
better handle on what kind of language we should have in legisla-
tive history.
We will keep the record open, so if you can develop more specific
language that we might use in developing legislative history, we
might be able to look at it and see how it would fit.
If you have that prepared for the record we would certainly
appreciate that, within the time period during which we have the
record open.
Mr. HAMPTON. I appreciate the opportunity. You will have a
spokesman here for the dairy producers specifically later this
morning who might address himself to that point.
Mr. VANIK. Mr. Fisher.
Mr. FISHER [presiding]. Thank you Mr. Chairman. I would like to
pick up on another point you make on page 5, at the bottom, where
you suggest that we need to do further work in providing for
establishing an injury test criteria and so forth. Would you care to
expand on that. What kind of criteria do have in mind?
Mr. HAMPTON. Again, Mr. Fisher this has been very difficult to
deal with, the specific language of this. I think you are aware that
the dairy industry has felt that their ability to countervail prompt-
ly against unfair and unfairly subsidized imports of dairy products
has been hampered by inclusion of any injury test.
I think some progress has been made in that direction by having
a separate approach considered for cheese imports which would be
based on a price undercutting criteria. This would go a long way, I
believe, toward meeting the problem of the injury test which is so
objectionable to our U.S. dairy industry.
Mr. FISHER. Again, you would like the test to be stated explicitly,
perhaps in a future agreement or in negotiation?
Mr. HAMPTON. I think it would be preferable for the price under-
cutting prohibition to be spelled out in some detail.
Mr. FISHER. You take a position here-I am glad to see it-of
favoring the agreements that have been now initialed and are
before us and you point out there is some net advantage to the
industry you represent, though you say there are other reasons
why you are in favor of the agreements that outweigh your own
particular gain.
Are there other industries that relate to yours that are drawn
along into the same position you have, perhaps supplying or relat-
ed industries?
Mr. HAMPTON. I am not sure if I know what you have reference
to but in response to your earlier comments--
Mr. FISHER. Does any supplying industry that furnishes your
industry with fuels, equipment, or finance tend to take the position
you do?
Mr. HAMPTON. Not directly except that the cooperative system
we represent, deals not only with the interest of farmers in their
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off-farm businesses in the sale of farm products, but in a broad
range of supplies including petroleum, feed, chemicals, so we have
a considerable off-farm industry there within our own membership,
which is owned and controlled by farmers.
Mr. FISHER. That is what I am getting at. Do they join you in
support of these agreements?
Mr. HAMPTON. Our supply cooperatives are part of my organiza-
tion, and are in agreement with this position of the National
Council.
Mr. FISHER. The point I am driving toward here is that if you
think of agriculture in a broad sense, including the supplying
industries and firms and cooperatives and other related activities,
you get quite an aggregation of organizations and it becomes an
appreciable percent of the total U.S. economy. I think this is an
important point to bring out, that one would expect agriculture,
particularly those in exports, to favor these ageements.
What is not so often thought of is that along with the farmers, so
to speak, are quite a range of other economic organizations and
activities that have a similar interest.
Thank you.
Mr. HAMPTON. May I make one clarifying comment?
Mr. FISHER. Please do.
Mr. HAMPTON. Mr. Fisher, this is related to your earlier com-
ment about our support for the Tokyo Round Agreements. The
point I meant to emphasize is that benefits are very modest in the
short term. However, the greater potential benefits should result
from the codes and longer term possibilities which are admittedly
more difficult to estimate. We believe those long-term net benefits
to be potentially very substantial.
Consideration of the longer term benefits has received less atten-
tion in agriculture as well as in other sectors than the immediate
impact of this trade round. Yet we think it deserves great consider-
ation.
Mr. FISHER. I think your point is well taken.
Thank you, Mr. Hampton, for your testimony. We will turn now
to Mr. Frederick of the National Grange.
STATEMENT OF ROBERT FREDERICK, LEGISLATIVE DIRECTOR,
THE NATIONAL GRANGE
Mr. FREDERICK. I am Robert Frederick. I have two pages of
testimony to restate the Grange's policy on international trade
which was developed in 1973. That policy guided my organization
through the passage of the Trade Act in 1974 and the multilateral
trade negotiations which started in Tokyo some 5 years ago~
The Grange played an active part in securing the enactment of
the Trade Act of 1974 and has been involved in the advisory
committees that were created by that act.
The National Grange believes that the final trade package that
was initialed in Geneva on April 12 falls within the policy adopted
by the Grange and therefore is worthy of our support.
In January, the Grange releases a statement in support of the
final trade package with a provision that we would withhold final
judgment pending language in the implementing legislation.
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In general, we felt that the long-term gains for agriculture
outweighed any short-term losses, and while not getting everything
U.S. agriculture sought, and giving up a little in some highly
sensitive areas, it was the best agriculture package that could be
obtained under present world circumstances.
One must remember that the negotiations started 5 years ago, at
a time when world economic conditions were such that there was
solid support for changing the rules so as to improve and expand
world trade. This was especially true in the agriculture sector.
Since that time a lot has happened to change the industrialized
world that is responsible for the largest percentage of products
exchanged in world trade, which eroded that support. The talks
were stymied for 2 years while the major trading partners jockeyed
for an advantageous position.
Much of this stalling was brought about by a lack of sincere
dedication on the part of our trading partners to bring the negotia-
tions to a successful conclusion. If it were not for the insistence of
the United States that the trade talks continue and placing the
discussions on a timetable, there would not have been a trade
package to initial on April 12.
In judging the final trade package, one must keep in mind the
history of the past 5 years and the fact that at the end only the
United States, among the major trading blocs, wanted the trade
negotiations to be continued to their conclusion.
In the history of trade negotiations there never has been a
clearly defined winner or loser. Each country or bloc of countries
must give and take, and the Tokyo round was no different. As we
judge the Tokyo round against the Dillon and Kennedy rounds,
U.S. agriculture came out a winner-not as big a winner as we
would have liked to see, but nevertheless a winner.
For the first time since the creation of the common agricultural
policy of the European Common Market we were able to apply
some discipline to their use of export subsidies, not only in our
domestic market, but also in third markets.
But let me make it clear to our friends in the EC: the fact that
we accepted disciplines on export subsidies rather than total prohi-
bition of such subsidies should not be interpreted by them or
anyone else as acceptance by U.S. agriculture of their trade-distort-
ing common agricultural policy. We still find it highly protective
and disruptive to world trade expansion.
The failure to gain additional market access through relaxing of
the variable levy system of the common agricultrual policy is one
major disappointment of the Tokyo round. The other would be our
failure to gain sufficient access for agricultural products into
Japan.
Progress has been made on both fronts, but much more needs to
be done and we look forward to ongoing trade discussions with
these two trading blocs to obtain further access to these markets.
The Grange supports the ongoing discussions and negotiations
that will be continued later this year on a multilateral agriculture
framework, the so-called Cathedral. We feel that within this frame-
work barriers to world trade in agricultural commodities can be
successfully addressed and greater access to world markets for U.S.
agricultural commodities can be achieved. In this regard, we fully
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endorse the recommendation that our trade negotiators continue to
have the advice from private sector representatives through the
advisory committee procedure.
The private sector advisory committee process, while not being
perfect, has been a tremendous assist to the negotiators as well as
to the representative organizations.
The National Grange, while endorsing the trade package, still
has some strong reservations about the section of that package that
affects the American dairy industry. The implementing legislation
has, to some extent, alleviated some of our fears, but that section
continues to trouble our dairy members to the extent that they
may oppose the entire trade package.
Our dairy members' concerns are real and the National Grange
would be doing them a disservice if we did not bring those concerns
to the committee's attention. Their primary concerns are that even
though a cap is in place on all cheese imports with the exception of
some specialty cheeses, history has proven that each new quota
level has simply been a higher plateau from which to work. Thus,
the new level of import quotas will only be the cap until a new
evasion product is developed or higher quotas have been negotiat-
ed. That has been the history of dairy imports.
The other major concern deals with the subsidy and countervail-
ing duty codes. Our dairy members do not have faith in the fast
track for determining injury from quota cheeses nor do they accept
the injury test or the investigative time before countervailing
duties on other nonquota dairy imports.
These are important questions for dairy farmers, questions that
need answers if the trade package and implementing legislation
are to secure the support of the dairy industry.
We believe that the best way to deal with the fear among dairy
farmers is seeing that our trade negotiators continue to press for
improvements in the process of congressional review and legislative
history in the key problem areas:
The establishment of injury test criteria and strong administra-
tive procedures within the subsidy CVD code which would fully
assure U.S. dairy interests of prompt countervailing duty relief
against unfair subsidy competition.
Legislative history should be developed to assure carrying out
the intent of the legislative language regarding the reduction of
any detrimental effects of additional cheese imports on U.S. dairy
farmers. This should include that any attempt by importers to
circumvent the section 22 quotas on new products would be dealt
with in a swift and judicious manner.
Further assurance should be given the dairy industry that the
cheese quota under section 22 would not be increased without
detailed consultation with the representatives of the industry.
We would particularly suggest that the implementing legislative
language regarding the subsidy and countervailing duty code or
injury test now being considered by the subcommittee not be
changed.
The National Grange is very much aware of the importance of
final acceptance of the trade package to our total national economy
and will not give it our strong support. As we have stated before,
this is not the end of the negotiations, it's only the beginning.
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Negotiations in trade expansion will only end if this Congress fails
to pass the trade package, with its implementing legislative lan-
guage.
We appreciate the dedicated efforts of the Special Trade Repre-
sentative Robert Strauss, and his fine staff, as well as the Secre-
tary of Agriculture Bob Bergland, and his staff. As I said earlier, I
believe they have done a commendable job as have the committees
of Congress. It has been a team effort and we sincerely hope that
this dedication to the task of trade expansion continues because we
believe it is in the national interest.
Thank you, Mr. Chairman, for providing the Grange this oppor-
tunity to express our views.
[Portions of the prepared statement not read follow:]
STATEMENT OF ROBERT M. FREDERICK, LEGISLATION DIRECTOR, THE NATIONAL
GRANGE
SUMMARY
1. The Grange expresses its long history of support for trade expansion and
believes that the Tokyo Round trade package meets its objectives in this area.
2. Reviews the changes in world conditions since the start of the Tokyo Round five
year ago and makes reference to the gains for agriculture as compared to previous
trade negotiations.
3. Points out that U.S. agriculture's process approval of subsidy "disciplines" on
the Common Agricultural Policy of the European Community should not be inter-
preted as U.S. acceptance of export subsidies or the CAP.
4. Recommends ongoing discussions and negotiations with trading partners to
gain increased access to foreign markets, and the continuation of the trade advisory
committees.
5. The Grange, while endorsing the trade package, has some strong reservations
about the section dealing with dairy imports. We point out that increased cheese
imports and countervailing duties and injury test are problem areas.
6. The Grange recommends that the best way to deal with the dairy farmers' fears
is in continued negotiations and strong enforcement of the codes and legislative
language. We suggest that the legislative history should be used to spell out that it
is the intent of Congress that the subsidy and countervailing codes and implement-
ing language should be administered to relieve the dairy industry from unfair
competition.
STATEMENT
Mr. Chairman and members of the committee, I am Robert M. Frederick, Legisla-
tive Director of the National Grange. My officers are in the Grange Building at 1616
H Street, N.W., Washington, D.C.
The National Grange is the nation's oldest farm organization, being organized in
1867. The 500,000 members of the Grange are located in 41 states and represent a
cross-section of farmers and rural and suburban residents; therefore, our policy is
not dictated by agricultural interest alone.
The National Grange reaffirmed its policy on foreign trade in November of 1973,
about the same time the Trade Act of 1974 was being considered by Congress. That
policy remains in effect today and has guided the Grange through the Tokyo Round
of multilateral trade negotiations.
Foreign trade
"In the field of foreign trade policy, the National Grange reaffirms its support of
the principle of expanding international trade through trade agreements under
which tariff and non-tariff barriers to trade can be progressively reduced and
eliminated on a reciprocal and mutually-benefitting basis. We stand firm in our
belief that a prosperous and expanding would economy is vital to the economic
progress of the United States and the attainment of peace.
"In adopting measures to expand trade we recommend that the U.S. continue to
adhere to the principles of the General Agreement on Tariffs and Trade (GATT)
under which our nation has taken the lead in working toward a reduction in the
obstacles to trade and in expanding trade on the basis of sound economic principles.
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"Although encouraging progress has been made under the GATT in promoting
less restrictive trade between the nations of the world, we are concerned by the
obstacles to trade in agricultural products through the use of non-tariff barriers.
These measures oppress our commerce and deny our agricultural commodities
market a cess on terms which are consistent with the terms of access which goods
from foreign producers enjoy in the United States.
"Because of the importance of exports to the well being of our economy and to our
balance of payments problem, the National Grange recommends that far more
vigourous action and hard bargaining needs to be undertaken on the part of our
government to bring about the elimination of non-tariff trade restrictions being
maintained against U.S. agricultural products.
"The support of Foreign Trade policies essential to the expansion of trade for our
agricultural products does not require the exposure of any segment of our domestic
economy to unfair competition or to economic aggression. The National Grange has
consistently supported Section 22 of the Agricultural Adjustment Act of 1933, as
amended, and other measures designed to protect against unfair competition or
imports of a magnitude which will inflict serious injury to domestic producers.
"Extreme care must be taken to protect the tax and fiscal policies of the U.S.
whenever our government becomes involved by offering credit or interest conces-
sions to foreign buyers or insurance against losses to exporters in negotiations for
foreign sales.
"The use of export controls can stimulate uneconomic production abroad and
must be avoided. It is important that our policies assure other nations that they can
depend on U.S. production, unless, of course, we experience some unforeseen disas-
ter.
"It is essential in all trade negotiations that nations agree not to adopt measures
which will transfer the costs of needed domestic ajustments to farmers of other
nations.
"They should also provide some assurance of continued access to traditional
markets and limit the use or export subsidies."
Likewise, at that same Annual Meeting, the Grange adopted a resolution in
support of the Trade Act of 1974:
Trade legislation
"Be it resolved, that the National Grange endorse the objectives of the Trade
Reform Act of 1973, which would give the President sufficient authority to negotiate
effectively for a reduction of international trade barriers, both tariff and non-tariff,
in the interest of trade expansion. It is essential that trade-distorting measures such
as high export subsidies used to unload unwanted surpluses be prevented or re-
duced."
Mr. FISHER. Thank you very much. Like the previous speaker,
you approve in general of these codes and agreements and raise
some questions in particular about cheese. This seems to be the
heart of all this, where you have a few problems.
Mr. FREDERICK. If you had dairy farmers in your constituency
you would too, sir.
Mr. FISHER. I do have a few. I am very pleased to note at least
farmers in my district have become the internationalists of the
country in recent years, not surprisingly, but it is a turnabout from
what farmers used to think awhile back and it is a welcome one so
far as I am concerned.
I am going to raise a question here that has been suggested by
staff. It pertains particularly to the latter part of your testimony.
Wouldn't the system we have proposed of 30-day investigations of
price undercutting by subsidized cheeses by better than relying on
countervailing duties and some kind of subsidies code? Why do you
still want to be involved in countervailing?
Mr. FREDERICK. Countervailing would come in on dairy products
other than section 22 quota cheeses. Section 22 cheeses would be on
fast track, or 30 or 55 days and then dairy products other than
nonquota products would be subject to regular countervailing duty
code. Am I correct in that?
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129
Mr. FISHER. Yes, I think so. Mr. Vander Jagt.
Mr. VANDER JAGT. No questions.
Mr. FISHER. We do not have any more questions. We appreciate
your testimony. We have it here to study.
Our colleague Mr. Lagomarsino has come in and we would be
very pleased to hear from him at this point.
STATEMENT OF HON. ROBERT LAGOMARSINO, A REPRESENTA-
TIVEIN CONGRESS FROM THE STATE OF CALIFORNIA
Mr. LAGOMARSINO. Thank you. I am pleased to appear before you
this morning to express my support for the trade package and to
make some recommendations on behalf of the citrus and avocado
industries of California.
I have carefully followed the long and tedious course of the trade
negotiations from their inception. I have been satisfied that Bob
Strauss has kept the needs of agriculture in the forefront of the
negotiations for the first time in history. A major liberalization in
agricultural trade barriers has been the result.
Yet, Mr. Chairman, certain areas of the negotiations in the agri-
cultural sector have not thus far been as successful as I had hoped.
I am speaking in particular about negotiations with the EEC on
fresh citrus. A concession from the EEC on this commodity is of the
highest priority to the citrus industry. Bob Strauss has done a
masterful job of obtaining valuable concessions from the Japanese
for citrus. I have no doubt that he is meeting with fierce opposition
from the EEC. Mr. Chairman, our negotiators must keep working
for a concession from the EEC on citrus.
The failure of the EEC to make an offer on citrus underscores
the need for this committee to urge the Office of the Special Trade
Representative to resolve the citrus industry's pending section 301
case. This matter was filed over 2 years ago. Under this law, the
President is required to take vigorous steps toward dismantling the
EEC's discriminatory and unreasonable preferences on fresh or-
anges. Any amendments to section 301 of the Trade Act of 1974
which may be incorporated in the trade package should have no
adverse effects on pending cases. Moreover, STR should prosecute
them within a reasonable time, and in no event later than 1 year
following passage of this legislation.
The EEC's preferential tariff on citrus violates Article I of Gen-
eral Agreement on Tariffs and Trade (GATT). This is the most-
favored-nation (MFN) provision. The United States should insist on
obtainin~ the MFN treatment it deserves. Failing elimination of
the EEC s preferences via GATT or section 301, the United States
has no choice but to retaliate.
Finally, Mr. Chairman, both citrus and avocados are considered
perishable agricultural products. As such, they require accelerated
corrective action to temporarily restrict imports of like or competi-
tive products when the volume of such `imports threatens serious
injury to domestic producers. Current, domestic trade legislation
contains no provision for the needed prompt surveillance, investi-
gation, injury determination, reporting and Presi4ential action. It
is my understanding that the Department of Agriculture has draft-
ed the necessary provisions. On behalf of my constituents in the
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citrus and avocado industries, I urge inclusion of the needed legis-
lation in the package presented for passage.
I appreciate the opportunity to appear before my colleagues on
this committee. The need for a concession on fresh citrus from the
EEC is imperative. Ambassador Strauss has my support and my
appreciation for a job well done. A successful conclusion to the
negotiations on citrus will place me in the front of the congression-
al ranks fighting for passage of the trade package.
Mr. FISHER. Thank you very much for this valuable testimony.
As I understand it, the committee has been concerned about the
301 feature you raise and has it under active consideration.
Questions, Mr. Vander Jagt?
Mr. VANDER JAGT. I would like to commend my colleague for a
constructive presentation in forcefully calling the committee's at-
tention to some of the problems facing the citrus industry. It is my
hope the committee will continue to be responsive to the good
suggestions which my friend has made.
Mr. FISHER. Mr. Jones?
Mr. JONES. I have no questions.
Mr. SCHULZE. I have no questions but I would like to commend
our colleague for a very cogent presentation.
Mr. FISHER. Thank you very much. We appreciate your coming to
give us this testimony.
Next we will hear from Sheldon J. Hauck, President, National
Soybean Processors Association. Mr. Hauck, we have copies of your
testimony and invite you to highlight it.
STATEMENT OF SHELDON J. HAUCK, PRESIDENT, NATIONAL
SOYBEAN PROCESSORS ASSOCIATION
Mr. HAUCK. I will highlight my brief statement.
The members of our organization will process over 1 billion
bushels of U.S. soybeans this marketing year. Of that over 25
percent of our production of meal and 20 percent of our production
of oil as well as roughly 40 percent of the production of all U.S.
soybeans moves into international export markets.
The trade negotiations therefore have been of more than passing
interest to our association.
Our organization supports congressional approval of the trade
package and its enabling legislation in its entirety.
As some of the prior witnesses have testified this is not a perfect
world and there are some parts of the package that we would have
liked to have seen come out otherwise. But, overall we believe it is
in the best interests, of our industry, American agriculture, and
the Nation to approve the package as initialed.
We would like to make two points however that are of particular
concern to us. We understand on good authority that negotiations
have been concluded with Brazil whereby they have agreed to
phase out their export subsidy programs on industrial products and
agricultural commodities over a period of time. The time we are
not certain of.
But we would like to note that Brazil's export subsidy policy has
been the most damaging practice engaged in recently by a foreign
competitor of the U.S. soybean industry and exporters of soybean
oil and meal. No world trade policy has had a more deleterious
PAGENO="0139"
131
effect or influence on the more rapid expansion of our U.S. mar-
kets in the world for soybean oil and meal.
We hope Congress and the administration will take every meas-
ure to insure that Brazil honors that commitment, once finalized,
and that it be fulfilled by the deadline negotiated.
We also understand that the Government has negotiated a zero
duty binding on imports of soybeans by Japan. We advised Ambas-
sador Strauss that if the opportunity arose in subsequent negotia-
tions with Japan that attempts be made to try and have soybean
meal as well as oil duty-bound at zero for imports into Japan.
The full text of that letter and the background details is enclosed
as an appendix to our written testimony. I might add, the Ameri-
can Soybean Association, the grower organization, has endorsed
that appeal to Ambassador Strauss.
Finally we would just add a footnote. We would hope the commit-
tee and others would guarantee that the office of STR be continued
with its full complement of competent and knowledgeable staff
members in the extended period following conclusion of the negoti-
ations.
Some of the senior members of our organization seem to recall
that at the conclusion of the Kennedy and Dillon rounds, some of
the Trade negotiators office was dismantled and staff and experts
moved with the winds, if you will. Some of the final bolts and loose
ends were never put together the way it was intended.
We would hope in view of the considerable accomplishments by
what we feel is a very competent staff, Ambassador Strauss, Mc-
Donald, Wolff, Starkey, and others, that the staff and that office be
continued, to insure that not only the law but the spirit and intent
of the negotiations are enforced.
That summarizes the comments and views of the National Soy-
bean Processors Association.
[The prepared statement follows:]
STATEMENT OF SHELDON J. HAUCK, PRESIDENT, NATIONAL SOYBEAN PROCESSORS
ASSOCIATION
Mr. Chairman and members of the committee-I am pleased to be present here
today to share with you the view of the members of the National Soybean Proces-
sors Association.
Our membership is comprised of 29 firms in the United States which this market-
ing year will process approximately one billion bushels of U.S. soybeans. Our
interest in the progress of the trade negotiations and their results has been intense
during the past four year, since over 40 percent of the U.S. crop and over 25 percent
of our annual production of soybean meal and approximately 20 percent of our
annual production of soybean oil enters world markets. International trade is there-
fore a subject of more than casual interest to the members of our association.
We would like to briefly outline what we see as the advantages and disadvantages
of U.S. acceptance of the international codes and other agreements negotiated
which confer benefits on both the United States and out trading partners.
Most importantly we support congressional approval of the trade package and its
enabling legislation. We believe that, in general, acceptance of the package entails
sufficient progress toward stabilization of world trade in our industry's products and
the prospect of continued and expanded access of U.S. soybeans and products to
world markets.
In that regard, two specific points should be stressed:
First, while the details of final agreement have not been spelled out in their
entirety, we are under the impression, from press reports and other sources, that
the Government of Brazil appears ready to agree to phase out over a relatively
short period of time all of its various export subsidy programs- especially those
involving agricultural products. The Brazilian export subsidy schemes, particularly
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since they have spurred subsidized exports of soybean meal and soybean oil into
traditional U.S. markets, have been a source of extreme concern to this industry.
This export subsidy policy has been the most damaging practice engaged in by a
foreign competitor. No world trade policy has had a more deleterious influence on
the more rapid expansion of U.S. world markets for soybean meal and oil.
We commend the U.S. negotiators for having attained this concession from the
Government of Brazil, and we urge the Administration and the Congress of the
United States to take every measure to ensure that Brazil honors this commitment,
once finalized, and that it be fulfilled by the deadline negotiated.
Second, we understand that the United States has negotiated a zero-duty binding
on the imports of soybeans by Japan. We have advised Ambassador Strauss that, as
subsequent negotiations with the Japanese develop, "every effort by made to obtain
a zero-duty binding on soybean meal. It is believed this potentially would be very
important and beneficial to both the United States processors and the producers. It
would ensure that the United States had continued access to the Japanese market
and result in a flow of significant foreign exchange earnings to the U.S. A second
priority would be to obtain a similar zero-duty binding on soybean oil".
The full text of the letter of March 13, 1979, addressed to Ambassador Strauss is
attached as an appendix to this testimony.
The American Soybean Association has also endorsed this appeal to the Office of
the Sepcial Representative for Trade Negotiations.
Finally, we would hope that this committee and others would guarantee that the
Office of the Special Representative for Trade Negotiations be continued with its
full complement of competent and knowledgeable staff members in the extended
period following conclusions of the negotiations, to ensure that not only the law, but
the spirit and intent of the new GATT agreement and its provisions are enforced,
for the growth of American industry and agriculture.
Mr. Chairman, we appreciate the opportunity of presenting our views to the
committee this morning, and I would be happy to respond to any questions you or
the members of your committee would care to pose.
Thank you.
APPENDIX I
NATIONAL SOYBEAN PROCESSORS ASSOCIATION,
Washington, D.C., March 13, L979.
Hon. ROBERT S. S1~AuSS,
Special Representative for Trade Negotiations,
Washington, D.C.
DEAR MR. AMBASSADOR: The National Soybean Processors Association appreciates
the zero duty binding on soybeans obtained during the course of the negotiations
with Japan. A zero duty binding obtained from the European Economic Community
on soybeans and meal during the Dillon round of negotiations has proved to be
invaluable to the United States in protecting our access to those markets for
soybeans and soybean meal. It is hoped that problems with continued access to the
Japanese market will not be encountered, but if that situation should occur, this
binding should also be valuable.
It is because of our experience with continuing European attempts to impair the
bindings with the EEC that this letter is written. We understand that there is a
possibility that the Japanese negotiations may be reopened. Additional comments
from various legislators on Capitol Hill suggest that there may be a need to re-
examine the Japanese negotiations.
If the negotiations with the Japanese are reopened, the National Soybean Proces-
sors Association urges that every effort by made to obtain a zero duty binding on
soybean meal. It is believed that this potentially would be very important and
beneficial to both the United States' processors and the producers. It would ensure
that the United States had continued access to the Japanese market and result in a
flow of significant foreign exchange earnings to the U.S. A second priority would be
to obtain a similar zero duty binding on soybean oil.
Anything you might negotiate with regard to either soybean meal or soybean oil
would be very much appreciated.
Very truly yours.
SHELDON J. HAUCK President.
Mr. FISHER. Thank YOU, Mr. Hauck. Are there questions?
Mr. JONES. Let me ask the witness, on soybean sales to Japan. I
assume you had a good deal of recent conversations with the Japa-
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nese. What is their attitude about substantially expanding exports
of soybean products from the United States in light of the shock
they received in 1973 from the Nixon administration? What are
they doing right now?
Mr. HAUCK. The shock waves from the 1973 embargo I think, in
all honesty, continue to vex those that are active in that export
market. We not only hear it from Japan but from some of our
friends in Europe. It had serious negative effects on some of our
traditional customers. There is no question that some of them
looked to other sources of supply in the period since 1973.
We as an industry and the administration and the American
Soybean Association have taken every opportunity that has been
presented to us to urge that, really under no circumstances, should
an embargo, at least of soybeans or its products, be considered in
the future.
We have a very serious competitor in Brazil. All they need is
additional encouragement to expand their production even further
by being able to acquire customers in world market that were
formerly ours.
I think the attitude of the Japanese and others has softened in
recent years. The foreign agricultural service and American Soy-
bean Association, the grower organization, have extensive market
development activities around the world, in Japan and the commu-
nity. They played a very important role in ameliorating the fears
of some of those customers, and those market development activi-
ties will continue and expand.
Japan is principally a market for U.S. exports of soybeans. They
do import some soybean meal but not as much as the European
Community.
However when soybean meal and oil were duty bound during the
Dillon and Kennedy rounds for access to the community they were
a small portion of European imports. Today though they form the
major market for U.S. soybean meal. That situation could obtain in
Japan in the future as its economy and competition for its land
resources would suggest. So we see it as potentially a major market
for exports of U.S. soybean meal and oil as well.
Mr. JONES. Brazil soybean production is represented by what
percent of Japanese investment?
Mr. HAUCK. I have not seen any figures. I would question wheth-
er there are any accurate figures that any of us could rely on.
There are of course strong feelings in the trade that the Japanese
have made substantial capital investment in lands and facilities in
Brazil as joint ventures, directly or otherwise.
Mr. JONES. Isn't that where they went immediately after the
1973 cutoff?
Mr. HAUCK. My understanding is the process had started before
then but that undoubtedly helped to accelerate the process.
Mr. JONES. Thank you, Mr. Chairman.
Mr. FISHER. Any further questions?
Thank you very much, Mr. Hauck.
The next witness is Patrick B. Healy, secretary, National Milk
Producers Federation. Mr. Healy.
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STATEMENT OF PATRICK B. HEALY, SECRETARY, NATIONAL
MILK PRODUCERS FEDERATION
Mr. HEALY. Mr. Chairman, I have a statement.
Mr. FISHER. We have a copy of your testimony and we would be
pleased to have you highlight it in such a way as you see fit.
Mr. HEALY. I would like the full statement inserted in the record
if that is agreeable.
Mr. FISHER. That is and it will be done.
Mr. HEALY. The National Milk Producers Federation is a nation-
al organization of dairy farmers' marketing cooperatives. It com-
prises virtually every such cooperative in the country and there-
fore represents virtually all of the dairy farmers and the milk
which they produce.
In recognition of the central role of dairying, both on the farm
and as an essential element of nutrition, several basic programs
have been established to assure adequate supplies of milk and milk
products from domestic production. While the federation and its
membership is concerned with a wide range of policy issues, there
are five primary areas which are deemed basic to the dairy indus-
try. These include the dairy cooperative marketing association, the
dairy price support program, the Federal milk market order pro-
gram, the system of import restraints, and the maintenance of the
integrity of milk and dairy products.
Each of these policy elements is an essential part of the fabric
that has permitted the American dairy industry to develop as a
highly efficient, modern operation capable of meeting the demands
of a highly complex and changing market.
Mr. Chairman, this system is working today. Today farmers are
making money. Consumers are buying milk and dairy products are
at the lowest absolute cost that has ever been available in this
country or any place in the world in history.
Mr. FISHER. Do you mean by that a quart of milk costs less?
Mr. HEALY. In absolute terms, measured in terms of average
industrial wage.
Mr. FISHER. Frequently absolute terms mean dollars, but you did
not mean that?
Mr. HEALY. No. I, like everyone else, would like to have my
income go up and everything else stay the same but it does not
work that way. But the fact is that people are spending less of
their money for milk today than they ever spent here or any place
else in the world at any time in history.
The individual elements of this policy are interdependent. Dis-
ruption or misapplication of any one element can and does have
serious implications in other areas.
It has long been recognized that the ability of the United States
to develop and maintain domestic agricultural programs such as a
price support program would be seriously undermined if this
market could be used as a dumping ground for surplus production
of other nations.
As a result, section 22 of the Agricultural Adjustment Act was
approved in 1935 to provide the basis for increased tariffs or import
quotas on agricultural imports which interfere with or threaten to
interfere with effective operation of some price support or similar
programs.
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Even before this, however, Congress had enacted the countervail-
ing duty statute which was designed to prevent injury to domestic
industry by the export subsidy programs of other nations. Simply
put, this law requires the Secretary of the Treasury to collect an
additional duty, equal to any bounty, grant, or subsidy, on any
product which enters the United States with the assistance of such
bounty, grant, or subsidy. This statute is simple and straightfor-
ward in its expression. It is mandatory in its application.
A point which cannot be emphasized too strongly is that section
22 and the import restraints imposed under its authority are basic
elements of domestic food policy. The sole basis for action under
section 22 is the impact imports have on the operation of a domes-
tic price support or similar program. In the absence of such impact
there is no authority to limit imports. On the other hand, in the
absence of the authority of section 22, price support programs of
the United States could quickly become support programs for the
world market. Such a situation would greatly increase Government
costs of the programs and, inevitably raise cries for their termina-
tion due to these costs.
Congress will soon be faced with the task of judging the result of
these negotiations and approving or disapproving a massive pack-
age of implementing legislation that will amount to approval of the
agreements themselves. These agreements will have profound ef-
fects on American industry and agriculture. Much has been said of
the value of these agreements.
On the other hand, the dairy industry is becoming fully aware of
the price being exacted from it for the U.S. presence at the negoti-
ating table.
The dairy industry will be affected by three specific actions
taken as part of these talks: (1) An expansion of cheese and other
imports; (2) the nullification of the countervailing duty statute by
the specific recognition of the right of exporting nations to employ
export subsidies and the addition of an injury test to the U.S.
countervailing duty statute; and (3) an international dairy agree-
ment.
Based on information presently available, the trade talks will
mean an expansion of cheese imports of 67 million pounds over
1977 levels. This represents an increase of one-third, with most of
the additional products entering this market with the assistance of
substantial export subsidies.
Mr. VANIK. How much will that be over 1978 levels? You talk
about 67 million.
Mr. HEALY. There is a strange thing with the 1978 import levels.
Imports in 1978 were running at about the same level as they ran
in 1977 until the exporting nations became aware that the Con-
gress was not going to extend the countervailing duty waiver au-
thority statute in September or October as had been planned.
Whereupon they increased their imports dramatically during the
last quarter of last year to get the stuff in here before these
restraints were put on, on January 3.
Since that time, since the restraints went on the imports have
lessened to about the degree that they were expanding in the last
quarter of 1978. 1977 is the last real year for comparison we have
because of this aberration in the last quarter of last year.
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Mr. VANIK. I still don't have your answer. What do you antici-
pate for 1979?
Mr. HEALY. I can give you those right now. Imports in 1978 for
quota type cheeses were 110 million pounds. For nonquota types,
131 million pounds.
Mr. VANIK. That is what the quota level will be in 1980.
Mr. HEALY. The quota level will be 243 million pounds against
imports of quota cheese of 110 million pounds in 1978.
Mr. VANIK. I would like to have you provide for the record---
Mr. HEALY. I will give you a table on that. I would like, Mr.
Vanik, to make the data by quarters so as to show this great surge
at the end of 1978.
Mr. VANIK. You would like to show the surge based on the
uncertainty of the countervail and I understand that, but you see
while the quota levels have trended up over the years hasn't the
percentage of imports been about the same? Wouldn't that be true
under the new figure?
Mr. HEALY. No; the percentage of imports would not be the same.
We are importing currently about 1.6 billion pounds of milk equip-
ment.
Mr. VANIK. Reduce it to percentages.
Mr. HEALY. When the quotas were first established they were
about 190 million pounds, milk equivalent, so they have increased
about tenfold.
Mr. VANIK. On our source data we show imports as a percent of
production-1975, 6.4; 1976, 6.2; 1977, 6.2; 1978 unofficial, 6.4; 1979,
6.2; 1980, 6.3.
Mr. HEALY. Yes, sir. But when this quota system was first put
into effect it was about one-half percent of domestic milk produc-
tion. This is the situation.
Mr. VANIK. When was that?
Mr. HEALY. In 1953. We imported 189 million pounds of milk
equivalent.
Mr. VANIK. You are talking with a fellow who deals with indus-
tries suffering horrendously from import competition. Let us relate
it to automobiles. Let us relate it to steel. Let us relate it to other
things that are deeply affected in the American economy. I am
rather troubled that we should tolerate so many higher levels in
other products yet be complaining so about cheese. The percentage
here looks like it is from 1975. It looks like it is projected as a flat
level.
Mr. HEALY. Since 1975 it has been pretty flat.
Mr. VANIK. The other question I raise is, we are dealing with a
special phenomenon in the American marketplace today. The price
of meat is going to go out through the window and we are probably
just going to use meat for flavoring, so I anticipate there should be
a big increase in the demand for cheese as a protein substitute.
It would seem to me that that condition is indicative of good
years for the dairy industry, if I am any observer. I am going to
have to give up my little bit of steak or hamburger for a piece of
cheese.
Mr. HEALY. You might be well off, Mr. Vanik.
Mr. VANIK. I am prepared to do it, but what I suggest is every
indication is that the prospect for market expansion is very, very
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good, that we ought to be able to use production at a tremendous
relationship to its present level and I think it is a good omen to
your industry, and I want to be sure that that is taken into consid-
eration.
Mr. HEALY. I wanted to say, Mr. Vanik, the negotiated agree-
ment, as we understand it, provides for an increase of 90 percent in
cheese quotas. It also provides for an expansion of 4½ million
pounds in the chocolate crumb quota. We have watched this thing
for many many years and our experience has shown us that each
new quota level has simply been a new and higher plateau from
which these people work. The quotas always rise.
For example today we are gracing with a quota a so-called price
break arrangement that was put into effect in 1968. Since that
time quotas have advanced 378 percent on Swiss cheese.
Mr. VANIK. Now quotas cover 50 percent of imports. That is what
we cover, and the new program will cover 85 percent.
Mr. HEALY. Until, Mr. Chairman, a way is found to circumvent
the quotas. They have done so many things.
Mr. VANIK. Mr. Strauss told us when we went into this issue
that a good part of this increase for the impoorts would probably
dwell on those specialty cheeses that are part of our market.
Now I want to tell you if I had not tasted French wines I
probably would not have realized they were made in California.
You stimulate an appetite when you have a variety of choice and
sometimes if I have to eat that hard rock cheddar, I will never eat
cheese unless I get some other kind of variety.
In other words, in our eating habits isn't there some advantage
in stimulating a market by introducing people to varieties of
cheese, and in that kind of process make them cheese consumers
instead of meat consumers?
Mr. HEALY. We have agreed with that. We have conducted our
affairs in such a fashion. For instance when I negotiated the 1974
countervailing duty application we excluded these specialty type
cheeses but I think Mr. Strauss may have misrepresented what is
involved in these quotas.
The biggest jump in quotas today is in the tariff category "Not
Specifically Provided For." It jumps from 18,000 tons to 39,000 tons,
over double. That category includes the so-called industrial block
which is merely a carrier for fats and solids that come in here for
use in producing processed cheese. It comes in at the price making
level which makes it an even more insidious thing. So we are not
talking about Roquefort cheese and Brie and these things. We are
talking about cheese coming in here to displace American produc-
tion in the cheese processing plant and to this we take violent and
continuing objection. If it were all Brie and Roquefort I would not
be sitting here before you.
Mr. Chairman, there have been arguments that the industry can
absorb these additional imports, that they do not amount to a great
part of our demand for cheese, but these arguments fail to take
into consideration the question back to its basic point of impact,
the dairy farm. Cheese consumption has expanded sharply in
recent years. This expansion has generally been met by shifting
milk from other products where consumption has declined.
L~_998 - 79 - 10
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The fact of the matter, regardless of how it is addressed, is that
less milk will be needed of U.S. farms in order to make room in
this market for the additional products of less efficient European
dairy farms. The additional imports will displace domestic produc-
tion of milk that would otherwise be made into cheese.
This displacement in the short run will be accommodated by
additional Commodity Credit Corporation purchases of dairy prod-
ucts into the price support program.
In the longer term, the accommodation must be made on the
farm through shrinkage of milk production. The equivalent of 682
million pounds of milk represents the output of some 60,500 aver-
age dairy cows at 1978 production levels. This would be the same
as putting more than 1,200 dairy farms with 50 cow herds out of
business.
The pressure for expanded imports comes from two sources.
First, nations whose dairy production results in products surplus to
their needs seek to find a place to dump the excess. Second, there
are those who have been able to make substantial profits from
these products, in great measure due to the export subsidies pro-
vided on them to assist their entry into the United States.
A comparison of the declared value plus duty on some of these
cheeses for 1 week in November 1978 with the wholesale prices for
which they were selling in the New York market is revealing.
Imported Blue cheese had an average margin of 29 cents per
pound. Edam and Gouda margins were 42 cents. Provolone margins
were at a 60-cent rate. Parmesan margins were $1.63 per pound.
These are the returns that are offered on these products merely
because a man holds a license and is able to move it over the
threshold before it ever moves into the market in this United
States and we are setting up a system to just continue and aug-
ment that.
An integral part of the trade negotiations has been the develop-
ment of a subsidies code which will occasion major changes in the
prevailing United State countervailing duty statute. This code
seeks to ban the use of export subsidies on nonprimary goods and
primary minerals. In the area of agriculture, however, subsidies
would be permitted. The United States has, in fact, sanctioned the
use of the export subsidy as a legitimate tool in international trade
in agricultural commodities-quite a different result than the di-
rective set forth in the Trade Act of 1974.
Mr. VANIK. While on that point, if I could raise this question:
Whether or not the system that we have proposed of a 30-day
investigation of price undercutting of a subsidized cheese would be
better than relying on the countervailing duty and subsidies code.
We have attempted to carve out extra fast relief for the cheese
industry. Why do you want us to be involved in the CVD code? I
would think that you would want to be exempted from the code
and rely on this special mechanism that we have designed for your
industry now.
We have labored on this and we thought we were giving you
something that would work more effectively. Now, if that is. not
what you want, maybe we will take it out and do something else,
but we thought we were helping you-we realized we had to make
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some special effort to meet the problem of the dairy industry. We
are very sensitive to that.
There are members on this committee that were very insistent
on that, and we carved out this fast procedure which we thought
would be better. You don't think it is better. Is that your position?
You want us to abandon that approach?
In trade there is a give and take. We have to look at the total
picture, and I want to tell you I don't expect my community is
going to gain much by this trade bill.
Mr. HEALY. The dairy community is going to lose.
Mr. VANIK. I look at trade as the currency of peace. There is an
extra dividend we get when we trade with people instead of shoot-
ing bullets at them or have them shoot at us. I think this is very
important. It is one of the parts of what we get out of our relation-
ship.
Do I take it you don't like what we have done?
Mr. HEALY. Mr. Vanik, it is true that the procedures as we
understand them will hasten the process but when the answer to
the process is, "No, what difference does it make whether we get it
quicker or later."
Mr. VANIK. Let me say a, "No" sooner is better than a, "Yes" 10
times too late. What we all worry about is uncertainty in com-
merce, in production; and I think there is some advantage to
getting a decision in time to be able to either live with it or
complain about it.
I have been through this business and I have some concerns
about the system that takes care of things after the damage is
done. We have gone through the television industry and electronics
industry and CB's and we found ourselves just out of the ballpark
before we knew what was happening. That is why we tried to write
this special section and take care of the sensitive situation of the
dairy industry.
You are very important to us.
Mr. HEALY. Mr. Vanik, in 1973 and 1974 imports of cheese were
allowed to about the same extent that they are being increased by
this action in the trade negotiation. During that year dairy income
went down $2.5 billion as a result of that. So dairy farmers are
acutely aware of the effect of imports on their market. We worked,
through application to the courts, to force the application of coun-
tervailing duties. Dairy farm income went right back up that $2.5
billion so we know whereof we speak.
Today, if this thing becomes law we must prove injury to the
dairy industry before we can apply countervailing duties. It is
going to be impossible to prove injury because each year the Secre-
tary of Agriculture announces the support program and says, "So
as to prevent injury I will support prices at 80 percent of parity."
We have no case for injury, therefore, we know what the answer
is going to be. There will be no uncertainty; the answer to any
investigation will be no. We like the situation as it is now where
we can eventually get a yes answer even if it takes a little longer.
Mr. Chairman, that is about what I have come here to say. We,
like you, have not been able to fully assess the overall impact of
the talks. It has not been possible to do so because specific informa-
tion regarding gains and losses has not been made available. There
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has been much talk, in general terms, of the great good that will
flow from the agreements, however, the lack of specifics that would
make it possible to assess the facts of the matter lead us to wonder.
Surely, after 5 years of negotiating effort and after the agree-
ments have been initialed, this information can be provided.
If not, its very absence should be a signal to the Congress that all
is not well and that the Congress would go slow in reviewing any
particulars related to these trade agreements.
The dairy industry is fully aware of the importance of interna-
tional trade to the U.S. economy in general and to major segments
of agriculture specifically. We do not feel, however, that a case can
be or has been made for the sacrifice of a significant segment of
the dairy industry in exchange for some hoped for gain in other
areas. We just do not like it.
Mr. VANIK. We are chagrined to hear your position because we
were hopeful that your industry would have made a decision that
we did make some efforts to take care of your problem.
[The prepared statement follows:]
STATEMENT OF PATRICK B. HEALY, SECRETARY, NATIONAL MILK PRODUCERS
FEDERATION
The National Milk Producers Federation is a national farm commodity organiza-
tion representing dairy farmers and the cooperative dairy marketing associations
they own and operate throughout the United States. Since its founding in 1916, the
Federation has worked toward the development of legislation and government pro-
grams which will provide the basis for a national food policy. This includes the
assurances needed by producers to make the commitment necessary to bring forth
the product demanded by the consumer and the stability of market essential to a
strong agriculture.
Among the major issues the Federation has concerned itself with is the mainte-
nance of effective limitations on the import of dairy products into this market. In
the absence of such limitations, this market would quickly become the dumping
ground for world dairy surplus. Such a situation would render totally ineffective the
marketing programs farmers have developed through their investment in and com-
mitment to their cooperative marketing associations. It would negate the effective-
ness of the dairy price support program which the Congress has enacted as a means
of assuring the domestic production of adequate milk and milk products to meet
present and anticipated future demand. It would, ultimately, result in consumer
reliance on more costly imported products for a basic element of the national food
supply.
Since the earliest discussions of the Nixon Round of multilateral trade negotia-
tions, the dairy farmers of this nation have been gravely concerned that the out-
come would mean significant damage to their industry. Other major dairy produc-
ing nations have long argued that the import limitations maintained by the United
States are a trade barrier of the most noxious type. There are those in this
country-in our own government-who are all too willing to accept this argument
either on the basis of misplaced philosophic attitudes or simply for the purpose of
making a "deal."
The so-called Flanigan Report which emerged in 1972 set forth a negotiating
strategy which would use the U.S. dairy industry as the bargaining chip to gain
concessions in other areas. While that report has been repudiated as the basis of
policy by this and previous administrations and it has been shown to be totally
devoid of any legitimacy on an ecomonic or any other basis, what we have been able
to learn of the results of the negotiations indicates that the Flanigan philosophy
has, indeed, been implemented.
The dairy industry is a major element of the nation's agriculture. In 1978, the
sale of milk and cream yielded $12.7 billion in farm income, making it the second
leading source of cash income on the nation's farms. When one considers the value
of livestock sold off dairy farms either as beef or veal or as a breeding stock, the
total assumes even greater proportions.
In recognition of the central role of dairying, both on the farm and as an essential
element of nutrition, several basic programs have been established to assure ade-
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quate supplies of milk and milk products from domestic production. While the
Federation and its membership is concerned with a wide range of policy issues,
there are five primary areas which are deemed basic to the dairy industry. These
include:
(1) The dairy cooperative marketing association and the laws providing authority
for farmers to join together for the joint marketing of their production;
(2) The dairy price support program which provides a minimum degree of price
assurance to the dairy farmer so as to bring about the milk production demanded in
this market;
(3) The Federal milk market order program authorized by the Agricultural Mar-
keting Agreement Act which provides structure to the major milk markets of the
nation;
(4) The system of import restraints which permits the basic government programs
and the marketing efforts of farmers to function effectively; and
(5) The combination of local, state and Federal regulations which assure the
integrity, safety and wholesomeness of the milk and dairy products offered in our
markets.
Each of these policy elements is an essential part of the fabric that has permitted
the American dairy industry to develop as a highly efficient, modern operation
capable of meeting the demands of a highly complex and changing market. The
individual elements of this policy are interdependent. Disruption or misapplication
of one element can and does have serious implications in other areas. While the
basis of the comments presented in our statement will be toward the effect of
imported dairy products on this market, we will make numerous references to the
effect of such actions on other policy areas.
The central factor in the marketing of milk in the United States is the coopera-
tive marketing association owned and operated by the dairy farmer. Most of the
nation's dairy farmers market their milk through one of the 500 dairy cooperative
associations farmers have organized and developed under the authority of the
Capper-Volstead Act of 1922.
Cooperative marketing represents the effort of the individual farmer to exert
some control over his product after it leaves the farm. It is a self-help effort aimed
at assuring him a market and providing him the best possible return for his
product. The development of this marketing system has not been easy. It has not
been automatic. It represents the commitment on the part of hundreds of thousands
of individual businessmen and women-dairy farmers-to a joint effort. Their in-
vestment in time and money has been toward the development of marketing organi-
zations that can and do meet the demands of the most complex agricultural market-
ing task this nation faces.
Consider the problem of marketing a bulky, highly perishable product that is
produced by 200,000 or more farmers in every part of the nation every day. This
requires the assembly, on a daily average, of more than 330 million pounds of
product. It means transporting the product to processing plants. The product must
be processed quickly to preserve its quality. And the processing must result in the
wide variety of products ranging from fluid milk to butter and nonfat dry milk
demanded by the consumers.
Cooperatives operations participate in this process in varying degrees. Some as-
semble bulk fluid milk from their members' farms and sell it to bottling plants and
other processors. Some maintain a full range of processing capacity of their own.
The bulk of the butter and nonfat dry milk produced in the United States is
through cooperatively owned plants. A high percentage of United States' natural
cheese production flows from cooperative plants.
Because of their basic position in the marketing of milk, any actions which have
substantial effect on the domestic market for milk and diary products are felt most
acutely by the dairy cooperative marketing association. The ultimate impact, of
course, is on the dairy farmer himself, but the impact in such a case becomes a
double burden for the cooperative member as he is called on to carry the load both
as a producer and as a member of the cooperative which has the basic responsibility
in our marketing system for maintenance of market balance and stability.
The dairy price support program authorized by the Agricultural Act of 1949
provides a minimum degree of price assurance so as to induce the domestic produc-
tion of adequate supplies of milk to meet the needs of this market. This is accom-
plished through a system under which the Commodity Credit Corporation stands
ready to purchase any butter, nonfat dry milk, and Cheddar cheese of stated
qualities offered to it at previously announced prices. These purchase prices are
intended to be sufficient to permit the processing plant to meet its costs and return
at least the announced price support level to the farmer.
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It has long been recognized that the ability of the United States to develop and
maintain domestic agricultural programs such as the dairy price support program
would be seriously undermined if this market could be used as a dumping ground
for surplus production of other nations. As a result, Section 22 of the Agricultural
Adjustment Act was approved in 1935 to provide the basis for increased tariffs or
import on agricultural imports which interfere with or threaten to interfere with
the effective operation of a domestic price support or similar program.
- Even before this, however, Congress had enacted the Countervailing Duty Statute
which was designed to prevent injury to domestic industry by the export subsidy
programs of other nations. Simply put, this law requires the Secretary of the
Treasury to collect an additional duty, equal to any bounty, grant, or subsidy, on
any product which enters the United States with the assistance of such bounty,
grant or subsidy. This statute is simple and straightforward in its expression. It is
mandatory in its application.
The first dairy product import restraints under Section 22 were established in
1953. Prior to that, limitations had been maintained under other authorities, includ-
ing the War Powers Act. Since 1953, a fairly comprehensive system of import
restraints have been developed, not because of the growing degree of protectionism,
sought by the industry, but because of the ingenuity of exporting nations in exploit-
ing loopholes in established quotas or in developing products which would success-
fully evade those limitations.
The present quota system covers the so-called fat products such as butter and
butter-oil, dried milk products and cheeses. In the case of cheese, there are quotas
on Blue Mold, Cheddar, Other American, Edam and Gouda, and Italian cheeses. In
addition, a "pricebreak" quota system has been established for Swiss and Gruyere-
Process cheeses and two basket categories of cheese. Under the "pricebreak", im-
ports are subject to quota if valued at less than the Commodity Credit Corporation
purchase price for Cheddar cheese plus seven cents (currently $1.23 per pound).
Imports of cheese in these tariff classifications valued over this level are nonquota.
Current quota levels are shown in the attached table expressed in both metric tons
and thousands of pounds. (Exhibit A).
A point which cannot be emphasized too strongly is that Section 22 and the
import restraints imposed under its authority are basic elements of domestic food
policy. The sole basis for action under Section 22 is the impact imports have on the
operation of a domestic price support or similar program. In the absence of such
impact, there is no authority to limit imports. On the other hand, in the absence of
the authority of Section 22, price support programs of the United States could
quickly become support programs for the world market. Such a situation would
greatly increase government costs of the program and, inevitably raise cries for
their termination due to these costs.
On January 4, 1979, President Carter informed the Congress of his intent to enter
into a number of trade agreements resulting from the five years of talks under the
Nixon Round of multilateral trade negotiations. The information concerning the
agreements which accompanied this notification was sketchy at best. In many cases,
the negotiations were still in progress. Even now, after the U.S. has initialed these
agreements, some discussions continue and we have not had the opportunity to
review the completed negotiation results.
Nevertheless, Congress will soon be faced with the task of judging the result of
these negotiations and approving or disapproving a massive package of implement-
ing legislation that will amount to approval of the agreements themselves. These
agreements will have profound effects on American industry and agriculture. Much
has been said of the value of these agreements. It should be noted, however, that all
of this has been in general, nonspecific terms. In the case of agriculture, it is said
that gains in terms of $3 billion worth of agricultural exports are involved. But one
must be extremely cautious and searching in accepting such claims. The $3 billion
represents the 1977 export value of farm commodities on which concessions of some
sort have been granted by the various nations. We do not know the value of the
concessions gained. We do not even know the full extent of their nature. There is, in
fact, no way in which an informed judgment can be made on these concessions at
this time.
On the other hand, the dairy industry is becoming fully aware of the price being
exacted from it for the United States' presence at the negotiating table.
The dairy industry will be affected by three specific actions taken as part of these
talks: (1) An expansion of cheese and other imports; (2) The nullification of the
countervailing duty statute by the sepcific recognition of the right of exporting
nations to employ export subsidies and the addition of an injury test to the U.S.
countervailing duty statute; and (3) An International Dairy Arrangement.
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As the U.S. approached these talks, the key phrase in addressing congress and
industry was "free trade." Great things were promised in terms of export expansion,
market access, resolution of the balance of payments problems and other gains by
embarking on a new era of "free trade" which would result as other nations reduced
the barriers erected against U.S. products.
Today, the key phrase is "fair trade." A subtle difference perhaps, but seemingly
one that admits the negotiations have fallen far short of announced goals. While the
same claims in terms of trade expansion, market access and other gains may be
made, the very unwillingness to discuss specifics on the part of those responsible for
the trade talks should be signal enough that they have failed to achieve announced
objectives.
Based on information presently available, the trade talks will mean an expansion
of cheese imports of 67 million pounds over 1977 levels. This represents an increase
of one-third, with most of the traditional product entering this market with the
assistance of substantial export subsidies. At the present time, cheese import quotas
total 127,789,600 pounds. These imports, plus shipments of nonquotas varieties
resulted in total imports in 1977 of 209.4 million pounds.
The negotiated agreement will result in U.S. cheese quotas increasing to about
243,240,000 pounds. Including the probable level of imports of nonquota cheese, total
cheese imports on implementation of the agreement would be 275 million pounds. In
addition to the expansion of cheese quotas, a 4.4 million pound quota on chocolate
crumb has been approved for Australia.
It is proposed that the expansion of imports be accompanied by an expansion of
coverage of the Section 22 quotas to include all cheeses other than sheep and goat's
milk varieties and the soft cured cheeses such as Camembert and Brie.
In support of this package, three basic arguments are advanced:
(1) The expansion of coverage places a cap on cheese imports so that a known
level is being dealt with;
(2) Under the present structure, imports of nonquota cheese above the "price-
break" have been expanding and total imports by the mid-1980's would be as high
or higher than if the proposed package is put in place; and
(3) Cheese consumption and production in the United States has been expanding
and the increased level of imports can easily be absorbed without serious disruption
to the industry.
Each of these arguments has basic flaws.
Experience has shown that each new quota level has simply been a new, higher
plateau from which to work. In other words, the quotas always rise, they never go
down. Illustrative of this is the situation with the pricebreak quotas which were
originally established in 1968. In 1972, the pricebreak system was reworked and the
quotas "adjusted." These "adjustments" resulted in a 378 percent increase in Swiss
cheese quotas, a 242 percent increase for Gruyer-process cheese, and a 62 percent
increase in the Other, NSPF category.
In the case of Cheddar cheese, the original quota was set in 1953. In 1966, the
quota was raised by 33 percent and in 1967 it was increased again by 261 percent.
In addition to these specific increases, new quota categories have been created to
award the ability of exporters to evade established quotas with a share of this
market. The quota on Italian cheese not in original loaves resulted when exporters
found they could evade the established quota on hard Italian cheese varieties by the
simple expedient of cutting the loaves. The great expansion of Swiss imports in the
mid-1960's came when the low grade "grinders" Swiss was imported for use in
processed cheese products.
The entire system of import restraints on dairy product exhibits such actions.
Thus, there is an abundance of historical evidence to support the concern that the
new level of imports will be the "cap" only until a new evasion product is developed.
Technology and imagination are the only limiting factors in this area and experi-
ence has proven there is an abundance of both available.
Our questioning of the real nature of this "cap" takes on greater significance
since we understand that the Office of Special Trade Representative has steadfastly
refused to make a commitment as part of the implementing legislation that this
expansion does indeed represent a "cap" or ceiling on the imports of cheese.
To argue that the proposed system will actually mean a lower level of imports in
the future than under the present structure, one must assume there is an unlimited
market for the cheese varieties presently admitted outside of quota. The fact is that
these cheeses could come in now if the market would bear the additional quantities.
Actually, the level of these imports is more directly related to the strength of the
U.S. cheese market than the fact that they can enter without limitation. These
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imports rise during periods of strong cheese prices in the United States and tend to
be stable or even decline on a low market.
This partially explains the expansion of these imports during 1978 when U.S.
cheese prices were rising as demand expanded. If one were to apply the same logic
to the 1977 import levels, the conclusion would be that this market was shrinking as
the level of nonquota imports declined relative to 1976.
Imports on nonquota price break cheese, 1972-78
[In thousands of pounds]
Year: Year:
1978 107,875 1974 96,151
1977 83,315 1973 55,750
1976 89,645 1972 72,068
1975 78,234
As the above table indicates, the level of imports of pricebreak cheese has fluctu-
ated substantially in recent years. Prior to last year, the 1974 imports had been the
highest achieved. To argue that last year's expansion is an indication of an expan-
sion trend is to ignore what has taken place.
Further, the expansions of 1978 featured another aspect that totally eliminates
the year as the basis for any valid comparison By mid-October, it had become clear
that Congress would not act to extend the countervailing duty waiver before it
expired on January 3, 1979. This meant that the Department of Treasury would
have to take some action to collect the countervailing duties that would be due on
imports entering the country after that date. There began a rush to get as much
product as could be managed into the country (with the aid of the export subsidies)
before the authority expired. Imports of the nonquota pricebreak cheeses in Novem-
ber and December, 1978 were 157 percent of the level of imports for these products
during the same months of 1977.
To further prove this was not mere coincidence of a further exhibition of the
expanding demand and market for these products, one need only look to what has
happend in the first few months of 1979. On January 3, the Department of Treasury
did, indeed, announce that it would require importers to post bond or make cash
deposits equal to the estimated countervailing duty liability on imported cheeses.
Depending on the variety of cheese and the country of origin, this liability ranged
from 20 cents to over $1.50 per pound. For January and February combined, the
total imports of the nonquota pricebreak products were almost 50 percent below the
same months of 1978. In other words, much of the increase in imports that has been
described as natural growth was merely the scramble by importers and by exporting
nations to assure themselves the benefit of the export subsidy without exposure to
the risk of countervail.
Arguing that the U.S. industry can easily absorb the additional imports fails to
take consideration of the question back to its basic point of impact-the farm. While
cheese consumption has expanded sharply in recent years, this expansion has gener-
ally been met by shifting milk from other products where consumption has declined.
The fact of the matter, regardless of how it is addressed, is that less milk will be
needed off U.S. farms in order to make room in this market for the additional
products of less efficient European dairy farmers.
Some data has been circulated by the administration arguing that this additional
import level would result in minimal price reductions at the farm-an estimated 3.5
cents per hundredweight of milk even if the entire increase were put in effect in
one action. This is based on a doctoral thesis done at Michigan State University late
last year. We have not had an opportunity to assess the thesis, but it apparently is
based entirely on an examination of the cheese market. In 1974, a USDA study of
the same type examined the effect of imports on U.S. milk prices, but approached
the question from the broader standpoint of the market for all manufactured
products and the resulting impact on farm milk prices. Since the milk used to
produce cheese is equally usable in the production of other~. products, this is the only
valid approach to such a measurement. An updating of the USDA study results in a
price impact on the farm of 21 cents per hundredweight for each 500 million pounds
of milk equivalent (fat basis) of imports.
1977 imports totaled 1,968 million pounds of milk equivalent (fat basis). The
proposed import expansion would add 682 million pounds milk equivalent to that.
Measuring the impact on farm income on the basis of the USDA rsearch, yields a
$349 million negative impact for the expansion alone and an impact of over $1.35
billion for total imports under the level proposed as the result of the trade talks.
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The additional imports will displace domestic milk production that would other-
wise be made into cheese. This displacement, in the short run, will be accommodat-
ed by additional Commodity Credit Corporation purchases of dairy products under
the price support program. To accommodate the full extent of the increased imports
would add $75 million to CCC costs.
In the longer term, the accommodation must be made on the farm through
shrinkage of milk production. The equivalent of 682 million pounds of milk repre-
sents the output of some 60,500 average dairy cows at 1978 production levels. This
would be the same as putting more than 1,200 dairy farms with 50 cow herds out of
business.
The pressure for expanded imports comes from two sources. First, nations whose
dairy production results in products surplus to their needs seek to find a place to
dump that excess. Second, there are those who have been able to make substantial
profits from these products, in great measure due to the export subsidies provided
on them to assist their entry into the United States.
At the time the countervailing duty waiver agreement was entered between the
United States and the European Community, the Department of Treasury agreed to
monitor cheese entries from EC nations on a weekly basis and to report that
information by cheese type, including the declared value of the product. A compari-
son of the declared value plus duty on some of these cheeses for one week in last
November, 1978 with wholesale prices for which they were selling in the New York
market is revealing.
Imported Blue cheese had an average margin of 29 cents per pound. Edam and
Gouda margins were 42 cents. Provolone margins were at a 60 cent rate. Parmesan
margins were $1.63 per pound.
These are the returns that are offered on these products simply because an
importer holds a license. In some cases, the return exceeds the value of the milk
that would go into the product if it were made in the United States. This is the
situation which prevails today and the American dairy farmer is being told that
more of this is good for his industry and for American agriculture.
An integral part of the trade negotiations has been the development of a subsidies
code which will occassion major changes in the U.S. countervailing duty statute.
This code seeks to ban the use of export subsidies on non-primary goods and
primary minerals. In the area of agriculture, however, subsidies would be permitted.
The U.S. has, in fact, sanctioned the use of the export subsidy as a legitimate tool in
international trade in agricultural commodities-quite a different result than the
directive set forth in the Trade Act of 1974
In exchange for this "concession", the United States has agreed to amend its
countervailing duty statute to require proof of injury before acting:
The addition of an injury test to the statute reverses the longstanding intent of
Congress. This law has always been a means of preventing injury to deomestic
industry due to the export subsidy programs of other nations. With an injury test, it
becomes a statute which permits, even requires, injury.
It has been argued that the injury test to be employed under countervail would be
"soft" and that injury could easily be proven. Such assurances are counter to the
experience the dairy industry has had in obtaining enforcement of the present,
mandatory law. They fly in the face of the experience of other industries that have
sought relief under the Antidumping Statute or in obtaining relief under other laws
from unfair trade practices or import competition generally. The U.S. has, frankly,
been extremely reluctant to provide domestic industry of any type with the full
protection of these laws.
Adding an injury test to the countervailing duty statute creates a situation under
which a subjective judgment must be made regarding the occurrence of injury. It
would be a simple matter for that judgment to be in the negative, at which point
the domestic industry is without recourse irrespective of damage.
Arguments that changes in procedures involved in adminstering the statute will
make it more effective and speed action are unconvincing. First, none of the
changes-expedited handling, provisional relief-are precluded under present law.
The law does not require Treasury to take 12 months to reach a decision; it requires
that one be reach in a 12 month period. The law does not bar the suspension of
liquidation of the duties in a case under investigation. It just has not been done.
These changes could be made now, in all probability without further action by
Congress. They do not constitute sound arguments for negating the effect of the
statute. A countervailing duty statute with an injury requirement will, with the
speed-up procedures suggested, simly be a faster means of saying "no" in situations
that require the imposition of countervailing duties at present.
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For the dairy industry, the presence of the dairy price support program virtually
precludes the possibility of proving injury, as CCC will make product purchases
sufficient to maintain a price level determined by the Secretary of Agriculture to be
sufficient to produce an adequate supply of milk. Earlier, in support discussions
with U.S. trade negotiators, it was suggested that "interference with a domestic
price or similar program" would be one of the bases for proving injury. It is our
understanding that such a provision was objected to by other nations and has not
been included in the subsidies code. Even if it were, the problem of proving interfer-
ence would be just slightly less that establishing injury itself.
The procedures recommended by the Subcommittee to prevent price undercutting
due to export subsidization of dairy products covered by Section 22 quotas would
appear to be an improvement over the countervailing duty statute with the addition
of an injury test. This does not, however, remove the basic objection of the dairy
farmer.
The fact remains that the use of the export subsidy has been specifically sanc-
tioned and the U.S. government has officially accepted the position that it is all
right to require domestic producers of a product to compete with the treasuries of
other nations. A very high percentage of the dairy products entering this market-
and this will apply to the increases granted through the negotiations-can do so
only with the assistance of substantial export subsidies. The simplest way to explain
the results of these trade talks as they apply to the dairy industry is that the
United States has agreed to give away a segment of this market and then further
agreed to permit other nations to use whatever means necessary to make their
products competitive in the market.
There is no economic basis for such action. It is something dairy farmers simply
do not accept as right or necessary.
A final feature of the trade package concerning the dairy industry is an Interna-
tional Dairy Arrangement. This takes the form of a commodity agreement that
essentially provides for the exchange of information on production, consumption,
prices, stocks, and trade in dairy products by signatory nations. It also requires
consultation between signatories to review the world dairy situation and to identify
remedies for market imbalances for consideration by member countries.
Both USDA and STR have consistently denied that the agreement, in any way,
would impinge on the U.S. ability to determine its own dairy policy-including price
support levels, Section 22 quota actions or other moves.
As protocols to the arrangement, minimum pricing agreements are provided for
certain basic milk products. these establish a minimum price for nonfat dry milk at
19.3 cents per pound, butter at 42 cents per pound, and cheese at 36.3 cents per
pound.
In each instance, the minimum price level is substantially below any realistic
commercial price for the product. In the U.S., for instance, the CCC purchase prices
for product under the dairy price support program are as follows: nonfat dry milk,
79 cents; butter (New York), $1.24 and cheese, $1.16 per pound. Since U.S. price
levels are at least competitive with nations other than New Zealand, the minimum
prices in the agreement represent nothing more than an expression of intent not to
subsidize exports below that level.
As indicated, the full results of this negotiation are now known even though the
President has already entered into the agreements.
Based on what we have been able to learn of the agreements, however, the
National Milk Producers Federation has made a careful analysis of the impact this
would have on the domestic dairy industry-specifically on the dairy farmer and his
cooperative marketing association. The impact is negative. Because of this, the
voting delegates at the Federation's annual convention late last year unanimously
expressed opposition to any trade agreement which would expand dairy product
imports, relegate the countervailing duty statute to a dead letter through the
addition of an injury test, and expressed opposition to any package of trade agree-
ments or legislation of which these items were a part. More recently, the Executive
Committee of the Federation again reviewed these questions and again unanimously
expressed their opposition to these moves.
We are fully aware that other nations have long argued that the import limita-
tions maintained on dairy products by the U.S. are most objectionable. The fact is
that the U.S. has the most open market of any major dairy producing country in the
world. Other nations, particularly those most anxious for a larger share of this
market allow imports on a much more limited basis or ban them completely.
Even while we are granting expanded access to this market, the U.S. government
is ignoring the expanding problem of casein and caseinate imports and the effect
this is having on the dairy price support program.
PAGENO="0155"
147
Historically, casein-essentially, milk protein-has been used for a variety of
industrial applications including paint, plastics, adhesives and paper coatings. As
technologies have changed and price relationships shifted, that market has been lost
to a variety of synthetic products. However, this loss has been more than made up
for in the use of casein and caseinates in a growing variety of food and feed
products, generally as a replacement for nonfat milk solids.
There is attached to this statement a copy of a petition the Federation addressed
to Secretary of Agriculture Bergland a year ago requesting the establishment of a
Section 22 quota on these products when imported for food and feed use. to date, the
only response of the Department of Agriculture has been that there is no problem
or if there is, it is not due to casein imports.
We have renewed this request because it is essential as part of the effort to
maintain the dairy price support program. It is impossible for dairy farmers to
understand how their government can so lightly treat such basic issues. On the one
hand we are confronted with the justified concerns over government costs and, on
the other, we witness the refusal to take actions which will not only reduce govern-
ment costs, but improve farm income as well.
We commend the Subcommittee for its move to direct an International Trade
Commission investigation of the end use of imported casein and caseinates and an
examination of the impact on domestic price support programs. As you will note
from the petition to Secretary Bergland, there can be no question that the adverse
impact is present. While detailed knowledge of the shift in use patterns is lacking,
there is general agreement that such changes have taken place. An investigation by
the Commission will provide the information needed to document this.
We have not been able to fully assess the overall impact of the trade talks. It has
not been possible to do this because specific information regarding gains and losses
has not been made available. There has been much talk, in general terms, of the
great good that will flow from the agreements, however, the lack of specifics that
would make it possible to assess the facts of the matter lead us to wonder.
Surely, after five years of negotiating effort and after the agreements have been
initialed, this information can be provided. If not, its very absence should be a
signal to the Congress that all is not well and that the Congress would go slow in
reviewing any particulars related to these trade agreements.
Much has been made of the broad nature of the consultations that went on
between industry and government in the preparation for and in the conduct of these
trade talks. Congress did, in fact, intend that such consultations take place and that
they be serious in nature. We cannot comment on other commodities or other
sectors, but in the case of dairy, little, if any, serious consideration was given to the
advice received from the advisory committees. Further, it is our understanding that
those expert in the dairy area have been precluded from commenting on the major
provisions of the negotiations as they affect the dairy industry as their views do not
coincide with those of the trade negotiators.
The dairy industry is fully aware of the importance of international trade to the
U.S. economy in general and to major segments of agriculture specifically. We do
not feel, however, that a case can be or has been made for the sacrifice of a
significant segment of the dairy industry in exchange for some hoped for gain in
other areas.
It is understood that the following is the expansion of cheese import quotas
offered by the United States. The data are presented in both metric tons and
thousands of pounds.
EXHIBIT A
Current
quota
1977 imports
Offered
by U.S.
Type of cheese Metric ton
1,000 lbs
Metric ton
1,000 lbs
Metric ton
1,000 lbs
Blue Mold 2,276 5,017.0 1,569 3,354 2.500 5,511.5
Cheddar 4,552 10,037.5 4,203 9,337 5,595 12,334.7
Other American 2,766 6,096.6 2,701 6,407 3,480 7,672.0
Edam and Gouda Natural 4,174 9,200.4 3,293 8,251 5,680 12,522.1
Edam and Gouda Processed 1,429 3,151.0 477 1,064 1,429 3,150.4
Italian, original loaves 5,216 11,500.1 4,310 9,803 5,966 13,152.6
Italian, not original loaves 677 1,494.0 595 1,343 777 1,713.0
Swiss 2 9,260 20,420.0 1 27,150, 59,627 30,871 68,058.2
Gruyere process 2 5,099 11,242.0 1 7,492 15,280 8,052 17,751.4
Footnotes at end of table.
PAGENO="0156"
148
EXHIBIT A-Continued
Type of cheese
Curren
Metric ton
t quota
1,000 lbs
1977 in
Metric ton
ports
1,000 lbs
Offered
Metric for
by U.S.
1,000 lbs
Other, NSPF 2
18,474
40,730.0
1 25,109,
55,355
39,776
87,690.1
Other, Iowfat 2
4,037
8,901.0
3,014
6,645
6,207
13,684.0
Total
57,960
127,789.6
79,913
176,466
110,333
243,240.0
1977 import levels include norquofa imports af above price break levels.
Pnicebreak categories.
In addition to the above, there would be imports of sheep and goat's milk cheese
which in 1977 totalled 11,275 metric tons or 24,856,865 pounds. Also, soft cured
cheeses such as Brie and Camembert will not be covered under quota. Imports of
these in 1977 totalled 3,100 metric tons or 6,834,260 pounds. Inclusion of these items
would bring total cheese imports at the new level to 274,931,255 pounds.
NATIONAL MILK PRODUCERS FEDERATION,
Washington, D.C., May 10, 1978.
Hon. BOB BERGLAND,
Secretary, US. Department of Agriculture,
Washington, D.C.
DEAR MR. SECRETARY: The National Milk Producers Federation, on behalf of its
member dairy cooperative marketing associations and their dairy farmer members,
urges immediate action by the U.S. Department of Agriculture toward establish-
ment of a zero level quota under the authority of Section 22 of the Agricultural
Adjustment Act on imports of casein and mixtures of casein, classified as Items
493.15 and 493.16 respectively, under the Tariff Schedules of the United States
(TSUS) when such products are imported for use in human food or animal feed.
Except for a limited class of mixtures of casein provided for under TSUS 950.19,
these products are not presently subject to any import limitation. This omission of a
major category of imports from coverage under Section 22 has stemmed from the
historical use pattern of the product. This use pattern has changed substantially in
recent years however. There is presently no question that these articles are being
imported into the United States under such conditions and in such quantities as to
render or tend to render ineffective or materially interfere with the operation of the
dairy price support program.
Casein utilization
Information on the use of casein in the United States is limited. In the past, it has
had broad application in a variety of industrial uses including paper coatings,
adhesives, plastics, paints and synthetic fiber production. With the development of
synthetic materials and the increased cost of casein, many of these uses have been
lost or substantially reduced. As these have declined, use in human food and animal
feed has increased.
The major use in animal feed is in milk replacer products for calf and pig feeding.
In this instance, casein has largely replaced domestically produced nonfat milk
solids.
The greatest expansion has taken place in food uses. A 1977 study by USDA's
Economic Research Service estimated that 36 percent of the casein imported into
the United States in 1976 entered food use. Major food uses of casein and its
products include coffee whiteners, whipped toppings, whipping powders, imitation
milk and cheese, instant breakfasts, cereals and baby foods. They are also found as
binders in sausages, weiners, and luncheon meats and as protein supplements in
bakery products, frozen desserts, soups and dietary foods.
Table 1 provides a tabulation of estimates of casein and caseinate use in the
United States for selected years from 1940 to 1976. This clearly indicates the
dramatic shift that has taken place from 1940, when food and feed uses were of such
insignificance that they could be categorized under "Other," to 1976 when they
presented 71 percent of the total.
Level of imports
Casein imports in recent years had been relatively stable in the range of 100 to
135 million pounds. An exception was 1975, when imports fell to 58.4 million
PAGENO="0157"
149
pounds. Shipments rebounded to 112.1 million pounds in 1976, however, and reached
a record 144.2 million in 1977. Table 2 details U.S. production and imports of casein.
Many sources indicated that the increased imports in 1977 were due to trade
anticipation of final action by the Food and Drug Administration on amendments to
the standards of identity for frozen desserts which would have allowed the use of
caseinates as a substitute for whole milk solids-not-fat in ice cream. This proposal
was withdrawn late in the year, and FDA has announced that existing standards
will continue in effect pending a decision on a public hearing. While anticipation of
the FDA changes might have had some influence, current import levels clearly
indicate other factors are involved. For the first three months of 1978, imports are
125 percent of the level of January, February and March, 1977 and 175 percent of
the comparable period for 1976.
It has been suggested that a major reason for the increase in imports is the
current resurgence in the U.S. economy, particularly homebuilding and the in-
creased use of casein in adhesives. There is little evidence to support such an
hypotheses. This would be a reversal of a 20 year trend that began with the
development of synthetic materials. Further, the advancing price of casein in the
last year would only serve to make substitute materials more attracitve.
Weekly market reports issued by USDA indicate a continuing strong demand for
casein and caseinates in the world market. Over the past four months, repeated
references are made to tight supplies, current production being devoted to meeting
contractual obligations and further anticipated price increases. This does not indi-
cate a lessening of the rate of imports in the months ahead.
Displacement of domestic product
The primary food and feed uses for these imports result in the displacement of
domestic agricultural products, notably nonfat dry milk. This displacement results
in increased purchases of nonfat dry milk by the Commodity Credit Corporation in
order to effectuate the dairy price support program. A review of nonfat dry milk
production, utilization, CCC purchases and estimated displacement is presented in
Table 3.
Presently, the Commodity Credit Corporation is making substantial purchases of
nonfat dry milk under the dairy price support program despite the fact that domes-
tic production of the commodity is only about one-half what it was 15 years ago.
The consumption decline has been almost continuous over the last ten years. The
apparent increase in 1973 must be discounted due to the accounting of imports
which places such products in domestic commerical consumption as soon as they are
landed. There were substantial import expansions during 1973. However, a survey
by the International Trade Commission in September of that year indicated that a
substantial portion of the imported product had not been moved into consumption
channels (TC Publication 616, October 1973, page 10).
The consumption decline for nonfat dry milk is due, at least in part, to the
expanded food use of caseinates in a wide variety of products. As reported by the
Economic Research Service of USDA in its Staff Report on Casein (April 20, 1977).
"Much of the increase in the use of casein in food and feed products is due to the
fact that it is a low cost protein substitute for nonfat dry milk."
This substitution leads directly to added purchases of nonfat dry milk by the
Commodity Credit Corporation. The product displaced by imported casein, lacking
an alternative market, is directed to CCC under the dairy price support program.
This increases the cost of the price support program. More importantly, it interferes
with the achievement of the purposes of the price support program.
Added cost under price support program
One hundred pounds of liquid skim milk yields 9.2 pounds of nonfat dry milk or
about three pounds of dried casein. If the bulk of the displacement is on the basis of
achieving a similar protein content, one pound of casein will replace 2.9 pounds of
nonfat dry milk or its equivalent in milk solids-not-fat. Thus, for 1976 when USDA
estimates that 79.6 million pounds of casein and caseineates went into food and feed
uses, the displacement would have totaled 230.8 million pounds.
As indicated, these imports expanded significantly in 1977. The record levels
reached during the year continue to be exceeded as monthly data for 1978 become
available. One can assume the industrial use during 1977 was no higher than the
32.5 million pounds for 1976. The sustained decline in these uses in past years alone
would support this view.
The increased import levels during 1977, with 32.5 million pounds going to indus-
trial uses and the 111.7 million pound balance being used for food and feed, would
mean displacement of 323.9 million pounds of nonfat dry milk or its equivalent. The
cost of displacement on the 1977 scale, using the current 71 cent per pound CCC
PAGENO="0158"
150
purchase price for nonfat dry milk is $230 million in purchase costs alone. Table 4
presents a review of the costs added to the price support program in recent years
due to these imports.
Applicability of section 22
It has been argued that the application of Section 22 to these products may not be
appropriate since there is little, if any, commercial casein production in the United
States. The statute makes no requirement regarding domestic production of the
specific commodity. It directs itself to "` * * any article or articles are being
imported or are practically certain to be imported into the United States under such
conditions and in such quantities as to render or tend to render ineffective, or
materially interfere with, any program or operation undertaken under this chapter
* * * ,,
The test that must be met is the existing or potential impact of the imports on a
domestic price support or similar program. Section 22 *as approved by the Congress
in order to provide a means of assuring the effective operation of domestic price
support programs. In this sense, it is a shield behind which these programs can
operate. Without it, the United States would be faced with the prospect of attempt-
ing to stabilize argicultural prices for the world as this market became a dumping
ground. Recent studies by the U.S. Department of Agriculture have recognized the
essential nature of this with regard to the dairy price support program by pointing
out that the price support program could not be maintained in the absence of
effective import limitations under Section 22.
In this regard, Section 22 is a basic element of domestic agricultural policy. Its
aim or intent is to permit the development and operation of effective domestic price
stablization program. It does provide means of recognizing legitimate markets for
imported products in this country. At the same time, however, it is the simplest and
most straightforward means of effectuating necessary import limitations. Its effec-
tive use cannot be ignored in the continuing effort to maintain a sound dairy price
support program.
A further point raised against application of Section 22 in this instance is that
these products are classified as chemicals under the Tariff Schedules of the United
States. Again, the statute imposes no requirement as to tariff classification or
description of the product.
An argument has been made that enforcement of limitations under Section 22
would be difficult since casein for industrial uses is basically indistinguishable from
that entering food and feed uses. Since industrial use imports would continue to
enter outside of quota, we recognize the need to establish some basis of enforcement.
The industrial use provision would be in the nature of an exemption. A system of
certification should be adopted whereby importers and users would certify that the
end use was indeed an industrial application. Another possible means would be to
require imported casein to be denatured in some manner so as to render it unfit for
human or animal consumption.
Industrial versus food and feed uses
Recognition of the differing impact of casein imported for industrial uses and that
entering for other applications is accorded in the legislative history of several laws
passed by Congress during the period of 1957 to 1962. Public Law 87-606 permanent-
ly transferred casein to the duty free list of the Tariff Schedules of the United
States. In doing this, however, the duty on mixtures of casein, TSUS Item No.
493.16, was retained. This same action had been taken on a temporary basis in
Public Laws 85-257, 86-405 and 86-562. The major point of support for the duty free
status for casein was that the product's major use was in industrial production.
On the other hand, the duty on mixtures of casein, primarily caseinates, was
retained because these products were imported largely for food uses. Concern was
expressed that duty free casein might be converted for food use after entering this
country. In that regard, the Senate Finance Committee, in its report on H.R. 9862
(Senate Report 1270, April 14, 1960) stated: "The members of the committee, howev-
er, will maintain a continuing interest in this matter, and anticipate that the
Department of Agriculture and other interested agencies will watch developments
and ascertain to the extent feasible the amounts of imported casein being used for,
or converted to, edible uses in competition with domestic agricultural products.
Should such large scale uses develop, the committee will want to be made aware of
them."
Representative period
The assignment of a zero level quota in this instance is appropriate as the
historical use of imported casein has been for industrial purposes and quotas are not
PAGENO="0159"
151
being sought in this area. As indicated, available data suggest that substantial food
and feed use of imported product did not begin until the late 1950's or early 1960's,
well after the initiation of the dairy price support program. Selection of a "repre-
sentative period" after this substantial conversion of use was well underway would,
at least indirectly, support a subversion of the dairy price support program.
Summary
At a time when concerns are being expressed regarding the cost of the dairy price
support program and the nonfat dry milk inventory which has accumulated, the
casein and caseinate imports for food and feed use represent an increasing interfer-
ence with the operation of the price support program. This interference is represent-
ed both in the increased government costs and in continued depression of nonfat dry
milk prices which reduces the price of milk to farmers, interfering with achieve-
ment of the basic goals of the price support program.
Section 22 was provided for the express purpose of permitting domestic programs
to achieve the intended goals. It is a central element of domestic agricultural policy.
Its application in the current situation is not only warranted, but required.
In view of the expanding imports of casein and mixtures of casein and the rapidly
changing nature of the use of these imports, we urge immediate action by the
Department of Agriculture to recommend to the President that he act under the
authority of Section 22 to establish a zero level quota on Casein and casein mixtures
entering this country for food and feed use.
Sincerely,
PATRICK B. HEALY, Secretary.
Attachments.
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TABLE 1.-CASEIN UTILIZATION, UNITED STATES, SELECTED YEARS
C)1
19401 19551 19671 19701 1976~
Use Mu No. Percent Mu No. Percent Mu No. Percent Mu No. Percent Mu No.
Percent
Food and feed (3) 1.0 1.3 36.1 36 60 50 40.4
70 39.2
Industrial use (4) 60-70 50 32.5
42.1 70
34.0 34
36, food.
35, feed.
29.
Paper
9
Paints
(3)
Glues
6.8 11
10.0 10
Gypsum (3) (3)
2.1 4
1.5 2
Plastics
Other 3.8 6 18.1 18
Total 60.2 100 77.5 99.7 100 131.6 100 112.1
100.
`USDA, "Dairy Situation", DS-334, March 1971.
2 USDA, "Staff Report on Casein", April 20, 1977.
Included in "Other".
Not enumerated.
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153
TABLE 2.-PRODUCTION AND IMPORTS OF CASEIN, UNITED STATES, 1935-77
[Millions of pounds]
Production Imports
Calendar year:
1935 to 1939 average 48.1 8.2
1947 35.8 20.9
1948 14.4 40.6
1949 18.3 33.1
1950 18.5 54.6
1951 21.6 43.4.
1952 7.5 56.8
1953 5.5 74.2
1954 5.2 59.8
1955 / 3.1 74.5
1956 2.5 70.7
1957 1.7 74.6
1958 .6 91.3
1959 .1 94.5
1960 .9 92.2
1961 .6 101.8
1962 1.2 95.6
1963 1.7 87.9
1964 2.1 108.5
1965 3.0 91.8
1966 2.7 107.9
1967 1.4 99.7
1968 .8 115.1
1969 116.1
1970 135.3
1971 105.9
1972 105.4
1973 112.8
1974 113.3
1975 58.4
1976 112.1
1977 144.2
Seurce: vadous USDA publications.
TABLE 3
[In millions ut pounds]
Nonfat Domestic
dry milk commercial
production consumption
Net
CCC
purchases
Casein
imports fur
toed, teed
.
Nonfat
equivalent
Adjusted
CCC
purchases
Calendar year:
1967
1,679 982
687
35.9
104
583
1968
1,594 1,058
558
46.0
133
425
1969
1,452 1,042
407
1 52.2
151
256
1970
1,444 960
452
267.7
196
256
1971
1,418 958
456
257.2
166
290
1972
1,223 853
335
261.1
177
158
1973
917 1,056
37
269.9
203
(166)
1974
1,020 839
265
273.6
213
52
1975
1,002 668
395
2397
115
280
1976
926 743
157
2796
231
(74)
1977
1,105 697 /
464
111.7
324
140
36 porcent of imports fur 1967; 4U porcent, 196t; 45 porcent, 1969.
2 59 porcent of imports fur 1976; 54 percent, 1971; 58 porcent, 1972; 62 porcent, 1973; 65 porcent, 1974; 68 porcent, 1975; 71 porcert, 1976.
44-998 - 79 - 11~
PAGENO="0162"
154
TABLE 4.-INCREASE IN DAIRY PRICE SUPPORT
PROGRAM COSTS D
UE TO CASEIN IMPORTS, 1967-77
CCC NFDM
CCC purchases
(million pounds)
purchase price
(weighted)
(per pound)
Program costs
(millions)
Calendar year:
1967
104
133
151
196
166
177
203
213
115
231
324
$01960
.2242
.2335
.2648
.3087
.3170
.3875
.5601
.6070
.6240
.6715
$20.4
29.7
35.3
51.9
51.3
56.1
78.7
119.2
69.8
144.0
217.5
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
Mr. VANIK. Getting to page 14 you say the simplest way to
explain the results of these trade talks as they apply to the dairy
industry is the United States has agreed to give away a segment of
the market and further agreed to permit other nations to use
whatever means necessary to make their products competitive in
the market.
Would you be in favor of blocking all subsidied cheeses but
letting in free unsubsidized New Zealand and Australian cheeses?
They would murder you, wouldn't they?
Mr. HEALY. Your base price for milk in this country is $10.51.
And in the European Community today the base price is about
$12.51.
Mr. VANIK. What is our prices?
Mr. HEALY. $10.51. The support level. In Europe they are paying
their farmers substantially more.
Mr. VANIK. What is it in New Zealand?
Mr. HEALY. In New Zealand it is whatever the market brings.
Mr. VANIK. What is it?
Mr. HEALY. Somewhere between $8 and $9. New Zealand, howev-
er, only produces 16 or 17 billion pounds `of milk, less than we
produce in the State of Wisconsin. New Zealand would not do this
thing to us by itself. Every place else subsidizes their exports. They
pay too much for it. Therefore, they get too much and now they
want us to take their problem off their hands. We have been very
moderate in our approach to pricing in this country and have
attempted to keep prices which call out just exactly the right
amount of milk.
As a matter of fact, last year we made a hole-in-one. We market-
ed off farms 119.2 billion pounds of milk. There was commercial
demand for 119.2 billion pounds of milk-an exact balance between
supply and demand. We have done this by being moderate and
restrained in our demands for price.
Other nations who have given way to the politics of agriculture
have not been so moderate. They have made serious problems for
PAGENO="0163"
155
themselves. Now they are in the process of dumping that problem
on the American dairy farmer.
Mr. VANIK. On page 16 you talk about the casein imports. I want
to tell you we are asking for an ITC 332 study of this issue for you.
We understand that problem and so we are going to try to get some
handles on it so that ought to be of some little bit of help.
Mr. HEALY. It will be of great help.
Mr. VANIK. What we are hoping for, Mr. Healy, if we are going
to get this through Congress, we have to have a wide base of
support. We thought we would get a more favorable reaction from
the dairy industry.
I have heard some upsetting positions here. We would appreciate
an update of the figures you offer us.
Mr. HEALY. I will provide those this afternoon for the committee.
Mr. VANIK. I have read a brief analysis that was prepared by
Jim buck. I think you had that submitted. What do you have to
say about that? Jim Houck, Department of Agriculture Economics,
University of Minnesota.
He said if the new quota system had been put into effect last
year approximately 15,000 metric tons of additional cheese could
have been imported into the United States on an annual basis.
Since the implementation of new quota system is proposed for 1980
this 15,000 ton figure is likely to be an upper estimate. This is
because cheese imports, especially price break imports, have been
increasing recently, and will continue to do so.
Moreover, increased quota levels may not necessarily be filled
with increased imports. In fact, in 1977 and 1978 actual cheese
imports were below quota levels: 83 percent in 1977 and 87 percent
in 1978.
[The analysis referred to follows:]
A BRIEF ANALYSIS OF THE MTN AGREEMENT ON DAIRY IMPORT QUOTAS
(By James P. Houck*)
The proposed MTN agreement on dairy imports enlarges the quotas on foreign
cheese, eliminates the current "price break" system, and brings all "price break"
cheeses under the new quota. If the new quota system had been put into effect last
year, approximately 15 thousand metric tons of additional cheese could have been
imported into the United States on an annual basis.1
Since the implementation of the new quota system is proposed for 1980, this 15
thousand ton figure is likely to be an upper estimate. This is because cheese
imports, especially "price break" imports, have been increasing recently and prob-
ably will continue to do so. Moreover, the increased quota levels may not necessarily
be filled with increased imports. In fact, in 1977 and 1978, actual cheese imports
were below quota levels (83 percent in 1977 and 87 percent in 1978).
However, for the purpose of this discussion, assume that all of the potential 15
thousand metric tons enters in a single year. This is the equivalent of 275 million
additional pounds of milk on the domestic market. To be generous with this esti-
mate, allow it to be 300 million additional pounds of milk equivalent. This is
approximately one quarter of one percent (0.25 percent) of the total annual U.S.
milk production. It also represents slightly less than one percent (0.9 percent) of
total U.S. cheese production on an annual basis.
Taking the same price response estimates used recently by a spokesman for dairy
interests, this potential increase in imports could depress milk prices by 5.4 cents
*professor, Department of Agricultural Economics, University of Minnesota.
I The new quota level is 124,000 metric tons. Cheese imports totaled 109,000 tons in 1978. The
difference is 15,000 metric tons. This is the equivalent of about 275 million pounds of milk. All
data in this paper are drawn from official USDA publications and sources, including the "Dairy
Situation," ESCS, USDA (various issues) and "Agricultural Statistics," USDA, 1978.
PAGENO="0164"
156
per hundredweight at the farm leveL2 This particular downward movement in
prices would occur only if nothing else changed and if cheese prices were sufficient-
ly above support levels so that a downward adjustment of this magnitude actually
could occur. Cheddar cheese prices in the market would need to be one or two cents
per pound above supports for this to happen. If not, government cheese purchases
would prevent the price from falling. Based on the 1978 average farm price of all
manufacturing milk, $9.68 per hundredweight, this downward price pressure of 5.4
cents due to increased imports is equal to a little over half of one percent (0.56
percent) of the 1978 price. Compare this to average increases in farm milk prices of
about 8.1 percent per year since 1970.
Taking the 1978 level of milk output as a basis, the cost of this trade concession to
U.S. dairy farmers is $66 million (5.4 cents per hundredweight times 1,219 million
hundredweight). This represents about one half of one percent (0.5 percent) of the
farm value of milk production in 1978.
Some observers like to think of imports and changes in imports in terms of the
dairy farms and dairy herds that they represent. Recall that the proposed quota
increase would add 300 million pounds of milk equivalent to U.S. markets. At 1978
production levels, this is equivalent to 27 thousand average milk cows. This may
seem like a lot of cows, but it is only about one quarter of one percent of the U.S.
dairy herd in 1978. Furthermore, each year since 1955, the U.S. dairy herd has
dropped in size by an average of 440 thousand cows per year. So in perspective, the
maximum impact of the quota increase is on the order of 6 percent of the annual
dairy herd shrinkage that has been underway for many years. This phenomenon
has had almost nothing to do with imports or trade policy.
Look at this from another viewpoint. The 27 thousand cows replaced by new
imports also could be taken to represent about one thousand average-sized dairy
herds (farms) in the United States. Between 1955 and 1978, about 16 thousand of
these 27-cow herds went out of production each year. Moreover, the rate at which
all milk-cow farms disappeared between 1965 and 1974 was 70 thousand farms per
year (see attached table). This may be a deplorable situation to dairy interests, but
it has very little to do with imports.
No one could argue that increased import quotas bestow direct economic benefits
on U.S. dairy farmers. But, on the other hand, the negative impact of the proposed
quota increases under the MTN agreement is almost negligible in any realistic
perspective.
2Graf, Truman F. "Statement on International Trade Negotiations and the U.S. Dairy Indus-
try," March 5, 1979. The author used analyses reported in "The Impact of Dairy Imports on the
U.S. Dairy Industry," Agricultural Economic Report No. 278, ERS, USDA, January 1975.
PAGENO="0165"
NUMBER OF MILK COW FARMS
The top ten ranhing States in number of milk cow farms in 1974 were as follows: Wisconsin, 54, 000; Minnesota, 36, 000; Ken-
tuck';, 26, 000; Pennsylvania, 25, 500; North Carolina, 25, 500; MissourI, 23, 000; New York, 22, 000; Iowa, 20, 000; Teunessee,
1~, 000; Ohio, 16, 500. This number includes farms with milk cows even where all milk was consumed on the farm where pro-
duced. Please refer to the chapter on Minnesota's Rank in the Dairy Industry for historic aspects of change in rank.
Alabama 33, 000 28, 000 24, 000 20,000 16,000 13. 000 11, 000
Alaska 110 90 90 90 90 90 90
Arizona 1,500 1,300 1,200 1,100 1,000 800 800
Aikansas 25,500 22,000 19, 000 17, 000 14,000 12,000 10, 000
California 11. 300 10,000 9, 300 8, 700 8, 000 7,200 6, 500
Colcxado 9,800 9,000 8, 000 7,600 6, 600 6, 000 5, 400
Conri~ 2, 600 2, 300 2, 100 1,900 1,800 1, 600 1,500
Delaware 850 750 `100 650 600 550 500
Florida 4,700 4,200, 3,800 3,600 3, 300 3,000 3,400
Georgia 22,000 20,000 16,000 13,000 11,000 9,000 8,000
Hawaii 200 190 170 150 130 110 100
Idaho 14,000 13, 000 11, 500 10, 500 9, 500 8, 500 7, 600
Iiliijoi.s 27, 000 23,000 20, 000 18, 000 19, 000 16. 000 15, 000
indiana 23, 000 20, 000 17, 000 15, 000 15, 000 14, 000 13. 000
Iowa 57,000 50,000 44,000 39,000 36,000 32,000 28,000
Kans~as 24,500 21.500 19, 500 17, 000 15, 500 13, 500 12,000
Kentucky 57, 000 53, 000 47, 000 42,000 37, 000 33, 000 30,000
Louisiana 24,000 21, 500 18, 000 16, 000 14, 000 12, 000 11, 000
}~!aine 4,400 3, 800 3,400 3,100 2, 900 2,500 2, 400
Maryland 6, 700 6, 400 6, 000 5, 600 5, 400 . 5, 000 4, 800
Mass. 2,800 2, 600 2, 300 2,100 1, 900 1, 700 1, 600
Michigan 31,000 28, 000 24,000 22, 000 20, 000 18, 500 17, 500
TABLE 61: NUMBER OF MiLK COW FARMS, BY STATES, 1965-74
State
1965 1956 1967 1968 1969 1970 1971 1972 1973 J 1974
9,000 8,000 7,000
80 70 70
`180 750 800
9, 000 8, 000 8,000
6, 300 6,100 5, 900
5,200 5,000 5,000
1,400 1,300 1.200
450 450 450
3,500 3,500 . 3,100
7,000 . 6,000 5,000
100 100 100
7, 000 6,200 6,200
14,000 12,000 12,000
12,000 11,000 11,000
24, 000 22,000 20, 000
10, 500 9,000 8, 000
27, 000 26,000 26,000
10, 000 9, 000 9, 000
2, 300. 2,200 2,200
4.600 4,400 4,200
1,500 1,400 1,400
16,000 14,700 14,000
PAGENO="0166"
TABLE 61: NUMBER OF IvilLK COW FARMS, BY STATES, 1965-74
State 1965 1966 1967 1968 1969 1970 j 1971 1972 1973 1 1974
Minnesota 72, 000 69, 000 62, 000 56, 000 51, 000 46, 000 44, 000 41, 000 38, 000 36, 000
~isis.srj~ 35, 000 31, 000 26, 000 23, 000 19, 000 16, 000 14, 000 12, 000 9, 000 9, 000
}.~issouñ 56, 000 51, 000 46, 000 40, 000 36, 000 31, 000 `~ 27, 000 26, 000 25, 000 23, 000
Montana 10, 400 9, 400 8, 600 7,800 7,200 6, 500 5, 800 5, 300 4, 500 4, 500
Nebra.3ka. 27, 000 24, 000 21, 000 18. 000 16, 000 14, 000 12, 000 11, COO 10, 000 9, 500
Nevada 900 900 800 800 700 600 600 550 550 550
N. H. 2, 500 2, 100 1, 900 1, 700 1, 500 1, 300 1, 100 1, 000 900. 900
N. J. 2, 500 2, 300 2, 100 1, 900 1, 700 1, 600 1, 500 1, 400 1. 300 1, 000
N. Yex. 3, `700 3, 500 3, 100 2, 800 2, 500 2, 200 *2, 000 1, 900 1, 500 1, 500
New York 39, 000 37, 000 35, 000 32, 000 30, 000 28, 000 26, 000 24, 500 22, 500 22, 000
N. C. 43, 000 40,000 34, 000 35, 000 24, 000 30, 000 27, 000 27, 000 13, 000 15, 500
N. Dak, 20, 000 18, 000 16, 000 14, 000 13, 000 12, 000 11, 000 10, 0)0 9, 000 8, 500
Ohio 40, 000 36, 000 32, 000 29, 000 26, 500 23, 500 21, 500 19, 8)0 18, 300 16, 500
O~dahom 22, 000 20, 000 17, 000 16, 000 14, 000 13, 000 11, 500 1*D, 500 9, 000 9, 000
Oregon 12, 500 11, 000 9, 800 8, 500 7, 400 6, 500 . 5, 600 5, 200 4, 800 4, 800
Pa, 42, 000 40, 000 38, 000 35, 000 32, 000 30, 000 29, 000 27, 0OO 26, 000 25, 500
R. 1. 350 320 290 260 230 210 180 170 170 170
S. c. 11, 000 9, 000 8, 000 7, 000 6, 000 5, 000 4, 500 4, 300 4, 000 3, 800
S. Dak. 20, 500 19, 000 17, 500 15, 500 14, 000 13, 000 12, 000 11, 000 10, 000 9, 000
51,000 46, 000 42, 000 37, 000 33, 000 30, 000 27, 000 23, 000 18, 000 18, 000
Texas 40, 000 37, 000 34, 000 31, 000 28, 000 26. 000 22, 000 18, 000 16, 000 16, 000
Utah 6,200 5, `100 5, 300 4, 700 4,200 3, 800 3, 500 2, 700 2,400 2, 600
Verrnceit 7, 300 6. 800 6, 400 5, 900 5, 500 5, 100 4, 800 4, 700 4, 600 4, 500
Virginia 37, 000 34, 000 30, 000 26, 000 23. 000 20, 000 18, 000 16, 000 14, 000 13, 500
Was~i. 14,000 12,500 11,000 9,500 8,200 `1,000 6,200 6.000 5,700 5,000
W. Va, 19. 000 17, 000 14, 000 12, 000 10, 000 8, 500 `7, 500 6, 500 6, 000 6, 100
Wisccnsin 86, 000 82, 000 76, 000 `11, 000 68, 000 64, 000 62, 000 59, 000 56, 000 54, 000
Wyoning 3, 900 3, 600 3, 400 2, 100 2, 800 2, 600 2, 400 2, 300 2, 100 2, 100
UNITED
STATES 1, 107, 710 1,008,750 898, 250 808, 550 724, 150 657, 460 599, 870 549, 530 489, 490 4'73, 140
PAGENO="0167"
159
Mr. VANIK. Now what comments do you have to make on that?
Mr. HEALY. First, since 1974 the price break cheeses, nonquota
price break cheeses, were imported at a fairly stable level. It was
just in 1978 that we saw the big bulge in the last quarter to escape
the bond that was required to cover potential countervailing duty
liability. Upon until January 4 that nonquota cheese did come in at
a greater level. In 1977 we had 83 million pounds of these cheeses.
About 25 million pounds extra came in in 1978.
Mr. VANIK. In order to expedite the time of the committee, this
last statement he makes:
No one could argue increased quotas bestow direct economic benefit on American
dairy farmers but, on the other hand, negative impact of proposed quota increases
under the MTN agreement is almost negligible in any realistic perspective.
Now I would suggest that you review this and provide a commen-
tary on what Professor Houck has prepared here, so that we have
both his statement and your analysis of what he has said before us,
and we will have that in the record at this point because we want
to make a proper judgment.
[The response follows:]
NATIONAL MILK PRODUCERS FEDERATION,
Washington, D.C., April 26, 1979.
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade, Committee on Ways and Means,
US. House of Representatives, Washington. D.C.
DEAR MR. CHAIRMAN: During my testimony before the Subcommittee on Trade
with regard to the multilateral trade negotiations and the impact the recently
completed trade agreements would have on the U.S. dairy industry, Members of the
Subcommittee requested information on several points which we are pleased to
provide.
The National Milk Producers Federation appreciates the opportunity to present
the views of the dairy cooperative marketing associations and their dairy farmer
members with regard to the trade talks. We have followed the progress of the
negotiations closely and, it is fair to say, with no little apprehension. We have been
fully aware of the pressures from other nations for expanded access to this market.
At the same time there have been repeated demonstrations of willingness on the
part of officials of the U.S. government to accede to these requests.
During the hearing, you requested that information be provided comparing the
1978 level of cheese imports with the expansion agreed upon in the trade negotia-
tions. This information is provided by quarter for calendar years 1976, 1977 and
1978 in Table 1. (attached)
1978 cheese imports were 32.8 million pounds over 1977 levels. Of this amount,
21.7 million pounds (66 percent of the increase) entered in the fourth quarter after
extension of the countervailing duty waiver failed to pass the Congress. This surge
in imports came as exporting nations and importers sought to avoid action by the
Department of Treasury on January 3, 1979 to collect countervailing duties when
the countervailing duty waiver authority expired.
If projections of import levels based on 1978 imports are valid, it would be equally
valid to make projections based on the levels of the early months of 1979. The
January and February data are displayed below with comparisons of 1977 and 1978.
CHEESE IMPORTS, UNITED STATES
[Millions of pounds]
1977 1978 1979
January:
Quota 7.9 5.2 7.1
Nonquota 10.0 9.3 5.9
17.9 14.5 13.0
PAGENO="0168"
160
CHEESE IMPORTS, UNITED STATES-Continued
[Millions
of pounds]
1977
1978
1979
February:
Quota
3.5
7.2
3.3
10.8
2.8
3.7
Nonquota
Total
10.7
11.4
17.2
28.6
14.1
8.5
20.1
28.6
6.5
9.9
9.6
19.5
Two month total:
Quota
Nonquota
Total
Source: USDA reports on fmports, Dairy Porducts.
As the data demonstrate, there has been a sharp decline (more than 50 percent)
in the level of non-quota imports of cheese during the two months of 1979 for which
information is available. This is the result of the surge in late 1978 when importers
sought to avoid the cash deposit or bond requirements imposed by Department of
Treasury under the interim contervailing duty procedures. Treasury required a cash
deposit or bond equal to the estimated export subsidy. Depending on the cheese type
and the country of origin, these ranged from 20 cents to $1.50 per pound.
Some have speculated that the level of non-quota cheese imports (above price
break level) would rise at a pace rapid enough to make the 1980 level of imports
under the present system at lease as high as the expansion agreed upon in the
multilateral trade negotiations. It is difficult to discern a specific trend in the level
of these imports since the current system was put in place on June 6, 1972. The
following shows the level of imports of non-quota price break cheese for the years
1972 through 1978.
Price break cheese imports, nonquota, 1972 through 1978
[In millions of pounds]
Year: Year:
1972 72.1 1976 89.6
1973 55.7 1977 83.3
1974 96.2 1978 107.9
1975 78.2
Source: USDA reports on Imports, Dairy Products.
Prior to 1978, the highest level was achieved in 1974. The fourth quarter 1978
increase in imports in these categories, over the fourth quarter 1977, was 11.9
million pounds. As already indicated, this surge was the attempt to avoid the
countervailing duty action required on January 3, 1979. If 1978 nonquota price
break import levels are reduced by the amount of the fourth quarter surge, the total
for the year would have been 96 million pounds, still below the 1974 level.
It has been suggested that the current relatively strong market for cheese will
permit the absorption of expanded imports with little or no impact on the domestic
market. Most of this assessment is based on the current high level of beef prices and
the expansion in cheese consumption as a replacement protein. One must also be
aware of the substantial increase taking place in both pork and poultry production
which will add to animal protein supplies in the next few months. It is also
necessary to look at the production balance within the U.S. dairy industry.
In 1978, U.S. dairy farmers marketed 119.2 billion pounds of milk. Commercial
market demand during the year called for exactly 119.2 billion pounds of milk. This
means, simply that purchases by the Commodity Credit Corporation under the dairy
price support program during the year represented the dairy products imported and
the resultant displacement of domestic milk production.
It has been necessary for dairy farmers to expand output slightly in recent
months to meet market requirements. This has been and is being done in a sound,
orderly fashion. The import expansion contained in the multilaterial trade negotia-
tions means the effective U.S. milk supply will be expanded by the equivalent of 682
million pounds of milk. Given the current close balance between supply and demand
PAGENO="0169"
161
and the expanding output of other animal protein sources, there is no way this
supply increase can avoid negatively impacting the farm price for milk. As indicat-
ed in our prepared statement, updated data from USDA research on the impact of
dairy product imports on U.S. farm milk prices places this loss to dairy farmers at
21 cents per hundredweight of milk for each 500 million pounds, milk equivalent, of
imports. Based on estimated farmer marketings of 120 billion pounds of milk annu-
ally, this yields a farm income loss in excess of $343 billion.
A number of estimates have been made by the Office of Special Trade Representa-
tive and others, including the academic community, which tend to show that im-
ports as a percentage of domestic cheese production will be stable in the range of 6.2
to 6.4 percent even with the expanded imports. At the heart of such estimates is the
assumption that consumption will continue to expand at a rapid rate.
This may well take place. American dairy farmers have made substantial invest-
ments both on their farms and in their cooperative marketing associations which
produce a major portion of the U.S. cheese output to make this possible.
These estimates do not, however, take into consideration the growing impact of
ersatz products on cheese consumption. In some areas of food processing these
products now claim a major market share. Some cheese industry marketing experts
foresee them claiming 20 to 40 percent of the cheese market in the next twenty
years. These are not factors which can be quantified with precision, however, they
are real and must be dealt with.
Even if the market expansion should take place as projected, it is difficult to
rationalize the granting of this market expansion to those who are noncompetitive
on an economic basis. At present~ 70 percent of U.S. cheese imports come from
nations that must use extensive export subsidization to gain entry into the United
States. Although we have not been given information as to the allocation of the
expanded imports, it is our understanding that the bulk of the additional product
will also be from these sources. While U.S. dairy farmers and their cooperatives are
constantly urged to improve their efficiency to remain competitive, they are faced
with actions of this nature which are impossible to explain on any economic basis.
What must be recognized is that the U.S. acceded to EEC demands for greater
access to the U.S. dairy market plus recognition of the use of export subsidies
coupled with a weakening or removal of the ability to counteract them. While doing
this, the U.S. recognized the EEC position that the Common Agricultural Policy
with its high internal pricing system, its variable levies and its export subsidies was
non-negotiable.
Despite repeated references to the "protectionism" of the U.S. dairy industry, it
must be recognized that the United States maintains the most open market for
dairy products of any major dairy producing nation. Other nations use variable
levies, licensing techniques or outright bans on imports to exclude products that can
be supplied by domestic production.
Ambassador Robert Strauss has indicated that most of the expansion in imports
will be in the form of specialty cheese items, most of which are not competitive with
U.S. production. Information made available to the National Milk Producers Feder-
ation by the Office of Special Trade Representative indicates the following cheese
expansions compared with the 1977 level of imports.
1977 AND PROPOSED CHEESE IMPORT LEVELS
[In millions of pounds]
Item
1977 imports
New quota level
Percent increase
Blue Mold
3.4
5.5
65
Cheddar
Other American
Edam and Gouda, natural
9.3
6.4
8.3
1.1
9.8
1.3
59.6
15.3
12.3
7.7
12.5
1.4
13.2
1.7
68.1
17.8
32
20
52
(1)
34
28
14
16
Edam and Gouda, processed
Italian, original loaves
Italian, not original loaves
Swiss
Gruyere-Process
Other, NSPF
55.4
6.6
176.5
87.7
13.7
243.2
2 58
106
38
Other, Iowfat
Total
iNn increase in quota offered by u.5. in this category.
2 Office of Special Trade Representative has informed us that all of the increase in this category is lowfat (less than 2 percent) cheese-essentially
products that are used in this country for the production of processed cheese.
Source: 1977 import levels from USDA reports, Imports, Dairy Products New Quota Level data from information supplied by Office of Special Trade
Representative.
PAGENO="0170"
162
The above data excludes imports of sheep and goat's milk cheese and the soft
cured cheese. 1977 imports of these products have been estimated at 31.7 million
pounds.
Imports of Cheddar, Other American, Edam and Gouda, Swiss and the lowfat
industrial block cheese such as proposed under the "Other, NSPF" category are
directly competitive with U.S. production and have the greatest impact at the point
of determination of the farm price for milk. 74 percent (49.3 million pounds) of the
increase would be concentrated in these items.
In the countervailing duty statute, the United States has a law specifically intend-
ed to prevent injury due to the export subsidy programs of other nations. It is
specific and direct. Given adequate enforcement, which we have been able to obtain
through court action, the law can effectively prevent injury due to subsidized
imports.
The agreement by the United States to amend the countervailing duty statute to
require domestic industry to prove injury before relief being granted reverses the
intent of the statute.
On the one hand, the U.S. has specifically sanctioned the use of the export
subsidy as a legitimate tool in international trade in agricultural commodities. On
the other hand, the addition of an injury test to countervail negates the one tool
available to offset these practices and, in the case of the dairy industry, renders that
law a dead letter.
Some improvement may be provided by the procedures recommended by the
Committee under which dairy products covered by Section 22 import quotas would
be dealt with by the Department of Agriculture using faster procedures and a more
restricted basis for final decision than would be the case under the countervailing
duty statute with a proof of injury requirement. It cannot be said, however, that
this procedure or the amended countervailing duty statute represent an improve-
ment either over the present law. Both provide reduced assurances to domestic
industry.
We hope that this information will be helpful to the Subcommittee in their
deliberations. We must admit that our understanding of the results of the multilat-
eral trade negotiations is not complete as we await full disclousure of the results of
the multilateral trade negotiations. All of the data presented in this and in our
statement before the Subcommittee is information provided by the Office of Special
Trade Representative. -
Sincerely,
PATRICK B. HEALY, Secretary.
Enclosure.
TABLE 1.-CHEESE IMPORTS, UNITED STATES, 1976, 1977, 1978, AND PROPOSED UNDER MULTILATERAL
TRADE NEGOTIATIONS AGREEMENTS
[In millions of pounds]
1976 1977 1978 Negotiated
First quarter:
Quota 14.0 14.5 12.7
Nonquota 24.0 26.6 32.6
Total 38.0 41.1 45.3
Second quarter:
Quota 15.2 15.4 14.0
Nonquota 22.8 24.3 26.4
Total 38.0 39.7 40.4
Third quarter:
Quota 18.3 25.5 27.6
Nonquota 30.1 26.7 30.7
Total 48.4 52.2 58.3
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163
TABLE 1.-CHEESE IMPORTS, UNITED STATES, 1976, 1977, 1978, AND PROPOSED UNDER MULTILATERAL
TRADE NEGOTIATIONS AGREEMENTS-Continued
[In
1976
1977
1978
Negotiated
Fourth quarter:
49.6
33.1
82.7
50.9
25.5
76.4
56.5
41.6
98.1
243.2
Quota
Nonquota
Total
Annual
Quota
97.1
110.0
207.1
106.4
103.0
209.4
110.8
131.4
242.2
31.7
274.9
Nonquota
Total
Source: Data for 1976, 1977, and 1978 from USDA reports on Imports, Dairy Products. Data on negotiated levels from information supplied by Office
of Special Trade Representative.
Mr. HEALY. I have some information in my statement relative to
that very point. The fact is that the Department of Agriculture-I
am sure they have studied it quite deeply-puts a dairy farm price
of about 0.21 cents a hundred for all the milk produced for each
500,000 pounds of milk imported. I have also put a price 1,500 dairy
farmers on this thing. Somehow we have to shake them out of
business because we won't need their milk any more. That is the
price to be exacted.
Mr. VANIK. Mr. Vander Jagt.
Mr. VANDER JAGT. Thank you, Mr. Chairman. Thank you, Mr.
Healy.
It seems to me that what we have here is a dispute on the facts,
so I will await the supplementary figures that you will be provid-
ing very eagerly and also for your analysis of Mr. Hawk's state-
ments. I think the heart of the dispute on the fact occurs on page 7
of your statement.
Based on information presently available the trade talks will mean expansion of
cheese imports of so much.
This represents an increase of one-third with most of the additional product
entering this market with the assistance of substantial export subsidies.
I would be most interested in the substantiation of that. I think
if accurate that is very significant. My understanding is at most it
would be an increase of around 10 percent and as a percentage of
the market it would go from 6.2 to 6.3 percent.
Now I will be interested in whether my understanding, or this
statement, is correct, and that certainly would have a bearing on
my thinking on the problem, so I will await that information.
Mr. HEALY. Mr. Vander Jagt, I don't believe there is any dispute
on this fact. The numbers which I have used I got from Mr.
Strauss. He tells me this: The current quota on cheese is 57,000
tons. The 1977 imports were 79,000 metric tons, and the new quotas
are 110,000 tons. I don't think there is any dispute on the fact we
are going to take more cheese into this country. It is going to cut
dairy farm income and eventually it is going to cut out dairy
farmers. I think that is too high a price to exact from the dairy
PAGENO="0172"
164
farmers of this country for some nebulous good that has never been
specified for us.
Mr. VANDER JAGT. I have no argument with your interpetation
of the impact, and the disastrous effect it would have if we put that
many dairy farmers out of business. The question in my mind is, is
this agreement going to result in an increase of one-third cheese
imports as the chairman was reading the figures to us, and that as
a result of this it will go up to 6.3 percent.
You at that moment were not able to address yourself to that
and said you would supply it for the record, which is very under-
standable. I wanted you to know I will be awaiting that factual
data with great interest and great receptivity.
Mr. HEALY. Thank you, Mr. Vander Jagt.
Mr. VANIK. Mr. Fisher.
Mr. FISHER. No questions.
Mr. VANIK. Mr. Frenzel.
Mr. FRENZEL. Mr. Chairman, I have some trouble trying to work
out variations between the figures provided, some of which are in
metric tons and some of which are in hundredweight, but it looks
to me from the figures provided by STR that by 1980 under the
new quota system there will be about exactly what would have
been allowed in under the old quota system if you include the price
break cheese and the miscellaneous nonquota.
It looks to me like it comes out almost even. Yet I think in your
analysis you have not included the price break cheeses.
Mr. HEALY. Yes. If you look at exhibit A at the end of my
statement I have six columns, one each in metric tons and in
thousands of pounds of cheese. Current quota is listed at 57,000
tons, 1977 imports 79,000 tons. This includes the price break.
The new quotas at 110,000 tons. There is nothing to indicate that
we have bettered our position by gracing these nonquota items
with quotas. The price break cheese is an anomaly, anyway. How
can you tell how Fisher cheese, Denmark prices cheese that it sells
to Fisher cheese, Wisconsin, or how Kraft London, prices cheese to
what it sells Kraft Chicago.
They merely put a number on it so as to escape the quota. We
screamed when they came up with this price break thing, to no
avail. Now we are in the process of gracing that arrangement with
a quota so they don't have to fool with numbers any more.
Mr. FRENZEL. That is what I was trying to get you to say. The
price break will come out to the new quota but you don't like the
price break so you want to eliminate that from the whole quota.
That is understandable but it does not I think help us.
Mr. HEALY. This whole quota thing, Mr. Frenzel, right from the
start provides a lesson in evasion and subterfuge. The most inter-
esting example has to do with fat.
When we first put the quotas into effect, in 1953, there had been
a traditional market in Hawaii for 707,000 pounds of batter from
New Zealand. So we gave New Zealand a 707,000 pound quota on
butter. Immediately that was satisfied they started sending butter
oil, which was not excluded. We finally had a hearing, went
through the process and got that capped off.
Then they started sending what they called Exylone, which was
merely butter oil with vanilla in it. We got that capped. Then they
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started sending Junex, which is a lower fat product for the same
purpose, and each time we raised quotas to accommodate a subver-
sion of quotas, they are used as a new springboard for higher
quotas, and that is just what has happened in this price break
cheese. It should never have been put into existence.
Now we are saying it is right and we will put a quota on it.
There will be something new tomorrow. Immediately we do this
there will be something new which will represent another round of
evasion and subsequent quota expansion.
Mr. FRENZEL. On your figure on exhibit A the 79,000 metric tons,
that does not represent the full quota. It represents a portion of it.
Would it not have been legtimate then to increase the second to
the last column by 15 percent, as well? 110,000 metric tons ought to
be reduced because apparently the quotas are never reached.
Mr. HEALY. The quotas were 57,000 tons. Total imports were
22,000 tons, in excess of that, for 1978. That included quota cheese
and nonquota and now we are saying let's raise that whole thing to
110,000 tons of quota cheeses.
Mr. FRENZEL. What I am saying is the quotas are never reached.
Yet you are assuming they are going to be reached in the figures
you are giving us.
Mr. HEALY. They are almost reached.
Mr. FRENZEL. What you are trying to do is have us make apples
and oranges equivalent or one and two hump camels, and I don't
think that is a fair representation. Were you ever represented on
industry advisory--
Mr. HEALY. Yes, sir. These same representations were made
there.
Mr. FRENZEL. And you objected strenuously in all stages of
the--
Mr. HEALY. Yes, we had five people on the three appropriate
committees and they made these same representations right from
the start. I have met on many occasions with Ambassador Strauss
and made the same representations to him, yes, sir.
Mr. FRENZEL. And all of the other representatives of the industry
object as strongly as you do to this?
Mr. HEALY. Yes, the dairy producing industry, the farmers.
Mr. FRENZEL. Thank you, Mr. Chairman.
Mr. VANIK. Mr. Jones.
Mr. JONES. Thank you, Mr. Chairman.
I am going to withhold questions until I get more information
also, but I want to underscore what the chairman said. I am very
disappointed and chagrined by this testimony. I am not at all
satisfied with it. It seems to me the impression is of an industry
that is all take and no give, and therefore, Mr. Chairman, I am
going to withhold with a great deal of disappointment as to what
has come across today.
Mr. VANIK. Mr. Moore.
Mr. MOORE. Thank you, Mr. Chairman.
I would like to ask briefly is the position you are giving today
one of all the dairy co-ops or the majority that voted, or what?
Mr. HEALY. All of them.
Mr. MOORE. That is contrary to what they told me--
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Mr. HEALY. I have reviewed this thing with my board on which
all the co-ops are represented last August, and again last Novem-
ber. They voted unanimously in favor of this position. I reviewed it
with my executive committee again in February which these
people are members of, and it was sustained unanimously again.
Yes, sir.
Mr. MOORE. As recently as a month ago that information was the
unanimous position of dairy co-ops? I am wondering what the
situation is. When did you last review it?
Mr. HEALY. We last reviewed it in February, and it was unani-
mously agreed to at that time by my executive committee, yes, sir.
Mr. MOORE. Thank you.
Mr. VANIK. Thank you very much, Mr. Healy. We appreciate
your testimony.
At this point I am going out of order and I will call on my
colleague, Mr. Coelho, to introduce Steven Easter.
I want to point out it is the intention at the present that these
proceedings will finish at 12 o'clock and resume at 2, SO you can
make your plans accordingly.
STATEMENT OF HON. TONY COELHO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. COELHO. Thank you, Mr. Chairman. I appreciate your
courtesy.
Mr. Chairman, members of the subcommittee, it is my pleasure
to introduce to you this morning Mr. Steven W. Easter, secretary of
the California Almond Growers Exchange. The exchange has 4,700
member-growers who produce approximately 60 percent of the al-
monds grown in California. All of the almonds produced commer-
cially in the United States are produced in California.
I am proud to say that over 90,000 acres of almond trees grow in
my district. The exchange is heavily committed to the export of
almonds and sells the almonds of its members throughout the
United States and in nearly every country of the world.
In recent years it has exported approximately 50 percent to 60
percent of the almonds it handles. In 1974 almonds were fifth
among the ten leading U.S. agricultural exports as a percentage of
farm income. In 1976 almonds were first.
In view of the importance of exports to the almond industry, the
member-growers of the California Almond Growers Exchange have
watched the progress of the negotiations with great interest.
Mr. Easter is here on behalf of the member-growers of the ex-
change to express appreciation to Ambassador Strauss, and the
other members of the U.S. negotiating team for their hard work on
behalf of U.S. agriculture.
Mr. VANIK. We are happy to have that reaction and we are
happy to have whatever encouragement we can get in this proceed-
ing. I want to tell you almonds are important to the American diet.
They are almost disappearing from my chocolate bars. I once made
$10, I bet someone there would be four almonds in every bar. They
went through a case of them and I won. I don't know whether they
still put them in chocolate bars at all any more, but it was a
wonderful treat to get a few more almonds mixed in with the
chocolate.
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I am among those who still have memories of how wonderful
that used to be.
We will be happy to hear from you.
STATEMENT OF STEVEN W. EASTER, SECRETARY, CALIFORNIA
ALMOND GROWERS EXCHANGE
Mr. EASTER. Thank you. We are doing our best to maintain that
market.
Good morning, Mr. Chairman and members of the committee. It
certainly is a pleasure for me to be here and provide you with a
few comments we have from the almond industry. We have submit-
ted a written statement to you and I am certain that you will read
and consider it. We ask that it be placed in the record.
I am going, however, to depart from the written statement due to
some recent experiences I have had. I thank you for putting me on
this program early, as I have just flown in from Europe, and
appreciate getting this opportunity to testify before I fall on my
nose.
The reason for that trip was to meet with some of the EEC
government officials including officials of the member states to
discuss some recent developments over there. These proposals had
to do with the projection made by the French, or suggestions made
by the French, to provide for licenses and surety deposits on al-
monds and walnuts. What this would provide is that the licensing
arrangement would be required for the importation of these com-
modities.
Now, as we have commented, all the almonds in the United
States are grown in California. We have about 50 percent of the
world trade. It amounts to some $125 million in the European
Economic Community and we do business over there on the basis of
yearly contracts.
We feel that any disruption in this type of an operation as
suggested by the licensing type arrangement would be very detri-
mental to trade and therefore we are discussing that measures
with the EEC community.
The suggestions were made for some types of licensing and the
licensing would be short term and, as I say, would be extremely
disruptive to trade.
It was interesting to note on the trip home that at the same time
these suggestions were being made the trade agreement was being
initialed in Geneva so it gave us some concern as to the type of
activities that might be undertaken by the Community.
Also it was interesting to note in the international edition of the
Herald Tribune that the EEC was disturbed by language in the
package that would have to do with the injury test for countervail-
ing duty waiver and this would leave out the work material. It
seemed to me perhaps if the French are going to propose these
kinds of activities in almonds and walnuts, maybe they have no
basis for the insertion of wording like that.
Particularly disturbing was the working committee on agricul-
ture and special agriculture committee considering this action. Ac-
tually we met yesterday at the very time this committee was
meeting to discuss and consider the passage of the trade bill.
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However, we are pleased to learn that some of the individual
European governments were favorably inclined toward our position
and opposed to the imposition of licensing. We are also interested
to learn that most of the European governments we talked to are
keenly interested in the progress of these hearings and of the
progress of the trade bill, and are vitally interested in seeing it
concluded.
I would like to go on to say, as we comment in our statement, we
certainly support the efforts of these trade negotiations that have
taken place under the Tokyo round, and we have worked with
them from the beginning, starting with our efforts in the passage
of the Trade Act of 1974.
We do not know exactly what is in the trade package yet and
therefore we can't comment in detail. We have heard there are
some concessions in a number of countries on almonds, but we
don't know which countries or the exact nature of the concessions
involved.
However, from trade sources we have been able to learn of two
concessions, one in India which has allowed imports of almonds in
the last 2 years, and provided for some 3 million dollars' worth of
trade each year, and we hope that this trade may get up as high as
$5 million per year.
In addition the trade has told us of a suspension of duties in
Switzerland and that market accounts for some $5 million of trade.
This is compared to some $125 million in the European Economic
Community.
Our continued support of this measure is based on the belief that
we will obtain a concession in the European Economic Community.
From the beginning we said that the major portion of the time that
was available to be spent on almonds in this negotiation should be
spent on the elimination of the EEC duty.
Again in some of my reading on this trip I was interested to note
the report that Ambassador Strauss had recently received or nego-
tiated, I should say, another concession from Japan on telephones,
even at this late date, which makes us even more confident that
Ambassador Strauss and Ambassador McDonald will be successful
in obtaining the concession on almonds from the European Eco-
nomic Community, particularly in light of their assurance that
they are continuing to work on this measure.
We understand that this concession has not yet been achieved
but we continue to hear expressions of the work that is being done
in this regard and we do fully expect success, and with this success
certainly will be wholehearted endorsement of the package on the
part of the almond growers of this country.
This will certainly result in a substantial expansion of this larg-
est export market in the world market of some $125 million.
[The prepared statement follows:]
STATEMENT OF STEVEN W. EASTER, SECRETARY, CALIFORNIA ALMOND GROWERS
EXCHANGE
Introduction
This statement is made by the California Almond Growers Exchange, an agricul-
tural cooperative located in Sacramento, California. The Exchange has 4,700
member-producers who produce approximately 60 percent of the almonds grown in
California. All of the almonds produced commercially in the United States are
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produced in California. The Exchange receives, processes, packs and markets al-
monds for its members. The Exchange's almond supply is obtained exclusively from
its members. The Exchange sells the almonds of its members throughout the United
States and in nearly every country of the world.
The Exchange is heavily committed to the export of almonds. In recent years it
has exported approximately 50 percent to 60 percent of the almonds it handles. In
1974 almonds were fifth among the ten leading U.S. agricultural exports as a
percentage of farm production. In 1976 almonds were first.
The California Almond Growers Exchange believes that the proposed trade pack-
age represents distinct gains for U.S. agriculture. It commends Ambassador Strauss
and his negotiating team for their commitment to keeping the objectives of U.S.
agriculture high on their list of priorities in the negotiations. The California
Almond Growers Exchange strongly supports the dual purposes achieved by the
proposed new agreements if adopted: (1) The establishment of new international
rules to assure that trade will be conducted more fairly and equitably between
nations, and (2) the further reduction of specific barriers, both tariff and non-tariff,
for individual products.
Tariff concessions
The California Almond Growers Exchange has heard unofficial reports that duty
concessions of benefit to the almond industry have been obtained from several
developed and less developed countries. If these duty reductions are finalized, we
are confident that this increased market access will lead to increased trade with
several of these countries.
Although the almond growers are pleased with the prospect of these concessions,
we cannot hide our disappointment in the current status of the negotiations on
almonds with the European Economic Community (EEC). It is our understanding
that to date, U.S. negotiators have failed to achieve a reduction in the 7 percent
duty imposed by the EEC on all almonds imported into its member countries and a
proportionate reduction on the duty on canned almonds. The EEC represents the
largest single market for the export of almonds from the U.S.
The California Almond Growers Exchange had recommended from the beginning
that a major thrust of the negotiations in the agricultural sector should be to assure
equitable and reasonable access to foreign markets for U.S. almonds and almond
products. Due to the importance of the EEC as a foreign market for U.S. almonds,
the achievement of equitability necessarily calls for a reduction in the duty current-
ly imposed by the EEC. We do not intend to imply that this lack of progress with
the EEC was a result of a less than complete effort by our negotiators. In fact, we
believe that the agricultural community, for the first time, has received the priority
and effort which it deserves. For this, we congratulate our negotiating team and
also the Department of Agriculture for its support. At the same time, the California
Almond Growers Exchange urges this Committee to impress upon STR the need to
continue efforts aimed at achieving concessions of benefit to our industry from the
EEC before it finally concludes the negotiations.
Nontariff barriers
The efforts of our negotiators to ameliorate nontariff trade barriers represents a
new dimension in multilateral trade negotiations and involves important changes
from the existing General Agreement on Tariffs and Trade (GATT). Non-tariff
barrier amelioration is represented primarily by the creation of new trade codes.
We are, of course, disappointed that the "safeguards" code has apparently failed to
receive approval, but we believe the remainder of the codes can be helpful in
sustaining world trade.
Our only reservation with respect to the trade codes lies in their probable restrict-
ed acceptance. We note that these codes contain provisions relating: (1) To "acces-
sion" which is strictly voluntary although open both to GATT members and non-
members; (2) to "withdrawal" which permits withdrawal from accession within
ninety days; and (3) "non-application", which permits a signatory to the code to
declare that it shall not apply to that signatory.
At some point, we believe collateral legislation will be necessary to achieve
reciprocal compliance with codes, regardless of whether the particular trading part-
ner has accepted the codes. This could involve granting full MFN rights only to
countries which accept the codes or comparable trade rules.
At present, 21 years after the institution of GATT, only 74 percent of the approxi-
mately 151 countries with which the United States conducts its major trade are
affiliated with GATT. Only 65 percent of these have participated in the Tokyo
Round trade negotiations. Published reports indicate that many of the negotiating
countries are displeased with the trade codes and are unlikely to accept them. The
L~_998 - 7~ - 12
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prospect that any substantial part of United States trade will be governed by the
new trade codes is, therefore, dim.
Statutory procedures: need for judicial review
The California Almond Growers Exchange recommends to this Committee that
the implementing legislation for the trade package provide for a right of appeal
from adverse decisions in cases brought by domestic producers seeking relief from
alleged violations of the trade laws. This right of judicial review should arise from
cases brought under any provision of the law, including Section 301 of the Trade
Act of 1974 as well as the proposed new codes. It should not be limited to cases filed
pursuant to the contervailing duty law.
Second, the right of judicial review should lie in the federal courts, not the
Customs Court. The types of matters routinely handled by the Customs Court are
limited primarily to cases involving classification and valuation of entries. The
types of issues which might be the subject of cases brought pursuant to various
provisions of the proposed trade package cover a much broader spectrum. Addition-
ally, the Customs Court is not empowered to grant equitable relief, which includes
the issuance of injunctions. In the opinion of the California Almond Growers ex-
change, the right to judicial review of adverse decisions is a necessary extension of
our negotiators' efforts to enchance the ability of U.S. producers to seek remedial
relief under the trade laws.
Conclusion
The California Almond Growers Exchange is appreciative of the consistent pres-
sure applied by our negotiators to achieve greater market access for agricultural
products of interest to California. We believe that the agreements, if adopted,
represent a real step forward for U.S. agriculture as a whole, and we urge passage
of the proposed trade package.
Ambassador Strauss has frequently stated that he would be happy to receive a
C+ or a B- grade upon completion of the negotiations. The negotiations with the
EEC are not yet entirely completed. The member-growers of the California Almond
Growers Exchange would raise Ambassador Strauss' final grade considerably if he
were to come home with a reduction in the EEC's 7 percent duty on fresh almonds.
Mr. JONES. Thank you, Mr. Easter, and our colleague Tony
Coelho.
Based on what you just said, would you care to comment on the
Senate committee report that has been distributed that would indi-
cate your industry would have about $5 million in new trade as a
result of this agreement?
Mr. EASTER. Based on what we know of the Indian market, we
would have to agree that this, in a matter of say 4 or 5 years, could
well be possible. That is the only part we are truly aware of, but it
would sort of match that report, yes.
Mr. JONES. Do you have any concerns about enlargement of EEC
to include Spain and Greece?
Mr. EASTER. Very much so. This is the major reason why this
target is so important to us, because of the fact that Spain is the
other one of the major producers of almonds in the world, and by
becoming members of the Community would have tariff protection,
which they do not now enjoy.
We have been working with the Special Trade Representative
Ambassador Strauss, and his staff, to insure that there be contin-
ued equal access to markets. So this is very important to us.
Mr. JONES. Thank you.
Mr. Vander Jagt?
Mr. VANDER JAGT. No, thank you.
Mr. JONES. Mr. Guarini?
Mr. GUARINI. No questions.
Mr. JONES. We are to adjourn at noon because there is a function
over in the Capitol.
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Our next witnesses scheduled are the cattlemen. Rather than
break up that testimony, let's adjourn until 1 o'clock, when we will
meet in room 2154, the Rayburn Building.
[Whereupon, at 11:55 a.m., the subcommittee recessed, to recon-
vene at 1 p.m.]
AFTERNOON SESSION
Mr. VANIK. Our next witness is Samuel H. Washburn of the
National Cattlemen's Association.
STATEMENT OF SAMUEL H. WASHBURN, CHAIRMAN, FOREIGN
TRADE COMMITTEE, NATIONAL CATTLEMEN'S ASSOCIATION
Mr. WASHBURN. Thank you Mr. Chairman.
I am Sam Washburn, a full time cattle farmer from Farmer,
Indiana. I would like to make a few introductory statements.
We have a favorable impression. We are pleased at the efforts of
the special trade representative and we are pleased with the em-
phasis that he placed on beef in the negotiations. We are finding
some access in areas in markets that we have not had access or as
much access in the past. As we understand this hearing process we
think that we would like to point out a couple items and a couple
ideas that we had that might be wrapped up in the package with
committee's consideration and that is the reason that the state-
ment presented today but not to be confused with our overall
positive look at the package.
The National Cattlemen's Association (NCA) appreciates the op-
portunity to be here today to discuss various aspects of the multi-
lateral trade negotiations and their effect of the beef cattle indus-
try. Our industry has much to gain or lose depending on how the
MTN is implemented.
Nearly half of U.S. agriculture production relates to the sale of
animal products with about half of that figure made up of beef and
beef products.
Cattle producers in the United States sell their product almost
exclusively on the basis of an individual enterpriser who is orient-
ed to the private marketplace with no governmental subsidization.
There are approximately 1.5 million producers of beef cattle in the
United States. The sizes of these individual operations range from
as few as three to five head up to some herds numbering into the
thousands.
Most importantly is the fact that every producer makes his or
her own decision when it comes to the marketing of their product.
His decisions are bases on several influences. Most significant is
that of price followed by other factors such as weather, govern-
ment, and others.
The NCA has followed the progress of the MTN closely for the
past several years. Several of our members, including myself, have
participated in various of the private sector advisory committees.
The ATAC on livestock and livestock products which I am a
member of has been very active in expressing viewpoints on many
aspects of the MTN, particularly on access and several of the codes.
The MTN is very complex. I will address only those areas which
are of particular concern to us in the cattle industry. They are:
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access agreements, subsidies code, safeguard code, and private
sector involvement.
ACCESS
The NCA recognizes that a great deal of effort way expended by
the special trade representative to secure additional access for high
quality U.S. beef into foreign markets, primarily Japan and the
European Community.
On the surface, especially when compared to previous trade, the
access agreements as reported to us represent a small step in the
right direction. However, when looking into the limiting conditions
attached to the offerings, they are clearly inadequate.
In Japan, we are told the high quality quota will be 30,800
metric tons by 1983. This compares to about 16,800 metric tons
now.
Mr. VANIK. What size quota was that? When you compare that
to the quota before the Strauss-Ushiba communique, how does that
compare?
Mr. WASHBURN. It was 16,800 tons and there was a 10,000 metric
ton additionality last year.
Mr. VANIK. All right.
Mr. WASHBURN. So 10,000 is already included prior or since the
Strauss-Ushiba communique.
This is not very much beef and falls disappointedly short of the
real potential for that market. The STR informs us that if we can
create or exploit demand above the 30,800 metric ton level, the
Japanese will allow us more access.
The problem is that because of a quasi-government organization
named the Livestock Industry Promotion Corporation (LIPC) in
Japan we will never know the real demand for our high quality
beef. The LIPC controls over 90 percent of the beef imported into
Japan. Through a variety of surtaxes, tariffs, levies and other
charges it sets price, quotas and by so doing arbitrarily and unfair-
ly limits access. A pound of beef purchased for $3.50 in the United
States sells for up to $35 in Japan. Obviously LIPC manipulation
can seriously restrict domestic demand and effective access.
EUROPEAN COMMUNITY ACCESS
Arrangements on access into the EC are even more vague and
arbitrary. We are told access will be provided for high quality beef.
Access would theoretically be under a unilateral condition imposed
somewhat similarly to that of the high-quality quota for Japan.
Access into the EC has been suggested on the basis of up to
10,000 metric tons. As in Japan, it has been implied that if we can
create demand above the 10,000 metric ton level, the EC would
grant additional access. The beef would be subject to a 20-percent
ad valorem duty.
The United States in return for this 10,000 metric tons would
have to agree to accept 5,000 metric tons of subsidized EC beef.
Mr. VANIK. That would be within quota?
Mr. WASHBURN. Yes.
Access to the EC of a net increment of 5,000 metric tons isn't
very much beef. However, welcome any additionality is, the NCA
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believes that any accommodation that legitimizes subsidization of
exports is just fundamentally wrong and unacceptable.
Our response to the offers and requests of the MTN package are
compatible with those of the ATAC on livestock an livestock prod-
ucts. The chairman of that committee will be testifying following
me in these hearings and will submit the ATAC report at that
time.
SAFEGUARDS CODE
It does not look like a safeguards code will be included in the
final MTN package submitted by the President at this time so I
will not dwell on the subject for long. The NCA believes that the
principles of the meat import law and voluntary restraint program
which has operated successfully should be excluded from any safe-
guards code.
The STR has concurred that any proposed safeguard code should
not and would not involve the U.S. domestic meat import program.
We think that if such is not spelled out either in the code or
domestic implementing legislation, U.S. producers and the Import
Act are in serious jepoardy.
SUBSIDES CODE AND COUNTERVAILING DUTIES
The subsidies codes, of all the codes in the package, is of the
most serious concern to the Nation's cattle industry. Quite simply
we object to the importation of a product, in this case beef, that is
granted an export subsidy which competes with a like product in
this country that is not subsidized.
We object to the requirement of the injury test procedures pro-
posed in the subsidies code for the following reasons:
One products that are produced or marketed under a governmen-
tal subsidy and are exported in competition with domestic products
which are produced without subsidies or governmental regula-
tions-except those for standardization, health and sanitation-
constitute a prima facie case of injury to domestic producers and
the United States should immediately impose countervailing duties
to the extent of that subsidy.
Two countervailing duties on subsidized products should be im-
posed unless and until the major producing and consuming nations
grant access to their markets for U. S. products that is reciprocal
and is at least equivalent to access that is allowed or guaranteed to
the market in the United States.
Mr. VANIK. Why should you care? You are protected by a quota.
Mr. WASHBURN. We feel this is not a fair aspect-you know,
what is being fair in our approach to that-and the protection by
the quota can be somewhat arbitrary.
Mr. VANIK. Well, I don't quite follow you on that. I thought that
with the quota you would have all the best manifestations of the
protections you seek.
Mr. WASHBURN. The subsidies issue is more of a philosophical
point with us than an actual point because of the limited tonnage.
Mr. VANIK. Yes. All right.
Mr. WASHBURN. If an injury clause is included in the final ver-
sion of a subsidies code, due consideration must be given to the
peculiarity and differences within agriculture and the livestock!
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meat business in particular as distinct from industry. The cyclical
inventory fluctuations make it virtually impossible for the cattle
industry to be able to attribute losses or prove injury as proposed
in the code. There are many different segments of the cattle indus-
try. Not all segments are affected the same way at the same time.
Following are some of the economic factors and indices men-
tioned in article 6 which affect the cattle industry differently than
they do conventional business and industry.
Decline in output: The opposite is true in the cattle industry.
Low prices stimulate liquidation of the cowherd which in turn
means more output and production for at least 2 or 3 years.
Lower sales: During the liquidation phase of the cycle, sales
actually increase. We always consume essentially everything we
produce plus what we import at a price. The price is determined by
supply and demand. Essentially, we sell everything produced.
Reduced market: The U. S. share of domestic beef sales stays
relatively the same from 1 year to the next. As domestic produc-
tion increases, so do imports, and vice versa. As a result, when
domestic supplies are high and prices are low, more imports are
allowed, compounding oversupply.
Productivity: Productivity is actually high in some respects
during the liquidation phase of the cycle as more cattle are pro-
duced in some operations with basically the same number of work-
ers. Also, productivity may improve in the meatpacking industry
because of large beef output per plant. However, financial losses to
producers lower productivity in some ways. That is because produc-
ers may not make full use of available technology-because of out-
of-pocket costs-and longer term trends to improved productivity
may lag.
Additional considerations for determining the impact on the do-
mestic cattle industry should include: stage of the cattle cycle, that
is liquidation versus herd buildup, rate of cow slaughter, consump-
tion, weather, effects on allied industries, and rural business com-
munities, health.
PRWATE SECTOR PARTICIPATION
The NCA favors more direct involvement and input from the
private sector in the negotiation of trade arrangements. Congress
recognized the value of the advisory role from the private sector
when it wrote the Trade Act of 1974.
Mr. VANIK. We are going to cover that on the bill we have on
Monday.
Mr. WASHBURN. Right.
Mr. VANIK. So we are going to deal with that.
Mr. WASHBURN. We would like it in the record to show the
compatibility of the testimony.
Mr. VANIK. Between. the two actions.
Mr. WASHBURN. Yes.
Mr. VANIK. All right. There is not going to be that much of a
controversy on that bill, is there?
Mr. WASHBURN. I hope not.
Mr. VANIK. I am not aware of it.
Go ahead and finish your statement.
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Mr. WASHBURN. During the past several years the ATAC on
livestock and livestock products met regularly to review the on-
going negotiations and to make recommendations.
It is disappointing to us who served on the various private sector
groups that while we were listened to, all too often our recommen-
dations were not put on the negotiating table nor did the STR
respond to them.
The NCA would like to see the continuation of the private sector
advisory committees. However, to function properly they must be
given more staff support, latitude and automomy.
The NCA believes that in the formation of any panels, councils,
or governing bodies to any of the codes or arrangements such as
the proposed meats arrangements in the MTN package there must
be provisions for private sector input and participation.
Mr. Chairman, these are our points that we wanted to enumer-
ate but not to be confused with our overall support and encourage-
ment that you look favorably on the MTN package.
Mr. VANIK. Thank you very much.
You are going to have an opportunity when the Prime Minister
of Japan comes in in a few days to probably direct some of the
special problems that occur between us.
Mr. WASHBURN. We look forward to that.
Mr. VANIK. The trade imbalance had been going down, but I am
worried about the effect of automobile sales in the last 3 months
which have been very heavy. Because of the Iranian crisis they
have been selling a tremendous amount of automobiles which is
going to be reflected in the figures later on this year rather ad-
versely.
Mr. WASHBURN. We are encouraged by the enthusiastic accept-
ance of United States beef in Japan.
Mr. VANIK. All right.
Mr. Marble.
STATEMENT OF PETER E. MARBLE, CHAIRMAN, AGRICULTURAL
TECHNICAL ADVISORY COMMITTEE ON LIVESTOCK AND
* LIVESTOCK PRODUCTS
Mr. MARBLE. Thank you, Mr. Chairman.
I am Peter E. Marble, a rancher from northern Nevada.
Mr. Chairman, I have prepared a statement. I appear here today
on behalf of the Livestock Trade Policy Advisory Committee-
ATAC-for the private sector interests that are involved in live-
stock, meats and byproducts. I prepared a statement that reflects
the viewpoint of ATAC and attached to it is a summary of various
policy recommendation that ATAC has issued in the past. In view
of the remarks that Mr. Washburn has made and the completeness
of these statements, I would submit them only for the record and
would not belabor the point.
I would like to make several summary observations beginning
firstly with the appreciation of the Livestock Trade Policy Commit-
tee for the continued monitoring of our activities by the staff of
this committee, and again it is because of that consistent monitor-
ing of our deliberations over the last several years by your staff
that it seems unnecessary to again belabor some of these points or
repeat ourselves.
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I would say this, that I think it is important as the committee
considers certain of the points that have been raised by the live-
stock ATAC and certain of points that have been raised by Mr.
Washburn that the value of the products represented by the live-
stock ATAC probably represent something like one-third of the
total agricultural dollar value of production in this country. I
think, as is well known, the combined value of all meats, including
poultry which was not a commodity under the jurisdiction of our
livestock ATAC, the gross value of all meat products and byprod-
ucts of livestock represents about a half of the total annually
produced dollar value of agricultural items in this country. So we
are talking about a very, very significant element of agriculture
when we are talking about meat and livestock and for that reason
we certainly hope that these points, again as I say that Mr. Wash-
burn has referred to and that I will refer to in a moment, are
considerded in that light.
Second, let me rather make the point that the U.S. meat and
livestock industry has adopted and continues to maintain the most
liberal trade policy attitudes of any meat and livestock industry
any place in the country and we continue to believe those interests.
that were represented on the livestock ATAC truly support the
objectives of the multilateral trade negotiations, the effort to liber-
alize trade. The reservations of the committee have extended to the
implementation of those objectives in the particular contractual
language in the codes and the particular contractual language in
the codes and the particular arrangements within certain of the
agreements that have provided for access of product into the Euro-
pean community and the Japanese community so these differences
go to the matter of the specific provisions as to how we accomplish
the overall objective.
Third, let me say this. I think I would just emphasize, as Mr.
Washburn has, that there are four principal elements that we feel
need shoring. I think the livestock ATAC in the meat industry
need clarification in the implementing domestic legislation that is
attached to the trade package and these four areas relate to the
private sector involvement and participation in the meats arrange-
ment. We feel that there is a role that should be played directly by
the representative of the private sector in this proposed arrange-
ment and so far there is no provision for such participation except
in a very ancillary way.
Mr. VANIK. We are trying to help on that point as you are
aware.
Mr. MARBLE. We appreciate that.
The second point, of course, is the one of access. While indeed we
appreciate the opportunity to export high quality beef to the Euro-
pean community and to the Japanese community, is fair to say
that the opportunities that have been created are far, far short of
the principles that we have encouraged and far, far less than the
capacity of U.S. agriculture in the meat and livestock industry.
Third, the question of subsidies that Mr. Washburn has referred
to is again we think uniquely-not uniquely but especially of im-
portance to our commodity interests and in any other of the agri-
cultural commodity interests which fundamentally operate without
benefit of any domestic U.S. subsidy or assistance and it is for that
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reason that we feel particularly that it is unsuitable to permit
subsidized meats into the United States market to compete against
the products that are produced by farmers who have no such
assistance from a Government program.
Fourth and last, of course, is the question of safeguards and the
committee does feel indeed that it is appropriate to write into the
domestic legislation, if not into codes, recognition that the U.S.
Meat Import Act and the voluntary restraint agreements which we
feel have operated beneficially and fairly and with liberality are
maintained and safeguarded at least until such time as those of us
who produce livestock and meat have truly reciprocal opportunities
in foreign markets.
I think without further comment, Mr. Chairman, I would just
simply draw your attention to my concluding remarks in my state-
ment offered today which goes to the matter of the reconstitution
of the private sector advisory committees if in the best judgment of
the Congress it seems desirable to continue this.
Mr. VANIK. We have already decided to do that. That is one of
our actions. I think it has been made public.
Mr. MARBLE. Fine. I appreciate the opportunity to make these
summary comments, Mr. Chairman, and I have nothing further to
offer at this time.
Mr. VANIK. Well, thank you very much.
The committee will stand in recess for about 10 minutes so we
can get a vote in.
[Whereupon, the subcommittee recessed.]
[The prepared statement and additional material follow:]
STATEMENT OF PETER E. MARBLE, CHAIRMAN, AGRICULTURAL TECHNICAL ADVISORY
COMMITrEE ON LIVESTOCK AND LIVESTOCK PRODUCTS
Mr. Chairman and members of the committee, my name is Peter E. Marble,
Chairman of the Government's Livestock Trade Policy Advisory Committee (ATAC).
My sole lifetime occupation has been that of a range cattle producer from Northern
Nevada. My earnings, employment and investments are limited exclusively to ranch
ownership and management both there and to a limited extent in Monterey County,
California.
Herewith is submitted various trade policy recommendations adopted by the
Livestock ATAC during the past several years. They are presented for your informa-
tion and the record without reading.
I should like to note, however, that the gross dollar value of the products related
to our Committee's advisory reporting responsibility relates to over 30 percent of
the total value of U.S. agricultural production. Over 1,000 tariff items fall within
the ATAC's advisory jurisdiction including such diverse items as pharmaceuticals,
fur skins and frog legs.
Mainly our Committee has been preoccupied with situations relating to beef, pork,
wool, hides/leather, tallow and lard. The current level of trade in these items is
balanced at about $2 billion. Imports consist mainly of beef, pork and lamb and
wool. Exports are primarily tallow, lard, hides and a variety of animal byproducts.
The U.S. Agricultural approach to the MTN has been badly flawed in three major
respects:
(1) First, the terms of U.S. agricultural access into foreign markets was not
pressed on a basis that is in any way reciprocal to that extended to either agricul-
tural or industrial imports in the U.S.
(2) Second, from the outset, foreign schemes of governmental subsidy, supply and
market management have been conceded terms of unilateral protectionism against
which U.S. private enterprise, market oriented agriculture has been stripped of
reasonable and necessary defense.
(3) Third, direct, primary U.S. private sector representation and involvement in
the international processes of international trade problem solving has been totally
neglected in preference to a continuum of international bureaucracies (i.e. FOA,
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OECD, UNCTAS, GATT, etc.). Now a Meats Arrangement is proposed. Govern-
ments, and in this case the STR are forever adopting unsuccessful governmental
solutions that are managed by the bureaucracy in place of those oriented to the
market, private and individual enterprise.
So what should the Congress do at this point? By all means adopt this wordy,
obscure exercise in bureaucratic manipulation and protectionism and get on to
matters of greater national importance.
However, in accepting the MTN proposals, I urge the Congress to carefully,
clearly and loudly proclaim the inviability of a U.S. agriculture that is oriented to
the marketplace and private individual farmer enterprise. Do so by insisting upon
clarifying domestic legislation.
Make it abundantly clear that no U.S. farmer who labors and produces perishable
commodities without governmental financial support shall have to prove injury
against or withstand the wrongful competition of unregulated foreign goods which
are produced and/or exported by reason of foreign subsidization.
Write into U.S. law that no unsubsidized U.S. Agricultural perishable Commodity
sector shall be subject to a level of foreign imports that exceeds the reciprocal
opportunities available and guaranteed to U.S. farmers for their exports.
Spell out boldly and unmistakably that the principal U.S. representatives to
international commodity agreements (conventions, arrangements, meeting, etc.)
shall be U.S. farmers or their elected representatives.
Finally, a word about the operation of private sector Advisory Committees in the
future. Within Agriculture there should be but one Committee. It should be: (1)
directly responsible to Congress; (2) advisory to the Administration; (3) subject to its
own rules, chairmanship with access to a limited privately directed staff; (4) granted
a modest budget for committe member and staff expense for at least two meetings a
year. Finally, (5) Representation should reflect that of the presently constituted
ATAC's in proportion to agricultural production and sales.
SUMMARY PosrnoN OF ATAC FOR LIVESTOCK AND LIVESTOCK PRODUCTS
Background
The product interests of the Committee cover over 1,000 tariff items including
tallow, mink skins, leather, wool, meats, frogs, horses and pharmaceuticals.
General negotiating objectives
(1) Parity of access among raw, processed or prepared (finished) U.S. agricultural
products. An orientation to market prices that is unrestricted by arbitrary protec-
tionism.
(2) International access for commodities of animal origin equal to not less than 5
percent of any domestic market (based on production and/or consumption figures).
This includes beef, lamb, pork, poultry and offal. In the case of U.S. high quality
beef, the U.S. access request is for one pound per capita to be implemented over a
five-year period at the rate of one-fifth pound per year.
(3) Elimination of export subsidies, government price and supply management,
dumping or any other practice which disrupts the private market place.
(4) Consumer access to world food and by-product supplies at market prices.
Utilization of bilateral supply arrangements, and development of "nonmarket"
country as well as LDC relationships.
(5) The U.S. should restrict imports to the extent that is necessary to protect
against (a) dumping, (b)the destruction of cost-price competitive domestic enterprise
and (c) the nonreciprocal realities of international trade practice.
(6) Utilization of surplus feedstuffs, the development of international food reserves
and food producing potential should be encouraged by increasing market opportuni-
ties for meat products. Livestock and/or meat represent the most efficient means of
maximizing nutritional resources and food reserves.
Negotiating objectives for livestock, meats and animal byproducts
(1) The specific E.C./Japanese global (open to all suppliers) access objective for
beef meat should be the greater of 5 percent of foreign national production or 5
pounds per capita-implemented over a 5-year period at world market prices.
Access for other meats should be secured in proportion. The minimum U.S. E.C./
Japanese access objective should be one pound per capita of choice/restaurant
quality beef meat.
(2) Access for leather, mink skins, processed animal fats or any finished or
manufactured animal product-as well as breeding and dairy animals-should be
equal to that accorded live, raw or unprocessed agricultural products.
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(3) The U.S. should limit participation in G.A.T.T. or bilateral agreements to those
which provide for reciprocal access at market prices and establish procedures for
resolution of collateral agricultural issues.
(4) The U.S. should take the lead in calling for world access that: (a) is global
versus bilateral-premised on principles incorporated within the U.S. Meat Import
Act and Voluntary Restraint Agreements; (b) is oriented to trade equality between
processed or finished products and feedstuffs or live animals; (c) is free from govern-
mental supply/price market regulation as differentiated from farmer income supple-
mentation schemes; and (d) rejects the present GATT/MTN negotiating protacol and
Secretariat management both of which favor the old unworkable solutions of the
past, the status quo and national protectionism.
(5) The denial of access to agricultural raw materials by a country should be
considered a subsidy on the export of processed agricultural products derived from
that raw material and subject to countervailing measures.
U.S. offers and requests
In certain instances U.S. offers that have been tabled do not agree with the
recommendations of the Committee: The tariff reduction on the fresh, chilled and
frozen beef items 106.10 and 106.20 did not include the conditions stipulated. Our
recommendation on offers on these items was that no offers were to be made unless
they were conditioned on concomitant granting of access for these items by the E.C.
and Japan. The Committee unanimously urges that unless our conditions are rein-
stated, the offer be withdrawn. Similarly, our recommendation that tariffs on finer
wool, tariff items 306.31 through 306.33, not be negotiated has been ignored. The
Committee requests that offers on these wool items be withdrawn.
Following the review of the U.S. offers to other countries and their responses to
us, as presented, we believe that in view of the totally inadequate responses from
other countries to U.S. requests as compared to the generous U.S. offers, and the
evidence that other countries are not taking the negotiations seriously with respect
to offering meaningful concessions, we wish to reemphasize the previous recommen-
dations of this Committee which have been submitted to you. We also wish to
recognize and express agreement with the statement by you, that if the United
States does not obtain reciprocity and something meaningful for agriculture you
will withdraw U.S. concessional offers. We wish to restate to you our support for
your publicly stated position. The above was agreed upon unanimously.
Safeguards code
While favoring measures to insure against arbitrary market protectionism and
while supportive of safeguard obligations that guarantee reasonable minimum leyels
of market access, the Livestock Technical Advisory Committee recommends against
acceptance of any modification of safeguards that would prevent application of the
U.S. Meat Import Act, implementation of V.R.'s or the flexibility of reasonable
response against dumping export subsidization as provided under Section 204 of the
Agricultural Act of 1956.
The LTAC specifically requests that developing countries not be granted special
treatment under a proposed safeguard code.
Standards code
The LTAC supports in general the government objectives outlined in its presenta-
tion paper. However, the Committee reserves the right to further define the techni-
cal implementation as more information is received.
Subsidies code
The LTAC finds that in principle the use of subsidies for any purpose, particular-
ly in the export of agricultural products, is wrongful and injurious to the best
interest and stability of private enterprise, and to least cost advantage in production
and marketing. No arrangements which limit the right to countervail against or
prevent the export subsidization in the meat/livestock/animal or by-products sec-
tors should be permitted. The LTAC does not oppose some accommodation to trade
in agricultural subsidized products which are the subject of international agree-
ments in which there is specific provision for export subsidization.
Government procurement code
The LTAC opposes U.S. participation in the government procurement code.
Among the reasons for the Committee's objection are:
(1) The dangers implicit in the implementation of the code far outweigh the
possible benefits to members of the industries represented by this TAC.
(2) The size of the possible benefits is one-sided to the detriment of U.S. industries.
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(3) The difficulties of achieving open procedures in most countries seem insur-
mountable in their practical applications.
(4) The threshold values contemplated offer no protection to U.S. suppliers but
could practically eliminate U.S. access to many foreign government procurements.
(5) Specifically, woolen clothing and leather products made from the commodities
produced by some of the members of this TAC would be placed in severe jeopardy by
the code obligation.
Customs valuation code
The proposed changes under this code can have severe implications for the woolen
products manufactured from the wool supplied by members of this TAC. Special
provisions should be included in the code to address the needs of this industry.
Arrangement on bovine meat
The TAC has been following the developments regarding the proposed meat
agreements. So far, however, insufficient information is available on which to base
recommendations.
RESOLUTION FROM AGRICULTURAL TECHNICAL ADVISORY COMMIrFEE ON LIVESTOCK
AND LIVESTOCK PRODUCTS
Whereas, reciprocal trade access is the cornerstone of U.S. Agricultural policy;
and
Whereas, the U.S. meat and livestock industry consistently supports reasonable
guarantees of international market access and the elimination of arbitrary tariff
and non-tariff barriers; and
Whereas, particularly in consideration of large U.S. feedstuff surpluses, world
food shortages and malnutrition and the capacity, interest, and ability of the U.S.
meat and livestock industry to profitably supply important quantities of product at
prices significantly less than those prevailing in the major meat importing and
consuming countries: Therefore be it
Resolved, That the Agricultural Technical Advisory Committee on Livestock and
Livestock Products recommends strongly and without equivocation to the office of
Special Trade Representative and all other U.S. agencies and departments that
share responsibility for development of trade policy and improvement in trade
conditions that every effort be continuously applied throughout the GATT multi-
lateral trade negotiations (Also known as the Toyko Round) to:
(A) Secure world-wide (all countries) access for all meat, by-products, and livestock
in amounts that are not less than those reasonably equivalent to the access current-
ly assured into U.S. markets.
(B) Eliminate variable levies and other arbitrary restrictions on a reciprocal basis.
(C) In the case of beef meat, to secure country-to-country access equivalent to not
less than five percent of domestic production or five pounds per capita whichever is
greater, and
(D) Stage the guarantee of such access proportionately over a five-year or such
other period as may seem reasonable.
(E) Make it very clear that on account of world production, surplus, nutritional,
reserve price, and other such factors it is of paramount importance to the U.S. that
international questions relating to trade access for meat, by-products, and livestock
be resolved within the time frame of the current M.T.N. and not some indetermi-
nate period in the future.
The foregoing is in no way intended to limit or abridge previously trade policy
recommendation from the ATAC on livestock, nor does the foregoing in any way
prevent future and continuing policy statements on any commodities represented by
the committee.
In the opinion both of the members of the Livestock Trade Advisory Committee
and USDA analyst's, the proposed Safeguards Code would invalidate provisions of
the U.S. Meat Export Act of 1964 and the use of the Voluntary Restraint Agree-
ments.
The Committee recognizes that almost every meat producing country of the world
with the lone exception of the U.S. has periodically embargoed trade in meats.
Restraint in beef and meat trade has been wrongly and arbitrarily employed under
the guise of "safeguard action" and the present provisions of GATT Chapter 19.
These unfair and damaging actions have been particularly true of Japanese and
European trade policy.
The LTAC agrees that the Safeguards Code should be strengthened to prevent
unilateral avoidance of reciprocal trade responsibility in matters such as guaranteed
access and elimination of tariffs.
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However, until such time as the Western European, Japanese and other major
beef production and consuming countries agree to a procedure for continuous access,
tariff/levy/licensing elimination and an orientiation to "market prices" that is in
harmony with the U.S. Meat Import Act, the Voluntary Restraints and reciprocal
policies of free-er trade: "The U.S. beef, meat and livestock industry should not
become bound by the provisions of the proposed safeguards coded or any commit-
ment which would have the effect of invalidating the intent of the Meat Import Act
or the ability of the U.S..to respond to the realities of the international meat trade
in a reciprocal manner."
The Livestock T.A.C. will be most appreciative of an acknowledgement and re-
sponse from both the U.S.D.A. and S.T.R. as to the acceptability and implementa-
tion of the foregoing recommendations.
MARCH 27, 1979.
To: APAC.
From: ATAC on Livestock and Livestock Products.
Subject: MTN-Requests and Offers.
S.T.R. representations to date with respect to the results of the M.T.N. are
confusing and misleading.
Basically the S.T.R. has portrayed the M.T.N. performance by calculating the "so-
called" "trade benefit ratio" on the basis of approximately $4 billion of U.S. agricul-
ture commodities exported (based upon 1976 trade figures) and $3 billion imported.
By so doing, the S.T.R. has created several wrong impressions. Among them is that
U.S. agriculture is in prospect of gaining $4 billion in additional export opportuni-
ties.
For instance in the case of beef the figures seem to indicate that the U.S. has
offered concessions on $1.3 billion of livestock related imports from foreign sources.
In exchange, foreigners have offered concessions on $0.9 billion leaving a U.S.
shortfall of $0.4 billion in the bargaining. While the U.S. livestock and meat indus-
try has been inadequately represented on a number of issues, the foregoing arithme-
tic in no way properly characterizes what has been going on. For a moment, let's
back up and start from the beginning.
Very simply, the US: dollar value of all agricultural/farm production has exceed-
ed $120 billion. Of that, cattle, beef and byproducts account for over 20 percent of
the gross. And all red meats, dairy and poultry (the combined meat/byproducts
sector) account for about one-half of over $60 billion in annual gross value.
Now, 25 percent of the total dollar value of all U.S. farm production is exported to
foreign markets-about $30 billion worth. In the livestock/red meat sector, very
little meat has been exported and such would equal less than one-half of 1 percent
of domestic production. On the other hand, byproducts mainly lard, tallow, grease
and hides have approximated over 40 percent and 80 percent respectively of domes-
tic production. Export of these items are important and have about balanced the
dollar value of foreign meat imported into the U.S.
So, now going back to the net effect of the M.T.N. on U.S. agriculture, the
following can be said:
(1) The dollar value of the commodities "bargained" over represents less than 5
percent of annual U.S. farm production.
(2) In the case of livestock, meat and byproducts, the current annual dollar value
($1.3 billion) of the products on which concessions were exchanged equaled about
one-third of the total farm products ($4 billion) which were subject to concessions.
(3) The concessions offered by the U.S. relate mainly to a one cent reduction in
tariff (from 3 cents down to 2 cents) and would have a theoretical benefit to foreign
exporters of perhaps $20 million.
(4) The concessions offered by foreigners to the U.S. were a mixture of quantita-
tive and tariff concessions. The main economic benefit to U.S. farmers would be
from the E.C. verbal offer to accept 10,000 metric tons of high quality beef with a 20
percent tariff, and a 50 percent reduction in variety meat tariffs (10 percent down to
5 percent). The high quality beef offer would have a probable value of $100 million.
The variety meat ad valorem reduction might be worth up to $5 million.
(5) The concessions offered by Japan relate to 15,000 metric tons of beef addition-
ally by 1983 which could have an incremental trade value of $150 million. They
have recently also offered access for U.S. leather which could be worth $40 million.
(The access on leather, however, is subject to a 20 percent duty and other conditions
which could prevent effective implementation. The U.S. tariff rate on leather is 5
percent.)
(6) Otherwise in general, most of the foreign concessions on lard, tallow and hides
represent a binding (or stabilization) of current tariffs and levels of trade. At the
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outside, the total dollar value of additional trade or dollar profit accruing to the
U.S. from concessions offered on livestock-related products would probably not
exceed $50 million.
(7) No material opportunities to export additional quantities of pork were ob-
tained.
So, on balance, to guestimate a ball park figure, the U.S. livestock sector may
have gained long run concessions worth $300 million. The dollar value of conces-
sions that we have granted-in the livestock animal/meat/byproduct sector might
vary between $50 and $100 million.
Therefore, a strictly pencil and paper evaluation could show the U.S. to have
gained as much as $250 million in net trade benefits over that which it has given
up.
However, the foregoing fails to consider:
(1) The quality of the foreign offers as related to quantitative and tariff conditions
(i.e. unilateral rights to withdraw concessions and the failure to provide for guaran-
teed market shares or growth factors).
(2) The companion obligations (costs) the U.S. farm sector is required to accept to
get the access (i.e. acceptance of E.C. subsidized meat or Japanese L.I.P.C. manage-
ment).
(3) The relationship of these concessions offered by foreigners to the access al-
ready (previously) extended by the U.S. (guarantees provided by U.S. Meat Import
Act).
(4) The relationship of these offers to either U.S. productive capacity, internation-
al food requirements and related humanitarian considerations.
Measuring the "quality" of the concessions that are proposed, the following facts
should be understood:
(1) The E.C. reserves that right to unilaterally determine the implementation of
their offer on high quality beef and it is conditioned upon U.S. acceptance of 5,000
tons of subsidized E.C. beef products. There has not been any agreement offered or
discussed relating to a host of non-tariff barriers (health and sanitary procedures)
which to date have been as effective in preventing beef entry as the quantitative
and tariff restrictions.
(2) The Japanese have retained exclusive right to buy and resell beef products
through their highly restrictive governmental agencies under the same old system
of prohibitive tariffs and surcharges. And as with the E.C. there are not guarantees
or assurances as to future market growth factors or the circumstance during periods
of cyclical surplus etc. (No assurance after 1983.)
(3) The S.T.R. proposed that the U.S. meat sector bind themselves under the
proposed subsidy and Safeguard Codes in several ways which could be enormously
detrimental to the long run maintenance of market oriented, free enterprise U.S.
agriculture. They are:
(a) acceptance of foreign subsidized meat in competition with U.S. production that
is unsubsidized;
(b) agreement that a country can prohibit imports if in its unilateral judgment
such are interfering with domestic programs (the old E.C./Japanese shell game.);
(c) a requirement that places U.S. livestock producers under procedures for deter-
mining injury that are more restrictive, more difficult than those required outside
the U.S.;
(d) terms that could validate the U.S. Meat Import Act or subject the U.S. to
industrial or monetary reparations.
In conclusion, it is with regret that this Committee advises that the benefits
obtained are relatively insignificant in relation to:
(1) The trade policy objectives heretofore recommended by this Committee.
(2) The export capability of U.S. Agriculture.
(3) The tariff and access conditions guaranteed foreign governments by the U.S.
(4) The trade and payments objectives that are possible under more reciprocal,
market oriented relationships.
(5) Maximizing economical food production for both U.S. and foreign consumers.
What the S.T.R. and USDA have neglected to do and failed to report is their
consistent unwillingness to negotiate the longer term practical implementation of
global (multilateral) access for beef, pork and poultry that is reciprocal to long
standing U.S. trade accommodation. This Committee recommended that the M.T.N.
initially accept the minimal objective of at least one pound per capita of freely
traded meat products oriented to a one on one trade in the private marketplace.
These reasonable requests (proposals) if implemented would have an incremental
export potential of 10 billion dollars. In contrast the proposed concessions are
insignificant to say the least.
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TANNER'S COUNCIL OF AMERICA, INC.
New York, NY, March 23, 1979.
Memorandum to ATAC on Livestock and Livestock Products.
Re the leather industry's current position with respect to the effect of the proposed
agreement on the industry.
The outcome of the multilateral trade negotiations is of extreme significance to
the leather industry. Taken as a whole, leather and leather products accounted for
a net trade deficit of about $2½ billion during 1978. This deficit is, to a large
measure, the result of inequitable trading conditions existing between the U.S. and
its major trading partners. Bluntly, the U.S. has been abiding by a set of free trade
standards that are not the concern of other major trading nations in this sector.
Japan, the Eastern Bloc countries, the countries of South America, India, Mexico
and Spain are all major factors in this trade. None of these countries accept even a
modicum of free trade practice in this area.
Enclosed is a chart depicting the balance of trade picture for this sector.
The leather industry had great hopes that the results from the multilateral trade
negotiations would make progress toward equating conditions of trade for this
industry. The results have been disappointing. Therefore, the leather industry
makes the following specific comments on the Codes and the tariff cuts as so far
announced.
Framework code
This Code is generally disappointing to the leather industry. It seems to be a
license for LDC's to take restrictive measures.
Government procurement code
The Code makes the labor intensive customers for the leather industry-manufac-
turers of gloves, footwear, handbags, etc.-vulnerable to import competition without
providing any realistic access to foreign government procurement.
The assurances given that the the Berry Amendment provision to the Defense
Procurement Act will be retained is comforting. However, we are concerned that
the section detailing enforcement of obligation jeopardizes the ability of the U.S. to
maintain the protection now granted under the Berry Amendment and that the
agreement opens the way for challenges to U.S. policy, particularly from developing
country signatories.
Safeguards code
The leather industry believes that no special and differential treatment should be
afforded to developing countries in safeguard actions regarding leather products. We
also oppose the use of consultations which would delay the implementation of
safeguard measures.
Subsidies code
Many of the leather products imported into the U.S. are subsidized. As a result,
leather products have been the subject of many countervailing duty petitions. Our
experience with regard to these petitions has been disappointing. A great deal
depends upon the final structure of the implementing legislation on this Code.
The leather industry recommends that "restrictions on exports of raw material
when it acts to keep artificially low the prices of exports manufactured therefrom"
be added to the list of possible forms of domestic subsidies.
Tariffs
Tariff rates on leather entering the U.S. are 5 percent. The U.S. has offered a
formula cut on this tariff (to about 3½ percent). As of this date it is our understand-
ing that the Japanese, who maintain a tariff rate of 20 percent on cattlehide
leather, have offered no reduction; Canada, whose current duty rate is 17 percent,
has offered a formula cut (to about 11 percent). The EC offers only a 1 percent
reduction from the 8 percent prevailing at present.
Until the final results of the tariff negotiations are known, it is difficult for the
leather industry to give a final statement as to whether or not it is better off with
or without passage of the trade package. At present, however, it seems as if the
negatives outweigh the positives.
Whatever our final evaluation is, it is a fact that little or nothing has been done
to deal with the fundamental causes of a sector trade imbalance that in 1978
amounted to about 9 percent of the U.S. trade deficit.
PAGENO="0192"
184
TANNERS COUNCIL OF AMERICA
411 FIFTH AVENUE, NEW YORK. NEW YORK 1001C
March 2, 1979
PAGENO="0193"
185
Mr. BALDUS. We will resume the hearing.
I understand that the Rice Millers' Association is represented by
J. Stephen Gabbert, executive vice president.
STATEMENT OF J. STEPHEN GABBERT, EXECUTIVE VICE
PRESIDENT, RICE MILLERS' ASSOCIATION, ACCOMPANIED BY
BART S. FISHER OF THE LAW FIRM OF PATTON, BOGGS &
BLOW, WASHINGTON, D.C.
Mr. GABBERT. Mr. Chairman and members of the subcommittee,
my name is Stephen Gabbert. I am executive vice president of the
Rice Millers' Association. Our headquarters office is located here in
the Washington, D.C., area. Accompanying me is Mr. Bart Fisher
from the law firm of Patton, Boggs & Blow in Washington, D.C.
The Rice Millers' Association was founded in 1899. It is one of the
Nation's oldest agricultrual trade associations. We represent both
individual rice milling companies and farmer-owned cooperative
mills in Arkansas, California, Louisana, Mississippi, Tennessee,
and Texas. Our members process virtually all the rice produced in
the United States.
Exports are the lifeblood of the rice industry. Over 60 percent of
our rice must be exported. Today the United States is the world's
largest rice exporter; consequently, we are committed to maximiz-
ing export opportunities and minimizing trade restrictions.
The Rice Millers' Association congratulates Ambassador Strauss
and his staff for a job superbly done in Geneva. We are gratified
that a major barrier to the sale of American rice in Europe has
been reduced.
The rice trade of the nine countries of the European Economic
Community (EEC) is regulated as part of the Community's common
agricultrual policy otherwise known as the CAP. For years variable
levy calculations for rice under the CAP have been carried out in a
way that generated artificial protection for EEC produced rice and
established major obstacles for U.S. rice.
The rice CAP, until the success of Ambassador Strauss' recent
efforts, allowed the import levies on American long grain rice to be
raised by 20 units of account per metric ton, about $32, purportedly
to reflect the higher value of American long grain rice. In addition,
it raised the levy of another 30 to 50 u.a. ($48 to $80) supposedly to
account for differences in quality between domestic and imported
varieties.
We understand that a three part concession was obtained from
the EEC on rice in the context of the MTN. First, the entirely
arbitrary 20 u.a. internal corrective amount was dropped. Second,
the Europeans agreed to retain the external corrective account at
its current level.
In addition, the Community agreed not to reclassify parboiled
rice into an entirely different-and higher-tariff category.
The concessions represent the end of EEC discrimination against
American rice exports. They amount to a saving of some $16 mil-
lion per year in duties and will generate $8 million annually in
additional trade.
The Rice Millers' Association also strongly supports the draft
Subsidies and Countervailing Measures Code. The ease of access
that the code affords to private parties who are injured by subsi-
- 79 - 13
PAGENO="0194"
186
dized imports will greatly improve the position of American traders
in many commodities. Further, the code's accelerated procedure
will eliminate the hight costs and continual uncertainty that cur-
rently attend efforts to compete with imported goods receiving
bounties or grants. Of particular importance to U.S. rice exporters
are the limitations placed by the code on subsidies that displace
U.S. agricultural products in third country markets.
Mr. Chairman, the U.S. rice industry did not obtain all of the
concessions it sought in the MTN. The Rice Millers' Association
contends, however, that the EEC rice concessions and the draft
codes agreed to in Geneva will work in the best interests of our
industry and of our country. We strongly urge that all the codes
negotiated in the MTN be adopted and implemented by the Con-
gress. We believe that what we have seen and what we are
seeing-in the conclusion of these uniquely complex multilateral
trade pacts, and the submission of these agreements to the Con-
gress-has been the result of close cooperation between the Con-
gress, the executive branch, and the private sector. This spirit of
cooperation, for which we are grateful above all to Ambassador
Strauss and his staff, bodes well for our country's future.
Thank you, Mr. Chairman and members of the subcommittee, for
providing us the opportunity to testify.
Mr. VANIK. Are there any questions, Mr. Vander Jagt?
Mr. Baldus?
Mr. BALDUS. No questions.
Mr. VANIK. Mr. Frenzel.
Mr. FRENzEL. No, sir.
Mr. VANIK. Mr. Moore.
Mr. MOORE. No questions.
Mr. VANIK,. Now the Senate Finance Committee has estimated
the value of the concession as $5 million. How do you get to $8
million?
Mr. GABBERT. We arrived at the $8 million by factoring. You
basically are using a unit price in factoring it against a total
quantity of tonnage and it may be that we used a different unit
price.
Mr. VANIK. What will the expansion of the Common Market
mean for your exports to Europe?
Mr. GABBERT. Given the conclusions that we have achieved here,
Mr. Chairman, there should be continued expansion.
Mr. VANIK. If there are no further questions, I express my
thanks to the witnesses. Please excuse me for being late; I was
trying to get a little bit of nutrition with rice.
Mr. GABBERT. Thank you, Mr. Chairman.
Mr. FISHER. Thank you.
Mr. VANIK. The next witness will be Ruth Robbins, first vice
president of the League of Women Voters.
We are very happy to hear from you, Ms. Robbins. We always
appreciate the position of your organization in support of trade and
it is a very helpful thing in connection with our legislative busi-
ness. I want to tell you that we are very grateful for your objective
analysis of what we do.
PAGENO="0195"
187
STATEMENT OF RUTH ROBBINS, FIRST VICE PRESIDENT,
LEAGUE OF WOMEN VOTERS OF THE UNITED STATES
Ms. ROBBINS. Thank you, Mr. Chairman. Those are very, very
kind, pleasant words.
Mr. Chairman, I will summarize my remarks but request that
my full statement be submitted into the hearing record.
In addition, we have provided the committee with a copy of the
newest League of Women Voters publication called MTN: Breaking
the nontariff barrier. This was written specifically to help lay
people understand the MTN and we would appreciate if this could
be submitted into the record as well.
Mr. VANIK. Without objection.
Ms. ROBBINS. Thank you.
Mr. Chairman, members of the committee, I am Ruth Robbins,
first vice president of the League of Women Voters of the United
States. The league welcomes this opportunity to comment on the
results of the multilateral trade negotiations and the formulation
of the U.S. legislation to implement the agreements recently con-
cluded in Geneva. And, we congratulate the House Ways and
Means Committee for scheduling public hearings before the admin-
istration submits an MTN implementing bill to Congress. As we
are all aware by now, the approval procedure adopted by Congress
in the 1974 Trade Act does not permit amendments to this legisla-
tion. Thus, what has been and is being decided as necessary and
appropriate to implement the MTN codes should be and is a public
concern.
The League of Women Voters believes that the potential, long-
term impact of these new trade liberalization agreements on the
U.S. economy and world trade require us all to give them careful
consideration. Public hearings such as these serve to facilitate this
consideration and, the league hopes, will contribute to the formula-
tion of legislation that will translate the standards set by the
international agreements into a fair and open U.S. trade policy.
The League of Women Voters is a volunteer political action
organization with 1,400 leagues in 50 States, the District of Colum-
bia, Puerto Rico, and the Virgin Islands. Our members are not
experts on customs valuation, government procurement, subsidies,
standards, licensing or particular products, all of which are includ-
ed in the MTN agreements. We are, instead, workers, merchants,
professionals, officials, farmers, wives and mothers, husbands and
fathers and-like everyone else-consumers. As consumers, we are
concerned about the dollar crunch evidenced by the increase in
domestic prices of very basic goods and services and by the decline
in the value of the dollar abroad.
This is not the first time these concerns have been expressed by
league members. It was, in fact, during a consumer study of infla-
tion in the late 1920's that the League of Women Voters first
became interested in the subject of trade. League members were
impressed by the extent to which customs duties and other trade
restrictions caused higher prices for the consumer. That was just
the beginning of our involvement in trade issues.
Since that time, the league has periodically reexamined the rela-
tionship between U.S. trade policies and changing patterns of inter-
national commerce, most recently in a study concluded in 1976.
PAGENO="0196"
188
Bolstered by these periodic reevaluations and other studies which
yielded positions favoring East-West trade, nonreciprocal trade con-
cessions for developing nations and an improved trade adjustment
assistance program, the league has been at the forefront of every
debate on every major piece of trade legislation, always coming out
strongly for measures that are trade expansive rather than trade
restrictive. Such a policy, league members believe, serves the politi-
cal and economic interests of this country and of its citizens, collec-
tively and individually, because it paves the way for political har-
mony among nations, promotes economic development at home and
abroad, and expands consumer choice.
By providing a positive alternative to the spectre of trade war-
fare and international economic chaos; by encouraging the shift of
resources to the most dynamic sectors of the economy; by formaliz-
ing special concessions to developing countries which are and must
be increasingly significant trading partners; and by permitting the
import competition that is badly needed as an escape valve to the
pressures of inflation that afflict us all, the MTN agreement will,
in the league's view, be solidly in the public interest.
Multilateral reductions in tariffs will allow many U.S. producers
to compete more effectively in foreign markets and will reduce the
prices U.S. consumers pay for foreign products imported into the
United States. In addition to agreements reached on tariff reduc-
tions, the Geneva package offers us, for the first time, an opportu-
nity to contain and control the nontariff barriers that present the
most significant restraints to international trade today.
Moreover, the codes promise benefits for all nations by establish-
ing a modern and streamlined framework within a strengthened
General Agreement of Tariffs and Trade. The new procedures for
information sharing, dispute settlement and consultation will serve
to foster improved international cooperation and provide a meas-
ure of continuity to international trade relations. Thus, the MTN
will have laid the groundwork for dealing not only with present
problems but those of the future as well.
The League shares the concerns of many of you on this commit-
tee and in the Congress that these agreements will not solve all of
our trading problems and may in fact entail hardships for some
Americans. It is not enough to say that in the the long run every-
one benefits from ttrade liberalization. A worker without a job or a
firm without a contract because of import competition are often
difficult realities which follow trade liberalization but the overall
gains, not particular losses, should determine U.S. policy.
Nevertheless, because League members are fair trade realists,
not free trade idealists, we recognize that temporary safeguards
may be necessary to allow industries severely injured by a rapid
influx of imports the time to adjust. Moreover, the League believes
that no single group of workers or sector of our economy should be
made to pay the costs of trade policies which benefit the nation as
a whole. We believe that a more effective trade adjustment assist-
ance program is the keystone of a policy that promotes trade
expansion. We believe, too, that a good program should and could
provide prompt and effective assistance without damage to our
foreign relations and at a lower cost to the economy than import
restrictions. For these reasons the League of Women Voters sup-
PAGENO="0197"
189
ports and applauds this committee's efforts at reform of the Trade
Adjustment Assistance Program as contained in H.R. 1543.
Many of us are well aware of those in the United States who do
not share in the benefits of liberalized trade. Few are aware, how-
ever, that the benefits of trade liberalization accrue largely to the
United States and other industrialized countries rather than to
developing nations. Certainly economic and social disparities be-
tween developed and developing nations are not new. However,
industralized and developing nations are increasingly linked to-
gether in trade. For example, developing nations now buy over 40
percent of U.S. exports of manufactured goods. Their purchases not
only bring profits and employment to Americans but provide their
countries with the products, machinery and equipment essential to
further economic development.
It is a significant fact that over one-half of the nations taking
part in the Geneva negotiations represent developing nations.
Though not all the developing countries will be signatories to the
agreement, the overall benefits acquired from the easing of trade
restrictions worldwide will be particularly important to developing
nation economies. Moreover, as a result of the negotiations, support
for the principle of special and differential treatment has been
established. This serves as recognition of the gross disparities be-
tween unequal trading partners and we believe is an important
contribution to the development of a strengthened international
economy.
The willingness and perseverance of industrialized and develop-
ing nations to negotiate and conclude these agreements against the
backdrop of increasingly protectionist pressures highlights the level
of commitment to liberalized trade that exists today. Conclusion of
the agreements ws significant in and of itself, and it did, no doubt,
prevent a deterioration in trade relations. But it was only the first
stage of the Tokyo round. The second stage-the present stage-is
to draft and approve implementing legislation. This translation of
`the agreements is a measure of the national commitment to a fair
and open trade policy, but the real test of the effectiveness of the
MTN will be the willingness of the signatory nations to live up to
the obligations they have assumed.
In recent weeks this committee and its counterpart in the Senate
have held closed door sessions to consider what changes are appro-
priate to bring U.S. law into compliance with the international
codes. These statutory changes, along with other arrangements
already granted to select sectoral interest groups, will be the real
indicators of the impact the new MTN codes will have on U.S.
trade policy. An inadequate translation into domestic law could
reverse the intent of the codes. Too many concessions made to get
political support could negate the progress made in the negotia-
tions. It is up to this committee and the entire House of Repre-
sentatives to see that the same spirit of fair and open trade em-
bodied in the Geneva agreements is implemented into U.S. law.
The League believes that in determining what is necessary and
appropriate to implement these codes, your overall objective should
be to meet the standards established in the codes themselves.
These alone are numerous and we would not presume to draw up
an exhaustive list of these obligations.
PAGENO="0198"
190
There are several items which do concern the league, particular-
ly in the subsidies/countervailing duty measures code. We high-
light this code because, far and above the rest, this one goes to the
heart of the Tokyo round. As a result of these negotiations, nations
have accepted stricter controls on export subsidies and in return
the United States has agreed to accept an injury test as part of the
countervailing duty law. By accepting an injury test, the United
States has finally agreed that it is the effect, not the fact, of a
subsiby that is the relevant factor in levying countervailing duties.
The League applauds this action and urges Congress to uphold the
express terms of the code.
In particular, the code specifies that, "injury shall, unless other-
wise specified, be taken to mean material injury to a domestic
industry * * ~ U.S. countervailing duty law should therefore state
clearly that it is material injury, meaning, "important and conse-
quential," not merely de minimis injury that is being tested.
Another aspect of the subsidy code we consider significant is the
time period to be permitted for domestic countervailing duty inves-
tigations. The agreement specifies that parties be given a reason-
able opportunity to make their cases but that investigations be
concluded within 1 year after their initiation, except in special
circumstances. No doubt an argument can be made for shorter
time periods for investigations in order to bring speed and effec-
tiveness to the law. But, so too, a case can be made for taking more
time in order that due process can be accorded both the domestic
industry and importing agencies. Recommendations made so far
range from 75 days to 6 months for a preliminary investigation and
equally varying time periods for a final determination and injury
proceeding.
It would seem that a reasonable opportunity is best afforded
everyone by a longer, not shorter, time period for an investigation.
What we want is a good deicision, not just a decision. Of course, the
investigating agency should proceed as rapidly as possible but the
League of Women Voters urges that the committee thoroughly
consider the benefits of allowing up to 6 months for a preliminary
investigation with a final subsidy determination to come within 60
days of that and a finding on the question of material injury within
120 days of the preliminary subsidy finding. Based on other experi-
ences with similar investigative proceedings, this would seem a fair
time period and still within the one year limit established by the
code itself.
Once the existence of a subsidy and a positive finding of injury
has been determined, the administering agency must decide wheth-
er the amount of the countervailing duty is to be the full amount
of the subsidy or less than the amount of subsidy. On this the code
leaves room for discretion but advises that "the duty be less than
the total amount of the subsidy if such lesser duty would be ade-
quate to remove the injury to the domestic industry." Thus, it
would seem the intention is that when possible a less than total
duty be imposed. U.S. law should not therefore require an amount
in excess of what is "adequate to remove the unjury to a domestic
industry."
The League of Women Voters urges that this committee, Con-
gress and the administration undertake to implement the stand-
PAGENO="0199"
191
ards established in the trade* agreements. If we are unwilling to
adopt into practice that which has been accepted by our Govern-
ment, then we call into question our credibility and reliability in
future negotiations. Certainly U.S. trade law has been well in
advance of any other nation. That does not mean that we can make
exceptions for ourselves. It means that we have a tradition to
uphold and must prove that in the face of adverse pressures we,
too, can hold up our part of the bargain.
Thank you very much.
[The prepared statement follows:]
STATEMENT OF RUTH ROBBIN5, FIRST VICE PRESIDENT, LEAGUE OF WOMEN VOTERS
OF THE UNITED STATES
Mr. Chairman, members of the committee, I am Ruth Robbins, first vice-president
of the League of Women Voters of the United States. The League welcomes this
opportunity to comment on the result of the multilateral trade negotiations and the
formulation of the U.S. legislation to implement the agreements recently concluded
in Geneva. And, we congratulate the House Ways and Means Committee for sched-
uling public hearings before the Administration submits an MTN implementing bill
to Congress. As we are all aware by now, the approval procedure adopted by
Congress in the 1974 Trade Act does not permit amendments to this legislation.
Thus, what has been and is being decided as "necessary and appropriate" to imple-
ment the MTN codes should be and is a public concern.
The League of Women Voters believes that the potential, long term impact of
these new trade liberalization agreements on the U.S. economy and world trade
require us all to give them careful consideration. Public hearings such as these
serve to facilitate this consideration and, the League hopes, will contribute to the
formulation of legislation that will translate the standards set by the international
agreements into a fair and open U.S. trade policy.
The LWVUS is a volunteer political action organization with 1400 Leagues in 50
states, the District of Columbia, Puerto Rico and the Virgin Islands. Our members
are not experts on customs valuation, government procurement, subsidies, stand-
ards, licensing, or particular products, all of which are included in the MTN agree-
ments. We are, instead, workers, merchants, professionals, officials, farmers, wives
and mothers, husbands and fathers and-like everyone else-consumers. As con-
sumers, we are concerned about the dollar crunch evidenced by the increase in
domestic prices of very basic goods and services and by the decline in the value of
the dollar abroad.
This is not the first time these concerns have been expressed by League members.
It was, in fact, during a consumer study of inflation in the late 1920's that the LWV
first became interested in the subject of trade. League members were impressed by
the extent to which customs duties and other trade restrictions caused higher prices
for the consumer. That was just the beginning of our involvement in trade issues.
Events following the passage of the Smoot-Hawley Act in 1930 convinced League
members that trade is closely linked with domestic and international politics.
Smoot-Hawley's "beggar-thy-neighbor" policies led other nations to retaliate with
similar restrictions; U.S. and world trade shrank to a fraction of what it had been,
and deteriorating political relations exacerbated the still unheaded wounds of World
War I.
Since that time, the League has periodically reexamined the relationship between
U.S. trade policies and changing patterns of international commerce, most recently
in a study concluded in 1976. Bolstered by these periodic reevaluations and other
studies which yielded positions favoring East-West trade, nonreciprocal trade con-
cessions for developing nations, and an improved trade adjustment assistance pro-
gram, the League has been at the forefront of every debate on every major piece of
trade legislation, always coming out strongly for measures that are trade expansive
rather than trade restrictive. Such a policy, League members believe, serves the
political and economic interests of this country and of its citizens, collectively and
individually, because it paves the way for political harmony among nations, pro-
motes economic development at home and abroad, and expands consumer choice.
By providing a positive alternative to the spectre of trade warfare and interna-
tional economic chaos; by encouraging the shift of resources to the most dynamic
sectors of the economy; by formalizing special concessions to developing countries
which are and must be increasingly significant trading partners; and by permitting
PAGENO="0200"
192
the import competition that is badly needed as an escape valve to the pressures of
inflation that afflict us all, the MTN agreement will, in the League's view, be solidly
in the public interest.
Multilateral reductions in tariffs will allow many U.S. producers to compete more
effectively in foreign markets and will reduce the prices U.S. consumers pay for
foreign products imported in the United States. In addition to agreements reached
on tariff reductions, the Geneva package offers us, for the first time, an opportunity
to contain and control the nontariff barriers that present the most significant
restraints to international trade today. Customs valuation procedures and licensing
requirements will be made more uniform, standard setting and government procure-
ment procedures will be opened up, and trade distorting subsidy practices will be
restrained. By increasing export opportunities for agricultural and other products,
billions of dollars of U.S. goods and services will gain entry to foreign markets. By
making possible a greater choice of lower priced goods, U.S. consumers, particularly
low income consumers, will benefit.
Moreover, the codes promise benefits for all nations by establishing a modern and
streamlined framework within a strengthened General Agreement of Tariffs and
Trade. The new procedures for information sharing, dispute settlement and consul-
tation will serve to foster improved international cooperation and provide a meas-
ure of continuity to international trade relations. Thus, the MTN will have laid the
groundwork for dealing not only with present problems, but those of the future as
well.
The League shares the concerns of many of you on this committee and in the
Congress that these agreements will not solve all of our trading problems and may
in fact entail hardships for some Americans. It is not enough to say that in the long
run everyone benefits from trade liberalization. A worker without a job or a firm
without a contract because of import competition are often difficult realities which
follow trade liberalization. But the overall gains, not particular losses, should deter-
mine U.S. policy.
Nevertheless, because League members are fair trade realists, not free trade
idealists, we recognize that selective temporary safeguards may be necessary to
allow industries severely injured by a rapid influx of imports the time to adjust. We
sincerely hope that the negotiating nations will come to terms with the safeguard
agreement in time to consider it along with the other codes. And, in this regard, we
urge that U.S. negotiators seek to secure an agreement that includes a reporting
system of all safeguards action: government as well as so called voluntary and
interindustry agreements and other nongovernmental restraints. Until such deci-
sions are taken in Geneva, US Escape Clause laws should not be changed.
Moreover, the League believes that no single group of workers or sector of our
economy should be made to pay the costs of trade policies which benefit the nation
as a whole. We believe that a more effective trade adjustment assistance program is
the keystone of a policy that promotes trade expansion. We believe, too, that a good
program should and could provide prompt and effective assistance without damage
to our foreign relations and at a lower cost to the economy than import restrictions.
For these reasons the LWV supports this committee's efforts at reform of the Trade
Adjustment Assistance Program as contained in H.R. 1543.
Many of us are well aware of those in the United States who do not share in the
benefits of trade liberalization. Few are aware however that the benefits of trade
liberalization accrue largely to the U.S. and other industrialized countries rather
than to developing nations. Certainly economic and social disparities between devel-
oped and developing nations are not new. However, industrialized and developing
nations are increasingly linked together in trade. For example, developing nations
now buy over 40 percent of U.S. exports of manufactured goods. Their purchases not
only bring profits and employment to Americans, but provide their countries with
the products, machinery and equipment essential to further economic development.
It is a significant fact that over one half of the nations taking part in the Geneva
negotiations represent developing nations. Though not all the developing countries
will be signatories to the agreement, the overall benefits acquired from the easing of
trade restrictions worldwide will be particulary important to developing nation
economies. Moreover, as a result of the negotiations, support for the principle of
special and differential treatment has been established. This serves as recognition of
the gross disparities between unequal trading partners and we believe is an impor-
tant contribution to the development of a strengthened international economy.
The willingness and perseverance of industrialized and developing nations to
negotiate and conclude these agreements against the backdrop of increasingly pro-
tectionist pressures highlights the level of commitment to liberalized trade that
exists today. Many observers agree that the mere completion of these agreements is
PAGENO="0201"
193
a significant achievement. Similarly, some speculate about "what could have hap-
pened" had the negotiations not been underway. Imposition of trade restrictions
might have launched international trading partners into an all out trade war. Those
same people now conclude that these codes can block the protectionist tide that has
been swelling these last five years.
Conclusion of the agreements was significant in and of itself, and it did, no doubt,
prevent a deterioration in trade relations. But it was only the first stage of the
Tokyo Round. The second stage-the present stage-is to draft and approve imple-
menting legislation. This translation of the agreements is a measure of the national
commitment to a fair and open trade policy. But the real test of the effectiveness of
the MTN will be the willingness of the signatory nations to live up to the obliga-
tions they have assumed.
In recent weeks this Committee and its counterpart in the Senate have held
closed door sessions to consider what changes are appropriate to bring US law into
compliance with the international codes. These statutory changes, along with other
arrangements already granted to select sectoral interest groups, will be the real
indicators of the impact of the new MTN codes will have on U.S. trade policy. An
inadequate translation into domestic law could reverse the intent of the codes. Too
many concessions made to get political support could negate the progress made in
the negotiations. It is up to this committee and the entire House of Representatives
to see that the same spirit of fair and open trade embodied in the Geneva agree-
ments is implemented into US law.
The League believes that in determining what is necessary and appropriate to
implement these codes, your overall objective should be to meet the standards
established in the codes themselves. These alone are numerous and we would not
presume to draw up an exhaustive list of these obligations. Many other witnesses
representing various sectoral interests will speak to these and other issues which
the Committee may find advisable to consider during its deliberations of the imple-
menting legislation.
There are several items which do concern the League, particularly in the subsi-
dies/countervailing duty measures code. We highlight this code because, far and
above the rest, this one goes to the heart of the Tokyo Round. As a result of these
negotiations, nations have accepted stricter controls on tax export subsidies and in
return the U.S. has agreed to accept an injury test as part of the CVD law. By
accepting an injury test, the U.S. has finally agreed that it is the effect, not the fact
of a subsidy that is the relevant factor in levying countervailing duties. The League
applauds this action and urges Congress to uphold the express terms of the code.
In particular, the code specifies that "injury shall, unless otherwise specified, be
taken to mean material injury to a domestic industry * * * ." U.S. countervailing
duty law should therefore state clearly that it is material injury, meaning "impor-
tant and consequential," not merely de minimis injury that is being tested.
Another aspect of the subsidy code we consider significant is the time period to be
permitted for domestic countervailing duty investigations. The agreement specifies
that parties be given a "reasonable opportunity" to make their cases, but that
investigations be concluded within one year after their initiation, except in special
circumstances. No doubt an argument can be made for shorter time periods for
investigations in order to bring speed and effectiveness to the law. But, so too, a
case can be made for taking more time in order that due process can be accorded
both the domestic and importing agencies. Recommendations made so far range
from 75 days to six months for a preliminary investigation and equally varying time
periods for a final determination and injury proceeding. It would seem that "a
reasonable opportunity" is best afforded everyone by a longer not shorter time
period and, thus, the LWV would prefer that the legislation not establish a mini-
mum investigation period that might only serve to encourage determinations based
on inadequate information simply to meet statutory deadlines. What we want is
good decision, not just a decision. Of course, the investigating agency should proceed
as rapidly as possible, but the LWV urges that the committee throughly consider
the benefits of allowing up to six months for a preliminary investigation with a
final subsidy determination to come within 60 days of that and a finding on the
question of material injury within 120 days of the preliminary subsidy finding.
Based on other experiences with similar investigative proceedings, this would seem
a fair time period and still well within the one year limit established by the code
itself.
Once the existence of a subsidy and a positive finding of injury has been deter-
mined, the administering agency must decide whether the amount of the counter-
vailing duty is to be the full amount of the subsidy or less than the amount of
subsidy. On this, the code leaves room for discretion but advises that "the duty be
PAGENO="0202"
194
less than the total amount of the subsidy if such lesser duty would be adequate to
remove the injury to the domestic industry." Thus, it would seem the intention is
that when possible a less than total duty be imposed. US law should not therefore
require an amount in excess of what is "adequate to remove the injury to a
domestic industry."
These issues are our primary ,concerns in the subsidy/countervailing measures
code. But due process is also an important consideration in the proposed amend-
ments to the antidumping law. We would urge that consideration of time limits in
dumping cases also take into account the importance of due process so that deci-
sions are not only speedy, but also founded on as thorough an understanding of the
evidence as possible.
The League of Women Voters urges that this Committee, the Administration and
Congress undertake to implement the standards established in the trade agree-
ments. If we are unwilling to adopt into practice that which has been accepted by
our government, then we call into question our credibility and reliability in future
negotiations. Certainly U.S. trade law has been well in advance of any other nation.
That does not mean that we can make exceptions for ourselves. It means that we
have a tradition to uphold and must prove that in the face of adverse pressures, we
too can hold up our part of the bargain.
PAGENO="0203"
The new multilateral trade agreements arethe subject negotiating situation. Governments don't like other
of newspaper headlines, TV talk shows and congres- countries to tell them what is and what is not an ac-
sional hearings. And for good reason. They touch the ceptable domestic policy. It is something of a political
lives of all of us-manufacturers, retailers, farmers, miracle that so many governments agreed to sitdown
workers and consumers. Now, from years of talk and and bargain on the use of nontariff measures, and
inches-thick documents, real breakthroughs in inter- even more astonishing that they reached agreement
national cooperation are emerging. It's worth some on these politically sensitive issues.
effort to master the jargon of the trade world and the
~ The agreements in brief
of multilateral trade negotiations (MTN). Most of what Though the MTN agreementiscommonlyspoken of tn
remains to be done in finalizing the agreements is the singular, itix really a package of trade agreements
dotting the i's and crossing the f's-and getting each including:
nation to endorse whatthe negotiators have wrought. * Tariff reductions (as noted above);
Inthe United States,thatmeans persuading Congress * Concessions on product quotas (a quota is one
to enact changes in eoisting laws, to bring them into form of an NTB that is expressly trade-restrictive);
alignment with the international agreements that Ad-
ministration officials have agreed to * Agricultural agreements (which are only consult-
The Tokyo Round, as ills called, began in 1973 as alive);
an outgrowth of an economic summit meeting con- * Codes of conduct (which will govern the use of
vened in Tokyo by the major trading nations (though NTBO).
Geneva has been the site of the negotiations them- ltistheseriesofcodesofconductthatisthedistinc-
selves). Itisthe seventh ouch round since 1947, when tivefeature of theTokyo Round. While provisionsvary
the multilateral (many-nation) approach totrading was from code to code, overall themes and goals do
first established through the General Agreement on emerge. One of the most important is that trade deci-
Tariffs and Trade (GATT). GATT is notonlythe firstof sion making is made more open and accessible-
the sequence of MTN agreements but also the insti- made more "transparent," as the negotiators like to
tutional arrangement that monitors and facilitates say. The codes generally allow greater scrutiny and
trade relations among nations. input-both by governments and by the private
Participants in the Tokyo Round (98 nations in all) sector-than ever before. They set stricter guidelines
had a double mandate. The first was to continue for information sharing and consultations, establish
working toward eliminating tariffs (taoes on im- open procedures (such as public hearings and com-
ports). Earlier negotiations have brought tariffs down ment periods on proposed rules) and strengthen
to an average of only 8 to 10 percent, v'J the new dispute~settlementmechanismx.Theneteffectshxuld
agreements will reduce them by about onother third. be greater predictability for those engaged in sterna-
The second mandate-to devise codes of conduct tional trade.
(shortened, usually, to codes) governing the use of
nontariff measures that affect trade-was a new T
task. And though the successive reductions in tariffs
hove never been easy, negotiations on nontariff bar- Of the six new codes of conduct governing NTBs-
nero (usually called NTBs( have proven to be even subsidies, safeguards, government procurement,
more difficult. standards, customs valuation and licensing-the first
Whereas atariff is indisputablya barriertotrade,the five, which are expected to receive greatest attention,
protectionist intent of many NTB5 is often much more are described below.
difficult to pinpoint, because they often stem from do-
mestic policies whose primary purposes are not Subsidies and
trade-related. For example, if a health standard has .`
the effect of excluding another nation'sfood products, countervailing duties
isthatstandard an NTB? When dosuboidies, which all Existing GATT rules governing the uses of subsidies
nations use to achieve domestic goals, constitute an have been weak and ineffective. The new subsidies
artificial advantage in another country's marketplace? code imposes greaterdiscipline on this mostpolitically
The answer partially depends on whose ox is gored. sensitive and mostcomplicated of all the NTBs. Many
And because NTBs often arise from domestic pot- governments give afiscal incentive tofirms producing
icy, they present an extremely delicate international for export (an export subsidy) or prop up an "infirm"
industry with loans, grants or otherfiscal incentives (a
© Maroh 1979 League xi Women Voters Education Fund domestic subsidy). When these subsidized products
195
MTN: BREAKING
THE NONTARIFF
BARRIER
PAGENO="0204"
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PAGENO="0205"
197
and how a aelectiva nafegoard can ba appliad.
Anthe negotiationo cometotheir conclonion in Genava, itbecomen
increaningly uncertain whathar or not negotiatora will ha able to
reach agreetrienton a nafegoardn code. Davaloping coantnan, who
taar that they will bear the brant ot nalactivity, ara panhiog hard tor
atrict otandarda for tha application of aelective nafegaarda. Awong
thairdemanda arc pdorapprovatof aelectivenafegaard action hytha
international aafegaardn commioee entablinhed bytha coda; prohib-
ition of the one of the nafegoard if the comwioee dinapproven it;
requiring that a nelective nategoard be applied againnt all mator
nappliern of a prodact, thereby limiting ito nelecbvity; and allowing
retaliation even if all code provinionn are adhered to. The European
Community, which in parhcnlarty interented in having netective nate-
goardn, in unwilling to accept thene ntrict gaidelinen, and than it may
be imponnible to conclude thin code.
Government procurement
Government porchane of goodninbig boninenn. It han been anobtect
of dinconnion in the Tokyo Round becaone conntdeo have adopted
methodn of procurement that dincdminate againnt other coontden.
The U.S. "Eay America" law, forinntance, atipalaten thata contract-
ing federal agency mont give the contract to an Amedcan bidder
even if the bid in 6-12 percenthigherthan that of aforeign bidder (for
purchanen that are deemed nabonot defenne procurementn, the
percentage preference in SO percent(.
Other coontden, too, have procurement practicen that give their
boninennen preferential treatment Same maintain tintn of "eligible
biddern" that do not inctade foreign brmn. Some give out nach
meager information that foreign biddern know too iOta to place an preferred one will be "trannaction value"; the actoaf amount the
intelligent bid. And nometimen contractn are "advertined" in ouch importer payn to the eaporfer. Trade eapertn entimate that 90 to 95
obncore placen that in fact there in no notihcafion to thone who are percent of U.S. importn will be valued by thin method.
not iv fhe know An do the other coden, thin one providen conauttafion vnd
Thin code entablinhen rolen, where nowthey are noneainfent,fhat dinpute-neolementmechaninmn. Significantly, itatnoprovidenforfati
give each bidder "treatment no ann favorable" than any other bid- adminintrative and (odiciaf reviewn when dioagreementn between
der, throoghfhe one of open procedoren and time limitnfor; notihca- boninenn evecutiven and confomn oSicialn anne, a benefit now avail-
non, nabminnion of bidn, apecificafiona of the contract and qualifica- able only in the United Staten.
tionofauppliern, andthe award of contractn. In addition,hrmnthatdO Many trade eopertn connider thin code a "nteeper," that will have
notwin a contract wilt be able to Snd oot,fhroogh their governmentn, an immediate, ponifive impact. They prainefhe codeforitn nimplicity
why they did not win it. National aecudty procorementn, nervicen, and the predictability it wilt bring to importing and enporting.
and government porchanea under agdcottorat nopport programn are
eaernpfed. amount (threnhotd( of contractn that would be coy- Standards
ered in about $180,000. U.S. admicinfration officialn enfimate that Jant an confomn valuation methodn vary widely among nationn, no
thin wilt open nome $25 billion of government parchanen in foreign do product ntandardn. Since importn mont conform to thone ntand-
marketo and 510-12 billion in the U.S. market to international bid- ardn to gain accenn to a coontry'n market, many coontrien manipa-
ding. The code prohibito a country from dividing a contract into fafethemfo protectadomentic indoafry. Some coontnealiteraltyone.
neparate contracta in order to redace the amount below the a double ntandard, requiring that an import meet more atnngent
fhreahold and than avoid complying with the code. Only procure- reqairementa than ira domeatic counterpart. A Cafch-22 certification
meotn by national govemmentn are covered, bat thene central gov- procedure in another in a tong tint of NTEn rained via the atandard-
ernmentn are to "encourage" nobaidiary government entilien to aeSing proceno. Some coontden require their own officiatn to certify
adhere to the code compliance with atandardn daring aoccenaive atagea of a prodocf'n
Lantly, onlythone nationo fhataignftie code are etigibteto receive manufacture-yet refune to send thone offioata to another coonfry
ira banality. Governmenfn mayconhnoetodiacdminate againat non- that in turning out the product for eaport.
aignatorien Itwoald be impoonibteto harmonize productatandardnthrOughOOt
the wodd. Inatead, thin code bdnga opennena and scrutiny to
Customs valuation
eecoonegovernmentn one awidevarietyofmethodotocalcolatethe acceptcortification in the producing country when they are satiafied
value of an import, coatomn valuation in often an impediment to that the certification in being performed by a technicolty competent
trade. It coanea prabtema for importera and eaportera alike, mainly entity. Evioting atandarda and certificobon procedoren will not be
becaune frequently neither con predictwifh certaintythe value of an aub(ectto the terma of the code, but new and revised ones will be.
item until a contoma ofhcer actually anoigno it one. The code encourages the one of eniating intemationat standards
One U.S. valuation method worth mentioning becoone it has his- "where appropdate." Alno, where appropnate, nations areto specify
todcally created controversy is the Amedcon Selling Price (ASPI. standardn in terma of performance (i.e., what the product moat do(
~5p5snignaanimportvaloeeqoalfoitaAmedcon-madeeqoivalent rather than denign (i.e., what if looks like( in an auempf to reduce
rather than on ira aclual value. Once widely used, ASP in now used artiticial product atandarda. An with the government procurement
only for some chemicol and aome footwear importn. code, the ntacdarda code will apply only to national governments,
Under the code, ASP and a hoar of valuation methods will be but thene are to encourage subsidiary governmentn and non-
replaced by a simplihed, atreamlined synfem of tive methods. The governmentat standard-aesem to adhere to the terma of fhe code.
GAiT framework
In addition to the eadoua codes and other egmements, negotiat-
ing nationu agreed to changes in the overatl GAiT framework,
which "hoooes" the set of principles to which trade actions must
conform and through which they achieve their legal basis, The
framework agreement addresses tour iaaues-
The new agreement legitimates the practice of granting "spe-
cial and differential treatment" to developing countries (see De-
veloping Countdes(.
o Nations affirmed the pdncipte that trade restrictions are an
inappropriate responne to balance-of-payment (BOP(problems
sod agreed that any such mvtdctions taken tar BOP reasons
should be mesaures that minimize trade distortion, Currently,
only quotas, a most distortionary form of Import corba, are al-
lowed onderthe GAiT; the change would legitimate sorcharges,
which are less diotortionary
Nations recommiffed themselves to effective procedures for
thesettiementottrade disputes, incfudingexpeditious reviewand
access to impartial and espert review panela.
Nations agreed thst differences over the use of esport reafrrc-
tinny (such as evport quotas and embargoes( will be sub(ect to
dispute settiement and theta toll review of evioting GATT rulea
will receive priority atiention following the Implementation ot the
MTh,
PAGENO="0206"
198
Ag c `tura' trade brings them in from the periphery of the world trading system and
ri U requires them to assame obligations and responsibilities under the
tn previous rounds, trade negotiators had attempted to grapple with GATT. These obligations will be strengthened by the principle of
agncultural trade problems, but their efforts fell short; in fact, some "graduation," under which developing nations agree to relinquish
U.S. farm groups describe their efforts as "selling farmers down the special treatment-sector by sector-as their development con-
flyer." tinues. Developed countries, moreover, are authorized to retract
Thistime, U.S.furmerssturted earlyto makesuretheygotsomeof specialconcessions,ifintheirjudgment,theyare nolongerrequired.
the benefits of a trade agreement. Their thinking is easy to under-
stand: is soother sector does the United States have such a clear
and overwhelming competitive advantage. And, is fact, trade in
agricultural products has bees increasing dramatically. Last year
alone, over half the total U.S. wheat and soybean production was On January 4, 1979, when President Carter sent to Congress his
exported. As Agncultsre Secretary Bob Bergland has noted, these notification of intentto entera newfrade agreement, hesetin motion
gains were made in an atmosphere ot protectionist sentiment and the procedures established in the 1974 Trade Act to that act, Con.
pressures. U.S. agriculture interests wanted to make surethatprovi- gress gave itself a larger role than is the past in approving trade
sions in the agreement reduced these pressures. agreements: while the President is authorized to raise or lower
to the estimation of U.S. trade officials and some farmers' groups, tariffs, the other elements of the trade package are subject to its
U.S. agriculture will gain from the MTN agreement As Administra. approval
tion representatives put it, the MTN protects U.S. furmers' existing During the consultation process that began on January 4, Con-
export markets through the limit on use of export subsidies, and it gress and the Administration are to discuss the ramifications of the
cracks open new doors that have been closed to us. The most package for U.S. law and the U.S. trading posture. This period ix a
publicized of these new markets are Japan and the European Com- minimum of 90 calendar days and could be longer. At the end slit
munity, which have agreed to accept more high-quality meat In (April 4 or sometime thereafter) the Administralion will send to the
addition, Japan, the European Community and other developed Hill an omnibus bill to implementthe agreement. This bill will have a
countries are now prepared to mportsuch seconduryfarm products number of elements, because several U.S. laws must be brought
as canned peaches, pears and fruit cocktail. These concessions into conformilywith the international trade agreement. The Adminis-
give U.S. producers the opportunity to move away from their tradi- tration may also submit other legislative proposals (such as export
tionul role as suppliers of generally low-cost grains to serve a more promotion proposals) as a part of the bill implementing the trade
affluent foreign market with higher-cost food items. agreement
Agricultural information-shanng ugreements were also negoti- Congress will then have aboul9olegislafive days to act on it. The
ated, including the Bovine Meat Arrangement, which creates an House Ways and Means and the Senate Finance Committees will
International Meat Council, and the International Dairy Arrange- have primuryjurisdiction. Other committees, such asthe Agriculture
ment,whichcreatesasimilurDairyproducts~uncilThelatteralso Committees, will be deeply involved After it is reported from com-
sets prices below which commercial trade in dairy products is pro- mittee, both houses will vote on it. Unlike most bills, it will be
hibited. 005amendable: if either House rejects one pxrt of it, the enfire
package will be disapproved. The three-month consultation period,
therefore, is the critical time for congressional input.
Developing countries It is impossible to predict with certainty just when Congress will
For the first time, many developing countries participated in the complete action on the trade bill. First of all, the actual fl:gotiations
MTN, and itis hoped that some 20 to 25 of them will sign. This `~ ~ mean time Ia~gs in Congres~. Legislative days cun be extended by
significant development in the worid s trading network, for it recog- not officially ending the day, and recesses will also extend the time
nizes what is already fact: that developing nations play an increus- period As one Senate Finance Committee aide pats it, "It is easylo
ingly important role in world trade. . . imxgine a scenario in which congressional consideration extends
Most of the codes in the trade agreement contain speciul provi' into 1980"
sions for developing countries; for instance, they will be allowed to
use subsidies more extensively than will developed countries. In Trade among nations does mean more than the exchange of
order to have these special provisions in the codes, nations had to goods and services across nationul borders. Trade is the main wuy
agree to changes in the GATT framework-the set of general rules that nations relate to one another. Good trading relations can help
and pnnciples to which specific trade actions must conform. . . pave the way for better cooperation in all international and national
Currently under GATT, trade actions are govemed by the pnnci- endeavors in which an action by one nation affectothe interests and
pIes of nondiscnmination-the most-fuvored~nahon concept men- the security of other nations. Conversely, a breakdown of coopera-
honed earlier-and reciprocity, meaning that concessions granted lion in trade can signal the deterioration of relations in many areas.
must be reciprocated in kind. However, these principles work better Viewed ix this context, the MTN is much more than the technical
among economic equals than they do between developed and de- packageof agreements. ltisablueprintthatnatixnspledgetofollow
veloping countries, a fact previously recognized when developed inanefforttoavxiddisharmonyandmisunderstanding.ltis,hnally,in
countrieswereperminedtowaivetheMFNandreoprocityprinciples this contest that all of us, both as individuals and as nations, must
andallowsomedeveluping-coxntry products to enter Iheirmarkets judge the agreement.
S~nce this waiver will expire in 198s, one objective of the Tokyo
Round was to build the option of"special and differential treatment" Researched and wriftex by Joan E. Twiggx, departmext head,
into the GATT framework itself. LVNEF !xterxahonal Relations Department.
Granting specixlanddifferentialtreatmenttodeveloping countries ____________________________________________________
Order from League of Women Voters of the United States, 1730 M Street, NW, Washington, DC 20036. Pub. No. 546, 30rt.
PAGENO="0207"
199
Mr. VANIK. Well, thank you very much. I appreciate your state-
ment.
I want to urge you to do two things. One is, as you know, we
have an adjustment assistance bill that is up before the Rules
Committee and we are waiting to get it cleared for floor action, but
we don't have administrative support for the money that we need
for that program. I would appreciate the League getting some kind
of communication to the money watchers over at 0MB and suggest
to them that if we don't get a piece of the trade adjustment
program we are not going to be very likely to give them the MTN
that they want. I think they are very much related.
I think our promise to people is we are going to put into place a
meaningful adjustment assistance program. I think there is about a
$150 million difference. They don't plan anything more than they
appropriated last year and we feel that is totally inadequate. Some
members of the committee don't feel that we should go as far as we
did but in any event we need considerably more than the adminis-
tration suggested.
The other thing is that this business of the MTN is very little
understood by the people throughout America and those that are
hurt by it and many will be very quick and prompt to put political
pressure on their representative, so I think it is very important for
you to try to get as much influence as you can and try to be sure
that all sections of America in which you have so many fine, active
groups at least have a discussion with your representative in an
effort to let him know what the legislative position is and try to
find out what his position is, because otherwise he would only be
inclined to hear from those who might oppose him.
Ms. ROBBINS. Mr. Chairman, we are doing not only that but we
have gone a step further. We have just embarked on a trade
project and we had our first conference in Racine, Wis., a few
weeks ago to which 45 states in this country sent representatives.
As a result of this conference and this meeting, 45 women will be
going back to 45 States putting on trade projects that will explain
to their communities the state of the State's economy in trade.
Mr. VANIK. That should be very helpful.
Mr. Vander Jagt.
Mr. VANDER JAGT. No questions.
Mr. VANIK. Mr. Frenzel.
Mr. FRENZEL. Mr. Chairman, I want to thank the witness for her
excellent testimony, too, and inquire as to what kind of a position
this is of the league. Obviously the treaty has just been inititaled
and some of the code is in there or not in there. How does the
league take this position? Is this its executive board?
Ms. ROBBINS. Oh, no, no, no. The League of Women Voters has a
position in support of liberalizing trade as a benefit not only to the
U.S. economy but to the economy of the world and when a piece of
legislation or a treaty comes up that would impinge on this posi-
tion, either further it or contract it, then the national board would
make the decision on what was appropriate but we would no more
take action on anything without knowing that we had the mem-
bers' support behind us because we could not accomplish much or
we could not be effective if we did that.
Mr. FRENZEL. I see. So you took a standing resolution.
PAGENO="0208"
200
Ms. R0BBIN5. That is right. Our last reevaluation of our trade
position was done in 1976 and it was overwhelmingly reaffirmed by
league members all over the country.
Mr. FRENZEL. Thank you very much. Your position is excellent
and I only wish that was our position on campaign financing.
Ms. ROBBINS. We will work on it. [Laughter.]
Mr. VANIK. Mr. Fisher.
Mr. FISHER. Thank you.
I simply want to compliment you on your testimony and thank
you for it. I, for one, look to the League of Women Voters for a
broad-based and objective analysis on matters of this kind and I
have not been disappointed to date.
Ms. ROBBINS. Thank you.
Mr. VANIK. Mr. Moore.
Mr. MOORE. No questions, Mr. Chairman.
Mr. VANIK. Thank you very much.
Ms. ROBBINS. Thank you, Mr. Chairman.
Mr. VANIK. Next is the Joint Industry Working Group composed
of Richard D. Langer, vice president, Control Data Corp.; Saul
Sherman of Rivkin, Sherman & Levy; Irving Levine, director, inter-
national tariffs and trade, NCR Corp.; and James R. Gorson, direc-
tor, Facilitation, Air Transportation Association of America.
Mr. Langer.
STATEMENT ON BEHALF OF THE JOINT INDUSTRY WORKING
GROUP, BY RICHARD D. LANGER, VICE PRESIDENT, CON-
TROL DATA CORP.; SAUL L. SHERMAN, ESQ., PARTNER IN
THE FIRM OF RIVKIN, SHERMAN & LEVY, NEW YORK CITY;
JOSEPH DeROSE, DIRECTOR OF CUSTOMS, IBM CORP.; AND
JAMES R. GORSON, DIRECTOR-FACILITATION, AIR TRANS-
PORT ASSOCIATION OF AMERICA, WASHINGTON, D.C., AC-
COMPANIED BY DAVID J. ELLIOTT, MANAGER, INTERNATION-
AL TRADE AFFAIRS, PROCTER & GAMBLE CO.
Mr. LANGER. I am Richard Langer, vice president of Control
Data Corp. With me are a number of other gentlemen here who
will complete this panel.
On my right is Mr. Joseph DeRose from IBM who will replace
Mr. Irving Levine who, because of the delay in getting on the
agenda, had to catch an aircraft so Mr. DeRose will take his place.
Mr. VANIK. Mr. Frenzel reminds me that you are constituents of
his so we have to be especially nice to you.
Mr. LANGER. Thank you, Mr. Frenzel.
On my far right is Mr. James Gorson. On my near left is Mr.
Saul Sherman. On my far left is Mr. David Elliott who will not be
giving testimony but is here as an expert in the event of questions
on this subject.
We will follow your suggestion and file our detailed statement
and in the interest of time proceed only to highlight its main
points for you.
We are here on behalf of the Joint Industry Working Group, a
coalition of 15 trade associations broadly representative of those
segments of American business involved in international trade in-
cluding exporters, importers, carriers, customs brokers, and others.
Mr. Chairman, forming a coalition of this many trade associations
PAGENO="0209"
201
is in itself a minor miracle and perhaps second only to the negotia-
tion of the MTN agreement itself.
This coalition has a particular interest in the customs valuation
agreement negotiated in Geneva which we believe is probably
among the most important of the MTN agreements since it will
affect the majority of the international trade transactions.
Over 50 years ago the writer of an excellent book called
"Through the Customs Maze," noted, "If you but let me write the
administrative act, I care not who sets the rates of duty." Those of
us who are involved in international trade on a daily basis have
learned well how true those words are as they relate to the various
customs valuation systems now used throughout the world. Other
countries have used uplifts or fair market valuation systems to
significantly increase their effective rates of duty. We in the
United States have used the American selling price system to do
the same on a relatively narrow range of goods but have estab-
lished administrative complexities that have become intolerable for
the Customs Service and the importer alike.
We think it is a remarkable achievement to have negotiated this
valuation agreement among the major trading nations of the
world. It will eliminate many problems and will establish a uni-
form trade neutral system with effective dispute settlement proce-
dures. We point out that the essence of the agreement will be its
reciprocal character among the nations that have agreed to sign it.
Clearly if we are to achieve the benefits from this agreement that
we seek for our exports, we must effectively implement the agree-
ment ourselves. Without question the agreement is the product of
negotiations and as Ambassador Strauss has noted "You get
nothin' for nothin' ."
We are aware of the difficulties experienced in persuading
Canada to participate in the agreement and we are deeply appre-
ciative of the suport that this committee gave to Ambassador
Strauss in his successful effort to secure this participation. We
understand that many less developed countries are also somewhat
reluctant to participate. We hope that the members of this commit-
tee will support Ambassador Strauss' efforts in this direction as
well.
Before turning this discussion over to our technical experts I
would like to make two further observations. First, the United
States went into the negotiations on the valuation agreement as
virtually a minority of one, confronting a world which by and large
had adopted the Brussels Definition of Value. Our negotiators
came out with a system incorporating the best of both existing U.S.
law and the Brussels Definition of Value. We believe the results
are a major success for the United States and will help facilitate
U.S. exports.
Second, the valuation systems of other countries concerned us
because of the latitude and discretion their customs authorities
have been endowed with to impose duties arbitrarily by assigning
valuations based on national concepts. The key feature secured in
the Geneva negotiations was to minimize such administrative dis-
cretion and to keep the valuations subject to relatively factual and
subjective criteria. Although our own current law on customs valu-
ation must be repealed as a result of this agreement, the new law
- 79 - 14
PAGENO="0210"
202
which will replace it will not be substantially different from the
main stream of our existing valuation practices.
We also point out that other countries will probably imitate the
way we implement this law ourselves, and as a result we are likely
to find these countries treating our exports in a manner similar to
our treatment of their imports. Therefore, great care is required in
developing the implementing legislation for this agreement.
At this time I would like to present Saul Sherman, partner in
Rivkin, Sherman & Levy of New York who will discuss specifics
relative to the implementation.
Mr. SHERMAN. Thank you.
Mr. Chairman, gentlemen, this subject of customs valuation until
now has been a matter for individual regulation by each of the
nations, including of course our own. Now if the Geneva agreement
resulting from the MTN is adopted, as we hope it will be, it is
clearly understood, I think, that our existing valuations statutes in
this country will have to be replaced and brought into line with the
agreement, which at the same time does not represent a major
departure though it will require a great deal of change in detail.
We do not yet have a text of a proposed statute that is being
considered for introduction in the Congress and so we have no
paper before us on which we can offer detailed comments. We hope
that we soon will have an opportunity to look at a draft, especially
in view of the fact that amendment will be impossible after this
legislation is introduced; and we are in touch with the staff about
that.
Mr. VANIK. The staff will carefully review your recommenda-
tions. We hope that they are going to be part of what you suggest-
ed.
Mr. SHERMAN. Thank you very much, sir.
I would like to offer a few general and very brief comments if I
may based on what we have understood of what is being considered
and what is not, even that we don't have a text. As Mr. Langer
indicated, one of the key objectives of the agreement is to reduce
administrative discretion, and for that reason we hope that to the
extent possible the statute emanating from the Congress will itself
lay down the guidelines for valuation in accordance with the
Geneva agreement and that it will not be left in our country to
administrative regulation or discretion. And we hope that will set a
pattern whereby the same kind of discretion will be denied to the
administrative authorities in other countries to which we are ex-
porting.
There is one section, section 500, in our code which today per-
mits, or speaks of, conferring authority on our administrators to
use all reasonable ways and means to arrive at customs valuation,
a phrase dear to the heart of this committee but which we feel is
quite inappropriate for conferring of powers on the Customs Serv-
ice; and we would hope that that phrase at least can be eliminated.
There are a great many details and in particular three subjects
of major importance that received rather short shrift at the end of
the Geneva negotiations on which we feel that a good deal of
clarification-more than implementation-will be required, but I
think that can be handled with the staff. I will stop now unless the
committee has questions.
PAGENO="0211"
203
Mr. VANIK. Yes. Now you now our schedule. We are going to
finish up the public hearings this week and then we are going to
try to get 4 days next week for consultations. We are not sure. We
have Monday for beef and the countercyclical program, so I am
hopeful that we will be assigned the rest of next week. That is
when we expect to conclude our work under our present objective.
Thank you.
Mr. SHERMAN. Thank you, sir.
Mr. LANGER. Next is Mr. Joseph DeRose of IBM who will address
the statement of administrative action.
Mr. DEROSE. Mr. Chairman, gentlemen, recognizing that the
statement of the administrative action will become a major part of
the legislative history indicating how the valuation law will be
applied and in many cases disclose the true meaning behind the
statutory provisions, our written statement comments on those
aspects of the administrative action upon which we are most con-
cerned. I would like to briefly highlight four of the most important
matters.
The first is the use of generally accepted accounting principles in
developing dutiable values. We believe this is a cardinal rule to the
valuation agreement and should be specifically identified as having
general application.
Second, the computed value article of the code is not intended to
be accompanied by an indication of current U.S. constructed value
law. In fact, the code and interpretive notes indicate that the
accounting principles applicable in a country of exportation apply
when developing computed value. It appears inconsistent and im-
proper to have the administration's statement test the elements of
constructed value as the method for computing value under article
6.
Third, the administration is contemplating requiring an importer
to request a written explanation of valuation and make his election
between deductive or computed value at the time of entry. It is
clearly premature to require this action before an importer is told
that the transaction value which is supposed to be used as often as
possible will not be used for valuation purposes. It is, in our opin-
ion, more appropriate for the Customs Service, when notifying an
importer under article 1, paragraph 2(a), that the transaction value
will not be used, to then request election of deductive or computed
valued and advise the importer of his right to a detailed statement
of appraisement if formally requested.
Fourth and last, a current customs practice results often in the
payment of duties more than once on the value of an assist. If an
importer provides a mold to a foreign manufacturer, customs re-
quires amortization of the total mold value over the manufactur-
er's production. If the importer then switches foreign suppliers and
the mold is transferred, its current value is again amortized over
the second manufacturer's production. This results in the payments
of duties more than once on the value of what in many cases is a
U.S. produced mold. For any further points I refer you to our
written statement, the recommendations.
Thank you.
Mr. VANIK. Thank you.
PAGENO="0212"
204
Mr. LANGER. Mr. James Gorson, Director-Facilitation, Air Trans-
port Association of America, will now address the issue of collect-
ing duties on an f.o.b. service.
Mr. GORSON. Thank you.
I would like to spend merely one minute on the subject of CIF
cost and insurance and freight value. As you probably know, Mr.
Chairman, for over 150 years since well before the United States
developed into a continental economy, our country has not includ-
ed international freight and insurance in customs dutiable value.
The advantage of our present system has been that it does not
discriminate in the amount of duty between ports of entry or
between transportation modes. If we were to move to collecting
duties on a cost insurance and freight basis, duties would be higher
for example at Great Lakes ports than east coast ports. They would
also be higher in cases where airfreight is used rather than ocean
freight or where U.S.-flag marine carriers are used rather than
unconferenced flag and convenience ships. As noted, users of air-
freight transportation at ports of entry would be discriminated
against. Not only would the dutiable commodity vary according to
the mode of freight transport but you would also vary on the U.S.
customs port of entry where duties were actually assessed.
For example, Mr. Chairman, imports from Tokyo destined to
Cleveland on a flight stopping at Seattle would have one set of
duties if assessed at Seattle and another if assessed at Cleveland.
Now while most of the United States trading partners do use the
CIF approach, our reciprocal negotiations almost over the last half
century have been conducted with these systems in mind. If we
were to now change, our interrelationships with other countries
would be adversely affected. This would seriously complicate the
task of negotiating adjustments to our duty rates to compensate for
the change to a cost, insurance, and freight basis. It is difficult to
see any advantage that would result from making such a unilateral
change. There is no problem, for example, with respect to U.S.
statistics since they are already collected on a CIF basis, but two
disadvantages of CIF as noted are clear.
That concludes my brief remarks, sir.
[The prepared statement follows:]
STATEMENT OF THE JOINT INDUSTRY WORKING GROUP
Good morning. My name is Richard D. Langer, Vice President of Control Data
Corporation of Minneapolis, Minnesota. I am appearing here on behalf of the Joint
Industry Working Group, an ad hoc coalition interested in the subject of Customs
valuation, from the exporting and importing points of view. Together with me on
the panel are Irving Levine, Esq., Director, International Tariffs & Trade for the
NCR Corporation, Dayton, Ohio, Saul L. Sherman, Esq., partner in the firm of
Rivkin, Sherman & Levy, New York City and James R. Gorson, Director-Facilita-
tion, Air Transport Association of America, Washington, D.C. Also accompanying
me are Joseph DeRose, Director of Customs, IBM Corporation and David J. Elliott,
Manager, International Trade Affairs, Proctor & Gamble Company. Our testimony
is directed toward the Customs Valuation Agreement which has emerged from the
Geneva Multilateral Trade Negotiations.
The Joint Industry Working Group is composed of the following associations and
the businesses they represent:
1. The Air Transport Association of America, which represents nearly all sched-
uled airlines of the United States.
2. The American Electronics Association, which has over 900 high technology and
electronics companies. Its members are mostly small to medium in size, with two-
thirds of its members employing less than 200 employees.
PAGENO="0213"
205
3. The American Importers Association, representing over 1,100 companies,
mostly small to medium in size, plus 150 customs brokers, attorneys and banks.
4. The American Retail Federation, an umbrella organization encompassing thirty
national and fifty state retail associations that represent more than one million
retail establishments with over 13,000,000 employees.
5. The Chamber of Commerce of the United States, representing 79,000 companies
and 4,000 state and local Chambers of Commerce.
6. The Cigar Association of America, which includes 75% of all U.S. cigar sales
and major cigar tobacco leaf dealers.
7. The Computer & Business Equipment Manufacturers Association, including
nearly forty members with 750,000 employees and $45 billion in worldwide rev-
enues. Members range from the smallest to the largest in the industry.
8. The Council of American-Flag Ship Operators, which represents the interests of
the American Liner industry.
9. The Electronic Industries Association, its 287 member companies, which range
in size from some of the very largest American businesses to manufacturers in the
$25-SO million annual sales range, have plants in every State in the Union.
10. The Foreign Trade Association of Southern California, which represents 450
firms in Southern California in the import-export trade.
11. The Imported Hardwood Products Association, an international association of
250 importers, suppliers and allied industry members. Members handle 75% of all
imported hardwood products and range in size from small private businesses to the
largest in the industry.
12. The Motor Vehicle Manufacturers Association, whose eleven members produce
99 percent of all U.S.-made motor vehicles.
13. The National Committee on International Trade Documentation, which in-
cludes many of the major U.S. industrial industrial and service companies.
14. The Scientific Apparatus Makers Association, manufacturers and distributors
of sceintific, industrial and medical instrumentation and related equipment.
15. The U.S. Council of the International Chamber of Commerce, a business
policy-making organization which represents and serves the interests of several
hundred multinational corporations before relevant national and international
authorities.
SUMMARY OF TESTIMONY
I. The Customs Valuation Agreement does an excellent job on a difficult subject,
and many of us believe it could be the most important of all the non-tariff measures
negotiated in the Tokyo Round. While the other agreements will usually affect only
limited segments of international trade, this Agreement will affect the majority of
transactions in dutiable goods.
The Agreement will benefit our exports particularly, since it reduces the present
leeway for foreign customs to arbitrarily increase values for duty collection pur-
poses. It will required major changes in other nations' valuation systems. Relatively
fewer changes are required in U.S. law. These changes will alleviate numerous
administrative and technical problems and simplify operations both for U.S. Cus-
toms and for importers. It will lend added predictability to duty assessements.
II. Experiences with current U.S. law-significant parts of which remain inad-
equately defined 20 years after enactment-show that our legislative implementa-
tion should be comprehensive and specific. Only the necessary minimum should be
left to administrative discretion, to regulations, and to judicial clarification. Like-
wise, the overly broad valuation mandate of Section 500 ("all reasonable ways and
means") must be amended.
Certain complex technical issues, particularly royalties and "assists" (production
aids contributed by the importer), need clarification in the legislation.
On the vital subject of dispute prevention and resolution, legislation is needed to
assist American exporters by affording United States government assistance in
training foreign customs officials and in invoking the international dispute resolu-
tion machinery provided for in the Agreement.
III. The way in which the Agreement will be administered is also most important.
Therefore, it is appropriate that the Statement of Administrative Action adequately
reflect those parts of the Agreement and its Notes not amenable to codification. It is
also necessary that it select carefully between those parts of current administrative
practice that are consistent with the Agreement and those that are not. In particu-
lar, it is desirable to avoid the need for special accounting for customs purposes.
IV. It is necessary for the U.S. to maintain its traditional practice of excluding
international freight and insurance from valuations for customs purposes.
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STATEMENT
I. Overview
The Joint Industry Working Group strongly endorses the Valuation Agreement-
we think that all in all a remarkably good job was done in Geneva on this subject.
Valuation is hardly a glamorous subject, but it is one that-unlike dumping or
subsidies or safeguards-affects the majority of day-in-day-out import and export
transactions. Much of its importance arises because manipulation of customs values
is a way by which some nations not too subtly enhance the protection offered by
their tariffs. Securing international agreement to forego these "hidden" duties and
to adopt a trade-neutral system is a remarkable achievement. Many knowledgeable
people in the business community regard the Valuation Agreement as a "sleeper"
which will do more than any on the other MTN agreements to smooth the worka-
day flow of trade.
Most tariffs are expressed as a percentage of the value of the merchandise. If the
percentage is reduced but the value goes up, an importer could find himself paying
the same duty despite a supposed tariff reduction. Hence, the concern of the inter-
national trade community about the subject of valuation. In addition, the complex-
ities, uncertainties and delays which are sometimes involved in valuation problems
can act as a serious non-tariff barrier to trade. If an importer does not know what
his duty assessment will be until after he resells his merchandise, he may be forced
to assume the worst, and the commercial impact in the, marketplace may be the
same as if a higher rate of duty had been in effect.
The prominence of the subject of valuation in the Tokyo Round negotiations
stems partly from the fact that American Selling Price (ASP), a U.S. trade barrier
which particularly incensed some of our trading partners in previous negotiations,
takes the form of a valuation provision. Under ASP, duty value is based not on
prices in the import market but on the price of the competing domestic product-in
other words, the domestic manufacturer sets the duty value for his import competi-
tion! The Kennedy Round side-agreement designed to eliminate ASP was not pre-
sented to the Congress and so did not take effect. In the Tokyo Round the elimina-
tion of ASP has been accepted in principle by our negotiatiors, and by the American
chemical industry, for whose benefit it was originally enacted in 1921. The discus-
sion has centered around the alternatives and the compensation to be received in
return by way of duty. rate increases and otherwise. It is to be emphasized that the
Valuation Agreement aspect of the ASP problem is essentially non-controversial-
no one has ever seriously proposed that ASP be made a part of a worldwide system
of valuation to be used by all countries.
The essence of the Agreement is reciprocity, at least among the developed na-
tions. To get the valuation benefits we seek for our exports, we must agree to apply
the Agreement ourselves. Indeed, the basic premise of the Geneva negotiations on
valuation was that each signatory would have the same rules applied to its exports
as to its imports. The awareness that each major signatory would have this bal-
anced interest was largely responsible for the success of the negotiations. In this
connection, a word should be said about the great importance of Canada's accession
to the Valuation Agreement.
In view of the large volume of our trade with it, the American business communi-
ty was concerned about Canada's initial reluctance to participate. The Group wishes
to express its deep appreciation for the support that this Committee gave to Ambas-
sador Strauss in his successful effort to secure Canadian participation. We under-
stand that the Ambassador is similarly striving to secure participation by the Lesser
Developed Countries. We hope that the members of this Committee will support
these endeavors just as they did with the Canadian situation.
We have two further observations about the course of the negotiations in Geneva:
The first is that we went into the negotiations as virtually a minority of one,
confronting a world which had by and large adopted the Brussels Definition of
Value (BDV). We came out with a system very close to the best of existing United
States law~ The result may properly be considered a major success for the United
States delegation. Second, the thing we objected to the most in other valuation
systems was the discretion extended to customs authorities to raise duties arbitrar-
ily by raising duty valuations arbitrarily. One of the key features of the system we
espoused and secured in the Geneva negotiations was to minimize administrative
discretion and keep valuation subject to relatively tight control. Thus, in terms of
implementation, while our old law on customs valuation must be repealed, the new
law which will replace it will not be drastically different from the mainstream of
our existing valuation law. Our new provision must take the form of Congressional
legislation, with less rather than more left to administrative regulation or discre-
tion.
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IL Legislative implementation
This is not the occasion for a detailed review of the substance of the Agreement,
but a few essentials regarding the problem, the objectives, and the solutions adopted
should be mentioned.
1. A moment's reflection will make it obvious that the same merchandise will
very likely have different values in different circumstances. There is no one "right"
value for an article, even at a given time and place, nor is there one right way to
arrive at a value. The valuation problem is thus inherently complex and difficult.
2. The Agreement does not and could not realistically seek to arrive at uniform
duties or even uniform values for a given article in all countries or in all transac-
tions. The Agreement seeks only to establish a uniform method of arriving at
dutiable value; and even this uniform approach lays down a series of alternatives, to
be applied in sequence until a proper fit is obtained, since no signie method fits
every situation.
3. The agreement is trade neutral. The key objectives have been simplicity,
predictability and a factual basis in commercial reality. For example, today U.S.
duty values are generally based on prices prevailing at the date of exportion. The
Agreement provides that where the parties to the transaction set their price at an
earlier date, that price (whether higher or lower than the price on the date of
export) shall normally prevail for duty valuation. Another important provision is
the requirement that generally accepted accounting principles be applied in customs
valuation. While this is plainly a neutral provision, it has not always been followed
in the past and it is important in ensuring predictability and rationality.
4. The basic standard of value in the Agreement is Transaction Value-the price
the parties themselves adopt in the marketplace. Departures from this standard are
held to a minimum and are permitted only for good reason. That approach to
valuation may seem very obvious, and most systems have, as a matter of practical
necessity, normally adopted the invioice price as the duty value in practice. But we
know of no other system-including existing United States law and the Brussels
Definition of Value-which expressly makes invoice price the starting point. The
benefits in terms of simplicity and predictability are obvious.
5. The principal departure from Transaction Value which the Agreement permits
occurs where the exporter and importer arerelated and the relationship distorts the
price. In such cases a series of alternative bases of value are invoked in sequence-
the price of identical goods, the price of similar goods, the importers' resale price
less a usual reseller's mark-up , and lastly the manufacturer's cost plus a usual
manufacturer's mark-up. The sequence of the last two standards can be reversed at
the importer's option. All of these are defined in the Agreement with precision and
will have to be similarly defined in our legislative implementation. Even the fall-
backs permitted in the rare case where none of these methods will work are
narrowly confined-to avoid leaving loopholes which could permit arbitrary in-
creases in value and defeat the purpose of the Agreement.
6. One of the most difficult and sensitive areas dealt with in the Agreement is
assists and royalties. Assists are contributions by the importer to the process of
manufacture abroad-for example, furnishing tools and dies. Royalties are pay-
ments for rights involved in the manufacture and/or marketing of the products.
Typically, neither assists nor royalties are included in the invoice price. Just which
assists and royalties should be added to the invoice price to arrive at a fair duty
value has been a vexing problem particularly under United States law. The Agree-
ment draws lines to indicate which are to be included and which excluded. The
complexities are such, and the speed with which these subjects are dealt with in the
closing days of the Geneva negotiations was such, that these areas of the Agreement
are in need of clarification in the process of implementation.
Turning finally to some of the mechanics of the implementing legislation, the
Agreement itself is very close to a statute in its precision and should be closely
followed in legislative drafting.
The Joint Group has enjoyed a good working relationship with the Administration
as it has developed its legislative implementation strategy. While not all of our
suggestions have been accepted, all have been given due consideration. We have
been unable to review specific proposed legislative language and at this time cannot
comment or suggest any changes that may appear to be desirable or appropriate.
We urge that draft legislation be made public for appropriate review as soon as
possible. However, certain key points are worth mentioning:
1. The General Note on Generally Accepted Accounting Principles should be
reflected in the legislative language.
2. The following elements of the Interpretive Notes should be reflected in the
legislative language:
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Note to Article 1-all.
Note to Article 1.2-Paragraph No. 1, with succeeding paragraphs re-phrased in
legislative language.
Notes to Articles 2 and 3-Paragraph No. 2.
Note to Article 5-Paragraphs Nos. 5, 6 (with "relevant" in the last sentence
being supplemented by "objective and quantified"), 7, 8, and 9.
Note to Article 6-Paragraphs Nos. 2, 3, 4, 5 (with "relevant" in the final sen-
tence being supplemented by "objective and quantified"), 6 (as an addition to our
later noted necessity for the inclusion of Article 16 in the statute), 7 and 8.
Note to Article 8-Paragraphs Nos. 1, 2, 3, 4 (with the addition that "Customs
may not require that more than the cost or value of that portion of the estimated
useful life of the tools, dies, molds, and similar items consumed in the production of
the goods being valued be added to the price paid or payable to determine their
customs value."), 5, 6, 11, 12, 13, and 14 (first sentence).
The extent to which the above parts of the Interpretive Notes should be set forth
in the sections providing for the valuation systems or in a definitions section should
be determined as the legislation is developed.
3. It appears preferable that Article 7 be treated as a separate value approach in
the hierarchy, rather than an as amendment to Section 500. Section 500 provides
Customs with the authority to appraise merchandise, and is not and should not be a
basis of appraisement. Accordingly, we emphasize the need for also rewriting Sec-
tion 500. The current law is overly broad and tends to mislead customs field offices
with its apparent mandate to use "all reasonable ways and means" to appraise
goods, rather than the valuation statute. The field has too often used Section 500 as
the basis for appraisement, resulting in the need for corrective action by Customs
Headquarters and the Courts.
4. Article 8 and its Interpretive Notes dealing with royalties and assists require
clarification. We suggest adding the following wording to the text permitting addi-
tions for royalties and license fees: "Royalties and license fees related to the produc-
tion of the goods being valued which the buyer is required to discharge directly or
indirectly as a condition of the sale of goods for export to the United States and to
the extent that such royalties and fees are not included in the price acutally paid or
payable." -
In order to eliminate serious administrative problems arising under Article 8.1
(b)(iv) clarification is needed. We recommend the following language in the para-
graph succedding that providing for adjustments under Article 8.1 (b)(iv): "The
phrase `undertaken elsewhere than in the country of importation' does not include
assistance provided outside the country of importation incidental to work undertak-
en within the country of importation."
5. Price adjustments anticipated at the time of importation should be reflected in
the Transaction Value, even though only ascertained later. Adjustments to Transac-
tion Value should be permitted where the price's based in whole or in part upon the
proceeds of resale in the U.S. even though resale price is not known at the time of
importation.
6. The right provided by Article 16 should be guaranteed by law. Existing United
States law affords importers the domestic remedies-both administrative and judi-
cial review-called for by the Valuation Agreement. (These remedies are not now
generally available abroad, but will become available as a result of this Agreement.)
Appropriate provision will be required regarding United States participation in
the international mechinery called for in the Agreement for resolving valuation
disputes. Of special important is provision for assistance to American exporters in
obtaining the treatment to which they will be entitled under the Agreement. This
assistance will involve the dispute resolution machinery as a last resort, but the
first resort, and one we hope will also receive strong support from the Congress, will
be assistance to other countries which seek help in training their customs officials
to understand and apply the Agreement as its authors intended it to be applied.
Because of our extensive resources (both manpower and machinery) and the
comparative lack thereof in any other countries, some of our trading partners are
likely to follow the U.S. lead in implementing the Agreement. Consequently, the
manner in which we implement the Agreement, to apply to imports into the U.S. is
likely to be reflected in corresponding treatment for exports when they arrive
abroad.
III. Statement of administrative action
The Joint Group has had an opportunity to review an early draft of the State-
ment of Administrative Action. Overall it relects our understanding of the proper
administration of the Agreement. However some clarifications are needed:
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A. Transaction value
Changes in price subsequent to arrival determined in accordance with procedures
specified before importation should be taken into account in determining transac-
tion value. For example, contracts with Italian machinery manufacturers often
require price adjustments based upon costs incurred prior to shipment that are not
known until after shipment. The basis for making these adjustments is usually
spelled out in the contract.
We suggest that the example of indirect payment be replaced by one which refers
to the situation where an importer negotiates a price reduction as a means of
amortizing a debt owed him by the seller, e.g., because of prior shipments of
defective merchandise. This is not an infrequent occurrence, particularly where the
exporting country maintains currency control regulations and, therefore, the seller
finds it difficult to obtain authority to make refunds for such purposes on a timely
basis. In these circumstances importers frequently negotiate price reductions as a
means of collecting the debt. This suggestion is made not because the example in
the draft is incorrect, but because the suggested example is more concrete and is
one with which importers and customs officials are familar.
B. Adjustments
1. Buying commissions-We are concerned that the description of a buying com-
mission is unnecessarily narrow We believe that attempts to re-define buying
commissions should be avoided. We suggest that the term buying commissions be
described as having the same meaning it has under current law as interpreted by
the customs courts.
2. Royalties-We believe that the intent of the Agreement is to assess duties on
royalties consistent with current U.S. law. To accomplish this, we suggest the
following language:
"Adjustments must also be made for royalties and license fees related to the
production of the goods being valued, that the buyer must pay, either directly or
indirectly, as a condition of sale for export to the United States to the extent that
such royalties and fees are not included in the price actually paid or payable.
"The royalties and license fees include, among other things, payments in respect
to patents covering processes required to produce the goods, but not to royalties paid
for the use of trademarks and copyrights, which enhance sales rather than the
product and are selling expenses rather than part of the cost of production. Howev-
er, the charges for the right to reproduce the imported goods in the United States or
for the right to manufacture in the United States with the use of imported goods
shall not be added to the price actually paid or payable for the imported goods in
determining the customs value. The right to reproduce imported goods is understood
to cover the following classes of merchandise: original or copies of artistic or
scientific works, original or copies of models and industrial drawings, prototypes and
biological species.
"Payments made by the buyer for the right to distribute or resell the imported
goods shall not be added to the price actually paid or payable for the imported
goods.
3. Inland charges-We suggest that language be added making it clear that
whether merchandise is to be appraised on an ex-factory or FOB. basis depends
upon the terms of the transaction. This point is implicit in the Statement but we
believe that it should be explicit. We suggest that "containerization" be added to the
list of charges not included as part of value. This is consistent with current Customs
practice. finally, we suggest that language be added specifically excluding import
brokerage fees from value.
C. Generally accepted accounting principles
We recommend that the discussion of Generally Accepted Accounting Principles
("GAAP") be covered in a separate heading. The use of GAAP is a cardinal principle
of the Agreement and we believe it is of sufficient importance to warrant separate
treatment.
D. Assists
The treatment of assists should include a statement that assists are to be valued
in accordance with their "useful life." It should also be made clear that multiple
dutying of assists is not permitted. We understand that some believe that this latter
point is included in the concept of "useful life." We suggest that the connection is
not a necessary one and recommend that the prohibition against multiple dutying of
assists be covered separately.
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E. Transaction value of identical and similar goods
We believe that the discussion of "identical goods" and "similar goods" is vague.
We suggest the following language: Goods shall not be regarded as "identical goods"
or "similar goods" where on the one hand goods incorporate or reflect engineering,
development, art work, design work, plans and sketches for which no adjustment
has been made because such elements were undertaken in the United States, and
on the other hand, adjustments reflecting similar intangible assists were made
because such elements were undertaken outside of the United States.
F. Sequential order and importers options
1. Options-We object to the requirement that an importer make an election
between deductive and computed value at the time an entry package is presented.
Such a requirement presupposes that in many situations transaction value will be
inappropriate, and will predispose Customs officials to disregard transaction value.
A primary goal of the Agreement is to require the use of transaction value
wherever possible and to discourage arbitrary use of other valuation methods. It is
our belief that the proposed wording encourages disregard of transaction value.
Accordingly, we believe that in the few instances where transaction value will be
inappropriate, the importer should be allowed to choose between deductive and
computed value at the time he is informed by the appropriate Customs official that
transaction value will not be used as the basis of Customs valuation. This could be
accomplished through the use of existing mechanisms, specifically Customs Form
C.F. 29, Notice of Advice.
2. Statement of validation-We believe it unwise to require that importers desir-
ing a written explanation of the basis of valuation from the Customs Service make
that request at the time of entry or as part of the entry package. We believe that
many if not all importers will, as a matter of course, make the request, placing an
unnecessary burden on the Customs Service. It would be far more efficient to permit
an importer to make a request at a time prior to liquidation becoming final, thereby
limiting requests to situations where the information is necessary.
G. Computed value
The Group firmly believes that the treatment of the calculation of computed
value should be reexamined. It is our clear understanding that in calculating
computed value appraising officials will be required to rely upon GAAP in the
country of exportation. Indeed, this point is explicitly made earlier in the State-
ment. The Statement as now drafted sets forth virtually verbatim the current
method of computing Constructed Value. We believe that this is inconsistent with
both the spirit and letter of Article 6 of the Agreement and suggest strongly that
this entire section be redrafted. Principles established by the Customs Service in
calculating Constructed Value under different law, and often requiring duplication
and unnecessary additional accounting and record keeping should be avoided. Elimi-
nation of such burdens has been basic to the spirit of the negotiations leading to the
Agreement.
H Nominal value
Several years ago, Customs of necessity established the concept of "nominal
value" for business records (which are generally duty free) and a limited number of
other items. The Agreement does not change the necessity for this concept and it
seems appropriate to confirm it in the Statement. The relevant Treasury Decision
should also be expanded very slightly to facilitate the importation of such records
for production for export, because curent limitations create difficulties in this
regard.
IV. The C.I.F. option
For over 150 years-since well before the U.S. developed a continental economy-
we have not included international freight and insurance in dutiable value. The
advantage of this system has been that it does not discriminate in amount of duty
between ports of entry or between transportation mode. If we were to move to
collecting duties on a cost, insurance and freight (C.I.F.) basis, duties would be
higher, for example, at Great Lakes ports than at East Coast ports. They would also
be higher where air freight were used rather than ocean freight, or where U.S. flag-
marine carriers were used rather than non-conference flag of convenience carriers.
While most of our trading partners do use the C.I.F. approach, our reciprocal duty
rate negotiations over the past 45 years have been conducted with these systems in
mind. If we were to change, our interrelationships with other countries could be
adversely affected. This would seriously complicate the task of negotiating adjust-
ments of our duty rates to compensate for the change to a C.I.F. basis. It is difficult
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to see any advantage that could result from our making a unilateral change (statis-
tics are already collected on a C.I.F. basis). The disadvantages are clear.
Mr. VANIK. Thank you very much.
Are there any questions?
Mr. Fisher?
Mr. Vander Jagt?
Mr. Frenzel?
Mr. FRENZEL. No questions.
Mr. VANIK. Mr. Moore?
Mr. MOORE. No questions.
Mr. VANIK. Well, I think this idea that you offered was suggested
by Senator Long and I was opposing it. I think there is a lot to be
said for it but I am just afraid that we are so far along in this
business that I don't know that we can really reopen it in this kind
of a consideration. I know businessmen tell me about the problems
they have in this evaluation problem.
Well, I am going to bring that up to the committee. I think you
make a good case and I am going to try to get the committee's
reaction on it next week and see if we can give it another look. We
discussed it during our initial round and I think we will just check
on the basis of your testimony and see if we should not reopen it.
I would appreciate it if you might get a letter addressed to every
member of the Trade Committee just to be sure that they get the
issue because it is very difficult for me to try to do that by the time
we get to a markup, so I would appreciate your trying that proce-
dure to see if we can't have a meaningful consideration of the
proposition.
I want to thank you very much for your splendid contribution.
We appreciate it very much.
[The following was subsequently received:]
AIR TRANSPORT ASSOCIATION OF AMERICA,
Washington, D.C., April 26, 1979.
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade, Committee on Ways and Means,
U.S. House of Representatives, Washington, D.C.
DEAR MR. CHAIRMAN: You requested additional information on our concern of a
possible change from an f.o.b. valuation to a c.i.f. valuation for imported goods
during my testimony before the Subcommittee on Trade on 24 April 1979. I testified
as one member of a panel of the Joint Industry Working Group, an ad hoc coalition
interested in the general subject of Customs valuation, in connection with the U.S.
legislative implementation of the Tokyo Round of Multilateral Trade Negotiations.
United States Customs duties on imported merchandise are collected on an fob.
basis-that is, the value of goods excluding international transportation (freight),
insurance and other related costs. However, we understand that consideration is
being given to a change in the current U.S. dutiable value of commodities imported
into the United States-that is, from essentially a free on board (fob.) valuation, to
one of cost, insurance and freight (c.i.f.).
As noted in my testimony, for over 150 years-since well before the United States
developed into a continental economy, our country has used the fob. basis and has
not included international freight and insurance costs in Customs dutiable value.
Use of the c.i.f. valuation would mean that a different import duty would be
charged on two identical articles of the same cost merely because they arrived via
two different modes of transportation. Not only would the dutiable value of the
same commodity vary according to the mode of freight transport, but it would also
vary within the same mode depending upon the U.S. Customs port-of-entry where
duties were actually assessed.
I cited the example where imports from Tokyo destined to Cleveland on a flight
stopping at Seattle would have one set of duties if assessed at Seattle and another
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set if assessed at Cleveland. Another example of discrimination-duties would also
be higher at Great Lakes ports than at East Coast ports.
If we were now to change to a c.i.f. valuation, our interrelationships with other
countries could be adversely affected; this would seriously complicate the task of
negotiating adjustments to our duty rates to compensate for such a change in
valuation.
It is difficult to see any advantage that would result from making such a unilater-
al change. However, the disadvantages of a c.i.f. valuation as outlined above are
clear.
Sincerely,
JAMES R. GORSON,
Director, Facilitation.
Mr. VANIK. The final witness is Richard A. Maxwell, first vice
president of American Importers Association.
We are very happy to hear from you at this point, Mr. Maxwell.
Do you want to identify the gentlemen who are with you?
STATEMENT OF RICHARD A. MAXWELL, FIRST VICE PRESI-
DENT, AMERICAN IMPORTERS ASSOCIATION, ACCOMPANIED
BY GERALD O'BRIEN, EXECUTIVE VICE PRESIDENT, AND
DAVID P. HOULIHAN AND DONALD B. CAMERON, JR., COUN-
SEL
Mr. MAXWELL. Thank you, Mr. Chairman.
My name is Richard Maxwell. I am vice president of Associated
Dry Goods Corp. with headquarters in New York City. My compa-
ny operates 16 quality department store divisions throughout the
country, as well as the Sycamore Specialty Stores in the Midwest.
Included in the associated family of stores are the nationally
known Lord & Taylor, Goldwater's Arizona, H. & G. Poague in
Cincinnati, and Pavilion Dry Goods in Minneapolis, just to name a
few. However, I appear here today in my capacity as first vice
president of the American Importers Association.
With me today is Gerald 0 Brien on my left. On my right is our
counsel, Mr. David Houlihan and Mr. Donald Cameron of Daniels,
Houlihan & Palmeter. We do welcome this opportunity to present
our views on issues related to--
Mr. VANIK. I was going to suggest your entire statement will be
admitted in the record as submitted and you can excerpt from it.
Mr. MAXWELL. I will be as brief as I can.
Mr. VANIK. Give us the key points.
Mr. MAXWELL. Yes.
In the Trade Act of 1974, the Congress gave the President an
unprecedented mandate to go forward and negotiate with our trad-
ing partners for the "development of an open, nondiscriminatory
and fair world economic system." The results of these negotiations
as they may be implemented into U.S. law are now before us and
we are told that the goals established by Congress have been
achieved, but we are not so sure.
It is clear from many of the actions taken by the Administration
that the price being paid for this reportedly trade liberalizing
package is escalating. Products ranging from steel to textiles, from
dinnerware to dairy products, actually may be subject to even more
restrictive import regimes than apply now. Because these matters
are outside of the scope of implementing legislation, we will not
devote our testimony to a discussion of them. Suffice it to say,
however, that as a consequence of these actions we wonder wheth-
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er the overall results of the Multilateral Trade Negotiations will in
fact be trade liberalizing. We wonder further what other prices will
be paid in order to obtain the support-or the absence of opposi-
tion-of protectionist elements in the United States. We do suggest
to this Committee and to the Congress that the price the import
community and consumers will be asked to pay to obtain approval
of the MTN package may be too high.
Before addressing specific proposals that Congress is recommend-
ing for the implementing legislation, we would like to make two
general comments.
First, the American Importers Association strongly urges that
Congress and the administration include in the implementing legis-
lation package only-and I do repeat only-such changes in the
existing laws as are necessary to give effect to the new trade
agreements. Any other changes in existing law should be required
to go through the normal legislative process, not the yes or no
system prescribed in the Trade Act of 1974.
Second, our proposals address a number of specific issues regard-
ing the Countervailing Duty Law and the Antidumping Act. We
urge this committee to consider not only our specific objections and
recommendations but also the cumulative impact of the proposed
amendments to these laws. In our opinion, that cumulative impact
is such as to transform these laws from fair trade laws into "legal"
barriers to trade in which it is impossible, because of unreasonable
time limits and other features, to obtain fair and probative investi-
gations and determinations.
To comply with the time limits today, I will very briefly summa-
rize AlA's major areas of concern together with some of our recom-
mendations.
COUNTERVAILING DUTIES
This subcommittee has recommended that the time limits for
conducting a countervailing duty investigation be reduced signifi-
cantly. In our opinion, the proposed time limits are inadequate to
permit a complete and fair resolution of the case.
We do recommend the following time limits: (1) Preliminary
determination within 6 months; (2) Final determination within 60
days after the preliminary; (3) Withholding of appraisement upon a
preliminary affirmative determination; and (4) Following a prelimi-
nary determination, immediate referral to the ITC on the question
of material injury with the ITC determination due within 120 days.
The proposed shortened time limits would make it impossible for
information from foreign governments or foreign exporters to be
collected and analyzed fully by Treasury prior to a preliminary
determination.
Under our recommendation, domestic industries would be able to
get relief within 6 months of the filing of a petition because with-
holding of appraisement would go into effect immediately upon a
preliminary affirmative determination.
We also support this committee's apparent intention of using the
term "material injury" in the implementing legislation and urge
that it be defined in a meaningful way.
Since our counsel is here with us and they have technical knowl-
edge in answering any of these specific questions that you may
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have on our written testimony, I would like to just particularly
review a few of the items that remain on our recommendations
under countervailing duties.
We feel that legislation should not limit the criteria to calculate
the net benefit derived from certain subsidies. We feel there should
be confidentiality at the administration level. We feel that import-
ers must be allowed to apply a general term bond to cover provi-
sional countervailing and antidumping duties. We also feel the
injury provision should extend to all countries that have acceded to
the code and not be restricted though that would only implement
the code on antidumping.
The Senate Finance Committee has proposed that the time
period for an antidumping investigation be shortened significantly.
We recommend, based on the nature of the antidumping process
and recent GAO study, that there be no reduction in the time
permitted to conduct an antidumping investigation. Specifically, by
reducing the time allowed for a preliminary determination, it
would not be possible in the ordinary cases for information to be
received and analyzed fully prior to a preliminary determination.
As with countervailing duties, the absence of adequate time will
force decisionmakers to rely increasingly on personal bias and this
benefits no one.
The Senate Finance Committee has tentatively decided that esti-
mated dumping duties be paid upon entry for products under a
dumping finding. This proposal adds a punitive feature to the
antidumping law-not only would an exporter have to raise his
price in order to avoid dumping duties on current entries but the
importer would have to pay an equivalent amount as "estimated
dumping duties" to atone for the past practices of the foreign
exporters. Now this double penalty could have the very real conse-
quence of forcing a number of small American importers out of
business. In the overwhelming majority of cases, dumping ceases
after the imposition of the dumping finding because the choice is a
simple one between eliminating the margin by, for instance, rais-
ing the price-thereby putting the money in the exporter's
pocket-or not eliminating the dumping margins-thereby putting
the money into Treasury's pocket.
The proper solution to the problem is to strengthen the resources
and procedures used by the Customs Service so that Master Lists
can be properly administered while continuing the current practice
of requiring bond until such time as goods have been determined
actually to be dumped.
While not addressed by Congress, we recommend, based upon
inconsistency with the Antidumping Code and the recent GAO
study, that section 205(b) referring to cost of production and section
206(a) which mandates arbitrary addition of 10 percent for general
expenses and 8 percent for profit be eliminated from the Anti-
dumping Act.
The Senate Finance Committee tentatively has decided that as-
sessment of dumping duties be carried out with the use of sampling
techniques and averaging to compare United States and foreign
market value and that insignificant adjustments could be ignored
at the agency's discretio~i. We suggest that, as difficult as the duty
PAGENO="0223"
215
assessment process is, every importer have the right to have its
duties assessed on the individual merits of that entry.
ESCAPE CLAUSE INVESTIGATIONS
This committee and the Finance Committee have recommended
various alternatives which would shorten the time limits necessary
for an escape clause investigation. We recommend that no changes
be made in the time limits for the escape clause because there is no
demonstrated need for either of these proposals. Moreover, while
90 days may be sufficient time to conduct an injury investigation in
antidumping cases, parties to those investigations and the ITC are
aware of those investigations ahead of time. There is no such
advance warning in the case of escape clause investigations.
With respect to customs valuation, the American Importers Asso-
ciation has been directly involved in the development of the new
valuation code. Since we are a member of the Joint Industry Group
and we support their testimony which provides you with extensive
analysis and recommendations on the code and implementing legis-
lation, we will not duplicate these facts now. However, since a
Senate Finance Committee proposal calls for a change in the U.S.
method of customs valuation from f.o.b. to c.i.f., we recommend
that the f.o.b. basis of customs valuation be retained. Imposition of
c.i.f. values would discriminate between U.S. ports and increase
costs to the consumer. In addition, any such change would require
compensation to our trading partners which could only be achieved
through a whole new round of tariff cutting negotiations.
Last, with respect to import licensing, this subcommittee is con-
sidering a limited grant of discretionary authority to the President
to auction import licenses. Any such scheme would place small
importing companies at an enormous disadvantage and significant-
ly reduce competition in those products under license. It would
increase the wholesale and retail costs of those products. We rec-
ommend that such a program not be initiated by the Congress.
The subcommittee is also considering an automatic licensing
system to monitor imports prior to customs entry. Such a system
would be expensive, difficult to administer, and trade inhibiting.
Initiation of automatic licensing at this time would contravene the
intent of the import licensing code which seeks to diminish the
application of licensing policies.
In conclusion, the AlA does wish to reiterate its concern over the
price Americans are being asked to pay in the form of one protec-
tionist concession after another. AlA urges this committee to enact
only the legislation necessary to implement the package, not the
widely rumored appropriate sweetners.
Moreover, we urge the committee to seriously consider our pro-
posals not in terms of free trade versus protectionism but in terms
of what is necessary to provide for fair and competent administra-
tion of these laws.
I thank you very much. We are here to answer any questions if
there are any..
[The prepared statement follows:]
PAGENO="0224"
216
STATEMENT OF RICHARD MAXwELL, VICE PRESIDENT, ASSOCIATED DRY GOODS
CORP., AND FIRST VICE PRESIDENT, AMERICAN IMPORTERS ASSOCIATION
Mr. Chairman and members of the committee, my name is Richard Maxwell. I am
Vice President of Associated Dry Goods Corporation of New York City. My company
operates 16 quailty department store divisions throughout the country, as well as
the Sycamore Specialty Stores in the Midwest. Included in the Associated family of
stores are the nationally known Lord & Taylor, Robinson's in California, and
Goldwater's in Phoenix. I appear here in my capacity as First Vice President of the
American Importers Association (MA), 420 Lexington Avenue, New York. I am
accompanied by Gerald O'Brien, Executive Vice President of AlA.
The American Importers Association is a nonprofit organization formed in 1921 to
foster and protect the importing business in the United States. As the only associ-
ation of national scope representing American companies engaged in the import
trade, ALA is the recognized spokesman for importers throughout the nation.
We welcome this opportunity to present our views on issues relating to implemen-
tation of the Multilateral Trade Negotiations (MTN). Our remarks here today
should not be construed as necessarily endorsing or opposing the overall package
that we understand enentually will be presented to the Congress by the President.
AlA's position on that simple yes or no vote will be determined by its Board of
Directors after we have examined the final result of this ongoing process in which
we are pleased to be able to participate.
INTRODUCTION
In the Trade Act of 1974, the Congress gave the President an unprecedented
mandate to go forward and negotiate with our trading partners for the "develop-
ment of an open, nondiscriminatory and fair world ecnomic system." Congress
expressed its concern that barriers to international trade were "preventing the
development of open and nondiscriminatory trade among nations." Accordingly,
Congress authorized the President to enter into trade agreements providing for the
harmonization, reduction, or elimination of these barriers and distortions.
The results of these negotiations as they may be implemented into U.S. law are
now before us, and we are told that the goals established by Congress have been
achieved.
We are not so sure.
it is clear from many of the actions taken by the Administration that the price
being paid for this reportedly trade liberalizing package is escalating. Products
ranging from steel to textiles, from dinnerware to dairy products, actually may be
subject to even more restrictive import regimes than apply now. Because these
matters are outside of the scope of implementing legislation, we will not devote our
testimony to a discussion of them. Suffice it to say that as a consequence of these
actions, we wonder whether the overall results of the Multilateral Trade Negotia-
tions (MTN) will in fact be trade liberalizing. We wonder further what other prices
will be paid in order to obtain the support-or the absence of opposition-of the
protectionist elements in the United States. We suggest to this Committee and to
the Congress that the price importers and consumers will be asked to pay to obtain
approval of the MTN package may be too high.
While we are dealing here with extremely technical considerations we believe it
important not to lose sight of the broad effects of changing American trade laws.
American consi.lmers, particularly the poor, the American pensioners and the
would-be retirees are concerned with action by the Congress and the Administration
which contributes to inflation. The protectionist tribute exacted by special interests
is clearly inflationary. It lowers the American standard of living and reduces our
purchasing power to the detriment of other Americans and potentially could harm
manufacturers, workers and farmers in the export sector.
Before addressing specific proposals that Congress is recommending for the imple-
menting legislation, we would like to make two general comments.
First, the American Importers Association strongly urges that Congress and the
Administration include in the implementing legislation package only, repeat only,
such changes in the existing laws as are necessary to give effect to the new trade
agreements. Any other changes in existing law should be required to go through the
normal legislative process, not the yes or no system prescribed in the Trade Act of
1974.
Second, our proposals address a number of specific issues regarding the Counter-
vailing Duty Law and the Antidumping Act. We urge this Committee to consider
not only our specific objections and recommendations, but also the cumulative
impact of the proposed amendments to these laws. In our opinion, that cumulative
PAGENO="0225"
217
impact is such as to transform these laws from fair trade laws into "legal" barriers
to trade in which it is impossible, because of unreasonable time limits and other
features to obtain fair and probative investigations and determinations.
To comply with your time limits, I will summarize AlA's major areas of concern
together with our recommendations. A fuller explanation is provided in the at-
tached memorandum which we are submitting for the record.
A. Countervailing duties
1. Shortened time limits-This Subcommittee has recommended that the time
limits for conducting a countervailing duty investigation be reduced significantly. In
a simple case, this proposal calls for a preliminary determination within 95 days, a
final determination of a subsidy within 170 days, and a final determination on the
matter of injury within 45 days of the final subsidy determination. The Senate
Finance Committee recommends even shorter time limits. In our opinion, the pro-
posed time limits are inadequate to permit a complete and fair resolution of the
case.
We recommend the following time limits: (1) Preliminary determination within
six months; (2) Final determination within 60 days after the preliminary; (3) With-
holding of appraisement upon a preliminary affirmative determination; (4) Follow-
ing a preliminary determination, immediate referral to the ITC on the question of
material injury with the ITC determination due within 120 days.
The shortened time limits tentatively recommended by Congress would make it
impossible for information from foreign governments or foreign exporters to be
collected and analyzed fully by Treasury prior to a preliminary determination. In
the absence of adequate time to gather and analyze the facts, decision-makers will
rely increasingly on their own personal bias. Such a result benefits neither the
domestic industry concerned nor the importing community.
Under our recommendation, domestic industries would be able to get relief within
six months of the filing of a petition because withholding of appraisement would go
into effect immediately upon a preliminary affirmative determination. Under cur-
rent practice, relief is not possible until after a final determination, which generally
is not made until one year after the petition has been filed. Because relief will now
be imposed at the preliminary stage, however, it makes it doubly important that
adequate time be permitted for a full investigation to be made prior to the prelimi-
nary determination.
2. Material Injury-Both this Subcommittee and the Senate Finance Committee
have deleted reference to the concept of "material" injury. We recommend that the
implementing legislation use the term "material" injury, which should be defined as
"important and consequential." Omission of the term "material" injury would vio-
late the international obligations so recently undertaken in the Subsidies/Counter-
vailing Duty Code.
3. Net subsidy-This Subcommittee and the Senate Finance Committee would
impose limitations on the ability of Treasury to calculate the net benefit derived
from certain subsidies. This would result in an overstatement of the actual subsidy
received in some cases. These limitations would unfairly discriminate against devel-
oping countries which do not rebate indirect taxes upon exportation as permitted
internationally, as well as against countries which give regional aid to offset proven
cost disclocations. We recommend that the implementing legislation not limit the
criteria for calculating the net subsidy.
4. Protective order-Both this Subcommittee and the Senate Finance Committee
have recommended that confidential information be made available to counsel for
interested parties under an administrative protective order. There is a real risk
that, despite this protective order, highly confidential proprietary business informa-
tion could be revealed to competitors. In order to insure that these proceedings are
not used by petitioners as a discovery process, and to insure full responses to
inquiries by foreign respondents, confidentiality of information should be totally
preserved at the administrative level.
5. Provisional bonding or cash deposits-This Subcommittee has recommended
that provisional measures can be applied at the time of a preliminary determination
in the form of a special entry bond for each entry or a cash deposit. These provi-
sions would unnecessarily penalize importers prior to a final determination of these
matters. Moreover, such measures are unnecessary to protect the revenue, which
can be protected adequately by merely extending the general term bond coverage to
cover such provisional duties.
6. Discretionary application of the injury provision-The Senate Finance Commit-
tee tentatively has decided that any new law would apply only to those countries
that, in the opinion of the President, have fully acceded to and are implementing
the Code. We recommend that the injury provisions should extend to all countries
4Lt_998 - 79 - 15
PAGENO="0226"
218
that have acceded to the Code. The Code contains sufficient remedies to insure
compliance with its provisions. Particularly, this section could operate to deny the
injury provisions to developing countries. Those who have acceded to the Code have
committed themselves to endeavor to reduce or eliminate export subsidies. This will
be a painful transition process involving difficult judgements as to the proper pace.
These judgements should be made in an international forum-not through elimina-
tion of the application of the injury provision which would controvene the Code. If
there is disagreement over the pace of these phase-outs, the United States still
retains the right to apply countervailing duties if those subsidies are causing injury.
If those subsidies are not causing injury, the application of countervailing duties to
countries that have signed the Code would explicitly violate the provisions of the
Code.
B. Antidumping
1. Shortening of time limits-The Senate Finance Committee has proposed that
the time period for an antidumping investigation be shortened significantly. Under
its proposal, the time for reaching a preliminary determination of sales at less than
fair value (LTFV)-when withholding of an appraisement occurs-would be reduced
to 120 days from the date of receipt of petition. This compares to the present statute
which allows approximately 7 months. The Committee has proposed an additional
75 days for the final fair value decision-extendable by 60 days upon request of
petitioners or respondents-with an additional 45 days for an injury determination
by the ITC. We recommand, based on the .nature of the antidumping process and
recent GAO study, that there be no reduction in the time permitted to conduct an
antidumping investigation. Specifically, by reducing the time allowed for a prelimi-
nary determination, it would not be possible in the ordinary cases for information to
be received and analyzed fully prior to a preliminary determination. As with coun-
tervailing duties, the absence of adequate time will force decision-makers to rely
increasingly on personal bias. This benefits no one.
2. Payment of estimates dumping duties upon entry.-The Senate Finance Commit-
tee tentatively has decided that estimated dumping duties be paid upon entry for
products under a dumping finding. This proposal adds a punitive feature to the
antidumping law-not only would an exporter have to raise his price in order to
avoid present dumping duties on the entry, the importer would have to pay an
equivalent amount as "estimated dumping duties" to atone for the past practices of
the foreign exporters. This double penalty could have the very real consequence of
forcing a number of small importers out of business. Moreover, the payment of
estimated dumping duties does nothing to solve the real problem with the assess-
ment process, which lies in the failure of the Customs Service to administer the
Master Lists. We recommend a continuation of the current practice of requiring
bond until such time as goods have been determined actually to be dumped. Con-
gress should legislate time limits on the assessment process. To the extent that
delays in the preparation of Master Lists are incurred because of exporters, Customs
can remedy the problem by using the best information available if that information
is not forthcoming in a reasonable amount of time. To require a payment of
estimated dumping duties would penalize importers in cases where dumping actual-
ly has been eliminated, thereby erecting a totally unjustified non-tariff barrier.
3. Deletion of cost of production and minimum percentage markups-While not
addressed by Congress, we recommend, based upon inconsistency with the Anti-
dumping Code and the recent GAO study, that Section 205(b) referring to cost of
production and Section 206(a) which mandates arbitrary addition of 10 percent for
general expenses and 8 percent for profit, be eliminated from the Antidumping Act.
4. Use of averaging in the assessment process.-The Senate Finance Committee
tentatively has decided that assessment of dumping duties be carried out with the
use of sampling techniques and averagin~ to compare U.S. and foreign market
value, and that "insignificant adjustments' could be ignored at the agency's discre-
tion. We recommend that, as difficult as the duty assessment process is, every
importer has a right to have its duties assessed on the individual merits of that
entry. Any solution seeking to accelerate the process by disregarding the rights of
importers should be rejected as fundamentally inconsistent with our system of law.
C. Section 201 of the Trade Act of 1974
Expedited procedure and proposed shortened time limits-The Trade Subcommit-
tee and the Finance Committee have recommended various alternatives which
would shorten the time limits necessary for an Escape Clause. We recommend that
no changes be made in the time limits for the Escape Clause because there is no
demonstrated need for either of these proposals. Moreover, while 90 days m~y be
sufficient time to conduct an injury investigation in antidumping cases, parties to
PAGENO="0227"
219
those investigations and the ITC are aware of those investigations ahead of time.
There is no such advance warning in the case of Escape Clause investigations, with
the result that a mere 90-day or 120-day investigation with a hearing scheduled at
the approximate mid-point (six weeks after initiation of an investigation) simply
would not give importers and foreign exporters adequate notice to prepare their side
of the case or for the ITC to conduct an adequate investigation.
D. Customs valuation
1. Valuation code-AlA has worked closely with our negotiators in Geneva in
order to develop a new violation system. U.S. law should be amended to give full
effect to the new Valuation Code which is based on "transaction value" and rigidly
prescribes the manner and extent to which Customs authorities may deviate from
this standard.
2. FOB. v. C.I.F-It has been proposed that the United States change its method
of Customs valuation from FOB. to C.I.F. We recommend that the FOB. basis of
Customs valuation be retained because imposition of C.I.F. would discriminate be-
tween U.S. ports, and increase costs to the consumer. In addition, any such change
would require compensation to our trading partners which could be achieved only
through a whole new round of tariff-cutting negotiations.
B. Import licensing
This Subcommittee is considering a limited grant of discretionary authority to the
President to auction import licenses. Any such scheme would place small importing
companies at an enormous disadvantage and significantly reduce competition in
those products under license. It would increase the wholesale and retail costs of
these products. We recommend that such a program not be initiated by the Con-
gress.
The Subcommittee is also considering an automatic licensing system to monitor
imports prior to Customs entry. Such a system would be expensive, difficult to
administer, and trade inhibiting. Initiation of automatic licensing at this time would
contravene the intent of the Import Licensing Code which seeks to diminish the
application of licensing policies.
CONCLUSION
In conclusion, Mr. Chairman, AlA wishes to reiterate its concern over the price
consumers and importers apparently are being asked to pay, in the form of one
protectionist concession after another, to secure implementation of the reportedly
liberalizing MTN package. To this end, we urge the Committee to enact only the
legislation necessary to implement the package, not the widely-rumored "appropri-
ate sweeteners."
Moreover, we urge the Committee to consider our other proposals, such as those
regarding time limits, not in terms of free trade versus protectionism, but in terms
of what is necessary to provide for fair and competent administration of these laws.
The use of unreasonable time limits can create both unwarranted barriers to trade
and incompetent administration of the laws. Again, we feel this serves no one-
surely not the interest of the American public.
We appreciate this opportunity to express our views. We look forward to working
with you and your staff in the coming weeks in what we hope will be an effective
dialogue "to promote the development of an open, nondiscriminatory, and fair world
economic system."
MEMORANDUM OF RECOMMENDATION
A. COUNTERVAILING DUTIES
1. Problem: Time Periods for Countervailing Duty Investigation
It tentatively has been decided by the Trade Subcommittee that time periods for
countervailing duty investigations be shortened to the following: (i) Preliminary
determination of a bounty or grant within 95 days from the date the petition is
received-165 days in a complex case-(present law is six months); (ii) final determi-
nation of a bounty or grant within an additional 75 days (present law is an
additional six months); (iii) immediately following a preliminary affirmative deter-
mination, there would be a withholding of appraisement (no withholding under
current law); and (iv) upon preliminary affirmative determination, immediate refer-
ral to the International Trade Commission for a concurrent injury proceeding with
the injury determination due 45 days after the final determination of subsidy
PAGENO="0228"
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(presently, in the case of duty-free products, the ITC injury determination is due
three months after the final determination of a bounty or grant by Treasury).
The Finance Committee differs only in that it recommends that the deadlines for
a preliminary determination by 75 days-150 days in the case of a complex case.
The other time limits are the same.
Recommendation
(i) Preliminary determination within six months;
(ii) Final determination within 60 days after the preliminary;
(iii) Withholding of appraisement upon a preliminary affirmative determination;
(iv) Following a preliminary affirmative determination, immediate referral to the
ITC on the question of material injury with the ITC determination due within 120
days.
Reasons
1. The shortened time periods tentatively decided by Congress would make it
impossible for information from foreign governments or exporters to be collected
and analyzed by Treasury prior to a preliminary determination and would make
withholding of appraisement inevitable. In most countervailing duty investigations,
the issue of a bounty or grant depends on the extent to which a number of
producers actually utilize the government programs at issue. In these cases, foreign
governments must ask the companies involved for a full accounting of the benefits
received, which can be a very involved accounting process. Prior to a preliminary
determination, a questionnaire must be prepared based upon the petition; it must be
presented in the foreign capital by our embassy; a response must be prepared by the
foreign exporters or governments which usually entails a detailed accounting and
analysis; the response must be delivered to Treasury; the response must be verified
by Treasury officials visiting the foreign country; and last, but not least, Treasury
must analyze the response, which often involves follow-up questions requiring addi-
tional answers from a foreign government. It simply is not possible for this process
to be accomplished in less than six months. Moreover, shorter time limits would
result in excluding the petitioners from this stage of the investigation because the
lack of time would not permit Treasury to consult with them at this stage. As a
result, the proposed time limits would make the investigatory process meaningless.
2. Time limits need not be shortened in order for domestic industries to get
quicker relief. Under our recommendation, relief would be imposed within six
months by means of a withholding of appraisement at the time of the preliminary
determination. This means that all goods entering after the withholding will be
subject to any countervailing duty eventually declared. Under current practice,
relief is not possible until after a final determination, which generally is not made
until one year after the petition has been filed.
3. Under the Senate and House time limits, providing for immediate referral to
the ITC after a 75-day or 95-day preliminary determination and a final determina-
tion within 45 days of the final Treasury determination, the amount of the final
subsidy determined by Treasury will not be known by the ITC until very late in its
investigation-probably after the hearing. This will not allow an adequate finding to
be made on the essential element of causation. The level of the subsidy is crucial to
any examination of the causal relationship between the subsidy and material
injury-whether material injury is "by reason of' the subsidy.
Our recommendation provides the same amount of time for the ITC determina-
tion as the Senate and House-120 days. However, we would shorten the time
between Treasury's preliminary and final determination from 75 to 60 days. This is
possible if adequate time is given for the preliminary stage. Under this proposal the
ITC would know the final subsidy level prior to hearings, enabling the ITC to
explore the causation issue fully.
This proposal would lengthen the entire process by only 105 days (Senate version)
or 85 days (House). The truncated Congressional limits simply would not allow for
probative investigations and fair analysis. In the absence of adequate time to gather
and analyze the facts, decision-makers will rely increasingly on their personal bias.
Such a result benefits neither the domestic industry concerned nor the importing
community.
2. Problem: Material Injury
The Trade Subcommittee and the Finance Committee tentatively has decided to
delete the word "material" as a modifier of the word "injury". This explicitly
conflicts with the Subsidies/Countervailing Duty Code just negotiated and with
Article VI of the GATT.
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Recommendation
The implementing legislation should specifically use the term "material" injury,
which should be defined as "important and consequential".
Reasons
1. "Material" injury is a higher standard than mere "injury" as pointed out by
the Senate Finance Committee in its Report on the Trade Act of 1974-which
provided the negotiating authority for these ne~otiations: "The term `injury', which
is unqualified by adjectives such as `material or `serious' has been consistently
interpreted by the Commission [in antidumping investigations] as being that degree
of injury which the law will recognize and take into account. Obviously, the law will
not recognize trifling, immaterial, insignificant, or inconsequential injury. Immate-
rial injury connotes spiritual injury, which may exist inside of persons not indus-
tries. Injury must be a harm which is more than frivolous, inconsequential, insig-
nificant, or immaterial." (Emphasis added).
2. Omission of the term "material" injury would violate the international obliga-
tions so recently undertaken in the Subsidies/Countervailing Duty Code.
3. Problem: Calculation of "Net Subsidy"
The Trade Subcommittee and the Senate Finance Committee would impose limi-
tations on the ability of Treasury to calculate the net benefit derived from certain
subsidies. This would result in an overstatement of the amount of subsidy received
in some cases.
Recommendation
The statute should not limit calculation of "net subsidy".
Reasons
1. In administering the Countervailing Duty Law, Treasury traditionally has
sought to determine the level of "unfair advantage", not merely the amount of the
gross payment. The Subsidies/Countervailing Duty Code speaks of subsidies "grant-
ed with the aim of giving an advantage to certain enterprises." Because of the
variety of different programs worldwide, it is necessary for Treasury to have the
flexibility to measure this "net advantage" in keeping with the facts of each case.
2. Tn the case of regional development programs, for instance, payments given in
return for proven cost dislocations incurred by the recipients are not considered a
bounty or grant-a payment given merely to offset proven cost dislocations does not
give an advantage but merely equalizes conditions of competition. In the case of
developing countries with indirect tax systems similar to the Value Added Tax, the
indirect tax often is not rebated on export. Instead, these countries make direct
export payments. Because rebates of indirect taxes directly related to the product
are internationally recognized and approved (such as the U.S. rebate of excise taxes
upon exportation), Treasury does not consider that portion of the export payments
which take the place of non-rebated indirect taxes to be a subsidy. In other words,
Treasury considers the Substance of the program, not its form.
3. The case of proven cost dislocations and non-rebated indirect taxes are the
same, conceptually, as the offsets consjdered by the Trade Subcommittee and the
Finance Committee. Rather than attempting to delineate and forecast all circum-
stances in which offsets are legitimate, this determination should be left to Treasury
based on the facts of each case with judicial review being the safeguard against
abuse of this discretion.
4. Problem: Protective Order
The Trade Subcommittee and the Senate Finance Committee have recommended
that confidential information be made available to counsel for interested parties
under administrative protective order.
Recommendation
The confidentiality of information should be totally preserved at the administra-
tive level.
Reasons
1. There is a real risk that, despited a protective order, highly confidential
proprietary business information could be revealed to competitiors. Fear of this risk,
even if unfounded in a particular case, could inhibit full cooperation by foreign
interests unfamiliar with our procedures.
2. The nature of these proceedings under both the Countervailing Duty Law and
the Antidumping Act are investigatory, not adversary. Parties have a right to
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assure themselves that the Treasury Department is conducting an investigation
properly. Parties do not have a right to the information Treasury collects in the
course of that investigation. Otherwise, parties will be encouraged to use these
proceedings as a discovery process.
3. To the extent that parties are dissatisfied with Treasury's determinations, they
have a right to judicial review under which the factual basis for Treasury's determi-
nation can be obtained under a protective order. The difference is that this would be
an adjudicative proceeding and the court possesses the necessary procedural safe-
guards to protect the process. Treasury does not.
5. Problem: Provisional Coutervailing Duty Measures
This Subcommittee has tentatively decided that provisional measures can be
applied at the time of a preliminary determination in the form of a special entry
bond or a cash deposit.
Recommendation
Importers should be allowed to apply their general term bond coverage to cover
provisional countervailing duties and to cover antidumping duties.
Reasons
1. These provisions unnecessarily would penalize importers prior to a final deter-
mination of the cases. The purpose of provisional measures is solely to protect the
revenue-this should be done in the least punitive way possible.
2. The general term bond adequately protects the revenue. Customs has consist-
ently required adequate bond coverage for both its own routine entry purposes and
for special duties. At the same time, it has encouraged the use of a general term
bonds to ease its own administrative burden and to enable the importer to avoid
extra costs and paperwork. Particularly under Customs' new computerized bond
record system, there is no reason not to allow Customs and importers to continue to
take advantage of the benefits of the general term bond.
6. Problem: Discretionary Application of the Injury Provision
The Senate Finance Committee tentatively has decided that the existing Counter-
vailing Duty Law, which does not require an injury determination, remain in effect.
The new injury provisions would apply only to countries that have both fully
acceded to the Code and, in the opinion of the President, are fully implementing the
Code.
Recommendation
The new law should extend to all countries that have fully acceded to the Code.
Reasons
1. The Code contains sufficient remedies to insure compliance with its provi-
sions-that is its purpose. The Code also provides that countervailing duties cannot
be applied in the absence of material injury. Therefore, the United States should
uphold strictly the integrity of the Code by applying the injury standard to signator-
ies if it expects others to adhere to the Code.
2. Particularly, this section could operate to deny the injury provisions to develop-
ing countries. Those who have acceded to the Code have committed themselves to
endeavor to reduce or eliminate export subsidies. This will be a painful transition
process involving difficult judgments as to the proper pace. These judgements
should be made in an international forum-not through elimination of the applica-
tion of the injury provision which would contravene the Code. If there is disagree-
ment over the pace of these phase-outs, the United States still retains the right to
apply countervailing duties if those subsidies are causing injury. If those subsidies
are not causing injury, the application of countervailing duties to countries that
have signed the Code would explicitly violate its provisions.
B. ANTIDUMPING
1. Problem: Time Periods for Antidumping Investigations
The Senate Finance Committee tentatively had decided that the time periods for
an antidumping investigation be shortened to the following:
(i) Initiation within 20 days after filing of a petition (current law is 30 days);
(ii) ITC determination within 45 days after a petition is filed on question of
whether there is a "reasonable" indication that injury to a domestic industry by
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reason of dumped imports exists (current laws gives the ITC 30 days from the time
Treasury refers the case to the ITC);
(iii) Preliminary determination of sales at Less Than Fair Value within 120 days,
165 days if it is a complicated case. (Current law gives Treasury six months from the
date of initiation, nine months if it is determined to be a complicated case);
(iv) Final determination within 75 days, or 135 days upon request (present law
provides for a final determination within three months after a preliminary determi-
nation);
(v) Final determination of injury by the ITC within 120 days of the preliminary
determination of sales at Less Than Fair Value or 45 days after the final determina-
tion of Less Than Fair Value sales if that determination was extended (present law
provides for an injury determination within three months of a final determination
of sales at Less Than Fair Value).
Recommendation
There should be no reduction in the time permitted to conduct an antidumping
investigation.
Reasons
1. The present time limits are necessary because of the extremely involved nature
of an antidumping investigation. This conclusion is supported fully by the evalua-
tion of the current administration of the Antidumping Act by the General Account-
ing Office. If anything, the conclusion to be drawn from the GAO study is that time
limits should be extended in order to permit Treasury and ITC officials time to
adequately perform their tasks A shortening of the existing time limits, will have
only one result-a denial of due process to exporters and importers because of the
procedural inability of the agencies to obtain and analyze the data. These shortened
deadlines also will operate to deny petitioning parties meaningful participation in
the investigation prior to a preliminary determination.
2. As is the case with the proposed Countervailing Duty time limits, it would be
impossible for information from foreign producers to be received and analyzed
properly prior to a preliminary determination. It would thus make witholding of
appraisement inevitable, thereby raising a non-tariff barrier to trade. Prior to a
preliminary determination, a questionaire must be presented by the embassy to the
foreign exporters; a response must be prepared, generally by a number of foreign
exports, which involves a complete accounting of their business for a six-month
period; the responses must be delivered to Treasury; the responses must be verified
by Treasury officials visiting each of the reponding exporters; finally, Treasury must
analyze the responses. This process takes a minimum of six months to complete in
the most ordinary of cases.
3. Under current procedures, effective relief is obtained by domestic industries
within six months if the preliminary determination is affirmative-there is a with-
holding of appraisement which immediately subjects all entries as of that date to
potential dumping liability. Thus, if a dumping duties be paid upon entry for
products under a dumping finding ultimately is made, these entries will be subject
to dumping duties if they, in fact, have been dumped. The 60 days by which the
process is shortened makes an adequate investigation impossible and the additional
protection to the domestic industry is marginal. It would also increase reliance on
the personal bias of the decision-makers.
2. Problem: Payment of Estimated Dumping Duties Upon Entiy
The Senate Finance Committee tentatively decided that estimated dumping duties
be paid upon entry for products under a dumping finding. This would place an
extreme burden on importers because the duty would be required regardless of
whether the goods had, in fact, been dumped or not.
Recommendation
Following a finding of dumping, an importer should be required to post only a
bond until such time as his goods may be found to have been dumped.
Reasons
1. In the overwhelming majority of cases, dumping ceases after the imposition of
the dumping finding because the choice is a simple one between eliminating the
margin by, for instance, raising the price (thereby putting the money in the export-
er's pocket) or not eliminating the dumping margins (thereby putting the money
into Treasury's pocket). The purpose of the Antidumping Act is remedial, not
punitive. The statutory and administrative scheme has been designed, up to now, to
encourage an exporter to adjust prices to eliminate any margins. If this is done,
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dumping duties can be avoided because the statutory purpose has been accom-
plished-dumping has been eliminated.
2. The proposal to require the payment of estimated dumping duties would have a
real punitive feature-not only would an exporter have to raise its price in order to
avoid present dumping duties on the entry, the importer would have to pay an
equivalent amount as "estimated dumping duties" to atone for past practices of the
exporters. The importer would therefore have to pay a double penalty. The cash
flow result of such a requirement, particularly in these times of inflation, could
force many small importers into bankruptcy-in spite of the fact that steps had
been taken to eliminate the dumping complained of. The reimbursement of estimat-
ed dumping duties three or four years after the fact would be cold comfort to
importers who have gone bankrupt because of these requirements.
3. The underlying problem which this proposal is meant to address is the lax
assessment of dumping duties after a finding has been made. This proposal, howev-
er, will do nothing to speed up the processing of Master Lists by the Customs
Service, which is the cause of the assessment problem. Delays in administration are
caused not by failure of exporters or importers to respond, but by the difficulties in
administration of Master Lists by the Customs Service. To the extent that delays
are incurred because of exporters, Customs can use the best information available if
that information is not forthcoming in a reasonable period of time.
4. The proper solution to the problem is to strengthen the resources and proce-
dures used by the Customs Service so that Master Lists can be properly adminis-
tered. Time limits should be placed on the periodic assessment of dumping duties
which would force the proper administration of Master Lists both at headquarters
and at the ports. Once this occurs, there will be no further need to seek out a
scapegoat-in this case, the "nonpayment of estimated dumping duties at the time
of importation"-in order for the law to accomplish its purpose of a protection
against dumping.
3. Problem: Deletion of the Cost of Production and Minimum Percentage
Markups
While not proposed by Congress, this recommendation is based on inconsistency
with the antidumping Code and the recent GAO study.
Section 205 (b) of the Antidumping Act provides that if sales in the home market
have been made at prices below the cost of production, these sales shall be disre-
garded. If there are then insufficient home market or third country sales to serve as
the basis for establishing "fair value", then the constructed value provisions of the
Act-Section 206 (a) requiring the arbitrary addition of at least ten percent for
general expenses and eight percent for profit-must be used. Originally designed as
an exception to the general rule, these two provisions have become the rule with
disastrous results.
Recommendations
These provisions should be deleted from the Antidumping Act.
Reasons
1. The Comptroller General has recommended to Congress that these sections be
deleted.
2. As noted by the Comptroller General, these provisions are responsible for many
of the burdensome delays occasioned by Treasury in its administration of the
Antidumping Act. Furthermore, the GAO study points out that it is not possible to
do an adequate cost of production analysis under the time constraints of the Anti-
dumping Act. By the simple exclusion of these two provisions, a whole host of recent
problems which have surrounded the administration of the Antidumping Act-
including the necessity of the Trigger Price Mechanism (TPM)-would not exist.
3. The provision does not make economic sense in that it speaks of home market
sales below cost, not U.S. sales which are the concern of the Antidumping Act.
4. The minimum markup requirements of eight percent profit and ten percent for
general expenses do not, in the case of a great many industries, jibe with reality.
The result is an artificially inflated fair value in which dumping margins are all but
automatic.
5. The cost of production provision and the minimum requirement of an eight
percent profit and ten percent for general expenses violate the Antidumping Code.
4. Problem: Use of Averaging in Assessment Process
The Senate Finance Committee tentatively has decided, in connection with assess-
ment of dumping duties, that: "The administering agency would use sampling
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techniques or averaging to compare U.S. and foreign market values when a signifi-
cant number of adjustments to prices are required. Adjustments related to oper-
ations of exporters of insignificant quantities of dumped products would not delay
appraisement, and insignificant adjustments could be ignored in the agency's discre-
tion."
Recommendation
Duty assessment under dumping findings should be administered on an entry by
entry basis without the use of sampling or averaging with each adjustment taken
into consideration.
Reasons
1. Each taxpayer has a right to have his taxes assessed on the merits of his
individual case. The IRS cannot disregard adjustments merely because it feels they
are "insignificant". Similarly, American Importers have the same rights with
regard to the amount of duties-i.e., taxes-which they must pay.
2. The impetus behind this proposal-a speeding up of the assessment process-
would better be served by requiring the Customs Service to effectively administer
Master Lists, rather than seeking to accelerate the process by disregarding the
rights of importers.
C. SECTION 201 OF THE TRADE ACT OF 1974
1. Problem: Reduced Time Limits
The Trade Subcommittee of the Ways and Means Committee has proposed that
the time limits for Escape Clause investigations be shortened to the following:
(1) Four months for the ITC investigation-six months in exceptional cases (pres-
ent law gives the ITC six months to conduct its investigation);
(ii) 45 days for a Presidential determination on whether and in what form to
provide relief (present law provides 60 days);
(iii) Ten days for a Presidential request for a supplemental report from the ITC
with a 20-day limit on the ITC response (current limits are 15 days and 30 days
respectively).
The Finance Committee has tentatively decided on an expedited procedure for an
escape clause investigation under "exceptional circumstances". These new provi-
sions would provide for an ITC investigation to be completed within three months
and a Presidential determination within 30 days.
Recommendation
There should be no reduction in the time permitted to conduct an escape clause
investigation.
Reasons
1. There is no demonstrated need for these provisions. To our knowledge there
have been no prior cases in which the present time limits were inadequate for an
industry. No industry went bankrupt or was threatened with bankruptcy, or any
serious difficulty, because of the six-month escape clause investigation. The only
result of such an expedited procedure, then, would be to deprive the ITC and the
President of the time necessary to complete an adequate investigation.
2. The shortening of the time limits to 90 days or 120 days for the ITC investiga-
tion would be particularly unfair to importers and exporters. In contrast to the 90
day injury investigation under the Antidumping Act, where importers and exporters
are already represented by counsel and aware of the pendency of the proceedings,
importers and exporters have no notice prior to the filing and initiation of an escape
clause investigation-although the complainant, of course, has all the time in the
world to prepare his side of the case. Considerable time is needed in these cases
merely to get organized and obtain information. A 90 day investigation with a
hearing scheduled at the approximate mid-point (6 weeks after initiating of an
investigation) simply would not give importers and foreign exporters adequate
notice to prepare their side of the case.
D. CUSTOMS VALUATION
1. Valuation Code
AlA, in the last several years, has been directly involved in the development of
this Code in Geneva. In late 1972 and early 1973 the then Tariff Commission held
hearings on a proposal by its staff for a possible new valuation system which could
be adopted as a uniform international standard. This Tariff Commission staff pro-
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posal would have put the United States on a slightly modified version of the
Brussels Definition of Value.
The American Importers Association responded with a paper which in many ways
was the father of the MTN Valuation Code. Its basic premise was that both the U.S.
and the Brussels valuation system should be discarded and replaced by a new
system based on "transaction value." That is just what has now emerged from the
Geneva negotiations.
U.S. law should be amended to give full effect to the new Valuation Code which is
based on transaction value, and rigidly prescribes the manner and extent which
Customs authorities may deviate from this standard.
In order to avoid unnecessary repetition, AlA will not, in this statement, offer
specific comments on the Code or necessary implementing legislation. Rather, we
endorse and adopt the testimony of the Joint Industry Group panel which deals
extensively with this subject. AlA is a member of the Joint Industry Group.
2. Problem: FOB. v. C.LF.
It has been proposed that the United States change its method of Customs
valuation from F.O.B. to C.I.F.
Recommendation
The present F.O.B. basis of Customs valuation should be retained.
Reasons
1. FOB. excludes the costs involved for insurance and freight for duty purposes.
The United States, Canada and Austrialia have used F.O.B. for many years because
all three countries are continental economies and none wanted to discriminate
against ports which happened to be further from the point of exportation.
2. If levied on an actual C.I.F. basis, such a system will automatically translate
into higher wholesale and retail prices on the same item and wide variations over
the United States, dependent upon distance from port of export. In New York, for
instance, on goods moving all-water from the Orient, it will mean higher prices than
in other areas of the country, because of increased ocean freight costs. On the other
hand, if these goods are unloaded by rail or truck ("minibridge"), using C.I.F. would
seriously affect stevedoring firms and dock labor in the New York Port area because
of loss of business. It would also be particularly harmful to Buffalo because of much
higher costs of moving goods from Europe and the Orient into the Great Lakes. If
levied to include "minibridge" charges, C.I.F. would distort trade and traffic pat-
terns with serious economic and distributional effects.
3. It is questionable whether such a method is constitutional, as the amount of
duty would vary from port to port on the same merchandise. Whether constitutional
or not, such a practice would be discriminatory.
4. The U.S. would have to compensate its trading partners because of the increase
in duties. If the U.S. tried to use compensation formulas to avoid discriminatory and
inflationary effects already mentioned, such calculations would have to be done on a
trade-weighted averaging basis for each of the 18,000 tariff schedule items; these
would then have to be recalculated, based upon changes in shipping patterns and
ordering procedures which would result from imposition of the new system. This
effort alone would impose a costly and burdensome obligation on the government in
both installation and administration.
5. If compensation is not given to negatively affected exporting countries, and if
not averaged to produce a single C.I.F. value in all ports, it will be inflationary. All
prices on imports will be increased because of higher duties resulting from the
higher base (C.I.F. vs. F.O.B.) on which they will be levied, or as a result of higher
duties in ports more distant from the point of export.
E. IMPORT LICENSING
1. Problem: Authority to Auction Import Licenses
Subcommittee Release PR No. 14 states that the Subcommittee decided to grant
the President authority to auction import licenses as applicable to certain statutory
provisions.
Recommendation
The President should not be authorized to auction import licenses.
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Reasons
1. While new revenue would accrue to the government under a licensing auction
scheme, foreign experience has shown that any such program would be enormously
burdensome to administer, thus decreasing the financial benefits.
2. License auctioning places the small importer at an extraordinary disadvantage.
The effect of such a scheme would be further concentration of an industry once
dominated by small companies and reduced competition in those products under
license. Retail and wholesale costs of licensed products would increase further as
parties enter the import transaction chain to broker quota licenses.
2. Problem: Automatic Import Licensing
The Subcommittee has proposed an automatic import licensing system as an
"early warning" device to monitor imports prior to Customs entry.
Recommendation
An automatic import licensing system should not be adopted.
Reasons
1. There is nothing in the Import Licensing Code under which U.S. adoption of an
automatic licensing scheme is either necessary or appropriate. Such a system would
be expensive, difficult to administer, and trade-inhibiting. There is no demonstra-
tion that it could provide accurate and timely warning of import "surges" given the
wide variations in the import industry for the time elapsed between placing an
order and making customs entry.
2. Licensing is a recognized barrier to trade whether on exports or imports. The
new code seeks elimination of this barrier, and urges its use only under stringent
circumstances. Our exporters are urging reduction of U.S. licensing barriers to
trade. For Congress to add new ones, on the import side, is to use the occasion of
approval of the codes to deny their intent.
Mr. FISHER [presiding]. Thank you very much.
Mr. Frenzel, are you going to go vote now?
Mr. FRENZEL. I think I might.
Mr. FISHER. I think I should, also. The chairman is coming back
right away so I will recess these proceedings for a few minutes and
if he does not show right away I will return directly after I vote.
Mr. MAXWELL. OK, sir.
[Whereupon, the subcommittee recessed.]
Mr. VANIK. Are you finished with your statement?
Mr. MAXWELL. Yes, sir, we are. We are ready for questions.
Mr. VANIK. What about your colleagues?
Mr. MAXWELL. I only made the statement, sir.
Mr. VANIK. I want to point out you made some good suggestions
on countervailing and the other issues involved. As you know, we
are planning the markup and we plan to finish that up in the next
weeks so I hope you keep in close touch with the staff, because we
want to have an input that will give us the best approach to the
many, many issues that are fielded. I want you to know there are
political problems that are looming up all over on this trade bill.
I discovered a few minutes ago that we have to deal with the
New England caucus. So as we get certain sections of America that
are going to be appraising this we are going to make an effort to
deal with them on an area-wide basis. I just want you to know that
our task is very complex and there is a time factor, because we do
have a time limitation. I hope everybody that is involved in this
realizes that we are going to do our very best within the time
frame to arrive at a bill sufficient to get us through both the House
and the Senate.
I want to thank you very much for your time. I am sorry we had
the interruptions but that is the nature of our operations.
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Mr. MAXWELL. Thank you, sir.
Mr. VANIK. Mr. William H. Barringer of Arter Hadden & Hem-
mendinger is not here, so without objection his statement will be
entered into the record.
[The statement follows:]
STATEMENT OF WILLIAM H. BARRINGER, ON BEHALF OF ARTER HADDEN &
HEMMENDINGER
SUMMARY
1. The time periods suggested by the Subcommittee for Countervailing Duty
Investigations in its March 13, 1979, press release are unrealistically short; a mini-
mum of 120 days is needed for an adequate preliminary investigation.
2. Access by counsel for all interested parties to confidential information through
protective orders will further complicate and lengthen investigations under both
laws; the non-confidential summaries required in antidumping investigations are
sufficient.
3. In both dumping and countervailing duty investigations, a "material" injury
standard should be adopted.
4. Provisional measures in both countervailing and antidumping investigations,
particularly cash deposits, are unnecessary and punitive in nature.
5. Treasury should be allowed broad discretion in countervailing duty investiga-
tions to apply offsets in determining net subsidies.
6. The time periods for antidumping investigations should remain unchanged;
shorter investigatory periods will harm both the interests of complainants and
respondents.
7. Treasury's discontinuance policy in antidumping investigations should be con-
tinued and expanded.
STATEMENT
I am a partner in the Washington, D.C. law firm of Arter Hadden & Hemmen-
dinger and am appearing here today in place of Noel Hemmendinger. Our law firm,
formerly Stitt Hemmendinger & Kennedy, is presently associated with firms in
Cleveland and Columbus, Ohio.
The purpose of my testimony today is to offer the Subcommittee the views of
members of our firm based on our many years of experience in representing U.S.
importers and foreign exporters in proceedings under the escape clause, the anti-
dumping act, and the countervailing duty law. During the past year, we have
represented importers and exporters in connection with: countervailing duty cases
involving textiles and men's and boys' apparel from Brazil, Colombia, the Philli-
pines, Thailand, and Malaysia; the TPM system as it concerns steel from Japan;
dumping cases involving nails and cement from Canada; and escape clause matters
involving specialty steel from Japan, footwear from various sources, and ferrochro-
mium from Yugoslavia.
This testimony is given on behalf of the law firm, and not on behalf of its clients.
I would draw your attention, however, to the fact that the law firm is registered
under the Foreign Agents' Registration Act for the Japan Iron and Steel Exporters'
Association and related Japanese steel export associations, the Banco do Brazil, and
the Japanese Government acting through the U.S.-Japan Trade Council.
GENERAL OBSERVATIONS
As a general matter, I wish to indicate that we support the presentation made on
behalf of the American Importers Association. We are a member of the AlA and
participate in the work of a number of it's committees.
My testimony today is devoted principally to consideration of legislative changes
in the antidumping and countervailing duty laws. While I will review and comment
on a number of the proposed changes in the substantive standards of the statutes, I
wish to emphasize proposed changes in the procedures for investigation which, from
the perspective of a practitioner representing foreign export interests and U.S.
import interests, I believe will operate as substantial barriers to full and fair
investigations. I will focus here on proposals to alter the timetables for investiga-
tions. Second, I wish to call the Subcommittee's attention to the increasingly adjudi-
cative nature of investigations under the statutes and the adverse impact this has
on meeting current or proposed time limits. In this connection I would suggest that
increasing access by counsel for interested parties beyond that currently available
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in antidumping proceedings, that is access through a non-confidential summary, will
result in a further increase in the adjudicative nature of these proceedings. Third, I
wish to briefly call the Subcommittee's attention to such substantive issues as the
proposed standard of injury in the countervailing duty law, the calculation of net
subsidies, the requirements of bonding or payment of estimated duties in either
countervailing duty or antidumping investigations, and the "settlement" of investi-
gations.
COUNTERVAILING DUTY LAW
1. Time period for countervailing duty investigations-In its press release of
March 13, 1979 the Subcommittee tentatively agreed to reduce the time period for
investigations from 1 year in the present law to a total period of 215 to 335 days.
While in my opinion it may be feasable to conduct a countervailing duty investiga-
tion within a period of 215 days, I believe it will prove to be extremely difficult in
all but the most simple cases. The Subcommittee's suggested time period would, for
example, require a preliminary determination by the Treasury Department within
90 days of the receipt of a petition and only 75 days after Treasury's determination
to initiate an investigation. Such a time period would, without question, make it
impossible for foreign governments or foreign industries to receive a decision on the
merits at the preliminary determination stage of the investigation. Itis not possible
between day 20 when Treasury initiates the investigation and day 90 to prepare an
adequate questionnaire, distribute that questionnaire to the interested foreign par-
ties, for the foreign parties to collect data in order to respond to the questionnaire,
for the Treasury Department to analyze data received, for a non-confidential sum-
mary to be analyzed and commented on by the complaining party, and for the
Treasury review and approval process to take place. If, as indicated in your press
release of March 13, there is to be verification of information submitted, even more
time is required. In effect, the shorter time periods suggested by the Subcommittee
would virtually guarantee that the preliminary determination in countervailing
duty cases would be based on the information received from the complaining party
as "best evidence" available. This fact, if accompanied by suspension of liquidation
after the preliminary determination, literally guarantees that a complainant can, at
least temporarily, completely disrupt trade in the products being investigated. The
risk of trade in the product being investigated would be too great.
It is suggested that if any shortening of time periods in countervailing duty
investigations in contemplated, that the period to be shortened is the period be-
tween the preliminary and final Treasury determination. In my view, and based on
substantial experience, the preliminary determinations should not take place until
180 days after initiation. Final determination could as a practical matter be accom-
plished within 60 days of that time, unless the investigation were a more complicat-
ed one. The ITC could receive the case after the preliminary determination and be
given 120 days from that date to make it's final decision.
A formulation of the time period for investigations such as given above will allow
the Treasury Department sufficient time to undertake an adequate investigation,
while simultaneously protecting the interest of domestic industries in obtaining
adequate relief. Furthermore, it will have the added advantage of allowing the
domestic petitioners to consult with Treasury during the preliminary stages of the
investigation, which consultations could not take place under the time limits pro-
posed in the Subcommittee's March 13 release.
2. Confidentiality-The suggestion in the Subcommittee's release of March 13
that non-confidential summaries of submissions be available on request to any party
and that counsel for interested parties could seek access to confidential information
under an administrative court or protective order is disturbing. Putting aside the
difficulty which will arise in making public confidential government to government
communications, implementation of the proposals in the press release will make the
pursuit of investigations extremely difficult. As I am sure any Custom's or Treasury
official will testify, current requirements of non-confidential summaries in anti-
dumping cases have geometrically increased the complexity of these cases.
Dumping investigations are no longer impartial and objective proceedings carried
out by the Department of Treasury, but quasi-adjudicative proceedings with all
parties analyzing and commenting on other parties submissions, submitting volumes
of data and counter data, preparing legal and factual arguments whether frivolous
or serious, and with an abundance of lawyers submitting procedural and substantive
protests. Increased access through the availability of a protective order would fur-
ther and substantially complicate these cases.
Furthermore, to insert an essential adjudicative procedure, the protective order,
into a proceeding which is not governed by the Administrative Procedures Act and
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which, therefore, provides few if any procedural safeguards to parties submitting
information, operates as a substantial deterrrent to full cooperation with the inves-
tigative procedures and compromises the rights of parties seeking to import into the
United States.
In my opinion, and that of the lawyers working for our firm, the purpose of non-
confidential summaries and disclosure by the Treasury Department to complaining
parties has been to allow them to monitor the adequacy and legality of the Treasury
Department's investigation. This has reached extremes, but nevertheless the process
is still functioning. To allow opposing counsel access to confidential information will
allow that counsel to function in the role prosecutor or plaintiff's counsel and will
make these investigations into adjudicative proceedings without procedural safe-
guards. It is suggested that conducting countervailing duty investigations, or anti-
dumping investigations, in an adjudicative manner is inappropriate.
Countervailing duty investigations are essentially Government to Government
proceedings which call into question practices which a foreign government believes
to be appropriate in light of its own economy. This is not a problem which lends
itself to an adjudicative resolution. With respect to both countevailing duty and
dumping investigations, increasingly adjudicatives procedures act as a barrier to the
interests of the domestic industry in a prompt decision and are contrary to the
public interest in assuring full and fair decisions with a minimum of unnecessary
disruption. Finally, the astronomical costs which adjudicative procedures impose on
exporting industries is equivalent to a non-tariff barrier. It would indeed be ironic if
the MTN which has focused on the elimination of non-tariff barriers to trade
resulted in implementing legislation which increased rather than decreased such
barriers.
3. Injury.-We strongly urge that the committee take into the U.S. law the
expression "material" injury which has long been the standard of the GATT and
which is now contained in the international codes. To decline to do so invites quite
unnecessary discord with our trading partners who have long objected that the
absence of the word "material" created an undue difference in the U.S. practice
from that provided in the GATT and followed b~r other countries. We recognize that
the United States has long maintained that it s actual practice is consistent with
the expression "material" and we concede that there are many cases which permit
this proposition to be defended. However, there are also cases of recent date in
which it is not easy to defend this practice as meeting the standard of "material"
injury.
The basic reason of course, for giving significant value to the expression "materi-
al" injury is the same as the reason that no doubt caused it to be originally used in
the General Agreement. Namely, that it does not make economic sense to put a
penalty upon importations into the United States at low prices, to the benefit of the
American consumer, unless there is really a significant degree of prejudice to some
producing sector of the United States economy.
In the last analysis, the application of this test implies a weighing of interests on
the part of the International Trade Commission, and the public should not be
denied the benefits of low priced imports unless there is a clear prejudice to a U.S.
competitor. This applies equally to dumping or countervailing duty investigations.
4. Provisional measures-Our comments on provisional measures in connection
with dumping amendments-that there is no justification except a punitive atti-
tude-also apply to such measures in connection with countervailing duties.
5. Definition of net subsidy-We submit that the definition of a net subsidy which
is found in press release 14 (paragraph 5) is deficient and that regardless of provi-
sions placed in the law, the discretion of the administering authority to determine
the net subsidies should not be limited. It is difficult to conceive of all of the
circumstances which may be applicable and which may cause the values of govern-
mentally furnished aid to be affected. We are aware from our experience as practi-
tioners of at least two situations in which Treasury Department discretion would be
required. One is in the case where a nominal credit representing a percentage of the
export value is given to the exporter and is usable only for the payment of certain
taxes. In practice it has been demonstrated that many exporters are not able to
utilize such credits and the real value to them of the subsidy is a small percent of
the nominal value. Countries should have the opportunity to demonstrate such
circumstances. We would suggest, therefore, that point 2 of paragraph 4 of the
Subcommittees press release number 14 should include loss in the value of the
benefit resulting from the inability to fully utilize the benefit.
The other situation, one which the Committee may have intended to disallow, is
offsets from indirect taxes levied directly on the product in the country of exporta-
tion which are allowable as rebates upon export under the GATT, but which are not
PAGENO="0239"
231
organically related in the legislation of the exporting country to any credit which is
granted. In this connection, we earnestly submit that to disallow these offsets is to
create unnecessary discord with friendly trading nations who believe that they have
been acting in complete accordance with internationally accepted principles. They
should not be required to change their domestic legislation in order to obtain
recognition that their credits given upon exportation are properly regarded as
offsets of the indirect taxes. Such examples call for discretionary authority being
given to the Administering Agency.
6. Suspension of investigations-The provision for suspension outlined in press
release number 11 is one of the potentially most valuable in the law. It is entirely
appropriate that countervailing duty investigations should be regarded as economic
issues arising between the United States and friendly foreign governments to be
adjusted where possible by agreement between them. An opportunity should be
provided in the law and in practice for resolutions which are consistent with the
interests and needs of the exporting country and which avoid serious prejudice to
the American producer. Such agreements may be quantitative limitations or other
non-price undertakings which eliminate the possibility of injury. We would suggest
that the Committee in terms of the law or the legislative history should also
indicate that where we in fact already have quantitative limitations by reason of
escape clause actions or special arrangements such as those that prevail so widely
in textiles, there may well be no need for special measures under the countervailing
duty law. It is very difficult for supplying countries to understand that, having been
required as a condition of continuing to sell their goods to the United States to
agree to quantitative limitations in the interest of avoiding injury to the domestic
industry, they should also be subjected to countervailing duties. One form of protec-
tion should be sufficient.
ANTIDUMPING ACT
1. Time period for investigations-My comments in regard to proposed time limits
in countervailing duty investigations apply to antidumping investigations with few
exceptions. An antidumping investigation is a complex proceeding involving an
extensive analysis of prices, selling costs, differences in merchandise, differences in
circumstances of sale and, in most cases some elements of production costs. Prepar-
ing a response to an extensive Treasury questionnaire alone requires 30 to 45 days.
If one adds to this two weeks for preparation of an appropriate questionnaire by
Treasury, a week for verification and the preparation of a verification report,
adequate time for Customs to analyze the data and decide major issues, and time for
the Treasury review process, it is clear that six months is required for a tentative
determination.
It is perhaps difficult to expect individuals not directly involved in the process to
realize the complexity of these investigations. Let me attempt to explain by drawing
on a concrete example, the investigation of motorcycles from Japan. In this case
alone, the submissions by all parties, including responses to questionnaires, corre-
spondence with Treasury, and briefing of issues during the Treasury phase would, if
piled one on top of the other, be taller than a normal man. On one issue alone,
adjustments to reflect differences in the merchandise sold in the U.S. and Japan, a
technical expert had to compare virtually each and every one of more than 100
motorcycle models sold in the United States with the most similar models sold
abroad to determine the basis for appropriate adjustment. The Customs Service had
to examine the prices and adjustments for literally hundreds of thousands of sales.
The Treasury Department had to evaluate and decide numerous legal and factual
issues such as the existence of a model year in the motorcycle industry, the treat-
ment of various selling costs, and the application of regulations to novel adjust-
ments. The proceeding as a whole could not have been more thorough and could not
have been completed in less than one year without seriously compromising the
interests of both the domestic industry and the importers. To be sure, all investiga-
tions are not so complex. However, complex investigations are the rule today, rather
than the exception. To legislate unrealistic time limits serves no interest, but only
results in arbitrary decisions which are as damaging to the interests of the U.S.
industry as they are to importers.
In summary, any change in the time limits for the Treasury phase of an anti-
dumping investigation would seriously undermine the functioning of the statute.
2. Remedies-As attorneys who have frequently represented exporter's and im-
porter's involved in dumping cases, we believe the conception of tightening up the
provisions for provisional remedies is based upon a fundamental misunderstanding.
Suspension of liquidation and the necessity to file bond on products entered into the
United States while there is still substantial uncertainty with respect to the final
PAGENO="0240"
232
duties to be due is a very heavy and serious sanction at present. We have no great
familiarity with the experience in the television cases, but we believe that those
cases have their own peculiar history and are not typical of what happens when
there is a suspension of appraisement or a final dumping determination.
The fact is that in the large majority of cases, the mere filing of a dumping
complaint is a deterrent to trade because many parties will not wish to take the
risks. That deterrent effect increases as a dumping case proceeds through the
tentative determination to the final dumping finding, if there is one. A requirement
that bonds be posted earlier than now provided or that estimated duties be deposit-
ed after a finding, is punitive in it's nature and unjustified.
We are not aware of any situations under current practice in which the govern-
ment's ability to collect the duties has been inadequate. We think it is not suffi-
ciently well understood that differential pricing is normal business practice and is
highly apropriate in many circumstances. Only when it injures are counter meas-
ures justified and they should not be regarded as penalties. It is also insufficiently
understood that the dumping calculations are usually complex, and that whether
there has been dumping at all is frequently not known to the parties until the
investigation has proceeded through it's preliminary stages. As soon as he can
discern what the direction of the Treasury's finding is likely to be, a prudent
exporter modifies his prices to be sure that there will be no further dumping. Thus,
in the normal situation, earlier bonding requirements or a requirement of cash
deposits would be punitive.
Finally, the idea of basing estimated duties on the margins found during the
initial period of investigation is particularly unfair and unsound. Any duties that
are collected must in fairness be based upon the latest information which is sup-
plied by the parties. Thus, in most cases there never will be a dumping duty
collected. This should not in the least be regarded as poor enforcement of the law,
but rather as success in accomplishing the purposes of the law.
3. Discontinuance of investigations-We believe that there are situations in which
the interest of all parties are best served by settlement through a discontinuance
procedure. We hope this committee will encourage the Administering Agency to
terminate as many cases as possible before a dumping finding, particularly in two
situations. The first is where the exporter was not a deliberate dumper, so far as
can be judged, has shown a zeal to eliminate margins, and is willing to give the
desired assurances, although the margins as found were more than 2% or so
allowed in current Treasury practice. I assure you as a practitioner who has helped
clients go through the complex calculations, that because of the peculiarities of the
Treasury fair value calculations margins well over 2 percent are quite possible
without intentional dumping and in some cases without any dumping at all in a
business sense. Discontinuance's in this situation should be permitted regardless of
the petitioner's consent. In order to protect the public interest against price under-
takings given in the absence of injury, the ITC should review the effect of the
discontinuance on the injury question.
Second, it should be possible to settle any case before a dumping finding with the
consent of the petitioner upon a type of consent order. Such an order would have, of
course, to be scrutinized carefully to be sure it is not simply a vehicle for a collusive
agreement in restraint of trade. There should be no direct contact between petition-
er and exporter or their representatives. A settlement should originate in a proposal
by the exporter to the Administering Agency, which should examine to determine if
there are fair grounds, and then sound out the petitioner. The Administering
Authority should not be just a post office, but should actively explore the possibili-
ties for an agreed solution consistent with the public interest. The ITC should be
asked to determine injury preliminarily and, the proposed consent undertaking
should be published and submitted to an interdepartmental committee for approval.
The philosophy behind these proposals is that there is a public interest in the
expeditions settlement of a dumping controversy like any other, whether you regard
it as a dispute in the public or the private arena. There is an antitrust problem, but
the greatest threat to competition comes from the antidumping act itself and it
would be quite out of proportion to refuse to countenance settlements on this
ground.
We note that the countervailing duty law amendments contemplated by this
subcommittee do recognize the possibility of consent settlements, and we think this
idea should also be applied in antidumping cases.
Thank you for the opportunity to appear.
Mr. VANIK. The subcommittee will adjourn now and meet at 10
o'clock tomorrow morning to resume hearings on the scheduled
witnesses. We will meet tomorrow in room 1100, Longworth Build-
ing.
[Whereupon, at 4 p.m., the subcommittee adjourned, to recon-
vene at 10 a.m., Wednesday, April 25, 1979.]
PAGENO="0241"
MULTILATERAL TRADE NEGOTIATIONS
WEDNESDAY, APRIL 25, 1979
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON TRADE,
COMMITTEE ON WAYS AND MEANS,
Washington, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in room
1100, Longworth House Office Building, Hon. Charles A. Vanik
(chairman of the subcommittee) presiding.
Mr. VANIK. The subcommittee will come to order.
The first witnesses today will be the American Iron & Steel
Institute, Robert B. Peabody, president.
Is anyone appearing with you, Mr. Peabody?
STATEMENT OF ROBERT B. PEABODY, PRESIDENT, AMERICAN
IRON & STEEL INSTITUTE, ACCOMPANIED BY DOMINIC B.
KING, ASSISTANT GENERAL COUNSEL, UNITED STATES STEEL
CORP.
Mr. PEABODY. Yes, sir, Mr. Chairman. Dom King, assistant gener-
al counsel, United States Steel Corp., is here with me today.
Mr. VANIK. Thank you very much.
Your entire statement will be entered in the record and you can
either read from it or excerpt from it, whichever suits your conven-
ience and whichever brings the issues to the attention of the sub-
committee.
Mr. PEABODY. Thank you, Mr. Chairman.
As you said, I am Robert B. Peabody, president of the American
Iron & Steel Institute.
Accompanying me is Dominic B. King, assistant general counsel
of United States Steel Corp.
GENERAL POSITION
From the inception of the Trade Act of 1974 the domestic steel
industry has supported the objectives underlying the multilateral
trade negotiations. We recognized, as did others, that international
trade rules were being ignored to the point where the trade bal-
ance of the United States was being seriously eroded and impor-
tant segments of American industry, specifically the domestic steel
industry, were being injured by unfair trade practices.
The steel trade deficit in 1978 was $5.6 billion. This was exceeded
only by oil imports and over 3 million cars-each of which contains
about a ton of foreign steel. That is precisely why our industry has
been so intensely concerned with the MTN, its codes, and now the
U.S. implementing legislation.
(233)
~4-998 - 79 - 16
PAGENO="0242"
234
Mr. VANIK. On that particular point I think you have heard me
discuss several times the fear that I had that the steel coming in
fabricated or in automobiles would be substantially increased. You
will recall at the beginning of this year we had about a half billion
cars from one country in inventory. After the Iranian cirsis, they
were all sold off, and the importers or the dealers are not even
advertising any more, because they are making about all the sales
they need to make by people just walking in and picking up an
automobile that competitively is very attractive. I am not upset
about this, because if it had not been for the imported cars, it
might be 1999 before the American automobile industry might
have realized that they were going out of business. They are not
going to have the kind of time to adopt.
I have always been distressed about their failure to respond to
the energy crisis by producing gasoline efficient automobiles at a
price that the average person could reach. In the meanwhile, we
waste millions and millions of barrels of gasoline and fuel oil,
because of the failure to have this kind of design. So I am very
much afraid that the "effective" steel import figures for this year
are going to be high, because of this circumstance which is pretty
much the fault of our own auto industry. We will have to very
carefully study that.
We hope that the reliance on the more gasoline efficient import-
ed car will subside as the American industry wakes up in the
remaining hours that it has to address itself to this problem. Com-
petition here has forced and is forcing a very reluctant huge
American industry into a slow awakening of what the problem is.
The imported automobile field provides a wide spectrum of choice
and on the American side we have little practically to offer to the
American consumer. Frankly, it is not your problem, excepting
that every ton of steel that comes in in this other form is a ton less
that you are making in the American industry.
Mr. PEABODY. The domestic automobile industry is very impor-
tant to the domestic United States steel industry.
Mr. VANIK. I just hope that you can advise the automobile indus-
try in some way about the way the hourglass is running. It is not
an hourglass now, the sand is just rushing out and the time is
running short for them to come to recognize the very desperate
situation America is going to be in as we are tightened by higher
gasoline prices or less oil. When I was in the Soviet Union last
week, we talked about human rights, and I told them every Ameri-
can believes that he has a human right to drive an automobile
aimlessly and endlessly, with unlimited supplies of gasoline, and I
said they would have to reckon with that problem pretty soon.
Thank you very much. I didn't mean to interrupt your trend of
thought.
Mr. PEABODY. No, sir.
Mr. VANIK. I just happen to listen better when I talk a little in
between.
Mr. PEABODY. Our interest is to give you the benefit of our
thoughts and to receive the benefit of yours.
Clearly, a better means of remedying unfair trade practices and
making more transparent the procurement practices of national
PAGENO="0243"
235
governments has been needed. The Congress is now involved in
accomplishing that.
But the question is, will the international codes and other agree-
ments signed in Geneva on April 12 in fact be responsive to the
needs of the United States and the world trading system in the
decade ahead?
The answer is: we don't know. And we won't know until the
President's implementing bill is actually introduced in Congress.
Until the language of the implementing bill is available for
review, our reaction and comments must necessarily be directed to
the public announcements that have been issued by this committee
and the Senate Finance Committee.
It is clear to us that if the implementing bill introduced by the
Administration adequately expresses in statutory language the rec-
ommendations contained in those public announcements, there will
have been substantial improvements made to our trade laws. None-
theless, we are concerned about a number of key issues that are of
considerable importance to us.
Mr. Chairman, I would like to comment on several of them.
The first one is I expect the definition of injury. The injury
provision in both the antidumping and countervailing statutes
should be any injury which is more than immaterial or inconse-
quential. This is the test used by the ITC under the current anti-
dumping statute.
The second item of importance to us is the causation standard.
The addition of an injury test to the countervailing duty law
should not result in a causation standard more stringent than the
current antidumping statute test.
Another element of importance to us is the discontinuance of a
proceeding. We agree with the concept that the U.S. Government
should have the discretion to discontinue, when appropriate, pend-
ing antidumping or countervailing duty proceedings. However, to
avoid an abuse of this discretion, proper safeguards must be struct-
ed in the statutes in order to condition the exercise of this discre-
tion. It is our recommendation that the discontinuance, based on
price assurances, of a pending dumping or countervailing duty
proceeding should only be permitted when the price assurance
eliminates the full amount of the net subsidy or the dumping
margin. In addition there should be a published notice that a
discontinuance is contemplated, thereby giving interested parties
an opportunity to challenge the discontinuance. Further, once a
discontinuance is granted on the basis of an assurance given by a
foreign producer, Treasury or other administrating agencies must
monitor in order to insure compliance. Penalties must be provided
if a foreign producer defaults on the assurance.
Finally, with respect to the definition of subsidy, the implement-
ing legislation should broadly define both export and internal sub-
sidies.
In calculating the amount of a net subsidy, the allowable offsets
should be limited and should relate directly to the subsidy benefit.
The legislation should state that the burden of proving an offset
rests with the party alleging the offset.
PAGENO="0244"
236
The implementing legislation should stipulate the manner in
which internal subsidies should be apportioned over units of pro-
duction.
Mr. Chairman, that is the extent of our statement at this time.
We thank you very much for the opportunity to present our views.
We would be more than pleased to answer any questions that you
may have of us.
Mr. VANIK. Mr. Jenkins.
Mr. JENKINS. Thank you, Mr. Chairman.
I want to ask a related question about which you may or may
not be able to provide me the details. The domestic steel industry
imports a great deal of iron pellets for the production of steel, is
that correct?
Mr. PEABODY. I don't know the quantity, Mr. Jenkins, but I know
there are substantial quantities that come in principally, I believe,
from Canada.
Mr. JENKINS. Do you know what percentage of foreign imports of
iron pellets are used in the domestic steel industry?
Mr. PEABODY. I don't know offhand, sir. We can find that out, I
expect. It is not going to be a high number.
Mr. JENKINS. I would like to know the percentage. An iron pellet
industry which employs a number of citizens in my district is
closing primarily because of imports of iron pellets by the domestic
steel industry. While we complain about the import of steel, some-
times the domestic steel industry itself may complicate our prob-
lems in some industries by importing iron pellets.
Mr. PEABODY. Yes, sir. There is no question imported pellets
occur. I am not expertised on the iron ore companies but I expect
that their basic interest is to the extent that it is practicable to do
so to take it from the iron ore country here, principally Minnesota
and Michigan, the Mesabi.
Mr. JENKINS. Well, like all other industries I imagine it is where
it can be obtained the cheapest.
Mr. PEABODY. Well, I don't know that it is necessarily in the case
of iron ore where you can get it the cheapest, it is where you can
get it.
Mr. JENKINS. Not necessarily. We have it in my district but I
think the steel industry found they could buy it cheaper from a
foreign source. Now 300 people are out of work in my district
because Brazil, I believe, is the source of the iron pellets. I would
like to have those figures if you might provide them to me.
Mr. PEABODY. Yes, sir.
[The information follows:]
Total domestic consumption of iron ore-please note these figures are not just
pellets but all iron ore-in 1978 was 129,876,000 net tons. Of that amount, 83,482,000
net tons or 64.3 percent were supplied from domestic sources. (The Southern
region-Florida, Alabama, Georgia, Missouri, New Mexico, Tennessee, Texas, and
Virginia supplied 2,021,000 net tons or 1.6 percent.) Canada supplied 19 percent or
24,744,000 net tons and all other countries supplied 21,650,000 net tons or 16.7
percent.
Mr. JENKINS. Thank you, Mr. Peabody.
Thank you, Mr. Chairman.
Mr. VANIK. Mr. Cotter.
Mr. COTTER. No questions, Mr. Chairman.
PAGENO="0245"
237
* Mr. VANIK. I would like to inquire whether or not the imple-
menting language as you know it meets substantially most of the
objectives or the goals or the desires of your organization.
Mr. PEABODY. I will respond to it this way if I may, Mr. Chair-
man, and I am not trying to fence with you in the slightest. What
has come out has been in the form of the releases through your
committee and the releases through the other committee. We and
you are well aware Of the problem of converting concepts into
statutory language. On the basis of what we have seen in the press
releases conceptually we are very clear that substantial improve-
ments are going to take place and occur in the trade laws of this
country if the administration in its implementing bill that it sends
up to Congress follows the guidance that this committee here and
the other committee have given it.
There are some things that the committee has announced that
we would like to see upon reflection, upon further thought, the
committee to do something about. I guess my basic hedge is that
these conceptual provisions can be drafted in numbers of different
ways but assuming that the drafted statutory languages comes
down in a way that reflects, I expect, full intent of the committee
we are very well satisfied that a very substantial improvement in
our trade laws is going to occur. We have concern about this injury
problem, we have concern about the subsidy problem and the dis-
continuance, and as I understand it the committee is still not
signed off in that area. Assuming they are satisfactorily resolved, a
great improvement in our laws is going to take place.
Mr. VANIK. Well, you know, we have not made any decisions on
antidumping.
Mr. PEABODY. Yes, sir.
Mr. VANIK. That is one of my prime concerns. I was hoping you
would tell me that the climate was good for supporting that.
Mr. PEABODY. We would love to lead the parade, Mr. Chairman.
Mr. VANIK. Well, I sure need some leaders. Everybody has been
telling me over the last couple of days what is wrong with it.
Mr. PEABODY. No, sir. We think you are going down the right
path. There are a couple of jogs in it we would like to see smoothed
out.
Mr. VANIK. The record will be open for a few days. If you have
recommendations that will strengthen and fortify your positions,
let us have those so that we can have the direction or at least have
some guidance as to the things that remain unresolved that give
you deep concern.
Mr. PEABODY. Yes, sir.
[The following was subsequently received:]
PosmoN OF AMERICAN IRON & STEEL INSTITUTE REGARDING CERTAIN PROVISIONS
OF MTN IMPLEMENTING LEGISLATION
Definition of injury
The definition of injury in the amended antidumping and countervailing duty
laws should cover any injury more than immaterial or inconsequential. This is true
whether the term used is "injury" or "material injury". If the term "material
injury" is used, it should be stated that prior definitions or interpretations of the
word material are to be disregarded. The definition should contain a list of criteria,
the presence of which would be indicative of injury; but it should be clearly stated
that the presence or absence of any of such criteria would not be conclusive as to
the presence or absence of injury.
PAGENO="0246"
238
Definition of Subsidy
There should be a broad definition of subsidy in the countervailing duty law. This
definition should cover both export and internal subsidies. Offsets to be deducted
from gross subsidies in calculating net subsidies should be permitted only in certain
clearly specified situations directly related to the subsidy. The definition should
contain a provision specifying the manner in which a net subsidy is to be deemed
applicable to particular units of production.
Discontinuance of Proceedings
Antidumping and countervailing duty proceedings, once instituted, should nor-
mally proceed to a final decision. However, it is in the national interest that there
be a manner in which proceedings can be discontinued prior to final determination
on the basis of clearly defined undertakings on the part of the foreign manufactur-
ers or the foreign government in question.
In antidumping proceedings, discontinuance should be permitted only after for-
eign manufacturers agree to terminate exports to the United States or to raise their
prices by the full amount of the dumping margin.
In countervailing duty proceedings relating to export subsidies, discontinuance
should be available if there is an undertaking to terminate exports to the United
States, terminate the subsidy, impose an export tax equal to the amount of the next
subsidy or raise prices on exports to the United States in the amount equal to the
net subsidy.
In countervailing duty cases relating to internal subsidies, discontinuance should
be available on the basis of undertakings to terminate exports to the United States,
to increase prices on exports to the United States in an amount equal to the net
subsidy or to restrict exports to the United States to a level such that the injury to
the domestic industry is fully removed.
All discontinuances should be permitted only after a preliminary determination of
the margin of dumping or the margin of subsidization in the proceeding, only after
there has been notice of the proposed discontinuance and opportunity for interested
parties to comment and appeal and only if the undertakings are monitored in the
same manner in which a final antidumping or countervailing duty determination
would be monitored. Default in the performance and undertaking should result in
the imposition of regular antidumping or countervailing duties.
Time Limits in Proceedings
The government agencies involved in making determinations as to the existence
of dumping and subsidization and injury caused thereby should have adequate time
to carry out their tasks, but the various statutory deadlines should be as short as
possible in view of the possibility of continuing injury to domestic industry and
workers during the pendency of investigations. Rather than unnecessarily extend
permitted investigatory periods, additional staff and resources should be made avail-
able to the agencies responsible for the investigations, particularly in complex cases.
It is clear that present resources are grossly inadequate. It is also clear that there
has in the past been a disinclination on the part of government agencies to vigorous-
ly administer the trade laws in the manner contemplated by Congress.
PAGENO="0247"
239
DEFINITION OF INJURY-ANTIDUMPING
SUMMARY
In order to prove that a foreign manufacturer engaged in dumping, it is necessary
to establish that (1) the foreign producer sold goods in the U. S. market at less than
foreign market value and (2) that such goods injured the U. S. industry. The
attached definition of injury reflects basically the current test used by the United
States International Trade Commission. This language avoids placing on the domes-
tic industry a greater burden in establishing injury than the burden which current-
ly exists.
The language also includes a definition for determining the domestic industry in
question for the purpose of proving that sales at less than foreign market value
have injured the "domestic industry". It is for this reason that a statutory definition
of "domestic industry" is necessary in order to avoid ambiguities. The attached
definition defines "domestic industry" as those entities or portions thereof which
produce merchandise "of the same class or kind" as the imported merchandise
under investigation for dumping. In addition, the definition adopts a regional
market test if it is established that the U. S. producers located within a region
supply that region.
PROPOSED STATUTORY PROVISIONS
Injury shall mean (a) material injury to a domestic industry, (b) the threat of such
injury, or (c) the prevention of the establishment of a domestic industry, by reason
of less than foreign market value imports. Material injury notwithstanding any
prior law or construction of "material" thereunder to the contrary, shall mean any
injury which is more than immaterial or inconsequential.
In making a determination of injury, the Commission shall take into account all
economic factors which it considers relevant and significant under the circum-
stances, including without limitation the following: the volume of less than foreign
market value imports, either in absolute terms or relative to production or con-
sumption in the United States; the effect of less than foreign market value imports
on prices in the domestic market for like products; the impact of less than foreign
market value imports on the domestic industry in respect of actual of potential
decline in output, sales, market share, profit, return on investment, and utilization
of capacity; actual and potential negative effect on cash flow, inventories, employ-
ment, wages, ability to raise capital, or investment; and past, present, or potential
loss of business to less than foreign market value imports. No one or more factors
shall be essential to a finding of injury.
In determining whether injury has been caused by less than foreign market value
imports, the Commission shall not weigh against the effects of the less than foreign
market value imports other factors which may, at the same time also be injuring
the domestic industry. In reaching its decision of whether an industry in the United
States is being, or is threatened to be injured by reason of less than foreign market
value imports, the Commission finding shall be in the affirmative if the less than
foreign market value imports contribute toward causing more than immaterial or
inconsiquential injury to a domestic industry or toward preventing the estabsish-
ment of such an industry. Less than foreign market value imports need not be a
principal cause, a major cause or a substantial cause of injury to, an industry when
other factors may also be contributing to injury to an industry.
If, prior to the determination by the Commission of injury in any antidumping
proceeding, there shall for products of the same class or kind be a final determina-
tion of sale at less than foreign market value in any other antidumping proceeding
or a preliminary determination of sale at less than foreign market value in the
same or any other antidumping proceeding which shall have been suspended on the
basis of assurances by the manufacturers, the Commission shall cumulate the
imports from such proceeding with the imports involved in the injury determination
before the Commission for the purpose of determining injury in such proceeding.
The term "domestic industry' or "industry in the United States" means any
subdivision or portion of the commercial organization in the United States manufac-
turing, assembling, processing, extracting, growing, selling or otherwise producing,
marketing or handling articles or merchandise of the same class or kind as the
merchandise or articles imported. In applying the preceding sentence, there shall be
distinguished or separated the operations of such organizations involving merchan-
dise or articles of the same class or kind as the merchandise or articles imported
from the operations of such organizations involving othe articles or merchandise. A
"domestic industry" or "industry in the United States" shall include a regional
industry if the U. S. producers located within a regional market sell in that regional
PAGENO="0248"
240
market all or almost all of the articles or merchandise of the same class or kind as
the merchandise or articles imported.
DEFINITION OF INJURY-CONTERVAILING DUTY
SUMMARY
Under the new contervailing duty code, it will be necessary to prove in all cases
that the importation of goods benefiting from the bestowal of a bounty or grant has
injured a U.S. industry. The attached definition reflects the new requirements
under the Code and is parallel to the injury test proposed for the antidumping
statute.
PROPOSED STATUTORY PROVISIONS
Injury shall mean (a) material injury to a domestic industry; (b) the threat of such
injury; or (c) the prevention of the establishment of a domestic industry, by reason
of the importation of articles or merchandise on which a bounty or grant has been
bestowed. Material injury, notwithstanding any prior provision of law or the prior
construction of material thereunder to the contrary, shall mean any injury which is
more than immaterial or inconsequential. In making a determination of injury, the
Commission shall take into account all economic factors which it considers relevant
and significant under the circumstances, including without limitation the following:
the volume of subsidized imports, either in absolute terms or relative to production
or consumption in the United States; the effect of subsidized imports on prices in
the domestic market for like products; the impact of subsidized imports on the
domestic industry in respect of actual or potential decline in output, sales, market
share, profit, return on investment, and utilization of capacity; actual and potential
negative effect on cash flow, inventories, employment, wages, growth, ability to
raise capital or investment; any past, present, or potential loss of business to
subsidized imports, potential increase in the level of inventories of such products in
the United States. No one or more factors shall be essential to a finding of injury.
In determining injury caused by subsidized imports, the Commission shall not
weigh against the effects of the subsidized imports other factors which may, at the
same time, also be injuring the domestic industry.
Subsidized imports need not be a principal cause, a major cause or a substantial
cause of injury to an industry when other factors may also be contributing to injury
to an industry.
If, prior to the determination by the Commission of injury in any countervailing
proceeding, there shall for the same or like products be a final determination of the
existence of a bounty or grant in any other countervailing proceeding or a prelimi-
nary determination of the existence of a bounty or grant in the same or any other
countervailing duty proceeding which shall have been suspended on the basis of
assurances by the foreign government or the foreign manufacturers, the Commis-
sion shall cumulate the imports from such proceeding with the imports involved in
the injury determination before the Commission for the purpose of determining
injury in such proceeding.
The term "domestic industry" or "industry in the United States" means any
subdivision or portion of the commercial organization in the United States manufac-
turing, assembling, processing, extracting, growing, selling or otherwise producing,
marketing or handling articles or merchandise of the same class or kind as the
merchandise or articles imported. In applying the preceding sentence, there shall be
distinguished or separated the operations of such organizations involving merchan-
dise or articles of the same class or kind as the merchandise or articles imported. In
applying the preceding sentence, there shall be distinguished or separated the
operations of such organizations involving merchandise or articles of the same class
or kind as the merchandise or articles imported from the operations of such organi-
zations involving other articles or merchandise. A "domestic industry" or "industry
in the United States" shall be considered regional in character if the U.S. producers
located within such regional market sell in that regional market all or almost all of
the articles or merchandise of the same class or kind as the merchandise or articles
imported.
DEFINITION OF BOUNTY OR GRANT
SUMMARY
To aid in the determination of what kinds of aids are to be considered a bounty or
grant under the Countervailing Duty Statute, the attached language provides an
illustrative list of many export and domestic subsidies which are considered to be
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covered by the Countervailing Duty Statute. The list is adopted from Annex A of
the Subsidies/Countervailing Duty Code. It is not intended that the responsible
authority be limited to the listed subsidies in making its determination.
STATUTORY LANGUAGE
(1) Whenever in this chapter the terms "bounty or grant" are used, they shall be
construed to include but not be limited to the following export subsidies:
(a) The provision by governments of direct subsidies to a firm or an industry
contingent upon export performance;
(b) Currency retention schemes or any similar practices which involve a bonus on
exports;
(c) Internal transport and freight charges on export shipments, provided or man-
dated by governments, on terms more favorable than for domestic shipments;
(d) The delivery by governments or their agencies of imported or domestic prod-
ucts or services for use in the production of exported goods, on terms or conditions
more favorable than for delivery of like or directly competitive products or services
for use in the production of goods for domestic consumption;
(e) The full or partial exemption, remission, or deferral specifically related to
exports, direct taxes or social welfare charges paid or payable by industrial or
commercial enterprises;
(f) The allowance of special deductions directly related to exports or export per-
formance, over and above those granted in respect to production for domestic
consumption, in the calculation of the base on which direct taxes are charged;
(g)' The exemption or remission in respect of the production and distribution of
exported products, of indirect taxes in excess of those levied in respect of the
production and distribution of like products when sold for domestic consumption;
(h)2 The exemption, remission or deferral of prior stage cumulative indirect taxes
on goods or services used in the production of exported products in excess of the
exemption, remission or deferral of like prior stage cumulative indirect taxes of
goods or services used in the production of like products when sold for domestic
consumption; provided, however, that prior stage cumulative indirect taxes may be
exempted, remitted or deferred on exported products even when not exempted,
remitted or deferred on like products when sold for domestic consumption, if the
prior stage cumulative indirect taxes are levied on goods that are physically incor-
porated (making normal allowance for waste) in the exported product;
(i) The remission or drawback of import charges in excess of those levied on
imported goods that are physically incorporated (making normal allowance for
waste) in the exported product; provided, however, that in particular cases a firm
may use a quantity of home market goods equal to, and having the same quality
and characteristics as, the imported goods as a substitute for them in order to
benefit from this provision if the import and the corresponding export operations
both occur within a reasonable time period, normally not to exceed two years;
(j) The provision by governments (or special institutions controlled by govern-
ments) of export credit guarantee or insurance programs, of insurance or guarantee
programs against increases in the costs of exported products or of exchange risk
programs, at premium rates, which are manifestly inadequate to cover the long-
term operating costs and losses of the programs;
(k) The grant by governments (or special institutions controlled by and/or acting
under the authority of governments) of export credits at rates below those which
they have to pay in order to obtain the funds so employed, or the payment by them
of all or part of the costs incurred by exporters or financial institutions in obtaining
credits, insofar as they are used to secure a material advantage in the field of
export credit terms; provided, however, that if a signatory is a party to an interna-
tional undertaking on official export credits to which at least 12 original signatories
to the Agreement on the Interpretation and Application of Articles VI, XVI, and
XXIII of the General Agreement on Tariffs and Trade are parties as of January 1,
1979 (or a successor undertaking which has been adopted by those original signator-
ies), or if in practice a signatory applies the interest rates provisions of other
relevant undertaking, an export credit practice which is in conformity with those
provisions shall not be considered an export subsidy prohibited by this Statute; and
`[Editorial Note: Footnote 1 to Annex A of the Subsidies/Countervailing Duty Code includes
definition of direct taxes, import charges, indirect taxes, prior stage indirect taxes, and cumula-
tive indirect taxes.]
2[Editorial Note: Footnote 3 to Annex A of the Subsidies/Countervailing Duty Code states:
"Paragraph (h) does not apply to value added tax systems, and border tax adjustment in lieu
thereof and the ~roblem of the excessive remission of value added taxes is exclusively covered
by paragraph (g).']
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(1) Any other charge on the public account constituting an export subsidy in the
sense of Article XVI of the General Agreement on Tariffs and Trade and the
following domestic subsidies when provided or mandated by government action to a
specific enterprises or industry or group of enterprises or industries, and whether
paid or bestowed directly or indirectly on the manufacture, production or export of
any class or kind of merchandise;
(i) The provision of capital, loans or loan guarantees on terms inconsistent with
commercial considerations;
(ii) The provision of goods and services at preferential rates;
(iii) The grant of funds or forgiveness of debt to cover operating losses; and
(iv) The assumption of any costs or expenses of manufacture, production or
distribution.
Whenever any subsidy is provided for the acquisition of capital assets which are,
in the normal course of business, subject to depreciation or amortization (whether
such assets are related to start-up, replacement, expansion, relocation or any other
purpose), the amount of such subsidy, together with an amount equal to interest on
the remaining balance thereof at a rate equal to what would be an appropriate
commercial lending rate under the circumstances, shall be deemed applicable to the
units of production during * *
DISCONTINUANCE OF COUNTERVAILING Duvy
SUMMARY
Present law does not explicitly permit the government to discontinue an investi-
gation before it has been completed. However, the government has assumed this
power. The attached language gives the government the right to discontinue an
investigation under clearly stated conditions. In general, a discontinuance would be
permitted if the subsidy or the effect of the subsidy is eliminated. The discontinu-
ance could only be granted after public notice and opportunity for a public hearing.
PROPOSED STATUTORY PROVISIONS
(A) (1) Any investigation under this section into the existence of an export of
domestic subsidy may be discontinued at any time if the government or entity
which is the source of the bounty or grant agrees to eliminate the bounty or grant
completely on all goods entering or being withdrawn from consumption within 60
days from the time an agreement to discontinue the investigation is reached pro-
vided that the level of exports of the subject merchandise to the United States does
not increase during the period or the government or the entity which is the source
of the bounty or grant or the exporter of the merchandise subject to the investiga-
tion (i) agree to stop the export of the merchandise benefiting from the bounty or
grant within 60 days of the time an agreement to discontinue the investigation is
reached provided that the level of exports of the subject merchandise to the United
States may not increase during that 60-day period or (ii) agrees to price adjustments
which reflect the full amount of the net bounty or grant effective 60 days after the
time an agreement to discontinue an investigation is reached, or (iii) agrees to the
imposition of an export tax equal to the full amount of the net bounty or grant
effective 60 days after the time an agreement or discontinue an investigation is
reached.
(2) Any investigation under this section into the existence of a domestic bounty or
grant may be terminated at any time if the government or entity which is the
source of the bounty or grant or the exporter of the merchandise subject to the
investigation agree to restrict the quantity of such merchandise exported to the
United States within 60 days of the time an agreement to discontinue an investiga-
tion is reached so as to insure that there will not be injury to a domestic industry or
the threat of such injury or that a domestic industry will be prevented from being
established by reason of the importation of such merchandise provided that the
President makes public a determination that such an agreement is necessary to
prevent prejudice and severe damage to our national security and foreign policy and
the Committee on Ways and Means of the U.S. House of Representatives at least 60
days before the effective date of the agreement to discontinue the investigation and
at the same time publishes the terms of such agreement in the Federal Register.
Any petitioner shall have the right to appeal such discontinuance to the Interna-
tional Trade Commission within 30 days of the publication of the notice of the
discontinuance. The Commission shall determine whether the restrictions are suffi-
cient to insure that there will not be injury to a domestic industry or the threat of
such injury or that a domestic industry will be prevented from being established by
reason of the importation of such merchandise.
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(B) (1) Compliance with the terms of such discontinuance shall be monitored for a
period of at least three years after the effective date of an agreement on the same
basis as a Countervailing Duty Order is monitored. The Authority may require of a
party to a discontinuance such pertinent information as is needed to monitor
compliance with the agreement. If a violation of an agreement is found, the Author-
ity shall immediately suspend liquidation on the merchandise covered by the agree-
ment, retoroactive to 90 days before the date of the violation, and enter a final
determination of the existence of a bounty or grant and begin collecting countervail-
ing duties with respect to all entries subject to the suspension of liquidation.
(2) The Authority shall publish notice of a proposed discontinuance at least 30
days before its effective date and shall hold hearing as required under subsection
(10). The Authority shall publish notice of the discontinuance of an investigation as
required under subsection (9) and shall include in such notice the terms of the the
discontinuance and the means which will be used to monitor compliance with the
agreement.
(3) At the same time a discontinuance under this section is granted, the Authority
shall publish its preliminary determination if such a preliminary determination has
not theretofore been published.
DISCONTINUANCE OF ANTIDUMPING PROCEEDINGS
SUMMARY
Presently, the Treasury Department has taken upon itself broad discretion to
discontinue a pending antidumping investigation. Discontinuance of an antidumping
proceeding is, with proper safeguards, appropriate. These safeguards do not present-
ly exist. For this reason, the attached statutory language permits discontinuances of
pending antidumping proceedings by Treasury but establishes certain conditions
which must be met before a discontinuance could be granted. For instance, there
must be a published notice that a discontinuance is contemplated thereby giving
interested parties the opportunity to challenge the contemplated discontinuance.
Further, once a discontinuance is granted on the basis of an assurance given by a
foreign producer, Treasury is obligated to monitor in order to be satisfied that the
foreign producer is complying with the assurance. Penalties are provided for de-
fault.
PROPOSED STATUTORY PROVISIONS
An antidumping duty proceeding shall be discontinued only if:
(a) a preliminary determination of sale at less than foreign market value has been
made;
(b) 30 days has elapsed following notice in the Federal Register of intention to
discontinue such proceeding, which notice, in the event the proposed discontinuance
is to be on the basis of an undertaking with respect to the United States price, shall
include a detailed statement as to the manner in which the undertaking would be
monitored by the Secretary which shall be in all material ways comparable to the
manner in which dumping findings are monitored;
(c) the foreign manufacturer undertakes that for a period of not less than three
years commencing within three months following the date of the preliminary deter-
mination of sale at less than foreign market value it will notify the United States
importers of the terms of its undertakings and of the provisions hereof which are
applicable in the event of any default in respect of those undertakings, and either (i)
cause the termination of export of the products in question to the United States or
(ii) cause the United States price of the products in question to be increased by an
amount not less than the margin of sale at less than foreign market value in the
preliminary determination; and
(d) in the case of a discontinuance on the basis of an undertaking with respect to
United States price, the Commission has, within 30 days following a request for a
determination by the petitioner in such proceeding made within 30 days following
the giving of public notice of intention to discontinue such proceeding, determined
that such undertaking is adequate fully to offset the margin of sale at less than
foreign market value on exports to the United States.
In the event of any discontinuance of a proceeding, suspension of liquidation and
payment of provisional duties shall continue until the Secretary finds and states in
a notice published in the Federal Register that full performance of the undertaking
which was the basis for such discontinuance is in effect.
Following discontinuance of a proceeding, the Secretary shall continuously moni-
tor the performance of the undertaking which was the basis for the discontinuance.
If there is default in the performance of such undertaking, the Secretary shall
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immediately revoke the discontinuance, publish a final determination of dumping
and commence collecting antidumping duties with respect to subsequent and unli-
quidated prior entries. Default by a foreign manufacturer in the performance of
such an undertaking or by an importer who has been notified of such undertaking
and who knows or reasonably should know of such default, and who imports goods
covered by such undertaking, shall consititute a violation of 19 U.S.C. § 1592 and
the penalties provided therein shall apply.
Not less than semiannually, the Secretary shall cause a report as to his monitor-
ing of the performance of each undertaking which was the basis for the discontinu-
ance of a proceeding to be published in the Federal Register. Such report shall
include a detailed statement of the facts ascertained, the method of verification used
and any problems encountered.
From time to time subsequent to six months following the discontinuance of any
proceeding on the basis of an undertaking as to export price, the Commission, upon
the request of the petitioner in such proceeding and upon a showing of a material
change in the facts or of evidence of default in the performance of the undertaking,
shall determine the adequacy of the undertaking fully to offset the margin of sale at
less than foreign market value which may currently exist on exports to the United
States or whether there had been such a default, as the case may be. If the
undertaking is determined by the Commission not to be adequate to offset the then
margin of sale at less than foreign market value, the Commission shall specify the
revision necessary in the undertaking that will cause it to be adequate, and publish
the revised undertaking in the Federal Register. If, within 30 days of such publica-
tion, the foreign manufacturer has not put into effect the revised undertaking as
determined by the Commission, the Secretary shall immediately revoke the discon-
tinuance, publish a final determination of dumping and commence collecting anti-
dumping duties with respect to subsequent and unliquidated prior entries; and if the
Commission determined that there had been a default in performance of the origi-
nal or any revised undertaking, the Secretary shall immediately revoke the discon-
tinuance, publish a final determination of dumping and commence collecting anti-
dumping duties with respect to subsequent and unliquidated prior entries.
TIME LIMITS FOR PRELIMINARY FINDINGS IN ANTIDUMPING CASES
The suspension of liquidation (withholding of appraisement) is a key factor in
determining the scope and effectiveness of relief under the antidumping and coun-
tervailing duty laws. For all practical purposes, the remedial duties are imposed
only on imports entering after the suspension of liquidation. Dumped or subsidized
imports which come in before suspension are not subject to antidumping or counter-
vailing duties. The suspension order is the vehicle which enables the Treasury to
reach back following the final determination to assess antidumping or countervail-
ing duties on goods entered during the investigation and adjudication process.
Early suspension of liquidation, is therefore, crucial to any injured party who will
find it imperative that this take place as soon as possible after filing of the
complaint. On the other hand, the importer does not want suspension until there is
a finding of dumping or subsidization. It is necessary to accommodate those conflict-
ing interests by requiring a preliminary determination of the likelihood of an
affirmative finding and concurrent suspension of liquidation as rapidly as the most
efficient adjudication permits.
Such a preliminary finding and suspension of liquidation can be reasonably
accomplished in countervailing duty cases within 90 days from the filing of a proper
complaint. Antidumping determinations take somewhat longer. Therefore, a pre-
liminary finding and suspension of liquidation should normally be able to be made
within 120 days from the date of the filing of the complaint for antidumping
proceedings. In order to meet the 120 days in antidumping, however, it will be
necessary to provide adequate staff and to devise better administrative procedures
that will allow such a determination to be made within that period of time.
The Treasury has sought 170 days in which to make a preliminary finding in an
antidumping proceeding. As the authority responsible for investigating and deter-
mining whether there are less than fair value sales in antidumping cases, the
Treasury would naturally seek as much time as it felt was required to complete its
task in a fair and efficient manner. Although we believe a properly staffed and
administered investigatory body should be able to complete the preliminary finding
within 120 days after receipt of a complaint, we certainly feel that Congress should
not allow time limits even greater than those sought by Treasury.
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APRIL 11, 1979.
Hon. ROBERT S. STRAUSS,
Special Representative for Trade Negotiations,
Executive Office of the President, Washington, D.C.
DEAR MR. AMBASSADOR: We wish to call to your urgent attention a potential
loophole in the procedures being developed to obtain more effective countervailing
duty and antidumping procedures. This issue was not fully addressed in our review
of the subsidies-countervail code, but will certainly arise when we consider the
antidumping code. Our concern relates to the question of discontinuance of counter-
vail and antidumping procedures on the basis of foreign price assurances.
Specifically, it is our view that foreign price assurances should be adequate to
eliminate the full margin of dumping or the full amount of the net subsidy, not
merely the indeterminate amount of injury deemed to be taking place.
In order that there be a basis for determining the margin of dumping or the next
subsidy, price assurances should not be accepted until a preliminary determination
has been made. Compliance with price assurances should be monitored on the same
basis as a final determination. Breach of an assurance should result in imposition of
regular duties.
Failure to condition price assurances along the lines indicated above will result in
the type of unbridled Administration discretion which has plagued the enforcement
of these statutes and which, as a result, has given justifiable cause to complaints
that trade policy is being poorly administered.
There is currently no provision in these existing laws to require less than the full
amount of dumping margin or net subsidy. To open to subjective determination the
acceptance of a lesser amount on the theory that it would be adequate to remove
future injury would result in settlements at less than the full amount of the margin
which could actually foster rather than deter dumping or subsidization settlements
at lesser amounts and would incur a loophole in these statutes which would impair
them to a point of little or no utility.
As you can recognize this assurance is of primary concern to industry in general
and to labor and the resolution of this issue is absolutely essential to successful
Floor action of the entire MTN package.
We would very much appreciate your early response.
Sincerely,
CHARLES A. VANIK,
Chairman.
Mr. VANIK. How is the trigger price mechanism working?
Mr. PEABODY. Well, as you know--
Mr. VANIK. The pressures from Japan are down, the imports are
down.
Mr. PEABODY. Yes, sir, that is true, but you have to be careful in
how you look to that. There was something pushing 21 million tons
of steel that came in last year. I have only seen the numbers for
the first 2 months of this year and if you annualize them it is
something pushing 16 million tons.
Mr. VANIK. Of course our greatest source of unhappiness has
been the specialty steel and some of the other groups that are
involved.
Mr. PEABODY. Yes, sir.
Mr. VANIK. We are very much concerned about those and want
to be sure we address ourselves to that problem.
Well, if you can supplement, don't hesitate to give us that. We
will finish the markup next week so give us your supplementary
ideas and let's get them in the record, not only for big steel, but we
would like to have those from the specialty steels and the others
that are involved.
Mr. PEABODY. Yes, sir.
Mr. VANIK. Thank you very much. We appreciate your testimo-
ny.
Mr. PEABODY. Thank you, Mr. Chairman. We appreciate the op-
portunity to testify.
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Mr. VANIK. The next witness is with the Distilled Spirits Council
of the United States and Kentucky Distillers Association, Mr. John
F. McCarren, general counsel; and the representative of Heublein,
Inc., Mr. Christopher Carriuolo.
I will let Mr. Cotter introduce Mr. Carriuolo.
Mr. COTTER. Thank you, Mr. Chairman.
It gives me a great deal of pleasure to have Mr. Christopher
Carriuolo of Heublein, Inc., which is one of the largest manufactur-
ing concerns in my district, with us. Mr. Carriuolo is the executive
vice president and has been very active in civic affairs and is one of
the outstanding citizens of the State of Connecticut.
Thank you, Mr. Chairman.
Mr. VANIK. Before you proceed I want to report to you that in
my observations in the Soviet Union, there is a tremendous market
for American bourbon, and the younger it is the better they like it;
don't age it. There is a tremendous market that you ought to be
aware of from my very quick observation. I cannot speak about
some of the other products, but I get the feeling that there is a
great untapped reservoir of interest in things that make Americans
happy. I just want to say that this trade business works two ways
and that you ought to be aware of the fact there may be some
advantages and expanded markets that might be of some great
value to you.
We are very happlyto have you. Mr. McCarren, you will lead off
and then we will have the statement by Mr. Carriuolo.
STATEMENT OF JOHN F. McCARREN, GENERAL COUNSEL, DIS-
TILLED SPIRITS COUNCIL OF THE UNITED STATES, INC.,
ALSO ON BEHALF OF THE KENTUCKY DISTILLERS ASSOCI-
ATION
Mr. MCCARREN. Thank you for this opportunity to appear before
the subcommittee, Mr. Chairman. I am John McCarren, general
counsel of the Distilled Spirits Council of the United States, Inc.,
otherwise known as DISCUS, the national trade association of the
distilling industry whose members produce approximately 85 per-
cent of all distilled spirits in the United States. Many DISCUS
member companies also have substantial interests in the importa-
tion of distilled spirits.
I am authorized to state that the Kentucky Distillers Association
joins in the views expressed herein.
As you are aware, DISCUS has opposed a change in the wine
gallon method of assessing tax and duty on below-proof distilled
spirits. However, a substantial minority of the DISCUS member-
ship has been in favor of a change in the method so that the tax on
all distilled spirits would be assessed on a proof gallon basis. It now
appears that the Special Trade Representative has made promises
to various foreign countries which, if approved by the Congress,
would require a change in the method of taxation and implement-
ing legislation to accomplish the change.
Other witnesses scheduled to appear before you today will dis-
cuss the proposal of the Special Trade Representative to eliminate
the wine gallon method and you will hear the pro's and con's of
this issue on which the members of our association are divided. I
wish to focus on other related matters on which the entire distill-
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ing industry is in agreement. On these matters we hope the Con-
gress will take appropriate action in connection with its considera-
tion of the Multilateral Trade Agreements.
There are several areas within the jurisdiction of this subcom-
mittee where concessions could be made within the framework of
the implementing legislation, which would lessen to some extent
the adverse impact of the trade negotiations on the domestic indus-
try, although we can offer no proposals for concessions to entirely
offset the impact of a change in the method of taxation. I would
like to stress again that while the DISCUS membership is divided
on the issue of changing the method of assessing tax, it is unani-
mous in support of our proposals for concessions. These proposals
have also received the endorsement of ISAC No. 1, the industry
advisory body established by the Special Trade Negotiator.
Our proposal for concessions may be summarized as follows:
I. EXTENSION OF TAX DEFERRAL PERIOD
Extend the deferral period for payment of tax on distilled spirits
withdrawn from domestic distilled spirits plants and plants of pro-
ducers of distilled spirits in Puerto Rico and the Virgin Islands for
an additional period of 30 days.
II. ALL IN BOND
All operations at distilled spirits plants-production, storage, bot-
tling-would be conducted under bond, including the right to trans-
fer spirits to other bonded premises.
II.A. REPEAL OF RECTIFICATION TAX
Repeal is recommended only if all-in-bond system (item II above)
is adopted.
III. EXTENSION OF ALL-IN-BOND CONCEPT TO WHOLESALE LEVEL
Within 1 year of extension of the tax deferral period, which I
discussed as our first item, at distilled spirits plants and plants of
producers of distilled spirits in Puerto Rico and the Virgin Islands,
extend the point of tax payment of distilled spirits shipped in bond
to wholesalers (including control States), those States which have a
monopoly of the controlled distilled spirits within their border, who
have chosen to bond their facilities and have otherwise complied
with relevant government requirements. This proposal is supported
by the national association of the control States.
IV. REFORM OF FEDERAL ALCOHOL ADMINISTRATION ACT
At the present time a violation of provisions of section 5 of the
act relating to trade practices may be prosecuted as a criminal
offense under section 7 of the act. Most of these "violations" would
at the most be subject to civil sanctions if any product other than
beverage alcohol were involved. We propose the act be amended to
make such violations civil only while retaining criminal penalties
for such activities as engaging in business without the required
Government permit.
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V. DESIGNATION OF BOURBON AS A DISTINCTIVE AMERICAN PRODUCT
Our final proposal is that bourbon, a distinctive American prod-
uct, be designated as such. Now this could not be done directly by
the Congress as we see it. What we are asking is that a commit-
ment should be made by the Government to support industry ef-
forts within the EEC and other foreign government representatives
to obtain recognition of bourbon whiskey as a distinctive American
product.
Under the U.S. regulations, products such as Scotch whiskey,
Irish whiskey, Canadian whiskey and cognac are recognized as
distinctive products of Scotland, Ireland, Canada and the Cognac
region of France respectively. No alcoholic beverage sold in the
United States can be called Scotch or Irish or Canadian whiskey or
cognac unless it has been produced in the appropriate country in
compliance with the laws of that country. Similar recognition
should be given by foreign nations to bourbon whiskey which was
originated in this country and is not produced in accordance with
the standards of identity for bourbon in any other country in the
world. This distinctive product of the United States should be
accorded in other countries the same treatment which we give to
these products which can claim a unique quality.
The Congress has recognized bourbon as a distinctive product of
the United States. See Senate Concurrent Resolution 19, 88th Con-
gress, second session.
Of these concessions we are discussing this morning the most
important by far is the proposal for extending the time allowed
domestic producers for payment of the heavy excise tax on their
products. We feel that the request which the industry is making is
a matter of simple justice.
In the distilled spirits industry, the Federal excise tax comprises
about 64 percent of the value of shipments from the distiller to the
wholesaler. Since current provisions require payment of the excise
tax 15 days following the end of each half monthly tax period,
distillers are paying a burdensome excise tax well before the prod-
uct reaches the retail level.
Based on a comprehensive survey of wholesalers, about 60 days
elapse between the time a shipment of distilled spirits leaves a
supplier's warehouse and the time it leaves the wholesaler's ware-
house. These 60 days-the period between initial shipment by the
supplier and shipment by the wholesaler-may be regarded as
nonproductive.
Consequently, the distillers request that payment of the excise
tax be deferred a period of time long enough so that payment of
the excise tax by the supplier approximates the date of shipment
from the wholesaler to the retailer. Since the current excise tax
payment provisions require remittance 15 days following the close
of the tax period, distillers request that payment be deferred an
additional 30-days.
This additional 30-day deferral is nothing more than a lag, not a
reduction, in revenue to Treasury. Based on current levels of Fed-
eral excise tax receipts and short-term Treasury bill rates, the cost
to Treasury of financing the lag in Federal excise tax receipts
would be about $1 million per day. Since the distilled spirits indus-
PAGENO="0257"
249
try will be saving about $1.2 million per day, this cost is higher
because private industry must pay higher interest rates than the
Government, revenues from corporate income taxes will rise. These
additional corporate taxes will reduce the net cost to Treasury to
about $0.5 million per day. Thus, total cost to Treasury of the
additional 30-day deferral will be about $15 million.
That is the end of my statement, Mr. Chairman. I thank you
again.
Mr. VANIK. Thank you very much.
Mr. Carriuolo, do you have a statement?
Mr. CARRIUOLO. Yes, Mr. Chairman.
Mr. VANIK. I thought I would have you both testify before I go to
the questioning of witnesses, if that is agreeable.
You may proceed.
STATEMENT OF CHRISTOPHER W. CARRIUOLO, CHAIRMAN OF
THE BOARD, DISTILLED SPIRITS COUNCIL OF THE UNITED
STATES, INC., AND EXECUTIVE VICE PRESIDENT, HEUBLEIN,
INC.
Mr. CARRIUOLO. I am Christopher Carriuolo. I am from Farming-
ton, Conn. Today I wear two hats. I am chairman of the Distilled
Spirits Council of the United States as well as executive vice presi-
dent of Heublein, Inc.
I noted what you said, Mr. Chairman, about your trip to Russia
and I would like to import vodka from there. We are the largest
producers of vodka outside of Russia and if you will give me a note
to see somebody----
I would like to first put on the first hat, Mr. Chairman, as
Chairman of the Board of DISCUS and support pretty much what
our General Counsel John McCarren has said. These five proposals
that we are talking about today that John just mentioned are
almost unanimously endorsed by the industry. We just heard this
past week that one of the largest segments of our industry, the
WSWA, the wholesalers, 850 members, and I think they employ
some 30,000 salesmen, warehousemen, and so forth, have also sup-
ported us in this package of concessions for the domestic industry.
Now I have a chart presentation here and since I prepared it I
didn't want to throw it away. I didn't realize it was going to be
such a big room. You have in your packet these charts reproduced.
I am going to the fifth from the back, chart No. 15, and talk just a
little bit, one second, about the extension of the tax deferral period.
I don't know whether you realize it or not but 64 percent of the
value of shipments from distiller to wholesaler is the Federal
excise tax. Since the current provision provides that we have to
pay our tax in 15 days at each half monthly period, this puts a
tremendous burden on the American distiller because the importer
does not pay the tax, the tax is paid by the wholesaler when he
gets around to shipping the goods to the ultimate retailer.
Now we have to borrow money to pay our taxes and at the high
cost of money today this is very important. There are about 60
nonproductive days before the goods move on to the retailer. If
these 30 extra days were granted, it would save the U.S. distiller
about $1.2 million per day and the benefits of the tax deferral
would look something like this, that the deferral would be phased
- 79 - 17
PAGENO="0258"
250
in over a 5 year period. In other words, an extension of 6 days each
year for 5 years and the saving would be $7.2 million. However, the
cost to the government as John McCarren said would only be at
the end of the fifth year, $15 million. The saving to the industry
would be $18 million. Of course the rest is in income tax.
The second one, and I just want to talk about this because there
is a lot of confusion, all in bond. All in bond simply means that the
distilled spirits premises today is all in bond except for the bottling
line. The bottling line currently is not in bond. The Government
wants this. It would eliminate some supervisory people and it does
not really mean anything to the industry and I think it saves the
Government money so we are putting this in our package. There is
no cost to the Government, really no saving to the industry. There
is a saving, we feel, to the Government. That is all in bond at the
distilled spirits premises.
The next one is the repeal of the rectification tax. This is the tax
that only distillers pay. Importers do not pay this tax even though
their goods are blended. It costs us about $25 million today to pay
this tax but if we go all in bond, you pay one price, $10.50. As it is
today we blend wine and we pay 30 cents and we pay 67 cents for
the wine that is fortified and $1 for flavored spirits but now with
all in bond there is really a $4 million saving to the industry with
the repeal of the rectification tax which puts us on a par with the
importers. By the way, this would cost the importers if they had to
pay this tax about 62 cents a case.
The other one is extension of all in bond and this is chart 19, the
next to the last in your packet. Within a year we would like to go
and have the same treatment as imported products. This is quite a
saving to our industy, about 38 cents per case, and it gives us the
same advantage as the importers in that the wholesaler on a
voluntary basis would pay the tax when he ships the goods, 15 days
after he ships the goods to the retailer.
Of course, the last is the designation of bourbon. We feel this is
important for the bourbon producers as a distinctive product of the
United States.
Now that is so much for my hat as chairman of the DISCUS. I
would like now to talk as executive vice president of Heublein and
talk just a little bit about the $10.50 tax and the wine gallon proof
gallon. Here you see that bottled goods at 80 proof pays $10.50
excise tax per gallon the same as if it came in a barrel at 100 proof
and U.S bottled at 80 proof so there is a 20 percent differential.
This is chart 1 in your packet.
Chart 2 shows that this has not been a detriment to the import-
ers because look what has happened since 1960 to domestic spirits
which in 1960 had 87 percent of the market and it is now down to
72 percent and all foreign spirits from 14 percent up to 28 percent.
What is even more dramatic is when you look at the whisky share
back in 1960 the domestic whisky had 84 percent of the whisky
market; it is now down to 54 percent. The imported whisky market
share was 16 percent in 1960 and it has gone up to 46 percent in
1976.
Take a look at the next chart which is Scotch whisky imports.
You can see imports move from about 47 million gallons up to just
under 60 million gallons in a 10-year period from 1969 to 1978.
PAGENO="0259"
251
Obviously the wine gallon has not been a problem for the import-
ers. Look at the Canadian whisky imports from 32 million gallons
in 1969 to 53 million gallons in 1978. Look what the whisky is a
share of the total importers spirit market. Ninety percent of all the
spirits come into the United States as whisky, only 10 percent
liquors, brandy, gin, and other distilled products.
You might ask why we didn't ask for a lot of concessions origi-
nally as far as tariffs go. If you eliminated all the foreign tariffs for
domestic products, it would not mean much because we have such
an insignificant share of the foreign market and this is not primar-
ily because tariffs are important but it is the nontariff barriers
that prevent us from doing business in Canada, the United King-
dom and the rest of the common market-France, Italy, and Japan.
You can see here that the United States has a 3 percent share of
the Canadian market, 1 percent of the United Kingdom, a quarter
of 1 percent in France, a sixth of 1 percent in Italy, and 1 percent
in Japan-really not enough to worry about. We are just not doing
the export business because of not only the tariff barriers but the
nontariff barriers as well.
Now there has been a tremendous imbalance in the trade deficit
of distilled spirits. In 1967 it was $387 million and in 1977, 10 years
later, $635 million, this is the imbalance of trade in distilled spirits.
Also the foreign tariffs on U.S whisky, you say the wine gallon is a
tariff barrier. Well, then why don't they eliminate the tariff bar-
riers they have in the same country we are doing trading with?
They have two tax systems, one for goods two liters or under-and
that is a higher tax because it is bottled-and then they have a
lower tax for two liters and above. That is still there, that has not
been eliminated.
Now talking about jobs, there has been a lot of talk about how
many jobs might be lost or none. There was a report that was
widely circulated just a few weeks ago down here that the special
trade representative quoted to me as though it were the gospel and
it said that there are only 80 to 100 jobs lost in the industry
because of the wine gallon tax. I know that there are more jobs in
my own company that will be lost but what I don't understand
about the discrepancy-this appeared a couple of years ago in the
Glasgow Herald which said that is a campaign to create 6,000 more
Scotch whisky jobs and this is taken when the wine gallon has
disappeared and this discrimination is eliminated and the jobs will
come back to Scotland.
Now here is one that appeared in the Washington Post on April
14 and here are some headlines from the Peoria paper, "Hiram
Walker Will Close Its Distiling Plant." Now that is 1,150 jobs by
their own admission, 850 permanent and 300 seasonal jobs. I don't
begrudge them for closing this plant but I think it is the tip of the
iceberg, it is what you are going to see more of if you don't give
some benefits to the domestic industry. You are going to see more
and more plants going out of business and closing down.
I think it is significant that this release came 2 days after the
wine gallon was put into Mr. Strauss' package. Mr. Frank Fitzsim-
mons sent a letter and he has done some figuring and he has said
the industry will probably lose 25,000 jobs. I think Leo Vernon is
going to speak to this in more detail.
PAGENO="0260"
252
Now talking about prices, somebody said will the prices be low-
ered because of the wine gallon? I think there has been testimony
that says no, we are not going to lower the price. What they are
going to do is they are going to spend this money in marketing
expansion to get a bigger share of the market. It is a sad commen-
tary that this happens but this is what they are going to do.
Now we have been reducing tariffs, as you know, for some time.
We have gone from $5 a proof gallon on Scotch whisky to 51 cents.
We have gone from $5 on Canadian whisky down to 62 cents. In all
those years I don't recall any price decrease at the shelf level.
Mr. VANIK. Well, if you are not going to lower the price, are all
these jobs going to be lost just because of advertising?
Mr. CARRIUOLO. They will get a bigger share of business and we
will get a significantly lower share. That line will go up faster and
we will have a lower share.
That is really my testimony. I am concerned. I am concerned
that we have an industry that is in trouble and I think that you
should support any package that may give the domestic industry
some help or else it will go the way of the beer business; you will
have a couple of big producers and you will have all the little
fellows going out of business.
That is the end of my statement.
[The prepared statement and charts follow:]
STATEMENT OF CHRISTOPHER W. CARRIUOLO, CHAIRMAN OF THE BOARD, DISTILLED
SPIRITS COUNCIL OF THE UNITED STATES, AND EXECUTIVE VICE PRESIDENT OF HEUB-
LEIN, INC.
Mr. Chairman and members of the subcommittee, I am Christopher Carriuolo of
Farmington, Conn., I am here today wearing two hats-as chairman of the board of
directors of the Distilled Spirits Council of the United States and as the Executive
Vice President of Heublein; Inc.
As chairman of the Board of DISCUS, the trade association composed of the
producers of 85 percent of the distilled spirits produced in the United States and the
major importers of similar beverages, I associate myself fully with the testimony
which you have just heard from the association's General Counsel, John McCarren.
The five proposals he has outlined are endorsed almost unanimously by all engaged
in the business of producing and importing distilled spirits in this country. They
also are endorsed by the national trade association representing wine and spirits
wholesalers, and by the Industry Sector Advisory Committee to the Special Trade
Negotiator representing the food and beverage industries.
Let me speak in a little more detail about these proposals.
CHART 15 (EXTENSION OF THE TAX DEFERRAL PERIOD)
Extend the deferral period for payment of excise taxes on distilled spirits for an
additional 30 days.
The Federal Excise Tax comprises about 64 percent of the value of shipments
from distiller to wholesaler. Since the current provisions require payment of the tax
15 days following the end of each half-monthly tax period, distillers are paying a tax
well before it reaches the sales point at the retail level.
Under present arrangements the American distiller is not allowed as long a
period for payment of the excise tax as is his competitor, the importer of distilled
spirits from abroad. Within an average period of 23 days after distilled spirits leave
the distillery-while they are normally still in the hands of a wholesaler and before
the producer receives payment for them-the distiller must pay the excise tax. On
imports, however, the tax becomes due 23 days on the average after the imported
beverages leave the bonded premises of a wholesaler.
The American producer must borrow to pay the tax when the importer does not
have to. Or, if not forced to borrow, the American producer must tie up his capital
by early payment of the tax when the importer does not have to. Imports thus enjoy
a cost advantage of about 38 cents per case due to the cost of money. What we are
PAGENO="0261"
253
proposing would be a step toward equalizing the time granted the American pro-
ducer and the importer to pay the excise tax.
About 60 days elapse between the time a shipment leaves the domestic supplier's
warehouse and the time it leaves the wholesaler's warehouse. There 60 days are
"non-productive."
U.S. producers are asking for just half that time as an additional tax deferral
period in payment of the Federal Excise Tax.
This could be phased in at a rate of six additional deferral days per year, so that a
total of 30 days delay would be in effect in the fifth year.
This would save U.S. distillers about $1.2 million per day. If started in 1980, it
would have these results:
CHART 16 (BENEFITS FROM TAX DEFERRAL)
Million
1980 $7.2
1981 14.4
1982 21.6
1983 28.8
1984 and beyond 36.0
Since this would result in an increase in corporate income taxes the net cost to
the U.S. Treasury would be about $500 thousand per day, or at the time of the full
30-day delay, about $15 million per year.
CHART 17 (ALL-IN-BOND)
As another concession U.S. distillers ask that all operations at distilled spirits
plant (production, storage, bottling) be conducted under bond, including the right to
transfer spirits to other bonded premises.
CHART 18 (REPEAL OF THE RECTIFICATION TAX)
This is recommended only if the All-In-Bond recommendation is adopted.
The rectification or blending of distilled spirits is presently taxed at the rate of 30
cents per gallon and amounts to about $25 million annually. This tax is not paid by
foreign producers. The tax loss of this concession would be offset if spirits were
taxed on a proof gallon basis.
CHART 19 (EXTENSION OF ALL-IN-BOND CONCEPT TO THE WHOLESALE LEVEL)
Within one year of extension of the tax deferral period U.S. producers recommend
that you extend the point of tax payment of distilled spirits shipped in bond to
wholesalers (including Control States) who have chosen to bond their facilities and
have otherwise complied with relevant government requirements.
Presently wholesalers may purchase bottled imports in bond paying the Federal
Excise Tax only after the removal of the product from the wholesalers' warehouse.
This option is not available on purchases of domestic products.
U.S. distillers recommend that wholesalers be accorded the same privilege of
purchasing U.S. distilled spirits in bond, paying the FET based on the current
provisions requiring payments of the FET on imported products.
Cost of this would be nil to the Treasury if the 30-day deferral of the FET were in
effect.
CHART 20 (DESIGNATION OF BOURBON AS A DISTINCTIVE AMERICAN PRODUCT)
Commitment should be made by the U.S. Government to support industry efforts
with the E.E.C. and other foreign governments to obtain recognition of bourbon
whiskey as a distinctive American product.
As I said, a total of all these measures would offer some relief but certainly not
compensating balance for the competitive advantages granted foreign producers in
the U.S. market, as a result of the proposed change to a proof-gallon method of
taxation.
Now, Mr. Chairman, I want to change hats and speak to you as the Executive
Vice President of Heublein, Inc., on the subject of the proposal of the Special Trade
Representative to eliminate the wine-gallon system of calculating duty and excise
on distilled spirits. My company, along with the overwhelming majority of purely
domestic distillers and unions whose members' jobs are threatened by the change, is
opposed to changing this system.
A change from the present method of assessing excise taxes to one of assessing on
the basis of proof, rather than on wine or liquid gallons, would do substantial
damage to the competitive position of the U.S. spirits producers threatening the
PAGENO="0262"
254
exodus of production facilities from this country, with the consequent loss of jobs
not only in this industry but in those of its suppliers, glass bottles, packaging,
trucking, warehousing, to name but a few.
The present method of taxation, which has been in force now for more than 100
years, calls for an excise tax of $10.50 for a liquid gallon (or wine gallon as we call
it) of 100 proof or less, whether it's brought into the U.S. in bottles or in bulk.
CHART 1 ($10.50 EXCISE TAX)
Foreign producers exporting into the U.S. claim this method of taxation discrimi-
nates against them, but we say it doesn't. In fact, the business of foreign producers
in this country, principally Scotch and Canadian whisky producers has grown
multifold. In fact, it's never been better.
The same opportunity to bring distiled spirits into the United States, in bottles or
bulk, exists for all. But to establish and further a premium, higher-priced image for
their products, foreign producers elect to bring their major brands into the U.S. in
bottles.
They have profited enormously from that decision.
CHART 2 (DISTILLED SPIRITS MARKET SHARE DOMESTIC vs. FOREIGN, 1958-77)
While the market share of U.S. distilled spirits producers has declined, that of
foreign producers has increased.
CHART 3 (WHISKY MARKET SHARE DOMESTIC vs. FOREIGN, 1958-77)
U.S. whisky producers, particularly Bourbon, have suffered a declining market
share here in the U.S. while foreign producers' market share has increased.
CHART 4 (SCOTCH WHISKY IMPORTS, 1969-78)
Here, for example, is the growth of imported Scotch in just the past nine years.
CHART 5 (CANADIAN WHISKY IMPORTS, 1969-78)
Here is the growth of Canadian whisky imports in the same period.
CHART 6 (WHISKY'S SHARE OF IMPORTED SPIRITS MARKET)
In total, imported whisky accounts for 90 per cent of all imported spirits.
CHART 7 (U.S. SHARE OF LEADING FOREIGN SPIRITS MARKETS)
In sharp contrast, here's the U.S. spirits producers' share of leading foreign
markets-
Canada, 3 percent; United Kingdom, 1 percent; France, ¼ percent; Italy 1/6
percent; and Japan, 1 percent.
CHART 8 (INCREASING IMBALANCE OF TRADE IN DISTILLED SPIRITS)
The imbalance of trade in distilled spirits has been increasing steadily from $387
million unfavorable in 1967 to $635 million in 1977.
CHART 9 (LOWERING OF U.S. TARIFFS)
The steady lowering of U.S. tariffs on both Scotch and Canadian whiskies has also
benefitted foreign producers. The tariff on a gallon of Scotch has dropped from $5 to
51 cents since Repeal while the tariff on a gallon of Canadian whisky has declined
from $5 to 62 cents.
CHART 10 (COMPARISON OF U.S. AND FOREIGN TARIFFS ON WHISKY)
But in most other major world markets tariffs on U.S. products remain five to six
times greater.
There will be just a few very big winners among foreign producers but many U.S.
losers, big and small, and the ensuing competition will inevitably bring about the
concentration of the U.S. distilled spirits business with a few major companies.
The imbalance of trade can be expected to increase much faster than it has in the
past 10 years.
U.S. workers stand to lose jobs as foreign producers withdraw production facilities
from the U.S., concentrating them to economic advantage in their own countries.
CHART 11 (GLASGOW HERALD, 6,000 JOBS)
Here's a news story from a Glasgow, Scotland paper which sees the change in the
U.S. tax law favoring Scottish labor with 6,000 jobs.
PAGENO="0263"
255
CHART 12 (HIRAM WALKER CLIPPING, WASHINGTON POST, APRIL 14, 1979)
Just two days after this Trade Subcommittee expressed sentiment in favor of the
change, Hiram Walker, a Canadian company, announced the closing of its Peoria
plant with the loss of 1,200 full and part-time jobs, not to mention cutbacks that this
will cause in jobs among supplier companies. This is Walker's only U.S. distillery
and it was once the largest in the world. It is ironic that less than three weeks
before announcing this plant closing, Hiram Walker submitted a formal statement
to the Special Trade Negotiator and to Congress that only 80 to 100 jobs would be
lost in the entire United States if the wine-gallon method of taxation were eliminat-
ed.
We believe this is but the tip of the iceberg for there are other U.S. plants likely
to close or to join the ranks of those operating part-time.
CHART 13 (FRANK FITZSIMMONS SAYS- 25,000 JOBS LOST)
Frank Fitzsimmons, head of the Teamsters Union, has estimated job losses in the
U.S. from this proposed change would amount to 25,000.
Consumers will lose, too, because the principal gainers from the reduced taxes,
namely foreign producers of Scotch and Canadian whisky, have indicated by their
actions and their statements to the Special Trade Negotiator that there will be no
benefit to consumers in the form of reduced prices.
At a hearing on this subject conducted by the Special Trade Representative on
March 20 of this year, the representative of the U.S. Department of Labor, after
hearing the testimony of both sides, observed `~* * * the economic effects (of elimi-
nating the wine gallon system) would be a transfer of revenue from the Treasury
Department to certain companies that ship bottled goods from foreign countries into
the United States."
CHART 14 (SINCE 1967-COMPARATIVE PRICE INCREASES)
Percent
Prices of Bottled in Scotland-Scotch +21
Prices of Bottled in Canada-Canadian + 14
We firmly believe that the present method of assessing excise taxes is not discrim-
inatory. And so do the U.S. courts, which, in their wisdom, have upheld it on several
occasions.
We believe that the U.S. Congress in passing the 1974 Trade Act was of this same
mind when it directed the U.S. Trade Negotiators to exchange competitive opportu-
nities for like or same products in foreign markets.
But here's the unfair competition that remains:
The proposed change creates the opportunity for a flood of low-proof alcoholic
beverages into the U.S market.
Tariffs in other countries are five to six times greater than ours.
Non-tariff barriers in other countries such as tied-in houses of the U.K., exist to
exclude U.S. products.
Canada requires that all whisky imports be blended with Canadian whisky.
And there are other barriers to trade such as border licenses and inequitable
ingredient standards.
Who will be the winners from this proposed change.
Principally three foreign producers: Hiram Walker, Seagrams, and the Scotch
whisky cartel.
They will share $160 million or more yearly in reduced taxes which they can
apply to increased competition with U.S. producers.
Foreign producers do not pay the rectification or blending tax or 30 cents per
gallon required of U.S. producers.
Although the Special Trade Representative has not made public the specifics or
tariff concessions negotiated in the MTN, we understand that European countries
will continue to tax bottled imports at a higher rate than bulk-their version of the
U.S. wine-gallon/proof-gallon method of taxation. This is done by setting a lower
tariff on imports in containers of more than two liters than is imposed on contain-
ers of less than 2 liters. The largest bottled size is 1.75 liters. Thus the EEC will
continue a practice which they complain is a discriminatory barrier to trade-when
it is used by the United States.
The U.S. producers are asking this committee and the Congress to take the
necessary measures to keep the present method of assessing the excise tax in force
thereby avoiding the unfair competition that would follow such a change.
If this is not accomplished then we ask for some measure of relief, although there
is none that can equal or offset the granting of $160 million yearly in tax reductions
and the competitive advantages granted to foreign producers.
I have copies of the illustrated charts for your further review if you wish them.
Thank you.
PAGENO="0264"
Presentation to
House Ways & Means Trade Committee
April 25, 1979
by
Christopher W Carriuolo
Chairman, Distilled Spirits Council of the United States.
Executive Vice President, Heublein Inc.
PAGENO="0265"
$10.50 EXCISE TAX
+200/a
FOREIGN
BOTTLED
BULK
IMPORT
U.S.
BOTTLED
PAGENO="0266"
DISTILLED SPIRITS MARKET SHARE
DOMESTIC VS. FOREIGN, 1958-1977
~
SHARE OF
bISTILLED
`SPIRITS
MARKET
/, ~28%
14% -~ FOREIGN SPIRITS
I I I I
1960 1965 1970 1975
SOURCE DIScUS, ANNUAL STATISTICAL REVIEW.
PAGENO="0267"
SHARE OF
WHISKEY
MARKET
(%)
16%
WHISKEY MARKET SHARE
DOMESTIC VS. FOREIGN, 1958-1977
84%
54%
46%
C,'
SOURCE~ D$SCUS, ANNUAL STATISTICAL REVIEW.
PAGENO="0268"
SCOTCH WHISKY IMPORTS
MILLIONS GALLONS 1969-1978
Leu
20 -~
10
I I .1
* 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978
BULK-BOTTLED OUTPUT CONVERTED AT 82 PROOF AND TOTAL REFLECTS CONVERSION
PAGENO="0269"
CANADIAN WHISKY IMPORTS
MiLLIONS GALLONS 1969.1978
~o~IIt
* 1969 1970 1971 1972 1973 * 1974 1975 1976 1977 1978
BULK-BOTTLED OUTPUTCONVERTED AT 80 PROOF AND TOTAL REFLECTS CONVERSION
PAGENO="0270"
WHISKY
SHARE OF
II~I1PORTED
SPIRITS
MARKET
I
UUU7O
90%
PAGENO="0271"
U.S. SHARE OF
LEADING FOREIGN SPIRITS MARKETS
----~-~-
UNITED
CANADA KINGDOM FRANCE ITALY JAPAN
t ~1o/
i/O -/0 /0
3%
PAGENO="0272"
INCREASING IMBALANCE OF TRADE
IN DISTILLED SPIRITS
(LOSS IN MILLIONS)
$635
1967
1977
PAGENO="0273"
LOWERING OF U.S. TARIFFS
C,'
1933 1955 1967 1978
PAGENO="0274"
FOREIGN TARIFFS ON U.S.WHISKEY
EEC EXTERNAL TARIFF ON U.S. BOURBON WHISKEY
(DOLLARS PER U.S. PROOF GALLON)*
COUNTRY CONTAINERS OF 2 LITERS OR LESS
(i.e. BOTTLED GOODS)
BELGIUM $3.01
FRANCE $2.58
GERMANY $3.24
HOLLAND $3.31
ITALY $2.04
UNITED KINGDOM $1.66
* BASED ON RATES OF CURRENCY EXCHANGE ON FEBRUARY 13,1979
PAGENO="0275"
GLASGOW HERALD, Wednesday, April 11, 1979
Tampaign to
create 6000 more
Scotch whisky jobs"
* . that action must be taken to change an
American law which means that whisky
imported in a bottle has a 15% bigger tax than
the same Scotch product imported to the
United States in bulk and botded.there~
PAGENO="0276"
Saturday, April 14,1979 THE WASHINGTON POST.
~DISTILLERY CLOSING:
Hiram Walker & Sons will
close its Peoria distilling plant,"
DISTILLERY CLOSING: Hiram
Walker & Sons will close its Peoria
distilling plant, it9 ~:~Iy distillery In
the United States and once the hrg-
est one in the world.
Carter Hunt, the di~tllléry's pro.
duction manager, told approximately
850 employes at a meeting Thursday
*that out*dated facilities in Peoria and
increasing costs will force the firm
to terminate its U.S. operation b~
*January 1982.
PAGENO="0277"
FRANK FITZSIMMONS
SAYS
"25,000 JOGS LOST"
PAGENO="0278"
SINCE 1967
PRICES OF SCOTCH
BOTTLED IN SCOTLAND +21%
PRICES
OF CANADIAN
.
BO
TTLE D IN
CANADA
+14%
PAGENO="0279"
_ _ OF TAX
D~FERI~L PERIOD
PAGENO="0280"
BENEFITS FROM TAX DEFERRAL
1980 $7.2miIIion
1981 14.4miIIion
1982 21.6miIIion
1983 28.8miIlion
1984 and beyond ..... 36.0 million
PAGENO="0281"
2t3
0
0
PAGENO="0282"
_ ~ ~
~ TAX
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_
ALL ~O~D CO~CEPT
TO WHOLESALE LEVEL
PAGENO="0284"
DES1GNATIO~1 OF L%OURBON
AS A D~$TINCTIVE
AMERICAN PRODUCT
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277
Mr. VANIK. Mr. Rostenkowski.
Mr. ROSTENKOWSKI. Mr. Carriuolo, will you give me an idea of
the type of whisky you are discussing on the curve downward with
respect to the amount of American whisky that is consumed? You
had a chart there that showed import whiskies going up from 46 to
60 percent and the American domestic whiskies going down. What
types of American whiskies are you referring to?
Mr. CARRIUOLO. The biggest loss, sir, has been the bourbon and
blended whiskies. They have had a continual decline that was very
much accelerated in the last 10 years.
Mr. R05TENK0w5KI. Is that because of its proof?
Mr. CARRIUOLO. No; I think the proof is the same as the Scotch
whisky. I think that most of the bourbon whiskies and blended
whiskies are very similar in proof to Scotch whiskies.
Mr. ROSTENKOWSKI. Would you say around 86-percent proof?
Mr. CARRIUOLO. I think a lot of them are 80 to 86. The tendency
in the last several years has been to reduce the proof to 80.
Mr. R05TENK0wsKI. I just recognize that the American habit is
going toward a lower proof whisky and that the foreign or the
imported whiskies have always been down a little bit below 90 or
80.
Mr. CARRIUOLO. 86.8, 86.
Mr. ROSTENKOWSKI. What about the so-called lighter transparent
whiskies?
Mr. CARRIUOLO. They are all 80 percent primarily. Vodka is
almost all 80. There is some 100 proof sold and a little 90 proof but
it is primarily 80 proof. They have been reduced.
Mr. ROSTENKOWSKI. Has there been an increase in the appetite of
the Americans for those light whiskies as opposed to bourbons?
Mr. CARRIUOLO. We have a feeling that Americans drink more
moderately and do prefer a lighter proof. If you took all distilled
spirits sold in the United States 10 years ago times the proof and
did it today, you would find it is, I think, about a 4-proof reduction
in spirits and the consumption of spirits. It has been declining. A
lot of the mixed drinks, cocktails, that our company sells today are
from 60 proof all the way down to the 25 proof.
Mr. R0sTENK0w5KI. I have no further questions, Mr. Chairman.
Thank you, Mr. Carriuolo.
Mr. VANIK. Mr. Cotter.
Mr. COTTER. Thank you, Mr. Chairman.
Mr. Carriuolo, in your chart you made reference to Hiram
Walker closing down a plant in Peoria. Has that occurred just
within the past few weeks?
Mr. CARRIUOLO. Yes. I believe the release was the one in the
Washington Post dated April 14. If I understand it, they are going
to wind down the plant over the next 2 years.
Mr. COTTER. Is it a result of the change from the wine gallon or
anticipation of the change from the wine gallon to proof gallon
method of taxation, would you say?
Mr. CARRIUOLO. Well, I think there are probably other causes but
I think the wine gallon gives them more options. If they get the
wine gallon, they get the benefit. They are one of the companies
that will benefit by the wine gallon and I think it gives them the
option now they can do a lot more bottling in the Canadian plant. I
PAGENO="0286"
278
think they said in their article they will contract to pack some of
their goods with other plants. By closing the plant, I think they
will be able to sell the property and probably save $8 to $10 million
by diverting production to other plants and to Canada.
Mr. COTTER. It has been suggested by people in the industry that
some of the American distillers will possibly have to shut down
their American operations as far as bottling Canadian whisky and
Scotch in order to survive if we go to a proof-gallon method of
taxation. Can you elaborate on that at all?
Mr. CARRIUOLO. I think the proof gallon is part of it because if
you don't reduce the retail price of the goods, what do you do with
that extra money? They have already indicated that they are going
to spend it in advertising and marketing to increase their share of
the market. What that means is that as you increase the import
market, the domestic business goes. As Americans we are not
drinking more. There is a market out there, it is growing. Just this
past year it is growing at 2 percent. It was flat for 3 years and so
they just get a bigger share of the market which is going to cause
the domestic producers to wind down their plants. They just won't
need that capacity.
Mr. COTTER. Does your organization have any figures on the
number of jobs which would be affected if you changed to proof-
gallon method?
Mr. CARRIUOLO. We have many alternatives. We figure that we
will probably wind down our plants and we have to make the
tradeoff decision-do we bottle our Canadian? We bring in Canadi-
an in bulk and bottle it here in the United States in our four
plants. Now we may bottle it in Canada. There is no advantage
today in really bottling it in the United States. That means we
would reduce the--
Mr. ROSTENKOWSKI. Excuse me. There is more advantage now?
Mr. CARRIUOLO. I am assuming you gave away the wine gallon.
Mr. ROSTENKOWSKI. All right.
Mr. CARRIUOLO. Maybe that is the wrong assumption.
Mr. ROSTENKOWSKI. I just wanted to understand that.
Mr. CARRIUOLO. That means we would wind down our four
plants. As a matter of fact, I think we would want to sell one of our
plants.
Mr. COTTER. I hope it is not Hartford.
Mr. CARRIUOLO. I hope so, too; it is my home. It can't be Hart-
ford.
Mr. COTTER. Well, in other words, in order to compete, assuming
we are on proof-gallon method, it would be to your advantage to
bottle in Canada and bring it in rather than to bottle here after
you brought it in in bulk?
Mr. CARRIUOLO. I say it is less of an advantage to bottle here.
Mr. COTTER. I see. Thank you.
I have no further questions, Mr. Chairman.
Mr. VANIK. Mr. Vander Jagt.
Mr. VANDER JAGT. Thank you, Mr. Chairman.
Mr. Carriuolo, I would like to thank you for a very excellent
presentation well summarized.
Mr. CARRIUOLO. Thank you.
PAGENO="0287"
279
Mr. VANDER JAGT. Have there been any factors in plant closings
other than the anticipated change in the tax treatment?
Mr. CARRIUOLO. You mean other factors in that--
Mr. VANDER JAGT. Yes. You referred to the plant in Peoria that
was going to close and mentioned, I think, that there have already
been some plant closings. Are there factors other than the antici-
pated change in tax treatment which account for this?
Mr. CARRIUOLO. Yes; I think the decline in bourbon whisky. With
the decline in bourbon whisky you don't need those aging ware-
houses it used to have. I think there are a lot of factors that
motivate this sort of thing but I think the biggest one is the
increasing share of imported products causing a decline in domestic
products. Marketing is the name of the game.
Mr. VANDER JAGT. Thank you.
Mr. JENKINS [presiding]. Mr. Schuize.
Mr. SCHULZE. Thank you, Mr. Chairman.
Mr. Carriuolo, during our consideration of the wine gallon
matter our subcommittee was provided with a study of the Har-
vard Business School on the job impact of elimination. Do you want
to comment on that study? Do you have an appraisal of that study?
Mr. CARRIUOLO. We had our people look at it because when
Senator Ribicoff arranged for us to go down and talk to the STR
people and the Treasury they were quoting the study like it was
the Gospel. I am not a salesman, I am not a market researcher. I
took the study back to our market research people and they said it
was just a flawed study, it was not a professional job at all.
If you look in the footnotes you find in order to make the case
that it would cost more to produce a case of whisky in Scotland
than it does in the United States, they eliminate a very important
factor. They put in the cost of the carton in Scotland and they just
eliminated the cost of the carton in America. They said there was
something like $2.91 a case increase in cost if you did the whole
thing in Scotland. Our people figured out when they did the true
freight cost and everything that the amount was 63 cents, so I
think it was not a professionally done study. I hope it was not
endorsed by the Harvard Business School because I am an alumnus
of that school and I don't think they would put their name on such
an unprofessional study.
Mr. SCHULZE. Thank you.
Thank you, Mr. Chairman.
Mr. JENKINS. Mr. Moore.
Mr. MOORE. No questions, Mr. Chairman.
Mr. JENKINS. You mentioned a few moments ago some of the
nontariff trade barriers that other countries have. What barriers
does Japan have? Do they have any nontariff or tariff trade bar-
riers?
Mr. CARRIUOLO. Well, I think the distribution system there is
pretty much controlled as I understand it. I have never been to
Japan but Suntory, I believe, controls the distribution system, so
even if you were able to get your products in there it would be
difficult to get your products distributed. As you know, in Canada
the provincial monopoly and the 10 Provinces control the liquor
business and they just won't list your product. No matter what the
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280
tariff barrier, if they don't sign it up on their list it is not going to
be sold.
When you go to the United Kingdom and some other places in
the common market, they have the tied house laws there where
they allow brewers and distillers to own massive retail licenses-it
is against the law in this country. It is not unreasonable for one
brewer to own 10,000 retail licenses and he puts whatever he wants
in those pubs or liquor stores. These are tremendous hurdles for us
to overcome and that is why if you eliminated all the tariff bar-
riers it would not mean too much to the domestic distillers because
the nontariff barriers are insurmountable.
Mr. JENKINS. Thank you very much for your testimony. We
appreciate each of you appearing before the committee.
Mr. MCCARREN. Thank you.
[The following was subsequently received:]
DIsTIu~D SPIRITS COUNCIL
OF THE UNITED STATES, INC.,
Washington, D.C., April 30, 1979.
Hon. CHARLES A. VANIK,
U.S. House of Representatives,
Washington, D.C.
Da&R MR. CHAIRMAN: At the hearing conducted by your Subcommittee on the
Multilateral Trade Negotiations on April 25, this Association was invited to submit
additional information about its requests for modification of existing law and regu-
lations that would eliminate inequities and unnecessary burdens affecting domestic
producers.
The attached memorandum is submitted in response to this request. It indicates
certain charges that we believe should be made by revision of statutes as part of the
package of implementing legislation. It also points out two reforms that probably
would be more appropriately undertaken by means other than statutory change in
the implementing legislation.
We deeply appreciate the attention your Subcommittee is giving to concerns of
our industry and its workers. We stand ready to assist you in any way possible in
accomplishment of the important task in which you are engaged.
Sincerely,
S~i~s D. CHILCOTE, Jr.,
President.
Attachment.
MEMORANDUM TO MEMBERS OF THE SUBCOMMITTEE ON TRADE, COMMITTEE ON
WAYS AND MEANS
I. Items which the subcommittee can recommend as legislative changes to partial-
ly offset the impact on the domestic industry of a change in the wine gallon method
of taxation of distilled spirits.
A. Provide for additional deferment of payment of tax of 30 days. (See attached
draft of necessary amendment to section 5061(a) Internal Revenue Code of 1954.)
B. Provide for all-in-bond system at distilled spirits plants, including repeal cf the
rectification taxes. (We understand that the Treasury Department is drafting and
will submit appropriate amendments.)
C. Provide for future extension of the all-in-bond method of operation to the
wholesalers level including agencies of States and political Subcommittees thereof.
(The above proposals have the full support of the distilling industries including
those who were on either side of the wine gallon-proof gallon issue, the National
Association of the Control States and the National Association of Wine and Spirits
Wholesalers.)
II. Items involving or requiring changes in law or Treasury regulations which
could be recommended in the subcommittee report.
A. Reform and modernization of the Federal Alcohol Administration Act as it
relates to trade practices in order to put alcohol beverage industry on the same
footing as other legal industries.
B. Designation of bourbon whiskey as a distinctive product of the United States in
order to gain the same type of recognition which is now given in this country to
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281
Scotch, Canadian, and Irish whiskies and Cognac. (See attached letter dated April
23 to Chief Counsel, Committee on Ways and Means for further discussion of these
points. See also attachment analyzing costs of above proposals.)
Section 5061. Method of collecting tax
(a) Collection by Return.-The taxes on distilled spirits, wines, rectified distilled
spirits and wines, and beer shall be collected on the basis of a return. The Secretary
shall, by regulation, prescribed the period or event for which such return shall be
filed, the time for filing such return, the information to be shown in such return,
and the time for payment of such tax, Provided: that the time for filing the return
and payment of the tax on distilled spirits shall not be less than 45 days from the
end of the semi-monthly period during which such spirits are withdrawn from the
distilled spirits plant. [Emphasis supplied.]
APRIL 23, 1979.
JOHN M. MARTIN, Jr.,
Chief Counsel, Committee on Ways and Means,
Longworth House Office Building, Washington, D.C.
DEAR MR. MARTIN: I am appearing today in response to the invitation of Charles
A. Vanik, Chairman of the Subcommittee on Trade, Committee on Ways and
Means, in the subcommittee's press release of April 6, 1979. I represent the Distilled
Spirits Council of the United States, Inc., the national trade association of the
distilling industry, whose members produce approximately 85 percent of all distilled
spirits in the United States. Many DISCUS member companies .also have substan-
tial interests in the importation of distilled spirits.
I am authorized to state that the Kentucky Distillers Association joins in the
views expressed herein.
As you are aware, DISCUS has opposed a change in the wine gallon method of
assessing tax and duty on below-proof distilled spirits. However, a substantial mi-
nority of the DISCUS membership has been in favor of a change in the method so
that the tax on all distilled spirits would be assessed on a proof gallon basis. It now
appears that the special trade representative has made promises to various foreign
countries which, if approved by the Congress, would require a change in the method
of taxation and implementing legislation to accomplish the change.
Other witnesses scheduled to appear before you will discuss the proposal of the
Special Trade Representative to eliminate the wine gallon method, and you will
hear the pro's and con's of this issue on which the members of our Association are
divided. I wish to focus on other related matters on which the entire industry is in
agreement. On these matters, we hope the Congress will take appropriate action in
connection with its consideration of the multilateral trade agreements.
There are several areas within the jurisdiction of this Subcommittee where con-
cessions could be made within the framework of the implementing legislation,
which would lessen to some extent the adverse impact of the trade negotiations on
the domestic industry, although we can offer no proposals for concessions to entirely
offset the impact of a change in the method of taxation. I would like to stress again
that while the DISCUS membership is divided on the issue of changing the method
of assessing tax, it is unanimous in support of our proposals for concessions. These
proposals have also received the endorsement of ISAC No. 1, the industry advisory
body established by the Special Trade Negotiator.
Our proposals for concessions may be summarized as follows:
I. Extension of tax deferral period
Extend the deferral period for payment of tax on distilled spirits withdrawn from
domestic distilled spirits plants and plants of producers of distilled spirits in Puerto
Rico and the Virgin Islands for an additional period of 30 days.
II.All in bond
All operations at distilled spirits plants (production, storage, bottling) would be
conducted under bond, including the right to transfer spirits to other bonded prem-
ises.
II.A. Repeal of rectification tax
Repeal is recommended only if all-in-bond system (Item II above) is adopted.
IlL Extension of all-in-bond concept to wholesale level
Within 1 year of extension of the tax deferral period at distilled spirits plants and
plants of producers of distilled spirits in Puerto Rico and the Virgin Islands, extend
414.998 - 79 - 19
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282
the point of tax payment of distilled spirits shipped in bond to wholesalers (includ-
ing Control States) who have chosen to bond their facilities and have otherwise
complied with relevant government requirements. This proposal is supported by the
national association of the Control States; that is, those states which have a monop-
oly of the sale of distilled spirits.
IV. Reform of Federal Alcohol Administration Act
A violation of provisions of section 5 of the Act relating to trade practices may be
prosecuted as a criminal offense under section 7 of the Act. Most of these "viola-
tions" would at the most be subject to civil sanctions if any product other than
beverage alcohol were involved. The Act should be amended to make such violations
civil only, while retaining criminal penalties for such activities as engaging in
business without the required permit.
V. Designation of bourbon as a distinctive American product
A commitment should be made by the government to support industry efforts
with the EEC and other foreign government representatives to obtain recognitions
of Bourbon whiskey as a distinctive American product.
Under the U.S. regulations, products such as Scotch whisky, Irish whisky, Canadi-
an whisky, and Cognac are recognized as distinctive products of Scotland, Ireland,
Canada and the Cognac region of France respectively.
"No alcoholic beverage sold in the U.S. canbe called Scotch or Irish or Canadian
whisky or Cognac unless it has been produced in the appropriate country in compli-
ance with the laws of that country. Similar recognition should be given by foreign
nations to Bourbon whiskey, which was originated in this country and is not
produced in accordance with the standards of identity for Bourbon in any other
country in the world. This distinctive product of the U.S. should be accorded in
other countries the same treatment which we give to these products which can
claim a unique quality.
"The Congress has recognized Bourbon as a distinctive product of the United
States. See S. Con. Res. 19, 88th Congress, 2d Session."
Of these concessions, the most important by far is the proposal for extending the
time allowed domestic producers for payment of the heavy excise tax on their
products. The request which the industry is making. is a matter of simple justice.
In the distilled spirits industry, the Federal Excise Tax (FET) comprises about 64
percent of the value of shipments from the distiller to the wholesaler. Since current
provisions require payment of the FET 15 days following the end of each half-
monthly tax period, distillers are paying a burdensome FET well before the product
reaches the retail level.
Based on a comprehensive survey of wholesalers, about 60 days elapse between
the time a shipment of distilled spirits leaves a supplier's warehouse and the time it
leaves the wholesaler's warehouse. These 60 days-the period between initial ship-
ment by the supplier and shipment by the wholesaler-may be regarded as "nonpro-
ductive."
Consequently, the distillers request that payment of the FET be deferred a period
of time long enough so that payment of the FET by the supplier approximates the
date of shipment from the wholesaler to the retailer. Since the current FET pay-
ment provisions require remittance 15 days following the close of the tax period,
distillers request that payment be deferred an additional 30 days.
This additional 30-day deferral is nothing more than a lag, not a reduction, in
revenue to Treasury. Based on current levels of FET receipts and short-term treas-
ury bill rates, the cost to Treasury of financing the lag in FET receipts would be
about $1 million per day. Since the distilled spirits industry will be saving about
$1.2 million per day (this cost is higher because private industry must pay higher
interest rates), revenues from corporate income taxes will rise. These additional
corporate taxes will reduce the net cost to Treasury to about $.5 million per day.
Thus, total cost to Treasury of the additional 30-day deferral will be about $15
million.
Sincerely,
JOHN F. MCCARREN,
General Counsel.
ExrnBrr 1.-Cost/benefit analysis
Extension of deferral period: Millions
Cost to government $13.0
Savings to industry 18.0
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283
23.5
31.0
1 Assumes grace period for all products matches current grace period extended to bottled
imports shipped to wholesalers (15 days).
NoTE-The cost/savings differential stems from the Treasury's ability to borrow at lower
interest rates than industry.
Mr. JENKINS. Mr. Leo Vernon of the Independent American
Whiskey Association, Publicker Industries, the Ad Hoc Committee
and Medley Distilling Co.; Mr. William J. Schieffelin III, Distilled
Spirits Committee for International Trade; and Mr. James H.
Lundquist, counsel.
If we can have the entire panel to come forward.
Mr. VERNON. I think we are a separate panel.
Mr. JENKINS. Very well. If you will, please identify yourselves for
the record.
STATEMENT OF LEO VERNON, ON BEHALF OF INDEPENDENT
AMERICAN WHISKEY ASSOCIATION; AD HOC COMMITTEE OF
U.S. DISTILLING COMPANIES; PUBLICKER INDUSTRIES; AND
MEDLEY DISTILLING CO.
Mr. VERNON. Thank you.
Mr. Chairman, my name is Leo Vernon and I thank you and the
members of your committee for the opportunity to appear at this
special hearing. I am speaking on behalf of the Independent Ameri-
can Whiskey Association which represents 42 small- and medium-
sized distillers and bottlers who import and bottle foreign spirits
and for an Ad Hoc Committee of seven large U.S. distilling compa-
nies. I am also appearing for Publicker Industries, a Connecticut
company with plants in Pennsylvania and Louisiana, and Medley
Distilling Co., a Kentucky distiller.
I am going to talk about the wine gallon you have heard so much
about and the wine gallon that quite justifiably you may be tired
of, so I hasten to assure you that my primary purpose in appearing
here today is to support the program which you heard laid out this
morning to help the domestic distilling industry which will certain-
ly be deeply hurt by the elimination of the wine gallon.
I believe the entire industry is supporting the plan and I hope it
will be adopted but before getting to it I would like to address
myself to the far-reaching effects of changing the wine gallon
method. It will certainly hurt the small bottling industry; indeed
some of them are going to be forced out of business. Much of our
business depends on our ability to import bulk liquors, bottle them
here, and sell them at modest prices. If you eliminate the wine
gallon, we estimate that more then half the bottling now done in
the United States will be done in Canada, Scotland, Mexico, and
other countries.
All in bond:
Cost to government
Savings to industry
Repeal of Rectification tax:
Cost to government
Savings to industry
Extension of all-in-bond concept to wholesale level: 1
Cost to government
Savings to industry
Total costs/savings if all items enacted:
Cost to government
Savings to industry
4.0
4.0
6.5
9.0
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284
The loss of American jobs has been estimated by the Internation-
al Brotherhood of Teamsters at 25,000. A few years ago two Scot-
tish labor unions stated that the elimination of the wine gallon
would create 6,000 new jobs in Scotland. If we add approximately
5,000 new jobs in Canada, and several thousand in Mexico, we are
more than halfway to the 25,000 figure.
American bottlers use 410 million bottles to bottle the liquors we
import in bulk. If that bottling is moved abroad, we will lose not
only the jobs in American bottling plants but also jobs in the
bottling machinery industry, the glass manufacturing industry, the
carton manufacturing industry, and so on. Now on top of the loss
of jobs, the United States will also lose $120 million a year in
distilled spirits taxes and duties, the greater part of which will
benefit two Canadian companies and a handful of Scottish compa-
nies.
Why, then, should we be changing the wine gallon? Foreign
distillers claim that it constitutes a trade barrier but this alleged
barrier hasn't prevented the Scotch whisky industry from increas-
ing sales in the United States tenfold in the past 40 years and
Canadian distillers from increasing sales sixfold. Let's look at what
happened in 1978 alone. Imports from the United Kingdom gained
13 percent but scotch bottled abroad amounted alone to $331 mil-
lion, an increase of 28 percent over 1977.
Canadian whisky imports increased by 11 percent, Irish whisky
by 38 percent, brandy by 32 percent, and rum by 23 percent. Yet
last year the sale of American whiskys declined. How can it be said
then that the wine gallon is a trade barrier? In the face of these
enormous increases in imports, it is pretty obvious that the wine
gallon is not a trade barrier at all.
Don't think for a moment that the American consumer will
benefit from a change in the wine gallon. One of the Canadian
distillers seeking the change assured the Office of the Special
Trade Representative that it will not reduce prices because any
such reduction would erode the status position of its premium-
priced products which sell for $3 or $4 a bottle more than Canadian
whisky imported in bulk and bottled here. Over the past 40 years
the United States has reduced the duty on Canadian and Scotch
whiskys by about $10 a case and never has 1 cent of the saving
been passed on to the American consumer.
So we ask again, why should we be making the change? We were
told that the elimination of the wine gallon was the linchpin of the
negotiations with the Common market and would lead to increased
sales of U.S. agricultural products in Europe. We found it some-
what surprising that by the simple expedient of offering the better
part of $120 million a year to two Canadian distillers who also own
whisky plants in Scotland and to a handful of Scottish distillers we
were able to persuade the rest of Euroj~e to increase its purchases
of U.S. beef, poultry, rice, fruits, and tobacco. Another surprising
aspect of these negotiations is that the Canadian Government has
not offered the United States any real concessions notwithstanding
our generosity to their distillers.
Ne~erthe1ess, I must acknowledge the possibility that this com-
mittee will accept the linchpin theory and will decide to eliminate
the wine gallon. In that event, however, I think it necessary that
PAGENO="0293"
285
this committee provide some assistance to American distillers to
reduce the severe impact that will result. On behalf of~ the 50
companies which I represent, I ask only that we be given the same
right now enjoyed by all foreign distillers with respect to the time
of payment of distilled spirits taxes.
Many of you may be unaware that foreign distillers do not
actually pay the distilled spirits tax; it is, in fact, paid by their
American distributors or wholesalers when they remove the goods
from customs bond. We ask the same privilege-that American
distillers be able to ship their bottled liquors in Internal Revenue
bond to their wholesalers and have them pay the tax when they
withdraw the goods from bond. This would give us equality with
foreign distillers. Since we realize that putting such system into
effect will take perhaps 1 year, we ask that we be given immediate-
ly an additional 30 to 45 days to pay the tax.
We are told that the Treasury Department is opposed to this
because a deferral for 30 days will cause a one-time lag of approxi-
mately $260 million in tax collections. Let us see how that will
effect the budget. To replace this deferred tax, Treasury might
have to sell $260 million in new bonds at a cost of about $24
million a year in interest but if American distillers don't have to
finance this tax for the U.S. Government as they now do, they will
be able to save as much as 15-percent interest on the $260 million
or about $40 million.
Since the U.S. Treasury collects 46 percent on any additional
income earned by American distillers, the Treasury would gain in
income taxes about $18 million from the industry. Moreover, the
Treasury will gain other revenue in addition to the $18 million.
Ambassador Strauss has indicated that agricultural products in the
magnitude of $3.8 billion will be benefited by the Trade Agree-
ments. If this does in fact occur, the additional revenue will far
exceed the relatively insignficant one-time loss to Treasury that I
have mentioned. In any event, it will be insignificant to what we
are giving to foreign distillers.
In closing, I would like to emphasize that our industry proposal
will in no way diminish the benefits to be gained by American
farmers through the Trade Agreements or in anyway impair the
value of the concession made by Ambassador Strauss. Indeed, a
healthy American distilling industry will be able to continue its
purchases of corn, rye, and barley grains from U.S. farms. Howev-
er, without your help in softening the effect of the U.S. agreement
to eliminate the wine gallon method, U.S. distillers will be deeply
hurt and so will American farmers.
I thank you for the opportunity of appearing here and if I can
answer any questions, I would be very happy to do so.
[A newspaper article follows:]
PAGENO="0294"
286
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industry 3 not toccenr~icd
in the disa3hn~ side but ia
the bot1.-,~ pco..-rn.
"Tha traino c.iicular that
by e5'ortina bt~t binads of
w~aky to tiss US in
quatr.~ it C:.3ta £~otiottd
bawe~rn 5000 o,t.d COC3
jobs.' . . *..
S~otlartc.I, is * to the UnL~ ICngdocs
niountos by the Lootch C~we.-aaon.
whisky industry and the WhiU it wea Bthsia's
General and Municipsi bin~est dD~~ ~ a~td
Workers' Union. . ~ was
`!Whiie they a~;e.at to be 303T17 170 r7diliOO proof
worhin; insitpodealy oi y,tilons. only 23,000 not 01
~ ~ ~ ~`oups are tw~ rii~tiEon S.otthh worhers
cx~tin~' alron5 iirusu;e to ~ ~ ~
that zc~on *~ di~iiir.~~. and psoicaliang
~ ~ ~ ,~. w~unky, n*.acb atad: -t only
- h"ti~t (ifth in the Sc~tti.sh indusuj
-. .,*. a o.-:u~ c0%~Oeot/ie~!Ue.
~ 11 iaiio~ prco~
- ~ `$ ate eapot'tcd to the
U~ed Statea c3i year in
bu~, compared to about 21
rrdlflon proof aloas in
Mr Rc'b~ca naid:
o,.tpu-t of win.sky1
3 O~OV5O5 to grow at 31
,n~bt tote, o~y one
:cw ior bo...at~
nipin ~a.s be~ built in
1T%,OTL?a
The GMWtJ are roinutg
the question i~th
M?e nod at nez: weeCs
annuz.1 eoelerente 01 the
&o:tLth Trades tJticn Cc,'
.rese. The ~`.`otth \`~..-s..y
~`fC bee,
in: so lisee th~
changed (or ~a~'a sad are
havisia Uta with the
Deparanotie of Trade aM.
lodust~7.
DSCI~.T~0~
An official 01 one
todd last ~~gfxt: `The
Deporsae'~ STe
lookia.~ into thai macer to
see if they con assist u.s. The
dia~indrainon is not ;~:inst
Scotch but aa:in~c w~,isaty
inaported in a
I.t, Gcc'rne r.OO~t30fl,
PAGENO="0295"
287
Mr. JENKINS. Thank you very much, Mr. Vernon, for your very
fine statement.
Do you have any questions at this time, Mr. Rostenkowski?
Mr. ROSTENKOWSKI. No questions.
Mr. JENKINS. Mr. Cotter.
Mr. COTTER. Thank you, Mr. Chairman.
I want to congratulate you on a fine presentation, Mr. Vernon.
A change from wine gallon to proof gallon will mean approxi-
mately a $120 million windfall to a certain group or foreign based
importers, is that correct?
Mr. VERNON. Yes.
Mr. COTTER. So what you are attempting to do is to enact this
program, so to speak, to give American distillers somewhat of a-
well, put them in a better position competitively than they would
be if we didn't enact it because of this windfall which would go to
the foreign distillers; is that correct?
Mr. VERNON. That is exactly so, Mr. Cotter.
Mr. COTTER. It will not be totally equitable but it will give us
some help in this country.
Mr. VERNON. Yes; very much needed help.
Mr. COTTER. Thank you.
That is all I have, Mr Chairman.
Mr. JENKINS. Mr. Vander Jagt.
Mr. VANDER JAGT. Thank you, Mr. Chairman.
I, too, would like to congratulate you for a very fine presentation.
I have a great concern with our domestic industry but particular-
ly the small bottlers that you represent, and you state that this
change in tax treatment will put some of them out of business. But
the picture that you paint is so bleak even without this change in
tax treatment that with the increasing share of the market for
imported spirits and the declining share of the market for domestic
spirits, wouldn't a lot of them close anyway with or without this
change in tax treatment?
Mr. VERNON. Well, there is no doubt of that. In a competitive
market there are some that survive and some that don't. Inevitably
the marginal producer in any industry may go under. But we are
in this situation: Many of them have a viable business, they live off
it and it represents a certain amount of income to them and their
small stockholders. Since we are making a rather substantial
change, some of these marginal people will go under where if no
other change were made they would be able to survive. The wine
gallon has been in effect for over 100 years and regardless of the
merits or the demerits of the system, businesses have been built up
in the shadow of that protection and would continue perhaps for
another 30 or 40 years if a big blow like this did not come along.
Mr. VANDER JAGT. With respect to the program that you have
endorsed and that others have testified for this morning to soften
the blow, if we make the change will it soften the blow enough to
save some of those concerns and make the difference between their
remaining in business rather than going out of business?
Mr. VERNON. Yes. As a matter of fact, this relief is vital to the
small man as compared with the larger producer. The larger pro-
ducers can borrow money, their profit margins are larger than the
small chaps, and if there is a little more interest burden perhaps
PAGENO="0296"
288
they can get by. To the little man who has to borrow money at 15
percent, you know, it is prime plus, and 20-percent balances, so
that his effective rate can be 15 or 16 percent. To carry the tax is a
very substantial thing to him and if he can be relieved of the need
to borrow at 15 percent, the amount of distilled spirits tax neces-
sary to carry his low price goods it will make quite a difference to
him. This is a burden that the foreign distiller who makes a much
larger product does not carry at all.
Mr. VANDER JAGT. Thank you very much. I think you make a
very good case.
Thank you, Mr. Chairman.
Mr. VERNON. Thank you so much for the opportunity.
Mr. JENKINS. Mr. Schulze.
Mr. SCHULZE. No questions.
Mr. JENKINS. Mr Guarini.
Mr. GUARINI. Can you spell out for us why our liquor industry
seems to be constantly losing ground against foreign competition?
What are the selling factors in that? Is it the exotic, that our
people like to drink foreign made products? Is it that the cost of
our industry is not competitive with some other parts of the world
like Scotland, or is it the superiority of their product? Could you
give me an insight into that, sir?
Mr. VERNON. Yes. Well, I hope so. I have had certain views on
this for the last 32 years as to what is wrong with the American
industry. In the first place there are changing tastes and inevitably
no matter how good your product is the public is going to change
and it will not want next year what it may have wanted 5 years
ago so that the one trend which is very clear is the trend toward
life.
Now the American bourbon is required by law to be made heavy
which is another thing I had quite a scrap about with the govern-
ing agency. It is required to be put in new wood. A new barrel at
the present time is $70 apiece, which when used cannot be used
again, and it is sold to the foreign distillers for practically nothing.
The new barrel gives bourbon a heavy flavor which perhaps could
be lightened if the regulations were changed. My own feeling is
that the trend toward lightness, toward vodka and gin which have
very little favor compared with whiskey, is something we cannot
blame on anybody.
The public is going in that direction and it has the right to have
that so I cannot say that the foreign producers have taken advan-
tage of anything in particular in order to gain the dominance that
they have now. That is a trend but their cost of production is much
lower because of our regulations and since they don't have to carry
the tax their cost of doing business is so much lower and then of
course there is always the prestige of import because there is no
question that now in our affluent society the label "imported" has
a prestigous connotation and it is going to give them an advantage.
So regardless of all the factors that come to it, the bottom line is
this. We are in trouble whatever the reasons and a severe blow like
this is just going to hurt us much more and accelerate the demise
of the remaining American distillers. Now I don't see bourbon
totally disappearing or blends totally disappearing. They will reach
their level and presumably stay with a little help from the regula-
PAGENO="0297"
289
tions but at this time an added blow is something that will hurt us
very much and what we are asking for is something that we should
have had a long time ago anyway.
We are only asking to pay the tax the way the foreigners have
been doing for 40 years. So we say, all right, give us now what we
should have had 40 years ago because you are going to give them
so much more that they don't need but again if we are going to be
sacrificed on the linchpin theory, very well, let's try to keep us
from being hurt too much.
Mr. GuARINI. Then there are things administratively we could do
to dress up our act to be in a better position?
Mr. VERNON. Yes, indeed; and one thing is to give us an immedi-
ate 30-day extension which could be done administratively to pay
the tax.
Mr. GuARINI. Is the bottle industry a growing industry in our
country? Does it affect other than just distilled spirits? Is it a
growing, sound industry in our country today?
Mr. VERNON. The bottling industry?
Mr. GuARINI. Yes.
Mr. VERNON. Indeed it is a very important industry in that many
industries related to it are very important. I was just thinking if
we eliminated 410 million bottles in this industry that travel from
American glassmaking plants to American bottling plants and all
those 410 million bottles are no longer produced in the United
States but are produced abroad-of course not 100 percent are
going to be gone but let's assume that-I was trying to figure out
how many trucks we would not produce to carry those bottles from
the glass factory to the distilling plant and how many teamsters
would be unemployed who presently carry those 410 million bot-
tles.
It is so easy to get up a study to say what this study says but I
have found in the past there have been many academicians who
have made studies of industry and I have had only two things
about academician studies of industry where they have not been in
the industry. They are very much like the fellow trying to describe
a room by looking into the keyhole, they are generally wrong. The
other thing is they generally come up with the conclusion that the
people who pay them their fee for the report want them to come up
with, they show that flexibility. So when we talk about the loss of
jobs that we heard here, I can discuss it because we have had other
hearings and other professors with other reports and they showed
the same lack of insight as this one.
Mr. GuARINI. Thank you for your thoughtful and splendid pres-
entation, sir.
Mr. JENKINS. Mr Lederer.
Mr. LEDERER. Mr. Vernon, I thank you for your testimony. I am
proud of our Philadelphia lawyers, although I am not one myself
and I am also proud of that.
A point that I am interested in is the effect on our State and
local taxes, and the possible loss of revenues to our State and local
governments. Particularly, say, with your industry right in our
home city; our tax base is going to erode. I am not satisfied with
the report that Treasury gave to us, and I would be interested to
know what the industry can tell us about the effect the elimination
PAGENO="0298"
290
will have, on local revenues. I know it is going to be terrible in
Puerto Rico. Anything your industry could give us, I would like to
champion that cause.
Mr. VERNON. Thank you. I think we can get something together
and we would be delighted to submit additional supplemental mfor-
mation.
Mr. LEDERER. Thank you.
[The material follows:]
Philadelphia, Pa., April 27, 1979.
Hon. RAYMOND F. LEDERER,
House of Representatives,
Washington, D.C.
DEAR CONGRESSMAN LEDERER: I was delighted to meet you last Wednesday at the
hearing on the wine gallon issue and was greatly impressed by your interest in the
problems of Pennsylvania distillers.
You asked that I advise you as to the effect on state local revenues in the event
that the elimination of the wine gallon adversely affects the industry. In the past
two days I have been able to obtain information in this regard from three Philadel-
phia companies-Publicker Industries Inc., Kasser Distillers Products Corp. and
Charles Jacquin et Cie. These companies pay the following taxes to the City. of
Philadelphia: real estate, use and occupancy, general business, sales and use and
wage tax. In addition they pay to the Commonwealth of Pennsylvania the following
taxes: capital stock, unemployment, production, corporate net income and withhold-
ing on personal income. The taxes paid by these three companies to the City of
Philadelphia amounted last year to approximately $1,200,000 and taxes paid to the
Commonwealth aggregated more than $1,500,000. All three companies devote a
considerable part of their business to bottling imported liquors and selling them at
modest prices and would be affected most deeply by the elimination of the wine
gallon. Any adverse effect on them would of course diminish the City's and Com-
monwealth's revenues.
In addition to these three companies, there are the Michter Distillery in Schaef-
ferstown, Pennsylvania and Schenley Distillers in Aladdin, Pennsylvania. These two
companies also have a substantial number of employees and could be hurt by the
trade treaty unless tax deferral relief is provided.
I earnestly hope that you and the other members of the Committee will support
the industry proposal so as to achieve equality with foreign distillers relative to the
time of payment of distilled spirits taxes on domestic liquors.
Sincerely yours,
LEO VERNON.
Mr. JENKINS. Mr. Schulze.
Mr. SCHULZE. Just one brief question.
Many of the jobs that you are referring to, Mr. Vernon, are jobs
in a very capital intensive area, aren't they?
Mr. VERNON. Yes; they are.
Mr. SCHULZE. And they are not jobs that are easy to come by,
you are eliminating a pretty substantial investment at the same
time.
Mr. VERNON. That is right, and producing the heavy machinery
which is needed. If you go down the line, it becomes geometric
almost and each one relating to the other and I don't think that
the report went back to see the domino relationship with all of
that.
Mr. SCHULZE. Therefore, the impact of the elimination of one job
is far greater than it might be in some other industry.
Mr. JENKINS. Quite so. I quite agree with you.
Mr. SCHULZE. Thank you, Mr. Chairman.
Mr. JENKINS. Mr. Moore.
Mr. MOORE. Thank you, Mr. Chairman.
PAGENO="0299"
291
Mr. Vernon, it interested me a moment ago when you talked
about the whisky barrel problem. None of us want to see any
domestic business go out of business, quite the contrary. We want
to put you in as competitive a position as we can. If the Govern-
ment can do something to relax its regulation or taxes, we owe you
that.
I am not familiar with the distilling industry. Is this an FDA
regulation that you cannot use this barrel again or who?
Mr. VERNON. It is the regulation of the Bureau of Alcohol, Tobac-
co, and Firearms Division. I want to point out, however, that there
are some technical aspects to the problem. Many years ago the
industry itself was divided on the subject of the new barrel. The
preprohibition practice was to have some new barrels and some old
barrels and nobody cared whether you used an old barrel or a new
barrel, and the only reason they used the new barrel was they used
to ship in barrels at that time, rather than in bottles. Bottles was a
late development but nobody paid any attention to the barrels.
After repeal, as you can see, the industry is a very competitive
industry. Some people make bourbon, and some people are blend-
ers, and some people make gin.
When you talk about the industry, you are talking about the
industry with a lot of factions in it which are competing with one
another. Back in 1935, one faction of the industry was trying to put
the other out of business and insisted that they adopt a regulation
that all bourbon be made entirely in new barrels. That is how that
came to be. Since that time, we have been trying to have hearings
held which will modify that but there have been some members of
the industry who have insisted that we adhere to that despite the
fact that it produces a high cost and a heavier whisky because
obviously some people who are successful in their bourbon business
would not like to encourage the influx of other people who might
be able to produce bourbon more cheaply.
Whatever it is, now that barrels have gone to $70 a barrel, which
means that the advantage to foreign distillers is about $1 a gallon,
I hope we have reached the point now where the Bureau will once
more look into the problem of bourbon and its definitions and will
modify its requirement so that a combination of new-barrel and
old-barrel whisky-there is no question that bourbon requires a
certain amount of new wood and, therefore, some new-barrel
whisky is required to make bourbon but to make it in 100-percent
new barrels I think is self-destructive and I hope the industry can
get together in supporting a modification of that position.
Mr. MOORE. Let me ask you this. Should we be able to help you
with the modification of that rule to let you do whatever you want
to do concerning these barrels and you would reduce the competi-
tive edge that a foreign distiller has by $1 a gallon, how would that
compare with what we are about to do here in changing the wine
gallon? Would that put you back about even?
Mr. VERNON. No; because not everybody is in bourbon. The ones
that are going to be hurt the worst by this wine gallon thing
actually are the small importers of foreign whisky who bottle it
here so that the relief in the bourbon situation will help only the
bourbon producers.
PAGENO="0300"
292
Many of the people I represent are small. They are not distillers,
they are what are called rectifiers or blenders. They buy bulk
whisky from others and they import Canadian whisky and Scotch
whisky and thus they have a low, low overhead and don't have the
extra expenses that the big distiller has. They are able to work on,
say, $2 a case or $1.50 a case and get by.~ They would not be
affected. They would be affected in this sense.
Let me go back. To the extent that bourdon is cheaper or could
be more cheaper, we would be able to hold our own much more
successfully both as to quality and as to cost so that it would be a
very important thing but it would not take the place of what I am
now saying with respect to the tax. The two are totally parallel,
they are unrelated to one another. We need relief in many ways
and the bourbon is one that the tax is the most pressing at this
time.
Mr~ MOORE. Mr. Vernon, you made the comment that you need
relief in many ways. I would very much appreciate it if you would
submit to us additional ideas or ways that we could make you
competitive to what I am seeing from the MTN which is in fact
that your industry is one of many that may be adversely affected.
The whole idea is many of the adverse effects you are suffering
from may well be governmental action regulations or tax laws or
whatever that we can remedy to make you competitive. So maybe,
perhaps, instead of trying to protect some industries we ought to be
looking the other way in terms of trying to make them competitive
and I think we have the power in the Government to do that in
some cases. I would appreciate you letting us know what other
forms of relief you will need because certainly we want to see you
stay in business if the MTN passes and if we cannot come about
with this tax change that you are asking for.
Mr. Chairman, I ask that the record be held open for this.
Mr. VERNON. That is the most welcome statement I could hear. I
would be delighted to submit the information. I could submit it
almost off the top of my head but I would rather spend a couple of
days on it, and I think you very much for the opportunity.
Mr. MOORE. I would appreciate your sending me a copy as well as
sending it to the chairman of the committee.
Thank you, Mr. Chairman.
[The material follows:]
Philadelphia, Pa., April 27, 197k
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade, Ways and Means Committee,
House of Representatives, Washington, D.C.
DEAR CONGRESSMAN VANIK: At the hearing before the Subcommittee on Trade
held on April 24, Congressman Moore suggested that I list for the Subcommittee
any regulations or statutes which unnecessarily restrict operations by American
distillers.
There are, in fact, a number of areas where the regulation of the distilling
industry could be liberalized without any jeopardy to the revenue or to the Ameri-
can consumer. However, the Treasury Department, at the instance of 0MB, has
proposed, and the distilling industry is supporting, a plan to permit all distilling,
blending and bottling operations to be conducted in bond. If such a plan is adopted
and a reasonable code of regulations is adopted by the Treasury Department it
would eliminate most of the unnecessary restrictions which affect our industry's
operations. An all-in-bond system would give us the same flexibility which Canadian
and Scottish distillers now enjoy in their own countries.
PAGENO="0301"
293
Therefore, I would like to defer the examination of the problem until such time as
the all-in-bond system is adopted and definitive regulations are written. If, at that
time, it appears that the regulations are unduly restrictive, I would like the oppor-
tunity of calling the matter to the subcommittee's attention for whatever assistance
it may provide.
There is one area which will continue to trouble the American distilling industry,
and that is a regulation, administered by the Bureau of Alcohol, Tobacco and
Firearms under the Federal Alcohol Administration Act, which requires that bour-
bon whisky be aged exclusively in new white oak barrels. In the early years after
the repeal of prohibition (1934) certain powerful distillers sought restrictions on the
labeling of whisky which they felt would hurt their competitors more than them-
selves. Thus in 1936, certain distillers persuaded the predecessor to the Bureau of
Alcohol, Tobacco and Firearms to adopt the new barrel requirement for bourbon.
Prior to the adoption a competing distiller had developed a good market for bourbon
aged partly in old barrels. The regulation effectively stopped the sale of this brand
since it could no longer be labelled "bourbon".
For many years, a number of distillers opposed any change in this regulation,
feeling somehow that the restriction would prevent competitors from marketing a
less costly product. We have now reached the point where the supply of white oak
has diminished substantially and the demand for white oak for flooring, furniture
and other uses is so great that the cost of a new barrel is $70 and some distillers
cannot satisfy their immediate barrel needs.
It is ironic that the new barrel requirement not only imposes a cost burden of
about $1.25 a gallon which foreign distillers do not bear, but it also serves to impart
to bourbon whisky a heavy flavor at a time when the lightness of foreign whiskies
makes them more attractive to consumers then the heavier whiskies.
Once the Congress has resolved all of the issues relating to the trade treaty it is
my intention to ask the Bureau of Alcohol, Tobacco and Firearms to hold a hearing
to review the new barrel regulation. At this moment, the needs of the industry with
regard to the deferral of the distilled spirits tax are of vital importance and should
take precedence over any other issue affecting the industry.
I would like to express my appreciation once more for the patience and interest
which you and the other members of the Committee showed with relation to the
problems which will flow from the elimination of the wine gallon. If the domestic
industry is allowed to ship its case goods in bond to wholesalers as foreign distillers
now do, some of the adverse effects of the wine gallon elimination will be offset and
greater equality with foreign distillers in the American market will be established.
Sincerely yours,
LEO VERNON.
Mr. JENKINS. Thank you very much for a very excellent presen-
tation Mr. Vernon.
Mr. VERNON. Thank you, Mr. Chairman.
Mr. JENKINS. I see that Congressman Udall has entered the
hearing room. We would be delighted to hear our colleague from
Arizona.
Welcome to the committee, Mr. Udall.
STATEMENT OF HON. MORRIS K. UDALL, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF ARIZONA
Mr. UDALL. Thank you, Mr. Chairman.
I hope it won't be too much of a shock to turn the committee's
attention from bourbon to tomatoes. I am sure Mr. Vander Jagt
will survive the transition.
Mr. LEDERER. Mr. Chairman, I would go along with that if they
are Jersey tomatoes.
Mr. UDALL. Mr. Chairman, I will be very brief. I have a narrow
subject but one of critical importance, I think, not only to Arizona
and New Mexico but to the people of the United States. This
committee and the country's affairs are going to be dominated for
the next few years by how we make the transition from cheap
energy sources to very expensive and diverse energy sources. One
PAGENO="0302"
294
of the aces in the hole, one of the most critical things before us, is
to develop our relationship with Mexico and it deals with all the
sensitive questions, not only the newly found oil and gas suppliers
that they have which may rival Saudi Arabia in volume but from
the Mexican standpoint, there is trade and commerce and immigra-
tion and all of these sensitive questions. Our Government is about
to kick the Mexicans in the teeth at about the time when these
negotiations are going on and it is unnecessary, it is damag:ing,
therefore, I propose a brief amendment or a short amendment to
correct this situation.
I am here today to urge the subcommittee to take whatever steps
are necessary to prevent the Antidumping Act from being used as
an unnecessarily protectionist device to eliminate all existing im-
ports of perishable produce. Although I am quite certain that the
act was never intended to be used in this way, the Treasury De-
partment is apparently interpreting the act in a current case sc as
to require each individual sale of imported perishables to be made
at above its full cost of production. That interpretation of the act is
nothing less than preposterous.
It ignores legislative history and economic reality. It threatens
the jobs of hundreds of thousands of Mexicans, many of whom will
be forced to seek employment in this country. It threatens the sole
industry and economic heart of an Arizona city that is dear to my
heart. And it promises to eliminate nutritious foods for many
Americans in many months of the year while raising vegetable
prices generally by eliminating a healthy competitive force from
the marketplace.
An interpretation of the act which would require each single sale
of produce to exceed cost of production does not square with the
reality of agricultural economics. Indeed, the Robinson-Patman
Act, the domestic antiprice discrimination statute, specifically p:ro-
vides that there shall be no liability for price changes resulting
from the actual or imminent deterioration of perishable produce or
other factors affecting market prices, it is simply insane to suggest
that a farmer who has a deteriorating crop on his hands is not
going to sell it for what ever he can get and yet the Treasury is
about to rule that every single sale, regardless of the time of year
and the state of the market, has got be made above the cost of
production.
I think the Treasury Department fails to understand that grow-
ing tomatoes, and that is the major product we are talking about,
is not like manufacturing television sets. you cannot stop produc-
tion by throwing a switch nor can you put your product in a
warehouse when prices are low. No produce grower-in Mexico or
in Ohio-would expect to recover his full costs, even if he knew
what they were, on every sale. Below cost sales from time to time
are a necessary and perfectly normal part of the agriculture busi-
ness.
The investigation in which Treasury is considering this approach
involves five winter vegetables-tomatoes, eggplant, squash, cu-
cumbers, and peppers-imported from Mexico. However, the prece-
dent set in this case could and no doubt would be applied to all
other imported vegetables, as well as fruit and other perishables.
Imports of perishables would dry up since no importer could live
PAGENO="0303"
295
with a requirement that he sell everything above full cost when he
cannot even find out what the cost is until the end of the season
after he has made his sales. Predictions based on past performance
would be no protection for costs in this business vary considerably
from year to year and from one grower to the next and yet each
and every sale would have to be above the cost of production.
The impact on the American consumer will be very harsh. Half
of the winter vegetables that we eat are imported. Since domestic
supplies cannot possibly fill our entire needs, the result of blocking
imports will simply be to drive up prices and create scarcities of
this important source of nutrition.
The current dumping case is the latest in a series of attempts by
Florida growers to cut off winter vegetables supplied from their
only competitors in Mexico. They have in the past persuaded the
Agriculture Department to impose discriminatory size restrictions
which were thrown out by the courts and they have tried, so far
unsuccessfully, to obtain legislation that for no good reason would
require the Mexicans to pack their tomatoes in the same kinds of
crates and boxes and manner that Florida has chosen.
These efforts are not defensive. It is not as though the Mexicans
have been cutting sharp inroads into the U.S. market at the ex-
pense of Florida. Rather, Mexico has helped develop the U.S.
market and now their competitors want to force them out so they
will have a monopolistic control. The fact is that Mexico's and
Florida's share of the U.S. vegetable market have remained quite
stable over the past 10 years. Florida's production of the five vege-
tables in question has been trending steadily upward. Tomato pro-
duction, for example, was 36 percent higher last year than a
decade earlier. The acreage planted is virtually the same as it was
10 years ago despite greatly increased productivity. There is plenty
of room for both suppliers..
The Florida growers have found a quirk in the law which coup-
led with a compliant Treasury Department will enable them to
wall off import competition entirely. We should find that unaccep-
table. Unless we remedy that quirk in the law, however, the Flor-
ida growers will be free to increase prices to the consumer un-
checked by any competition from any other source.
Florida does have reason to run scared over the long run but this
has nothing to do with imports. We have here, and I think it has
been submitted to the committee, a report from the University, of
Florida, the head of their food and agricultural science, who has
pointed out that tomato cost per acre rose from $390 a year to $702
a year and he predicts they will rise to $1,300 by 1985 because it
takes seven times as much fertilizer in the poor Florida soil to
produce these kinds of crops. His conclusion was that the farmers
eventually are going to have to switch to other less energy depend-
ent crops and when this happens Mexico will be our only source of
winter vegetables.
How can we be so absurd as to allow an act which obviously was
not meant to be applied to perishables to be used to discourage
imports from Mexico and to drive the farmers there into other
lines of business and sour and poison our relationship with our
great neighbors to the south? I cannot believe that Treasury is
obliged to apply the law in this unthinking fashion without regard
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to every day realities but since it seems bent on this approach we
in Congress must rewrite the law to avoid a ridiculous and costly
result.
In closing I would call the committee's attention to three things.
There was excellent article in the New York Times on Sunday by
our colleague Chairman Henry Reuss of the Banking Committee
entitled "A Word On Behalf of the Mexican Tomato" which re-
views some of the advisory and comes down hard in favor of the
position I have just argued.
Also, I would advise the committee that our colleagues Mr. Fren-
zel and Mr. Mikva have both written to the State Department and
to the administration on this question in strong support of the
modest amendment that I am suggesting to the Antidumping Act.
Thank you, Mr. Chairman. I appreciate very much being heard
this morning on this important issue.
[Attachments to the prepared statement follow:] -
[From Lake City Reporter, Mar. 6, 1979]
F~. FARM PRICES Too HIGH B~ 1985, RESEARCHERS PREDICT
TAuA~SsEE.-Florida's agricultural industry already one of the most energy
dependent produce industries' in the world, will cease to be competitive with the
rest of the nation by 1985, agricultural researchers warned state senators Tuesday.
The head of the University of Florida's Institute for Food and Agricultural Sci-
ences (IFAS) told a Senate Ways and Means Subcommittee that Florida's agricultur-
al production methods are already obsolete, and have been since the Arab oil
embargo of 1972 brought up an end to the era of cheap, plentiful energy.
IFAS Vice President Ken Teefertiller asked the subcommittee for an additional
$10 million in research funds over the next two years in an effort to "redirect," the
state's agricultural research to find a low-energy, non-fossil fuel based means of
production.
"Without such adjustments, by the mid-1980's Florida's national agricultural
ranking will tumble from the top dozen to the lower third, greatly hampering our
overall economy," Teefertiller told the senators.
That warning about the health of the state's second largest industry comes on the
heels of recent predictions that Florida's largest industry, tourism, may be crippled
if rising energy prices forces the nation into stricter conservation methods.
"By the most conservative estimates, world oil and natural gas prices will at least
double by 1985," and IFAS report to the senate predicted. "Florida, which uses more
oil and natural gas per acre for agricultural production than do other states, is hit
much harder by each new price increase, eroding any competitive edge the state
once enjoyed."
Teefertiller said that Florida farmers have become so dependent on energy con-
sumption because of two basic factors.
First, the state's infertile, porous soil requires seven times more fertilizer per acre
than the national average. And second, the state's subtropical climate which allows
for the production of a greater variety of crops than most states, also provides a
year-round haven for pests and diseases.
"Almost all of the state lies below the frost line," Teefertiller said. "And without
an annual hard freeze to wipe out the pests, we are left pretty much dependent on
petroleum-based fertilizers."
Teefertiller said that in 1972, the state's citrus growers were spending $87 an acre
on energy costs, while its tomatoe growers were spending some $393 per acre.
By 1977, citrus growers were spending some $133 an acre, and energy costs for
tomatoes had soared to $704 per acre.
He predicted that by 1985, under the state's present technology, citrus will cost
$708 per acre to produce, while the energy costs for tomatoes will have risen to
$1,307 an acre.
Teefertiller's research program, which calls for a 16 percent budget increase over
the next two years, calls for a stepping-up of several on-going IFAS research efforts.
Including: -- -
The genetic improvement of plants, or "plant cloning" in an effort to deve[op
strains of disease-free crops less dependent on pesticides.
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A "biological nitrogen fixation," program, in which scientists are treating plants
with bacteria, enabling the plants to produce some of their own fertilizer from the
nitrogen in the air around them.
An "integrated pest management," program, which depends on the biological
control of pests rather than on their chemical eradication.
Along these lines, IFAS faculty have recently introduced parasite wasps in the
South Florida area to control the citrus blackfly problem there.
The use of alternate energy sources, including solar crop drying techniques, and
"biomass" conversion on the use of plant and animal waste-to fuel production.
Teefertiller said that one problem the state will face in the future will be in
convincing farmers that some crops they have been growing for years should be
sacrificed in favor of different, less energy-dependent produce.
"How are you going to tell the farmer in Homestead that he's got to stop growing
tomatoes and start growing eggplants?" subcommittee chairman Curtis Peterson,
(D-Baton Park) asked.
Teefertiller replied that it may be necessary to set up "development commodity"
committees to work with state agricultural extension agents in convincing the
industry to change.
"I am convinced that South Florida is going to become increasingly more impor-
tant to the nation as a main source of winter crops, unless we are to depend more
and more on Mexico and Central America," Peterson said. "And if that means
growing less sugar cane in favor of different vegetables, then we have to start
making those decisions now."
[From the New York Times, Apr. 22, 1979]
A WORD ON BEHALF OF THE MEXICAN TOMATO
(By Henry S. Reuss)
WASHINGTON.-The tomatoes Americans find in their supermarkets every winter
frequently taste like pasteboard.
This is because Florida tomatoes are picked when green and gassed to make them
look rive.
That s a shame, considering that Mexico produces beautiful vine-ripened tomatoes
all winter long and would love to ship them north in far greater quantities than we
permit. Unfortunately, we treat the Mexican tomato like an illegal alien, with
regulations and restrictions intended to make it as tough as possible for the tomato
to cross the border and find its way to United States tables.
Cuba used to supply the bulk of our winter tomatoes. But when Fidel Castro
declared himself a Marxist-Leninist, we responded with an embargo on trade, in-
cluding tomatoes.
Florida then decided to get into the business in a big way.
The United States Corps of Engineers had drained the huge wetlands between
Lake Okeechobee and the Everglades. The Florida tomato is grown in this reclaimed
limestone and coral soil. -
(The Corps of Engineers project has had an unfortunate side-effect, as Corps of
Engineers projects sometimes will. Water now drains costly into the ocean before
reaching the Everglades, thus imperiling a unique national treasure. John Good,
superintendent of Everglades National Park, says: "We're worred, The vital aquifer
is no longer being replenished as it used to be. Eventually the `Glades' could be
destroyed.")
Back to the tomatoes. Instead of being picked frequently, as they ripen, they are
mass-harvested only three times a year, to save labor. Because many of the toma-
toes are green and unripe, they are placed in methylenegas chambers for 24 to 36
hours until they turn red, or at least pink. Such premature picking robs the tomato
of its taste and much of its nutritional value. In a study of tomato maturity,
Professors C. B. Hall and E. D. Gull, both of the University of Florida, found that as
much as 78 percent of Florida gassed-green tomatoes were inmature.
Mexican tomatoes, by contract, are harvested every day during the season, as
they ripen.
The Florida growers' organization-the Florida Tomato Committee-naturally
tries to keep Mexican tomatoes out of the United States.
In the late 1960's, the committee persuaded the Agriculture Department to decree
larger minimum sizes for vine-ripened tomatoes than for gassed-green ones. The
impact fell where it was intended, on the Mexican growers and their United States
importers. In 1969, the importers went to the United States District Court presided
L~L~_998 - 79 - 20
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over by Judge John J. Sirica to have the Agriculture Department's order set aside.
At the trial, the plaintiffs played a taped record of a Florida Tomato Committee
strategy session, in which one of the largest Florida growers, Paul DiMare, was
heard to say: "It will eliminate our competition and that's what we're trying to do.
Let's face it, we're trying to eliminate our competition. . . We are mainly eliminat-
ing it out of Mexico." Judge Sirica, noting that this was the first use of a taped
recording in his courtroom, invalidated the department's discriminatory regulation.
Since then, United States Government agencies have assailed the Mexican toma-
toes with charges, never proved, that they are tainted with pesticides and deceptive-
ly packaged. Even the bureau of Narcotics has gotten into the act, periodically
emptying whole truckloads of tomatoes at the border in vain searches for illicit
drugs hidden among them.
The last Congress saw an unsuccessful effort to limit the number of tomatoes per
packing crate. Currently, the Treasury Department is weighing the request of the
Florida growers that the anti-dumping law be applied against Mexican tomatoes.
Tomatoes account for more than 5 percent of Mexico's exports, with some quarter
of a million agricultural workers now growing them. As we exclude Mexican tomato
imports, we invite uprooted Mexican tomato farmers and their families to try to
make it across the border to add to the problem we already have with illegal
immigrants. As Roel Garcia, Mexico's Foreign Minister, said recently, "If you put
pressure on the tomatoes, then we will have more undocumented aliens going to the
United States."
The great Mexican-American tomato war should cease. A peace treaty would
mean not only that Americans could buy real tomatoes but also that one block to
better United States-Mexico relations would be removed.
Mr. JENKINS. Thank you very much, Mr. Udall.
Mr. Guarini.
Mr. GUARINI. Mr. Udall, you are also making a case for all other
kinds of products produced besides tomatoes?
Mr. UDALL. The amendment we are proposing relates to perisha-
bles. We want to treat perishables here the same way that Robin-
son-Patman treats them in domestic sales. It is simply dumb and
and stupid and unjustified to have a rigid kind of rule about the
cost of production for a perishable that might be totally applicable
to shoes or television sets or something that is not perishable.
Mr. GUARINI. You made a good case for tomatoes and you say
that should be extended to other perishables?
Mr. UDALL. Perishable imports.
Mr. GUARINI. Thank you.
Mr. JENKINS. Mr. Vander Jagt.
Mr. VANDER JAGT. Thank you, Mr. Chairman.
I would like to thank our colleague for shifting our hearings
from bourbon to tomatoes. He has done it in his usual lucid and
entertaining style.
Taking on the combined strength of the Florida growers does
signal to me that our colleague has no intention of running in any
Florida primaries in the near future. [Laughter.]
Mr. UDALL. Well, anybody who lost 14 primaries to Jimmy
Carter has got to be humble. [Laughter.]
Mr. VANDER JAGT. As I recall it was 14 losses by a total of 3,400
votes in all 14.
Mr. UDALL. The people of Florida will not see me up and down
that State, and I am not sure in the light of my position here today
it would do much good if I did go down there.
Mr. VANDER JAGT. I do want to commend the gentleman. I think
he makes a very good case and calls it forcefully to our attentio:n. I
think you make a good case for how absurd it is to try to treat
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perishables as you would a television set and obviously on some
individual sales they are going to sell it both ways.
The one concern that I have in correcting the obvious problem
that you called so well to our attention, can it be done in such a
way that it could not then be seized upon by the foreign govern-
ment as a device to, on a regular basis, sell their products at below
cost?
Mr. UDALL. My experts don't think so and I certainly would not
want that to be the result and we will work with you very carefully
in drawing the language tightly to see that we don't do that.
Mr. VANDER JAGT. I thank you for a fine statement.
Mr. UDALL. This committee always produces truth and justice
and fights for the American way and I know I can count on you.
Mr. JENKINS. Thank you.
Mr. UDALL. Thank you, Mr. Chairman.
[The following was subsequently received:]
MAY 2, 1979.
Hon. CHARLES A. VANIK,
Subcommittee on Trade, House Committee on Ways and Means,
Washington, D.C.
DEAR CHARLIE: On Wednesday, April 25, I testified before the Trade Subcommit-
tee on the urgent need to amend the Antidumping Act-which you will have an
opportunity to do in connection with the Multilateral Trade Negotiation package-
in such a way as to afford distinct treatment to imports of perishable agricultural
goods.
An amendment of this sort is very important to me. I believe if you read my
testimony, it will be important to you as well. Without such an amendment, virtual-
ly all imports of fresh produce will be eliminated due to an erroneous interpretation
of the Antidumping Act which the Department of Treasury is about to make and
which will treat agricultural and industrial goods alike, contrary to Congress' intent
in passing the Act. Instead of ensuring fair competition for domestic producers,
which was the real purpose of the Antidumping Act, an interpretation of this sort
will guarantee a small group of winter vegetable growers no competition at all-to
the clear detriment of the American consumer.
I understand that an amendment of the sort advocated in my testimony will be
included on the agenda when you consider the MTN package. I urge you to support
it. If it does not pass, American consumers will be denied high quality imported
fruits and vegetables in the winter months of the year, and food prices inevitable
will rise as a result of severe shortages. Moreover, our increasingly important
relations with Mexico will suffer greatly but needlessly.
I have attached my statement to the Subcommittee, along with a copy of a recent
New York Times article by our colleague Henry Reuss, both of which address the
urgent situation presently facing winter vegetable imports.
If you have any questions on this matter, please do not hesitate to call me or Bob
Reveles of my staff.
Sincerely,
MORRIS K. UDALL.
Enclosures.
A TAJ~ OF TOMATOES * * * AND EcoNoMIcs
(By K. S. Kinney)
RACINE, Wis.-"You could call it a tale of two tomatoes," Henry Reuss told the
receptive group from the league of Women Voters.
The tale was about a "Florida tomato industry which shouldn't be there at all,"
but exists only because trade barriers made economically and gastronomically supe-
rior Mexican tomatoes unavailable in the United States.
The tale also put the congressman from Wisconsin clearly on the side of the free
trading angels and clearly with most of the league members attending the three day
educational conference on foreign trade at the Wingspread Conference Center. He
spoke Saturday.
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Democrat Reuss used the tomato tale as a prime illustration of the folly of
protectionism and its tendency to saddle American consumers with both higher
prices-in this case, prices giving Florida growers higher incomes-and lower qual-
ity-in this case, leaving consumers with tomatoes tasting like pasteboard.
THE MORAL
The losses for both pocketbook and tastebud were forced on consumers by a U.S.
industry that could supply the need for tomatoes in winter only because the growers
were able to prevent the superior Mexican products from competing north of the
border. Reuss said that besides harming the consumer, such protectionism encour-
aged illegal immigration by those Mexicans who could have found employment in a
healthier Mexican tomato industry.
The moral of the story (at least the economic moral) was that " * * * the less
developed world ought to be allowed to make more of the low cost goods we use."
Reuss reminded his listeners that goods needed by lower income groups were those
that faced high import barriers, forcing poor people to pay more for food, clothing
and shoes.
It was a moral dear to the hearts of those-like most of Reuss' audience--who
support the trade agreements. The league will probably be one of the few interest
groups actively lobbying for passage of the agreements resulting from the "Tokyo
Round" of trade negotiations now being concluded in Geneva.
CONGRESSIONAL VOTE
Congress will vote on the nontariff provisions, which generally call for a notable
lowering of trade barriers, later this spring. Opposition is expected to be strong,
especially from groups likely to be hurt from increased import competition-such as
Wisconsin cheese producers who would face a higher quota for cheese imported from
New Zealand.
The administration's problem is that while harm from the trade agreements will
be concentrated in a few industries, benefits should flow to all consumers who
would face lower prices and greater choice, but who undoubtedly would not organize
themselves to lobby Congress.
The league undoubtedly would, as Reuss suggested when he ended his address by
commending the agreements reached at Geneva and expressing his hopes for con-
gressional passage-"with the help of the League of Women Voters."
And groups such as the league will concentrate on the wider public benefits of the
agreements-those outlined by Ruess.
Mr. JENKINS. Next we have the Distilled Spirits Committee for
International Trade, William J. Schieffelin III, and James H. Lund-
quist, counsel.
Mr. Schieffelin, your entire written statement will be made part
of the record and you may proceed as you wish. You may give the
entire statement or you may outline it for the committee.
STATEMENT OF WILLIAM JAY SCHIEFFELIN III, CHAIRMAN OF
SCHIEFFELIN & CO., ON BEHALF OF DISTILLED SPIRITS
COMMITTEE FOR INTERNATIONAL TRADE, ACCOMPANIED BY
JAMES H. LUNDQUIST, COUNSEL
Mr. SCHIEFFELIN. Than you very much.
Mr. Chairman and members of the Subcommittee on Trade, I am
William J. Schieffelin III, chairman of Schieffelin & Co., 30 Cooper
Square, New York City, and appear before you today as a member
of the Distilled Spirits Committee for International Trade. My firm
imports wine and distilled spirits and I am the seventh generation
of my family in a direct line from father to son to head our firm
which was founded in New York City in 1781.
For the record I want you to know that the wine gallon method
of assessing imported distilled bottled spirits has troubled my com-
pany for 111 years. Therefore, I appear before you today to register
my support and that of all DISCIT members for the elimination of
the wine gallon method of taxing imported distilled spirits. Each of
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our member firms imports bottled distilled spirits, including Scotch
whiskey, Canadian whiskey, gin, cognac, liquers and other prod-
ucts. It shoud be noted that DISCIT members account for over 40
percent of U.S. domestic production of distilled spirits. A list of our
members is attached to this statement.
[The list folllows:]
Members: The Buckingham Corp., Kobrand Corp., The Paddington Corp., Renfield
Importers, Schenley Industries, Schieffelin & Co., Joseph E. Seagram and Sons, Inc.,
Somerset Importers, Ltd., and Hiram Walker and Sons, Inc.
Mr SCHIEFFELIN. Mr Chairman, I have actively opposed the wine
gallon assessment anomaly for more than 20 years. My firm has
litigated the issue in the courts and strongly supported the admin-
istration in its efforts to negotiate settlement of this issue during
the Kennedy Round of trade negotiations. Now, if reports I see are
correct, Ambassador Strauss has succeeded in negotiating ample
concessions for removal of this highly discriminatory tax. In view
of the fact that your announcement No. 19 of April 10, 1979,
outlines the precise discriminatory practices resulting from this
statute, I will not burden the record with a detailed description of
the law. I must say, however, that elimination of this form of
taxation applicable to certain imported bottled spirits will have a
salutary effect of importers and domestic producers alike. We be-
lieve that elimination of this major U.S. nontariff barrier to trade
will help American products gain fair and equal treatment in
major export markets.
Our economic studies of the industry relating to this issue have
been submitted to members of the subcommittee and staff. Based
on this information and on reports from DISCIT members we con-
clude that no major change in historic trade patterns relating to
distilled spirits will result from the removal of the obsolete wine
gallon basis of taxation. Additionally, we have found that there is
little or no surplus foreign bottling capacity available at this time
or in the foreseeable future. Accordingly, we do not see any nega-
tive impact on either the domestic distilling or the U.S. bottling
industry. Without a doubt, American products already bottled in
the United States will continue to be bottled in the United States.
Also, abolition of taxation on additional water content in imported
bottled spirits will, we believe, tend to moderate inflationary trends
in the industry.
I do not have detailed information on the negotiations carried
forward by the STR. However, we know that exports of American
products will benefit from abolition of the wine gallon tax. Until
conclusion of the Tokyo Round, U.S. distillers may have found it
difficult to sell distinctly American quality products abroad, par-
ticularly in the European Community, because of certain limita-
tions on advertising. Now, as a result of our negotiations, it is
understood that advertising discrimination is very much a thing of
the past. This is a beneficial concession within the distilled spirits
sector. It is also understood that additional benefits to the United
States economy are to be found in improved access for a number of
American products, including tobacco, rice, citrus and preserved
fruits and poultry products. We applaud the overall results of these
negotiations.
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In the subcommittee announcement of April 10 reference was
made, to repeal of the existing ratification taxes on domestic dis-
tilled spirits: the so-called all-in-bond approach. These two items
apply to domestic production rather than imports and, therefore,
are somewhat out of the scope of my expertise. Nevertheless, after
checking with members of DISCIT, I can state that we support any
changes submitted by your subcommittee which would help the
domestic distilled spirits industry.
In summary, Mr. Chairman; I and my associates in the Distilled
Spirits Committee for International Trade fully support elirnina-
tion of the historic inequity of wine gallon taxation. We stand
ready to assist you and your staff in every way. I will, of course, be
happy to answer any questions you may have.
I would like to thank you very much for the opportunity of
appearing before you and would like to submit for the record a
statement to the Committee on Ways and Means of the United
States House of Representatives on behalf of Hiram Walker &
Sons, Inc., dated April 25, 1979.
Mr. JENKINS. Thank you. That will be made a part of the record.
[The statement follows:]
STATEMENT ON BEHALF OF HIRAM WALKER & SONS, INC.
Following recent press statements, Hiram Walker & Sons, Inc. has asked that the
following statement be submitted on its behalf to the Committee on Ways and
Means of the U.S. House of Representatives:
The closing of the Hiram Walker facility in Peoria, Ill. has nothing at all to do
with the wine gallon/proof gallon issue currently being discussed as part of the
overall trade package.
It is important to note that more than 80 percent of the distilled spirits produced
and bottled in Peoria are made in the United States, and all products will continue
to be produced and bottled only by American companies. The only reason for the
closing of the plant was that it is an obsolete facility that would cost approximately
$66 million to modernize. The plant is not closing immediately, it will be phased out
over three years and during that time Hiram Walker will build a thoroughly
modern $37 million facility in Fort Smith, Ark. Approximately 200 people will be
employed initially at this facility. All products that are not produced and bott:ied in
Fort Smith will be produced and bottled only by American firms. Hiram Walker is
currently seeking to enter into business agreements with such companies.
In light of the large capacity and the substantial needs of Hiram Walker, it is
unlikely that any one firm will be able to handle the bottling volume; and those
firms that will handle the volume, will have to substantially increase their work
force. It should be noted that Hiram Walker currently bottles some of its products
under such arrangements. It might also be added that the bottling plants that could
handle this capacity are located in numerous sections of the United States including
the state of Kentucky.
Hiram Walker's current employees in Peoria will be assisted by the company in
finding new employment in the area. Peoria is one of the few cities in the United
States that has little or no unemployment problems, and major industries are
planning substantial increases in their work force over the next five years.
Hiram management states unequivocably that it does not have any intention of
bottling any distilled spirits currently produced and bottled in Peoria, outside cf the
United States. Many people continue to think of Hiram Walker only as an importer
whereas in fact they do have and will continue to have a substantial production
capability in the United States.
Mr. JENKINS. While I support the change in the bill, obviously I
would have no objection to the tax changes that have been suggest-
ed by Mr. Purdon, an earlier witness before us, in the domestic
industry.
Mr. SCHIEFFELIN. We would be very much in favor of anything
which will assist the domestic industry, yes, sir.
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Mr. JENKINS. Mr. Vander Jagt.
Mr. VANDER JAGT. Thank you, Mr. Chairman.
I thank you for your testimony and for being here today.
You suggested that the domestic industry would not be threat-
ened by this change away from the wine gallon method because
there is no additional bottling capacity in foreign lands. I can
assure you when earlier witnesses testified and showed headlines
of 6,000 additional jobs that will be created in Glasgow, don't you
think that if there is not the capacity that they will soon be able to
develop the capacity?
Mr. SCHIEFFELIN. I was sorry to miss the earlier testimony due to
a late flight. I am familiar with the headline to which you refer,
sir. I think it unlikely in the present climate of investment oppor-
tunity in the United Kingdom that such eagerness that is ex-
pressed by the headline would become fact.
Mr. VANDER JAGT. You also said that this shift would help gain
fair and equal treatment for our porducers in terms of exporting to
other lands. We also had testimony earlier this morning that there
are a whole variety of nontariff barriers that other lands have and
that we have 1 percent of the market in Great Britain, one-tenth of
1 percent in France and less than 1 percent in Japan. Very little
changes have been made in terms of arguing as to penetrate the
foreign market. That would lead me to the conclusion, without
pretending to know a great deal about it, that our producers do not
have very fair and equal access to foreign markets.
Mr. SCHIEFFELIN. In response to that comment, sir, it seems to
me that certain brands of American produced spirits have had
some notable success amongst our trading partners abroad. This
has been limited somewhat by the inability to advertise American
whiskies in those markets, certain of them, as compared to either
domestically produced spirits or spirits produced from other basic
ingredients.
I believe some significant progress has been made in overcoming
that barrier in addition to which I believe also some significant
progress has been made in connection with the appellation of bour-
bon as being a distinctly American product. This happens to be a
matter which I believe personally land my firm has believed for
198 years and we very much believe that cognac and sherry should
be produced only in Spain and that bourbon should be produced
only in the United States, and I think some significant progress
has been made in this direction.
Mr. VANDER JAGT. You also testified that you would have no
objection to any relief that we could plrovide for our domestic
industry and explained that that is a little bit out of our field of
expertise which is very understandable, of course, but could you
not move beyond no objection to active support for the proposal
that we defer for 30 days the collection of the tax on domestic
spirits so that the domestic spirits tax policy would be the same as
the tax policy tht we afford to imported spirits? Does that not
make excellent sense, that we least keep our domestics on an equal
footing with the foreign?
Mr. SCHIEFFELIN. I completely agree with that. It seems to me
that it would be very wrong for us to ask for correction of an
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304
anomaly and at the same time take the position of a dog in the
manger and blocking the domestic industry definitively, yes.
Mr. VANDER JAGT. I thank you very much.
Thank you, Mr. Chairman.
Mr. JENKINS. Mr. Guarini.
Mr. GuARINI. No questions.
Mr. JENKINS. Mr. Lederer.
Mr. LEDERER. No questions.
Mr. JENKINS. Thank you very much for your testimony.
I have one further question with regard to the nontariff barrier.
One of the witnesses indicated that wholesalers in the United
Kingdom control to some extent all the pubs and the retail outlets,
and therefore, domestic bottlers cannot get their products into
those establishments anyway. This is the point of the tariff barrier,
is it not? Are you familiar with that?
Mr. SCHIEFFELIN. I am not familiar in detail, sir, with markets
outside of the United States.
Mr. JENKINS. What about the Canadian practice that would re-
quire that Canadian imports from this country be blended with
Canadian whiskey?
Mr. SCHIEFFELIN. Unfortunately, sir I am not at all familiar with
the Canadian law nor the provisions thereof. However, I am cer-
tain that members of DISCIT can supply an answer to that ques-
tion if you would so desire.
Mr. JENKINS. Thank you very much.
Thank you for your testimony.
Mr. SCHIEFFELIN. Thank you, Mr. Chairman.
Mr. JENKINS. Mr. Lederer.
Mr. LEDERER. Mr. Chairman, for the record, this morning we
have received testimony from several groups on the wine gallon
issue. It has been requested that the subcommittee consider addi-
tional taxes beyond what STR has recommended and also change
to the bond system. I note that my colleague from Louisiana has
stated that it is very desirous of making our domestic distilled
spirits competitive and he has asked Mr. Vernon to place the view
of the distilled industry in the record. Accordingly, I request that
further discussion on this issue be taken up by this subcommittee
in the near future and would so recommend to Chairman Vanik.
Mr. JENKINS. Is there discussion?
Mr. GUARINI. I agree with the recommendation.
Mr. JENKINS. Without objection, that request will be granted.
Our next panel, from the National Outerwear & Sportswear
Association, consists of Morton Cooper, Morton Bauman, Stanley
Nehmer, and Ralph Edwards.
Welcome to the committee. We appreciate each of you appearing.
Do each of you have a prepared statement? Both of those state-
ments will be made a part of the record in their entirety and you
may proceed as you desire. Mr. Cooper will begin.
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STATEMENT OF MORTON COOPER, PAST PRESIDENT, NATION-
AL OUTERWEAR & SPORTSWEAR ASSOCIATION, ACCOMPA-
NIED BY MORTON BAUMAN, EXECUTIVE DIRECTOR, AND
STANLEY NEHMER, CONSULTANT
Mr. COOPER. My name is Morton Cooper. I am president of
Cooper Sportswear Manufacturing Co., Inc., Newark, N.J. I am also
past president of the National Outerwear & Sportswear Associ-
ation, Inc., which is the national trade association whose members
account for the great bulk of domestic production of leather wear-
ing apparel.
On the panel also is Ralph Edwards of Cape Girardeau, Mo., who
will present a short statement.
Appearing with me are Morton Bauman, executive director of
our association, and Stanley Nehmer, a consultant to our associ-
ation.
INTRODUCTION
The National Outerwear & Sportswear Association welcomes this
opportunity to appear today because the leather apparel industry
and its workers have suffered for many years from burgeoning
imports and we are concerned that the implementing legislation
now under consideration in connection with the MTN package may
hurt, not help, the manufacturers and workers in this traditional
industry which is also among America's oldest industries.
I want to sketch briefly for the subcommittee the impact of
imports on this industry, the efforts we have made to solve the
problems we face from imports, our experience in dealing with the
executive branch, particularly the Treasury Department, and our
concerns regarding the implementing legislation for the multilater-
al trade negotiations.
We think our trade negotiators have a heroic job in negotiating
the various international codes of conduct. But, with all respect to
our negotiators, the codes are nowhere as important as the legisla-
tion to implement U.S. participation in these codes. What the new
U.S. countervailing duty statute will say, for example, is much
more important than the provisions of the code on subsidies and
countervailing duties.
IMPACT OF IMPORTS ON THE LEATHER APPAREL INDUSTRY
At the beginning of this decade, the. outlook for the domestic
leather garment industry looked very promising due to fashion
changes which had created rapidly increasing demand for leather
garments. The optimism of workers and firms soon turned to gloom
for while retail sales did climb as a result of strong demand, much
of the increased domestic market was accounted for by low wage
foreign supply, not by increased domestic output.
Past actions by the U.S. Government have contributed to the
rising trend in imports. In the tariff area there was the Kennedy
round negotiations which cut the U.S. duty on leather wearing
apparel in half, the stimulating effect of which was almost immedi-
ately reflected in import data for 1968 and succeeding years. A
second tariff action, some years later, was equally devastating and
it provided a major boost to the penetration of the U.S. leather
wearing apparel market by low cost foreign producers. This was
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306
the inclusion of leather apparel in the list of products accorded
duty free entry under the generalized system of preferences, effec-
tive January 1, 1976.
For a relatively high unit value item like leather apparel GSP
exemption from the normal 6 percent ad valorem duty gave an
unwarranted competitive advantage to developing countries which
already had successfully penetrated the U.S. market by virtue of
their low labor costs. However, further compounding the import
problem of the domestic industry was the fact that many of the
same countries which benefited from GSP zero-duty treatment for
leather apparel also provided subsidies to their producers and ex-
porters under various foreign governmental incentive programs. In
these circumstances, domestic manufacturers found themselves
simply unable to compete with foreign imports and, as a result,
there has been a structural deterioration in the domestic industry,
with half of the firms of a decade ago no longer in business. Those
that remain are unable to maintain efficient levels of capacity
utilization which would increase their productivity and lower unit
costs by spreading overhead over a larger volume of production.
EROSION OF FIRMS AND JOBS HAS TAKEN PLACE DUE TO IMPORTS
Of 185 firms that produced leather wearing apparel in 1972, the
International Trade Commission confirmed in its landmark uriani-
mous injury finding on subsidized imports from Uruguay in April
1978 that almost half had since "discontinued such production."
The same ITC report showed profits of the domestic producers to be
way down, with many establishments reporting losses on all cper-
ations. As for jobs, the leather wearing apparel industry in :1974
had a work force of 10,100 persons. This was reduced to 8,500 in
only 2 years. Since then, declines in production as a consequence of
imports has led to the loss of at least 3,000 additional jobs with the
result that current total employment in this industry is now (esti-
mated at not more than 5,500 production workers. What is even
more galling is that this sharp reduction has been occurring even
though there has been a significant expansion in total demand for
leather apparel.
The leather apparel work force in this labor intensive industry
has been especially hard hit by import competition because the
workers, being largely unskilled, comprised of women and minority
groups and falling into older age groups, have limited mobility and
retraining potential for other employment. A job once lost in the
domestic leather apparel industry in effect means indefinite unem-
ployment. The consequences of such chronic unemployment also
means indefinite social and economic costs which must be shoul-
dered not only by the individual and his family but by his commu-
nity and the Nation at large. The industry is heavily concentrated
in urban areas, such as the New York metropolitan area.
SPIRALING IMPORTS HAVE CAPTURED GROWING MARKET SHARE
The leather wearing apparel industry consists primarily of small-
to medium-sized firms which have seen their output shrinking.
Sprialing imports have captured a growing share of the domestic
market at the expense of domestic output. Between 1974 and 1978,
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domestic leather apparel consumption in the country, on a value
basis, increased by 54 percent, while domestic shipments declined
by 14 percent. During the same period, imports increased a stagger-
ing 208 percent, or four times the growth in the domestic market.
Since 1968, imports as a percent of apparent consumption
showed an almost continuously uninterrupted growth with the ex-
ception of only 1 year, 1974. By 1977, total imports accounted for
over 50 percent of the U.S. market in terms of value. In 1978, this
share exceeded 60 percent as imports totaled $318 million. Such
increased imports occurred in the last 4 years even while domestic
shipments showed actual declines.
Moreover, since official trade data are compiled only on a value
basis, the import penetration is substantially underestimated.
When measured based on quantity, imports as a percent of domes-
tic consumption is estimated for 1978 to have been 72 percent. To
our knowledge, no other domestic industry of this size confronts so
high an import penetration rate.
RELATIONSHIP OF SUBSIDIES TO IMPORT GROWTH AND INDUSTRY
DETERIORATION
Developing countries are notorious for their use of export subsi-
dies as a device to promote their internal economic development.
They see government fiscal incentives as justified by their need to
protect local infant manufacturing industries and to promote their
expansion through exporting. Many of these products are labor
intensive in which the exporting countries already have a decided
advantage in terms of much lower labor and material costs. To the
extent that subsidies are granted by foreign governments to their
producers and exporters, these convey additional unfair competi-
tive advantages to the foreign suppliers in the U.S. market, there-
by enabling them to considerably undersell the counterpart U.S.
product. The leather apparel industry in the United States has
been a classic example of the inexorable debilitating effect of such
subsidized unfair import competition.
It has been documented that some of the developing countries
have carefully nutured their leather apparel industry over the
years, first by prohibiting exports of raw materials and later by
restricting the export of finished leather. In some countries, Uru-
guay and Colombia, for example, the leather product industry has
outgrown purely local raw material sources of supply and these
countries are now significant purchasers in the U.S. market-
which is uniquely one of the last open markets where rawhides can
be purchased without restriction. One consequence of such in-
creased foreign demand has been upward pressure on domestic raw
material prices.
In the light of the primarily small scale companies which operate
in this industry with a very slim profit margin and with production
costs which have a heavy labor cost element, there is little manage-
ment flexibility for effecting price declines as a means of offsetting
lower foreign selling prices. In these circumstances, low-wage, low-
cost developing country suppliers have a clear competitive cost
advantage in the U.S. market. When the additional benefits of
foreign export subsidies are factored into developing country ex-
PAGENO="0316"
308
ports price quotations, the disparity with the domestic price quota-
tion is unbeatable and overwhelming to U.S. manufacturers.
As a result whereas 10 years ago the developed countries were by
far the more important foreign suppliers of leather apparel in the
U.S. market, their position has been dramatically replaced by the
developing countries. For example, Spain and Italy together ac-
counted for approximately one-fourth of the imports into the U.S.
market in 1968 but their collective share is now down to less than
4 percent and overall the developing countries account for some
three-fourths of all leather apparel imports into the United States.
GOVERNMENT RELIEF ACTIONS HAVE BEEN REPEATEDLY SOLICITED
BY THE INDUSTRY-WITH POOR RESULTS
As the foregoing makes clear, the gains made by imports at the
expense of domestic production and employment are not due to
style or quality but primarily due to price advantages which not
only can be attributed to lower foreign labor costs but also to the
grant of zero-duty performance under GSP and the maintenance of
foreign export incentive programs which convey competitive advan-
tages to exporters in the U.S. market.
The leather apparel industry and its workers have sought to
redress these unfair trade aspects by turning to the executive
branch for the relief actions which Congress provided for in the
Trade Act with regard to countervailing duties and the general:ized
system of preferences.
Unfortunately, it has been an uphill battle. The industry failed
in its effort to eliminate preferences on leather apparel until this
year when the President, at long last, withdrew leather wearing
apparel from the preference list. Such action had been turned
down twice previously, presumably because foreign policy consider-
ations had been considered overriding by the executive branch.
However, after a third petition and a fourth public hearing, the
administration could no longer ignore the economic plight of the
industry. It recognized that the industry's very survival was at
stake in a continuation of preferences, and accordingly these were
removed effective March 1, 1979. The executive branch erred in
having placed leather apparel on the preference list in the first
place and rectification of the injustice was long overdue. We appre-
ciate the fact that the import senstivity of this industry has been
recognized and corrective action taken.
With respect to foreign subsidies, leather wearing apparel has
figured in a number of petitions to the Treasury seeking the impo-
sition of countervailing duties to offset subsidized exports to our
market. These petitions, which were initiated either by the Nation-
al Outerwear & Sportswear Association, Inc., or the Amalgamated
Clothing & Textile Workers Unions, have related to leather appar-
el imports from a number of countries, including Taiwan, Korea,
Argentina, Uruguay, Columbia, and -Brazil.
In its handling of these petitions, Treasury has given evidence of
considerable administrative foot dragging and delays. It has made
decisions which appear based more on U.S. foreign policy consider-
ations than on the ecomonic facts in each case. In short, Treasury
has not administered the countervailing duty statute in our opin-
PAGENO="0317"
309
ion as forcefully or as vigorously as the Congress or the business
and labor communities have had a right to expect. More than that.
Treasury has misused its statutory authority.
INDUSTRY EXPERIENCE REFLECTS POOR PERFORMANCE BY TREASURY
IN ADMINISTERING COUNTERVAILING DUTY STATUTE
We join with so many others in criticizing the Treasury Depart-
ment for its poor performance in administering the countervailing
duty statute. We are critical of Treasury for-
Missing statutory deadlines;
Stretching the authority of the Trade Act of 1974 with regard to
the granting of waivers;
Accepting unverified information from foreign representatives as
a basis for its determination; and
Reducing the calculated amount of a subsidy and hence the
countervailing duty in questionable ways.
TREASURY HAS MISSED STATUTORY DEADLINES
One of the important changes intended to strengthen the coun-
tervailing duty statute as incorporated in the Trade Act of 1974
was the 12 month time limit established for the Treasury Depart-
ment's consideration of countervailing duty petitions. Notwith-
standing the statutory time limits, Treasury missed its deadline in
the case involving Argentine leather apparel where the 12 month
statutory deadline for final determination was January 21, 1978,
but where the decision was actually made on January 17, 1979, 1
year later.
The effect of failing to make its determination within the statu-
tory deadline was to deny the National Outerwear & Sportswear
Association, as the petitioner, due process.
I may note that in correspondence relating to our protest at this
missed statutory deadline, the Treasury Department has admitted
its "staff could-and should-have followed this case more punctu-
ally so that the statutory deadlines imposed by the Congress would
have been met." A statement prepared by Treasury's Office of
Tariff Affairs in this regard then went on to suggest by way of an
apology that:
With the knowledge that there would probably be a determination that no boun-
ties or grants were being paid, the matter was not accorded priority attention * *
It happened that a considerable workload engulfed the Office of Tariff Affairs at the
time the final determination was due and the months thereafter in which this
matter was given inadequate attention.
Obviously the vast Treasury Department did not see fit to allo-
cate the necessary resources to permit it to meet its statutory
obligations.
TREASURY HAS MISUSED ITS WAIVER AUTHORITY
Treasury has stretched the authority of the Trade Act of 1974
with regard to the granting of waivers. The Trade Act permits
waiver of countervailing duties by the Secretary of the Treasury if
three criteria are met. These are that: one adequate steps have
been taken to reduce substantially or eliminate the adverse effect
of a bounty or grant; two, there is a reasonable prospect that
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310
successful trade agreements will be entered into with foreign coun-
tries providing for reduction or elimination of barriers to trade;
and three, the imposition of the additional duty would be likely to
seriously jeopardize the satisfactory completion of such negotia-
tions.
Treasury has consistently interpreted these three criteria-all of
which must exist before a waiver can be issued-so loosely as to
permit it to justify any action administratively decided upon. A
glaring example of a horror story with respect to the stretching of
Treasury's waiver authority is that related to Treasury's handling
of its determination that Uruguayan subsidies on leather wearing
apparel were equivalent to 12 percent of the export price. Could
anyone reasonably conclude that the imposition of a countervailing
duty on Uruguayan leather apparel would seriously jeopardize the
conclusion of the multilateral trade negotiations?
In its final determination issued January 30, 1978, Treasury
noted an intent to waive the imposition of countervailing duties on
the basis that it had received assurances from Uruguay of a phase
down of only one subsidy-the reintegro program of cash rebates
which alone amounted to 20 percent or more of the value of the
goods exported. However, because leather wearing apparel from
Uruguay entered the United States free of duty under the general-
ized system of preferences, the International Trade Commission
was required to determine whether Uruguayan subsidies on leather
wearing apparel injured U.S. industry. Following a comprehensive
investigation, the ITC in April 1978 announced a unanimous find-
ing of injury. Nonetheless, even in the face of such a unanimous
decision by the Commission with respect to the subsidized Uru-
guayan leather apparel, the Treasury Department carried out its
planned waiver which was announced on June 30, 1978.
Treasury justified its waiver on the basis of Uruguayan assur-
ances that it would phase out its major reintegro subsidy program
by January 1, 1979. In agreeing to waive the countervailing duty
on this basis, Treasury did not require the Government of Uruguay
to reduce or eliminate other countervailable trade practices which
the Treasury had determined to exist in Uruguay. Treasury's justi-
fication for permitting a waiver while the Uruguayans would leave
these subsidies intact was that they were very small, perhaps in
the order of 2 percent, whereas the major subsidy program which
provided a subsidy of at least 20 percent was netted down to
around 12 percent.
The domestic industry argued with Treasury officials that they
were ignoring an additional subsidy benefiting Uruguayan tanners
equal to 8 percent of the value of the leather content of various
products exported. Treasury decided differently. However, some
months later, Treasury discovered that, indeed, it had made a
mistake and that the 8 percent subsidy on the leather content of
products exported to the United States was countervailable. Thus,
instead of a residual of 2 percent after the scaling down of the
major subsidy, Treasury found that the remaining subsidy on Uru-
guayan leather apparel added up to a total of 13.3 percent. It
decided to impose this countervailing duty effective November 13,
1978, and revoke its former waiver.
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The Uruguayan waiver case is by no means unique as an exam-
pie of an unacceptable stretching of Treasury waiver authority for
in another petition affecting Brazilian textiles and apparel, includ-
ing leather wearing apparel, Treasury went ahead and waived the
countervailing duty of almost 38 percent on Brazilian textiles and
apparel on assurances that subsidies would be reduced by half by
January 1, 1979, and by the remaining half by January 1, 1980. In
the interim of 1 year, Brazil is being allowed to continue subsidies
without having countervailing duties applied to the detriment of
American firms and workers.
With respect to leather wearing apparel, since this item then
received zero-duty entry under GSP when imported from Brazil,
the Treasury Department requested the ITC to undertake an inves-
tigation to determine import-related injury, as provided under the
Trade Act for the imposition of countervailing duties, but at the
same time the Treasury Department announced in advance of the
ITC's determination an intention to waive countervailing duties
with respect to men's and boy's leather wearing apparel from
Brazil. It seems inconceivable in the face of Treasury's unfortunate
experience with respect to the Uruguayan countervailing duty
waiver on leather wearing apparel that it would repeat the pat-
tern.
TREASURY HAS ACCEPTED UNVERIFIED INFORMATION FROM FOREIGN
REPRESENTATIVES AS A BASIS FOR ITS DETERMINATION
Treasury makes most of its determinations with regard to the
size of the countervailing duty or waiver of countervailing duty on
the basis of data submitted to foreign governments or firms. In
neither case are the data verified by Treasury. Admittedly, it is
difficult for Treasury to verify data as submitted by foreign inter-
ests but as least an effort should be made to assure the American
petitioner that, indeed, the data on which a determination was
made by Treasury are reliable. Treasury says it must take the
word of a foreign government, yet in the case of Uruguay just
cited, the word of the foreign government was anything but good.
Moreover, sometimes there has been simply no word at all. For
example, as the result of a request through the Freedom of Infor-
mation Act, it has been learned that although Treasury waived
countervailing duties on Uruguayan leather products at the end of
January 1978 based on certain assurances from the Uruguayan
Government, the factual information on which to base the waiver
was not available to Treasury at the time of the waiver action. On
May 15, 1978, 5 months after the waiver by Treasury, the Minister
of the Uruguayan Embassy in Washington was told by Treasury
that in October 1977 Treasury had requested of the Uruguayan
Government:
a detailed description * * * of the laws providing for the various offsets accepted by
Treasury * * * as well as a detailed itemization of how the offsets were calculated
for each of the product sectors.
That information had not been made available by Uruguay.
Apparently a copy of the December 28, 1977, decree of the Uru-
guayan Government reducing the reintegro was also not submitted
in January 1978 before Treasury waived the countervailing duties.
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312
At least Treasury was still inquiring about it from the Uruguayan
Government in mid-May 1978.
TREASURY HAS FOUND WAYS TO MINIMIZE SUBSIDIES
The decision by Treasury with respect to petitions involving
leather apparel imported from such countries as Colombia, Korea,
and Taiwan shows clearly that Treasury has sought ways to mini-
mize the amount of a subsidy which foreign governments have
bestowed on leather apparel, thus minimizing the resultant counter-
vailing duty as was the case for Colombian leather apparel, or
leading to a conclusion that the amount of the subsidy is of a de
minimis nature, therefore not requiring a countervailing duty, as
was the determination for leather apparel from Taiwan and Korea.
While the countervailing duty statute provides that the duty
imposed should be one to offset the net amount of the foreign
government subsidy, Treasury in point of fact has stretched the
concept of "net" to reduce the amount of subsidy found to exist by
such items as taxes paid by the foreign industry involved even
though those taxes would be paid in the absence of any subsidy,
devaluations of foreign currency over the period between the time
contracts are entered into and the subsidy is paid, the effect of
inflation in the foreign country, customs duties paid by industries
supplying the subsidized industry, the discount on export certifi-
cates when they are sold on the local stock exchange, and similar
esoteric factors.
Nonetheless in the case of Colombian leather wearing apparel
even when such exotic offsets were taken into account in Treas-
ury's calculation, Treasury still identified two specific programs
which were determined to be clear bounties and under which pro-
ducers of men's and boys' leather apparel for export received subsi-
dies equivalent to almost 6 percent of the value of shipments to the
United States-an amount in fact equivalent to the normal 6-
percent duty leviable on such goods in the United States.
LEGISLATION TO IMPLEMENT THE MTN IS OF CRITICAL CONCERN TO
THE LEATHER APPAREL INDUSTRY-COUNTERVAILING DUTIES
From the foregoing it is clear that we are very seriously con-
cerned with the way in which the future countervailing duty stat-
ute will be shaped in the implementing legislation which this com-
mittee and the Senate Finance Committee are now considering
with the administration. We believe very strongly that the new
countervailing duty statute should provide an effective and expedi-
tious means for an industry such as ours to bring a case and to
receive relief. This means that the vast discretionary authority
which exists under the present countervailing duty statute must be
substantially reduced so that the administering agency will act in
accordiance with the intent of Congress in this area.
Unfortunately what we see in the preliminary decisions taken by
this committee and the Senate Finance Committee is a countervail-
ing duty statute which will make it even more difficult than in the
past for an industry such as ours to secure relief from foreign
government subsidy practices. I am referring here to sUch provi-
sions as the following:
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313
1. A FILING FEE OF $1,000 OR $5,000
We believe it is unconscionable for any petitioner to be required
to pay a fee to the Federal Government to secure the relief that
may be prescribed under a statute. To do so would create a prece-
dent of far-reaching proportions. In the case of a small industry
such as ours, the requirement that we post $1,000 or $5,000 will
effectively inhibit our future efforts to secure redress from the
grievances which I have noted above. Certainly ample authority
will exist on the part of the administering agency not to accept a
frivolous petition. No filing fee should be required to accomplish
that purpose.
2. INJURY TEST
The injury test requirement which the United States has agreed
to is certainly going to be an inhibiting factor with regard to future
petitions. This is not because an industry such as ours cannot show
injury from subsidized imports. Indeed we did so in the case of
subsidized Uruguayan leather apparel as I noted above. It is rather
the fact that an injury test will require time and expense to go
before the International Trade Commission. No one should be
under any illusion that you merely go before the ITC without full
and adequate preparation of one's case, including engaging counsel
or consultant to represent you.
Furthermore, for a small industry such as ours where manage-
ment at the top is not in depth, the time it takes to spend a day in
Washington, such as I am doing today, means time away from my
plant and supervision of its operations. Companies in our industry
are not among Fortune's 500 firms.
We are very much concerned that the definition of injury that
will be included in the countrvailing duty statute will require a
higher threshold of injury than has been the case under the pres-
ent antidumping law. Our international obligations under the new
subsidies code do not require this. And if the new countervailing
duty statute is to provide an effective means of dealing with unfair
trade practices, the definition of injury should not be made more
stringent than under the present antidumping statute.
3. CONTINUED ROLE OF TREASURY DEPARTMENT
No action has been taken to date to remove the implementing
authority under the countervailing duty statute from the Treasury
Department. In its various press releases this subcommittee has
indicated that the Treasury Department will continue to adminis-
ter this statute. For the reasons which I have cited in my testimo-
ny and on the basis of other information which has been transmit-
ted to this subcommittee over the last several months, we think it
is wrong for the Treasury Department to be permitted to continue
to have authority over this program. Despite its ample resources,
the Treasury Departmernt has not seen fit in the past to allocate
the necessary manpower to do an effective job under the statute.
We believe that philosophically the Treasury Department is not
in tune with the aims of the statute in that it incorrectly views a
countervailing duty as a protectionist restriction to trade rather
4~4-998 - 79 - 21
PAGENO="0322"
314
than a device to insure fair trade. Thus, we believe that Treasury
is incapable of administering the statute as the Congress intends it
to be administered. There is no reason to believe that the poor
performance by the Treasury Department since the Trade Act of
1974 was passed will be corrected under the new legislation. Assur-
ances in legislative history are meaningless, particularly when the
leadership of any cabinet department changes. Indeed we heard
from a high-ranking Treasury Department official with responsibil-
ity in this area that commitments made during the passage of the
Trade Act of 1974 by the previous administration were not binding
on the present administration.
We would urge, therefore, that the authority for administering
the countervailing duty statute be removed from the Treasury
Department. We hope that this function could be transferred to a
new Department of Trade but in the absence of legislation to
create such a department we would recommend that this function
be transferred to the Office of the Special Trade Representative or
to the Department of Commerce.
4. FOREIGN ASSURANCES TO TERMINATE INVESTIGATION
Vast discretionary authority is still contemplated under this stat-
ute. We are particularly concerned that this subcommittee and the
Senate Finance Committee seem to be heading in the direction of
permitting certain assurances from foreign entities to be accepted
as a basis for terminating countervailing duty proceedings. I am
referring here to provisions under consideration which would
permit assurances with regard to price or with regard to quantita-
tive limitations on exports to be used as a basis for terminating
countervailing duty proceedings.
Whatever the merits of price assurances might be in connection
with antidumping proceedings, we do not believe that there is a
place for such assurances in the countervailing duty statute, par-
ticularly since the price assurances under consideration are those
which would be sufficient to offset the injury, not those to offset
the amount of the subsidy. There is a vast difference between these
two concepts. This would be inconsistent' even with the present
practice under the antidumping statute where the price assurances
that are accepted in some cases are those which offset the dumping
margin, not those which offset the injury which may be found.
Even if provision is made for the petitioner to go before the
International Trade Commission to challenge such a determina-
tion, we are not only once again getting into the realm of extra
time and expense but putting a highly subjective matter before the
International Trade Commission. It would be extremely difficult to
use any objective criteria to determine whether the price assur-
ances are adequate to offset the injury. On the other hand, price
assurances that would offset the amount of subsidization is a more
easily determinable concept.
Assurances with regard to quantitative limitations are equally
objectionable insofar as the countervailing duty statute is con-
cerned. What kind of quantitative limitations? Voluntary restraint
arrangements or orderly marketing agreements? Does U.S. Cus-
toms administer such quantitative limitations or are they allowed
PAGENO="0323"
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to be unilaterally administered by the exporting country? No vol-
untary restraint arrangement has worked as originally intended.
There is no reason to assume that any foreign entity will adminis-
ter such voluntary limitations in the same way that U.S. Customs
would. At what levels are the quantitative limitations set? Who
makes that determination? Here, too, you are getting into a negoti-
ating situation where foreign political policy relationships will
loom large.
Assurances with regard to price and quantitative limitations rep-
resent in our thinking nothing more than an extension of the
waiver authority which Congress has recently extended to the end
of September 1979. It is the same kind of discretionary authority
that has been abused under the waiver authority and we see no
reason to expect that if such assurances are permitted that the
abuses of the waiver authority will not be continued in the future.
We would urge, therefore, that no assurances with regard to price
or quantitative limitations be permitted in the new statute as a
means of terminating a countervailing duty investigation.
NEW NEGOTIATING AUTHORITY
We have one other matter of concern to bring to the attention of
this subcommittee. Apparently the Senate Finance Committee has
tentatively agreed to give the executive branch new 5-year authori-
ty to cut tariffs and to extend indefinitely authority to negotiate on
nontariff barriers, the latter on the basis of the so-called fast track
procedure. We find such provisions, particularly those relating to
further tariff cuts, to be completely inconsistent with the concept
of implementing legislation. We see no reason why such a proposal
for further tariff cutting should not be considered by the Congress
in the normal legislative fashion. We think it is wrong at this time
for such tariff cutting authority to be extended until the results of
the Tokyo round have been made known and the effects thoroughly
digested. But the worst part of this proposal is that it is part of
implementing legislation when it bears no relationsip whatsoever
to implementing the results of the multilateral trade negotiations.
We find the request to extend negotiating authority on nontariff
barriers to be less objectionable but we question very seriously
whether that should be handled on a fast track basis in the future.
There is no reason why new nontariff barrier agreements cannot
be submitted to Congress for its approval in the normal legislative
matter, instead of subjecting such consideration to the up or down
approach of the present Trade Act of 1974.
Mr. JENKINS. Thank you very much, Mr. Cooper.
Mr. Edwards, we will be very happy to hear from you at this
time.
STATEMENT OF RALPH L. EDWARDS, CHAIRMAN OF THE
BOARD, RALPH EDWARDS SPORTSWEAR, INC.
Mr. EDWARDS. My name is Ralph L. Edwards. I am chairman of
the board of Ralph Edwards Sportswear, Inc. We have our head-
quarters and main production facilities at 334 North Broadview
Street, Cape Girardeau, Mo. I appreciate the opportunity to appear
today before this committee to comment on certain aspects of the
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316
implementing legislation with regard to the multilateral trade ne-
gotiations going on. I am appearing before this subcommittee as an
individual on behalf of the firm that I founded over 33 years ago
and the 320 employees who work with me.
Our firm is a member of the National Outerwear & Sportswear
Association and I subscribe completely to the statement of Morton
Cooper which has been submitted to the subcommittee. Mr. Coo-
per's statement provides ample evidence on the unfortunate experi-
ence of the leather apparel industry over the past several years in
dealing with the Treasury Department and our lack of success in
getting that Department to enforce the countervailing duty statute
effectively and vigorously. He has also drawn attention to our
concerns that the implementing legislation for a new countervail-
ing duty statute should provide an effective and expeditious means
for an industry such as ours to bring a case and have it receive the
attention of the administrative body.
There are certain specific aspects of the implementing legislation
which I feel also should be called to this committee's attention.
There are two provisions of the countervailing duty statute to
implement the new code negotiated in Geneva which are essential
not only to the leather apparel industry but to other American
industries which have shared our experience over the past several
years. In this connection, I should like to detail several suggestions
as follows:
One, if a foreign government forbids or prohibits the export of an
internationally traded raw material or commodity while at the
same time the U.S. Government does not do the same, the effect of
this action is to depress the price of such raw materials in the
foreign county, giving foreign manufacturers a competitive advan-
tage with regard to their raw material that is in effect a subsidy-
an indirect subsidy resulting from an indirect action of a foreign
nation.
Specifically here I am referring to the action of such govern-
ments as Brazil, Uruguay, India, Argentina, and Colombia which
prohibit the export of their salted hides and skins. Such action
depresses the local price of hides in these countries and grants to
the local leather product manufacturer a price for this basic raw
material, leather, far below that which leather product manufac-
turers in this country and other free trading countries pay. The net
effect is that the foreign leather product manufacturer is able to
effectively under-price U.S. manufacturers in shipments to this
market and to Canada.
Unfortunately, Treasury does not accept this distorting tactic as
a subsidy, although I am advised that the Special Trade Repre-
sentative's Office agrees with my position that in a case where an
export restriction artificially depresses the domestic market price
in the foreign country, the difference between the domestic and
world market price is a subsidy. John Grenwald said that they
have found that this is a subsidy and that they have discussed this
matter with a Treasury official involved in the administration of
the countervailing duty law and on a personal and formal basis the
man from Treasury concurred. I have a record of that.
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317
I recommend to this subcommittee that this matter be spelled
out in the implementing legislation to close a serious loophole in
the present countervailing duty statute.
Two, another serious loophole exists in cases where the foreign
government eliminates its subsidies on exports to the United
States, but increases its subsidies on exports to other nations. We
have a very serious case in point. You have heard from Mr. Cooper
about the difficulties which the U.S. leather apparel industry has
faced in its effort to secure a redress against the unfair trade
practices of the Uruguayan Government with regard to that coun-
try's exports of leather apparel to the United States. A key to the
recent action by the Treasury Department in eliminating the coun-
tervailing duty on all Uruguayan leather products exported to the
United States was the action of Uruguay in doubling its subsidy on
the export of leather products to all countries other than the
United States at the same time. that it eliminated its subsidies on
the export of such products to this country.
Treasury acknowledged this in the Federal Register of March 22,
1979, but it stated:
It is the position of the Treasury Department that while the doubling of the
tanners subsidy on exports to third countries clearly creates a distortion in interna-
tional trade, no remedy is available to this action within the limits of the counter-
vailing duty law. It is possible that a more appropriate remedy to this sort of
distortion is available through other sections of the U.S. tariff and trade laws.
I seriously disagree with their findings in this matter.
Since just about half of all Uruguayan leather wearing apparel is
shipped to the United States and almost the same amount to all
other countries, the net effect is that Uruguayan leather apparel
manufacturers exporting to this country and elsewhere can main-
tain their present price structure on shipments to this country and
to all other countries and yet, as interpreted by the Treasury
Department, not be engaged in a practice that is countervailable
under U.S. law. This action by Uruguay and the interpretation by
the Treasury Department can indeed open a Pandora's box. I rec-
ommend strongly that in the implementing legislation this matter
be dealt with to prevent a serious loophole in the future with
regard to the countervailing duty statute.
My experience in dealing with the Treasury Department has led
me to the clear conclusion, as Mr. Cooper has stated in his testimo-
ny as well, that the function for administering the countervailing
duty statute must be removed from the Treasury Department if
there is to be any chance of effective implementation of the coun-
tervailing duty statute in the future. I am convinced that whether
it is administrative malaise, high-level directives, or an inherent
philosophy in that Department, Treasury has not earned the right
to continue to administer this statute. The management of the
countervailing duty statute by the Treasury Department has been
inept. No change in the countervailing duty laws will correct this if
the Treasury Department is permitted to continue to administer
this statue.
Gentlemen, I do not support the MTN package and the imple-
mentation of it if Treasury is to remain as the administering
agency.
Thank you.
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318
Mr. JENKINS. Thank you very much, Mr. Edwards, for your testi-
mony.
The track record of the Treasury Department as it relates to
your industry has probably been the single most important factor
in my doubts about Treasury administration of the countervailing
statue.
Mr. Cooper, if you will, the committee would like to have from
you any specific suggestions in the areas that you discussed in your
statement as to how this implementing legislation can be strength-
ened.
Mr. COOPER. Yes.
[The material follows:]
SPECIFIC SUGGESTIONS To STRENGTHEN IMPLEMENTING LEGISLATION FOR THE
INTERNATIONAL SUBSIDIES CODE
The National Outerwear and Sportswear Association makes the following sugges-
tions on how the implementing legislation on subsidies and countervailing duties
can be strengthened. This is being presented pursuant to the request of Representa-
tive Jenkins at the hearings before the Trade Subcommittee of the House Ways and
Means Committee on April 25.
(1) No filing fee.-A very serious precedent of far-reaching proportions would be
created by requiring a filing fee to accompany a countervailing duty petition. No
American citizen should be required to post any amount of money to secure a
redress under the unfair trade practices statutes. Instead it is recommended that
the administering agency be permitted to reject any petition which does not contain
all of the elements called for in such petitions, as stated in the statute or in
regulations which may be promulgated by the administering agency.
(2) Injury test.-If an injury test is to be included in the new countervailing duty
statute, it should not require a higher threshhold of injury than has been the case
under the present antidumping law. Inserting the word "material" as a description
of injury does not in itself create a higher threshhold of injury so long as the
definition of what is "injury" is clear. We recommend that the statute make clear
that the level of injury that must be shown before a countervailing duty is imposed
not be inconsequential or frivolous. In our judgment this would be quite consistent
with the new countervailing duty and subsidies code as well as with the threshhold
of injury under the present antidumping statute.
(3) Administering agency.-We strongly recommend that until such time as a new
Department of Trade may be created, or for the indefinite future if such a new
department is not created, the functions now exercised by the Treasury Department
in the countervailing duty statute be transferred to the Office of the Special Repre-
sentative for Trade Negotiations. That office currently has similar authority in
connection with cases under Section 301 of the Trade Act of 1974.
We do not believe it would be fatal to the transfer of this function if the present
personnel in the Office of Tariffs and Trade of the Treasury Department were
transferred with the function to STR. Obviously if the new countervailing duty
statute is to be effectively administered, certainly more effectively administered
than Treasury has been able to do since the Trade Act of 1974 was enacted,
additional personnel beyond those presently in the Office of Tariffs and Trade will
need to be brought into this program. We are not concerned that the present
personnel of the Office of Tariffs and Trade of the Treasury Department, if trans-
ferred to STR, would continue the half-hearted administration of the countervailing
duty statute that has been the case under the Treasury Department's aegis. The
responsibility for Treasury's mismanagement of this program rests with the Secre-
tary of the Treasury, the Undersecretary of the Treasury, the General Counsel of
Treasury, and a Deputy Assistant Secretary of the Treasury.
(4) Assurances to terminate investigation-We recommend strongly that neither
price assurances or assurances related to quantitiative limitations be contained in
the countervailing duty statute. As explained in our testimony, price assurances are
relevant to antidumping proceedings but have no place in the countervailing duty
statute.
If it is felt that price assurances and assurances with regard to quantitative
limitations should be included in the statute, such assurances should be limited to
cases involving domestic or internal subsidies, not to cases involving export subsi-
dies. If they are utilized in domestic subsidy cases, the assurances should be those
PAGENO="0327"
319
which offset the subsidy, not a lesser assurance merely to offset the injury. We have
said repeatedly that it is difficult to establish any objective criteria which would
permit a determination of what a permissible level of subsidy might be that would
not cause injury to a domestic industry and its workers.
(5) Export restrictions as countervailable measures-We believe that the definition
of subsidy contained in the statute, or at the very least in the legislative reports of
Congress, make it clear that restrictions on exports by foreign governments which
have the effect of lowering the price of the raw materials which foreign manufactur-
ers purchase, provide a competitive advantage with regard to raw materials that is
in effect a subsidy. We referred in our testimony to the situation with regard to
hides and skins where the United States is probably the only open world market, in
that we permit unrestricted exports of hides and skins while some of our major
leather product competitors prohibit the export of this basic raw material. Such
export restrictions should be included as countervailable under the statute.
(6) Closing another loophole.-Another countervailable measure should be made
clear in the legislation where a foreign government eliminates its subsidies on
exports to the U.S., but increases its subsidies on exports to other countries. Where
the effect is that unit prices on exports to the United States and to other countries
are not changed, thus giving the foreign producers the advantage of the increased
subsidy on exports to other countries, this should be a countervailable action under
U.S. law. We refer to this in detail in Mr. Edwards' statement.
Mr. JENKINS. I want to talk about two or three other matters and
ask you a couple of questions. With regard to the filing fee, it is my
understanding that that fee under the present proposal could be
waived. Is that correct?
Mr. NEHMER. If I may comment on this, yes, it is, I think in the
House in your subcommittee's version of it, but let's assume the
Treasury Department continues as the administering agency. As
you heard this morning, there was no great love for administering
the statute which they are responsible for administering. We see
no reason to expect that the fee will be waived, aside from the very
serious principle, Mr. Jenkins, of any American citizen or group or
company having to file a fee in order to get a redress under a
particular statute. The precedent is fantastic and for an industry
such as this one it definitely is an inhibiting factor.
Mr. JENKINS. What is your position as far as the Treasury De-
partment being the agency to administer the law? I notice that you
suggest STR, Commerce, anybody--
Mr. EDWARDS. Not Foggy Bottom.
Mr. JENKINS. Do you support the creation of a separate depart-
ment to administer this?
Mr. COOPER. Yes.
Mr. JENKINS. Would you object to a provision in the implement-
ing legislation that would permit price assurances to remove the
subsidy practice, or alternatively to cease exporting the product in
question to this country?
Mr. Nehmer, you may wish to respond.
Mr. COOPER. I just didn't hear.
Mr. JENKINS. Would you object to a provision in the implement-
ing legislation which would permit assurances to remove the subsi-
dy practice or cease exporting the product in question to this
country?
Mr. COOPER. No, we would not be against it. If we had that
assurance, we certainly would not be against it.
Mr. NEHMER. I should say, obviously, if the foreign government
eliminates the subsidy practice, there is no basis for a countervail-
ing duty. The problem that we have had, and it happens to be in
this particular area of leather and shoes, Argentina gave assur-
PAGENO="0328"
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ances to the Treasury Department that it would eliminate-and it
did eliminate-its subsidy on leather footwear exports to the
United States. Then they changed regimes down there and the new
regime didn't tell the Treasury Department that it was reinstitut-
ing this. It took some months before Treasury found out about it
and then it actually took them 11 months beyond the 12 months in
the statute to come out with the final countervailing duty determi-
nation on Argentina footwear.
Mr. JENKINS. Would you say that the countervailing duty statute
has not really benefited the industry very much because of the
poor administration of it?
Mr. NEHMER. We have not even mentioned to you the way in
which Treasury has held down the fixing of the countervailing
duty by the use of various offsets. The legislation you have before
you has a very important provisions on offsets, and that has been
one where the Treasury has in very wide context been able to
reduce the actual countervailing duty by deducting various items
which we detail in the statement which has previously been told to
this committee.
Mr. JENKINS. Is the industry as a whole opposed to the Senate
version of the extension of the 5 years to reduce tariffs?
Mr. NEHMER. Absolutely.
Mr. COOPER. Absolutely.
Mr. JENKINS. Mr. Moore.
Mr. MOORE. Thank you, Mr. Chairman.
Gentlemen, I appreciate your testimony and I think your testi-
mony helps all of us realize that the whole secret to any situation
after the MTN passes and becomes law is going to be a far better
enforcement of whatever laws we have left on the books to protect
industry than we have had in the past. I agree with you completely
on the comments you have made, and I assure you that there will
be many of us in Congress who are intending to support the MTN
who will likewise see we get much better enforcement than we
have in the past.
We have had a very dismal record and I have been* trying to get
the attention of the Treasury Department on business and farmers
in my part of the country, so I understand what you are saying. All
we can say is that the whole secret to the MTN is going to have to
be a far better enforcement of the law as we have that we have on
the books now because it has been very poor indeed.
Mr. Chairman, earlier I asked that the record be held open so
one witness, Mr. Vernon, would be able to submit suggestions for
his industry. I would like to have the record held open for all the
witnesses who testified from the distillers industry group in that
regard.
Mr. VANIK. For how many days should we hold the record open?
Is until the middle of next week enough time? I want to get the
record intact, so we can move on.
We will hold the record open until the middle of next week for
that purpose.
If my good friend Mr. Jenkins would yield-he has been very
courteously handling this matter in the interval that I have been
gone-you know my own personal views on this department idea.
You are going to end up with the same people no matter where you
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321
are. There is no way we can get around the people that are in line
for these positions. You put them on the Moon and they would be
there or any other place. There is no way under our system that
we can avoid that.
I have got the same concerns as you have about how improperly
this function has been administered, and I have just not concluded
myself that the department procedure-after we created the De-
partment of Energy, I don't think there will be another department
created, at least my people who have the memories of our past
experience. So I think the House and the Senate would be very
reluctant about that approach, but we can move functions. I would
like to have you more thoroughly, if you can, outline procedures
and some areas and methods by which these functions can be
moved, because under a new direction they may perform more
responsibly.
Mr. NEHMER. Could we submit something because we do have
some real thoughts on this.
Mr. VANIK. I know you have a good contribution to make, and
we certainly would like to have it.
Mr. JENKINS. As I understand this position, anything would be
better than what the past experience has been.
Mr. VANIK. I just don't believe that-it can be worse.
Mr. JENKINS. Well, I don't know.
Mr. EDWARDS. It cannot be any worse than the yo-yo treatment.
Mr. JENKINS. That has almost been destroyed.
Mr. VANIK. Don't put it beyond the capacity of the Government
at any time to make things worse. [Laughter.]
The hearing will be recessed until 1:30 p.m., at which time we
are going to hear from the members of the steel caucus and pro-
ceed on with the rest of the witnesses.
Mr. EDWARDS. Thank you.
Mr. COOPER. Thank you very much.
[Whereupon, at 12:25 p.m., the subcommittee recessed, to recon-
vene at 1:30 p.m.]
AFTERNOON SESSION
Mr. VANIK. The subcommittee will be in order.
We have with us this afternoon our colleagues, the distinguished
members of the Congressional Steel Caucus. I have called to see if I
could get the full membership of this subcommittee here so that
they can hear your testimony.
I want to point out that earlier this morning we heard the
testimony of the Steel Institute, and, of course, there are some
groups, the specialty steel people and some others, who were not
heard.
I want to point out that I attribute to the Steel Caucus the
tremendous accomplishments that were made on the trigger price
mechanism. I will say to you gentlemen that if anyone should ever
question you about what you have done in the U.S. Congress,
among other things you can with pleasure respond that it was
through your efforts and through the strong protestations that you
made at the time our imbalance on steel was so severe that TPM
was instituted. It was only your solidarity and your unanimity and
your prestige as a very important element of the U.S. Congress
PAGENO="0330"
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that resulted in the trigger price mechanism, which does seem to
be working.
There are some problems with it, but our testimony this morning
indicates that the machinery seems to be working and is producing
salutary results. We are going to try to improve it, but I wanted
first of all to tell you as members of the Steel Caucus that you
have made in my judgment one of the noteworthy achievements by
changing the basic law of commerce in this country relating to this
specific industry, and that procedure will probably develop as a
permanent part of our structure.
We will be pleased to hear our first witness, Mr. Joseph Gaydos,
chairman of the Steel Caucus.
STATEMENT OF HON. JOSEPH M. GAYDOS, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF PENNSYLVANIA, AND
CHAIRMAN, CONGRESSIONAL STEEL CAUCUS
Mr. GAYDOS. Mr. Chairman, in all fairness on behalf of the Steel
Caucus I wish to publicly state together with my fellow officers
who are in attendance here today that we will forever be grateful
to the chairman of this committee, for his support in appearing
with the caucus in the several conferences held at the White House
during the steel crisis in late 1977.
Also he lent his prestige and knowledge in this field to the
caucus when we need him most. I thank the chairman for his very
kind remarks.
Mr. Chairman, we welcome the opportunity to present testimony
before this subcommittee on the Multilateral Trade Pact and its
implementing legislation. I wish to point out that John Buchanan,
vice chairman, will appear later. Adam Benjamin, executive com-
mittee chairman, is detained but will submit a statement. Mr.
Ralph Regula, executive committee vice chairman, will be here as
scheduled. Of course, we have Mr. Murtha, on my right, a member
of the executive committee, and Barbara Mikuiski, secretary-trea-
surer.
Mr. VANIK. Do you all join in this statement?
Ms. MIKULSKI. You know me; I have my own.
Mr. VANIK. I want to point out that the entire statement will be
entered into the record as submitted. You may excerpt or read
from it.
Mr. GAYDOS. With your permission, Mr. Murtha will present half
of the statement.
The current membership of the Steel Caucus is approximately
170 members. The other officers of the caucus appearing with us
today are those whom I have mentioned.
The Steel Caucus was created in 1977 in response to growing
concern over excessive steel imports and their impact on the do-
mestic steel industry.
The purpose of the caucus is to identify the nature and causes of
the problems affecting the American steel industry and promote
the well-being of the industry and preserve the jobs of its workers.
During the last 25 years there has been a significant shift in the
relative share of production among the world's leading industrial
nations. By 1976 both Japan and the European Economic Commu-
nity-EEC-were equal to or larger than the United States in total
PAGENO="0331"
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output. International steel trade has played an important role in
this shift. Both Japan and Europe have used steel exports to in-
crease their rate of growth. The steel exports which have stimulat-
ed growth in Japan and Europe are, by and large, the same im-
ports which have constrained growth here. Japan and the EEC
have accounted for three-fourths of all steel imports into the
United States. The U.S. economy has become increasingly depend-
ent on foreign steel suppliers and has become the only large indus-
trial nation which lacks the capacity to produce 100 percent of its
domestic requirements.
The need for closer attention to these developments is borne out
by the events of the 1973-74 period, when, for the first time in
history other than during the war, the domestic industry was
unable to supply the Nation's total steel requirements. As a result,
U.S. customers were forced to pay premiums of $60 per ton or more
for imported steel. But even at these high prices, foreign steel
producers gave the U.S. market a lesser priority than their other
markets throughout the world. In the final quarter of 1976 foreign
producers increased their share of the U.S. market to levels ap-
proaching 20 percent. The United States continues to experience
import penetration, which implies increased reliance on other
sources which proved unreliable in 1973-74.
Japan's Government planners, banks and steel companies have
developed a three-part strategy for building a large and interna-
tionally competitive steel industry. First, the industry has been
encouraged to rapidly increase its production volume. Second, the
steel industry has been provided with enormous capital inputs.
Third, Government and business leaders have cooperated closely to
protect the industry's financial position.
With regard to the European nations, although each nation is
different, roughly the same elements, of the Japanese strategy can
be found in the EEC. Excess capacity in Europe, as in Japan,
creates great pressure to expand exports~
In the United States the opportunities and incentives for Japa-
nese and European steel producers have not been available to
American steel companies. Therefore, U.S. producers have not em-
barked on export programs comparable to those of Japan and the
EEC. But lower production costs by themselves have never been
sufficient to account for the success of foreign producers in the U.S.
market. Instead, artifical exchange rates, tax rebates and below-
cost prices have provided foreign producers with a margin of ad-
vantage they would not be able to derive from production cost
advantages alone.
The Congressional Steel Caucus fully recognizes that the recently
initialed Multilateral Trade Pact is the result of 5 years of difficult
negotiations. Considering the divergent economic interests and sys-
tems represented by the 99 participating nations, the fact that a
comprehensive agreement was reached at all is, in itself, an
achievement. Furthermore, the caucus understands that all inter-
national negotiations contain an inherent bargaining process of
reciprocal give-and-take. No single participating nation could hon-
estly be expected to achieve all of its negotiating objectives.
Against this perception of the realities of the negotiating process,
the Steel Caucus shall examine the multilateral trade pact.
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Although the U.S. Congress will not directly ratify the multilater-
al trade pact, it will be required to pass judgment on the imple-
menting legislation which is necessary to bring our trade laws into
conformity with the trade pact. However, this legislative task is
impossible to undertake without a careful, close and patient study
of the text of the agreement.
Two general questions must be answered. First, is this agreement
the best possible agreement? Second, is compliance with this agree-
ment in the best economic interests of the United States? In an-
swering these questions, two aspects of the trade pact particularly
interest the Steel Caucus: tariff cuts already negotiated and non-
tariff codes.
The countries which have been successful in dumping steel prod-
ucts in the United States without triggering an antidumping inves-
tigation under the TPM and while effectively insulating their home
markets, have demonstrated in the trade negotiations their unwill-
ingness to reduce their steel tariffs to the same level that the
United States has offered. It is difficult to understand why the
United States has reduced its steel tariffs to a lower level than
those of its trading partners, particularly in light of the extreme
difficulty the U.S. steel industry has had with dumping in its
domestic market and the difficulty in gaining relief under the
TPM. U.S. reduction in steel tariffs should not have been greater
than that of its trading partners, and average steel tariffs of the
United States should not be lower than those of the EEC, Japan
and Canada.
Therefore, in implementing the nontariff codes, the Steel Caucus
does not wish to weaken current U.S. Statutes aimed at remedying
unfair trade practices. While wholesale dumping, various forms of
Government subsidization and other unfair trade practices will
never be completely eliminated, we should not in any way impede
the ability of our present domestic laws in offsetting the effects of
unfair trade practices. We shall examine very closely the text of
the nontariff codes to determine how they state standards of con-
duct to govern international trading practices and remove the non-
tariff barriers to fair trade. -
United States compliance with the multilateral trade pact will
require certain changes in our domestic laws. The areas of concern
to the Steel Caucus are the statutes governing unfair trade prac-
tices and Government procurement.
First, the Antidumping Act must not be weakened either in its
substantive requirements or its enforcement mechanism. The fol-
lowing suggestions should be incorporated into any proposed
changes amending the Antidumping Act:
One, the statute should retain the requirement that the dumped
imports be a cause of injury to a domestic industry. There is no
justification-and I repeat: no justification-for applying a more
rigorous burden of proof upon domestic complainants, such as a
substantial cause test.
Two, if the term "injury" has to be statutorily defined or quali-
fied, it should be qualified as meaning anything more than immate-
rial or inconsequential. This meaning of the term is presently used
by the international Trade Commission in administering the Anti-
dumping Act.
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Three, the amount of the antidumping duty imposed should fully
offset the dumping margin. Furthermore, the availability of this
remedy should not be removed by any settlement devices which
assess a duty in an amount that is less than the amount of the
dumping margin. The caucus strongly opposes the use of any sub-
jective determination of a lesser amount as a remedy since such a
settlement technique would not effectively offset the unfair advan-
tage from dumping or discourage future dumping.
Four, a preliminary determination on an antidumping complaint
should be made no later than 120 days from the filing of the
complaint.
Five, since most other countries require cash deposits after a
preliminary determination of dumping, the United States also
should, as a deterrent, require provisional duties in the form of
cash deposits equal to the margin of dumping.
Six, some provision should be made to expedite the assessment
and collection of duties under this statute. It is ridiculous that
after a finding of dumping has been concluded by the Treasury
Department, it takes a total of roughly 3½ years to assess and
collect duties.
Mr. VANIK. On that point I want to point out that it was the
subcommittee's decision to requiru final liquidation no later than
18 months after entry. We tried to address ourselves to that prob-
lem.
Mr. GAYDOS. That is moving in the right direction, Mr. Chair-
man. The chairman and the committee should be complimented.
Mr. VANIK. Under the countervailing duties statute, we provide
95 days, which is an improvement in that section.
* Mr. GAYDOS. Yes, decidedly, Mr. Chairman. I am very glad the
committee has those positions and elements under consideration.
At this time, Mr. Chairman, with the Chair's permission, my
colleague John Murtha, from Pennsylvania, a very active member
of the caucus, will now discuss the countervailing duty statute, the
safeguard code and the procurement code.
STATEMENT OF HON. JOHN P. MURTHA, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF PENNSYLVANIA, AND
MEMBER, EXECUTIVE COMMITTEE, CONGRESSIONAL STEEL
CAUCUS
Mr. MURTHA. Mr. Chairman, let me say again what Chairman
Gaydos says about how much we appreciate your input, and cer-
tainly much of the success of the Steel Caucus goes to your very
strong support in a very difficult situation. We very much under-
stand and appreciate the tremendous input you had to our success.
We feel that it has been a phenomenal success in dealing with
the Government. The last 3 months were perfect examples of how,
under proper attitudes, the imports have been restricted substan-
tially.
Mr. VANIK. You can speak on that subject without limitation of
time.
Mr. LEDERER. Mr. Chairman, I hope his comments will be spread
on the record.
Mr. MURTHA. The gentleman from Ohio, Mr. Regula, also asked
to join us in this statement.
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The second area of interest to the caucus is the countervailing
duty statute. The implementing legislation should be designed to
strengthen this law. The following recommendations should be in-
cluded in the proposed legislation.
One, the amount of the countervailing duty should be imposed in
the full amount of the subsidy to completely offset the unfair
advantage of the net subsidy. Current law does not provide for a
remedy to be imposed in an amount less than the full subsidy.
Two, procedures for settling a case in an amount less than the
full amount should be prohibited. The caucus strongly opposes the
use of any subjective determination of a lesser amount as a remedy
since such a settlement technique would not effectively offset the
unfair advantage of the subsidy or discourage future subsidization
for trade advantage reasons.
Three, the statute should provide a definition of "bounty or
grant" that incorporates the illustrative list of subsidies contained
in the trade pact's subsidy code and that also, provides an analyt-
ical device for identifying new forms of subsidization.
Four, the legislation should not provide for a stricter burden of
proof for complainants, as for example, by a substantial cause of
injury test. The standard should simply be that the subsidized
imports are a cause of injury.
Five, if the trade pact requires the United States to provide for
an injury test in its Countervailing Duty Statute, then this term
should be defined as meaning anything more than immaterial or
inconsequential. The legislation should expressly state that even a
minor impact from imports will be considered enough to require
the levying of a countervailing duty if the affected industry is in
economic difficulty at that time.
Six, the injury test in the proposed legislation should be applied
to imported goods from signatory countries. If the imported goods
come from a country that did not sign the subsidy code, then no
injury test should be applicable. To levy a countervailing duty on
imported goods from such a country, one need only establish the
existence of a "bounty or grant" as under current law.
Seven, the time limit for reaching a preliminary determination
in a countervailing duty proceeding should be 75 days from the
date of filing the complaint.
Eight, the legislation should require provisional duties in the
form of cash deposits equal to the amount of the subsidy to be
made after an affirmative preliminary determination.
Nine, the legislation should expressly and clearly require the
U.S. Government to seek and disseminate information on subsidiza-
tion practices by foreign governments.
Ten, if the Government obtains information that foreign sUbsi-
dies exist, it should be required by legislation to initiate an investi-
gation.
Eleven, the legislation should provide that unions will have the
right to file complaints and that a notice to initiate an investiga-
tion will be sent to any union having an interest in the investiga-
tion.
Twelve, various determinations under the countervailing duty
and antidumping statutes should be subject to judicial review. The
caucus recommends that the implementing legislation expand the
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determinations subject to judicial review beyond the provisions of
existing law by using the judicial review section of H.R. 3442, the
Fair Trade Enforcement Act of 1979.
Mr. VANIK. On that point you will be pleased to know that we
have expanded judicial review to include the requirements that you
have suggested. We did that as a result of your earlier position. So
we have really to that extent acceded to your recommendations.
Mr. MURTHA. We appreciate that, Mr. Chairman.
Mr. VANIK. They may not be in exactly the same format in
which you recommended them but substantially, I think, you will
find that we are on the same wavelength.
Mr. MURTHA. We appreciate it. We know that the caucus is
always on the same wave length-almost always-as the chairman
and the members of this very distinguished subcommittee.
The caucus third area of concern is any required changes in
domestic legislation due to the safeguard code. At this point in
time the safeguard code remains incomplete. The caucus is con-
cerned that the code may necessitate a change in the causality test
contained in section 201 of the Trade Act of 1974, the United States
safeguard statute. The United States should retain the current
statutory causality test rather than adopting the much stricter
"principal cause of injury" test.
Our fourth concern is any proposed changes in Federal procure-
ment laws. The U.S. signing of the procurement code will require
the elimination of certain buy American laws. These changes in
our laws and Federal procurement practices should be undertaken
with utmost care to assure that other signatories to this code are
abiding by that code's provisions in operating fair, open and ra-
tional bidding systems. Furthermore, the caucus recommends that
some additional negotiations should be undertaken to gain greater
access to Japan's procurement market.
In conclusion, it is the sincere hope of the Steel Caucus that all
concerned parties can work together to enact legislation to better
protect American industry from the unfair trade practices that
have seriously affected our domestic industries over the past sever-
al years.
We appreciate very much this committee's tremendous coopera-
tion in the past and we owe the majority of our success to the work
done by this subcommittee. We appreciate it very much.
Mr. VANIK. On Nos. 1 and 2 of the items you raised, I want to
point out that we did ask Ambassador Strauss to provide some
relief on the price assurance item, which was the substance of your
request.
I am very glad to have your testimony, Mr. Murtha. We appreci-
ate the testimony submitted by you and Mr. Gaydos. Ms. Mikulski.
Mr. GAYDOS. May I claim that pleasure. As the chairman of the
Steel Caucus it is my distinct pleasure to introduce to the commit-
tee formally for presentation our well-thought-of, hardworking sec-
retary-treasurer.
Mr. VANIK. Unpaid.
Mr. GAYDOS. Pardon?
Mr. VANIK. Unpaid.
Mr. GAYDOS. That is right.
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Mr. VANIK. Maybe she will get a free parking space when all the
rest of us are paying for ours.
Mr. GAYDOS. Barbara, it is a pleasure to have you with us. You
may proceed.
STATEMENT OF HON. BARBARA A. MIKULSKI, A REPRESENTA-
TIVE IN CONGRESS FROM THE STATE OF MARYLAND, AND
SECRETARY-TREASURER, CONGRESSIONAL STEEL CAUCUS
Ms. MIKULSKI. Mr. Chairman, I am very pleased to appear before
this subcommittee and add a few additional remarks, not so much
additional but to reinforce what Chairman Gaydos and Mr. Murtha
and Mr. Regula indicated.
I want to really very strongly and clearly associate my remarks
with the Steel Caucus because the issues that they outline are
mine as well. I did want to add a few personal comments.
One, this legislation is of absolute critical importance to this
country. Yet at the same time I think we find ourselves in a
paradox where many of us understand what the United States was
after World War II as we helped build a free world where we were
both the bank and the cop for the free world and yet as we have
seen the 30 years of time passing we now see almost a steady
decline of U.S. power, both internationally and certainly domesti-
cally, because of certain economic considerations.
It is therefore very critical that we have in place legislation that
defines for the entire world the rules of the game under which we
can operate freely and fairly. I think it has been splendid that Bob
Strauss has played such an important role in bringing this Trade
Agreement to fruition.
I understand for a long time that they were busy learning how to
speak French rather than learning global economics. I must em-
phasize the fact that we do need certain key things in this legisla-
tion to guarantee fair trade for the American people and the world.
We must have a definition of injury that will allow American
companies that are being hurt by unfair import to receive prompt
and appropriate relief as you have indicated.
We must have antidumping legislation that is truly effective. We
must be able to safeguard ourselves against the kind of action we
saw yesterday where fines in absolutely undeniable cases of dump-
ing of Japanese TV sets have been reduced by 75 percent.
As long as the Treasury Department is willing to send a signal
that we are willing to let people get off, then in effect our legislative
initiatives will turn into folly.
Quite frankly once the Congress has spoken, I resent very deeply
when an administration through techniques makes a mockery of
what we consider the legislative policy intent to be. I am not
suggesting that the country should erect high walls to keep out
foreign products. No one who represents a port, no one with a
name that represents an ethnic community could responsively take
such a position.
Mr. VANIK. With respect to the duties that you talked about,
they have not been reduced as yet by Treasury. They are under
administrative review. I have been very, very tough on them on
this issue, They may very well do that, but they are going to do
that over my objection.
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Ms. MIKuLsKI. You see, Mr. Chairman, that is my point. You are
a man of experience, stature, and ability. You represent not only a
geographic constituency but by your colleagues having you on the
Ways and Means we have also delegated certain responsibilities to
you.
You speak for the American people. I am not sure who the
Treasury Department speaks for. It pains me to think that some
GS-16, whose name we don't even know, is making trade decisions
through a back door policy technique when people such as yourself
and other Members of the Congress speak. That perhaps is one of
the biggest problems I find in the enforcement of this legislation. I
thank you for the vigor with which you have pursued it. If you
need a small voice from Baltimore to help you amplify your posi-
tion I will be happy to join you.
Just to conclude my remarks I want to emphasize again--
Mr. VANIK. Could you please get your cops off my back? When I
drive down the road I have never seen so many highway patrolmen
in my life as I see in the State of Maryland. I drive about 35 miles
an hour because I am afraid they may not have their equipment
calibrated properly. I have not paid any recent dues. I think it is
good though.
Ms. MIKuLsKI. Mr. Chairman, even though we have had a former
vice president who associates himself with Kuwait and other OPEC
countries, our current government elected to enforce the 55-mile-
an-hour limit and make sure we don't buy all that oil. I wish I
could tell you we fix speeding tickets in Maryland but we have
cleaned up our act and I can no longer help you. [Laughter.]
I hope the chairman will be kind when he edits the record.
Mr. Chairman, as much as I enjoy this exchange with you I
would like to conclude my remarks, knowing the scholar that you
are, by giving you a quote from Thomas Jefferson which I think
would be kind of a set of guiding principles on what trade law
should be.
In 1793 Jefferson said he wished every country to be employed in
producing that which nature had best fitted it to produce and each
to be free to exchange with others. The greatest mass possible
would then be produced of those things which contribute to human
life and human happiness. He went on to say:
Should any nation, contrary to our wishes, supposedly better find it to their
advantage to continue a system of prohibition, duties, regulations, it would behoove
us to protect our citizens by counterprohibitions, duties, and regulations. Free
commerce and navigation are not for the giving in exchange for restrictions and
vexations.
I wish we would tell that to the Treasury that if a nation
imposes high duties or prohibits our products altogether, it may be
proper for us to do the same by theirs.
Mr. Chairman, I think that words of Thomas Jefferson would
serve us and our administration well.
Thank you for listening to me.
[The prepared statement follows:]
~`4-998 - 79 - 22
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STATEMENT OF HON. BARBARA A. MIKuLsKI, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MARYLAND
Mr. Chairman, I am pleased to appear before this subcommittee today along with
my fellow officers of the congressional Steel Caucus. Mr. Gaydos' testimony clearly
defines our specific concerns. I should like to add a few personal remarks.
I'm sure the committee realizes the very deep interest which we and our constitu-
ents have in this legislation. It is not too much to say that your decisions could
literally mean life and death for many of our communities. The jobs of hundreds of
thousands of American workers, and the viability of an essential American indus-
try, will be determined by the specific provisions of the MTN and its implementing
legislation.
The completion of these agreements in Geneva represents a truly monumental
accomplishment. I want to take this opportunity to place in the record my personal
appreciation for Ambassador Bob Strauss and his staff who have worked so hard to
bring these discussions to a successful close.
Now that the negotiations abroad have been completed, the work begins at home.
It is up to the Congress of the United States to make sure that the legislation
implementing these agreements, and all the other aspects of legislation pertaining
to international trade, will be fair to the American people. We must have a defini-
tion of injury that will allow American companies which are being hurt by unfair
imports to receive prompt and appropriate relief. We must have antidumping legis-
lation that is truly effective; and we must be able to safeguard against the kind of
action we saw yesterday, where fines in an absolutely undeniable case of dumping
Japanese color television sets has suddenly been reduced by 75 percent; from $46
million to $12 million dollars.
My constituents include Bethlehem Steel executives, a lot of steelworkers not only
at Bethlehem but at smaller stainless steel plants, and the businesspeople who
supply them and their families. They know the economics of foreign steel produc-
tion, and they are genuinely, rightfully concerned about the future of their jobs.
After all, imports of foreign steel to this country have increased 10 times in the past
20 years. Foreign steel producers actually sell more steel to American industries
than do domestic manufacturers: and now the so-called lesser developing nations
are joining in the race by directly building and indirectly subsidizing their own steel
producing facilities.
We are not suggesting that this country should erect high walls to keep out all
foreign products. No one who represents the port of Baltimore-no one with a name
like "Mikulski" who represents a proudly multiethnic community-could responsi-
bly take such a position. We agree that trade with other nations should be encour-
aged and that it is ultimately in the best interests of this country. But free trade
must be fair trade. We can't allow other countries to export their unemployment to
the United States, and we can't continue to ignore the enforcement of antidumping
laws.
These concerns are not new ones-either to the President or to the Congress. In
1973, Thomas Jefferson reported to the Congress on "commerce with foreign na-
tions." He said:
* * * could every country be employed in producing that which nature has best
fitted it to produce, and each be free to exchange with others * * * the greatest
mass possible would then be produced of those things which contribute to human
life and human happiness * * *
"But should any nation, contrary to our wishes, suppose it may better find its
advantage by continuing its system of prohibitions, duties and regulations, it be-
hooves us to protect our citizens * * * by counterprohibitions, duties and regula-
tions also. Free commerce and navigation are not to be given in exchange for
restrictions and vexations; nor are they likely to produce a relaxation of them * *
"Where a nation imposes high duties on our productions, or prohibits them
altogether, it may be proper for us to do the same by theirs * * *
Mr. Chairman, I do not think we can do much better today, than to measure our
international trade policies according to these words.
Mr. VANIK. Thank you very much for your very fine statement.
The quote that you have is something that I think is a good
instruction for all of us in our work.
Mr. Gaydos.
Mr. GAYDOS. Mr. Chairman, again on behalf of the Steel Caucus
it is my personal pleasure to introduce to the committee our col-
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league the vice chairman of the Steel Caucus, the very active John
H. Buchanan, Jr.
STATEMENT OF HON. JOHN H. BUCHANAN, JR., A REPRESENTA-
TIVE IN CONGRESS FROM THE STATE OF ALABAMA, AND
VICE CHAIRMAN, CONGRESSIONAL STEEL CAUCUS
Mr. BUCHANAN. Thank you Mr. Chairman, it is a pleasure to
appear before your subcommittee and to thank you for your leader-
ship in this vitally important area of international trade.
Mr. Chairman, your personal leadership is a very reassuring
thing. as we are faced with a difficult decision pertaining to the
MTN and the legislation necessary to implement this agreement.
I must say that this is the first time that it has been my privi-
lege to testify before your committee since the loss of our colleague,
Bill Steiger. It is with a certain sense of sadness that I note we lack
his presence and his wisdom as we face these decisions.
Mr. Chairman, I want to thank you for what I know your com-
mittee will do toward reaching good decisions on these difficult
matters. It is my earnest hope that it is possible to come up with
implementing legislation that will make the Tokyo round of trade
negotiations work for the benefit of American business and Ameri-
can workers.
Mr. Chairman, from World War II forward we have simply not
enjoyed fair and honest reciprocity in our trade arrangements with
our trading partners. I need not recount the whole history of how
after World War II we engaged in policies of aiding those countries
that had been our enemies as well as our friends to get back on
their feet, to rebuild, better located, more modern plants while our
own industries, especially the steel industry so vital to our econo-
my, had to operate at full capacity without opportunity for modern-
ization.
We entered, in the same period, into trade arrangements that
were on purpose less than reciprocal. We had all the chips and we
decided we wanted to pass the chips around so all could play the
game.
The problem has been that our trading partners have come into
the bad habit of assuming that less than full reciprocity is the
right arrangement, that less than even-steven fair trade between
the United States and our trading partners is the way it has to
remain.
Whatever happens with the winding up of the trade negotiations
and however well we can succeed with implementing legislation,
even if we have made significant successes in negotiations, even if
we do well with your leadership with implementing legislation, we
cannot improve the situation for American business and American
workers unless our Government is willing to enforce the law,
unless the Government is willing to get out of its adversary posture
and into a position in which it actually takes the action the law
requires or permits in defense of an industry when threatened by
unfair foreign imports.
Mr. Chairman, the administration has signed and submitted to
the Congress a series of agreements which are heralded as a "trade
liberalization package." As a longtime member of the House For-
eign Affairs Committee, I am fully cognizant of the multitude of
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political and economic benefits which the conclusion of these agree-
ments holds for the United States. Our own economy, and the
economies of our major trading partners are increasingly interde-
pendent. Today, imports and exports accout for roughly 16 percent
of the GNP of the United States, 43 percent of the GNP of Ger-
many, and 22 percent of the Japanese GNP. The mutual benefits of
increased cooperation in world trade are obvious and compelling.
And yet, I approach these agreements with grave reservations
and deep apprehensions. The past few years have seen the United
States become the target of below-cost foreign imports of a myriad
of products including steel, electronics, leather goods, and~, many
others. The United States has literally become the dumping ground
for the unemployment of our trading partners. The impact of these
foreign imports has been devastating to many vital American in-
dustries, their workers and their workers families.
This situation has reached critical proportions through the unfor-
tunate reticence of our Government to enforce the trade laws
which the Congress has passed to protect this country from the
deleterious effects of price discrimination in foreign commerce.
The Fair Trade Enforcement Act of 1979, which I have cospon-
sored and fully support, requires the Secretary of the Treasury to
initiate an antidumping investigation whenever he receives infor-
mation from any source, including personnel from other agencies
of the U.S. Government, that imports are being sold at less than
fair value. I urge the committee to incorporate this provision into
U.S. law.
Once an industry has succeeded in forcing the Treasury Depart-
ment to initiate such a case, it may take 12 to 15 months for a final
determination to be made. Current law provides that the U.S.
Treasury may take up to 6 months-9 months in complex cases-to
reach~ a tentative decision and up to an additional 3 months to
make a final determination of sales at less than fair value.
If Treasury's final determination is in the affirmative, the case is
sent to the International Trade Commission which has another 3
months to decide whether less than fair value sales are causing
injury to the domestic industry.
The Department of Treasury and the International Trade Com-
mission have indicated that a reduction of these time limits is not
feasible. Yet, there are compelling reasons for expediting a final
resolution of an antidumping proceeding. A great deal of uncertain-
ty is generated in the marketplace by a pending antidumping case.
The Fair Trade Enforcement Act of 1979 includes a provision to
require the International Trade Commission to issue its injury
determination within 4 months of a tentative finding of sales at
less than fair value by Treasury. This provision would permit a
reduction of 2 months from the total allowable time for a final
injury determination without shortening the time given each
agency for its investigation. This provision will help minimize un-
certainty in the marketplace for U.S. producers, purchasers, and
importers of a product under investigation.
Once the tentative determination of sales at less than fair value
has been made, the Secretary orders the withholding of appraise-
ment on imports of merchandise in question. That is, the actual
calculation of duties on imports is suspended and all shipments on
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333
which appraisement is withheld are subject to special dumping
duties. Although the Antidumping Act authorizes the Secretary to
retroactively withhold appraisement up to a period not exceeding
120 days prior to formal investigation, the Department has refused
to exercise this authority. This practice on the part of Treasury
should be discouraged.
Even after an American industry has charted the tortuous
course through a lengthy, expensive antidumping proceeding suc-
cessfully, there is no guarantee that the required duties will be
systematically applied to the foreign product in question. The
chairman and other members of the subcommittee are aware of the
incredible situation with regard to the failure of the U.S. Customs
Service to collect literally millions of dollars on imported Japanese
television sets. Perhaps you are unaware, however, of similar cases
involving other industries which illustrate the same problem.
In 1973, the specialty steel industry brought antidumping cases
against France and Sweden alleging in the case of the former that
certain French companies were dumping stainless steel wire rod in
the United States. In the case of Sweden, the same allegations were
made with respect to stainless steel plate. Both of these cases
proceeded under the Antidumping Act and final dumping duties
were issued with respect to these products. Through a freedom of
information request filed by the specialty steel industry, it has
been learned that not a single cent in antidumping duties has even
been assessed against imported stainless steel rod from France
since 1973-even though Treasury found dumping margins in
excess of 6 percent.
In the case of stainless steel plate from Sweden, the Department
is able to show that only $219,677 has been assessed during this 5-
year period. Treasury is unable, however, to provide any informa-
tion as to how much of that sum, if any, has ever been collected.
Mr. Chairman, my point is this. Our trade laws have simply been
ignored by the very agencies charged by the Congress with their
enforcement. Now, the administration is asking us to approve new
trade agreements which further open our borders to foreign compe-
tition. As a Republican, I have no problem with the concept of
increased competition for American industry. I have every confi-
dence that the American worker can compete successfully in the
foreign marketplace-as long as the competition is fair.
In order to gain my support for these agreements, I must have
firm assurances from the administration that the past negligence
of the Federal bureaucracy in enforcing the trade laws will cease. I
am asking you, Mr. Chairman, and the other members of the
subcommittee to send a message to this administration which
cannot be misunderstood or misinterpreted-our trade laws must
be vigorously and systematically enforced.
After World War II, the United States set out to rebuild the
industrial base of Japan and much of western Europe. Given the
international political and economic conditions of the time, this
was good public policy. Part of this policy was the signing of trade
and economic agreements with these nations which were less than
fully reciprocal. In my estimation, we fell into a habit of less' than
fully reciprocal agreements which continues today in the MTN
pact.
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Our trading partners have made every use of this very beneficial
relationship, and have taken it a few steps further. The Japanese
and Europeans have erected tariff and nontariff barriers and have
facilitated the growth of their own exports to the point of outright
subsidy.
In contrast to our competitors, the U.S. Government has placed
itself hostile in a posture toward business in general. In addition,
the American marketplace has been so large that American Gov-
ernment and business saw little need to expand exports. As I noted
earlier, this is no longer the case. We live in an interdependent
world economy and we must export if we are to survive economi-
cally.
I believe we must have a coordinated effort on the part of all
levels and branches of the Federal Government to assist business
generally and to encourage exports specifically so that we can take
advantage of the opportunities within the multilateral trade pact.
Without a policy of increased exports and rigorous enforcement
of our trade laws, this trade agreement will provide further disrup-
tion and possible disintegration of many vital American industries.
I am very hopeful that this subcommittee will do everything in its
power to see to it that such policies are instituted.
For example, the Department of the Treasury has shown a con-
sistent, deep-seated, reluctance to enforce the Antidumping Act of
1921. This is most clearly illustrated by examining Treasury's
record of instituting antidumping cases. Present law confers on the
Secretary of the Treasury the authority to institute an antidump-
ing investigation upon receipt of information indicating sales at
less than fair value, without waiting for a formal filing by a domes-
tic industry.
Despite this provision in the law, Treasury has seen fit never to
use this authority-save in the most recent, limited instances of
fast-track antidumping cases under the trigger price mechanism.
Mr. VANIK. Thank you very much for your fine statement.
Before we proceed to questions I want to send over to your Steel
Caucus secretary for your file a copy of a letter which Mr. Vander
Jagt and I addressed to Ambassador Strauss on April 11 relating to
the loophole that we thought existed in the assurances that would
be required. In other words, specifically it is our view that the
foreign price assurance should be adequate to eliminate the full
margin of dumping or the full amount of the net subsidy, not
merely the indeterminate amount of injury deemed to be taking
place.
We are addressing this need with respect to countervailing duties
and antidumping procedures. I will send that over for your files.
Mr. LEDERER. Mr. Chairman, I would like to thank the panel of
our colleagues for their testimony this afternoon. I would like to
say to Ms. Mikulski that we, from steel producing States, know
that you need good fire for good steel. You certainly bring good fire
to the Steel Caucus.
Ms. MIKULSKI. Thank you.
Mr. LEDERER. To my colleague from Pennsylvania I would like to
say that I have been known to be of the reservation but on this
issue I am on the reservation.
/ Mr. GAYDO5. We are most appreciative.
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Mr. LEDERER. It is good to see you, Congressman Buchanan.
Thank you for your testimony.
Mr. VANIK. Mr. Schulze.
Mr. SCHULZE. Thank you, Mr. Chairman.
I too would like to welcome our colleagues. I apologize for being
late. I would assume that you share my concern over the definition
of injury and the injury test. Would you address that for a
moment.
Mr. BUCHANAN. I am sure we would concur, yes, we share your
concern. By definition injury should be as ITC has considered it,
anything beyond that which is immaterial or--
Mr. ScHULZE. Anything more than negligible.
Mr. BUCHANAN. Anything more than immaterial or inconsequen-
tial. The word was so small and indicates such a tiny exclusion I
could not even think of the word.
Mr. SCHULZE. I understand that other signatories or proposed
signatories to the agreement do not like the term de minimus,
which was one of the original proposals. I am happy with your
language. I think frankly this is the heart of this whole agreement.
I would hope that the Steel Caucus will really get their back up
and we are really going to do a job on this thing.
Now I missed a portion of the testimony this morning also when
the Iron and Steel Institute testified but I was shocked when it was
reported to me that they said, "There might be some minor revi-
sions, otherwise we are fully supportive." Does that agree with
your position?
Mr. MURTHA. Let me say to the gentleman from Pennsylvania
we have been in close contact with American Iron and Steel Insti-
tute and the unions on this issue. I don't think they have come to
the point where they can make a judgment. They have been work-
ing with the administration. They hope that they can work things
out which are the last words we have received.
As you know we introduced legislation which we felt would put
the administration on notice that we just won't accept less than
fair trade for the United States.
Mr. GAYDOS. If I may respond to my colleague on the injury
interpretation, we have had no difficulty with it. We have found
almost complete acceptance and support for a definition as set
forth by Mr. Buchanan. We support the term that is presently used
by the International Trade Commission in administering the Anti-
dumping Act. That is the term we wish to use because we think it
has been time tested, we think it is proper and we think it is
effective. Anything more than that would be counterproductive and
actually tear the heart, as you properly suggest, out of the agree-
ment approved by this Congress.
Mr. SCHULZE. I note at the end of Congressman Buchanan's
statement his comment on rigorous enforcement. That will be an-
other element. Rather than depend on the good will of someone
doing this it has to be spelled out specifically and we are going to
look over their shoulder and make sure it is enforced or quite
frankly I am going to oppose MTN all the way unless we get some
good antidumping statutes as well as that definition of "injury" is
going to have to be spelled out and be meaningful.
PAGENO="0344"
336
I would again like to thank my colleagues and tell them that I
stand ready to work with them on this issue until we can have a
satisfactory resolution.
Mr. VANIK. Mr. Moore.
Mr. MOORE. Thank you, Mr. Chairman. I would like to ask the
members of the caucus if they can address themselves to the situa-
tion of the Steel Committee that MTN sets up, this International
Steel Committee, how that is going to work.
Do you see it as something that will be beneficial to seel produc-
ing interests or something that will wind up, as some people have
indicated, as maybe a forum to fix international steel prices?
Mr. GAYDOS. If I may respond to that and my colleagues may add
to it, I believe it is probably our only salvation. I think it is a very
practical approach to the problem. I believe that the OECD Steel
Committee will be the proper forum to provide long term solutions
to steel trade problems. Our Nation can no longer afford to ap-
proach steel policy on a legislation-by-crisis basis. The Steel Com-
mittee will have more time to monitor developments and anticipate
potential problems in world steel trade.
We have always found that internationally if everybody partici-
pates in the process, the end result is one that has some staying
power. That is what we need. We have to take a closer look at
domestic production of steel, excess capacity, world demand,
changes in trade patterns, and government intervention in the
world steel market.
I have great faith, myself, personally and I think the Executive
Committee in general agrees that the Steel Committee is where the
future disposition of problems is going to take place-right in that
organization. That is my conception of the role of the OECD Steel
Committee.
Mr. MOORE. I think your testimony is helpful in answering criti-
cism that has been leveled at that committee.
Mr. Gaydos, I notice on page 2 of your testimony, the last sen-
tence, the second paragraph, you make the statement that the
third point of Japanese strategy is that government and business
leaders have cooperated closely to protect the industries' financial
position. I could relate that to a comment made by Mr. Buchanan
who said he was confident American steel could compete with any
foreign interest on a fair basis. I wonder if you think that we in
government are cooperating closely enough in seeing to it that
regulations and taxes and that sort of thing are as good as they
could be to assist our steel industry to compete with foreign inter-
ests.
Mr. MURTHA. Let me address one point of that. The steel indus-
try I think has a real problem in faster writeoff of pollution control
equipment in particular. It has been a tremendous burden on the
steel industry in the last few years. I have lost 3,000 )jobs in my
district since the flood last year. It is because they don t have the
ability to reinvest and increase their productive capacity. Fortu-
nately because of the trigger price mechanism the domestic produc-
tion of steel has increased and that is all we want. But in western
Pennsylvania for a while over a year ago we had tremendous
unemployment and it was coming from the fact that we were
closing down coke batteries and the environmental restictions were
PAGENO="0345"
337
so stringent they weren't able to keep up and meet the environ-
mental requirements and consequently we had to lay people off
and import foreign steel.
One of the things we could certainly use is an immediate writeoff
for pollution control equipment. It would be extremely beneficial
even though it certainly will take some money out of the Treasury.
Mr. MOORE. I could not agree with you more.
Mr. GAYDOS. I would like to add to that, Mr. Moore, that we have
an altogether different concept of doing business than Japan and
even the EEC nations.
In Japan they allow their debt ratio to go up to 80 percent. In
this country it is unheard of. If any of our people allow their debt
ratio to go up that high they go bankrupt. I think the point that
Mr. Buchanan was trying to illustrate and emphasize is that
American competitiveness in steel will give this counry the edge in
our domestic market. When we get in the outside world we com-
pete against a horse of a different breed. Our trading partners have
a different way of doing business. It is contrary to our basic princi-
ples and the concept of laissez-faire, free enterprise.
We do feel that if we had fair trade laws we wouldn't have to
worry about foreign competition.
I feel so vehement about the fact that many people do not give
our businessman due credit today. The American businessman is
operating under many, many inhibitions and difficulties.
For instance, the antitrust laws. More money is spent in the
legal department of U.S. businesses to protect him against anti-
trust laws than is spent for productive machinery. The Japanese
don't have to be faced with this problem.
In the light of all of that I still emphasize the fact that the
American steel industry doesn't have to change its principles to
still be competitive worldwide and domestically.
Mr. SCHULZE. Will the gentleman yield.
Mr. MOORE. I yield to the gentleman.
Mr. SCHULZE. What would the position be today if we had rigid
enforcement of the existing antidumping laws?
Mr. GAYDOS. I can tell you as far as the steel industry is con-
cerned, No. 1, you would not have all this stock floating around.
Foreign competitors are now starting to warehouse stock through
subsidiaries which will be released on the U.S. market at times
that could cause considerable economic disruption. We see definite
penetration in that area. If we had reasonable fair trade laws I
think it would help the expansion of U.S. steel production.
I think that foreign unemployment would cease to be exported
from their factories into this country.
Mr. MURTHA. I think it would stop imports, to answer the ques-
tion directly, if they enforced the present 1974 Trade Act without
subsidizing overseas stock.
Ms. MIKuL5KI. Not only speaking for the steel industry but I
think if we had a vigorous enforcement, genuine enforcement of
antidumping, we would have an electronic industry in this country
we would be making TV sets, CB radios, a whole host of other
electronic equipment that supply very good jobs.
No. 2, 1 think we would have a much more vigorous steel indus-
try because what would the antidumping laws do? They would
PAGENO="0346"
338
create the climate for every one to play the fair enterprise game
under the same rules.
The gentleman knows that in Japan, for example, they have all
types of interlocking indirect subsidies so that when our guys go to
borrow money, for example, at the prime rate it is very different
than what you find in Southeast Asia. In fact, it would create the
climate for true free trade.
Mr. GAYDOS. If I may add to that. The national defense demands
nothing less. It demands a viable steel producing industry, there is
no question about it.
These other things that Barbara mentioned I think are most
important. You can add that this country no longer makes any
Christmas tree ornaments or costume jewelry. At one time the
costume jewelry business employed thousands of people in this
country. Today there is no domestic costume jewelry business be-
cause unfair foreign competition destroyed our market. The same
situation is occuring in textiles, leather, shoes, and electronic
equipment.
With reasonable enforcement of our trade laws I believe we
would not be accused of protectionism. We would be doing just
what every other nation has been doing for years.
Mr. SCHULZE. Let's compare apples and apples. Don't tie one arm
and one leg behind our backs when we are dealing with them.
Mr. BUCHANAN. Absolutely. The gentleman is precisely correct
when he says this is really where the ball game is on enforcement.
We must have enforcement. Had we had it we certainly would not
be in the condition in the steel and other industries that we are
now.
This is of crucial importance in this present procedure that, in
the words of Thomas Jefferson, we bind men by the chains of law.
It is symptomatic of the other thing that the gentleman from
Louisiana referred to, and that is our Government lays burdens
that are heavy to bear upon our industry in vivid contrast to the
governments of our trading partners. We are going to have to face
questions like pollution control, which may be socially necessary
but does comprise a very substantial part of the economic burden
and the overall problem of steel and other industries. There are
other aspects of government policy that are going to need to
change if we are going to create a climate that is truly fair domes-
tically, including fast writeoff procedures, for example.
Mr. SCHULZE. I thank the panel and I thank the gentleman from
Louisiana for yielding to me.
Mr. MOORE. I have listened to the answers. I take it from the
comment just made by the gentleman from Alabama that most
people in the caucus and my colleague from Pennsylvania on the
committee seem to think that antidumping would solve all your
problems. I am not sure of that. I am not convinced of that. What I
would like to see you do, if we have time, I would ask the chairman
to hold the record open, it would be greatly beneficial to us if the
Steel Caucus could provide us with a list of things we ought to do
at some point in the future should the MTN go through to put you
in a better position than you are in now.
One item was mentioned by Mr. Murtha about the idea of rapid
depreciation for pollution abatement of equipment. This is some-
PAGENO="0347"
339
thing we ought to do. It would help us in the deliberations of this
committee in the future to point to our colleagues in discussing
MTN. This is something we ought to look forward to in the future.
I would ask the chairman of the subcommittee to hold the record
open to give you time to consider those points. I think when MTN
is adopted, if it is we are going to be faced with two things to see
that American industry survives. One is vigorous enforcement of
the laws on the books; second, to take a look at the burden that
Government puts on free enterprise to see if we cannot do some-
thing to ameliorate that burden to give an immediate shot at those
countries where there is very close cooperation between business
and government.
I don't think that cooperation exists close enough in this country
in terms of our listening to what has to be done to make you
competitive. We have piled it on and piled it on and let you
compete if you can and go out of business if you don't. I don't think
that is a position we ought to take. After MTN passes, you will be
in a much rougher position than you are now. I urge you to provide
us with a list of such solutions, if you could, that we could consider.
Mr. SCHULZE. I have businessman after businessman come into
my office with the statement that they feel deep down that they
are in an adversary relationship with the Department of the Treas-
ury. This is almost unbelievable to me. I wonder if you have had a
similar experience.
Mr. GAYDOS. We have had that view voiced before the caucus on
numerous occasions because we do as a matter of policy open up
our executive committee to hear complaints that are pertinent to
the steel problem.
I dO want to thank Mr. Moore for the suggestion to which we will
respond immediately.
[The following was subsequently received:]
CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D.C., May 3, 1979.
Hon. CHARLES VANIK,
Chairman, House Subcommittee on Trade, Cannon House Office Building, Washing-
ton, D.C.
DEAR MR. CHAIRMAN: In further regard to the Steel Caucus' testimony before
your Subcommittee on April 25th, 1979 and Congressman Moore's request for a list
of areas where actions might be taken to assist the steel industry in its recovery,
the following is a brief synopsis for your review.
(1) CAPITAL FORMATION
The domestic steel industry needs to expand its production. In 1978, the steel
industry fell $1 billion short of its capital requirements. According to the industry,
improvement in the capital formation picture requires government action which
will:
Permit good earnings when markets are strong-no more informal price controls,
Weigh the economic impact of environmental and other regulations against bene-
fits sought, and
Adopt tax policy which will encourage investment in productive facilities.
(2) REDUCING THE GUIDELINE LIFE FOR DEPRECIATION OF NEW STEEL MACHINERY
In its report to the President, the Solomon Task Force acknowledged that the
steel industry's profitability over the last decade has been substantially below the
average for all manufacturing industries. This has resulted in a decline in earnings
and has contributed to the industry's inability to finance modernization and to
obtain funds from external financing.
PAGENO="0348"
340
According to the report a combination of the trigger price mechanism and general
tax reform would go a long way toward remedying the industry's cash flow problem.
However, to close the gap completely, the Task Force recommended that the Treas-
ury Department consider reducing the guideline life for depreciation of new steel
machinery and equipment from 18 years to 15 years.
This reduction would produce additional tax benefits averaging nearly $60 million
and would contribute to the steel industry's ability to increase its cash flow. The
Treasury Department has been considering the reduction of the guideline life for
some time, but, unfortunately, has yet to take positive action.
Your comments on, and consideration of, these points would be greatly appreciat-
ed.
Sincerely,
JOSEPH M. GAYDOS,
Chairman, Congressional Steel Caucus.
Mr. VANIK. We will leave the record open until the middle of
next week. I just want to say two things. One is that I have been
deeply concerned about the failure of the American automobile
industry to produce a decent choice for gasoline efficient auto-
mobiles. Throughout America the industry is really doing very
little.
On January 1 there were almost 5 million cars from one country
that were here unsold. The Iranian crisis came along and those
cars have picked up like hotcakes, they are gone. They are buying
them off the racks, they are even advertising. You have two or
three choices as far as American companies are concerned, and a
good part of the time they are selling their own imported product,
their captive industry abroad.
Frankly, you are losing more steel than you can ever imagine
because of the ineptitude, this folly of our American industry. I
would hope your organization will consider a resolution to alert
them so that you can make some of this fight for steel use in autos.
But the automobile industry ought to be admonished that the age
of conservation is on us. They don't have until 1985 or 1990. They
are going to be completely out of busines, if they don't provide a
decent selection of choices for the American people in gasoline
efficient automobiles.
On that standpoint, the imports have helped. If it weren't for the
imports they would not even have moved at all. Frankly, I just feel
it is bad leadership of our own automobile industry to let this
happen.
The other point that I wanted to make dealt with what I thought
could be the action of your caucus with respect to MTN. Do I take
it to be your position that you are supportive of the MTN, if we
make these corrections and make these adjustments? Because I am
hopeful that we have your support when we go to the floor with
this legislation.
Mr. GAYDOS. Mr. Chairman, if I may respond to that. As you well
know, when you had the obligation on the floor of the House to
seek an extension of the countervailing duty waiver as requested
by the President, we stood behind you. We thought it was proper.
We thought your arguments were convincing.
With all due respect to the integrity and history of this commit-
tee, if after we have had a chance to review the legislation in its
final form and we find it to be acceptable, I think the chairman
can rely upon this caucus.
PAGENO="0349"
341
Basically, if our position is incorporated into the implementing
legislation you will find us beside you arguing and fighting for this
law. You know that. I cannot become committed to a position prior
to our finding out what the legislative language will contain.
Mr. VANIK. I have one other point. One of the reasons I was
supportive of the trigger price mechanism and especially the spe-
cialty steel problem and others, is that I felt we ought to give our
American industry a chance to catch up on its technology. I would
like to see, and I hope your caucus will take some affirmative
action of insuring that the industry will use the resources and the
capital that is created by the preservation of their volume of busi-
ness to make an investment in America with some new plants, so
that they don't have to lean on the Government.
Future Congresses may be less concerned about their problem. So
this is really the time to bring the industry up to date, to get them
to expand, to develop new facilities that are going to meet all the
requirements of the law and which will be more efficient as they
start replacing some of the very old and obsolete facilities we have
in America.
I don't think there is any law in the world that can ever protect
the continued life of an obsolete facility. We have to reckon with
that. We know their capital costs are great. Maybe in some special
way we can address ourselves to that. Maybe it is time for them to
put some commitment on the record about how and where they
expect to strengthen and maintain their viability in America.
Mr. MURTHA. We will pass that recommendation on to them.
They feel that their profit compared with the capital investment
has not been large.
Mr. VANIK. It is not large compared with oil, certainly.
Mr. SCHULZE. Oil is not large compared to the Washington Post.
Mr. MURTHA. If we could get a faster write-off for pollution
control equipment and maybe insist it go into productive invest-
ment that certainly would go a long way.
Mr. VANIK. We have to think of some special means. I think they
have to put on the table pretty soon what their plans are, and how
much they expect to rebuild and maintain their viability. This is a
strong American industry, it is as American as the hotdog. We
should insist that they modernize their facilities and remain com-
petitive and keep viable their forces of production.
Mr. GAYDOS. I think your suggestion is well taken. We will follow
your suggestion and have further meetings with industry and labor
to discuss the matter in greater detail.
Mr. SCHULZE. I have the utmost respect and admiration for my
chairman but I could not let pass his condemnation of the auto-
mobile industry without a comment.
I think our domestic automobile industry has lost millions and
millions, perhaps billions of dollars by prematurely trying to sell
small cars which were not purchased on the open marketplace by
the people of this country. I do not think that they have abdicated
their responsibility but have been very responsible citizens and are
meeting the needs of our current problem with fuel consumption.
Mr. VANIK. I think the record will talk for itself on that. I don't
think this is the time to really get into a debate on that point. I
think the record is self-evident that they were caught by surprise
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342
twice, first in 1973 and they seemed to have no awareness that
there is an oil crisis going on. When they met it they met it by
providing a diesel engine or front-wheel drive that is beyond our
pocketbooks. It is the incredible upfront cost for this gasoline-
efficient car that knocks all the efficiency out of it. It has to be
efficiency at a level that people can buy.
I think they ought to be more resourceful. We have not really
changed our technology much from the time I was a boy. They
might still come back with that old Stanley Steamer.
I want you to know I have old automobiles, and they are much
more gasoline efficient than the new ones. I am having my 1965
Ford right now repainted. It has a new motor. It has six cylinders.
It has a stick shift. It is a pretty automobile; I get 24 miles to a
gallon. I don't know why they can't do that.
Mr. SCHULZE. You might start the Vanik Steamer Co.
Mr. VANIK. Thank you, Mr. Gaydos.
I will express our gratitude to the Steel Caucus. You have been
generous with your time. I want you to know we appreciate it,
because we have had an interchange which will be invaluable to
this committee in its deliberations.
Mr. GAYD05. On behalf of the Steel Caucus I would like to
mention that Mr. Philip Ola, the director of Steel Caucus, is with
us today, accompanied by Mr. Bill Echols, Mr. Michael Lynch, and
Mr. Bernie Manoella, who have assisted him in Steel Caucus mat-
ters.
I wish to thank my colleagues for appearing here with me. I
definitely and unqualifiedly extend the caucus' sincerest respect
and gratitude to the committee for arranging this time for us. I
want the committee to understand fully that the caucus hopes that
when the MTN implementing legislation reaches the floor of the
House that we can stand as an ally to help support and pass this
vital legislation.
We wish to conclude by congratulating the committee for a task
well done under very difficult circumstances.
Mr. VANIK. Thank you very much.
Mr. GAYDOS. Thank you.
Mr. VANIK. The next witness is the joint appearance of the
Passaic Color & Chemical Co., represented by Fred H. Hummel,
president, and the Oil, Chemical & Atomic Workers International
Union (AFL-CIO), represented by Eugene Wyatt, president.
STATEMENT OF FRED H. HUMMEL, PRESIDENT, PASSAIC
COLOR & CHEMICAL CO.
Mr. HUMMEL. I am Fred Hummel, president of Passaic Color &
Chemical Co., Paterson, N.J., which is one of the Royce Chemical
group of factories in New Jersey.
With me is Mr. Wyatt, president of the Oil, Chemical & Atomic
Workers, Local Union 8-406, which represents many of the work-
ers in the Royce group of factories that do business with Royce and
also speaking as a local president and for the OCAW International.
I will be brief so that I may relinquish, if satisfactory to you, Mr.
Chairman, part of my time to Mr. Wyatt.
As stated in my written submission to the committee, we will
feel we make a substantial contribution to the economy and em-
PAGENO="0351"
343
ployment of New Jersey with factories in Newark, Paterson, and
East Rutherford.
Our particular concern is that the customs valuations method in
the new trade agreement will result in unfair trade and trade
favoritism to the detriment of independent dye manufacturers in
the United States; 85 percent of the imports of competitive dyes are
now between related companies overseas and here.
The overseas parent companies operate in a cartelized rationa-
lized business environment encouraged by their governments to do
so. I believe that with the present customs valuations method they
will be able to escape the duties intended in the new agreement, if
not fully, at least in part. When loopholes are left in an agreement
they will be used. This is already the case with dyestuffs passing
through Virgin Islands whereby mi1lio~ns of dollars, apparently,
escape either the economic well-being of the Virgin Islands, as was
intended, or U.S. duties.
Our reference to this is only to illustrate that without proper
safeguards unintended problems will come up. The trade agree-
ment is generalized trade. Eighty-five percent of the transactions
between related companies is not generalized. The Virgin Islands
situation takes up less than 5 inches of copy on one side of a sheet
of the U.S. Tariff Schedule, and yet millions of dollars pour
through this little loophole every year.
The new trade agreement needs a safeguard which it now lacks
to protect against abuse and misuse of the fair trade intended. We
feel that this can be corrected by adding a trigger mechanism if it
does not work as a remedy. One way would be that any time a duty
recovery drops below reasonable variables on competitive dye this
would trigger the reversion to the rate of duties set at the time
referred to by the new schedule of converted rates. Until such time
as the U.S. Customs authorities have had an opportunity to investi-
gate and to decide whether the principles of fair trade and fair
value as called for in the trade agreement have been met.
We are working with trading partners who have a completely
different set of rules. We must make sure that the trade between
us works fairly. It is my opinion, based on more than 20 years in
the American dyestuff industry, it will not work fairly without this
or some similar safeguard that is now lacking in the agreement.
Safeguards will not cause harm to the United States or to its
trading partners if they are simply to insure that intentions get
carried out.
I might add also that I am well aware we have many laws
covering such matters as dumping, predatory pricing, unfair trade
practices, and so on. My experience has been that discovery is
difficult and damage has to be almost terminal and massive before
our bureaucracy starts looking into it, presumably, Mr. Chairman,
the same bureaucracy referred to on Monday.
It seems to me if we see a loophole we should simply close it. If
we need a safeguard we should simply add it. I have been told that
the Treasury Department does not feel that additional safeguards
are required and yet having read in depth Customs valuations and
been in business a long time, I don't believe it. I feel that without
this safeguard, and I wish I could find perhaps a less dramatic
PAGENO="0352"
344
expression, I feel we are now writing a death warrant to the
independent American dye manufacturer.
Mr. Chairman and gentlemen of the committee, I would like to
thank you.
At this time I turn the balance of my time over to Mr. Wyatt.
[Mr. Hummel's prepared statement follows:]
STATEMENT OF FRED H. HUMMEL, PRESIDENT, PASSAIC COLOR & CHEMICAL Co.,
PATERSON, N.J.
Mr. Chairman, I am Fred Hummel, president of Passaic Color & Chemical Co.,
located at 28-36 Paterson Street, Paterson, N.J.
At the Office of the Special Trade Representative for Trade Negotiations, I was
told we have not earned the right to live. I am here to prove to you and the trade
negotiators that the independent dye maker has earned the right to life. After
having been told this, it is quite evident to me I am fighting for the right to live.
Passaic Color is one of the Royce Chemical group of factories in Northern New
Jersey. Royce has its principal office and factories in East Rutherford, New Jersey,
with another plant in Newark, New Jersey and, of course, Passaic Color in Pater-
son. Royce has a total employment of slightly over 200 people and conducts business
with almost 1,000 other firms, many of whom are in New Jersey.
Although Passaic Color has only approximately 15 employees in Paterson, its
products and sales are integrated with those of Royce Chemical, thus contributing to
total viability. We also have dyestuffs operations in East Rutherford. Approximately
half of our total personnel are engaged, to some extent, in the manufacture, sales,
distribution, research, quality control and administration of our dyestuff business.
Should the American dyestuff industry be killed, we would be right back where
we were at the end of World War I, with America virtually totally dependent and at
the mercy of foreign sources of colors and dyes.
In addition to the employment and economic impact, this would be the conse-
quence of trade favoritism.
The reason I have asked to appear is to express my view on the multilateral trade
negotiations that have been going on in Geneva for the last 5 years, specifically my
view on customs valuations and the suggested changes by the special trade repre-
sentative for trade negotiations.
Passaic Color is a manufacturer of synthetic organic dyestuffs. There are a
number of other independent American dyestuff manufacturers in the northern
New Jersey area.
There are literally hundreds of satellite businesses in New Jersey, who depend
upon us for part of their income.
Thus, I feel the independent dyestuff manufacturers are an important part of the
employment and economic viability in New Jersey. It is our feeling there is a very
serious omission in the agreement concerning customs valuations.
Our general position is that we are for both free trade and fair trade, which we
understand is precisely the position taken in the agreement which calls for fair
trade, uniform trade and a neutral system for the valuation of goods. We recognize
that times change. If the American selling price (ASP) basis of tariff evaluation is to
give way to a new system of converted rates, with new rules for valuation, we are
willing to accept this without argument-if it works along the lines our negotiators
intended. This is our concern. We have no real idea if the converted rates result in
the design of duty equivalency. We have to accept our negotiators word for it
because we can't check it. Foreign companies in a cartelized, rationalized business
environment do not provide price lists for their products. We have no way of being
privy to the United States Customs records to find out the duty per unit value paid
under our present system for competitive dyes on actual transactions; and more
importantly, will not be able to find out the duty actually paid on transactions in
the future.
Approximately 85 percent of the transactions for competitive dyestuffs are be-
tween foreign companies and their American company, a somewhat less than arms-
length transaction. The rules and regulations coming from a multilateral trade
negotiation are to regulate generalized trade. No way can 85 percent of the transac-
tions between related companies be called generalized.
Our concern is, despite the rules on customs valuation, means to subvert the
valuations can be devised by multinational companies, who can make decisions as to
how much to charge themselves-which country to take their profit in-and when;
particularly when the preponderance of transactions are between related firms.
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345
To illustrate the reality of these concerns, it should be noted millions of dollars
worth of foreign dyestuffs already pass through the Virgin Islands every year
virtually duty free. This fact is well known to the U.S. Customs authorities and is
technically legal because of the customs structure.
Unless the Agreement works with equality, it can result in unconscionable favor-
itism with a shattering impact on the American Dyestuff Industry. The effect on
New. Jersey would be extremely adverse-New Jersey being heavily industrialized,
the leading benzenoid chemical producing State, (the category of chemicals affected
by the elimination of ASP), and with small and medium sized business the backbone
of the State.
We need a safeguard in the New Agreement, which it now lacks; to provide
assurance to protect against abuse and misuse. There is no assurance to the Ameri-
can Dyestuff manufacturer that this agreement will provide equality.
We feel the omission in the Trade Agreement is a safeguard to make sure the
Agreement works for competitive dyestuffs the way the Trade Negotiators have
indicated it should. We feel this can be corrected by adding a trigger mechanism if
it doesn't, and a remedy.
One way might be, if any time duty recovery drops per unit, taking into account
reasonable variables, on a competitive dye; this would trigger a reversion to the
ASP duty equivalent level set at the time the converted rates were set, in dollars,
taking inflation into account. This would remain until the U.S. Customs authorities
had an opportunity to investigate, to consult with American Dye Makers of the
product and to develop an opinion as to whether the principle of fair trade and fair
market value as called for in the trade agreement had been met-or subverted.
A discussion with personnel at the Office of Special Trade Representative was
attempted on this subject, but I was told there is no hope of convincing them
safeguards are needed; that the Agreement itself is sufficient. This is obviously not
my opinion based on more than 30 years of experience in the American Dyestuff
Industry.
We must recognize we are making a trade agreement with trading partners, who
are working with a completely different set of rules.
Dyemakers in Europe and the Far East can get together to decide which one will
make a particular product or color. They operate under a cartel system encouraged
by their governments-they can rationalize their industry and do. That is not the
way in America. And yet, the practicalities of multilateral trade necessities require
we come up with one set of rules and regulations for these two totally different
business systems. With this problem, and the problem of the majority of transac-
tions between related companies, extraordinary precautions and safeguards are
needed.
The addition of a safeguard will cause no harm to the United States or its trading
partners.
My opinion is that if a safeguard and remedy are not included, the United States
will have made a disastrous mistake, and mistakes do happen; with terminal conse-
quences to American dyestuff manufacturers, American workers with New Jersey
hard hit.
Thank you for the time extended to me to appear before the committee and to
express my views.
Whatever questions the committee may have, I will be happy to answer to the
best of my ability.
Mr. VANIK. We will hear from Mr. Wyatt and then we will go to
questions.
STATEMENT OF EUGENE WYATT, PRESIDENT, OIL, CHEMICAL
& ATOMIC WORKERS INTERNATIONAL UNION, AFL-CIO,
LOCAL 8-406, NEW JERSEY
Mr. WYATT. Mr. Chairman, my name is Eugene Wyatt, Jr. I am
president of Local 8-406 of the Oil, Chemical & Atomic Workers
International Union, AFL-CIO. I represent approximately 2,000
workers in the State of New Jersey, some workers who are em-
ployed in the dyestuff industry.
I am here to express my concern for the lack of safeguards
within the multilateral trade negotiations agreement. The Ameri-
can employee has been traded away for a system of perverted
44-998 - 79 - 23
PAGENO="0354"
346
rates. I am not here to ask that we reject the trade agreement;
however, I appear before this committee to ask that some safe-
guards be put into this agreement to protect the jobs of American
workers.
If one American job is lost because of the lack of safeguards it is
one too many. We can ill afford the luxury of more unemployment
in the State of New Jersey, which at this time has a percentage of
12 unemployment. We do not need retraining assistance. Retrain-
ing assistance and unemployment are no substitute for real jobs. If
putting additional safeguards in a trade agreement means protect-
ing American workers, this must be done without delay. It hurts no
one. Failure to do this would mean trading away American jobs to
foreign workers.
I am not opposed to free trade. I am not opposed to fair trade.
But I am opposed to subsidizing the foreign workers.
Mr. Chairman, I would like to ask your help and your support
and that of the committee in attempting to insist on enforcement,
some type of protective custody in this agreement. I am sure the
workers that I represent and their families will be eternally grate-
ful to you and this committee if you insist on some protective
measures in that agreement.
I thank you.
Mr. VANIK. Thank you very much.
Mr. Vander Jagt.
Mr. VANDER JAGT. Thank you, Mr. Chairman.
I would like to thank our witnesses for their testimony. I have no
questions.
Mr. VANIK. Mr. Schulze.
Mr. SCHULZE. Thank you, Mr. Chairman.
I just want to say to our witnesses that I do share their concerns
and especially agree that job training is no substitute for a perma-
nent place of employment. That is one of the bonuses that is
supposed to be held out for the loss of jobs under this agreement. I
don't think that is satisfactory.
I have a great deal of concern over the final form of this agree-
ment and understand and share your concerns.
Mr. VANIK. I want to point out to you that Congressman Guarini
from New Jersey was detained today. He wanted to express his
regrets. He has been very sensitive to the problem that you have
outlined. He will report back to you after we analyze your testimo-
ny.
I want to thank you very much for appearing.
Mr. HUMMEL. May I add one more thing and I will be very brief.
I think that this committee over the years has had to deal with
the problem of the American dyestuff industry many times, par-
ticularly the matter of ASP, which has been a burning issue on
many of the rounds, particularly Kennedy. I think that what we
are attempting to say today is a very fair position. We are not
asking for the retention of ASP because we know that times
change. We are not objecting to the converted rates even though
we don't really understand what the net result of them is going to
be.
PAGENO="0355"
347
I think what we are saying is in the modern world of trading
that we simply want to be absolutely sure that the new agreement
results in fair trade.
Mr. VANIK. I think you are making a very reasonable presenta-
tion.
Do you have any questions, Mr. Lederer?
Mr. LEDERER. No, Mr. Chairman, thank you.
Mr. VANIK. Thank you very much. We appreciate your testimo-
ny.
Mr. HUMMEL. Thank you, Mr. Chairman.
Mr. VANIK. The next witness is our former colleague, David S.
King, counsel for the American Dinnerware Emergency Commit-
tee.
I presume that your organization is one that promotes the impor-
tation of dinnerware?
STATEMENT OF DAVID S. KING, COUNSEL, AMERICAN DINNER-
WARE EMERGENCY COMMITTEE, ACCOMPANIED BY WILLIAM
K. INCE
Mr. KING. Actually, Mr. Chairman, I represent the domestic
manufacturers.
Mr. VANIK. I want you to know, Mr. King, that some of my
favorite dinnerware is the heavier boilerplate stuff we sell in
America. I have a preference for a coffee cup that keeps my coffee
warm. I like plates to be that heavy. My wife always introduces the
kind of product that you advocate. She prefers the ornamental
things, the tea cups that burn your hand as you hold them, and the
coffee cups that don't hold anything.
Since we are going to a more frugal way of life I think more
people will probably be turning to that dinnerware. This does not
have any relevance to what you want to say except I want to tell
you that I have my own coffee set and I think that I can convince
you that it is superior to anything else in the world.
While the fine imported product might be nice for the fancy
dinner parties, I think there is a place all over the world for the
kind of pottery we make in West Virginia and southern Ohio-not
in my district-which gives me so much joy and pleasure.
Mr. KING. Ohio is really the center of our industry.
Mr. VANIK. I know it is. We are very happy to hear from you,
David.
Mr. KING. I appreciate your kindness, Mr. Chairman, and mem-
bers of the subcommittee.
I have sitting with me my partner, Mr. William K. Ince. He
represents Williams & King. Our firm represents the American
dinnerware emergency committee, which we know as ADEC, whose
members account for about 90 percent of the earthenware and
stoneware table and kitchen articles that are manufactured in this
country.
Our testimony today, Mr. Chairman, deals with a rather narrow
but to us very important aspect of the recently concluded multilat-
eral trade negotiations and the implementing legislation. This is
the restructuring of the tariff nomenclature applicable to earthen-
ware, stoneware and chinaware, table and kitchenware articles. It
has been quite apparent over the years that a revision or restruc-
PAGENO="0356"
348
turing of the nomenclature was necessary. We understand that this
has been accomplished as a result of the negotiations in Geneva.
This is part of the package. We favor this. What is before this
subcommittee now is implementing legislation necessary to con-
form the U.S. Tariff Schedules to the new nomenclature which has
been worked out as a result of the negotiations in Geneva.
To give you just a little bit of historical background, in 1972 our
industry was one of the very few, I might add in this country, that
did succeed in getting some special relief under the escape clause
provision of the Tariff Act. This was done in recognition of the very
special problems that this industry has. This special relief was
extended partially in 1976. However, the important thing to re-
member is that this relief began to dwindle in importance and
finally disappeared completely. That is, its benefits disappeared
completely.
The reason for this is that the relief was predicated upon a value
bracket that when inflationary forces would be generated and come
into effect, they would force the particular article coming in that
was protected, from our point of view protected in that bracket,
they would force it up into a higher bracket.
For example, in 1971 the item that gave us the most competition
was a dinner set of 45 pieces that sold then for up to $25. By 1977,
which would be 6 years later, that same piece sold for up to $50. In
other words, a 100-percent increase over a 6-year period.
Now, the point is that in the course of going from $25 to $50, this
particular item moved from one bracket to another bracket, the
lower bracket being a heavily protected bracket, and the upper
bracket being a much lighter protected bracket, the result being
that our industry suffered very greatly because of that.
So it was evident that some of the nomenclature was becoming
very outmoded and needed to be brought up to date.
Now, there were some other problems, too, involving tariff loop-
holes. This gets very technical and I won't go into a long explana-
tion, but it was generally agreed that there were loopholes arising
out of the norm standards that they had worked out. For example,
they had created a norm based on a hypothetical 77-piece set and
the idea was that if a particular item came in and if the pattern
was such as was represented in this 77-piece set, then it would
receive one rate of duty, whereas, if one of the pieces was missing
from the 77-piece set, then another rate would be applicable. So
that meant that it was within the power of the importer to manip-
ulate the duty according to whether the full 77 pieces were repre-
sented or not. This was one example of a loophole and there were
several others.
So it became increasingly evident that a restructuring of the
nomenclature was necessary. On April 30, 1976, by Presidential
decree, as a result of hearings we had to extend the escape clause
benefits, it was specifically provided that the Special Trade Repre-
sentative should review the classification and rates of duty on
dinnerware to determine if changes were necessary to close tariff
loopholes, and change obsolete descriptions brought about by cur-
rency changes and inflation, and to enter into any negotiations to
make any changes necessary.
PAGENO="0357"
349
Shortly thereafter, the Trade Policy Staff Committee decided
that there was a need to revise the ceramic tableware tariff sched-
ules to eliminate obsolete value categories and close tariff loopholes
so that the schedules would reflect modern commercial practice.
As a result, hearings were held by the International Trade Com-
mission and the Trade Policy Staff Committee in 1978. A new
nomenclature proposal was developed in conjunction with those
hearings and with subsequent modifications this proposal was
agreed to in Geneva by our major trading partners.
The industry and its Representatives and Senators in Congress
have gone on record with the Office of the Special Trade Repre-
sentative as being in favor of the new nomenclature.
Now, this I know sounds very technical but what we are saying
simply is that the nomenclature had been shown again and again
to have been obsolete for the reasons that I have indicated and the
feeling was in general that it needed to be revised. A revision was
proposed. It has been accepted in Geneva. It is now before this
committee and our hope is that it will be favorably acted on.
Mr. JENKINS [presiding]. Thank you, Mr. King.
Mr. Vander Jagt?
Mr. VANDER JAGT. No questions. I thank the witness for his
testimony.
Mr. JENKINS. Mr. Schuize.
Mr. SCHULZE. I have no questions. Thank you very much for your
testimony.
Mr. JENKINS. Your entire statement will be made a part of the
record.
[The prepared statement follows:]
STATEMENT OF DAVID S. KING, ON BEHALF OF THE AMERICAN DINNERWARE
EMERGENCY COMMITTEE
Mr. Chairman and members of the committee, my name is David S. King, and I
am a partner in the law firm of Williams & King, Washington, D.C. I am here on
behalf of the American Dinnerware Emergency Committee (ADEC) whose members
account for about 90 percent of the earthenware and stoneware table and kitchen
articles produced in the United States (list attached).
My testimony has to do with a very narrow, but very important (at least to this
industry), aspect of the recently concluded multilateral trade negotiations and the
implementing legislation. This is the restructuring of the tariff nomenclature appli-
cable to imports of earthenware, stoneware and chinaware table and kitchen arti-
cles. I understand that the revision has been agreed to by our major trading
partners, Japan and the EEC. All that is necessary is for implementing legislation
to make some changes in the tariff schedules of the United States to conform them
to the agreement.
A little history is in order to illustrate the importance of the nomenclature
revision to the U.S. earthenware industr~r. In 1972 ADEC was successful in securing
import relief under the "escape clause' provision of the Trade Expansion Act of
1962-the first, and one of only a few industries, to receive assistance under the
provision. Import relief took the form of increased tariffs for four years, and it was
extended, in part, for up to an additional three years in 1976.
However, because of the way in which the tariff schedules covering ceramic
dinnerware are organized, that is, in the form of value brackets with differeing
raters of duty, inflation over the last 7 years has had the effect of nullifying any
protection afforded by tariffs. For example, whereas in 1971 the bulk of competing
imported dinnerware was selling at wholesale prices of up to $25 for a 45 piece set,
in 1977 the bulk of competing imports were selling at up to $50 for a 45 piece set.
Since tariffs on the higher value brackets are lower than those on the lower value
brackets, the effects of inflation have thus "moved" these competing imports from
the brackets with some tariff protection to the brackets with relatively little tariff
protection.
PAGENO="0358"
350
This phenomenon would have occurred in the absence of any escape clause relief,
but the relief had the effect of dramatizing the phenomenon because the increased
tariffs granted in 1972 followed the same pattern: they were imposed on the lower
value brackets, and so became ineffective when the bulk of competing ware began to
be imported in the higher value brackets. In addition to the value bracket problem,
there were some tariff loopholes in the schedules resulting from inadequate descrip-
tions of dinnerware not in sets.
On April 30, 1976, when the President extended, in part, the excape clause relief
afforded the earthenware industry he directed his Special Trade Representative to
review the classification and rates of duty on dinnerware to determine if changes
were necessary to close tariff loopholes and change obsolete descriptions brought
about by currency changes and inflation and to enter into any negotiations to make
any changes necessary. Shortly thereafter, the trade policy staff committee decided
there was a need to revise the ceramic tableware tariff schedules to eliminate
obsolete value categories and close tariff hoopholes so that the schedules would
reflect modern commercial practice. As a result, hearings were held by the Interna-
tional Trade Commission and the trade policy staff committee in 1978. A new
nomenclature proposal was developed in conjunction with those hearings and, with
subsequent modifications, this proposal was agreed to in Geneva by our major
trading partners. The industry, and its Representatives and Senators in Congress,
have gone on record with the Office of the Special Trade Representative as being in
favor of the new nomenclature.
While we do not presume to clairvoyance, we believe that the new nomenclature
will go a long way toward solving the problems I have described. It does reflect
modern commercial practice. It eliminates most of the value brackets for both
earthenware and chinaware, and therefore moderates the effects of inflation. It also
cures the defects in product description that created hoopholes.
We understand that implementing legislation is necessary to make some changes
to the existing tariff schedules, in order to adopt a part of the new nomenclature.
On behalf of ADEC I urge this committee to approve the adoption of this neces-
sary legislation in order that the new nomenclature covering imported ceramic
table and kitchen articles may be put into effect.
Thank you for affording me this opportunity to appear before you.
THE AMERICAN DINNERWARE EMERGENCY COMMITTEE MEMBERSHIP LIST
Anchor Hocking Corp., Chester, W. Va.; Hall China Co., East Liverpool, Ohio; the
Homer Laughlin Co., Newell, W. Va.; the Pfaltzgraff Co., York, Pa.; Royal China
Inc., Sebring, Ohio; and the Scio Pottery Co., Scio, Ohio.
Mr. JENKINS. Our next witnesses are from the American Restau-
rant China Council, Inc.: Mr. John C. Heebner, president; Samuel
D. Magavern, counsel, and Irving J. Mills, the executive director.
Do each of you have a prepared statement, or is there one?
STATEMENT OF JOHN C. HEEBNER, PRESIDENT, AMERICAN
RESTAURANT CHINA COUNCIL, INC., ACCOMPANIED BY
SAMUEL D. MAGAVERN, COUNSEL, AND IRVING J. MILLS, EX-
ECUTIVE DIRECTOR
Mr. HEEBNER. There is one statement, Mr. Chairman. The two
gentlemen with me have participated in the development of this
statement.
Mr. JENKINS. Fine, the entire statement will be made a part of
the record. You may proceed as you wish.
Mr. HEEBNER. My name is John C. Heebner and I am presidnet
of Buffalo China, Inc. I am appearing here today as president of
the American Restaurant China Council, Inc. With me are Samuel
D. Magavern, counsel for the American Restaurant China Council,
and Irving J. Mills, the executive director. The China Council is a
trade association representing the majority of American manufac-
turers of hotel and restaurant china. Our product is identified
TSUS Item No. 533.51.
PAGENO="0359"
351
The hotel and restaurant china industry throughout the world is
labor intensive and factory employment costs range as high as 65
percent of manufacturing cost here in the United States. Our in-
dustry is a modern industry that is professionally managed and
where capital investments are increasingly being made in plant
and equipment to increase productivity. Although our plants are as
efficient as any in the world today, the labor intensity makes it
difficult to compete with foreign low-wage countries where stand-
ards of living are simply lower than ours. This problem is magni-
fied when those exports are subsidized by foreign governments.
The tariff negotiations now being concluded have been a matter
of grave concern to those of us employed in the commercial china
industry and the communities in which we live. We know what
price levels are required to sustain a viable operation that can pay
negotiated union wages. We know that capital investments cannot
be made if profits cannot be generated to pay for those projects.
We can do a lot to offset some of the foreign wage differential
through capital investment, research and marketing programs.
However, we are virtually defenseless against subsidized exports
from a foreign nation.
Faced with the realities of the trade negotiations and an inevita-
ble tariff reduction, we have done our best to present the facts and
our point of view to the International Trade Commission and the
Special Trade Representative. We participated in all of their public
hearings and contributed further in many less formal sessions. We
believe we have been given a fair hearing and that a true effort
has been made to understand the problems of our industry and the
limited transferability of clay working skills.
Although our information is necessarily limited, it does appear
that the general framework of the ceramic tableware package ne-
gotiated by Ambassador Strauss is an effective compromise in re-
ducing tariffs while still providing a reasonable opportunity for our
industry to survive. We believe that a realistic tariff reduction will
not produce industry disaster if the proposed nomenclature
changes are kept as part of the package so that the tariff loopholes
are closed.
The present tariff schedules clearly intended a distinction be-
tween hotel and restaurant chinaware and household chinaware.
Unfortunately, the nomenclature contains definitions which are
both vague and contradictory when defining stoneware, bone china,
porcelain and subporcelain. This had made it impossible for the
U.S. Customs officials to determine which product was really hotel
and restaurant china. The loophole created is not only contrary to
the intent of Congress but it deprives the U.S. Treasury of revenue
and impacts adversely on our market.
To our knowledge, the ceramic tableware package negotiated in
Geneva corrects the existing confusion by applying a simple in-use
test to differentiate between the household market and the hotel
and restaurant market. If the ceramic tableware is for the house-
hold market, it is so classified, and if it is for the hotel and
restaurant market, it is so classified. These changes will restore the
original intent of the existing tariff schedules and make the job of
the Customs people more manageable while saving our industry
from being injured in a way never intended. The loopholes will be
PAGENO="0360"
352
closed by harmonizing the rate of duty on all ceramicware import-
ed for hotel and restaurant use and the intention of the law will be
clarified and reaffirmed.
The fact that the nomenclature of TSUS 533.51 is now obsolete
should be no surprise because all things change with the passage of
time and so have our market conditions. The present nomenclature
served its intended purpose well for over 40 years. Now is the time,
we suggest, to implement the President's request to "generally
bring the nomenclature into conformance with commercial condi-
tions prevailing at the present time." By taking this action we will
restore the historic distinction between commercial ware and bou-
sehold ware and bring that definition in line with the President's
request.
We see another benefit in the multilateral trade agreement in
addition to the closing of the loopholes. We understand that a
tighter control of subsidies granted by foreign governments to their
exporting industries is planned as part of the total agreement. As
already stated, we consider the foreign subsidies a serious problem
and are pleased to see it included in the negotiations.
We realize that this has been a difficult and complex negotiation
and we wish to commend Ambassador Strauss and his associates
for negotiating a ceramic tableware package that reduces an exist-
ing tariff, closes significant loopholes in the law and yet allows a
small, labor intensive industry the chance to compete.
Thank you.
[Attachment to the prepared statement follows:]
MEMBERS OF AMERICAN RESTAURANT CHINA COUNCIL, INC.
Buffalo China, Inc., Buffalo, N.Y.; Jackson China, Inc., Falls Creek, Pa; Mayer
China Co., Beaver Falls, Pa.; Shenango China Co., New Castle, Pa.; Sterling China
Co., East Liverpool, Ohio; Syracuse China Corp., Syracuse, N.Y.; and Walker China
Co., Beford, Ohio.
Mr. JENKINS. Thank you very much, Mr. Heebner, for your state-
ment.
Mr. Schuize?
Mr. ScHULZE. I have no questions.
Mr. JENKINS. Mr. Moore.
Mr. MOORE. I have no questions.
Mr. JENKINS. Thank you very much for your testimony and for
appearing before the committee.
Mr. HEEBNER. Thank you, Mr. Chairman.
Mr. JENKINS. Our last witness, representing the Syracuse China
Corp., Mr. Charles S. Goodman with Susan G. Esserman, counsel,
is now recognized.
We are pleased to have you before the committee. Your entire
statement will be made part of the record. You may summarize
your statement as you desire.
STATEMENT OF CHARLES S. GOODMAN, EXECUTIVE VICE
PRESIDENT, SYRACUSE CHINA CORP., ACCOMPANIED BY
SUSAN ESSERMAN, COUNSEL
Mr. GOODMAN. I am Charles Goodman, excecutive vice president
of the Syracuse China Corp. My statement will be brief, and I do
request that my full statement be incorporated in the record.
PAGENO="0361"
353
Mr. JENKINS. Without objection, so ordered.
Mr. GOODMAN. I am here today to support the efforts of the
administration to comply with the overall negotiating objectives
established by Congress in section 103 of the Trade Act of 1974. In
the act, Congress directed U.S. negotiators to reduce, eliminate,
and harmonize industrial trade distortions to the maximum extent
feasible. Pursuant to this direction, the Office of the Special Trade
Representative (STR) has negotiated to close a loophole in the tariff
classification for ceramic products that seriously threatens the very
existence of the American commercial chinaware industry. We at
Syracuse China emphatically support this position.
Low priced commercial chinaware products are being imported
from countries such as Brazil and Korea where the cost of wages is
a fraction of those by American companies. The wage difference is
the key. The commercial chinaware industry, whether American or
foreign, is extremely labor intensive. No matter how much the
producer automates, and American producers have made tremen-
dous investments in automation in recent years, labor represents
up to 70 percent of the total value of commercial chinaware.
The standard of living in the United States is high and workers
receive wages commensurate with that standard of living. Howev-
er, our competitors in Brazil and Korea operate in a fundamentally
different environment and pay their workers a small fraction of
American wages. In order to place American and foreign competi-
tors on an equal footing, Congress established in the tariff schedule
a 45-percent ad valorem rate of duty for commercial chinaware.
Yet commercial chinaware is being imported today without pay-
ment of the substantial duty mandated by Congress as it is being
erroneously imported as stoneware at a low rate of duty.
These low-priced products, however, are precisely the chinaware
products to which Congress intended to apply substantial duties.
The evidence on this point is overwhelming. The imports have been
vigorously marketed in the United States as hotel chinaware. You
have attached exhibit B to my statement an advertisement for fine
hotel chinaware which fully demonstrates this point. These imports
are being sold to the same hotels, restaurants, and other commer-
cial purchasers as our commercial products. In many cases, the
designs of the imports are mere copies of the designs developed by
the U.S. producers. As you can see from the photograph which is
attached to my statement and samples I brought along today, one
of Syracuse China and one of the imported product, these china
products are the same and the only difference detectable by the
purchaser is the much lower price of, the foreign product. Accord-
ing to all commercial standards, such as vitrification and degree of
absorbency, the imports are clearly chinaware.
This importation of nearly identical chinaware under the
stoneware classification is possible because the definitions of
chinaware and stoneware in the tariff schedules are imprecise.
Even worse, these definitions lend themselves to evasion by the
foreign manufacturer either by selective choice of the samples
given to the Customs or very slight variations in the manufactur-
ing process. Clearly, either misapplication of the tariff schedule
criteria or evasion must be now occurrring because articles that
PAGENO="0362"
354
are obviously chinaware are now entering as stoneware in large
quantities.
Even though these imports escape the substantial duty mandated
by Congress and are relatively cheap to manufacture because of
their low labor cost, they are being sold in the United States at a
price that does not truly reflect low production cost. The importers
by setting their prices just low enough to increase their share of
the American market are the only ones to profit from the loophole
in the tariff classifications. Neither the foreign manufacturers nor
the U.S. purchasers benefit from the low production cost. More-
over, the U.S. Treasury suffers because the prescribed duties are
not being collected.
The U.S. Government, recognizing this classification problem has
apparently negotiated to close this loophole at the multilateral
trade negotiations. The new classification would require ceramic
product marketed in the United States as commercial, hotel or
restaurant ware to be classified on the basis of use. The same rate
of duty would apply to ceramic hotel, restaurant, and other non-
household ware, whether chinaware or stoneware. This classifica-
tion avoids the complexities and potential for abuse inherent in the
existing tariff schedules. The STR should be commended for its
efforts and its recommendation should be ratified by Congress.
Recently, however, representatives of the foreign exporters have
begun an intensive lobbying campaign against this new and realis-
tic classification. These foreign interests seek nothing more than
perpetuation of the loophole in the tariff schedules, a loophole
which earns them fat profits but which threatens the profitability
of U.S. companies and jobs of thousands of American workers. We
in Syracuse China urge Congress to ignore this 11th hour campaign
and adopt the much needed new classification reform which the
U.S. Government has negotiated at Geneva.
Thank you.
Mr. JENKINS. Thank you for a very fine statement, Mr. Good-
man.
[The prepared statement follows:]
STATEMENT OF CHARLES S. GOODMAN, EXECUTIVE VICE PRESIDENT, SYRACUSE
CHINA CORP.
Good morning, I am Charles Goodman, executive vice president of the Syracuse
China Corp. I am here today to support the efforts of the administration to comply
with the overall negotiating objectives established by Congress in section 103 of the
Trade Act of 1974. In that act, Congress directed U.S. negotiators to reduce, elimi-
nate, and harmonize industrial trade "distortions" to the maximum extent feasible.
Pursuant to this direction, the Office of the Special Trade Representative (STR) has
negotiated to close a loophole in the tariff classification for ceramic products that
seriously threatens the very existence of the American commercial chinaware in-
dustry. We at Syracuse China emphatically support this position.
I. Summary: The threat posed by low-priced imports
The American commercial chinaware industry is in a precarious state. Low-priced
commercial chinaware products are being imported from countries, such as Brazil or
Korea, where the cost of wages are a fraction of those incurred by American
companies. These products are imported without payment of the substantial duty
mandated by Congress in the tariff schedules of the United States. Congress, in
order to place the American commercial chinaware industry on a competitive
footing with its foreign rivals, established in the tariff schedules a 45 percent ad
valorem rate of duty for commercial chinaware. (See exhibit A.)
PAGENO="0363"
355
However, these imports are being brought in as stoneware at a low rate of duty,
even though they are advertised as chinaware, sold to the same hotels, restaurants,
and other commercial customers as are domestic china products, and are considered
chinaware under all of the long-established commercial standards in the industry.
Moreover, the designs of these imports are often copies of the designs of American
producers. The importation of this nearly identical chinaware under a stoneware
classification is possible because the definitions of "chinaware" and "stoneware" in
the tariff schedules are imprecise and confusing, difficult to apply, and defy well-
established commercial standards for chinaware and stoneware.
The U.S. Government, recognizing this classification problem has apparently suc-
ceeded at the multi-lateral trade negotiations (MTN) in negotiating a new classifica-
tion that would require ceramic products marketed in the United States as commer-
cial hotel or restaurant ware to be classified on the basis of use. That approach is
simple to apply and reflects commercial reality.
Recently, however, representatives of the foreign exporters, in an attempt to
prevent adoption of this new and realistic classification, have begun an intensive
lobbying campaign to maintain their ability to evade the duty prescribed by Con-
gress. In the interet of preserving the jobs of thousands of American workers and
the existence of the eight remaining United States companies, we at Syracuse China
urge Congress to reject this belated and unjustified campaign. We therefore urge
Congress to approve the classification revision negotiated at Geneva.
II. The import problem
The classification revision is needed to protect domestic producers and workers in
a labor-intensive industry from low-priced imports from countries where labor is
relatively cheap. This is not a case of protecting an inefficient United States
industry. American producers of commercial chinaware have made tremendous
investments in automation in recent years and are as modernized, automated, and
efficient as any in the world.
The difference in wages between the United States and the countries from which
these low-priced products are imported is the key. The commercial chinaware indus-
try is extremely labor-intensive. No matter how much a producer automates, and
regardless of whether the chinaware is produced in this country or abroad, labor
will represent approximately 70 percent of the total value of commercial chinaware.
The standard of living in the United States is high and workers expect to receive
and do receive wages commensurate with that standard of living. However, our
competitors in less-developed countries, such as Brazil and Korea, operate in an
environment fundamentally different from the United States, and they pay their
workers a small fraction of American wages. In recognition of this problem and in
order to place American and foreign competitors on an equal footing, Congress
established a substantial duty on imported chinaware.
III. The need for a tariff cla.ssification revision
There is no doubt that the low-priced products now entering this country are
precisely the chinaware products to which Congress intended to apply substantial
duties. The evidence on this point is overwhelming:
"The imports are being vigorously marketed in the United States as `hotel
chinaware.' Exhibit B to this statement, an advertisement for `fine hoteiware china',
fully demonstrates this.
"These imports are being sold to the same hotels, restaurants and other commer-
cial purchasers as are commercial chinaware products.
"In many cases, the designs of the imports are mere copies of the designs devel-
oped by United States producers. As exhibit C illustrates, the only difference detect-
able by the purchaser is the much lower price of the foreign product.
"According to all of the commercial standards recognized in the United States,
such as vitrification and the degree of absorption, the imports are clearly
chinaware."
Yet these imports have been entering the United States as stoneware at a rate of
duty less than one-fourth the duty levied on chinaware. This inequitable situation
exists because the present provisions on ceramic ware in the tariff schedules are
complex and ambiguous, which is readily apparent from a brief glance at exhibit D
to this statement.
The current interpretation of these provisions is that the crucial distinction
between chinaware and stoneware is the degree of translucence of the imported
product-a factor that has no commercial significance whatsoever. That test is
difficult to apply in practice. Even worse, it lends itself to evasion by the foreign
manufacturer, either by selective choice of the samples given to Customs for testing
or by slight variations in the manufacturing process. Clearly, either misapplication
PAGENO="0364"
356
of the test or evasion by the exporter must now be occurring, because articles that
are obviously chinaware are now entering as stoneware in large quantities.
Even though these commercial chinaware imports escape the substantial duty
mandated by Congress and are relatively cheap to manufacture because of low labor
costs, the imports are sold to commercial customers in the United States at a price
that does not reflect the low production costs. Thus, the importers, by setting the
price below the price of American commercial chinaware just enough to increase
their share of the market, are the only ones to profit from the loophole in the tariff
classifications. Neither the foreign manufacturers nor the commercial purchasers in
the United States benefit from the low production costs. Moreover, the U.S. Treas-
ury suffers, because the prescribed duties are not being collected.
IV. The successful result of the multilateral trade negotiations
Early in the MTN process, our industry appeared before the Office of the Special
Representative for Trade Negotiations in public hearings to apprise it of the classifi-
cation problem. Those were open hearings, where all interested parties had an
apportunity to state their views. No one opposed our position.
We urged the STR to seek in the MTN a more rational classification system for
ceramic products. Specifically, we urged that commercial china be classified on the
basis of its use, thus avoiding the complexities, uncertainties, and potential for
abuse inherent in the present Tariff Schedule criteria. We proposed that the same
rate of duty apply to ceramic hotel, restaurant, and other nonhousehold ware,
whether chinaware or stoneware. This classification scheme would ensure that
commercial china is classified in a way that reflects competitive reality and thus
would accomplish the purpose intended by the Congress..
This use concept was adopted by the STR as a negotiating goal of the United
States. We understand that the Tokyo Round agreements will include this new and
more realistic classification. The STR should be commended for its efforts, and the
result they have achieved should be ratified by Congress.
V. The threat: A last-minute political campaign by foreign interests
Throughout the MTN advisory process, foreign producers of commercial china and
their United States importers and distributors remained silent. That silence is
easily explained. When your present competitive advantage derives from a mere
technical loophole and impacts so severely on American industry and labor, you
cannot very well expose your position to the scrutiny of public debate.
Now, however, those same foreign producers and their United States importers
have begun a last-minute political campaign to undo the constructive result of four
years of public hearings, careful administrative considerations, and intensive inter-
national negotiation. That campaign is being directed at the STR, the Congress, and
even the White House.
This belated effort does not deserve serious consideration. These foreign interests
seek nothing more than the perpetuation of a loophole in the tariff schedules-a
loophole which earns them fat profits, but which threatens the profitability of
United States companies and the jobs of thousands of American workers. On behalf
of the U.S. commercial china industry-its companies, its investors, and its employ-
ees-we urge Congress to ignore this eleventh hour campaign and to adopt the
much-needed new classification reform which the U.S. Government has negotiated
at Geneva.
PAGENO="0365"
357
Part 2 NONMETALLIC MINERALS & PROD.
533.Gg
Pottery-ContInued
Artlcle.ch)efly used for pcepo.rlno. serelni. or stosisig food
or heverases. or food or beverage lngredlenta-.COotInOed
Of floe.giw.lned eo.rtheowaze except artIcles provided
for In lOoms 533.14 end 333.14) or of flne.gralned
stcoewanc
Available In specifIed ida
In asp pattern for which the agorecate value of
the articles listed in headsets 2(b) of this sub-
part Is not over 13.30.
In any pattern for which the surceaSe value of
the articles listed In headnote 2(b) of this sub'
part is over $3.30 but not over $7.
In any pattern for which the aggregate value of
the artIcles listed to headnote 2(5) of this sub-
part is over $7 but not over $12.
In any pattern for which the sggreeate value of
the artIcles listed to headnots 3(b) of this sub-
part hover 112.
Not available In specIfied seta
StaIns, muss. candy boxes. demnters. punch
bowls, pretzel dishes, tidbIt dIsh... tiered sure.
eve. and bonbon dishes.
Other articles
Cups valued not over $0.50 par dozen, mu.
errs valued notover 00.30 per dozen. plates
not over 1 Inches in maxImum diameter
and valued not over 50.50 per dozen, plates
over $ but not over 11 lathes in maximum
diameter and valued not over 01 per doees.
and other artIcles valued not over $1 per
dozen.
Cups valued over $0.00 but not over $1 per
dozen. saucers valued over 00.30 but not
over $0.33 per dozen, plates not over
Inches In ina.ol.mum dIameter aid valued
over $0.30 but not over $0.10 per dozen,
plates over 5 but not over 11 Inches In
maximum dIe~seIer and valued over 01 but
not over ut.33 per doom, and other articles
valued over It but not over $2 pee dozen.
Cupa valued over 51 but not over $1.70 per
dozen, saucers valued over $0.33 hut not
over $0.53 per dozen, plates not over
Inches In sosolvoum dis.mvtee and valued
over $0.00 but not over $1.55 per doses.
plates over I but not over 11 Inches In
maximum dIameter and valued uver $1.55
hut not over 02.05 per doses. and other ar~
tides valued over $2 but not over $3.45 per
dozen.
Cups valued over $1.70 per doves. saucers
valued over 10.03 per doses, plates not
over 0 Inches In maximum diameter and
valued over $1.13 per dozen, plates over I
but not over 11 Inches In maximum dlame.
ter and valued over $2.03 per doses. and
other articles valued over $3.40 per dosen.
333.41 Of bone ~
Of nonboneehlnaware or of ssbperce)alzt
533.31 )tote) or restaurant ware and other ware not house.
hold ware.
Household ware avaIlable In specIfIed sets
533.03 In any pattern (or which the aggregate value of
the artlcleu listed In headnote 2(b) of this sub-
part is not over $10.
353.10 In any pattern for which the aggregate value of
* the artIcles listed In heo.dnote 2(b) of this sub-
part Is over $10 butnotover 024.
533.es In any pattern for which the aggregate value of
the art)ciea listed In heudnote 3lb) of this sub-
ps.et is over $24 but not over $50.
133.60 In any pattern for whIch the ageregate value of
the artic)es listed In headnote 215)00 this sob-
partis over $50.
533.01 ` Not covered by Item 133.03. 133.03. 133.00 or
533.45. and In any pattern for which the aggre'
sole value of the artIcles listed In headnote
2(c) of this subpart isover $5.
See footnotes at end of table, p. 440.
Se per doe.. pm. +51% ad tOe per dos. pm. +50% ad
val. cal.
Puss 1-Cn*woe Pooevcrs-Cositlnssd
12$ P.R 0*413
05? Item
.
ArUcles
RatssofOzty
2
1
A $33.23
A $33.33
A $33.24
533.2$
533.11
$33.33
533.25
323.3$
323.3$
A
)e per dos, pm. +14% ad
vol.
LIe per dos. pm, +21% ad
val.
lot per dos. pm. +21% ad
vaL
Soperdos, pm. +10.5% ad
va.l,
50 perdos, pm. +i2.S%ad
vaL
to perdm, pm. +12.5% ad
vaL
101 per doe.. pm. +21% ad
cal.
104 per dos. pm. +21% ed
vaL
tOe per dos. pm. +50% ad
vaL
lIe per dos, pm. +50% ad
vaL
101 per des. pm. +00% ad
vol.
100 per dos. pm. +50% ad
val.
tOe per dos. ~ +50% ad
vol.
100 per dos. pm, +50% ad
vaL
101 per dm, pm, .30% ad
val.
iso per dos. pm. +50% sO
cal.
100 per dos. pm. ÷41% ad
vs.'.
106 per dos. pm. +41% ad
voL
00 per dos. pm, +$5% ad
vol.
104 per dos, pm. v.30% ad
oal,
to per dos. pm. +15% ad
vn.I.
to per dos. pm. +10% ad
val.
`Os per des. pm. v.70% ad
voL
106 per doe.. pm. +70% ad
val.
tOo per dos. pm. +70% ad
vol.
100 per dos. pm. +70% sO
cal.
toe per dos. pm. +70% ad
vol.
lIe per des. pm. +70% ad
vol.
100 per dos, pm. +70% ad
val.
429
EXHIBIT A
PAGENO="0366"
358
If the underside of your tableware bears the Mark of REGO, you can
be confident that long-lasting quality has been fired into it.
REGO is the new fine hotelware china with a difference. It is the
culmination of more than a thousand-year-old Oriental potters' art refined
to meet American standards and immediately available in all patterns at
surprisingly reasonable cost. It is the mark of fine china.
Hotelware bearing the Mark of REGO is conveniently coded on the
underside of each piece so you will always know what is in your inventory
just as your customers will always know that you only serve the best.
The Mark of REGO- a new standard for memorable and lasting
service at affordable prices - is available exclusively through THC.
U
I
EXHIBIT a
PAGENO="0367"
359
EXHIBIT C
PAGENO="0368"
360
TARIFF SCHEDULES Schedule 5
Parr 2-Cuossoc Pnogvcrs
125 PR. 0849)
00? iteas
ArtIcles
*
Rites of Duty
1
2
Poe) 20esdsole-s
1. This part covers ceramic warn, and articles of such
wares and, In addition. certa,ln uo~haped refractory ma
torts.) taubps,rt A) closely related thereto.
2. For the purposes of tie tariff schedules-
(a) "ceramic artIcle" Is & shaped article having ii
glaued or unglazed body of crystalline or substan-
tially crystalline structure, which body Is composed
essentially of inorganic nomi.wetallln suhut.s,nces and
either l.a formed from & noolten mass whIch uolldties
on cooling, or Is formed and suboe~ueotly hardened
by such heat treatcoeot that the body, if reheated
to pyrnwetctc cone 020, would no' become wore
dense, harder, or less porous, boo does not Include
any alias article:
(b) the terms "earthenware" esobraces ceranoicl
ware,'whe)her or not gis,oed or decorated, hating al
fIred body which contaIns clay as an essential Ingre-
dIent and sill absorb wore titan 3.0 percent of Its
weight of s.ater
in) the term "stoneware" embraces ceranoio ware
whether or not gls.oed or dennrated, hating a fired
body whIch cnci.s.ins clay as an essential ingredient,'
Is not cnmroonly white, sill absorb not wore than
3.0 percent of its weight of water, and to naturally
opsuue except los cery thin piecesi eves wheo fully
cltrtf led:
(di the term "subpoenelaln" embraces Otoegralned
ceramic ware other than stoneaarei, whether or
not glazed or decorated, having a fired body which
Is while (unless artificially colored) and will absorb
wore than 0.5 percent hot not wore than 3.0 per
cent of its weight of water,
Ce) the terms "chinaware" and "porcelain" em-I
brace fioegsainrd cvra,mic save 1000cc than
stonewas'e), whether or not glazed or decorated,
baring a body shlnh Is white iucieas aetllirlaily co)
oredi and sc)] not absorb more than 0.5 percent of
lbs weight of water
(ft the term "bone chinaware" embraces
chinaware or p,ircefain the body of which cootalcis
by weight 25 percent or wore `if ca.lcined hooe:
(gt the term "noobone chinaware" embraces
chinaware or porcelain other than bone chInaware:
hi the term "coarse.g'rained", as applied to ce
rantlc ware, embraces ouch wares having a body
made of materials none of which had been washed,
ground, or otherwise heneflclai,ed:
ID the term "finegraloed", as apyiird to ceramic
wares, embraces such wares baring a body recode of
materials any of which had boeo washed, ground, or
otherwise henellniated; sod
fJt the term "body" includes any engnbe or body
slip, enccpt engobe or body slip applied to Ihe body
ass decoration; and
(hI the hater absorption of a ceramic body shalt
be determined by ASTM test method deulgoated
C373-5) ieocept that awl speclzneiss way hair a
mInImum weIght of 10 grams, and may hare ooe
large surface glazed).
Sabpart A-Refractory and Heat-Iosul.ating Articles
SabpsrfAheodsnfes,'
1. This subpart does net corer ceramic electrical wore
(see subpart Dot this part).
2, For the purposes nO this subpart, "a heat'inaulattng
article", whether shaped or nut shaped, is 0cc hanto.g a
bulk density cot over `15 pounds per cuoic fool and dc
sIgned to Impede or resist the flow of heat at tempera-
tures above 1000'?.
3, For the purposes of this subpart, "a refractory arti.
ale", whether shaped or not shaped, Is one haciog a
bulk density ooer 75 pounds per cubic foot acid desIgned
to be uued to cesist temperatures above 2000' F. A
shaped refractory article ba.s special yrcpertirs of
strength and resLstanne ot thermal shunt and map also
have, depecdlng upon the particular uses fur which dc
sl*ned, other specio,l properties such as resIstance to
abrasion and cnrrouiosu,
4, For the purposes of items 53t.2t and 531.24. a Inch
which contains both chrome and magnesite is classlf I.
able according to which of those components Is thr
greater by weight,
426
EXHIBIT D
PAGENO="0369"
361
Mr. JENKINS. Mr. Schuize?
Mr. SCHULZE. No questions, Mr. Chairman.
Mr. JENKINS. Mr. Moore?
Mr. MOORE. No questions.
Mr. JENKINS. Thank you very much for your testimony.
Ms. ESSERMAN. Could we give you the samples for your examina-
tion?
Mr. JENKINS. Certainly. The retail price is under $25, I assume.
Thank you very much, Mr. Goodman and Ms. Esserman.
These being the final witnesses for today, the committee will
stand in recess until 10 o'clock tomorrow morning.
[Whereupon, at 3:10 p.m., the subcommittee recessed, to recon-
vene at 10 a.m., Thursday, April 26, 1979.]
~`4-998 - 79 - 24
PAGENO="0370"
PAGENO="0371"
MULTILATERAL TRADE NEGOTIATIONS
THURSDAY, APRIL 26, 1979
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON TRADE,
COMMITTEE ON WAYS AND MEANS,
Washington, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in room
1100, Longworth House Office Building, Hon. Ed Jenkins presiding.
Mr. JENKINS. The committee will come to order. Because of the
long list of witnesses for this morning the subcommittee will com-
mence hearings as other members come into the hearing room.
At this time we have our first witnesses representing the Ameri-
can Paper Institute and National Forest Products Association, Mr.
J. Stanford Smith, chairman and chief executive officer of Interna-
tional Paper Co., and Dr. Irene W. Meister, vice president of inter-
national affairs for American Paper Institute. If you will come
forward and have a seat at the witness table.
We are delighted to have you appear before the subcommittee
today. The written statement that you have prepared will be made
a part of the record in its entirety and you may summarize or
proceed as you desire.
STATEMENT OF J. STANFORD SMITH, ON BEHALF OF THE
AMERICAN PAPER INSTITUTE AND THE NATIONAL FOREST
PRODUCTS ASSOCIATION, ACCOMPANIED BY IRENE W. MEIS-
TER, VICE PRESIDENT, INTERNATIONAL AFFAIRS, AMERICAN
PAPER INSTITUTE, AND JOHN WARD, NATIONAL FOREST
PRODUCTS ASSOCIATION
Mr. SMITH. Thank you. I am J. Stanford Smith, chairman and
chief executive officer of International Paper Co.
I am testifying today on behalf of the American Paper Institute
and the National Forest Products Association. These organizations
represent manufacturers producing about 90 percent of the na-
tion's pulp, paper, and paperboard, and over 3,000 companies who
produce the vast bulk of the nation's solid wood products. Testify-
ing with me will be Dr. Irene W. Meister, vice president of the
American Paper Institute and chairman of the industry sector
advisory committee on paper. Also appearing with me is John
Ward, representing the National Forest Products Association.
I appreciate this opportunity to discuss with you the crucial
importance of the multilateral trade agreements to the nation as a
whole and to the forest products industry-an industry which em-
ploys about 8 percent of the U.S. manufacturing labor force, sells
roughly $100 billion worth of products, invests around $5 billion a
(363)
PAGENO="0372"
364
year in new facilities, accounts for $5 billion of direct exports, and
whose products make possible many more billions of dollars of
exports by other industries.
I have had the opportunity to serve on the President's Advisory
Committee for Trade Negotiations as well as the industry policy
advisory committee. And I am deeply impressed by the Herculean
job that Ambassador Strauss, and his associates have done in the
most ambitious round of trade negotiations ever held.
Every thoughtful citizen should strongly support this major step
toward a world trading system based on greater efficiency in pro-
duction and fairness in opportunity. By greatly increasing export
opportunities for U.S. industries, the trade agreements will: One,
contribute to economic growth; two, create more jobs; three, im-
prove productivity; four, help reduce inflation; and five, provide
better values for consumers.
For the U.S. forest products industry, these new trade agree-
ments open up opportunities. The industry's raw material-trees-
is a renewable resource. The productivity of U.S. forests has in-
creased dramatically as a result of the large investments made by
the industry. Consequently, the forest products industry can com-
pete successfully anywhere in the world provided it's not hampered
by unfair trade barriers.
Specifically, new export opportunities will open up for the U.S.
forest products industry through lowering of world tariffs on such
products as plywood, linerboard, and printing/writing papers.
The worldwide competitive position of the forest products indus-
try will be further strengthened by the negotiated agreements on
nontariff barriers. The forest products industry stands to gain the
most from three of these-the codes covering government subsidies,
standards, and customs valuation.
Reductions in tariff and nontariff barriers, will create opportuni-
ties for additional investment to meet growing demand for forest
products worldwide. Investments by the forest products industry to
serve domestic and world markets have grown at 11 percent a year
during the past 10 years. The potential for expanded trade result-
ing from the MTN agreements, as well as growing domestic
requirements, could boost the rate of investment of the forest prod-
ucts industry to at least 15 percent a year in the decade ahead.
Increased exports and investment will mean more U.S. jobs.
Today approximately 140,000 jobs, or close to 10 percent of the
total employment in the forest products industry, are either direct-
ly or indirectly dependent on exports. A significant portion of this
employment is in the South where minorities are a very important
segment of the work force.
And in addition to increased employment in the forest products
industry, will come added job opportunities in the capital goods and
raw materials industries which supply our needs.
No trade package could succeed in gaining all the advantages to
which any single industry or any country is looking. But these
agreements go a long way toward setting down some workable
solutions to the complex trading problems we face today.
I am pleased to see that publications like the New York Times,
Wall Street Journal, and Washington Post have all come out
PAGENO="0373"
365
strongly in favor of the new trade package. An editiorial in the
latest issue of Business Week emphasizes that:
The U.S. must look out for its exporters and push their interests in every way it
can. If this country does not claim its fair share of expanding world markets, it can
be sure that aggressive exporters from Europe and Japan will.
For the United States to reap the full benefits of the trade
agreements, it is vitally important that these agreements become
part of an aggressive export policy. We hope the Congress will take
leadership in this.
Specifically, consideration should be given to the following:
Secure a strong legislative commitment to a national export
policy to regain and strengthen a balance in our trade position.
Create investment incentives that would improve the competi-
tiveness of American industry in world markets. This is especially
important, given the decline in the U.S. manufacturing trade bal-
ance from surplus of $3.6 billion in 1977 to a deficit of $5.8 billion
in 1978.
Authorize the Trade Policy Staff Committee to hold hearings
annually in several parts of the country in order to take testimony
regarding the U.S. international trade position and policies. This
committee would then submit reports to the STR and the Interna-
tional Trade Advisory Council.
These recommendations for expanding U.S. Exports are in line
with those being put forth by the Advisory Committee for Trade
Negotiations.
In addition, there is a strong need to establish a focal point
within the executive branch for the management of U.S. trade
policy. In the past, lack of effective coordination and sustained
attention to the formulation and execution of trade policy contrib-
uted to decline in our trade balance.
Mr. Chairman, this concludes my prepared testimony. After
Irene Meister's testimony, I will be pleased to try to answer any
questions you or the members of the committee may have.
Before proceeding with Irene Meister's testimony, may I also
introduce John Ward, who is sitting with me, as the representative
of the National Forest Products Association.
Ms. MEISTER. The industry sector advisory committee on paper,
ISAC No. 4 which I have the privilege of chairing, met last week to
evaluate the results of the MTN and to prepare our report for
Congress.
Let me summarize briefly, Mr. Chairman, the ISAC's position
within the framework of our industry's particular needs.
In 1978, paper industry's exports were about $2.6 billion, but our
dependence on trade is much greater, close to $8 billion, when
indirect exports are taken into account. Tariffs which are high in
all of our major markets are the industry's biggest problem.
The key objective of the ISAC therefore has been to obtain
significant reductions of tariffs in the European community, Japan
and Canada.
We are grateful to Ambassador Strauss and his associate for the
major efforts they have made on behalf of our industry and the
results they have achieved.
PAGENO="0374"
366
Our negotiators had a difficult task, especially because protec-
tionist pressures from the paper industry in several of our markets
were exceptionally strong.
In the economic community we face a very special additional
problem-lack of tariff parity with our major competitors, the
Nordic countries. This disparity is growing and by 1984 tariffs on
paper and paperboard coming from Scandinavia will be zero.
Currently EC tariffs on our products range mostly from 8 to 14
percent. The Community tariff offer will not eliminate this lack of
tariff parity, but without the agreed upon tariff reductions, the
disparity would be much greater.
We still have one serious problem in the EC negotiations con-
cerning the definition of kraft products which we have detailed in
the ISAC preliminary report to Congress.
We hope the issue will be resolved soon for otherwise the value
of the EC tariff offer will be greatly impaired. Furthermore the
United States has proposed to the EC a solution of this issue that
would be fair and equitable for both the producing and consuming
countries.
In Canada and Japan where tariff on paper and paperboard are
still very high we have received meaningful concessions which will
improve the U.S. paper industry's competitive position in these
markets.
The ISAC report to Congress and our written testimony to your
committee comment in detail on the reasons for the paper indus-
try's strong support of the non tariff agreements. We are especially
supportive of the agreement on subsidies and countervailing duties
because capital intensive industries such as paper are receiving
government subsidies in more and more countries.
We believe that the recently negotiated GATT code on subsi-
dies-assuming it is effectively enforced-could provide a signifi-
cant safeguard for our industry in the domestic market as well as
in third country markets. Codes on standards and customs valua-
tion are also important to us.
Let me turn briefly to yet another reason why the paper indus-
try strongly supports the trade agreements which we believe will
help the cause of export expansion. I am now speaking of the
multiplier effect of indirect exports on domestic production and
employment.
We define the paper industry's indirect exports as our domestic
sales that take place only because of the export demand for the
products of other industries. Packaging for exports and paper for
exported printed matter are the best examples, but there are many
others.
For 1977, the latest data we have, our industry's indirect exports
were estimated at close to $5 billion. Attached to our written
testimony is tabulation compiled by the American Paper Institute
which estimates that foreign trade related employment in our in-
dustry-that is, employment related to direct and indirect ex-
ports-accounts for about 15 percent of total industry employment
or over 103,000 workers. As overall U.S. exports grow so will the
indirect exports of our industry.
In the course of its meeting last week, the ISAC 4 made the
following recommendations for the implementing legislation:
PAGENO="0375"
367
One, implementing legislation should reflect the provisions of
negotiated codes and agreements as closely as possible.
Two, enforcement of countervailing duties and antidumping laws
must be strong, fair and effective, at the same time in fashioning
relief for an injured industry the government must have the neces-
sary flexibility to affect relief without creating widespread retali-
atory trade problems. Such relief would include a negotiated solu-
tion when appropriate.
Three, implementing legislation must contain provisions for the
continuation of the private sector advisory process for each major
industry sector represented. There should be an advisory mecha-
nism to deal with functional issues as well as giving each sectoral
committee an opportunity to participate when appropriate.
Four, the President should be given an extension of his tariff
negotiating authority.
Five, there should be an expression of legislative intent that
foreign trade is a national priority and that an effective U.S.
governmental organization for dealing with foreign trade policy
and programs is imperative. Better coordination of trade policy and
programs is necessary but specific legislation, dealing with govern-
mental reorganization should be left to the immediate post MTN
period.
In summary export expansion should be clearly identified by
Congress and the Executive Branch as a national priority. To reach
this goal will require a concerted effort on the part of the U.S.
government and industry.
The paper industry is convinced that congressional approval of
the MTN package is essential if the country is to succeed in this
undertaking.
Thank you very much.
[The prepared statement follows:]
STATEMENT OF J. STANFORD SMITH, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, INTER-
NATIONAL PAPER Co., ON BEHALF OF THE AMERICAN PAPER INSTITUTE AND NATION-
AL FOREST PRODUCTS ASSOCIATION; AND DR. IRENE W. MEISTER, VICE PRESIDENT,
INTERNATIONAL AMERICAN PAPER INSTITUTE, ON BEHALF OF THE AMERICAN PAPER
INSTITUTE
SUMMARY
The multilateral trade agreements are in the best interest of the nation, and of
the forest products industry. Every thoughtful citizen should strongly support this
major step toward a world trading system based on greater efficiency in production
and fairness in opportunity. The testimony makes a number of specific recommen-
dations on export expansion and implementing legislation.
For the U.S. forest products industry, these new trade agreements open up oppor-
tunities. Specifically:
1. New export opportunities will open up through lowering of tariffs by the
European Community, Japan, and Canada-three of the largest markets for prod-
ucts such as plywood, linerboard, and printing/writing papers.
2. The worldwide competitive position of the forest products industry will be
further strengthened by the negotiated agreements on non-tariff barriers. The forest
products industry stand to gain the most from three of these-the codes covering
government subsidies, standards, and customs valuation.
3. The potential for expanded trade for the forest products industry resulting from
the MTN agreements, as well as growing domestic requirements could boost our
rate of investment at least 15% a year in the decade ahead.
4. Increased exports and investment will create new job oportunties-not only
within the forest products industry, but in the capital goods and raw materials
industries which supply our needs.
PAGENO="0376"
368
5. An overall increase in U.S. exports will have a multiplier effect on the domestic
sale of forest products such as packaging for exported products, and paper for
exported printed matter.
For the U.S. to reap the full benefits of the trade agreements, it is vitally
important that these agreements are made part of an aggessive export policy. We
hope Congress will take leadership in this.
STATEMENT
Mr. Chairman, Members of the Committee, I am J. Stanford Smith, Chairman
and Chief Executive Officer of International Paper Institute and the National
Forest Products Association. These organizations represent manufacturers produc-
ing about 90 percent of the nation's pulp, paper, and paperboard, and over 3,000
companies who produce the vast bulk of the nation's solid wood products. Testifying
with me will be Dr. Irene W. Meister, Vice President of the API. and Chairman of
the Industry Sector Advisory Committee on Paper.
I appreciate this opportunity to discuss with you the crucial importance of the
multilateral trade agreements to the nation as a whole and to the forest products
industry-an industry which employs about 8 percent of the U.S. manufacturing
labor force, sells roughly $100 billion worth of products, invests around $5 billion a
year in new facilities, accounts for $5 billion dollars of direct exports, and whose
products make possible many more billions of dollars of exports by other industries.
In addition, the U.S. is also an importer of forest products-mostly softwood
lumber, newsprint, and pulp from Canada. The industry's heavy involvement in
both imports and exports gives it a broad perspective from which to judge the
merits of this trade package.
I have had the opportunity to serve on the President's Advisory Committee for
Trade Negotiations as well as the Industry Policy Advisory committee. And I am
deeply impressed by the Herculean Job that Ambassador Strauss, and his associates
have done in the most ambitious round of trade negotiations ever held.
Every thoughtful citizen should strongly support this major step toward a world
trading system based on greater efficiency in production and fairness in opportuni-
ty. By greatly increasing export opportunities for U.S. industries, the trade agree-
ments will: Contribute to economic growth; create more jobs; improve productivity;
help to reduce inflation; and provide better values for consumers.
For the U.S. forest products industry, these new trade agreements open up oppor-
tunities. The industry's raw material-trees-is a renewable resource. The produc-
tivity of U.S. forests has increased dramatically as a result of the large investments
made by the industry. As a result, the forest products industry can compete success-
fully anywhere in the world provided it's not hampered by unfair trade barriers.
Specifically:
1. New export opportunities will open up for the U.S. forest products industry
through lowering of world tariffs on such products as plywood, linerboard, and
printing/writing papers.
2. The worldwide competitive position of the forest products industry will be
further strengthened by the negotiated agreements on non-tariff barriers. The forest
products industry stands to gain the most from three of these-the codes covering
government subsidies, standards and customs valuation.
3. Reductions in tariff and non-tariff barriers, combined with proper domestic
incentives, will create opportunities for additional investment to meet growing
demand for forest products worldwide. Investments by the forest products industry
to serve domestic and world markets have grown at 11 percent a year during the
past ten years. The potential for expanded trade resulting from the MTN agree-
ments, as well as growing domestic requirements, could boost the rate of investment
of the forest products industry to at least 15 percent a year in the decade ahead.
4. Increased exports and investment will mean more U.S. jobs. Today approxi-
mately 140,000 jobs, or close to 10 percent of the total employment in the forest
products industry, are either directly or indirectly dependent on exports. A signifi-
cant portion of this employment is in the South where minorities are an important
segment of the work force.
And in addition to increased employment in the forest products industry, will
come added job opportunities in the capital goods and raw materials industries
which supply our needs.
No trade package could succeed in gaining all the advantages that any single
industry or any country is looking for. But these agreements go a long way toward
setting down some workable solutions to the complex trading problems we face
today.
PAGENO="0377"
369
I am pleased to see that publications like the New York Times, Wall Street
Journal, and Washington Post have all come out strongly in favor of the new trade
package. An editorial in the latest issue of Business Week emphasizes that, "The
U.S. must look out for its exporters and push their interests in every way it can. If
this country does not claim its fair share of expanding world markets, it can be sure
that aggressive exporters from Europe and Japan will."
For the U.S. to reap the full benefits of the trade agreements, it is vitally
important that these agreements become part of an agressive export policy. We
hope the Congress will take leadership in this.
Specifically, consideration should be given to the following:
1. Secure a strong legislative commitment to a national export policy to regain
and strengthen a balance in our trade position.
2. Create investment incentives that would improve the competitiveness of Ameri-
can industry in world markets. This is especially important, given the decline in the
U.S. manufactures trade balance from a surplus of $3.6 billion in 1977 to a deficit of
$5.8 billion in 1978.
3. Maintain a strong system of advisory committees, which has proven effective in
this round of negotiations. Change ACTN into International Trade Advisory Coun-
cil, reporting to both the President and the Congress.
4. Assure fairer tax treatment for U.S. business nationals who work aboard. This
would help to maintain effective personnel for the sale of U.S. products abroad.
5. Authorize the Trade Policy Staff Committee to hold hearings annually in
several parts of the country in order to take testimony regarding the U.S. interna-
tional trade position and policies. This committee would then submit reports to the
STR and the International Trade Advisory Council.
6. Legislatively establish a National Commission on Productivity consisting of 20
members representing labor, industry, the academic community, the Congress, and
the Executive Branch. Their mission would be to analyze the causes of declining
productivity in America including their impact on foreign trade, and to recommend
to the President ways of correcting the problem. The President should then submit
a report to the Congress within four months on the same subject.
These recommendations for expanding U.S. exports are in line with those being
put forth by the Advisosry Committee for Trade Negotiations.
In addition, there is a strong need to establish a focal point within the Executive
Branch for the management of U.S. trade policy. In the past, lack of effective
coordination and sustained attention to the formulation and execution of trade
policy contributed to a decline in our trade balance.
Mr. Chairman, this concludes my prepared testimony. After Irene Meister's testi-
mony, I will be pleased to try to answer any question you or the members of the
committee may have.
STATEMENT OF IRENE W. MEISTER
Mr. Chairman, Members of the Committee, Mr. Smith has just outlined the broad
reasons for our industry's strong support of the Trade Package that you have before
you. Your committee will be receiving a detailed report completed last week from
the Industry Sector Advisory Committee on Paper (ISAC No. .4 position within the
framework of our industry's particular needs.
The export performance of the U.S. paper industry has shown steady growth.
Comparing 1967 with 1977-and taking into account that 1977 was not paper's best
year due to lagging recovery in other industrial countries-the industry's export
tonnage, including exports of waste paper, increased' by almost 83 percent and the
value of exports rose by 237 percent to $2.6 billion. This means that the industry's
average annual growth in volume was over 6 percent and in value almost 13
percent. In view of this good performance why then do we need trade liberalization?
Let me outline some of the reasons.
The European Community (EC)
The paper industry's major market is the European Community, where the value
of dutiable exports in 1977 accounted for $322.7 million. In the E.C., our industry
has been experiencing and will continue to experience a growing tariff disadvantage
vis-a-vis our major competitors, the Nordic countries. By January 1984, under the
treaty between the E.C. and the European Free Trade Association (EFTA), imports
of paper and paperboard from the EFTA countries will enter all nine E.C. nations
completely duty-free. Without meaningful tariff reductions in the E.C. for North
America, the tariff disparity would adversely affect our competitive position and
could lead to a loss of this important market. This, of course, is unacceptable to the
industry, and would also have an adverse effect on the U.S. balance of payments.
Although the lack of tariff parity in the E.C. will not be eliminated by the results of
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370
the Tokyo Round, without the agreed-upon tariff reductions the disparity would be
much greater. Decreased tariffs are needed to keep and attract steady, long-term
U.S. exporters to the market-a plus for the U.S. paper industry but also for our
foreign customers.
As of today, our industry still has one important unresolved negotiating issue in
the E.C.; namely, the definition of kraft products, a $522 million export category, 31
percent of which went to the E.C. The present E.C. definition creates a significant
and unfair nontariff barrier. Last year, the Harmonized Systems Committee of the
Customs Cooperation Council, on which both the U.S. and the E.C. are represented,
adopted unanimously a definition of kraft paper and paperboard, which is fair and
equitable for both producing and consuming nations. Yet we are still encountering
major problems in relating this definition to the E.C. offer. We hope that the U.S.
negotiators will be able to convince the E.C. to accept this modern, up-to-date
definition. Without it, the value of the E.C. tariff offer will be greatly impaired.
Japan
The Japanese Pulp and Paper Industry is the second largest in the world. Yet the
high tariffs on paper and paperboard, most of them in the 12 to 15 percent range,
have been effectively dampening our industry's efforts to expand in this market.
The reduction of the Japanese tariffs coupled, we hope, with an effective reduction
of powerful nontariff barriers, will permit our companies to develop the export
potential for this large consuming market.
Canada
Ninety percent of paper industry imports into the U.S. are from Canada, and the
bulk of this Canadian tonnage enters duty-free. These imports consist mainly of
newsprint and pulp. The U.S. tariffs on the rest of the imports from Canada are low
in comparison to current Canadian duties on paper and board products, which
mostly range from 12 to 15 percent. While under the present offer the U.S. will
make extensive reductions in its tariffs on paper industry's items, the substantial
Canadian concessions will have narrowed the tariff gap between our two countries,
thereby expanding the U.S. potential in that market. It has been the consensus of
ISAC No. 4 that the U.S. industry will benefit from these concessions.
Nontariff barriers
Among the nontariff barrier agreements negotiated in Geneva, three codes are of
particular interest to the paper industry although other agreements are also signifi-
cant since they will improve, we believe, the overall aspects of the international
trading system.
The U.S. paper industry is international in its character, and with proper incen-
tives-an improved international trading system being a key one-will continue to
expand. Yet in a world where subsidies for exports and domestic subsidies on
production, especially for capital intensive industries such as paper, are an ever
growing practice, we will be at a great disadvantage. We believe that the recently
negotiated GATT code on subsidies, when coupled with effective domestic legislation
on countervailing duties, will provide a very significant safeguard for our industry
in the domestic as well as in third country markets.
In the past, we have experienced trade problems caused by the establishment by
foreign countries of standards-such as, for example, specific product definitions-of
which we were not even aware. The key word of the new GATT standards code, as
we understand it, is "transparency." In other words, standards in all their many
forms can no longer be trade barriers. When standards are formulated by individual
countries, the signatories to the code will have a chance to object, if their effect will
be detrimental to trade. We believe that it is indeed a great step forward in
diminishing trade distortions.
We are also encouraged by the adoption of the code on customs valuation. All too
often, arbitrary actions by customs authorities distort the true value of exported
products by so-called "uplifts" or other arbitrary methods of valuation, thus effec-
tively raising tariff duties without appearing to do so. The new code on customs
valuation promises to decrease any uncertainty in export valuation and thus en-
courage more companies to enter the export field.
In reviewing the impact of the negotiated agreements on trade in general and on
the paper industry specifically, the ISAC No. 4 felt strongly that the success of these
agreements will depend greatly on their fair and effective enforcement. This in turn
will require continued vigilance on the part of the U.S. government as well as U.S.
industry.
PAGENO="0379"
371
Indirect exports
Let me now turn to another reason why the paper industry strongly supports
trade liberalization. This reason, I believe, is usually not given enough consideration
in the evaluation of the impact of trade on the domestic economy. I am now
speaking of the multiplier effect of indirect exports on domestic production and
employment. We define the paper industry's indirect exports as domestic sales that
take place only because of export demand for the products of other industries.
Packaging for exported products, paper for exported printed matter, and paper used
in export documentation are examples of indirect exports for our industry. Practi-
cally every basic industry in this country has indirect exports with its own particu-
lar multiplier. As overall U.S. exports increase-and we assume that they will
through a better trading system and liberalization of tariffs-so too will the paper
industry's indirect exports, which in 1977 totaled an estimated $5 billion and result-
ed in the employment of 67,000 people.
From the national standpoint, exports must be a job-creating activity and an
antidote to the loss of jobs occurring in industries that have lost their domestic or
international competitiveness. Therefore, the export-creating potential of indirect
exports with its multiplier effect is worthy of serious consideration by the U.S.
government. Earlier this year, we urged the U.S. Department of Commerce to carry
out a study based on the current Census data that would show in understandable
terms the impact of indirect exports on domestic production and employment in the
basic industries. We still think it is a very worthwhile effort, judging from the
results we have obtained from a study that was listed to our own industry.
We are attaching a tabulation recently completed by the American Paper Insti-
tute, which estimates the foreign trade related employment in our industry. We
have estimated that about 15 percent of the total industry employment, or over
103,000 workers, is related to paper industry's direct or indirect exports. As total
U.S. exports increase, so will the indirect exports of the U.S. paper industry-
another reason why we support successful conclusion of the MTNs.
Our industry did not get everything we wanted out of these negotiations. No one
ever does. And, we also had to give up a major portion of our domestic tariffs on
paper and paperboard. Nevertheless, it is the unanimous consensus of the Industry
Sector Advisory Committee on paper that on balance our negotiators have done a
good job and that our industry will be better off in the years to come, once the
package has received Congressional approval. We also believe that the adoption of
this package will signal to industry the commitment of the U.S. Congress and the
Executive Branch that export expansion is a key national priority.
In the course of its meeting last week, the ISAC No. 4 made four recommenda-
tions pertaining to enabling legislation. They are as follows:
1. Implementing legislation should reflect provisions of negotiated codes and
agreements as closely as possible.
2. Enforcement of the countervailing duties and antidumping laws must be strong,
fair and effective. At the same time, in fashioning relief for the injured industry,
the government must have the necessary flexibility to effect relief without creating
widespread retailiatory trade problems. Such relief would include negotiated solu-
tion where appropriate.
3. Implementing legislation must contain provisions for the continuation of the
private sector advisory process with each major industry sector represented. There
should be an advisory mechanism to deal with functional issues as well, and each
sectoral committee should be given an opportunity to participate when appropriate.
4. The President should be given an extension of his tariff negotiating authority.
5. There should be an expression of legislative intent that foreign trade is a
national priority and thus effective U.S. governmental organization for dealing with
foreign trade policy and programs is imperative. Better coordination of trade policy
and programs is necessary, but specific legislation dealing with governmental reor-
ganization should be left to the immediate post-MTN period.
In summary, export expansion should be clearly identified by the Congress and
the Executive Branch as a national pribrity. To reach this goal will require a
concerned effort on the part of the U.S. goverment and industry. The paper industry
is convinced that Congressional approval of the MTN package is essential if the
country is to succeed in this undertaking.
The American Paper Institute
The American Paper Institute is comprised of manufacturers who produce ap-
proximately 90 percent of the nation's pulp, paper and paperboard. Their products
include wood pulp, newsprint, printing and writing papers, tissue, wrapping or
PAGENO="0380"
372
packaging materials, and other paper or paperboard produced from virgin and
recycled cellulose fibers.
In 1978, this industry produced nearly 62 million tons of paper and paperboard,
and the net sales of the paper and allied products companies amounted to over $50
billion. The U.S. paper and allied products industry operates in every state in the
Union, employing over 700,000 people and paying about $13.5 billion in wages,
salaries and benefits. It is a basic industry, worldwide in scope, and among the ten
largest in the country.
National Forest Products Association
The National Forest Products Association, with headquarters in Washington,
D.C., represents more than 3,000 companies and 29 associations involved in the
growing of timber and the manufacturing and distribution of lumber, plywood and
other wood products. NFPA members account for the major portion of the basic
wood products produced in the United States.
In 1978 the wood products industry produced over 30 billion board feet of softwood
lumber, 7 billion board feet of hardwood lumber, 19 billion square feet of softwood
plywood and many other wood products.
Industry sales in 1978 were close to $50 billion. The wood products industry
employed over 750,000 employees and paid well over $10 billion in wages and
benefits.
J. Stanford Smith
Mr. J. Stanford Smith is Chairman and Chief Executive Officer of International
Paper Company, an integrated, multinational forest products company which em-
ploys over 50,000 people. He serves as a member of the Executive Committee of the
American Paper Institute, and is Co-Chairman of the President's Advisory Commit-
tee for Trade Negotiations. He is also a member of the Industry Policy Advisory
Committee for the trade negotiations, the Business Roundtable, and the Business
Council.
Irene W. Meister
Dr. Irene W. Meister is Vice President, International of the American Paper
Institute and Chairman of the Industry Sector Advisory Committee on Paper (ISAC
No. 4). She also serves on several committees of national and international organiza-
tions, such as the U.S. Chamber of Commerce, OECD, FAO and UNEP.
PAGENO="0381"
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Mr. JENKINS. Thank you, Dr. Meister. Mr. Smith in your written
testimony you made several recommendations including one on the
need to maintain a system of advisory committees. What is the
basis of your recommendation on that? How do you justify that
particular need?
Mr. SMITH. I think we justify it on the basis of the fine work that
has been done by Ambassador Strauss and his associates in setting
up and working with such advisory committees in connection with
the trade negotiations.
The net result is that the negotiators have been very well in-
formed about the effect on jobs, the new chances for exports, the
opportunities, and the problems ranging from nontariff barriers to
tariff barriers, to definitions, to codes and so on.
In some of the earlier rounds of trade negotiations, people from
industry felt there was not this good two-way exchange of informa-
tion. But, it has been very beneficial this time. We think that the
effective exchange of information is extremely important for the
future.
Mr. JENKINS. You indicated that the MTN will help the forest
products industry expand its exports. Presently information indi-
cates that the industry is running near full capacity. How do you
anticipate meeting the world demand and the expansion of exports
in this field?
Mr. SMITH. If there is the kind of opportunity abroad that we
think, these negotiations should help open it up, I am sure that the
various companies within our industry will be expanding their
capacity in order to meet that market as well as the market in the
United States. Because we have an industry that is competitive on
a worldwide basis, if there are no barriers we can successfully
count on that as a permanent market.
As a member of the advisory committee, I have been struck by
the fact that the industries which are afraid of losing some market
in the United States because of inroads of foreign competition and
which therefore are seeking protection, are very loud and noisy in
pressing their point of view. On the other hand, the industries that
are seeking to open up new opportunities sometimes have a harder
time getting attention for their approach.
Yet in terms of the strength of the dollar and the strength of the
balance of trade in the United States, it is very important that we
emphasize helping those industries that are competitive on a world
basis to expand.
Mr. JENKINS. You did not comment in your statement on the
effect of your industry as far as the tariff reductions on paper and
paperboards. In the years to come what do you consider to be the
major threat to the industry's domestic market?
Mr. SMITH. The negotiations have given up most of the tariffs
that remain in the United States on most paper and paperboard
products. Many of them, such as news print and pulp, already flow
into the United States tariff free. We are convinced that our future
lies, not in tariff protection, but in maintaining world low cost
leadership and in maintaining and enhancing the productivity of
the whole forest products industry.
Because we think that productivity, not only in our industry, but
in every industry, is so crucial to the maintenance of the strength
PAGENO="0384"
376
of the United States and to the reduction of inflation. I have in my
written remarks called for the establishment of a national commis-
sion on productivity.
Mr. JENKINS. Doctor Meister, I was very much impressed with
the documentation that is attached to your statement. I notice tht
in my own State forestry products rank number three in export
value. On pages 2 and 3 of your testimony, referring to the problem
with the European community and the definition of kraft products,
very briefly how do you think this committee could be of help in
that regard? Do you have any suggestions?
Ms. MEISTER. We hope, Mr. Chairman, that this problem will be
resolved by our negotiators. Negotiations on kraft have been diffi-
cult because it is a product that Europeans themselves do not
produce except in just one country of the Common Market-only
France produces kraft linerboards but they have competitive prod-
ucts, and this has been an area of great emotionalism rather than
rational opposition.
Now the concessions we will receive are far from eliminating the
tariff disparity with our major competitors, but at least we feel
that we will be able to live with it, provided that we don't have a
major nontariff barrier which now exists because of the EC defini-
tion~ of kraft. This definition would prevent us from using the most
modern cost-effective technology in producing kraft products which
will continue to be excellent in quality, will meet all standards and
will be no threat to the European producers.
We are quite firm in our position that the tariff concessions
which we have received are not going to be meaningful unless this
problem is resolved.
Mr. JENKINS. Mr. Frenzel.
Mr. FRENZEL. Thank you, Mr. Chairman. I would like to thank
both the witnesses for their excellent testimony.
Referring to the recommendations of Mr. Smith on pages 5 and
6, particularly recommendations one and two, my colleague from
Oklahoma, Mr. Jones, and our colleagues from Illinois and Florida,
Mr. Mikva and Mr. Gibbons and I have made some similar recom-
mendations and we certainly appreciate that kind of back up.
With respect to the recommendations of Dr. Meister you say that
they are the recommendations of ISAC No. 4. Were those recom-
mendations made unanimously or by some consensus, or how were
they developed?
Ms. MEISTER. Mr. Chairman and Mr. Frenzel, all the recommen-
dations which are submitted were agreed upon unanimously by
ISAC No. 4 which is a diversified group of executives representing,
not only the manufacturing sector, but other sectors of the indus-
try as well.
Mr. FRENZEL. Do you have the paper houses, the converters, the
manufacturers and the whole range?
Ms. MEISTER. We have a range of industry.
Mr. FRENZEL. How many people are represented on ISAC No. 4?
Ms. MEISTER. We have now 16.
Mr. FRENZEL. Thank you. I yield the balance of my time.
Mr. JENKINS. Mr. Fisher.
Mr. FISHER. No questions.
Mr. JENKINS. Mr. Schuize.
PAGENO="0385"
377
Mr. SCHULZE. I have no questions but I would like to welcome the
panel and thank them for their testimony.
Mr. JENKINS. Thank you very much for your testimony.
Our next witness is Mr. Gordon C. Hurlbert, president of West-
inghouse Power Systems Co. Welcome to the committee. Your
entire statement will be made a part of the record. You may
proceed as you desire.
STATEMENT OF GORDON C. HURLBERT, PRESIDENT, WESTING-
HOUSE POWER SYSTEMS CO., ACCOMPANIED BY CLAUDE
HOBBS, VICE PRESIDENT, GOVERNMENT RELATIONS, WEST-
INGHOUSE ELECTRIC CORP.
Mr. HURLBERT. I would appreciate it if you would put the entire
statement in the record and I will give some summary remarks. I
have here with me Claude Hobbs, vice president of government
relations for Westinghouse Electric Corp.
I am Gordon C. Hurlbert, president, Westinghouse Power Sys-
tems Co., one of the three major operating companies of Westing-
house Electric Corp., headquartered in Pittsburgh, Pa. Westing-
house is broadly diversified with 1978 worldwide sales of $6.7 bil-
lion and exports from the United States of approximately $800
million.
Our part of the corporation manufactures power equipment of
the type most generally purchased by electric utilities and large
industrial customers to generate, transmit, and distribute electric
power. Our product line varies from small fuses and electrical
hardware items costing only a few dollars to nuclear powerplants
costing more than $1 billion.
Not only do we sell worldwide from our manufacturing facilities
in the United States, but we have manufacturing facilities in most
of the developed countries of the world. From our experience, de-
tailed cost experience in manufacturing in those countries, we are
convinced we can manufacture our products cost competitively in
the United States.
I appreciate this opportunity to appear before you to present our
view of the effects of the multilateral trade negotiations.
I would like to confine my testimony primarily to the impact
that the MTN agreement is likely to have on several of the princi-
pal products of the Westinghouse Power Systems Co.
In the remarks that follow, I want to emphasize three points.
The results of the MTN for heavy electrical equipment do not
bring reciprocity at all. Instead, foreign producers will gain a dis-
proportionately larger entry into the U.S. market than they al-
ready enjoy, while American producers will continue to be denied
access to major markets overseas.
Two, until European nations subscribe to the new Government
Procurement Code and thus agree to open their markets for larger
electrical equipment to American and other foreign bidders, and
until Japan simply agrees to open its market for this equipment to
us and others, the United States should first increase the "Buy
American" differential rather than merely retaining present
modest differential rates, and second, make no tariff reductions on
these products.
~-998 - 79 - 25
PAGENO="0386"
378
Third, the U.S. Antidumping Act should not be weakened by
allowing the Treasury Department to waive import penalties when
a foreign company is found guilty of dumping in this country,
merely by letting that company promise not to sell in the United
States at prices not so low as to injure U.S. industry. Nor should
that act be weakened otherwise.
Since the Tokyo Round of Multilateral Trade Negotiations was
initiated in 1974, we have eagerly anticipated the prospect of open-
ing a number of foreign markets which, for many years, have been
closed to our principal products manufactured in the United States.
I refer particularly to large electrical equipment, namely, large
steam-turbine generators, large power transformers, and large
power circuit breakers.
Unfortunately these hopes now appear to have been dashed.
In the Trade Act of 1974 Congress provided that:
A principal U.S. negotiating objective * * * shall be to obtain, to the maximum
extent feasible, with respect to appropriate product sectors of manufacturing, and
with respect to the agricultural sector, competitive oportunities for United States
exports to the developed countries of the world equivalent to the competitive oppor-
tunities afforded in United States markets for the importation of like or similar
products * *
The Senate Finance Committee cited large electrical equipment
as being particularly suited for trade negotiations on such a prod-
uct sector basis.
In the Kennedy Round tariffs were reduced by the United States
and by other countries around the world for imports of large elec-
trical equipment. In the European countries and Japan, these duty
reductions meant nothing because their nationalistic practices pre-
vented them from buying American equipment. A tariff reduction
on products which a country will not import is meaningless. Ameri-
can equipment manufacturers were the losers.
We believe that more equitable tariff and nontariff treatment for
these products could be negotiated by the recommended sectoral
approach. We hoped thus to eliminate this nontariff barrier to our
exports.
We have been disappointed.
In the last 5 years, for example, U.S. private utilities and Gov-
ernment agencies have purchased almost 10,000 megawatts of
steam-turbine generators from European manufacturers-enough
to supply 45 percent of the entire Tennessee Valley Authority's
1978 peakload.
These machines have a current market value of approximately
$500 million. To put the quantity in further perspective, the total
orders placed by all purchasers in the United States in 1978 for
steam-turbine generators were 14,600 megawatts, and only 8,900
megawatts in 1977.
During the same 5-year period, we were permitted to quote
steam-turbine generators to European utilities on only one occa-
sion. Last year the Austrian utility-Austria has no domestic man-
ufacturer of turbine generators-permitted us to bid on a small
coal-fired turbine-generator rated 330 megawatts. We recently have
been advised that we are no longer in contention for this machine
that it will be purchased from a European manufacturer.
PAGENO="0387"
379
Gentlemen, the U.S. large electrical equipment industry has
fallen on hard times. We have had to reduce employment in our
turbine generator facilities by several thousand people. How many
more jobs shall we be forced to eliminate by one-sided trade agree-
ments?
During the same general period U.S. agencies and private utili-
ties purchased 570 megawatts of large hydrogenerator equipment
from Japanese manufacturers. These lost orders were for four large
machines of the type generally used in major hydroelectro dams.
Although the proportion of U.S. business taken by the Japanese
generally has been limited to between 15 to 25 percent of the
annual commitments to purchase, these orders have been taken
while the U.S. market was severely depressed in volume. As you
might expect, during the same period we have had no opportunity
to bid reciprocally for this type of equipment in Japan. In the past
2 years, foreign sales of extra-high voltage circuit breakers have
exceeded 25 percent of the available U.S. order market.
I want to commend Ambassador Strauss and his colleaques for
their sincere efforts to win for American manufacturers the right
to bid and sell this equipment on the basis of value and price to
utility organizations in Europe and Japan. But despite his well-
know energy and persuasiveness, not even Mr. Strauss was able to
succeed in that attempt. The Government Procurement Code which
was negotiated in an effort to lead the governments of Eurpoe
toward open, nondiscriminatory purchasing practices now turns
out to be a failure so far as large electrical machinery is concerned.
The European countries refuse to have their electric utility enti-
ties purchase equipment under the new Government Procurement
Code. And Japanese electric utilities continue their buy-only-Japa-
nese policy. This means that those countries intend to continue
their nationalistic purchasing practices. Our Ameican negotiators
just can't get us into those markets.
But they have agreed to reduce American import duties on two
very significant products-large power transformers and large
power circuit breakers. They have also agreed to reduce the U.S.
duty on another very significant product-large steam turbine-
generators-although the latter reduction will be held in abeyance
for 2 years in the vain hope that the European countries accede to
the Government Procurement Code. The "Buy American" differen-
tial which has been effect since 1954 would be continued but not
increased.
Maintaining the status quo on a number of our major large
products and reducing our tariff rate on two of the products will
not provide an incentive during the next 2 years for foreign indus-
trialized countires to sign the Government Procurement Code.
In my judgment it is totally unrealistic to believe that this
somehow benefits American manufacturers of this equipment. This
naive policy had no beneficial impact in the past, and we cannot
see how it will help now, The congressional recommendation in
1974 that there be equibtable product sector treatment of large
electrical equipment has come to naught.
At a minimum, the Buy American Act differential on large
electrical equipment should be increased and U.S. tariff rates on
the equipment should not be reduced until the Japanese and Euro-
PAGENO="0388"
380
pean countries open their markets to American competition in
these products. I urge Congress to help us get this much equity.
How else can we make them open up their markets?
Large electrical equipment is quite different from most other
products, and it is particularly sensitive to dumping. Today's typi-
cal steam-turbine generator unit costs from $30 to $50 million; 4 to
6 years are required to manufacture and deliver it. A large power
transformer costs up to $1 million per unit, and 12 to 18 months
are needed to manufacture and deliver it. Our large power trans-
former plant at Muncie, md., would cost from $100,000 to several
hundred thousand dollars each, and large expensive plants are
needed to manufacture them. Very large expensive plants are
needed to manufacture steam turbines and heavy electrical equip-
ment.
This extremely large, complicated machinery is essential to the
functioning of modern electric utility systems.
As our country moves to reduce our reliance on oil and gas, we
must convert more of our energy usage to coal, nuclear, and other
advanced technologies. Virtually all of these resources will require
a strong, technologically advanced heavy manufacturing industry
to provide the machines for utilizing these scientific developments.
Our national security will depend on such industry.
To remain healthy and maintain steady levels of employment,
these large manufacturing plants must have orders.
Utilities purchase large equipment in a highly cyclical pattern.
When a few utilities begin buying, many want to buy equipment.
When the market for large equipment in Europe is depressed, it is
often attractive for manufacturers there to seek export orders even
at below normal prices in order to maintian employment and par-
tially recover the overhead expense of large industrial plants. If
such cut-price competition occurs in the United States when the
American market for similar equipment is also depressed, the
result can be very injurious to U.S. workers and manufacturers.
This was the actual situation in 1978 in Europe and in the United
States
The implementing legislation now being prepared for submission
to Congress may contain provisions which will weaken the effec-
tiveness of the U.S. antidumping law. Although they do not say it
this way, there is little doubt that our foreign competitors want to
maintain the right to dump their products into the United States,
whether subsidized by direct home government assistance or by
high prices in home country markets which are insulated from
international competition.
They want to strip the United States of any effective legal
remedy for protecting American industry and labor from such
dumping.
Our Treasury Department wants legal authority to terminate
dumping investigations by having the foreign exporter agree not to
sell at prices so low as to injure American manufacturers. They
also want to have Congress provide a new, untested definition of
"injury" to U.S. industry. The proposed new concept of "material
injury' could mean whatever foreign countries who are GATT
members can successfully urge upon our Treasury Department and
the International Trade Commission.
PAGENO="0389"
381
Why should Congress let foreign governments impose legal crite-
ria for protecting American industry and labor from the foreigners'
own unfair trading practices which are detrimental to U.S. indus-
try and labor?
My plea to you, Members of Congress, is-don't give Treasury
Department or any other Government agency this authority. It
would let them decide what margin of unfair dumping injures
American companies, and then by letting the foreign company sell
at such prices Treasury could determine the price levels of imports
we must compete against.
Neither U.S. industry nor Congress could effectively know
whether such authority was being abused. If there is to be any
abatement of a dumping action by obtaining a price undertaking,
that price level should completely eliminate the dumping and the
Treasury Department should actively police compliance with the
undertaking.
Another proposal is for Congress to write into U.S. law the
GATT concept of material injury, thus changing both the U.S.
Antidumping Act and Countervailing Duty Act. I urge this commit-
tee and the Congress to insist that the implementing legislation, or
that the legislative history, make it clear that this language is
intended to work no change in our present law-and particularly
that it will create no higher standard of what causes injury than
the present law and practice under the Antidumping Act.
I will not repeat testimony you have already heard from others
on the Antidumping Act proposals. I want to strongly endorse the
testimony of Mr. Richard Cunningham on April 23. He is very
familiar with the problems of our industry in this area.
The United States seems to be on the verge of extending most-
favored-nation treatment to China, and perhaps to Russia. Western
European countries and Japan are extremely protective of their
own interests. The utilities and some heavy manufacturing indus-
tries in those countries are either owned by the governments or are
mandated to carry certain social responsibilities and to maintain
employment. These governments support their industries in the
need to export-even at marginal prices; and they do it in subtle
ways available to them through the structural differences in their
tax and accounting laws.
We should not let those governments influence the writing of our
laws which prescribed how we are to determine unfair import
pricing, or which provide how much injury American industry
must experience before our Government will protect Americans.
I urge you not to deny U.S. industry a strong, effective antidump-
ing law.
Thank you very much.
[The prepared statement follows:]
STATEMENT OF G. C. HURLBERT, PRESIDENT, POWER SYSTEMS Co., WESTINGHOUSE
ELECTRIC CORP.
I am Gordon C. Huribert, President, Westinghouse Power Systems Company, one
of the three major operating companies of Westinghouse Electric Corporation, head-
quartered in Pittsburgh, Pennsylvania. Westinghouse is broadly diversified with
1978 worldwide sales of 6.7 billion dollars and exports from the U.S. of approximate-
ly 800 million dollars. Our part of the corporation manufactures power equipment of
the type most generally purchased by electric utilities and large industrial custom-
PAGENO="0390"
382
ers to generate, transmit and distribute electric power. Our product line varies from
small fuses and electrical hardware items costing only a few dollars to nuclear
power plants costing more than one billion dollars.
I appreciate this opportunity to appear before you to present our view of the
effects of the Multilateral Trade Negotiations and the impact we believe they will
have on our U.S. business.
Westinghouse operates worldwide. It is our policy to sell our products and services
to any customer in the world, wherever located. Approximately 24 percent of our
1978 sales were made to overseas customers. While most of our manufacturing
facilities are located within the United States, we have a number of overseas
manufacturing divisions, and we own minority interest in a number of companies
located in other countries. Because of our great involvement with international
trade, I believe we are fully cognizant of the cost competitiveness of U.S. manufac-
turing vis-a-vis manufacturing in other parts of the world; and, I believe we under-
stand the general business practices and export incentives of most of the industrial-
ized countries of the world.
I would like to confine my testimony primarily to the impact that the MTN
agreement is likely to have on several of the principal products of the Westinghouse
Power Systems Company.
In the remarks that follow, I want to emphasize three points:
(1) The results of the MTN for heavy electrical equipment do not bring reciprocity
at all. Instead, foreign producers will gain a disproportionately larger entry into the
U.S. market than they already enjoy, while American producers will continue to be
denied access to major markets overseas.
(2) Until European nations subscribe to the new Government Procurement Code
and thus agree to open their markets for large electrical equipment to American
and other foreign bidders, and until Japan simply agrees to open its market for this
equipment to us and others, the U.S. should (a) increase the Buy American differen-
tial rather than merely retaining present modest differential rates, and (b) make no
tariff reductions on these products.
(3) The U.S. Antidumping Act should not be weakened by allowing the Treasury
Department to waive import penalties when a foreign company is found guilty of
dumping in this country, merely by letting that company promise not to sell in the
U.S. at prices not so low as to injure U.S. industry. Nor should that Act be
weakened otherwise.
Since the Tokyo Round of Multilateral Trade Negotiations was initiated in 1974,
we have eagerly anticipated the prospect of opening a number of foreign markets
which, for many years, have been closed to our principal products manufactured in
the U.S. I refer particularly to large electrical equipment, namely, large steam-
turbine generators, large power transformers, and large power circuit breakers.
Unfortunately, these hopes now appear to have been dashed.
When the Trade Act of 1974 was being considered by this committee, by the
Senate Finance Committee and the Congress, representatives of our industry urged
a departure from the pattern of prior trade negotiations. Instead of merely authoriz-
ing our negotiators to grant import concessions on one group of products such as
large electrical equipment in order to gain export concessions on other industrial
products or agricultural products, the Congress provided that:
"A principal U.S. negotiating objective * * * shall be to obtain, to the maximum
extent feasible, with respect to appropriate product sectors of manufacturing, and
with respect to the agricultural sector, competitive opportunities for United States
exports to the developed countries of the world equivalent to the competitive oppor-
tunities afforded in United States markets for the importation of like or similar
products * *
The Senate Finance Committee cited large electrical equipment as being particu-
larly suited for trade negotiations on such a product sector basis.
Our interest in this approach grew out of the Kennedy Round. Then, we urged
that the industrialized countries of Europe and Japan not be granted any easier
access to the United States market for large electrical equipment than American
manufacturers of this equipment were accorded by the utility organizations in those
countries. For many years Japan and European countries had followed the practice
of buying large electrical equipment only from their own domestic manufacturers.
Yet, simultaneously, these same manufacturers had been selling this equipment to
government and private utility purchasers in the United States, with no deterrent
other than a modest import duty and a small percentage differential for purchases
by U.S. Government agencies.
In the Kennedy Round tariffs were reduced by the United States and by other
countries around the world for imports of large electrical equipment. In the Europe-
PAGENO="0391"
383
an countries and Japan, these duty reductions meant nothing because their nation-
alistic practices prevented them from buying American equipment. A tariff reduc-
tion on products which a country will not import is meaningless. On the other hand,
utilities in the United States, both those owned by the U.S. Government and by
private investors, have purchased several hundred million dollars worth of large
electrical equipment from European and Japanese manufacturers. In other words,
American equipment manufacturers were the losers.
It was our hope and expectation that the United States negotiators would follow
the Congressional directive with respect to the large electrical equipment product
sector. We believed that more equitable tariff and non-tariff treatment for these
products could be negotiated by this approach. We hoped thus to eliminate this non-
tariff barrier to our exports.
We have been disappointed.
In the last five years, for example, U.S. private utilities and government agencies
have purchased almost 10,000 megawatts of steam-turbine generators from Europe-
an manufacturers-enough to supply 45 percent of the entire Tennessee Valley
Authority's 1978 power generation requirements. These machines have a current
market value of approximately $500 million. To put the quantity in further perspec-
tive, the total orders placed by all purchasers in the United States in 1978 for
steam-turbine generators were 14,600 megawatts, and only 8,900 megawatts in 1977.
During the same five-year period, we were permitted to quote steam-turbine
generators to European utilities on only one occasion. Last year the Austrian
utility-Austria has no domestic manufacturer of turbine generators-permitted us
to bid on a small coal fired turbine-generator rated 330 megawatts. We recently
have been advised that we are no longer in contention for this machine, that it will
be purchased from a European manufacturer.
Gentlemen, the U.S. large electrical equipment industry has fallen on hard times.
We have had to reduce employment in our turbine generator facilities by several
thousand people. How many more jobs shall we be forced to eliminate by one-sided
trade agreements?
During the same general period U.S. agencies and private utilities purchased 570
megawatts of large hydro-generator equipment from Japanese manufacturers. These
lost orders were for four large machines of the type generally used in major hydro-
electro dams. Although the proportion of U.S. business taken by the Japanese
generally has been limited to between 15 to 25 percent of the annual commitments
to purchase, these orders have been taken while the U.S. market was severely
depressed in volume. As you might expect, during the same period we have had no
opportunity to bid reciprocally for this type of equipment in Japan.
In the past two years, foreign sales of extra-high voltage circuit breakers have
exceeded 25 percent of the available U.S. order market. Because of patent infringe-
ments and other indications of unfair competition in large power circuit breakers,
we have initiated an unfair trade complaint to the International Trade Commission.
As noted by the General Accounting Office in its March 1979 Report, this kind of
procedure is very slow, and several years may elapse before the matter is resolved.
I want to commend Ambassador Strauss and his colleagues for their sincere
efforts to win for American manufacturers the right to bid and sell this equipment
on the basis of value and price to utility organizations in Europe and Japan. But
despite his well-known energy and persuasiveness, not even Mr. Strauss was able to
succeed in that attempt. The Government Procurement Code which was negotiated
in an effort to lead the governments of Europe toward open, non-discriminatory
purchasing practices now turns out to be a failure so far as large electrical machin-
ery is concerned. The European countries refuse to have their electric utility entites
purchase equipment under the new Government Procurement Code. And Japanese
electric utilities continue their buy-only-Japanese policy. This means that those
countries intend to continue their nationalistic purchasing practices of buying noth-
ing from American electrical equipment suppliers or from other foreign electrical
suppliers that their own industries can make at home.
My personal expertise is in the area of utility equipment markets; however, I
understand that these same restrictive practices also apply to surface transportation
equipment purchased by government-owned transportation companies throughout
Europe. For this reason, the parts of our corporation which manufacture electrical
equipment and control systems for use in public transportation also are denied
access to many foreign markets, while European and Japanese manufacturers have
free access to American transportation markets.
Our American negotiators can't get us into those markets, yet they now propose
to make it easier for the Europeans and that Japanese to continue to sell to U.S.
utility organizations, both government-owned and investor-owned. Thus, the one-
PAGENO="0392"
384
way trade in large electrical equipment among the industrialized countries of the
world will continue.
Our negotiators have agreed to reduce American import duties on two very
significant products-large power transformers and large power circuit breakers.
They have also agreed to reduce the U.S. duty on another very significant product-
large steam-turbine generators-although the latter reduction will be held in abey-
ance for two years until the European countries accede to the Government Procure-
ment Code. The Buy American differential which had been in effect since 1954,
would be continued for all of these products, but not increased. It would remain 6
percent plus an additional 6 percent where the low American bidder would manu-
facture in an area of high unemployment.
Our U.S. Negotiators seem to think that maintaining the status quo on a number
of our major large products and reducing our tariff rate on two of the products will
provide an incentive during the next two years for foreign industrialized countries
to sign the Government Procurement Code.
I applaud their good intentions on our behalf; but in fact, it is totally unrealistic
to believe that this somehow benefits American manufacturers of this equipment.
As we have stated, this benign policy had no beneficial impact in the past, and we
cannot see how it will help now. The Congressional recommendation in 1974 that
there be equitable product sector treatment of large electrical equipment has come
to naught.
At a minimum, the Buy American Act differential on large electrical equipment
should be increased and U.S. tariff rates on the equipment should not be reduced
until the Japanese and European countries open their markets to American compe-
titon in these products. I urge Congress to help us get this much equity. How else
can we make them open up their markets?
But, that is not all.
There are other very disturbing proposals for Congressional action that would
weaken the U.S. Antidumping Act. This Act provides the major protection manufac-
turers in the United States have against some of the proven unfair trade practices
of our European and Japanese competitors.
Large electrical equipment is quite different from most other products, and it is
particularly sensitive to dumping. Today's typical steam-turbine generator unit costs
from $30 to $50 million. Four to six years are required to manufacture and deliver
it. Our large steam-turbine manufacturing plant in Charlotte, North Carolina,
would cost at least $200 million to build and equip today. A large power transformer
costs up to $1 million per unit, and 12 to 18 months are needed to manufacture and
deliver it. Our large power transformer plant at Muncie, Indiana, would cost more
than $100 million today. Large power circuit breakers cost from $100,000 to several
hundred thousand dollars each, and large expensive plants are needed to manufac-
ture them.
This extremely large, complicated machinery is essential to the functioning of
modern electric utility systems.
While they contain many standardized components, each of these large electrical
machines is custom-engineered and manufactured to function compatibly with the
electrical characteristics of a particular utility system.
As our country moves to reduce our reliance on oil and gas, we must convert
more of our energy usage to coal, nuclear and other advanced technologies. Virtual-
ly all of these resources will require a strong, technologically advanced heavy
manufacturing industry to provide the machines for utilizing these scientific devel-
opments. Our national security will depend on such industry.
To remain healthy and maintain steady levels of employment, these large manu-
facturing plants must have orders.
Utilities purchase large equipment in a highly cyclical pattern. When a few
utilities begin buying, many want tO buy equipment. When the market for large
equipment in Europe is depressed, it is often attractive for manufacturers there to
seek export orders even at below normal prices in order to maintain employment
and partially recover the overhead expense of large industrial plants. If such cut-
price competition occurs in the U.S. when the American market for similar equip-
ment is also depressed, the result can be very injurious to U.S. workers and
manufacturers. This was the actual situation in 1978 in Europe and in the U.S.
The implementing legislation now being prepared for submission to Congress may
contain provisions which will weaken the effectiveness of the U.S. Antidumping law.
Although they do not say it this way, there is little doubt that our foreign competi-
tors want to maintain the right to dump their products into the United States,
whether subsidized by direct home government assistance or by high prices in home
country markets which are insulated from international competition. They want to
PAGENO="0393"
385
strip the United States of any effective legal remedy for protecting American
industry and labor from such dumping.
Our Treasury Department wants legal authority to terminate dumping investiga-
tions by having the foreign exporter agree not to sell at prices so low as to injure
American manufacturers. They also want to have Congress provide a new, untested
definition of "injury" to U.S. industry. The proposed new concept of "material
injury" could mean whatever foreign countries who are GATT members can success-
fully urge upon our Treasury Department and the International Trade Commission.
Why should Congress let foreign governments impose legal criteria for protecting
American industry and labor from the foreigners' own unfair trading practices
which are detrimental to U.S. industry and labor?
My plea to you, Members of Congress, is-don't give Treasury Department or any
other government agency this authority. It would let them decide what margin of
unfair dumping injures American companies, and then by letting the foreign compa-
ny sell at such prices Treasury could determine the price levels of imports we must
compete against. Neither U.S. industry nor Congress could effectively know whether
such authority was being abused. If there is to be any abatement of a dumping
action by obtaining a "price undertaking", that price level should completely elimi-
nate the dumping, and the Treasury Department should actively police compliance
with the undertaking.
Another proposal is for Congress to write into U.S. law the GATT concept of
"material injury", thus changing both the U.S. Antidumping Act and Countervail-
ing Duty Act. I urge this committee and the Congress to insist that the implement-
ing legislation, or that the legislative history, make it clear that this language is
intended to work no change in our present law-and particularly that it will create
no higher standard of what causes injury than the present law and practice under
the Antidumping Act.
I will not repeat testimony you have already heard from others on the Antidump-
ing Act proposals. I want to strongly endorse the testimony of Mr. Richard Cunning-
ham on April 23rd. He is very familiar with the problems of our industry in this
area.
The United States seems to be on the verge of extending Most Favored Nation
treatment to China, and perhaps to Russia. Western European countries and Japan
are extremely protective of their own interests. The utilities and some heavy manu-
facturing industries in those countries are either owned by the governments or are
mandated to carry certain social responsibilities and to maintain employment.
These governments support their industries in the need to export-even at marginal
prices; and they do it in subtle ways available to them through the structural
differences in their tax and accounting laws.
We should not let those governments influence the writing of our laws which
prescribe how we are to determine unfair import pricing, or which provide how
much injury American industry must experience before our government will protect
Americans.
I urge you not to deny U.S. industry a strong, effective antidumping law.
Gentlemen, I appreciate that your interest today is in the Multilateral Trade
Negotiations and that major tax reform is not before you at this time; but our
growing national concern for improving our export position soon must be addressed
through the tax laws as well as trade treaties. The Congress must come to grips
with the significant differences in tax treatment afforded to most of our competitors
in other countries. If this is not done-the basic competitiveness of U.S. industry in
world markets will continue to undergo slow and steady erosion.
Other countries' use of value-added taxes and their practice of taxing on the
principle of "territoriality" leads to significantly different economics of competition.
Some of our internal studies indicate that these practices can produce selling price
differentials up to 20 or 30 percent relative to the prices of U.S. manufacturers. We
must face up to these differences and recognize that so long as our basic rules of the
game are so different, extraordinary account of these differences must be taken in
our trade agreements and in the U.S. Government posture toward export and
import commerce. These are some of the reasons it is so difficult to negotiate an
equitable multilateral trade agreement. Many of the provisions-particularly those
prohibiting government subsidies on exports-can provide for fair competition only
where the system of taxation is identical among competing countries.
At an appropriate time, I would be happy to have representatives from our
company review these issues in more depth with your staff or perhaps provide
additional testimony for your future hearings.
PAGENO="0394"
386
Mr. JENKINS. Thank you Mr. Huribert. I think you pointed out
vividly some of the very serious problems we have with parts of the
proposal. I understand as of yesterday Ambassador Strauss ceased
some of the negotiations with Japan on the Procurement Code
itself based upon some of the points that you have made in your
testimony today. They are serious and without question it disturbs
me.
Mr. FRENZEL. Thank you, Mr. Chairman.
I must say that I was very impressed with the testimony, par-
ticularly in light of the fact that the Japanese Government has
suspended its negotiations with Ambassador Strauss on procure-
ment, feeling it has gone as far as it can go, but it has not gone
anywhere in your field.
Congressman Jones, Congressman Mikva, Congressman Gibbons,
and I have been directing a good deal of attention to opening up
the market of Japan specifically, but by reference of course the EC
as well.
We have been extremely disappointed, we have not been able to
get the Japanese to move at all. I must say that I think your points
are very well taken and it may be that there is some sort of
specific legislative relief necessary in their case because obviously
our negotiators, based on yesterday's decision, are now stonewalled,
but I thank you for your excellent testimony.
Mr. HURLBERT. Thank you.
Mr. JENKINS. Mr. Fisher.
Mr. FISHER. I don't have anything.
Mr. JENKINS. Mr. Mikva.
Mr. MIKVA. I agree with what Mr. Frenzel said. I hope in our
frustration with some of our trading partners that we don't emu-
late their bad practices.
I was impressed with your description of the way they have
closed up the market to American businessmen and that this is not
the way that good trading partners ought to behave with each
other. But the answer, it seems to me, is not for us to follow that
same perilous road, and whatever the future of our relations with
Japan I hope we don't decide that what is good for A.T. & T. is
good for Westinghouse and so on.
I think the practices, the exclusionary practices of Japan are as
reprehensible, whether they are being performed by Japanese com-
panies, as if they were being performed by the American Govern-
ment.
Mr. HURLBERT. In my judgment, Mr. Congressman, if we would
take the position, as our negotiators attempted to do, that we
would not import this particular equipment, particularly from EEC
or Japan, by our Government agencies, until their government
agencies open it up, there would be a high probability that we
could obtain orders in those countries.
We have no problem competing costwise. We manufacture tur-
bines and generators in Belgium and Spain and we manufacture
nuclear fuel in Japan. I am not concerned about competing with
American labor and American technology. If we could just get a
shot at the market.
PAGENO="0395"
387
Mr. MIKVA. I think we are saying the same thing. I think the
end result is for us to try to get a shot, to help you get a shot at the
market, not try to emulate their practices.
Mr. HURLBERT. We would much prefer that, Mr. Congressman.
Mr. JENKINS. Mr. Schulze.
Mr. SCHULZE. The one way we could do that is by being extreme-
ly tougher. I don't think we can do it by saying we are going to
open up our markets. We would hope some day down the line you
would do the same. I would hope Westinghouse is prepared to play
hardball on this and urge its Members of Congress that unless we
get somewhere with this issue, to not support the implementing
legislation and the MTN agreement. I think you are right on target
that opening the markets is extremely important. I think the
sound injury test and a stong effective antidumping test, antidump-
ing statutes which are followed through by the administration, are
the keys to their whole passage of MTN.
Now, Mr. Hurlbert, you mentioned that the U.S. Government
agencies and private utilities have purchased almost 10,000
megawatts of steam turbine generators in the last 5 years and you
compared that to TVA's electric generation but that does not really
give me a clear idea of what this means. How many turbines or
generators were bought and how many would be needed to furnish
Washington or Detroit with electricity or how many American jobs
does this represent?
Mr. HURLBERT. There would be about 20 or 25 machines. That
would be about three times as much as would be required to supply
all of the electricity for Washington, D.C., and the Potomac electric
service territory around Washington, D.C. I would estimate that we
lost about 10,000 man-years of labor on those jobs.
Mr. SCHULZE. You also mentioned reducing employment in your
turbine generating facilities by many thousand people. Was this a
result of foreign imports?
Mr. HURLBERT. To be frank, it is a combination of the lower
electric load growth that came after the OPEC price increase on
oil, and the effect of foreign competition. In my judgment, perhaps
of the 7,000 people that we have laid off, I would guess that
perhaps a thousand of them would have been directly related to
the foreign imports and the balance of them, the majority of them,
would result from the reduced requirements, temporary reduced
requirements for turbine generators by domestic utilities.
Mr. SCHULZE. Do you think liberalization of the law which will
compensate those people who are laid off because of foreign compe-
tition is the answer to this? "You are going to lose your job but we
will retrain you and give you some money." Is that a satisfactory
answer?
Mr. HURLBERT. I think being laid off is harsh and hurts the
people and also takes away their pride, so it is very harmful to the
people in terms of the morale and what it does to the city, what it
does to those manufacturing communities.
In addition to that, though, we must maintain a manufacturing
design and engineering capability, in my judgment, for our domes-
tic market, not only for turbine generators but for all of our
advanced technology products. This is a major loss to this country,
I think. We will be pushed out of the marketplace if we are not
PAGENO="0396"
388
allowed to fight back in their home markets and if we don't have a
suitable antidumping law in my judgment.
Mr. SCHULZE. I think your point on page 10 that our national
security is somewhat dependent on your industry is very well
taken.
Mr. HURLBERT. That, by the way, is the argument of the other
countries. The other countries argue that the same plants that
build high pressure castings for steam turbines also build turrets
for tanks and they build cannon barrels and they cannot let us
ship into their markets for their own security purposes.
I think there is some validity to that argument. If it is valid
there it is valid here, too, and from our point of view.
Mr. ScHULZE. One further question, Mr. Hurlbert. I would like to
have your opinion on the effectiveness of the implementation of
our existing antidumping laws. Do you think they have been vigor-
ously pursued, and, if not, if they had been, wouldn't we be in
better shape than we are?
Mr. HURLBERT. We have successfully prosecuted an antidumping
case on a large power transformer in 1972, and frankly, I think
that saved the domestic large transformer business.
Unfortunately we were appalled at a relatively recent finding of
Treasury that a dumped product can be put with another product
and then sell the combination at a lump sum price which they
could not separately determine. This provided a loophole, with
respect to a transformer and rectifier, and foreign suppliers now
have 50 percent of our market. I think that can be relatively easily
corrected by legislation.
Mr. HOBBS. May I comment on that, Mr. Schulze? I think we
have seen in the past 5 or 6 years developments in the way the
Antidumping Act is enforced that make it much more difficult to
bring a successful case.
Mr. Cunningham related some of these matters in his testimony
before this committee on Monday, I believe, of this week, so there
is no need to repeat the detail. But the price adjustments that
Treasury is making make it so that neither the complainant in the
United States nor an exporter abroad can tell in advance how he is
going to come out. He may not even know he is dumping when
they get through adding and subtracting from his prices.
The injury test is not being administered by the International
Trade Commission the way Congress instructed it to do in 1974,
and in short it is a clear judgment on my part that the Antidump-
ing Act is not being as effectively administered in recent years as it
should be administered.
Mr. SCHULZE. I have had businessmen come to me and say they
felt in dealing with Treasury in this area they were almost in an
adversary relationship. Have you had that feeling?
Mr. HOBBS. I think Congress should not revise the Antidumping
Act in this implementing legislation, but should take it up sepa-
rately with full hearings to air every aspect of it. As we get to, at
least theoretically, a more open trading world, Congress needs to
know whether or not there in fact is an effective law on the books
to protect against unfair competition, and it should not be amended
in the manner now being proposed, in my judgment.
Mr. SCHULZE. I don't think we are going to accept their proposal.
PAGENO="0397"
389
Thank you gentlemen.
Mr. JENKINS. Mr. Hurlbert.
Mr. HURLBERT. May I say one thing, Mr. Chairman. Since I am
over in foreign countries a great deal of my time, since we have
sales and manufacturing over there, an effective administration of
the Antidumping Act is the most effective way to get pressure on
their governments to open up their markets. This really puts pres-
sure on them to open up their markets, and if we could have
effective implementation of the present Antidumping Act, I think
with the next round of tariff negotiatons we will get concessions
opening up their market. I really believe that. I talk to those
foreign customers all the time.
Mr. JENKINS. Mr. Guarini?
Mr. GUARINI. No questions.
[The following was subsequently received:]
WESTINGHOUSE ELECTRIC CORPORATION,
Washington D.C., April 30, 1979.
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade, Committee on Ways and Means,
US. House of Representatives, Washington, D.C.
DEAR MR. CHAIRMAN: In the course of Westinghouse's testimony before your
Subcommittee on April 26, we referred to a very significant loophole in the Anti-
dumping act which was created last year by a Treasury Department ruling. That
loophole allows a foreign exporter, after being found guilty of dumping, to evade
that finding simply by selling the dumped product together with some other product
for a single, lump-sum price. This ruling prevails notwithstanding the ability of
those engaged in manufacture and sale of the product in question to segregate the
products sold together and determine the price of each.
As was stated on the 26th, that same loophole was discussed in my testimony to
your Subcommittee last fall. At that time, I proposed a brief corrective amendment.
I am enclosing with this letter a copy of that amendment, together with a brief
explanation of the proposed language. I also enclose the relevant position of my
previous testimony, which elaborates upon the problems which will flow from this
loophole.
On behalf of Westinghouse, I strongly urge that the Committee use this legislative
opportunity to close this potentially serious loophole.
Sincerely,
CLAUDE E. HOBBS.
AMENDMENT PROPOSED BY WESTINGHOUSE IN SEPTEMBER, 1978
PROPOSED AMENDMENTS TO THE ANTIDUMPING ACT
The following amendments are proposed to deal with the two problems discussed
in my testimony:
I. Amendment to section 202(a)
In order to make it clear that dumping findings cannot be evaded simply by
selling the dumped product in conjunction with another product for a single price,
Westinghouse proposes that the following sentence be added at the end of Section
202(a):
"Where merchandise of a class or kind as to which the Secretary has made public
a finding as provided for in Section 160 is imported in conjunction with, in assembly
with or accompanied by other merchandise, and where no separate price is charged
for the merchandise covered by the finding, the Secretary shall determine the
portion of the import price properly allocable to the merchandise covered by the
finding, unless the Secretary determines that it is not possible to make such an
allocation."
The phrase "not possible" has been selected deliberately, in preference to such
alternatives as "not practical"or "not feasible", in order to make it clear that
ingenious or complex combinations of merchandise will not be effective as a means
of evading the Act.
PAGENO="0398"
390
EXCERPT FROM SEPTEMBER 1978, TESTIMONY OF CLAUDE E. HOBBS
I. Dumped products sold in combination with other products
As a result of one of the decisions made by Treasury after the large power
transformer dumping finding, it will now be possible for almost any foreign exporter
to escape the impact of a dumping finding simply by selling the dumped product in
the United States in combination with another product for a single price. That
ruling has already seriouly harmed Westinghouse and other U.S. transformer
makers, and it is only a matter of time before other dumping findings will be
undermined as foreign companies become aware of this loophole.
The issue arose in our case because power transformers are never used in isola-
tion. Rather, they are used in conjunction with generators, substations, rectifiers,
and other pieces of heavy electrical equipment. In many instances, a utility or
industrial purchaser will buy the transformer separately, but in many other in-
stances the transformer will be purchased along with other equipment with which it
is to be used.
During the original investigation in the early 1970's the Japanese exporters tried
to exclude from the inquiry those power transformers which were sold in conjunc-
tion with rectifiers. They argued that a transformer hooked up to a rectifier ceased
to be a transformer and became a new and different article-a so-called rectiformer.
We were able to demonstrate, however, that a transformer hooked up with a
rectifier still remains a transformer, no different from any other large power
transformer. We also were able to show that, even where the rectifier and trans-
former were sold together for a single, lump-sum price, any competent electrical
engineer could accurately allocate that price between the rectifier and the trans-
former. The Treasury Department therefore ruled against the Japanese, holding
that transformers sold with rectifiers were properly included in the dumping inves-
tigation and would be subject to any finding of dumping.
Last year, however, we were informed by the Customs Service that the Japanese
has raised this issue again. Because a new regime had taken over at the Treasury
Department, we again submitted proof that a transformer sold with a rectifier is no
different than any other transformer, and that the price of the transformer can be
accurately ascertained even when the transformer and rectifier are sold together for
a single, lump-sum price.
This time, however, Treasury reversed itself and ruled in favor of the Japanese.
Not because our evidence was inadequate. Indeed, Treasury acknowledged that
these transformers were no different than other large power transformers and that
the price for the transformer could be ascertained by an electrical engineer. This
time, Treasury took the position that the Anti-dumping Act forbids them to impose
dumping duties on a product which is sold in conjunction with a non-dumping
product for a single, lump-sum price. In other words, no matter how readily the
price of the dumped product may be separated from the price of the other product,
Treasury maintains that it is forbidden as a matter of law from making any such
separation of the lump-sum price into its components.
The impact of this ruling has been just what you would expect. It has been easy
for the Japanese and other exporters to persuade U.S. purchasers to allow them to
quote a single price covering the rectifier and the transformer. After all, it is in the
purchaser's interest to obtain a lower price, even if it is a dumped price. According-
iy, low-priced imports have now taken just about half of the United States market
for transformers used in conjunction with the rectifiers. Under Treasury's new rule,
there is nothing we can do about this.
I think you will agree with me that this interpretation of the Act creates a huge
loophole. All that any foreign exporter need do to escape the impact of the dumping
finding as to product X is to sell product X and product Y together for a single
price. In a procurement situation, the United States purchaser will naturally be
eager to cooperate by buying two products as the same time, because it may mean a
substantial savings to him by taking advantage of the dumped price. But this
loophole would also be readily applicable to many consumer items. Suppose, for
example, that the Department has found that fishing reels have been dumped. The
foreign manufacturer could easily avoid that finding by selling reels and rods
together for a single price.
Westinghouse therefore urges this Committee to amend the Act to reverse Treas-
ury on this issue. This could be accomplished simply by adding a new sentence at
the end of Section 202(a), requiring the Secretary to determine the portion of the
import price properly allocable to the dumped merchandise wherever that merchan-
dise is sold in conjuction with other merchandise for a single price. A proposal for
such an amendment is appended to my written testimony.
PAGENO="0399"
391
Mr. JENKINS. Thank you very much for your testimony. Our next
panel of witnesses consist of Jane P. Davis, Chairman, Internation-
al Business Council assistant vice president, GTE Corp.; Peter F.
McCloskey, president; and Jonathan H. Lasley, international mar-
keting consultant.
We welcome you, and your entire written statement will be made
a part of the record. You may summarize and proceed in the order
you desire.
STATEMENT OF JANE P. DAVIS, CHAIRMAN, INTERNATIONAL
BUSINESS COUNCIL, ELECTRONIC INDUSTRIES ASSOCIATION,
ACCOMPANIED BY PETER F. McCLOSKEY, PRESIDENT; AND
JONATHAN H. LASLEY, INTERNATIONAL MARKETING
CONSULTANT
Ms. DAVIS. Thank you, Mr. Chairman.
I am Jane Davis, assistant vice president of the General Tele-
phone & Electronics Corp. and chairman of the International Bus-
siness Council of the Electronic Industries Association-ETA. Ac-
companying me today are Peter F. McCloskey, ETA's president and
Jack Lasley, chairman of ISAC-22, of which I am also a member.
My oral testimony will summarize our written statement which
has been submitted for the record.
The 1978 merchandise sales of all U.S. electronic producers were
over $55 billion. Of this, nearly 25 percent, $13.3 billion was export-
ed. Electronic manufacturing directly employs 1.35 million Ameri-
cans. Of those jobs, at least 260,000 are tied to exports.
Thus, not just ETA members, but the electronic industries as a
whole, have a major interest in the results of the multilateral trade
negotiations. We have been represented on 5 of the 27 ISAC's and
have actively participated in the 5 years of negotiations. We feel
that the results of the negotiations represent a substantial achieve-
ment most particularly in the area of nontariff barriers. We view
the codes of conduct as a major step toward opening new markets,
not just for electronics but for exporting industries in general.
Two, at least, of the codes have been successful; several more
have achieved substantial percentages of their aims; one is, at this
writing, an almost complete casualty. Each code contains what may
prove to be the major contribution of the Geneva talks: the estab-
lishment of a set of procedures to resolve disputes.
The two successes are International Standards and Aircraft. The
negotiators and their industry advisers have reason for great pride
in these achievements.
Of the remaining codes, I would like to cover briefly those points
about which we have some concerns.
First, the EC-EFTA Rules of Origin have discriminated against
all non-European products-especially semiconductors.
Now, the alternate rules will bring substantial relief to U.S.
exporters of component parts as the European equipment manufac-
turer may have up to 30 percent of the value of his product in
nonorigin parts.
However, the 30 percent alternate rule which will be applicable
to semiconductors remains highly discriminatory and is unsatisfac-
tory. The protectionist measures of high duty rates and discrimina-
PAGENO="0400"
392
tory rules of origin are tantamount to subsidization of the semicon-
ductor industry within EEC.
Further discussions toward the objective of a 50 percent rather
than a 30 percent rule of origin are urgently recommended.
Second, in the Government Procurement Code there is one major
lack. ETA is concerned that European Community and Japanese
telecommunications entities have been excluded from coverage.
The United States has responded by withholding several major
Government agencies in addition to the national security purchases
of the Department of Defense and has maintained the "Buy Ameri-
can" protection, so important for small business, for contracts with
a value of less than $185,000.
Because of the nature of the U.S. marketplace, this is only a
partial quid pro quo. As you have already heard, the most recent
negotiations with the Japanese have apparently failed again, be-
cause their offered concessions proved to be illusory. We still hope
this can be changed. We further hope that discussions with our
European trading partners will continue toward the goal of making
their communications entities also part of the free market process.
The codes are interactive and interrelated. Furthermore, there
are many areas of commonality that characterize all the codes: In
dispute settlement mechanisms, in reporting requirements, in vari-
able preferential treatment of the developing countries, in options
for granting conditional most-favored-nation treatment, and so
forth. But the U.S. Government is almost totally unprepared in its
present structure to respond to these new demands.
A growing number of voices have pointed out that the United
States, by fragmenting its approach to trade, has helped create its
current international economic difficulties. Some 57 departments,
agencies, commissions, and so forth, have their fingers in this pie.
The need to consolidate and centralize this organization is abun-
dantly clear. Now the MTN has focused attention, we strongly
hope that steps will be taken, either to place virtually all trade
administration functions in a new Cabinet department endowed by
statute with focal responsibility for U.S. trade, or, to give the
functions to an existing Cabinet-level department, which would be
so restructured that its primary responsibility would become the
administration of U.S. trade.
We wish to make a further recommendation. In the experience of
ETA's members, the advisory process established under section 135
of the Trade Act of 1974 has worked well. In order to provide for
its continuation, ETA strongly recommends that provisions of the
implementing legislation establish permanent ISAC's and LSAC's
along the present structural lines-that is, by industry groupings
rather than in accordance with code coverage. For advice on tech-
nical matters-such as the content of specific product standards or
deductive methods in customs valuation-these permanent commit-
tees should be consulted on the formation, as and when necessary,
of special panels.
To conclude, the Geneva agreement is a fine achievement pro-
vided that it be implemented with proper amending legislation,
trade administration, and export policy. We hope that it will not be
allowed to wither because of lack of understanding, inattention or
parochialism.
PAGENO="0401"
393
Mr. Chairman and members of the Trade Committee, Peter Mc-
Closkey, Jack Lasley, and I would welcome your questions now,
and will do our best to answer them.
[The prepared statement follows:]
STATEMENT OF THE ELECTRONIC INDUSTRIES ASSOCIATION
I am Jane P. Davis, assistant vice president of the General Telephone and Elec-
troniCs Corporation and chairman of the International Business Council of the
Electronic Industries Association ("ETA"). Accompanying me today are Peter F.
McCloskey, ETA's president, and Jack Lasley, chairman of ISAC-22.
My five-minute oral testimony will summarize our written statement, which I
wish to submit for the record.
First, a few words about ETA. It is the major trade association of the electronic
industries, with 285 member companies which are manufacturers of component
parts, equipment and systems for communications, government, industrial and con-
sumer end-uses.
The 1978 merchandise sales of U.S. electronic producers were over $55 billion.
Nearly 25 percent, $13.3 billion, was exported to customers outside of the USA.
Almost 10 percent of all U.S. exports was in electronic products. Tf the electronic
content in capital equipment such as airplanes (in which avionics account for 20
percent of the cost) or automated machine tools were to be included, the figures
would be significantly higher. Electronic manufacturing directly employs 1.35 mil-
lion Americans. Of those jobs, at least 260,000 are tied to exports.
Thus, not just ETA members, but the electronic industries as a whole, have a
major interest in the results of the Multinational Trade Negotiations. We have been
represented on five of the ISACs: ISAC-16 on Computers and Business Machines;
TSAC-19 on Consumer Electronics and Household Appliances; TSAC-20 on Instru-
mentation; ISAC-22 on Telecommunications and Non-Consumer Electronics; ISAC-
24 on Aerospace; and have actively participated in the five years of negotiations.
We wish to express our overall satisfaction with the results. Several analysts have
said that the short-term macro-economic effects are likely to be negligible, but that
the longer-term benefits, particularly in the political realm, are considerable. These
negotiations represent a major effort by most of the world's trading nations to work
together toward a common goal. Success of this undertaking is a good augury for
the future-a not inconsiderable achievement in a steadily shrinking world.
It was generally agreed at the outset of the Tokyo Round that the major hin-
drances to trade lay not in tariffs but in the non-tariff barriers ingeniously devised
by most trading nations to protect their domestic markets and suppliers. These
problems have been addressed in a series of codes of conduct, whereby the most
egregious of these NTBs have been identified and attempts made to lessen their
effects. Two at least of these efforts have been most successful; several more have
achieved substantial percentages of their aims; one is, at this writing, an almost
complete casualty. Each code contains what may prove to be the major contribution
of the Geneva talks: the establishement of a set of procedures to resolve disputes
over specific practices. I will return to this point later in my testimony.
The two successes are International Standards and Aircraft. As these two docu-
ments stand, they represent the kind of optimum free and fair access which the
United States has been working for. The negotiators and their industry advisors
have reason for great pride in these achievements.
Of the remaining codes, I would like to cover briefly those points about which we
have some concerns.
First, ISAC-22 devoted a considerable portion of its initial Advisory Report to the
EC-EFTA Rules of Origin which discriminate against all non-European products-
especially Semiconductors.
The alternate rules will bring substantial relief to U.S. exporters of parts as the
European equipment manufacturer may have up to 30 percent of the value of his
product in non-origin parts.
However, the 30 percent alternate rule which will be applicable to Semiconduc-
tors remains highly discriminatory and is unsatisfactory. The protectionist meas-
ures of high duty rates and discriminatory rules or origin are tantamount to
subsidization of the Semi-conductor industry within EEC. If the European Semicon-
ductor industry is to grow and compare favorably with the rest of the world, it must
do so on a fully competitive basis. Further discussions toward the objective of a 50
percent rather than a 30 percent rule of origin are urgently recommended.
Second, the Government Procurement Code accomplishes its objectives by inclu-
sion of specific rules covering the drafting of specification, advance publicity of
~4-998 - 79 - 26
PAGENO="0402"
394
tenders, restrictions in the use of single tendering, time allowed for bidding, suppli-
er qualification, right of all potential suppliers to bid, opening and evaluation of
tenders, awarding of contracts, requirements for ex-post facto information, proce-
dures for hearing and reviewing protests.
However, there is one major lack. ETA is concerned that European Community
and Japanese telecommunications entities have been excluded from coverage. The
United States has responded by withholding several major Government agencies in
addition to the national security purchases of the Department of Defense and has
maintained the Buy American protection so important for small business, for con-
tracts with a value of less than $185,000.
This, however, because of the nature of the U.S. marketplace, is only a partial
quid pro quo. Negotiations with the Japanese are now going on, with strenuous
efforts being made to open Nippon Telephone and Telegraph procurement to com-
petitive bidding. We still hope this can be attained. We further hope that discus-
sions with our European trading partners will continue the goal of making their
communications entities also part of the free market process.
There are certain additional technical points in other codes, such as the questions
of defining injury for purposes of both anti-dumping and subsidies, which will be or
have been addressed by other witnessses. But all of these are refinements-neces-
sary touches-on what in general is an excellent product.
It is not enough, however, that the negotiations have turned out a product which
has the promise of leading to improved trade relations. The treaty and all its reams
of supporting documents are not worth the paper they are printed on unless the
Congress moves promptly to effective implementation. As was mentioned earlier,
each code has a dispute mechanism designed to bring about just and speedy resolu-
tions of disagreements.
Further, the codes are interactive, and inter-related. Thus, for example, what may
not be reachable as unfairness under the Government Procurement Code might well
be pursued as partial remedy under the "second track" of the Subsidies Code.
Furthermore, there are many areas of commonality that characterize all the Code
as well as the Framework Agreements: in consultation, conciliation and dispute
settlement mechanisms; in reporting requirements; in unspecific but none the less
variable preferential treatment of the developing countries; in national options for
the granting of conditional most-favored-nation treatment; and so forth. But the
United States Government is almost totally unprepared in its present structure to
respond to these new demands.
Over the past several years a growing number of voices have pointed out that the
United States, by fragmenting its approach to issues of international trade, has
helped create its current international economic difficulties. Something in the
neighborhood of 57 departments, agencies, commissions, etc., etc. have their fingers
in this pie. The need to consolidate and centralize this organization is abundantly
clear. Now the MTN has focused attention; we strongly hope that steps will be
taken-
Either * * * to place virtually all trade administration functions affecting non-
agricultural goods in a new Cabinet Department endowed by statute with focal
responsibility, authority and accountability for U.S. trade and off-shore invest-
ment * *
Or * * * such assignment of authorities should be given to a single existing
Cabinet-level Department, which would be subject to such major reorganization that
its sole responsibility and accountability would, as a result, become the administra-
tion of U.S. trade, and which would be given appropriate strength and a power base
from which to operate in the interest of U.S. industry.
We wish to make two further recommendations: In the experience of ETA's
members, the advisory process established under Section 135 of the Trade Act of
1974 has worked well. Especially at the industry sector level, it has provided a
means of continuing dialogue with the Special Trade Representative and his negoti-
ators that would otherwise have been impossible. The approach, we believe, has
contributed much to the generally satisfactory shape of the Codes-provided, of
course, that the latter are suitably implemented.
Accordingly, in order to provide for a continuation of this useful function, ETA
strongly recommends that provisions of the implementing legislation accomplish the
following:
Establish permanent ISACs and LSACs along the present structural lines-that
is, by industry groupings rather than in accordance with Code coverage. These
committees should have assured ability to provide advice on all policy, program and
negotiating activities.
PAGENO="0403"
395
For advice on purely technical matters-such as the content of specific product
standards or deductive methods in customs valuation-these permanent committees
should be consulted on the formation of special panels, as and when necessary, and
the nomination of individuals known to possess specific expertise in the particular
problem area.
In establishing permanent advisory committees, several improvements over the
present process are desirable. For example, the committees should have direct
access to interagency committees of the Executive Branch. When committee advise
is sought, the advisors should be given more current and more complete information
on a timelier basis. And, staffing of the committees by the lead administrative
agency should be more consistent.
In addition, we would hope that, as the new structure is evolved, means will be
found to preserve the reasons of knowledge and negotiating skills now residing in
the staff of the Special Trade Representative. We have difficult times ahead in
making these new codes truly effective. Our trading partners address the interna-
tional marketplace much more pragmatically than do we. To expect them suddenly
to relinquish long-cherished advantages and customs without protest is naive. An
experienced and competent cadre will be an essential ingredient to maintaining U.S.
competitiveness in world markets.
To conclude, the Geneva agreement is a fine achievement provided that it be
implemented with proper amending legislation, trade administration, and export
policy. We hope that it will not be allowed to wither because of lack of understand-
ing, inattention, or parochialism.
Mr. JENKINS. Thank you for your testimony and also for your
recommendations. With regard to a new Cabinet department, do
you believe that the Treasury Department has not properly carried
out the obligations that it has under existing law?
Ms. DAVIS. I think Treasury's administration of antidumping is
an example of the kind of thing we would like to see changed.
Mr. JENKINS. I agree that it must be changed in some way.
Mr. Schulze.
Mr. SCHULZE. Thank you, Mr. Chairman. I am a little confused.
You were critical in several portions of your statement and ended
up by saying, "We hope we will not be allowed to wither." In other
words, you are saying whether your problems are solved or not, it
should not be allowed to die on the vine. Or are you saying that we
should follow through?
Ms. DAVIS. I think we should follow through. I think the question
of government restructuring is a very difficult one and one that
could well fall by the wayside simply because it runs into so many
vested interests.
Mr. SCHULZE. The injury test is not satisfactory, and if the anti-
dumping statutes are not strong, you still think that we should
follow through on this round of negotiations.
Ms. DAVIS. I think these are matters that can be addressed in the
implementing legislation.
Mr. SCHULZE. You are not answering my question. I do not mean
to be tough, but do you think that we should have the firm good
strong injury test and also strong effective antidumping statutes?
Without these two items and operating of markets, do you still
think we should go ahead with this? I guess what I am asking is,
How firm is your position? Are you really feeling that we need
good strong antidumping laws or is this not a problem in your
* industry?
Ms. DAVIS. We do need strong antidumping laws. There is no
question about that.
Mr. MCCLOSKEY. Let me put it this way. The electronics industry
has encountered as its most pressing problem the nontariff barriers
PAGENO="0404"
396
which this particular negotiation was designed to overcome. We
are still living with dumping problems that exist under present
laws as well. We feel we have been precluded from certain markets
because of the nontariff barriers and not because of tariff barriers
per se.
We see that the results of these negotiations have been exempla-
ry in offering a mechanism that theoretically could remove nontar-
iff barriers, but we are concerned that without effective enforce-
ment mechanism the removal will become illusory. So on balance
today we are certainly in favor of the legislation.
Now as far as dumping is concerned, we are very concerned
about dumping as well. We have been active in a number of anti-
dumping cases and we have been concerned with the delays in
administration and we have been concerned about a lack of policy
direction in that area.
We would like to see that strengthened as well. But I would say
they are two different issues. We would like to see the MTN
proceed.
Mr. SCHULZE. You do not want to go on record saying, without a
good, strong antidumping statute and one that is going to be en-
forced, that you would not support the MTN passage.
Mr. MCCLOSKEY. I do not think I would go on the record that
way.
Mr. SCHULZE. What you are saying is, "Do anything you want to.
We are just going to go along." You are welcome to have that
position.
Mr. MCCLOSKEY. We are in favor of strong antidumping.
Mr. SCHULZE. The only way you are going to get it is by taking a
strong position and by saying "We want a good strong antidumping
law. We might get hurt, but we will go along with this."
Mr. MCCLOSKEY. We feel we have been precluded from a number
of markets that are potentially open today and if we also have a
strong mechanism to insure those markets are open, we are trying
to weigh those equities.
Mr. SCHULZE. Under the present situation with the lax enforce-
ment of antidumping, you have been able to compete very well and
you are happy with the situation the way it is?
Mr. MCCLOSKEY. No-well we have been impacted by instances
where there has been dumping. Certainly in the consumer elec-
tronics industry in the United States we have experienced that. We
have also experienced inability to get our products in the consumer
electronics field into countries where we feel we should have gotten
them. We are hopeful that this type of agreement under the code
will help in that regard. I am not sure that it will, and we are
confident it will not unless there is a strong enforcement mecha-
nism within the Government to provide assistance.
Mr. SCHULZE. How much of your organization is involved with
consumer products?
Mr. MCCLOSKEY. We have six divisions within the association.
They are one of the divisions-a group in terms of sales-total
sales, they are probably about 20 percent of the electronics indus-
try that we represent.
Mr. SCHULZE. How do they feel about the existing antidumping
statutes and their enforcement?
PAGENO="0405"
397
Mr. MCCLOSKEY. I think that we would have to categorize that.
Within the association we have also members who are currently
manufacturing abroad or that are subsidiaries of foreign compa-
nies.
Mr. SCHULZE. You are in a tough position. I am not going to put
you on a spot. Thank you very much.
Mr. JENKINS. Thank you very much for your testimony. The
committee will stand in recess for 10 minutes in order to answer
our rolicall.
[A recess was taken.]
Mr. JENKINS. The committee will come to order. Our next wit-
ness is Mr. Wallace Barlow, executive director of Share the Work
Coalition.
Welcome to the committee. Your entire written statement will be
made a part of the record, if you would like to summarize.
STATEMENT OF WALLACE D. BARLOW, EXECUTIVE DIRECTOR,
SHARE THE WORK COALITION
Mr. BARLOW. I am Wallace D. Barlow. My Share the Work
Coalition is known as the principal advocate of a "tilted" corpora-
tion tax. We would tilt in favor of the labor-intensive industries. In
a poll of the candidates for Federal office in the last elections 91
percent of the respondents favored "Tilt."
Today, we are advocating a tariff schedule for future trade nego-
tiations which would be tilted in the same manner, that is, on the
basis of labor content, as well as wage ratios. The higher the labor
content, wages as a percent of value added, the higher the tariff,
since five times as many jobs may be involved. There is already a
correlation between high labor content and high tariffs. We are
suggesting that these determinations be made in a precise and
systematic manner and from a common data base.
We visualize computers in Tokyo, Singapore, London, et cetera,
operating on the same data base and containing in their memories
the following:
1. Wage levels for each nation and industry.
2. Labor content for each product by nation and by SIC number.
To determine an equitable tariff for product A being exported
from nation 24 and imported by nation 56, for example; one would
enter the computer with an SIC number, the code for the exporting
nation and the code for the importing nation. The machine would
compute a weighted average of the wage level ratios and the labor
content ratios and read out an equitable ad valorem tariff rate.
We ask that enclosure (1), which shows the labor content for
some U.S. industries, be included in the record.
In closing, it is our view that labor content is relevant. It must
be considered in future trade negotiations.
Thank you.
Mr. JENKINS. Thank you, Mr. Barlow. The exhibits that you have
attached to your prepared statement will be made a part of the
record.
Mr. BARLOW. Thank you.
[Attachment to the prepared statement follows:]
PAGENO="0406"
398
Wallace 0. Barlow
Executive Director
6210 Massachusetts Ate.
Washington. D.C. 20016
YOUR FRIENDS
Labor Content
51. 97.
48.6
46.4
46.0
45.3
45.1
44.9
44.4
44.1
43.9
43.6
43.3
43.1
42.8
42.6
42.6
42.4
42.2
42. 1
41.8
41.5
41.4
41.3
41.0
41.0
40.8
40.8
40.8
40.4
40.4
YOUR ENENI~ Labor Content
11.4
12.3
12.7
14.6
15.4
15. 6
16.7
17.3
19.5
20.3
20.5
21.4
21.8
22.3
23. 1
23.2
23.5
23.7
23.8
24.1
24.7
25.3
25.7
26.4
27.0
27.0
27.4
27.7
27.7
SHARE THE WORK COALITION
We represent the twenty million unemployed persons of the Free World
Tel: (301) 229-6066
Cables: Intresecon
ATr~N~I0N WAGE-EARNERS: It is to your advantage to spend your money
with the industries that are likely to return more than half of your money in the form
of wages. In the United States the `Labor Content" of manufactures varies from 527, for
shipbuilding to 107. for'cigarettes. This means that the shipbuilders deserve your support.
If one of these companies goes bankrupt, five times as many jobs are wiped out.
The COALITION, (A coalition of labor organizations and the labor intensive
industries), hopes to be able to include in President Carter's omnibus tax reform bill
a "tilting" of the corporation tax to provide a lower tax rate for the labor intppsjye
industries and a higher rate for the automated industries. This may reduce productivity
somewhat but it would improve the quality of life in the United States by wiping out the
welfare system . It would create jobs for everyone willing to work.
In order for this plan to work, the demand for the products of the labor
intensive industries must be increased at the expense of the automated industries. We ask
that you discriminate in favor of your friends.
Industry
Ship Building and Repairs
Ordnance and Accesories, n.e.c.
Motorcycles, Bicycles, Parts
Apparel, other Textile Products
Non-ferrous Foundries
Electronic Components, Accesories
Musical Instruments
Communication Equipment
Guided Nissles, Space Vehicles
Iron and Steel Foundries
Railroad Transportation
Metal Services, n.e.c.
Millwork, Plywood, Structural Members
Sawmills and Planing Mills
Pottery and Related Products
Metalworking Machinery
Textile Mill Products
Leather Products, cxc. Footwear
Furniture and Fixtures
Engineering & Scientific Instruments
Water Transportation
Opthalmic Goods
Contract Construction
Aircraft and Parts
Footwear, except Rubber
Blast Furnace, Basic Steel Production
Metal Forgings and Stampings
Railroad Equipment
Cut Stone and Stone Products
Misc. Professional Services
Cigarettes
Agricultural Chemicals
Petroleum & Natural Gas Production
Finance, Insurance & Real Estate
Soaps, Cleaners, Toilet Goods
Pipeline Transportation
Petroleum Refining
Utilities, (Elec. Gas etc.)
Industrial Organic Chemicals
Legal Services
Misc. Foods & Kindred Products
Drugs
Misc. Petroleum, Coal Products
Sugar, Confectionery
Photographic Equipment & Supplies
Fats & Oils
Telephone & Telegraph
Grain Mill Products
Beverages
Industrial Inorganic Chemicals
Coal Mining
Cement, Hydraulic
Misc. Chemical Products
Preserved Fruits and Vegetables
Quarrying & Non-metallic Mining
Auto Repair, Services & Garages
Wholesale Trade
Tobacco Products, cxc. Cigarettes
Primary Nonferrous Metals
Paints & Allied Products
Footnote: "Labor Content" is defined as wages as a percentage of value added. In 1975 the
average labor content in the United States was 34.6 7. for manufactures and 31.47.
- for non-manufactures such as farming, mining, transportation and finance.
End. (1)
PAGENO="0407"
399
Mr. JENKINS. Thank you for coming before the committee.
Our next witness is Mr. Mitchell Cooper, counsel for the Rubber
Manufacturers Association.
Welcome to the committee, Mr. Cooper. Your entire statement
will be made a part of the record and you may either give the
entire statement or you may summarize, as you wish.
STATEMENT OF MITCHELL COOPER, COUNSEL, FOOTWEAR
DIVISION, RUBBER MANUFACTURERS ASSOCIATION
Mr. COOPER. Thank you. It is a bare-bones statement on a com-
plex subject, but I will try to pare it so it will be briefer than it is. I
am here as you know on behalf of the footwear division of the
Rubber Manufacturers Association. The members of this division
account for most of the waterproof footwear and rubber-soled foot-
wear with fabric uppers produced in this country.
Mr. JENKINS. It accounts for a great deal of employment in my
district.
Mr. COOPER. Since 1932 the duty on rubber-soled footwear with
fabric uppers has been based on American selling price. The valua-
tion code, which this subcommittee has been considering, and
which will soon be before you more formally as part of the total
Tokyo Round package, would eliminate the American selling price
method of valuation. Ever since the enactment of the Trade Act of
1974 the rubber footwear industry has been urging the Office of the
Special Trade Representative that American selling price as ap-
plied to the products of this industry has not been such an impedi-
ment to trade as to warrant its conversion.
The validity of this view is demonstrated by the history of domes-
tic shipments and imports of rubber-soled canvas upper footwear. A
summary of this history is attached to my testimony, and shows
that even with the vaunted protection of ASP, domestic shipments
have steadily declined on a year-to-year basis from 159 million
pairs in 1972 to 83 million in 1978.
Over the same period imports have increased from 58 million
pairs to an all time high of 173 million with the distressing result
that imports for the year 1978 accounted for 67.6 percent of domes-
tic consumption.
As the Tokyo Round negotiations intensified, it became increas-
ingly clear that, no matter how persuasive our arguments, Ameri-
can selling price was to be sacrificed in the effort to achieve a
uniform system of valuation. To the credit of Ambassador Strauss
and his colleagues, our Government has, however, recognized the
serious impact that imports have had on the rubber footwear in-
dustry, and has undertaken to convert American selling price in a
manner designed to retain the level of protection which has been
afforded by that valuation method.
As you know, the International Trade Commission assembled
data for the Special Trade Representative, looking toward the con-
version of ASP, and the Special Trade Representative's staff under-
took endless hours of investigation and consideration of the kinds
of rates which would be required to approximate the degree of
protection provided by ASP. The rates resulting from that consider-
ation and from subsequent negotiation with this country's trading
PAGENO="0408"
400
partners have been made available to you by the Special Trade
Representative.
While the domestic industry would much prefer the retention of
American selling price, we recognize the conscientious and good
faith effort of our Government to convert ASP in a manner which
will not significantly reduce the industry's level of protection. For
this reason, with a deep breath and our fingers crossed, and with-
out yielding our right to follow other avenues of relief from unfair
import competition, we do not oppose the elimination of ASP on
the terms negotiated by Ambassador Strauss.
I do think it important for this committee to recognize the inher-
ent protective nature of ASP, and to recognize that this cannot be
compensated for by a simple arithmetic conversion into an ad
valorem rate. A 1976 International Trade Commission staff report
listed the following unique features of ASP:
One, it provides for a duty increase on a given imported item at
such time as the domestic industry produces a directly competitive
item.
Two, under ASP the amount of duty changes with price adjust-
ments by domestic manufacturers, thus providing for a flexible
tariff.
Three, under ASP a change in the export price by a foreign
supplier has no effect on the duty.
From these three elements the International Trade Commission
staff drew the conclusion that, "any change to a dutiable valuation
other than ASP eliminates those key features and, therefore, dras-
tically alters the competitive relationship."
There are two additional characteristics of ASP, the loss of which
will also be seriously detrimental to the domestic industry. ASP
provides a greater deterrent to shifting from higher to lower cost
sources than does export value. Thus, while the proposed conver-
sion is based on shipments from Korea and Taiwan, the current
sources of about 90 percent of all rubber footwear imports, the
converted rates would mean a significant cut in duties from such
lower-cost countries as India and Malaysia. Both of these countries
are developing rubber footwear industries for which the converted
rates would provide an added incentive to export. Secondly, ASP is
a unique hedge against the effects of inflation on a domestic indus-
try, for as domestic prices rise, ASP automatically increases the
duties on competing imports.
We hope, and I emphasize that it is only a hope, that the pro-
posed conversion will succeed in offsetting the loss of ASP. The
rate of inflation has already outpaced the rate which was anticipat-
ed when this formula was devised. If inflation is not tempered by
July 1981, when the proposed new duties are scheduled to go into
effect, we may indeed have a rough road ahead-particularly since
these converted rates decline with increases in the value brackets.
This industry surely will not emerge from the Tokyo Round with
greater protection than it now has. If the Special Trade Repre-
sentative's expectations for the conversion he has negotiated fall
short, rubber footwear's protection will decrease and we shall be
back to see you in order to seek your help in finding other reme-
dies to this industry's oppressive import burden.
Thank you, sir.
PAGENO="0409"
401
[The prepared statement follows:]
STATEMENT OF THE FOOTWEAR DIVISION, RUBBER MANUFACTURERS ASSOCIATION
Mr. Chairman and Members of the Committee: My name is Mitchell Cooper and I
am testifying as counsel to the Footwear Division of the Rubber Manufacturers
Association. The members of this Division account for most of the waterproof
footwear and rubber-soled footwear with fabric uppers produced in this country.
Since 1932 the duty on rubber-soled footwear with fabric uppers has been based on
American Selling Price.
The Valuation Code which this Subcommittee has been considering, and which
will soon be before you more formally as part of the total Tokyo Round package,
would eliminate the American Selling Price method of valuation. Ever since the
enactment of the Trade Act of 1974, the rubber footwear industry has been urging
the Office of the Special Trade Representative that American Selling Price as
applied to the products of this industry has not been such an impediment to trade
as to warrant its conversion. The validity of this view is demonstrated by the
history of domestic shipments and imports of rubber-soled canvas-upper footwear. A
summary of this history is attached to my testimony, and shows that even with the
vaunted protection of ASP, domestic shipments have steadily declined on a year-to-
year basis from 159,000,000 pairs in 1972 to 83,000,000 in 1978. Over the same period
imports have increased from 58,000,000 pairs to an all-time high of 173,000,000, with
the distressing result that imports for the year 1978 accounted for 67.6% of domestic
consumption.
As the Tokyo Round negotiations intensified, it became increasingly clear that, no
matter how persuasive our arguments, American Selling Price was to be sacrificed
in the effort to achieve a uniform system of valuation. To the credit of Ambassador
Strauss and his colleagues, our Government has, however, recognized the serious
impact that imports have had on the rubber footwear industry, and has undertaken
to convert American Selling Price in a manner designed to retain the level of
protection which has been afforded by that valuation method. As Ambassador Wolff
said in a November, 1977, speech to the Rubber Manufacturers Association, "We
want to make sure that the United States' adoption of any new customs valuation
system would not result in a decline of tariff protection for industries where the
ASP basis of valuation is used with respect to competing imports."
As you know, the International Trade Commission assembled data for the Special
Trade Representative, looking towards the conversion of ASP, and the Special Trade
Representative's staff undertook endless hours of investigation and consideration of
the kinds of rates which would be required to approximate the degree of protection
provided by ASP. The rates resulting from that consideration and from subsequent
negotiation with this country's trading partners have been made available to you by
the Special Trade Representative.
While the domestic industry would much prefer the retention of American Selling
Price, we recognize the conscientious and good faith effort of our Government to
convert ASP in a manner which will not significantly reduce the industry's level of
protection. For this reason, with a deep breath and our fingers crossed, and without
yielding our right to follow other avenues of relief from unfair import competition,
we do not oppose the elimination of ASP on the terms negotiated by Ambassador
Strauss.
I do not think it important for this Committee to recognize the inherent protec-
tive nature of ASP, and to recognize that this cannot be compensated for by a
simple arithmetic conversion into an ad valorem rate. A 1976 International Trade
Commission staff report listed the following unique features of ASP:
1. It provides for a duty increase on a given imported item at such time as the
domestic industry produces a directly competitive item.
2. Under ASP the amount of duty changes with price adjustments by domestic
manufacturers, thus providing for a flexible tariff.
3. Under ASP a change in the export price by a foreign supplier has no effect on
the duty.
From these three elements the International Trade Commission* staff drew the
conclusion that "any change to a dutiable valuation other than ASP eliminates
those key features and, therefore, drastically alters the competitive relationship".
There are two additional characteristics of ASP, the loss of which will also be
seriously detrimental to the domestic industry. ASP provides a greater deterrent to
shifting from higher to lower cost sources than does export value. Thus, while the
proposed conversion is based on shipments from Korea and Taiwan (the current
sources of about 90 percent of all rubber footwear imports), the converted rates
would mean a significant cut in duties from such lower-cost countries as India and
PAGENO="0410"
402
Malaysia; both of these countries are developing rubber footwear industries for
which the converted rates would provide an added incentive to export. Secondly,
ASP is a unique hedge against the effects of inflation on a domestic industry, for as
domestic prices rise, ASP automatically increases the duties on competing imports.
We hope, and I emphasize that it is only a hope, that the proposed conversion will
succeed in offsetting the lose of ASP. The rate of inflation has already outpaced the
rate which was anticipated when this formula was devised. If inflation is not
tempered by July 1981, when the proposed new duties are scheduled to go into
effect, we may indeed have a rough road ahead-particularly since these converted
rates decline with increases in the value brackets.
This industry surely will not emerge from the Tokyo Round with greater porotec-
tion than it now has. If the Special Trade Representative's expectations for the
conversion he has negotiated fall short, rubber footwear's protection will decrease
and we shall be back to see you in order to seek your help in finding other remedies
to this industry's oppressive import burden.
RUBBER-SOLED CANVAS-UPPER FOOTWEAR, 1964-78
[Figures are in thnusands of pairs]
Year
Shipments
Imports 2
Exports
Apparent
consumption
Import to
consumption
(percent)
1964
162,151
29,063
225
190,989
15.2
1965
165,741
157,491
153,656
152,257
140,575
145,865
156,489
159,399
148,575
144,496
129,002
119,726
91,230
83,363
33,363
35,060
44,659
49,200
44,463
49,726
62,872
58,020
66,291
67,352
73,083
115,399
105,610
172,706
195
167
211
239
195
129
112
105
29
1,010
~868
~l,218
~l,201
644
198,909
192,384
198,104
201,218
184,843
195,462
219,249
217,314
214,837
210,838
~201,217
~233,907
~195,639
255,425
16.8
18.2
22.5
24.5
24.5
25.4
28.7
26.7
30.9
31.9
36.3
49.3
54.1
67.6
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1 U.S. Census Bureau, Current Industrial Reports Series M31A.
2 RMA No. 59B and Department of Commerce, IM 146 Schedule 7 & Part I.
`RMA No. 59(1964-1973); U.S. Department of Commerce, U.S. Exports Schedule B (1974 to present).
Includes protective footwear.
Revised.
NOTE-Figures presented here reflect the latest available data and contain all corrections and revisions fur past years. Prepared by Management
Inturmatinn Services.
Mr. COOPER. Thank you, sir.
Mr. JENKINS. Thank you, Mr. Cooper. I understand your position
to be that while you would certainly prefer to retain the American
selling price, that you could probably live with the negotiated
terms that Ambassador Strauss has presented. Furthermore, it is
your position that any weakening of the conversion formula would
cause you problems.
Mr. COOPER. I think that is an accurate statement. I would
phrase it by saying we recognized the inevitability of the departure
of ASP. We tried to get the best possible conversion. Ambassador
Strauss and his colleagues worked hard to create an equitable and
fair conversion. Time will tell whether their guess will work out or
not.
Mr. JENKINS. Mr. Schuize.
Mr. SdHULZE. Thank you very much.
PAGENO="0411"
403
Mr. Cooper, approximately how many members do you have in
your association?
Mr. COOPER. Ten companies.
Mr. SCHULZE. Would you tell me where they are located geo-
graphically?
Mr. COOPER. Yes, Maine, New Hampshire, Illinois, Georgia, most
prominently, North Carolina, one company in Pennsylvania.
Mr. SCHULZE. They are fairly spread out. It is not concentrated in
the North, is it?
Mr. COOPER. Total of 20,000 employees, Mr. Schulze. It is a small
industry. The largest plant would not have more than about 1,200.
The biggest plant had been Uniroyal in Nagatuck, Conn. It had
3,000, but lost out to imports from Korea and Taiwan and no
longer exists.
Mr. SCHULZE. Thank you. Thank you very much.
Mr. JENKINS. Mr. Moore.
Mr. MOORE. No questions.
Mr. JENKINS. Thank you for your testimony.
Our next witness is Mr. Mark A. Cymrot, attorney for the Con-
sumers Union. Mr. Cymrot, your entire written testimony will be
made a part of the record, if you would summarize.
STATEMENT OF MARK A. CYMROT, ATTORNEY, CONSUMERS
UNION
Mr. CYMROT. Thank you very much.
I come today representing Consumers Union, a nonprofit mem-
bership organization chartered in 1936. CU is one of the oldest and
largest consumer education organizations in the United States,
with approximately 300,000 members and the publisher of Consum-
ers Reports which has a circulation of more than 2 million copies
monthly.
Consumers Union has consistently been an opponent of trade
barriers. We view them as a tax on American consumers. There-
fore, we have supported the efforts of the special trade representa-
tive to remove tariff and nontariff barriers to trade.
I requested time to discuss the standards code which could be one
of the major accomplishments of these negotiations. However, if it
is not carefully implemented, it could seriously undermine health,
safety, environmental and consumer protection standards in the
United States. We urge the committee to guard against that possi-
bility.
The Standards Code has basically four elements, as we see it.
Open procedures for development of standards. The United States
already has them with the Administrative Procedures Act. The
code encourages the use of appropriate international standards. It
bans standards that have intent of being obstacles to trade.
I might add any standard that is called a health or safety stand-
ard that is intended to be an obstacle to trade is not a standard
which we are sympathetic with, and we would like to see those
types of standards banned.
The code also bans standards that have the effect of being unnec-
essary obstacles to international trade. That term "unnecessary
obstacles to international trade" is not defined in the Standards
Code. Under the disputes settlement procedure, a definition will
PAGENO="0412"
404
have to be determined by an international trade committee. The
international trade committee will have to define that term, hear
the evidence including scientific evidence underlying the standard
and then determine whether the standard is an unnecessary obsta-
cle to trade.
We felt this was too broad a mandate for an international com-
mittee. It could create serious problems for public health standards
in the United States because they are often higher than interna-
tional standards. There is no one view on what the level of safety
should be in any one country. The debates within the United States
over saccharin, tris, red dye No. 2, the growing debate over FDA's
certification system for drugs demonstrate the problem. Many for-
eign countries consider our certification system to be too strict.
They exclude many foreign drugs from American markets. Yet,
they have been determined as a level of safety that the United
States wants.
Now, the way the negotiators solved this problem in part was to
make the sanction for the Standards Code rather light. They are
limited to the Standards Code themselves. If the United States
should lose in this international committee and should decide to
stand by its health and safety standards, the sanction would be
that the complaining country would not give us the benefit of the
Standards Code, that is give us open procedures and the like.
We feel that is a fair tradeoff because there are many benefits to
be had in the Standards Code. The United States will have the
opportunity to comment on foreign standards. Many American
products that are now excluded from foreign markets will be able
to get into those markets when barriers to trade are eliminated.
American consumers will benefit from new foreign products ad-
mitted into the United States.
However, the implementing legislation should guard against the
undermining of U.S. public safety standards. We are prepared to
support both the Standards Code and the implementing legislation
if the implementing legislation contains certain elements.
The first element would be a clear statement that nothing in the
code or in the implementing legislation should prevent the taking
of necessary measures for protection of health, safety, environment
or consumers within the United States.
The second element would be a definition of an "unnecessary
obstacles to international trade." The definition would be used
when the United States is considering within the United States a
complaint by a foreign country. We propose a definition that a
standard is an unnecessary obstacle to international trade when it
discriminates against a foreign product and is more restrictive
than necessary to accomplish its purpose.
Along that same line a third element relates to the term "decep-
tive practice." The code has a general admonition in the preamble
that the standards covered do not include deceptive practices
standards. The term "deceptive practice" should be defined for U.S.
implementation to include "unfair or deceptive practice" under
section 5 of the FTC Act and also other consumer protection stand-
ards.
PAGENO="0413"
405
We believe that to be the intent of that term "deceptive prac-
tice." That intent should be spelled out in U.S. legislation to avoid
litigation in the future.
No. 4 is that the domestic apparatus for handling of complaints
by foreign countries should not be a disguised means of executive
branch control over the independent regulatory agencies enacted
by Congress. STR's most recent implementing proposals include a
provision for an interagency body to be set up when there is a
complaint against a U.S. standard.
That interagency body first will attempt negotiations with the
complaining country, will defend the U.S. standards in the interna-
tional committee, but then if we lose in the international commit-
tee, the interagency body will be authorized to determine what
steps should be taken within the United States based upon the
finding against us by the international committee.
Now we would like to see that interagency body have certain
criteria that it must proceed on. Those criteria basically would be
that the interagency committee could not overrule the U.S. public
health standard unless it finds it to be intended to be an obstacle to
international trade.
In other words, if it is intended to be an obstacle to international
trade the interagency body would have authority to overrule it. If
it has an effect of being an obstacle to trade, the agency that was
empowered by Congress to promulgate the standard should recon-
sider the standard and determine whether it could be made less
restrictive but still accomplish its basic public health and safety
purpose.
Mr. JENKINS. Mr. Cymrot, before you continue, let me suspend
the committee for about 5 minutes to make this vote. We will then
finish with the remainder of your testimony.
Mr. VANIK [presiding]. The subcommittee will be in order. We
are happy to proceed with your testimony, Mr. Cymrot.
Mr. CYMROT. I have had completed four items that Consumers
Union feels is necessary to be included in the implementing legisla-
tion for the standards code.
The fifth item relates to STR's provision for a coordinating office,
now it is actually two. One to be in the Commerce Department and
one to be in the Agriculture Department. These coordinating of-
fices will collect information, provide a point of contact for foreign
governments to get information about U.S. standards.
They are also given authority to negotiate international stand-
ards. We are concerned that the authority to negotiate is too broad
an authority. The technical decisions concerning international
standards should be made by the expert agencies. For instance,
FDA should be making technical decisions concerning drugs, CPSC
should be making technical decisions concerning consumer prod-
ucts.
FTC similarly for deceptive practices.
Therefore, we would like to see the authority of these coordinat-
ing offices limited. To the extent that they negotiate international
standards, they will act as agents for expert agencies, but it will be
the expert agencies within the United States who will make the
technical decisions concerning health, safety, environment and con-
sumer protection standards.
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Six, is that the implementing legislation should clearly state that
it creates no private rights of action. The standards code is a
government-to-government agreement. We see no reason why pri-
vate companies should have the right to make complaints under
the standards code. in fact, we would envision it would create
enormous litigation in the United States. That is not necessary
under the standards code; we think it is not intended and we think
the implementing legislation, therefore, should clearly state no
private rights of action are created.
Also, Consumers Union has an organizational concern with the
standards code. We understand from reading the code and from the
Office of Special Trade Representative that our activities are not
intended to be included within the standards code. That is rating
products in order to disseminate information to ultimate consum-
ers. We would like to see the implementing legislation clearly state
that the organization that rate products and disseminate informa-
tion, rather than set standards for productions, should not be in-
cluded within the scope of the standards code.
Finally, Consumers Union would like to support the continuation
of the private advisory committee. We would like to see more
consumers on the private advisory committees. Consumers Union
representatives were brought in late in the process, and we don't
see too many other consumers on these advisory committees. There
are no consumers on industrial advisory committees that I am
aware of. We think the consumers role should be expanded in the
advisory process.
[The prepared statement follows:]
STATEMENT OF MARK A. CYMROT, ATTORNEY, WASHINGTON OFFICE, CONSUMERS
UNION
Consumers Union1 appreciates this opportunity to testify on the Multilateral
Trade Negotiations and the proposed implementing legislation. We have requested
time to testify on the Standards Code which could be one of the major accomplish-
ments of the trade negotiations. However, if not carefully implemented, the Stand-
ards Code could seriously undermine health, safety, environmental and consumer
protections standards in the United States. We urge the committee to guard against
this possibility.
Consumers Union opposes trade barriers
Consumers Union is a staunch opponent of international trade barriers. Trade
restrictions are a hidden tax on consumers. In our view, consumers will be best
served when products from all countries are freely available in American markets.
The broadest possible competition best protects consumers and helps to ensure high
quality, low cost products on the market. We, therefore, have supported the efforts
of the Special Trade Representative to reduce both tariff and non-tariff barriers to
international trade.
To the extent that we have had an opportunity to review the trade package, it
appears that the negotiators have made substantial strides toward the goal of free
trade. We are hopeful that when the entire package is available, we will be able to
support it enthusiastically.
1 Union is a nonprofit membership organization chartered in 1936 under the laws
of the State of New York to provide information, education, and counsel about consumer goods
and services and the management of the family income. Consumers Union's income is derived
solely from the sale of Consumer Reports, its other publications and films. Expenses of occasion-
al public service efforts may be met, in part, by nonrestrictive, noncommerical grants and fees.
In addition to reports on Consumers Union's own product testing, Consumer Reports, with over
2 million circulation, regularly carries articles on health, product safety, marketplace econom-
ics, and legislative, judicial and regulatory actions which affect consumer welfare. Consumers
Union's publications carry no advertising and receive no commercial support.
PAGENO="0415"
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The Standards Code could be one of the major accomplishments of the negotiations
The Standards Code has the potential of being one of the major accomplishments
in these trade negotiations. The Standards Code is designed to eliminate many of
the discriminatory and anticompetitive standards which are intended or have the
effect of keeping foreign products from the United States markets and U.S. products
from foreign markets. However, it also could seriously undermine important health,
safety, environmental and consumer protection standards in the United States.
The parties to the Standards Code have agreed to develop all standards, technical
regulations and certification systems with open procedures similar to the U.S.
Administrative Procedures Act. The adoption of international standards is encour-
aged. All standards that are prepared, adopted or applied with a view to creating
obstacles to international trade are banned. These provisions are major achieve-
ments of the negotiations.
We, however, are concerned with the agreement provision that the parties shall
ensure that standards not have, "the effect of creating unnecessary obstacles to
international trade." All health, safety, environmental and consumer protection
standards (hereafter public safety standards) have the effect of being obstacles to
trade because they exclude unsafe products from the marketplace. The term "un-
necessary obstacle to international trade" is nowhere defined in the Code. Only the
preamble contains a general admonition that the Code is not intended to prevent
the signatories from "taking measures necessary for the protection of human,
animal or plant life, of the environment, or for the prevention of deceptive
practices."
Under the disputes settlement procedure, an international trade committee, with
the assistance of an expert panel, will determine whether a standard, including a
public safety standard, is an "unnecessary obstacle to international trade." The
committee hears complaints from signatory countries only when bilateral negotia-
tions have not resolved the dispute. However, when it hears the complaint, the
international committee will have to define "unnecessary obstacle to international
trade," hear the evidence, including the conclusions of the expert panel which has
reviewed the scientific evidence, and then decide whether the standard violates the
Code.
Public safety standards are frequently the source of acute debate within the
United States. Bans or proposed bans by U.S. administrative agencies on tris,
saccharin and red dye No. 2 have been reconsidered by Congress. Debate concerning
use of the pesticide DDT periodically recurs. There has been considerable debate
concerning the Federal Drug Administrations procedures for the certification of
drugs, including foreign drugs. Many banned products are available in Europe and
in other countries at the same time that they are excuded from the United States.
New drugs are much more easily introduced into foreign markets. The American
public frequently insists upon higher safety standards than found in other countries.
However, under the disputes settlement procedure of the Standards Code an
international committee will review the safety evidence and determine whether the
standard violates the code. This committee may not insist on the same level of
safety found in the United States and may not agree that the standard meets
legitimate safety needs. Public safety standards considered legitimate by United
States agencies, therefore, may not be considered legitimate by this international
committee.
The sanctions in the Standards Code are not stringent. At most, the complaining
country can be relieved from its obligations under the Standards Code. Therefore,
with proper implementing legislation, the Standards Code can be a very reasonable
compromise. The United States can gain the many benefits which the Code offers
and, through the implementing legislation, assure that legitimate health, safety,
environmental and consumer protection standards are maintained even if the
United States should lose before the international trade committee.
The implementing legislation
As a member of an Agricultural Trade Advisory Committee, I was provided with
the March 29, 1979, proposals of the Office of Special Trade Representative for
implementing legislation for the Standards Code. I was distressed to find that the
necessary protection for public safety standards were not in these proposals. I have
discussed the proposed implementing legislation with the staff of STR on several
occasions, including this past week. I now understand that necessary protections for
public safety standards will be included in STR's implementing proposals. Briefly,
Consumers Union believes the following elements are needed in the implementing
legislation:
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1. The Code and the implementing legislation should not prevent the taking of
necessary measures within the United States for the protection of health, safety, the
environment and consumers.
2. The term "unnecessary obstacle to international trade" should be defined as a
standard or certification system that discriminates against foreign products and is
more restrictive than necessary to accomplish its purpose.
3. The Code's reference to "deceptive practices" should be defined to include
"unfair or deceptive" practices under § 5 of the Federal Trade Commission Act and
also to include the other consumer protections presently available in U.S. laws. To
avoid clarifying this point is to invite extensive litigation.
4. The domestic administrative apparatus set up to review various U.S. Adminis-
trative agency standards which are alleged to be unnecessary barriers to trade
should be as simple as possible and should not constitute a disguised means for
executive branch management of the independent agencies established by Congress.
STR's March 29 proposal contained a provision for an interagency committee to
review complaints concerning U.S. standards. If a U.S. standard should be invalidat-
ed in the international forum, the interagency committee would be empowered to
determine what action is taken within the United States including setting aside the
U.S. standard. The interagency committee, therefore, is given the power to overrule
an agency that originally had authority to establish the standard.
The interagency committee should be empowered to set aside a U.S. standard only
after public comment under the Administrative Procedures Act, at public meetings
under the Government in the Sunshine Act, and only when the standard does not
serve a legitimate health, safety, environmental or consumer protection purpose.
5. STR's March 29 proposal contained provision for a central coordinating office
within the Commerce Department. The Standards Code encourages the negotiation
of international standards. The Commerce Department under the STR proposal
would be authorized not only to coordinate U.S. positions at the negotiations of
particular international standards but also to negotiate on behalf of all U.S. agen-
cies. In our view, the Commerce Department should not be authorized to set U.S.
policy on all international standards. Various agencies within the United States
have expertise in areas of health, safety, environmental and consumer protection,
e.g. Department of Agriculture, Federal Drug Administration, Federal Trade Com-
mission and the Consumer Product Safety Commission. The agencies with the
expertise in a particular safety area should be authorized to make the technical
decisions within their areas of expertise. The central coordinating office can coordi-
nate these negotiations but should not be given substantive authority to set U.S.
policy in areas where it does not have technical expertise.
6. The implementing legislation should clearly state that it creates no private
rights of action. The Standards Code is a government-to-government agreement. It
does not require the United States to give additional rights to private companies.
Private rights of action will lead to a proliferation of litigation. This problem can be
eliminated by limiting the implementing legislation, like the Code, to government-
to-government complaints.
7. Finally, Consumers Union has an organizational concern about the implement-
ing legislation. STR has advised us that the activities of Consumers Union and other
similar organizations are not intended to be included within the Standards Code.
Yet, ambiguity on this point could lead to unnecessary and chilling litigation in the
future. The implementing legislation should define "standard setting organization"
to exclude organizations that rate products and dissiminate information about prod-
ucts to the ultimate consumer.
We have expressed our concerns to the staff of STR and we understand that they
are in general agreement with us on each of these points. We, therefore, expect,
after reviewing the specific legislative proposal, to support the Standards Code and
the implementing legislation.
Consumers Union supports the continuation of the private advisory committee process
Finally, Consumers Union supports continuation of the private advisory commit-
tees. We urge that additional consumers be brought into the process and included
on the industrial technical advisory committees as well as the agricultural technical
advisory committees. Presently, consumer representations is only included on the
agricultural technical advisory committees. To make this representation meaning-
ful, consumers should be provided with back-up assistance and funding to support
their participation.
Mr. VANIK. I want to say I concur in much of what you say, and
I will hope that we get this earlier into implementing language or
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into the legislative history. The positions that you make are well
taken. They reflect my own interest and anxiety, so I will do what
I can to try to get these written in either one place or the other, so
they are part of the total package.
I want to thank you for your testimony. Do you have any ques-
tions, Mr. Moore?
Mr. MOORE. No questions. Thank you very much.
Mr. VANIK. Our next witness is American Federation of Labor,
Rudy Oswald.
Mr. Oswald, your entire statement will be included in the record
as submitted. You may excerpt from it or talk from it or whatever
way you see fit in a manner that can crystalize the issues for our
consideration.
STATEMENT OF RUDOLPH OSWALD, DIRECTOR, DEPARTMENT
OF RESEARCH, AMERICAN FEDERATION OF LABOR AND
CONGRESS OF INDUSTRIAL ORGANIZATIONS
Mr. OSWALD. Thank you, Mr. Chairman.
I appreciate this opportunity to present our testimony to you.
Accompanying me this morning is Ray Dennison, assistant director
of legislation, AFL-CIO, and Elizabeth Jager, economist for AFL-
ClO.
I would like to highlight certain parts of our testimony and
indicate our major concerns.
Negotiators have drafted new codes of conduct and other quide-
lines for world trade. After a study of the various codes, Mr.
Chairman, we feel that the impact of these negotiations could be
destructive and devastating unless clearly defined implementing
legislation is drafted to insure that much beneficial domestic legis-
lation is not abandoned in the belief that a surge of exports will
result.
Many of these changes in U.S. law will ease the importing of
goods into this country, but will not, in themselves, insure the
export of goods abroad. We must rely on the good faith of the
signatory countries and their future actions for those export bene-
fits.
We have particularly great concerns about the Government Pro-
curement Code and the Standards Code. Their inclusion, we be-
lieve, could jeopardize our national well-being. The dangers far
outweight any potential benefits.
In our testimony we offer a detailed series of recommendations
for change in overall legislation and in the implementation of the
various codes. However, as to the Government Procurement Code
and the Standards Code, our priority recommendation is that they
be returned to the Special Trade Representative and be renegotiat-
ed along with the Safeguards and Counterfeiting Codes that are
now on the bargaining table.
This implementing legislation will affect not only U.S. trade laws
but also a host of nontrade laws and regulations. The legislation
Congress will consider goes far beyond the interests of importers
and exporters. It will affect tax and consumer laws, "Buy Ameri-
can" and product standards laws, environmental and safety laws,
as well as domestic legislation designed to help the U.S. economy.
~`4-998 - 79 - 27
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We urge this committee to review in detail the implications of all
the proposed codes and the implementing legislation. Once this
committee accepts the package of proposed legislation now being
drafted, it cannot, according to the rules of the 1974 Trade Act,
amend that proposal. Thus, adequate time must now be devoted to
the drafting of appropriate language to assure proper regard for
American interests. Many of the details have not yet been supplied
to affected parties to allow full input into this prospective legisla-
tion. Actually, the multilateral trade negotiations are still ongoing.
These agreements have many implications that need to be exam-
ined in detail before the final package of legislation to implement
them is brought before the Congress. Once the legislation is intro-
duced, there will be neither time nor opportunity to take appropri-
ate action.
Negotiations are continuing on two additional nontariff codes:
safeguards and counterfeiting. The most important of these, from
labor's point of view, is safeguards. Safeguards in title II of the
Trade Act of 1974, have provided import relief to injured industries
such as specialty steel, shoes, color TV, and fasteners. The United
States needs swifter and more effective safeguard actions. The
implementing legislation should therefore amend title II of the
Trade Act of 1974 to assure these improvements whether or not a
separate safeguard code is negotiated.
The export interests of the United States are getting major at-
tention in the press and in descriptions of the trade negotiations
and the implementing legislation. American workers know the im-
portance of export trade and seek more of it. But the actual legisla-
tion that will be drafter will have little to do with U.S. exports.
Foreign governments' actions-not the U.S. legislation-will deter-
mine American's export future.
We urge that the implementing legislation require the U.S. Gov-
ernment agencies-the State Department, the Treasury Depart-
ment, the Commerce Department, and the International Trade
Commission: (1) To report on foreign government's actions that
interfere with U.S. exports-either by violating trade agreements
or in any other way; (2) to act to help U.S. export interests in
international procedures; and (3) to take whatever retaliatory steps
are necessary when U.S. export interests require it.
But the primary effect of the implementing legislation will fall
on imports and on domestic laws and regulations often not related
to trade. A number of specific concerns need to be addressed in the
implementing legislation.
Three overall concerns require preliminary comments: The legal
implications of codes, special problems related to nonmarket econo-
mies, and special and differential treatment for less developed
countries.
First, the legal implications of these negotiated agreements
should be clear. The issues are so far-reaching that a great many
U.S. laws could be affected even though the negotiators and the
Congress did not intend to change those laws.
An overall caveat should assure that the implementing legisla-
tion amends existing law only where such specific amendments are
stated in the implementing legislation. The caveat should also state
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411
that no other legislation amends such domestic legislation. This
caveat should also appear separately in relation to each code.
Second, special problems created by imports from nonmarket
economies and government-controlled companies require special
provisions. Such imports should be treated differently. The nature
of competition from nonmarket countries and government-con-
trolled companies creates unfair impacts and jeopardizes U.S. pro-
ducers and workers. This issue affects most codes-government
procurement, standards, subsidies, antidumping, et cetera.
Third, the United States is already the most open area in the
world and therefore already grants special and differential treat-
ment to developing countries. But the negotiations also provide
special and differential treatment for a group of unnamed develop-
ing countries in each code and in the overall framework of the
changes in international rules.
We urge the Congress to examine just what the negotiations
mean by a "developing country" and to find out the impact of such
imports already surging into the United States from what often
turns out to be highly industrial nations.
Special treatment for needy countries should be tailored to help-
ing people within those countries-not to the creation of more
poverty at home and abroad by export-led development at the
expense of labor everywhere. Title V of the Trade Act of 1974
should be repealed, because it is obsolete.
In addition to these overall issues, the AFL-CIO believes that the
code and other agreements create serious concerns. We have at-
tached to this statement detailed explanations of these concerns
and some recommendations for the implementing legislation. We
consider all of the issues very important. But because of time
pressures in these hearings, we will emphasize only a few in the
body of this statement.
In terms of Government procurement, current international
trade rules (GATT) exempt Government procurement, because tax-
payers' dollars have been regarded as a proper source of encourag-
ing domestic production and jobs. The Trade Act of 1974 was silent
about Government procurement in its list of foreign practices on
which negotiations were directed.
Many governments have no laws to change. They automatically
buy their own products, to the extent they can, from their own
domestic producers. The United States has a "Buy American" law
which is badly in need of improvement. State and local govern-
ments frequently have separate "Buy American" practices.
The code on Government procurement says that the United
States will grant other signatory countries the right to bid without
"Buy American" preferences for certain Government agencies-
including the Department of Defense with certain exceptions for
the Corps of Engineers and certain products.
In exchange, some foreign governments, signatory to the agree-
ment, will give the U.S. firms right to bid on certain government
procurement in those countries.
This code will commit the United States to give special rights to
bid on American Government contracts to developing countries by
guaranteeing special technical help to developing countries who
seek bids.
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This code causes serious problems, because the United States
needs to improve, not weaken its domestic preference laws. U.S.
tax dollars should be spent of domestic products, not foreign, so
that the U.S. economy may benefit from Government procurement
activities.
As a result of our review of that we suggest the code be returned
for negotiations in tandem with the Safeguard and Counterfeit
Codes now being negotiated. If it is not possible to renegotiate the
entire code for return to Congress at a later date then specific
provisions of the implementing legislation should be insisted upon
to minimize the damage that will likely occur.
Therefore we recommend that the committee insist on the follow-
ing provisions in the implementing legislation. One, that the legis-
lation should prohibit nonsignatory countries from access to bid on
U.S. Government procurement, and should limit the bidding of
signatures to the specific entities covered by the code.
Mr. VANIK. Either sign up or sign off. Otherwise they become
freeloaders, getting benefit without making any commitment at
any other part of the code.
Mr. OSWALD. And they should be limited to those entities includ-
ed in the code itself because those are clearly the ones that the
negotiators have agreed as a quid pro quo for what other countries
have opened up.
Mr. VANIK. Go ahead.
Mr. OSWALD. Second, a clear rule-of-origin should be incorporated
so that signatory countries can be the source of supplies for the
U.S. market.
Third, specific language should exempt State and local "Buy
American" laws. The codes imply that but we need specific
language.
Fourth, foreign governments procurement requests should be
listed in Commerce Business Daily so U.S. producers can appropri-
ately know about what these other countries do have, so business
can listen.
I have five other items on my list, Mr. Chairman, but for time
problems I will emphasize our concerns with technical barriers to
trade or standards.
You have heard some of those problems in the previous testi-
mony and we believe that this code, while it is designed to encour-
age trade by setting up a system to review trade barriers that are
caused by the use of product standards and certification systems.
All products are covered by the code-including industrial and
agricultural standards. The code promotes the use of international
standards instead of national standards. The code provides a forum
for exerting pressure to end standards that restrict trade. There
are exceptions for health, national security, et cetera, but these are
challengeable in terms of their effect on trade. Trade, not stand-
ards, becomes the paramount concern of the code.
The code applies to packaging, marking, or labeling require-
ments.
Certification systems must not be obstacles to trade. Certification
systems should accept markings of certification from abroad. All
local and State bodies shall arrange certification and testing sys-
tems so as not to exclude foreign country producers.
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Developed countries agree to give technical assistance and more
favorable treatment to developing countries. Developing countries
need not develop international standards.
But the effect of the code is uncertain and the impact on existing
U.S. domestic legislation could seriously undermine both existing
and potential U.S. standards. Even the language of the code and
the establishment of an international disputes mechanism state
that the U.S. standards would be challengeable by an international
group on the grounds that they had the effect of interfering with
world trade.
The impact of the code could be serious for any type of existing
protection from environmental and consumer protection laws to
product safety laws and established practices of engineering and
design throughout the United States. The effect on State and local
governments and private standards setting bodies could also be
serious.
As a result, Mr. Chairman, we feel that because of the uncertain
impact of the code implementation should be deferred, that it be
further negotiated so that there will be adequate protection for
U.S. laws and should be submitted in the future to Congress when
the multitude of problems that arise as a result of the Standards
Code have been resolved and when there is adequate time to pro-
vide assurance that U.S. standards are adequately protected.
If it is not possible to renegotiate the entire code, then specific
procedures should be insisted upon to minimize the damage to U.S.
standards that will likely occur.
We prefer the whole code be renegotiated. Subsidies, Mr. Chair-
man, as you know, are a long-time concern. They are an unfair
trade practice. It was one of the things that the 1974 Trade Act
emphasized as an unfair trade practice and the new negotiations
address some direct and indirect subsidy situations but the code
does not include value-added taxes or border taxes as subsidies
although the Trade Act of 1974 directed negotiations on such tax
subsidy programs.
What actions will follow a violation is also dependent on a vari-
ety of mechanisms, both domestic and international.
U.S. law and the GATT do not now require an injury test before
countervailing duty action is taken. U.S. law now requires the
Treasury Department to put a countervailing duty-a tariff-on an
import that has been subsidized to offset the amount of the foreign
subsidy on a dutiable import. This requirement is seldom enforced.
Most Americans do not even know what foreign subsidies exist or
how to counteract them.
The new code requires an injury test for the first time and we
are very concerned with that. Our recommendations in terms of
the implementing legislation for this code are that they should
assure that the code results in better arrangements to prevent
unfairly subsidized imports from undercutting U.S. production and
for action when foreign governments effectively ban U.S. exports
due to claimed U.S. subsidies.
First, the law should have adequate definitions of subsidies and
should include a value-added tax as a subsidy; and second, "injury"
should be broadly defined as "more than immaterial or more than
inconsequential" and should be based on the "threat of injury" as
PAGENO="0422"
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well as actual injury. Also, "industry" should be broadly defined to
include related products and processes because we have found from
experience in the past that such items were often injured from
such subsidies.
In your recent hearings, Mr. Chairman, you heard about the
problems of butter cookies in New Jersey, even though the subsidy
was made to butter in Denmark.
But we ~have some 15 specific areas that need to be addressed in
the implementing legislation to assure that there is adequate
action by the U.S. Government in assuring that subsidies will be
countervailed against and that this unfair trade practice will not
be allowed to undercut American activity and industries.
Other issues will need special legislative attention. An antidump-
ing code was signed in 1968 and rejected then by Congress and it
has been modified slightly as part of this MTN negotiation.
Improvement in U.S. antidumping legislation is an urgent need.
Mr. Chairman, you have held hearings on this issue for the past
2 years and have pointed out in your own statements a number of
the problems with the current implementation of the Antidumping
Act.
We believe the implementing package should strengthen U.S.
antidumping legislation by speeding up the procedure and provid-
ing better assurance of action.
Mr. VANIK. What position do you take on the adjustment assist-
ance bill we reported out-$70 million more than the 0MB is
willing to set aside for it? Do you have any feeling about it? I know
sometimes you feel this is just burial insurance, and if you don't
want it we probably won't get anything you know.
Mr. OSWALD. Mr. Chairman, we want it very much. We do be-
lieve it is burial insurance but we feel somebody should be buried
with dignity. The changes you have recommended would provide
for a better funeral for the person who has lost his job through
imports.
Mr. VANIK. I said at the White House this morning that I
thought this was an absolute essential requirement fo House ap-
proval of the MTN, so I would like to have that reenforced because
0MB has not budged one inch, so we are going to the floor with a
bill without 0MB approval on it.
Their problem is the source of funds, but I have taken the
position that we can't move MTN at all unless this is in place
along with a meaningful antidumping section.
Mr. OSWALD. Mr. Chairman, if there is not that improvement it
means that many workers who have been denied benefits in the
past from trade-related situations will be further injured as a
result of some of these things without any protection. We feel it is
absolutely vital that those wokers get a decent burial.
Mr. VANIK. I hope you would let that position be more firmly
known to 0MB because some people there are of the impression
since it is burial insurance there is no concern that you need it so I
think you have to fortify our effort by giving us some support on it.
Mr. OSWALD. Mr. Chairman, we have gone through some of the
discussions with 0MB on burial insurance both on this and the
social security bill. As you know 0MB thought they could save
money in the Social Security* Act by removing burial insurance.
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Mr. VANIK. We set them straight on that.
Mr. OSWALD. One of the interesting things in terms of the trade
union movement, is that it has always been concerned about this
type of insurance from the very beginning. Some of the earliest
trade union activities were to set up burial insurance for their
members.
I would just like to conclude, Mr. Chairman, in terms of high-
lighting that in addition to what we have in our formal statement
we have provided the committee with details about our concerns
with each of the codes. These are contained in the attached appen-
dix.
We ask that each of our specific recommendations be considered
by the Congress in the draft of the implementing legislation.
Once this legislation is introduced it will be very difficult to
correct any untoward errors or omissions.
In conclusion we believe the implementaing legislation will not
assure rights for U.S. exports. The Congress will be asked to decide
how the U.S. laws will be changed to respond to proposed interna-
tional codes. Therefore, this is not export-guaranteeing legislation.
It is legislation that makes major changes in domestic law. Because
of the multitude of problems, the Government Procurement Code
and the Standards Code should be renegotiated. The implementing
legislation should be properly considered in detail prior to its intro-
duction and should be designed to insure the best interests of the
United States.
Thank you, Mr. Chairman.
[The prepared statement follows:]
STATEMENT OF DR. RUDOLPH OSWALD, DIRECTOR, DEPARTMENT OF RESEARCH,
AMERICAN FEDERATION OF LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS
The AFL-CIO, a federation of 105 affiliated unions, represents workers in every
type of industry from apparel and aerospace to telecommunications and zinc. We
welcome this opportunity to comment on the multilateral trade negotiations and the
proposed implementing legislation. The Executive Council of the AFL-CIO, the
conventions of the AFL-CIO-all the policymaking and staff channels-have consid-
ered many aspects of the international trade negotiations for a long time.
The negotiators have drafted new codes of conduct and other guidelines for world
trade. After a study of the various codes, Mr. Chairman, we feel that the impact of
these negotiations could be destructive and devastating unless clearly defined imple-
menting legislation is drafted to insure that much beneficial domestic legislation is
not abandoned in the belief that a surge of exports will result. Many of these
changes in U.S. law will ease the importing of goods into this country, but will not,
in themselves, insure the export of goods abroad. We must rely on the good faith of
the signatory countries and their future actions for those export benefits.
We have particularly great concerns about the Government Procurement Code
and the Standards Code. Their inclusion, we believe, could jeopardize our national
well-being. The dangers far outweigh any potential benefits.
In our testimony we offer a detailed series of recommendations for change in
overall legislation and in the implementation of the various codes. However, as to
the Government Procurement Code and the Standards Code, our priority recommen-
dation is that they be returned to the Special Trade Representative and be renegoti-
ated along with the Safeguards and Counterfeiting Codes that are now on the
bargaining table.
This implementing legislation will affect not only U.S. trade laws, but also a host
of non-trade laws and regulations. The legislation Congress will consider goes far
beyond the interests of importers and exporters. It will affect tax and consumer
laws, "Buy American" and product standards laws, environmental and safety laws,
as well as domestic legislation designed to help the U.S. economy.
We urge this Committee to review in detail the implications of all the proposed
codes and the implementing legislation. Once this committee accepts the package of
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proposed legislation now being drafted, it cannot, according to the rules of the 1974
Trade Act, amend that proposal. Thus adequate time must now be devoted to the
drafting of appropriate language to assure proper regard for American interests.
Many of the details have not yet been supplied to affected parties to allow full input
into this prospective legislation. Actually the multilateral trade negotiations are
still ongoing.
These agreements have many implications that need to be examined in detail
before the final package of legislation to implement them is brought before the
Congress. Once the legislation is introduced, there will be neither time nor opportu-
nity to take appropriate action.
These agreements are the result of more than four years of negotiations. On April
12 of this year, representatives of the U.S. and 23 nations initialed these new
multilateral trade agreements on an ad referendum basis. This means the agree-
ments will take effect only after the U.S. Congress and other governments approve
them. The U.S. Congress is expected to act first.
The agreements include:
Tariff-cuts, averaging 31 percent. These are to be phased in over eight years. But
details of the trade-offs for these tariff cuts and the amount of the foreign tariff-
cutting is not clear. Evaluation of the balance between U.S. and foreign concessions
is therefore not possible at this time. The Congress will not have to pass any
legislation for most of this tariff-cutting, because the President was given authority
to reach agreements and proclaim tariff-cuts in the Trade Act of 1974, without any
additional Congressional approval.
Nontariff-matters.-These are the major subjects of the change in world trade
rules. The Trade Act of 1974 authorized and directed negotiations on non-tariff
issues, because U.S. exporters have repeatedly claimed that they could not get into
foreign markets or because U.S. producers have claimed that unfair foreign trade
practices were undercutting U.S. producers at home and abroad. The Trade Act of
1974 requires that the non-tariff legislation shall be subject to an unamendable up
or down vote within 90 legislative days of presentation to the Congress.
Non-tariff codes of conduct that modify or change world trade rules have been
agreed to by the negotiators. These include: (1) Government Procurement, (2) Stand-
ards (technical barriers to trade), (3) Subsidies and Countervailing Duties, (4) Licens-
ing, (5) Customs Valuation, (6) Sector Agreement on Aircraft, (7) Agricultural Agree-
ments, (8) Framework (Reform of the International Trading System), (9) Anti-dump-
ing.
Negotiations are continuing on two additional non-tariff codes: Safeguards and
Counterfeiting. The most important of these, from labor's point of view, is Safe-
guards. Safeguards in Title II of the Trade Act of 1974, have provided import relief
to injured industries such as specialty steel, shoes, color TV and fasteners. The U.S.
needs swifter and more effective safeguard actions. The implementing legislation
should therefore amend Title II of the Trade Act of 1974 to assure these improve-
ments whether or not a separate safeguard code is negotiated.
The export interests of the United States are getting major attention in the press
and in descriptions of the trade negotiations and the implementing legislation.
American workers know the importance of export trade and seek more of it. But the
actual legislation that will be drafted will have little to do with U.S. exports.
Foreign governments' actions-not the U.S. legislation-will determine America's
export future.
We urge that the implementing legislation require the U.S. government agen-
cies-the State Department, the Treasury Department, the Commerce Department,
and the International Trade Commission (1) to report on foreign government's
actions that interfere with U.S. exports-either by violating trade agreements or in
any other way, (2) to act to help U.S. export interests in international procedures,
and (3) to take whatever retaliatory steps are necessary when U.S. export interests
require it.
But the primary effects of the implementing legislation will fall on imports and
on domestic laws and regulations often not related to trade. A number of specific
concerns need to be addressed in the implementing legislation.
Three overall concerns require preliminary comments: The legal implications of
codes, special problems related to non-market economies and special and differential
treatment for "less developed countries."
1. The legal implications of these negotiated agreements should be clear. The
issues are so far-reaching that a great many U.S. laws could be affected even though
the negotiators and the Congress did not intend to change those laws.
An overall caveat should assure that the implementing legislation amends exist-
ing law only where such specific amendments are stated in the implementing
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legislation. The caveat should also state that no other legislation is affected until
the Congress or the enacting legislature amends such domestic legislation. This
caveat should also appear separately in relation to each code.
2. Special problems created by imports from non-market economies and govern-
ment-controlled companies requires special provisions. Such imports should be treat-
ed differently. The nature of competition from nonmarket countries and govern-
ment-controlled companies creates unfair impacts and jeopardizes U.S. producers
and workers. This issue affects most codes-government procurement, standards,
subsidies, antidumping, etc.
3. The United States is the most open area in the world and therefore already
grants special and differential treatment to developing countries. But the negotia-
tions also provide "special and differential treatment" for a group of unnamed
"developing countries" in each code and in the overall framework of the changes in
international rules. We urge the Congress to examine just what the negotiators
mean by a "developing country" and to find out the impact of such imports already
surging into the U.S. from what often turns out to be highly industrial nations.
Special treatment for needy countries should be tailored to helping people within
those countries-not to the creation of more poverty at home and abroad by export-
led development at the expense of labor everywhere. Title V of the Trade Act of
1974 should be repealed, because it is obsolete.
In addition to these overall issues, the AFL-CIO believes that the codes and other
agreements create serious concerns. We have attached to this statement detailed
explanations of these concerns and some recommendations for the implementing
legislation. We consider all of the issues very important. But because of time
pressures in these hearings, we will emphasize only a few in the body of this
statement.
Government procurement (background)
Current international trade rules (GATT) exempt government procurement, be-
cause taxpayers' dollars have been regarded as a proper source of encouraging
domestic production and jobs. The Trade Act of 1974 was silent about government
procurement in its list of foreign practices on which negotiations were directed.
Many governments have no law to change. They automatically buy their own
products, to the extent they can, from their own domestic producers. The U.S. has a
"Buy American" law which is badly in need of improvement. At this time, the U.S.
law is enforced with a 6 percent preference or a 12 percent preference for labor
surplus areas or for minority or small business set-asides. A 50 percent preference
exists for non-strategic defense items. State and local governments frequently have
separate "Buy American" practices.
The code on government procurement says that the U.S. will grant other signato-
ry countries the right to bid without "Buy American" preferences for certain
government agencies-including the Department of Defense (with certain exceptions
for the Corps of Engineers and certain products). In exchange, some foreign govern-
ments, signatory to the agreement, will give the U.S. firms right to bid on certain
government procurement in those countries.
This code will commit the United States to give special rights to bid on American
government contracts to developing countries by guaranteeing special technical help
to developing countries who seek bids.
An international panel will decide on the disputes under this code.
Contracts (including service contracts incidental to providing a product) of ap-
proximately $190,000 or more are covered.
This code causes serious problems, because the U.S. needs to improve, not weaken
its domestic preference laws. U.S. tax dollars should be spent on domestic products,
not foreign, so that the U.S. economy may benefit from government procurement
activities.
Government procurement (recommendations)
The code should be returned for negotiations in tandem with the safeguard and
counterfeit codes now being negotiated.
If it is not possible to renegotiate the entire code for a return to Congress at a
later date, then specific provisions in the implementing legislation should be insist-
ed upon to minimize the damage that will likely occur.
Therefore, we recommend that the Committee insists on the following provisions
in the implementing legislation:
1. The legislation should prohibit non-signatory countries from access to bid on
U.S. government procurement, and should limit the bidding of signatures to the
specific entities covered by the code.
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2. A clear rule-of-origin language should be incorporated so that signatory coun-
tries can be the source of supplies for the U.S. market.
3. Specific language should exempt state and local "Buy American" laws.
4. Foreign governments procurement requests should be listed in Commerce Busi-
ness Daily.
5. The implementing legislation should be for a two-year provisional basis and
should provide that it does not go into effect before January 1, 1981, the date
indicated in the code.
6. The implementing legislation should spell out the machinery for U.S. withdraw-
al, which is provided for in the code upon 60 days notice.
7. A special overall legal caveat should assure that the implementing legislation
amends existing law only where specific amendments occur and it should clearly
state that no other domestic legislation is affected until Congress specifically
amends such domestic legislation.
8. Provision should be made that there will be no authorization for the reduction
of U.S. product standards nor any retarding of prospective improvement of U.S.
standards by this legislation.
9. Upon complaint, all participating countries should be required to make availa-
ble the records and transactions of their state-owned companies.
Technical barriers to trade (standards) (background)
This code is designed to encourage trade by setting up a system to review trade
barriers that are caused by the use of product standards and certification systems.
All products are covered by the code-including industrial and agricultural stand-
ards. The code promotes the use of international standards instead of national
standards. The code provides a forum for exerting pressure to end standards that
restrict trade. There are exceptions for health, national security, etc., but these are
challengeable in terms of their effect on trade. Trade, not standards, becomes the
paramount concern of the code.
The code applies to packaging, marking or labeling requirements.
Certification systems must not be obstacles to trade. Certification systems should
accept markings of certification from abroad. All local and state bodies shall ar-
range certification and testing systems so as not to exclude foreign-country produc-
ers.
Developed countries agree to give technical assistance and more favorable treat-
ment to developing countries. Developing countries neet not develop international
standards.
But the effect of the code is uncertain and the impact on existing U.S. domestic
legislation could seriously undermine both existing and potential U.S. standards.
Even the language of the code and the establishment of an international disputes
mechanism state that the U.S. standards would be challegeable by an international
group on the grounds that they had the effect of interfering with world trade.
The impact of the code could be serious for any type of existing protection from
environmental and consumer protection laws to product safety laws and established
practices of engineering and design throughout the United States. The effect on
state and local governments and private standards setting bodies could also be
serious.
Technical barrier to trade (standards) recommendations
The code should be returned for negotiation in tandem with the safeguard and
counterfeit codes now being negotiated-and submitted to Congress at a later date
when the multitude of problems passed by the standards code have been solved and
U.S. standards are adequately protected.
If it is not possible to renegotiate the entire code, then specific procedures should
be insisted upon to minimize the damage to U.S. standards that will likely occur.
Therefore, we recommend that the Committee insist on the following provisions in
the implementing legislation:
1. The code should not be able to supersede federal or state regulations.
2. The U.S government should be able to take unilateral action to improve or
impose its standards.
3. The test of violation of the code should be the adoption of a standard designed
to discriminate against imports-not merely the fact that a standard has the effect
of interfering with trade.
Subsidies (background)
Subsidies on exports are an unfair trade practice because government subsidies
create unfair competition. The code cites subsidies on exports of industrial products
as unfair. But the definition of a subsidy is not clear in the code. Aids to industries
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in areas of high unemployment are considered sudsidies in the code. But the code
does not include value added taxes or border taxes as subsidies although the Trade
Act of 1974 directed negotiations on such tax subsidy programs.
What action will follow a violation is also dependent on a variety of mechanisms,
both domestic and international.
U.S. law and the GATT do not now require an injury test before countervailing
duty action is taken. U.S. law now requires the Treasury Department to put a
countervailing duty (a tariff) on an import that has been subsidized to offset the
amount of the foreign subsidy on a dutiable import. This requirement is seldom
enforced. Most Americans do not even know what foreign subsidies exist or how to
counteract them.
The new code requires an injury test and the injury must be caused by the
subsidy itself.
The code will not apply to any country which does not sign it.
Subsidies (recommendations)
The implementing legislation for this code should assure that the code results in
better arrangements to prevent unfairly subsidized imports from under-cutting U.S.
production and for action when foreign governments effectively ban U.S. exports
due to claimed U.S. subsidies.
1. The law should have adequate definitions of subsidies and should include a
value-added tax as a subsidy.
2. "Injury" should be broadly defined as "more than immaterial or more than
inconsequential" and should be based on the "threat of injury" as well as actual
injury.
3. "Industry" should be broadly defined to include related products and processes.
4. The amount of duty should be the full amount of subsidy.
5. Unions should have the right to sue.
6. Neither investigations nor countervailing duties should be ended until the
subsidy and injury problems are solved.
7. Reasonably available information should be enough to start an action.
8. Both "injury" and "subsidy" should be weighed in reconsideration of counter-
vailing duty orders.
9. Judicial review should be a right for unions as well as other domestic interests.
10. U.S. government should be required to provide information on foreign subsi-
dies and should be required to start actions on its own motion.
11. No rights or obligations created by the code or the legislation should be
enforced except as provided by the legislation.
12. Both developed and less developed countries should be given the same tests for
unfair trade practices.
13. Availability and reliability of evidence should be specified.
14. Timing should include: continuance of existing orders until proven unneces-
sary, retroactivity, provisional duties when necessary and a time limit for the
assessment.
15. Special provisions for imports from non-market economies should be included.
Other issues will need special legislative attention:
An anti-dumping code, signed in 1968 and rejected then by the Congress, has been
modified slightly as part of the MTN. Improvement in U.S. anti-dumping legislation
is an urgent need, as pointed out in hearings over the past few years. The imple-
menting package should strengthen U.S. anti-dumping legislation by speeding up
the procedures and providing better assurance of relief.
The implementation of the licensing code should provide for the U.S. to license all
imports so that adequate records of imports will be available.
A customs valuation code, which repeals the American Selling Price method of
valuation and makes many changes in the way goods entering the U.S. will be
valued, calls for new considerations. The time to shift to the same method of
valuation other nations use-c.i.f.-is long overdue.
An aircraft sector code reduces tariffs to zero on imports of civil aircraft and parts
from all countries and makes new rules on co-production and other trade bargaining
relationships. This will have an impact on U.S. jobs and production in a wide
variety of industries. More detailed analysis should be provided Congress as to the
impact on jobs and industries.
"Non-tariff measures not multilaterally dealt with" is a trade expert's term that
means far more to American jobs and production than anyone has reported. The
repeal of a single line item in the Internal Revenue Code concerning taxes on
imported liquor will cost jobs and will lead to the closing of certain glass bottling
and distillery operations in the United States because the advantage for such
operations in this country has been removed. This is a tax change, but it was
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included in overall negotiations. We urge that this agreement be dropped. Its
supposed linkage to American agricultural exports is difficult to accept because
agricultural concessions appear to have been paid for in many other agreements.
Another item has to do with aircraft repairs and parts purchased abroad. There is
now a 50 percent tariff on such aircraft repairs and aircraft parts. Negotiations
have apparently removed this tariff-at a potential cost of U.S. jobs and produc-
tion-but without providing information about what was given in return or whether
it is part of a code.
There is also an issue concerning foreign-built inflatable rubber rafts and hover-
craft. This provision involves extensive changes in many U.S. trade and navigation
laws to permit importation of foreign-built hovercraft. New U.S. technology is being
developed in this industry in the U.S., but it would be snuffed out by the changes in
this agreement. We believe that this provision should be dropped, if it hasn't
already been dropped.
There are several other items-each of them affecting a change in U.S. law and
impact on jobs and production. No explanation of what was offered in exchange for
them has been granted.
More details on these codes are contained in the attached appendix. We ask that
each of our specific recommendations be considered by the Congress in the draft of
the implementing legislation. Once this legislation is introduced, it will be very
difficult to correct any untoward errors or emissions.
In conclusion, we believe that the implementing legislation will not assure rights
for U.S. exports. The Congress will be asked to decide how the U.S. laws will be
changed to respond to proposed international codes. Therefore, this is not export-
guaranteeing legislation. It is legislation that makes major changes in domestic law.
Because of the multitude of problems, the Government Procurement code and the
Standards code should be renegotiated. The implementing legislation should be
properly considered in detail prior to its introduction and should be designed to
insure the best interests of the United States.
MULTILATERAL TRADE AGREEMENTS, AFL-CIO ANALYSIS AND RECOMMENDATIONS
ON NONTARIFF ISSUES 1
BACKGROUND
The international trade negotiations have gone on for more than four years under
the authority granted the President in the Trade Act of 1974. On January 4, 1979
President Carter told Congress that he expected the international trade negotiations
to be completed in 90 days. On April 12, the U.S. and 22 other nations initialed
agreements on 7 non-tariff codes. The law requires at least the 90-day notice. In
May the President will probably send the agreements to the Congress with a
package of legislation to carry out the U.S. part of the agreement. The Trade Act of
1974 gives the Congress 90 legislative days to vote up or down without amendments
the implementing legislation. But the law is silent about how long a time is
appropriate to draft implementing legislation.
~The labor advisors must report to the President and Congress whether they think
the agreements will benefit the economic interest of the United States.
Tariff cuts averaging 30 percent are being negotiated. These do not have to be
approved by Congress. They will be phased in over 8 years.
The President sent Congress summary descriptions of 8 codes and 6 other sets of
issues. Labor and industry advisors have also been given texts of the codes and
suggestions about implementing legislation.
No previous trade negotiations involved so many non-tariff issues. U.S. trade and
non-trade laws will have to be changed. Hundreds of provisions of tariff and non-
tariff matters are affected. We have asked for a complete list of laws and regula-
tions that will be changed, but there is no list now available. These agreements
affect many non-trade federal, state and local laws such as "Buy American" laws,
laws on product standards or technical requirements for products, etc.
The international agreements have not been completed and information needed
for final judgments is still not available. These comments, therefore, are prelimi-
nary. Only those who have seen the vague, contradictory and confusing language of
the many international agreements can understand how difficult it is for labor
representatives, business representatives and their representatives in the Congress
to make effective decisions about a package of proposals now being drafted.
1 This is a composite of proposals endorsed by most interested affiliates as of April 17. The
text is still preliminary because MTN agreements are not final and Administration's proposed
legislative package is not available.
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There is a whole host of laws that took generations to develop that are now about
to be changed drastically-perhaps in a matter of weeks. Yet, at this moment, the
proposed language is not available. Our concern is across-the-board in terms of
American law, American jobs and the American standard of living.
Because countless U.S. laws and practices-federal, state and local-will be affect-
ed, the Congress is urged to move deliberately and carefully. Congressional commit-
tees with jurisdiction over non-trade issues should receive a full briefing on the
implications for laws they have passed or may want to pass.
The words "Multilateral Trade Negotiations" are confusing. MTN has no special
meaning for American citizens. But American practices and standards and laws are
well known. Taxpayers know what "Buy American" means, but they may not know
that a Government Procurement Code-once signed and put into law, could require
repeal, or change by regulation thousands of "Buy American" laws and practices
throughout America. Workers know about Occupational Safety and Health stand-
àrds, consumer protection laws, building codes and other industrial product stand-
ards. They do not know that a code on "Technical Barriers to Trade" or Standards
would make U.S. standards subject to international review.
The AFL-CIO has been unable to get detailed or comprehensive information
about the barriers abroad which were removed in exchange for the concessions
made by the United States. It is therefore not possible to identify accurately the
economic balance or the competitive equivalency of the results.
General recommendations about "package" of implementing legislation
The package of legislative proposals should be drafted carefully because so many
U.S. laws and regulations on trade and non-trade matters can be affected. Now that
the agreement is signed, Congressional committees should have time to review their
implications before the unamendable legislation is finally drafted. The Trade Act of
1974 does not set a deadline for submitting the legislation.
The scope of the entire set of proposals should be sent to Congress as a whole
before the law is finally drafted.
The legal meaning of the package and each part of the package must be made
clear. This is a new set of international agreements, but their legal status is not
clear. One "trade" law should not supersede other domestic laws.
The legislation should clearly say that any legislation, not specifically amended
by the implementing legislation, remains in full force and is not affected by any
implication of the codes.
Any code provisions that refer to determinations by international agencies should
make sure that such international decisions about U.S. practices are advisory only
and have no force in U.S. law. Changes in existing U.S. laws and regulations should
be only by the express authority of the legislature which originally enacted the law.
Judicial review is an important right that must be stated in law. Labor does not
now have standing to sue for many purposes in trade laws. This right should be in
each part of the package of legislation-for labor as well as other groups.
The constitutional impact of the international agreement on state and local
governments should be carefully explored.
Trade with non-market economies or state enterprise should have specific legisla-
tive provisions.
Relationships between the codes should be clearly established so that provisions of
law to implement one code will not contradict provisions in another code.
The maintenance of a strong, diversified U.S. economy with protection of U.S.
workers and industries against unfair trade competition should be an important
purpose of the statute.
SUBSIDIES
Subsidies on exports are an unfair trade practice: The code cites subsidies on
exports of industrial products as unfair. But the definition of a subsidy is not clear.
Aids to industries in areas of high unemployment are considered subsidies in the
code.
What action will follow a violation is also dependent on a variety of mechansims,
both domestic and international.
U.S. law and the GATT do not now require an injury test before countervailing
duty action is taken. U.S. law now requires the Treasury Department to put a
countervailing duty (a tariff) on an import that has been subsidized to offset the
amount of the foreign subsidy on a dutiable import. This requirement is seldom
enforced. Most Americans do not even know what foreign subsidies exist or how to
conteract them.
The new code requires an injury test and the injury must be caused by the
subsidy itself.
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The code will not apply to any country which does not sign it.
This is a complicated problem and many legislative proposals have been made. A
lengthier explanation follows this brief summary. This legal explanation calls for
many specific provisions including definitions of subsidies and of injury, imposition
of provisional duties and efforts to close the loopholes in existing law;
Recommendations
Definitions should be written in the statute. Proposed regulations should be made
clear to the Congress. These definitions and regulations concern definitions of
subsidy, of injury, and of industry-both upstream and downstream, as well as
regional. An injury test should not be required especially for imports under Gener-
alized System of Preferences. (See numbers 1 through 3 and number 15 in the
attached legal section.) The value-added tax and foreign border taxes should be
considered subsidies. Status of DISC should be clarified.
Amount of duty should be the full amount of subsidy. (See number 4.)
Unions should have the right to sue. (See number 5.)
Neither investigations nor countervailing duties should be ended until the subsidy
and injury problems are solved. (See numbers 6 and 7.)
Reasonably available information should be enough to start an action. (See
number 7.)
Both "injury" and "subsidy" should be weighed under specific provisions in recon-
sideration of countervailing duty orders. (See number 8.)
Judicial review should be a right for unions as well as other domestic interests.
(See number 9.)
U.S. government should be required to provide information on foreign subsidies
and should be required to start actions on its own motion. (See numbers 10 and 11.)
No rights or obligations created by the code or the legislation should be enforced
except as provided by the legislation. (See number 12.)
Both developed and less developed countries should be given the same tests for
unfair trade practices. (See number 13.)
Availability and reliability of evidence should be specified for use in decision
making. (See number 14.)
Timing of application of countervailing duties should include: continuance of
existing orders until proven unnecessary, retroactivity, provisional duties when
necessary, and a time limit for the assessment. (See numbers 16 through 18.)
Questions
Why will this code be more effective than past law which provided an actual
requirement for action by the U.S. government to offset unfair imports?
How will this code operate-specifically in terms of an industry or groups of
workers who are losing their jobs because of unfairly subsidized imports?
What will force the U.S. government to act if another country violates the code?
How will this code affect U.S. aid to areas of high unemployment, such as the
Economic Development Administration?
I. DETAILED LEGAL ANALYSIS OF SUBSIDIES AND COUNTERVAILING DUTIES
We now address several issues regarding subsidies and countervailing duties. The
items discussed are not necessarily in order of priority
1. Definition of "subsidy"
There should be a definition of subsidies of purposes of the U.S. countervailing
duty law. The definition proposed in 5. 538 is an appropriate subject for considera-
tion in this regard. Even if it were proper to leave this matter to regulations, it
violates the spirit of § 102 of the Trade Act not to indicate what the regulations
would say.
In light of the fact that an understanding has apparently been reached that DISC
will not be regarded as a subsidy even though it clearly is a subsidy within the
terms of the Code, it is imperative that we be given a full explanation of any
negotiations which have occurred with respect to which foreign practices will or will
not be regarded as subsidies by the U.S.
We submit that rebates of value-added taxes should plainly be treated as subsidies
under the U.S. countervailing duty law.
The application of countervailing duty provisions in the context of non-market
economies is a critical matter. The implementation package should spell out plainly
how the U.S. will apply its countervailing duty law to non-market economies.
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2. Definition of "injury"
The implementing legislation should not provide that injury will be defined "as
that term is used in the Agreement," since (i) the definition in the Agreement is
vague and could be misinterpreted, and (ii) a reference to terms "as used in the
Agreement"could be read to require that the U.S. legislation be construed in what-
ever way the GATT panels may interpret the Agreement over the years.
Since subsidies are by definition unfair practices, the adoption of an injury
requirement by the U.S. would represent a major concession, departing from exist-
ing U.S. law. Any injury test should therefore not be defined in a manner which
would present roadblocks to obtaining relief against unfair practices. Rather, the
threshold to relief should be low, the use of terms such as "material" and "signifi-
cant," as contained in some proposals, could be interpreted to impose a high thresh-
old, and the definition should be redrafted to avoid such terms. Any injury formula-
tion should be drafted so as to make plain that the subsidized imports need not be
the principal cause, or a substantial cause, of an industry's injury, nor should the
injury from subsidized imports be weighted against other factors which may be
contributing to injure an industry.
The legislation should expressly provide that even a small impact from imports
will be deemed sufficient to trigger a countervailing duty if an industry is already
in economic difficulties. This is critical if the U.S. is to retain a diversified industrial
base rather than being reduced to those industries whcih are healthy enough to
survive in the face of unfair trade practices.
A Sec. 201 or 203 finding should be regarded as prima facie evidence of injury.
The legislation should also expressly provide that the various factors listed as
relevant to the question of injury are not all-inclusive, and that all other relevant
economic factors may be considered. (The code itself says as much.)
If Title V of the Trade Act is not repealed, a new arrangement should be
developed to end the inequitable situation in which a product receives both a
subsidy and GSP benefits and yet no countervailing duty may be applied unless an
injury test is met.
Finally, and perhaps most important, any injury test should include a recognition
that the nature of a subsidy and its probable effects are to be considered in
determining injury. In particular, injury should be presumed in the case of an
export subsidy, including disguised export subsidies.
3. Definition of "industry"
(a) "Like or directly competitive. " Experience affecting industries such as footwear,
consumer electronics, garments, and steel products has proved that it is critical that
the effect of subsidies both "upstream" and "downstream" be considered and reme-
died.
(b) Regional industry. The reference in the proposed legislation to a region that
constitutes "an isolated market from other regions of the United States" is unneces-
sarily narrow, as well as unrealistic. The concept of a regional industry may
appropriately be applied whenever producers of the domestic industry for a class or
kind of merchandise are located in a particular geographic area and primarily serve
the market in that area, and imports have been concentrated in that area, even
though a major part of the U.S. industry is not injured.
4. Amount of duty
Countervailing duties should be in the full amount of the subsidy.
5. Status of unions in countervailing duty proceedings
We strongly support the right of unions to file CVD complaints. It is imperative
that interested unions should have all the procedural rights that are accorded to
other groups, such as importers, exporters, and other U.S. producers. Thus, the
legislation should either (i) provide that affected unions shall be deemed "parties to
the complaint" and "parties to the investigation," or (ii) provide a mechanism by
which unions may obtain that status upon request at any stage in a proceeding.
6'. Discontinuance or termination of a proceeding
(a) Termination. A proposal states that an investigation "will be terminated
without imposition of provisional measures or countervailing duties if the Secretary
determines that the net amount of the subsidy has been eliminated." Any provision
of this nature is fraught with danger, and this formulation goes much too far. For
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example, if a subsidy has resulted in injury which would make a retroactive duty
appropriate, that duty should surely be assessed regardless of whether the subsidy
has subsequently been eliminated. In addition, a system under which an investiga-
tion would be terminated whenever a subsidy had been eliminated would induce
foreign governments to grant subsidies, then eliminate them temporarily once an
investigation was initiated, only to reinstitute them (perhaps in a new guise) after
the investigation had been terminated. To avoid this, whenever a subsidy has been
maintained, a finding to that effect should be made, and if it is determined that the
subsidy has since been eliminated, provisions should be made for imposing a coun-
tervailing duty on an expedited basis in the event that the subsidy is reinstituted.
Finally, the Secretary's determination 2 to terminate an investigation on the
ground that the subsidy has been eliminated should be subject to appeal.
(b) Discontinuance. The proposal that an investigation may be discontinued on the
basis of undertakings with respect to price or volume which are thought to elimi-
nate "the injurious effect of the subsidy" is even more objectionable. In addition to
the problems just discussed with respect to "terminations," this proposal would
nullify the principle that duties are to be in an amount which will remove the full
subsidy, not just the injury. The proposal would open a gaping loophole in the CVD
provisions. Discontinuance should be permitted only with the approval of the affect-
ed domestic interests.
7. Basis for initiating an investigation
A complaint need only provide a "reasonable indication" of subsidy and injury, on
the basis of evidence that is "reasonably available to a complainant," is appropriate
and important. The same standard should govern the initiation of an investigation
by the government on its own motion (see item 11).
8. Reconsideration of CVD orders
On the one hand, there obviously must be a mechanism by which the amount of a
countervailing duty may be modified as the amount of the subsidy changes-
although to the extent possible, the terms of the CVD order itself should be drafted
with a view to that matter, and should provide for automatic adjustments in the
amount of the duty in certain circumstances. On the other hand, however, the
mechanism for modification of orders should not provide a route by which elimina-
tion or reduction of duties may be obtained without the full procedural protections
which apply to the initial CVD order. And any substantial modification of an order
should be subject to judicial review. At most, an investigation should be undertaken
only if the Secretary has received persuasive evidence that the industry is no longer
subjected to injury, threat of injury, or retardation. Moreover, an investigation
"should not be undertaken until at least 18 months following the publication of the
last injury determination." And the legislative history should emphasize that be-
cause subsidies are unfair practices, U.S. policy is that once a subsidy has been
shown to have caused injury as defined in U.S. law, the U.S. objective is elimination
of the subsidy, not just the injury.
9. Judicial review
Final determinations may be appealed. This should be corrected, and the provi-
sions should make clear that in the case of an affirmative final determination, an
affected union or domestic producer who believes that the amount of the duty is too
low will have standing to appeal.
Any negative determination, discontinuance, or termination of an investigation
should be subject to judicial review. (See item 6(a).)
Any matter which may be appealed by other affected interests should likewise be
appealable by unions. (See item 5.)
10. Reporting of foreign subsidy practices
Provisions requiring the government to obtain and disseminate information re-
garding foreign subsidy practices should be included in the legislation, not just the
regulations, and the details of the provisions should be made available as soon as
possible.
2 All reference in these comments to actions of the Secretary of Treasury, the International
Trade Commission, STR and other agencies, reflect the roles of these agencies, and do not
indicate any position on the part of the AFL-CIO as to which agency or agencies should be
responsible for enforcing the various provisions of the U.S. trade laws.
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11. Investigations self-initiated by the Government
The legislation should require, not just permit, an investigation to be initiated by
the government on its own motion when appropriate information is obtained.
12. Foreclosing suits in US. courts against US. practices
The bill should provide generally that no rights or obligations created by the code
or by the implementing legislation may be enforced except as provided in the
legislation. In addition, there should be a provision which unambiguously forecloses
suits in U.S. courts (federal, state or local) based on any claim that a U.S. practice
violates the Subsidies Code or the implementing legislation. It should also be pro-
vided that government procurement of an article which is claimed to have received
a U.S. subsidy may not be challenged on that basis.
13. Application of GVD to less developed countries
The AFL-CIO would like clarification as to whether the countervailing duty
provisions would apply to imports from less developed countries in the same
manner as they apply to export subsidies of developed nations. For example, would
countervailing duties be assessed against subsidies of a less developed country which
has not violated its "phase-out" commitments under Article 14 of the code? The
AFL-CIO's view is that a subsidy should be the subject of a countervailing duty
regardless of whether a developed country or a less developed country is the source
of the product.
14. "Best available evidence" and reliability of data
The legislation should clearly permit the use of best available evidence if, for
example, a party provides information which is found to be unreliable. Moreover,
the legislation should provide that the Secretary and the Commission should verify
the reliability of information received before the information is given weight.
15. Definition of "imported"
The terms "area of production" and "imports through other countries" should be
clarified.
16. Transition rule
To require injury investigations of all outstanding countervailing duty orders, as
proposed by STR, would result in great instability and uncertainity, and would
place an excessive burden on the Commission. Those orders are valid, and should
not be placed in limbo. Injury investigations should be commenced with respect to
outstanding orders only if the Secretary receives positive evidence that no injury,
threat of injury, or retardation of a domestic industry exists.
17. Retroactive duties and provisional measures
The circumstances in which retroactive duties may be assessed need definition. In
addition, such duties may be assessed with respect to unappraised imports, and
there should be a provision for withholding of appraisal. Provisional measures
should not entail merely the posting of a bond. Instead, the full estimated duty
should be collected and placed in escrow. This would remove an incentive for delay
on the part of importers and foreign manufacturers.
18. Assessment process
There should be a time limit on liquidation of merchandise imported under a
CVD order, with improved rights on the part of domestic interests to be informed of
decisions made in the assessment process and to comment on or challenge such
decisions.
ANTIDUMPING
Antidumping code
Dumping is an unfair trade practice in U.S. and international law. It means
predatory pricing by selling in a foreign market at less than home market prices
and injuring industry. The U.S. has had an antidumping statute since 1921. Many
U.S. industries have been injured. Congressional hearings on efforts to improve the
~-998 - 79 - 28
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antidumping statute and procedures have been held during the past two years.
Several specific bills are before the Congress to improve procedures.
A code on antidumping was rejected by Congress in 1968. At the insistence of the
European Community, the provisions of that code have been modified and the U.S.
has agreed to change the code. The agreement may become part of the MTN
implementing legislation.
Recommendations
Requirement for action to investigate whenever reasonable indication of dumping
is reported or discovered by the government. (See number 1 in the attached legal
section.)
Faster procedures-including provisional measures on dumping duties. (See
number 2.)
Ending authority to stop investigation or dumping findings without petitioner's
consent. (See number 3.)
Reform assessment process for establishing and collecting dumping duties. (See
number 4.)
Right of domestic interests-including unions-to information. (See number 4.)
Right of domestic interests to appeal. (See number 4.)
Time limits on the final collection of dumping duties. (See number 4.)
Verification of data must be required. (See number 5.)
Codify definition of "injury" and revise definition of "industry" to assure up-
stream and downstream effect. (See numbers 6 and 7.)
Special provisions for non-market economies. (See number 8.)
Questions
How will antidumping code and new legislation under it assure that the Treasury
will enforce the antidumping law?
Why was this issue left until the last part of the negotiations?
Why did the Europeans want this code to be adopted now?
Detailed legal analysis of antidumping
There is widespread agreement that the U.S. Antidumping Act, as presently
written and applied, has proved inadequate to stem the wave of illegal dumping
which has decimated many American industries. Recent Congressional hearings and
proposed legislation attest to the need for improvements in the Act, in areas such as
the following:
1. Adopting a requirement that a dumping investigation shall be initiated when-
ever the government receives-either on its own or from any interested party
(including a union)-information which gives a reasonable indication that dumping
is taking place or has taken place.
2. Faster procedures, including timely withholding of appraisement and effective
provisional measures.
3. Elimination of the authority to discontinue an investigation without the con-
sent of the petitioner, and appropriate restrictions on revocations of dumping find-
ings.
4. A complete reformation of the assessment and collection process, which has
proved to be the weakest link in the statutory scheme. These changes should
include:
Prompt collection of estimated special dumping duties at the same time that
regular duties are paid (rather than the present practice of accepting an inexpen-
sive bond, which merely provides an incentive for delaying the process).
Precise limitations on the permissible types of adjustments and allowances which
may be made in the margin of dumping at the assessment stage.
A right of access on the part of affected domestic interests, including unions, to
the data and analysis upon which the amount of the actual assessed duty is based,
together with a right to participate at the administrative level in the assessment
process and to take part in administrative protests.
Provisions granting domestic interests the same rights to appeal assessments as
are accorded to importers. (Under § 516 of the Tariff Act as presently written,
although importers may appeal assessments on an entry-by-entry basis, U.S. manu-
facturers may only appeal test cases and may obtain only prospective relief-while
unions have no appeal rights at all.)
Time limits on the final collection of dumping duties.
5. A requirement that all data relied upon must be verified, and that the best
available data shall be utilized as the basis of decision if a party fails to provide
data in a timely, reliable, and verifiable fashion.
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6. Codification of the definition of "injury" contained in the Senate Finance
Committee's report accompanying the Trade Act of 1974.
7. Revision of the definition of "industry," replacing the phrase "like or directly
competitive" with terms which will insure that the upstream and downstream
effects of dumped products are considered and remedied.
8. Adoption of realistic and objective statutory rules for computing the margin of
dumping where state-controlled economies are involved.
The Administration proposals include a few positive steps, such as certain limited
improvements in the speed of proceedings, verification requirements, and other
matters, but for the most part the proposals either fail to address the critical points
listed above, or suggest changes which are unsatisfactory and, in many instances,
actually adverse to domestic interests. In particular:
While the proposals shorten some of the procedural time limits in the statute,
they cut back on the statutory authority to impose retroactive duties and retroac-
tive withholding of appraisement. Thus, despite the speedier proceedings, actual
relief would amount to less and would be less timely than the present U.S. law
permits. In addition, the provisional relief authorized by the proposals consists of no
more than a requirement of posting bond.
The proposals permit the government to self-initiate a dumping investigation; but
they should require such action in appropriate cases.
Far from reducing the government's discretion to discontinue and terminate
cases, the proposals would greatly expand that authority. Cases would be subject to
discontinuance whenever assurances were received which were deemed sufficient by
the government to overcome the injury to the domestic industry. Thus the actual
margin of dumping would not be assessed; even taking so-called "assurances" at face
value, only a portion of the margin (the "injurious" portion) would be eliminated.~
Since the entire margin of dumping represents an unfair practice, there is no
justification for not requiring the elimination of the full margin.
Similarly, the proposals set overly lenient criteria for revocation of a dumping
finding. The proposals appear to call for a revocation if a foreign supplier merely
stays out of the U.S. market for 2 years, without requiring the supplier to demon-
strate his willingness and ability to sell at fair value in the U.S. And the proposals
call for injury findings to be reconsidered upon receipt of evidence of any "change in
the condition" of the affected U.S. industry.
The proposals with respect to the assessment process are unclear and do not
appear to remedy the extremely serious deficiencies noted above.
Instead of adhering to the definition of injury enunciated in the 1974 Senate
Finance Committee report, the proposals would adopt the less satisfactory code
definition.
The proposals do nothing to correct the problems which have resulted from the
application of the "like or directly competitive" test.
The proposals do not address the question of state-controlled economies.
There should be no requirement for posting bonds to enforce rights.
The proposals adopt a concept of "regional industry" which is unduly restrictive
and is worse than existing ITC interpretations.
Under the proposals, the concept of "fair value" would be replaced by definitions
of "foreign market value" and "U.S. Price." Since the definitions are not provided,
comment is not possible. This proposal obviously could change our Antidumping Act
in a fundamental way, and full details of the proposal should be provided immedi-
ately.
Since many of the antidumping proposals track the countervailing duty proposals,
the AFL-CIO's comments regarding the latter should also* be considered, where
applicable, in the context of the antidumping proposals.
CUSTOMS VALUATION
This code establishes new international standards for valuing imports at Customs
because complex valuation systems can restrict trade. Foreign nations asked for a
code, because they objected to the American Selling Price (ASP)4 method of valua-
tion. But the U.S. system was found to be less troublesome than that of other
nations.
The U.S. gives up ASP and converts the ASP valuation to "equivalent tariffs."
Some of those tariffs will be cut. The code sets up five (5) permissible ways to value
For further comments on the subject of discontinuances and terminations, see the section on
Subsidies, pp. 5-6.
~ the countervailing duty, ASP predates GATT and was grandfathered in. ASP allows the
U.S. to apply tariffs on the American Selling Price rather than on the foreign export value in
such products as benzenoid chemicals and rubber footwear.
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imports: (1) Transaction value (the price paid for the goods), if Customs decides in a
related-party transaction that the reported price (Ford of U.S. exporting to Ford of
Canada) is not correct, it may use one of the other four alternatives; (2) value of
"identical" goods; (3) value of similar goods; (4) "deductive" value-i.e. Customs
establishes price; (5) computed value-cost of production.
The code establishes an international committee to give out advisory rulings on
valuation. It sets up panels to handle disputes mechanisms. This code will be
administered in the GATT at the political level and at the International Customs
Council at the technical level.
Less developed countries have three to five years to sign after the code starts in
1981. Those who sign will get technical assistance. The code allows for lower
valuation of some imports under preferential tariffs from less developed countries.
Recommendations: CIF basis
The U.S. should adopt the CIF (cost, insurance, freight) basis of valuation, as the
most realistic basis and the one which most nations have adopted. The U.S. now
values imports on the f.o.b. export value at the foreign port as the basis for tariffs.
Most nations use the landed value (c.i.f.) for tariffs.
Right of appeals
Right of appeals for importers and exporters are established throughout the code.
There are no rights of appeal for other people who want action under other provi-
sions of law. Section 516 of the Tariff Act of 1930, which permits an American
"manufacturer, producer or wholesaler" to appeal a Custom determination should
be amended to extend the same right to interested unions. U.S. producers and
workers should be able to appeal under the code.
Revision of tariff rates subject to ASP
The Congress should seek documentation of the assertion that tariff rates for
TSUS items currently subject to American Selling Price valuation are being adjust-
ed to provide "substantially equivalent" protection.
Relationship between or among codes
U.S. laws relate customs valuation (i.e. price) to dumping and subsidies, etc. The
code may not be used to attack dumping. The law should indicate the connection.
Otherwise, many suits may be needed to process a claim.
Precedent of U.S. laws
An international group should not prevail over U.S. Customs law, but the code
apparently puts an international GATT council in charge. Under the code, the U.S.
effectively agrees to take no action until GATT rules on disputes.
Related-party transactions
Implementing legislation should require Customs to closely scrutinize related-
party transactions before accepting transaction value as the customs value. The
burden of proof should be on the parties to the transaction, and Customs should be
required to obtain specified types of information before accepting transaction value
in a related-party case. Where the buyer and seller are related, market value should
be the test value.
Customs should be required to obtain the information needed to identify the
relationships between parties to a transaction and producer.
Nonmarket economies
Valuation of goods from nonmarket economies has often been unsatisfactory
under existing practices. This should be clarified, and the legislation should be
specific on this point.
Less developed countries
No special and differential treatment for less developed countries is justified.
Customs value should be true value, especially since less developed countries are
given special tariff concessiOns under GSP.
Questions
Antidumping, countervailing duties, subsidies, etc., relate to Customs valuation of
imports. If valuation is a matter of international disputes settlement, how can
anyone know what the amount of dumping duties or subsidies will be? What are the
mechanisms for enforcing this code? How do they work for U.S. exporters? How will
other affected U.S. interests get needed information? What will be the effect of the
changes in valuatiOn on U.S. statistical information on imports?
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IMPORT LICENSING
Most countries have import licensing systems. The U.S. does not.
The proposed code covers only the procedures for administration of import licens-
ing rather than the existence or extent of licenses.
If the U.S. implements a code that says nothing against licensing, the implement-
ing legislation should provide the U.S. with the benefits that a licensing system can
give in monitoring trade.
The proposed legislation should:
1. Direct the President to establish licensing systems to cover different kinds of
trade problems. Executive Orders should be limited to what is included in specific
statutory language. The U.S. licensing systems should be designed to (a) aid in
monitoring all imports; (b) to provide added information related to producers' na-
tional origin to the extent possible; (c) to report the name of the actual producer of
product abroad so that we would know if product is made by U.S. producer; (d) to
make information publicly available under "Freedom of Information Act" without
exemptions; (e) provide information on both quantity and value; (.iO assure licensing
for national security.
2. Clarify the relationship between the licensing code and the customs valuation
code so that the legislation does not conflict.
3. Deny licenses for imports on the basis of violation of U.S. labor standards laws
with specific prohibition of goods produced by child labor, prison labor or forced
labor.
4. Assure that licenses provide fair access to the U.S. market when imported
products are restricted for sale in the U.S. No auction system should be authorized
because it would not assure fair access. (Otherwise, for example, a large sugar
importer could bid highest to import sugar if it were under quotas. This would add
to costs and prevent competition at home.) Auctioning of licenses is, therefore, not
appropriate.
5. Make special licensing provisions for nonmarket economy imports.
In addition to the specific legislative proposals stated above, there are vexing
questions concerning licensing.
Question
What recourse will the U.S. have if another country violates the code? What
action to enforce U.S. rights has been suggested by the Administration? How will it
be carried out and by whom?
TECHNICAL BARRIERS TO TRADE (STANDARDS)
This code is designed to encourage trade by setting up a system to review trade
barriers that are caused by the use of product standards and certification systems.
All products are covered by the code-including industrial and agricultural stand-
ards. The code promotes the use of international standards instead of national
standards. The code provides a forum for exerting pressure to end standards that
restrict trade. There are exceptions for health, national security, etc., but these are
challengeable in terms of their effect on trade. National standards can be judged by
an international panel. Their continuatjon and improvement could be subject to
international approval related to trade. Trade, not standards, becomes the para-
mount concern of the code.
The code applies to packaging, marking or labeling requirements.
Certification systems must not be obstacles to trade. Certification systems should
accept markings of certification from abroad.
All local and state bodies shall arrange certification and testing systems so as not
to exclude foreign-country producers.
Developed countries agree to give technical assistance and more favorable treat-
ment to developing countries.
Developing countries need not develop international standards.
A Committee on Technical Barriers to Trade will settle disputes on this agree-
ment and recommend action for violation. A five-year review is provided for the
code and a yearly review of the implementation and operation of the code. The
panel will not be able to force changes in foreign barriers now affecting U.S.
exports. But, once Congress enacts legislation to implement the code, U.S. standards
will be subject to the international agreement.
The code provides for special help to developing countries in the form of helping
them develop standards and helping them to establish testing procedures in foreign
countries. Testing methods and certification systems are extremely important be-
cause the code provides that foreign testing and foreign certification should be
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acceptable in the U.S. Fraud will be a problem; that is, a country will certify a
product meets U.S. testing standards when in fact it does not. This is a vital section
for consumers, workers, etc., because the health and safety reservation in the code
refers only to the product that is traded, not the way it is made and is subject to
challenge as a barrier to trade.
Recommendations
This code may be used to weaken the current industrial standards of the U.S. and
prevent improvement of them. Since that is not the stated objective of the code,
some means of assuring U.S standards should be achieved regardless of trade
impact.
The code should not be able to supersede federal or state regulations.
The U.S. government should be able to take unilateral action to improve or
impose its standards.
The test of violation of the code should be the adoption of a standard designed to
discriminate against imports-not merely the fact that a standard has the effect of
interfering with trade. Thus, standards are a valid U.S. objective that should be
more important than exporter's or importer's rights.
Legal implications
Because of these very serious questions and concerns about the impact on U.S.
laws and practices, the language of the implementing legislation should be very
specific:
First, in terms of the Regulatory Process in the U.S.:
Private standards now involve 400 private organizations and 200,000 private
standards. There is no estimate of how many U.S. federal, state and local standards
there are.
A wholesale revamping of U.S. regulatory efforts is entirely unjustifiable. The
purpose of the Standards Code-to discourage discriminatory manipulation of stand-
ards-is important. That should be the only objective. Any approach that would put
trade considerations into the regulatory process in every area of standard-setting
(including for example, OSHA, though many other standards are involved) should
be rejected.
Similarly, any requirement that standards "are not to create unnecessary obsta-
cles to the commerce of the United States" could give rise to a host of attacks on
legitimate regulations-including industrial regulations, OSHA standards, building
codes, etc. Many product standards involved are affected-in which it would be
argued that the benefits produced by a particular standard are so small in relation
to the adverse trade impact that the standard amounts to an "unnecessary obsta-
cle."
The use of Executive Orders to change legislation concerning "unnecessary obsta-
cles" to trade is unacceptable. Any such Executive Orders would constitute an
improper incursion into the regulation process as fashioned by Congress and state
and local governments.
Second, in terms of the effect of international panels on U.S. law:
The decisions of international panels should not be considered binding on the U.S.
One proposal has been that Justice, upon request of STR following an adverse
determination, would be authorized to seek an injunction against the application of
a domestic standard. This is unacceptable.
There should be no obligation on U.S. agencies when an international panel finds
against the domestic standard. STR should; (1) seek revision through domestic
standards bodies-not go to court; (2) STR should present international views but
not promulgate them; (3) unless no legitimate reason for a standard is found, the
international decision should not prevail.
There should be no language in the statute to make STR consider trade as a goal
of U.S. standards.
Legislation should expressly state that the enforcement mechanism discussed
above is exclusive. No general language is acceptable.
AFL-CIO is particularly concerned that adverse determinations of international
panels under the code might be given weight by American courts in suits brought
against domestic standards under the commerce clause of the Constitution. The
result could be that an adverse international determination would in effect prove
fatal to a domestic standard. That would obviously be undesirable. We therefore
believe that the implementing legislation should state as the sense of Congress that
no determination by an international panel is entitled to any weight under U.S. law
(except as a factor to be considered by the federal government in deciding whether
to propose a revision of a standard) and in particular, that no international finding
adverse to a domestic standard should be given weight by an American court in
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determining whether the standard constitutes an impermissible burden on com-
merce.
Finally, there is evidence that not only certain domestic standards, but also
certain U.S. laws, could be subject to challenge by virtue of the implementation of
the Standards Code. These laws would involve those that specifically require a
Federal agency to discriminate against imported products such as impure foods,
drugs or toxic substances. The Congress must be told what laws are affected.
Consumer protection, industrial product standards, and other laws are involved.
Many Congressional committees may be affected.
Provisions to deter fraud should be included in any foreign certification provi-
sions.
Questions
Do the union labels count as technical barriers to trade? How does the committee
which supervises the code determine what standards have the "effect" of interfering
with trade? Does the U.S. think trade or standards should be paramount? Where
does the code say that it does not apply to state and local building codes? What U.S.
laws are affected?
GOVERNMENT PROCUREMENT
This code changes international rules to make government purchases that "dis-
criminate against" foreign bidders (such as U.S. "Buy American" laws and prac-
tices) a violation of GATT as interpreted by this code. Most countries have no laws
or published practices for their "Buy National" policies. Their governments buy
from their own domestic producers (often government-owned) to the extent they can.
It is difficult to see how the U.S. can get equal rights in this code. (This is
traditionally a taxpayer-not a trade-issue.)
This code will commit the United States to give special rights to bid on American
government contracts to developing countries by guaranteeing special technical help
to developing countries who seek bids.
An international panel will decide on the disputes under this code.
Contracts (including service contracts incidental to providing a product) of ap-
proximately $190,000 or more are covered.
Rules of origin
Code advantages should go only to suppliers from countries which sign the agree-
ment. But the code says no rule of origin different from normal trade rules can be
established. To enforce the code, an effective rule for origin must be established.
Local content or value added should be used.
Recommendations
U.S. laws should be generally strengthened, not weakened, to allow for domestic
preferences. New prohibitions against U.S. contracts for non-signatories, plus new
prohibitions for non-covered agencies or entities are needed. (Non-signatory coun-
tries should be barred by U.S. law from bidding on U.S. contracts.)
Less developed countries should have no special rights to use U.S. taxpayers'
dollars for U.S. procurement.
Strategic military items and agencies should be exempt.
Clear rules of origin should be included so that code signatories will be source of
imports under government procurement.
Enforcement should be certain and practicable within U.S. law.
Services should be exempt. The current language apparently encourages foreign
bidding (i.e. if a service contract for a bid for a product is involved, it will be up for
international bidding if the service is a small fraction of the cost of the project).
State and local "Buy American" laws and practices should be specifically ex-
cluded.
Provision for future strengthening of U.S. "Buy American" law should be includ-
ed.
Questions
Should there be automatic termination after three years? (Retaliation-immedi-
ately withdrawn for violators?) Defense procurement is included. How will national
security items be made clearly exempt?
A panel of the Committee on Government Procurement of the GATT will deter-
mine disputes. What will guide the panel on the U.S. "Buy American" laws? Or
rules of origin?
The code applies only to signatories, but how can this be enforced? What parts of
the code apply to signatories? The Panel of the GATT Committee determines
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whether any country can suspend in whole and in part the application to any party
or parties. How does this fit in with U.S. "Buy American" laws (a) now on the
books?, (b) now in process because members of Congress will seek them?
Technical specifications for government contracts may not be set that "have the
effect of creating unnecessary obstacles to international trade." Who determines
this? We do not have the metric system. This is a barrier to trade. Who is to
determine whether it is "necessary?"
How does this interact with the standards code?
There shall be no requirement in government contracts about a trademark or
name or patent, design or type unless no other way of expressing the issue "or
equivalent" can be made. That is easily enforced in the U.S. How can it be enforced
for Hungary? for France? for Malaysia?
AIRCRAV~
The Trade Act of 1974 requires the negotiators to negotiate by sectors as much as
possible. Only steel has been the subject of the beginning of sector bargaining until
the last few months, and only in the OECD. In recent months, an aircraft code to
reduce all trade barriers for civil aircraft has been concluded as a sector negotia-
tion.
The agreement affects all aircraft, engines and parts, with a specific agreed list
for tariff purposes.
The standards code is incorporated in this code. The code also refers to govern-
ment support, costs of military research, etc. The code applies to states.
Signatories agreed not to use "unreasonable" pressure to buy aircraft and parts-
i.e. to favor their own companies or to require technology transfer (co-production).
Recommendation
More detailed analysis should be provided to Congress on this code which affects
many industries and jobs.
Questions
If the U.S. seeks to establish an "open market for trade in a broad range of
aircraft products," will the other countries stop having "national aerospace indus-
tries of their own?" Government-owned or managed aircraft industries? If not, how
can the market be open?
Codes on subsidies, government procurement, and standards exist. Why is this
"industry" a special exception? Why do all other codes not apply to aircraft? How
will this relationship to other codes be determined?
What about less developed countries? Do they get "special rights?" What about
countries which do not sign?
What industries and locations will be affected? Aircraft includes thousands of
parts and hundreds of product lines-textiles, plastics, electrical equipment, seating,
etc.
PROPOSED AMENDMENT ON TRADE WITH NONMARKET ECONOMIES
The General Agreement on Tariffs and Trade has many signatories which are
non-market economies. This is difficult to explain and understand since the GATT is
based on market principles, but the result is that political pricing, dumping, etc.,
can literally wipe out U.S. production without a fair examination of the problem for
domestic producers.
Title IV of the Trade Act makes it clear that trade with non-market economies
should be worked out on a bilateral basis with the ability to regulate that trade
whenever market disruption occurs.
Despite efforts by the Congress in the Trade Act of 1974, both in Title IV and in
the dumping section, to make sure that U.S. production is not adversely affected by
these essential differences between the U.S. and other non-market countries, the
law has not worked. Foreign policy considerations usually prevail and imports are
encouraged from the non-market economies, regardless of impact in the U.S.
Recommendations
Section 405 of the Trade Act of 1974 and Section 406 should be amended to assure
that emergency action and market disruption action be related to the additional
effect of imports on impacted domestic industry-both upstream and downstream.
The International Trade Commission has neither monitord nor reported adequate-
ly on non-market economies' trade. This should be changed so that special monitor-
ing of imports from non-market economies can be used to show the impact on U.S.
jobs and industries.
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Section 205 of the antidumping act as amended in Section 321 of the Trade Act of
1974 should be enforced. (This has been avoided by Treasury regulations in dumping
cases to help imports from non-market countries.) A new provision to emphasize
special direction to the Treasury Department or the appropriate statutory agency to
prevent dumping from non-market economies should be enacted. The current Treas-
ury regulations should be overturned.
Questions
What does the Administration plan to do to take care of possible very sharp
influxes of products from non-market countries? China, for example, may be getting
developing country status.
Why should imports from these countries be included in Sec. 201 actions for "fair"
competition?
SPECIAL AND DIFFERENTIAL TREATMENT FOR LESS DEVELOPED COUNTRIES
In 1973, the "developed" countries a~reed to give "special and differential treat-
ment" to the "less developed countries.' Since then, however, the oil embargo, rapid
industrialization and technology transfer have changed world trade and world
economies. "Developed" and "developing" countries have shifted-in wealth and
power.
The United States grants "special and differential" treatment for less developed
countries already in the sense that the U.S. market is open whether or not the
other countries allow U.S. exports to enter their markets freely.
There are almost 100 countries now in the GATT negotiations. But only 84 are
signatories of the GATT. Some members are Communist countries. Some are "less
developed countries." Some are both. Regardless of politics-state-planned and con-
trolled economies do not practice or believe in the "free trade" or market principles
of GATT.
If any other nation ~joins the GATT, it will grandfather in its existing "protection-
ist" and "nationalist' policies. Many "less developed" countries have high tariffs,
license all imports, require production in their country of products, such as cars,
before they can be sold in their country, require export of a certain amount of
production and subsidize their exports. They also get preferential tariffs under Title
V of the Trade Act of 1974. This is a one-way street for the U.S.
Recommendations
The GATT was urged to "graduate" countries when they get developed. There has
been no agreement.
AFL-CIO supports repeal of Title V of the Trade Act-which grants zero tariffs
on thousands of products imported from less developed countries, because it is
obsolete. At least, there should be a provision for realistic "graduation" of countries
and products.
An amendment to Section 301 of the Trade Act of 1974. This tells the President to
withdraw concessions whenever any country maintains unjustifiable trade barriers.
The amendment should say that failure to sign a code creates a presumption of
maintaining such unfair barriers.
Questions
Most of the codes have provisions for "special and differential treatment for less
developed countries." They differ from code to code. These are really special rights
to penetrate an already battered U.S. market. Most of the explanations of the codes
have said these are soft obligations and if countries don't sign, the U.S. won't grant
the benefits. But legislation has not made this concept clear.
How can these seemingly contradictory concepts-"most won't sign" and "non-
signers won't get the benefits"-have a satisfactory explanation? How can this be
enforced-denial of benefits to countries not reciprocating? Why should rapidly
industrializing countries continue to get special and differential treatment?
ENFORCEMENT OF U.S. RIGHTS
The relationship between this area and the framework provisions has not been
adequately explored.
Recommendations
First and foremost, it must be stated unambiguously that no U.S. law, policy, or
practice may be altered by an international panel, but only by the legislature
responsible for the matter. If this point is not made clear, the MTN could result in a
wholesale transfer of authority from American legislative bodies to international
panels, and to whatever agency serves as the representative of the U.S. before those
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panels. We strenuously oppose any such result, and we are quite sure that the
Congress, not to mention state and local governments, would not countenance it.
This problem applies to every code, and is particularly acute with respect to
subsidies and standards. Countless laws, policies and practices of the federal govern-
ment, and of state and local governments as well, could potentially be the subject of
complaints under those codes. These laws, policies and practices involve the judg-
ment of American legislative bodies concerning an enormous range of matters:
economic development and full employment, social policy (including minority
rights), health and safety, and innumerable other proper subjects of legislative
action. It would be unthinkable to place all these matters in jeopardy by permitting
American legislative decisions to be altered by the action of federal agencies or of
international bodies, without express consideration and approval on the part of the
legislative body involved.
Consequently, it is absolutely critical that the legislation deny any such power to
federal agencies and to international panels. In addition, detailed proposals as to
how American interests will be represented against foreign complaints in the inter-
national dispute settlement process must be drawn up and presented for comment.
Among other things, any such proposals should provide a meaningful role for
advisors from labor and other sectors, and should ensure that the U.S. parties
affected by an international proceeding will have a meaningful voice in the proceed-
ing.
We are also concerned with how potential U.S. complaints against foreign prac-
tices will be handled. There must be an effective means by which U.S. parties can
ensure that STR will vigorously prosecute American complaints in the international
dispute resolution process.
U.S. rights under the codes will have little meaning unless adequate information
is obtained regarding foreign practices. For example, full information concerning
foreign subsidies must be obtained and disseminated to interested U.S. companies
and unions. Similarly, an effective mechanism for monitoring and surveillance of
foreign customs valuation practices must be established. Other codes present similar
problems. These cannot be resolved by general language about U.S. rights; rather, a
program for obtaining and disseminating information concerning violations of the
codes by foreign governments and for handling U.S. complaints must be devised on
a code-by-code basis.
MTN IMPLEMENTATION-FRAMEWORK/GATT REFORM
The importance of the provisions for the "Framework" or "GATT Reform" have
not been finally spelled out. The legal effect is still unclear. The proposals on
framework would require actions contrary to the provisions of the Trade Act of 1974
on the Balance of Payments. They would authorize "developing countries" to contin-
ue to maintain quotas. They would require delay in action to protect American
industry that was being unfairly impacted;. They would criticize arrangements such
as the Orderly Marketing Agreements for color TVs, specialty steel and shoes,
where foreign exports are curbed. A great many statutes would be affected and
administrative changes would be required if the framework provisions are endorsed.
Recommendations
This is a GATT policy document. Many of these policies have already been
contradicted by U.S. law and by proposed language to implement the code. Such
inconsistencies should be corrected before an implementing package is made final.
Question
What is the legal effect of this agreement-in the U.S. and in other countries?
PRIVATE SEC1~OR ADVISORY COMMIT1'EES
These committees have proved useful and should be improved.
The post-MTN advisory structure should reflect not only the "trade policy inter-
ests" but the private sector interests of U.S. domestic constituents. The domestic
interests of the U.S. must be reflected in trade advisory groups. Labor should have
separate committees.
Legislation should not be so permissive that clear-cut directions are not available.
Otherwise, the Administration can avoid getting clear and useful advice from
groups who may not agree with potential decisions on policy. The democratic
process requires involvement of those who seek changes in, rather than adherence
to, U.S. policies.
Section 135 of the Trade Act of 1974 should not broaden the mandate of advisory
committees to merely include "support of implementation of trade agreements and
other trade policy activities." This language is too vague.
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The revision of existing authority to permit advisory committees should not allow
so much flexibility and should be geared to effective representation of labor as well
as other groups.
Reports to advisory committees by government should be required-not the other
way around.
Advisory committees right to supply reports is necessary. A mandate to private
countries to provide reports is not advisable.
We need to know what "new committees are envisaged."
The operation of the Advisory Committee should get much more substantive
information rather than information on process of negotiations.
List the exemptions from the provisions of the Federal Advisory Committee Act
that are contemplated.
SERVICES
Multilateral trade negotiations cannot provide adequate treatment of issues relat-
ed to services. The definition of services is so variable that negotiations on a wide
scale are not appropriate. Only bilateral efforts are appropriate.
U.S. trade law provides relief for injured U.S. service industries and jobs in
Section 301 of the Trade Act of 1974.
Recommendations
The Trade Act of 1974 should be amended as follows to protect service jobs and
industries:
1. Title II should provide for adjustment assistance for merchant seamen and
other service employees.
2. Section 201(a) of the Antidumping Act, 1921, as amended, should be amended
by adding after the word "merchandise" the words "or service."
3. All subsequent sections of the Antidumping Act, 1921, containing the word
"merchandise" shall be amended in the same manner.
4. Section 406 of the Trade Act of 1974 is amended as follows:
(a) Subsection (a)(1) is amended by in inserting after the word "country" the
words "or service provided by a Communist country." Subsection (a)(1) is further
amended by adding after the word "industry" the words "or a service provided by a
domestic industry."
(b) Subsection (a)(3) is amended by inserting after the words "produced by" and
before the words "domestic industry" the words "or a service provided by." Subsec-
tion (a)(3) is further amended by adding after the word "article" the w'ords "or
service."
(c) Subsection (b)(1) is amended by adding after the word "article" the words "or
service."
(d) Subsection (c) is amended by adding after the words "Communist country" the
words "or a service provided by a Communist Country." Subsection (c) is further
amended by adding after the word "article" the words "or service."
(e) Subsection (d)(2) is amended by adding after the words "product of," the words
"or service which is provided by."
(f) Subsection (d)(2) is amended by adding after the words "such article" the words
"or service,." Subsection (d)(2) is further amended by adding after the words "pro-
duced by" the words "or provided by."
(g) Subsection (d)(2) is amended by adding after the word "article" and before the
word "like" the words "or a service." Subsection (e)(2) is further amended by adding
after the words "produced by" the words "or service provided by."
NONTARIFF MEASURES NOT DEALT WITH MULTILATERALLY
Like many of the issues, this title is confusing. The U.S. has bargained with other
nations to remove certain U.S. laws or provisions that other nations object to in the
overall negotiations and many of them involve tariff changes. The information
about what was given in return for these negotiations is not available to labor.
Many of the changes can cost many jobs:
1. Wine-gallon.-The U.S. taxation of imports of distilled spirits (liquor) and some
cordials has been at 100 proof regardless of the actual proof of the imported liquors.
In the overall negotiations, the U.S. has agreed to change U.S. tax and trade
regulations to provide for the assessment of taxes on all imported distilled spirits in
direct relation to the proof of the spirits. This can lead to the closure of certain
glass bottling and distillery operations, because the advantage of distilling and
bottling in the U.S. has been removed.
2. Duty on aircraft and aircraft repairs.-This provision may be included as part
of the aircraft code, because the code refers to removing all duties on repairs. The
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provision would remove the tariff of 50% now charged on the cost of aircraft
equipment purchased or repairs made abroad for U.S. registered aircraft. This can
affect both production and service jobs in aircraft and many unions will be affected.
3. Standards of identity for pineapple-This provision will probably not be in the
implementing legislation because the U.S. government has already helped the Ma-
laysian pineapple interests in preparing a petition to amend Food and Drug Admin-
istration regulations. This is a matter of concern, because it appears that standards
will be questioned by U.S. government personnel-possibly for multinational inter-
ests abroad.
4. Foreign-built inflatable rubber rafts and hovercraft.-This Provision involves
extensive changes in many U.S. trade and navigation laws to permit importation of
foreign-built hovercraft. New U.S. technology is being developed in this industry. It
is believed that this provision will be dropped.
5. U.S. watch-marking requirements-This provision would remove the require-
ment for identifying marking on the face of the watch and make other tariff
changes for imported watches. The loss of U.S. jobs and production in watches has
continued and the Soviet Union is now selling watches with a Swiss label in the
U.S.
6. Recurring duties on railway rolling stock and per diem charges for railroads.-
This would establish a new tariff item for railway rolling stocks to make it possible
for Canadian Cars to avoid tariffs on such cars and to change the ICC regulation
established March 21, 1977 to eliminate the current requirement that certain
moneys paid by U.S. railway users be used only for the purchase of U.S-built
railcars.
7. Agricultural and horticultural implements, parts and accessories-This would
change the tariff classifications to grant zero tariffs on parts of farm equipment and
accessories. The accessories include products not necessarily identified as "farm
equipment parts"-i.e. anything that goes with a farm implement. Factories that
produce parts for farm equipment and accessories for farm equipment will be
affected in various parts of the country. Their chances of getting relief if impacted
by imports will be hampered because the statistics on imports will be changed and
identification of imports over a period of time will be difficult.
8. Watch nomenclature.-This would change the tariff descriptions about watches
for communist and non-communist countries.
9. Conforming column 2 changes for AVE rate conversions-The tariffs on all
items which have "specific duties" (i.e. cents per pound or per unit, such as 5 cent
per pair of shoes or one cent per pound of metal) will be changed to "ad valorem
equivalents"-i.e. a percentage tariff or 10 percent for shoes under $10). This affects
many items, particularly steel products and chemicals. Some may have been cut
more than 50 percent. The provision would allow the tariff rates for imports from
the countries which do not now receive most-favored-nation treatment (Communist
countries) to be conformed with the rates for other countries. The schedule can
affect many items.
10. End-use classification for agricultural machinery and parts.-This would au-
thorize new tariff provisions and the lowering of tariffs to zero for farm equipment
and parts. Most parts are subject to tariff. End-use classifications instead of descrip-
tive classifications based on what the product actually is (rather than what it is
used for) will create a difficulty in establishing the historical patterns of imports of
parts for farm equipment. This will be convenient for multinational firms which
want to import parts from other countries. It will be more difficult to prove injury
from imports.
11. Broom-corn price breaks-The provision would allow price levels used in the
quotas applicable to corn for use in brooms to be adjusted. This change was prom-
ised to Hungary as part of the bilateral agreement negotiated between the U.S. and
Hungary.
In general, the labor advisers have opposed all the above items, because they can
cost both U.S. jobs and production by encouraging imports-often in a way that will
make identification of injury more difficult. The trade-off for these items has never
been made clear. The final provisions to be established for these items or the final
decisions in negotiations as to whether they were included have also not been made
clear. They deserve detailed attention by the Congress before any changes in law
are made.
COMMERCIAL COUNTERFEITING
The U.S. is seeking an international agreement that would protect against trade-
mark and trade name piracy by allowing requirements for forfeiture of the pirated
merchandise. But the code is supposed to make sure that such forfeiture is not a
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"non-tariff barrier to legitimate trade." The U.S. seeks international discipline
(meaning an international committee to decide the rules), but the code includes a
flat statement that the law of the nation prevails in terms of detaining or seizing
merchandise.
Thus, Pierre Cardin will be protected and so will Levi Strauss of Levis whether or
not they make the goods in China or in Hungary or in New York.
U.S. labor and export industry could be injured in many ways, especially since the
code sanctions forfeiture for piracy of labels or trade marks. The law of the country
which requires forfeiture prevails. Therefore what appears to be a valid name in the
U.S. could be considered a counterfeit abroad.
This code is completely "protectionist" if violation is found because goods are
completely barred or forfeited. No other code allows such interference with trade for
any other reasons. There are no special rights for "developing countries."
International Committee which supervises the code appears to be merely one for
reporting and consultation.
Recommendations
Since marking and labeling of country of origin and standards are as important to
U.S. industry and labor as piracy, they should be given equivalent treatment with
piracy in any statute.
SAFEGUARDS
Article XIX of the GATT and Section 201 of the Trade Act of 1974 provide that
industries which are threatened with serious injury may get import relief. Most
countries merely adopt trade restrictions without regard to Article XIX. The U.S.
wanted a code so that everyone would comply. A code on these "safeguards" has not
been completed. But the U.S. law (Sec. 201) of the Trade Act is the source of action
on the few industries that have received any relief since 1974 (such as color TV,
specialty steel, CB receivers, fasteners and footwear). The U.S. should seek to
improve its own law.
Recommendations
1. Relief should be available both on an emergency basis and on a selective basis.
The Administration calls emergency relief "fast track." A provision for "emergen-
cy" relief should be more specific. The threat of injury should be enough of a test.
"Selective" means that imports flooding in from any given country can be stemmed
by granting the right to impose temporary relief on imports from that country
temporarily while relief against imports from all other countries is being consid-
ered.
2. The rule of law in GATT and in Section 201 that relief is available when there
is a threat of injury is usually ignored, as we have found in specialty steel, color
TVs, shoes, etc. An industry has to be almost totally destroyed before action is
taken, if then. The statute should make clear that a threat of injury is important.
This can be done with slight additions to Section 201.
3. U.S. industries have been lost because of the interpretation of the words "like
or directly competitive" in the test of injury statute. Imports must be the cause of
injury to an industry which makes a "like or directly competitive" product. For
example, imports of parts of TV sets must displace parts producers in the U.S. or no
injury can be found from imports of parts. Also, if TV sets are imported, then injury
can be found only by comparing imports of sets with production of sets. The fact
that TV sets are made up of parts is ignored. The interpretation of "like or directly
competitive" has been so limited by this that the U.S. loses (a) the parts of the
industry, (b) the sets producers, and (c) eventually both. This can happen in aircraft,
steel products, or any other industry. This strict interpretation prevents the devel-
opment of high technology and new technology because the industry has been
exported. Therefore, the test of "like or directly competitive" should be changed to
reflect the need or development of a healthy industry in the U.S-both upstream
and downstream-in the production process.
4. A proposed recommendation should indicate Congressional intent that the
health of domestic industries should be promoted rather than the current language
in Section 201, which promotes an "orderly adjustment" to foreign competition.
5. No requirement that imports from any one country be the only cause of injury
should be allowed. For example, if the U.S. has imports from 10 countries and the
11th country is added and injury occurs, there should be a right to relief.
6. No review of existing cases should be agreed upon. The U.S. needs more
effective safeguard action.
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7. Failure of other countries to use GATT Article XIX methods for safeguard
actions should be prima facie evidence for Section 301 action by U.S. (unjustifiable
barriers to trade).
8. Imports from non-market economies cannot be viewed as "fair"competition and
therefore such trade should be especially monitored and regulated along with "safe-
guard actions."
GLOSSARY OF TERMS
ASP-American Selling Price: Valuation of imports that is based on the U.S. market
price rather than the foreign value.
c.i.f.-Cost, insurance, and freight: The landed value of imports (including shipping
costs, insurance and freight) is used by most nations as basis for tariffs. U.S. uses
value at foreign port (f.o.b.) as the basic value for assessing tariffs.
CVD-Countervailing duty: A charge to offset subsidies on imports.
DISC-Domestic International Sales Corporation: A U.S. tax provision that allows
U.S. firms to set up a corporation (Domestic International Sales Corporation) for
exports. As long as the profits for the exports stay in the DISC, they get a special
tax break.
GATT-General Agreement on Tariffs and Trade: An agreement signed in Geneva
in 1947 to set world trade rules. Since 1947, 84 countries have signed the agree-
ment. When a nation signs, its existing trade laws are grandfathered into the
agreement. The purpose of GATT is to promote free trade. Most-favored-nation
treatment (giving all countries the benefit of the lowest barrier negotiated with
any one nation) has been a basic principle. GATT was never adopted by Congress,
but U.S. has negotiated under GATT since 1947 and has applied its rules with
Congressional consent.
GSP-Generalized System of Preferences: Title V of Trade Act of 1974 provides for
"preferences"-that is, zero tariffs under some circumstances on imports from
countries designated as "developing" countries. Over 2700 items from over 100
countries and territories have already received such treatment.
ITC-International Trade Commission: The Tariff Commission, renamed in the
Trade Act of 1974, now judges injury and other impacts of imports.
MTN-Multilateral trade negotiations: A phrase for the current international agree-
ments reached in Geneva, Brussels, Tokyo and other cities over the past several
years for a wholesale change in world trade rules. One hundred (100) countries
participated in negotiations. Some participants in the MTN are not members of
the GATT.
OECD-Organization for Economic Cooperation and Development: A group of 24
countries, based in Paris, which was established in 1961 to help members promote
economic growth, to promote the world economy and to improve the lot of the
developing countries, particularly the poorest. The members are mostly industrial-
ized countries.
STR-Special Trade Representative: Office established by Congress in 1962 to coordi-
nate trade negotiations. The Special Trade Representative, Robert Strauss, holds
the rank of Ambassador and reports directly to the President.
Mr. VANIK. Thank you very much.
Mr. Frenzel.
Mr. FRENZEL. Thank you, Mr. Chairman.
I appreciate the fine testimony and I have no questions.
Mr. VANIK. Mr. Guarini.
Mr. GuARINI. No questions.
Mr. VANIK. Mr. Schuize.
Mr. SCHULZE. Thank you, Dr. Oswald. I think your testimony
along with the accompanying material you present is probably the
most comprehensive we have received and a lot of work has gone
into it and it is very much appreciated.
Dr. Oswald, I have been trying to determine the economic impact
of MTN as we know it now on the Northeast and have had a very
difficult time getting good sound figures. Have your people done
any research on this or can you add anything to my request.
Mr~ OSWALD. Mr. Schu1z~. I am sure you are aware of the report
that was made by the Congressional Budget Office. I think it is
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very difficult to give that question a complete answer at this time.
Part of it will depend upon the tariff cuts which still are not
finished in the negotiations. Part of it will depend upon precisely
the language that the Congress puts into the implementing legisla-
tion because that language again can have a tremendous impact in
terms of what those codes will mean in terms of domestic U.S.
industries.
As a result we have not been able to give a global, or necessarily
even a specific, impact statement for a particular industry. We
cannot say this particular industry, on balance, will get this much
and this other industry will get that much. We can point out, too, a
number of specific problems. Part of our detail tries to address that
in terms of what we are still looking at in terms of the overall
implementing language and how you can write to mitigate some of
those problems.
I think that is very important, to make sure that that language
does not exacerbate the problems but rather mitigate them.
Mr. SCHULZE. In your research if you do come up with any
figures that are indicative of the problems in specific regions or
industries it would be most helpful to those of us who are trying to
strengthen this implementing legislation, as you recommend, to
have some of those figures. So if you do come up with something I
for one would appreciate very much having them.
Mr. OSWALD. We have specific problems with certain parts, for
example, with Government Procurement Code. There we are at-
tempting to change that code recently in terms of its impact for
minorities and small business but there was no change for high
unemployment areas. That remains a problem for many industries.
There are discussions by the special trade representative where
numbers are used of $10 billion of U.S. procurement as being open
and we will receive $20 billion from other countries. We have tried
to get detailed information about what specific products and ele-
ments are being opened up and have serious problems.
For example in Department of Defense there are exclusions for
certain areas that are described as strategic but it allows procure-
ment of transportation vehicles except for buses.
To me, that reads that foreign countries then could bid on
trucks. Trucks are made in a number of locations. Trucks, at least
in my understanding of discussions with Defense Department
people, were always considered to be a strategic item. Yet the codes
seems to imply that the trucks are on the list of things that could
be bid on by foreign governments.
I give those examples because of the problems of the details of
those codes. I am afraid that unless the implementing legislation
takes care of some of those problems we will have all sorts of
things that will not be able to be handled by the courts or by the
agencies afterward. The specific intent of Congress must be made
known in how that implementing legislation is written.
Mr. SCHULZE. With your presentation you have gone a long way
toward assistance in that. I thank you.
Mr. VANIK. I am going to point out I am carefully going over
your testimony. I think we hope to be responsive to what you
wanted on safeguards. We are going to look at the procurement
codes and see how we can handle that issue.
PAGENO="0448"
440
On the definition of injury I think we are not far apart, and I
don't see any problem, for example, in the right of labor unions to
have full equality with producers and so forth under the subsidies
and countervailing code.
We are going to try to see how much we can do to accommodate
the implementing legislation to what you have recommended. I feel
that you are very deeply involved.
You are a principal and we are going to try to address ourselves
to these matters. We will be working on that next week, and as you
know you will have an opportunity to follow closely what we are
doing and I want you to let us know very, very quickly if these
recommendations you make are not substantially considered, be-
cause we expect to do that very carefully.
Mr. OSWALD. We thank you very much.
Mr. VANIK. Thank you very much, Dr. Oswald. You have made
very useful contributions here that I think are very important.
Mr. GuARINI. As a gut reaction, even though you have no specif-
ics. As to your sense of economics, to follow through with the
question Mr. Schulze asked, is it your educated guess that the
Northeast is going to be hit the most in semiskilled-as I see in the
report-areas as far as unemployment is concerned and are the
central cities the ones that are going to be the whipping boy of the
MTN?
Mr. OSWALD. Mr. Guarini, I read the report of the Congressional
Budget Office. I thought that it set forth very solid reasons as to
why that will take place. I have read the so-called rebuttals to that,
and, except for the notion that there may be certain protections in
the garment and textile industries, it is clear that there will be
severe hardships for a number of industries like the older indus-
tries often located in smaller communities and I think heavily
imported in that area.
Clearly some of the Northwest has been benefiting recently from
large trade orders in aerospace and aircraft. Yet there may be
concerns some time in the future as a result of some of the negotia-
tions and the impacts even in that industry. But at this point they
are doing very well. I think clearly there will be serious problems
in the Midwest and in the Northeast as a result because they are
heavily involved in our older manufacturing sectors.
Mr. GuARINI. I assume that labor would be very interested in
assistance in the form of reeducation of employees and relocation
of the unemployed?
Mr. OSWALD. We are very interested in that but we are also
concerned that the United States does not become purely a service
industry, that we do maintain a diversified industrial base. We are
very concerned that everything does not just allow U.S. industry to
use its profits to invest in some offshore base as a means of slip-
ping good into this country so that we become completely depend-
ent on foreign production and foreign sources.
We saw how devastating that was in terms of oil in the last 5
years. We are very concerned that that same sort of devastation
does not occur in other industrial sectors.
Mr. GuARINI. Do you think our DISC program encourages this or
do you wish not to take a position on this?
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Mr. OSWALD. We have had a longstanding position on DISC that
relates to its fairness. On that basis we have opposed DISC as a
means of being an unfair tax arrangement under which those
corporations paid a smaller share of their tax for their export
oriented operations.
Mr. VANIK. Thank you very much. We very much appreciate
your testimony.
Are the machinists groups ready for testimony? Could we come
back at 2 o'clock and try to get a wider involvement of members of
our committee?
If there is no objection, the committee will stand in recess until 2
o'clock at which time we will conclude the testimony for the day.
[Whereupon, at 12:50 p.m., the hearing was recessed, to recon-
vene at 2 p.m.]
AFTERNOON SESSION
Mr. VANIK. The subcommittee will be in order.
The next witness is the witness of the International Association
of Machinists & Aerospace Workers. Is Mr. Winpisinger here?
Mr. P0uLIN. No, but I am here.
Mr. VANIK. Well, you tell him the only reason I came here today
was to see him.
Mr. P0uLIN. That is the only reason I am here, to tell you why
he is not here. [Laughter.]
Mr. VANIK. All right. We will be pleased to have your testimony.
You may proceed. Your entire statement will be admitted in the
record as submitted or you may comment on it in any way you see
fit, whichever you prefer.
STATEMENT OF GEORGE POULIN, RESIDENT VICE PRESIDENT,
INTERNATIONAL ASSOCIATION OF MACHINISTS & AERO-
SPACE WORKERS, ON BEHALF OF WILLIAM W. WINPISINGER,
PRESIDENT, ACCOMPANIED BY HELEN KRAMER, ASSISTANT
TO DIRECTOR OF INTERNATIONAL AFFAIRS, AND JERRY
THOMPSON, LEGISLATIVE DIRECTOR
Mr. P0uLIN. My name is George Poulin, the resident vice presi-
dent of the International Association of Machinists & Aerospace
Workers.
Mr. Winpisinger wanted me to convey to you and to all the
members of your committee that he' is sorry he can't be here and
that he had another late assignment out of town which came up
late last night and he wanted me to expressly tell you that.
Mr. VANIK. I hope he manages to get United Airlines flying
again, because I have been walking home and it takes a little
while.
Mr. P0uLIN. That has been on his agenda. I think a matter
before your committee probably shares more of his time right now
than even that strike but he is working on that one also. That is
just one of his part-time jobs that he works on, as you know.
As you said, Mr. Chairman, the testimony before you in writing
will be admitted into the record and I won't try to read what is in
the testimony. However, I would like to make a couple of remarks.
My remarks will be extremely brief.
4~4-998 - 79 - 29
PAGENO="0450"
442
I do have with me today Dr. Kramer, who is our specialist on the
foreign trade bill and our legislative director Jerry Thompson is
with me here today.
I will give it to you really in layman's terms, Mr. Chairman. To
say that the machinists and aerospace workers are extremely con-
cerned about the bill before this committee, the trade bill and
trade negotiations, would be really an understatement of great
magnitude because many of our members have suffered and contin-
ue to suffer under the Trade Act the way it is now and will
certainly be affected no matter what comes out of what is enacted
into law.
Therefore, 2 years ago, 2½ years ago, under the guidance of our
international president we commissioned and brought onboard
some real specialists and technicians in this field just to see if we
could not relieve some of the sufferings of our members as to trade
assistance and trade adjustment. I might add that your bill in that
area has our support. We view that as a necessary first step to
beginning to relieve our members of some of the problems we have
when we are hit with loss of plant because of imports or exports.
In addition to bringing onboard several technicians we have
made a major study in the electronics field. Zenith, for instance, is
one that was recently studied. We commissioned and made a film
concerning the plights and the hardship of losing work overseas to
the Asian countries or wherever the work goes in the television
industry which is zero in this country right now. We lost the last of
our membership in Zenith not too long ago. We decided to do a half
hour film on that.
Mr. VANIK. Haven't you picked up some of that loss with the
Japanese? We have got some Japanese companies that are produc-
ing in America.
Dr. KRAMER. Yes, Mr. Vanik. The Japanese have been buying
out bankrupt American producers. It seems to me that their main
motivation is to avoid the effects of any quotas that might be
imposed as under the orderly marketing agreement and it is my
understanding that for the most part these plants are merely as-
sembling parts manufactured in Japan so that American workers
are reduced to being assemblers and cabinetmakers rather than
having the manufacture itself where most of the value added and
employment is generated.
Mr. VANIK. None of those plants are total producers then, are
they? They are just taking component parts in from abroad from
Japan?
Dr. KRAMER. That is my understanding, although I heard that
one of the Japanese companies is going to expand its operation;
however, I have not seen any definitive report on that.
Mr. VANIK. I thought they were going here for semiconductors
and some other things.
Dr. KRAMER. Well, they are certainly trying to break into the
market in semiconductors and I know that the U.S. semiconductor
industry has been very concerned about this particularly since the
Japanese Ministry for International Trade and Industry has target-
ed semiconductors and computers as the industries into which they
desire the Japanese to make progress in the 1980's with the sup-
port of government subsidies.
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Mr. VANIK. We will have the semiconductor industry tomorrow,
but in this shift of management, do your people lose out or do you
pick up some of the membership?
Mr. P0uLIN. Mr. Chairman, it is a mixed bag to date. It is my
understanding that we even come down and lost out in almost
every case, and I will cite one quick example of that. It happened
to be in an industry where we have a large membership and that is
the airframe industry. The Mitsubishi Corp. set up a plant in this
country in Texas and we have attempted to organize it on several
occasions. One of the problems we have is that while they recognize
unions and they deal with them in Japan, here they employ all the
antiunion tactics to keep the unions out. That is the case with
Mitsubishi and that has been the case with most of the Japanese.
So my answer to your question would be invariably we lose out
almost 100 percent. That has been our fallout.
Let me conclude my remarks with just a couple of more minutes
of your time, Mr. Chairman, and turn it over to question and
answer.
The film we made is called "We Didn't Want It To Happen This
Way." It will be shown on cable TV this weekend for the first time.
It is not just a PR piece for the machinists, it is a PR piece for the
whole country and the Congress, if you will-the plight that hap-
pens when a whole community is affected by a plant of this size
shutting down. I think it dramatizes that if nothing else, and really
there is no alternative. There is no solid relief for the JAM mem-
bers or anybody else that might be organized or not.
I think your amendments in your bill go a little way toward
addressing that problem, so we are doing the same thing. You are
trying to relieve some of the problems we have, and we are trying
to highlight those problems to give our support for your bill in that
area. Our members are becoming sophisticated in this area, but
they are becoming sophisticated through the school of hard knocks,
if you will, Mr. Chairman, because they actually experience that
they have to go out and retrain themselves on whatever subsist-
ence they might get on unemployment compensation. Really the
employer to date has not accepted any responsibility that he owes
any more, if you will, to that employee that may have worked 20 or
30 or 40 years for him. He is satisfied to say that his contribution
and his share of the payroll tax for that State unemployment
agency or whatever it might be that comes back in the way of
additional assistance through the Federal unemployment pro-
grams, is enough and will take care of the job.
I think the person who chaired the meeting earlier on this morn-
ing addressed himself to one of the manufacturers on that ques-
tion. I didn't really hear a satisfactory answer except that, you
know, all of us have to face up to those situations, it is just a fact
of life. I just happen to think that not only employers but the trade
union movement, you in your job as chairman of this committee
and the Congress, the Senate, and the White House have more
responsibility to address themselves to these problems in a more
realistic fashion, like they do in some of the European countries. I
would think that maybe that is what we ought to come down to
and I very much support your position on at least reducing some of
PAGENO="0452"
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the problem we have with the additional money you are pouring
into trade adjustment assistance.
[The prepared statement follows:]
STATEMENT OF WILLIAM W. WINPISINGER, PRESIDENT, INTERNATIONAL ASSOCIATION
OF MACHINISTS & AEROSPACE WORKERS
Mr. Chairman, members of the Committee, my name is William W. Winpisinger. I
am President of the International Association of Machinists and Aerospace Workers
(JAM), representing almost a million members.
We are grateful to the Ways and Means Committee for giving us this opportunity
to comment on the Tokyo Round trade agreements and the domestic implementing
legislation. Our members regard international trade relationships as one of the most
serious problems afflicting American workers today.
The TAM. represents workers in about 300 manufacturing and nonmanufactur-
ing industries. Seventy-seven percent of our members work in aerospace, electrical
machinery, fabricated metal products and non-electrical machinery. The balance of
our membership is employed in the air transport, automotive repair and railroad
industries, in repair and maintenance work for retail, wholesale and other service
establishments, and in local, state and federal government.
Thus, the interests of our membership coincide with the interests of the United
States economy as a whole, with the exception of the agricultural sector. It is from
this perspective that we have been arguing for some years in public forums that
U.S. international trade policies based on the assumptions of free trade cannot
protect our national interests in a world dominated by mercantilist trade policies,
where international flows of capital and technology can alter comparative advan-
tages practically overnight.
We have called for fair trade policies that would achieve genuine reciprocity with
our trading partners. As experienced negotiators, we have argued that the United
States should not offer open market access to countries that erect barriers to our
exports, for otherwise there is no incentive for those countries to remove their
barriers. The same principle applies to the problem of export subsidies granted by
less developed countries as a means to penetrate our markets. Our trade policies
must combine a carrot and stick approach to induce these countries to accept rules
of fair competition. Furthermore, we have argued that U.S. policy must take into
account the fact that extensive public ownership and government subsidization of
industry in other developed market economies have substantial effects on the ability
of U.S. industry to compete both domestically and in world markets. Our comments
on the trade agreements and domestic legislation are offered in this framework. We
shall not attempt to comment on every aspect of the agreements.
I. SUBSIDIES/COUNTERVAILING DUTIES
Several provisions of the Subsidies Code represent improvements over the existing
GATT articles. In particular, we welcome the recognition that subsidies given to an
industry to achieve broad economic and social objectives may have incidental trade
impacts injurious to the interests of another country. The Code recognizes that such
domestic subsidies may give an industry competitive advantages in export markets,
causing or threatening injury to another signatory's industry in the latter's home
market. Further, such subsidies may impede the exports of another signatory's
industry, either to third markets or to the home market of the subsidized industry.
While these provisions offer U.S. producers a potential remedy against unfair
competition, they represent only a permissive framework. Their effectiveness will
depend on the availability of information about foreign subsidy practices, and on
domestic enforcement of U.S. interests.
For these reasons, we recommend that Congress require the Office of the Special
Trade Representative (STR) to compile, and make available to the public, informa-
tion on foreign subsidy programs, and that all federal departments and agencies be
required to forward to STR any information they acquire on such programs. The
legislation should require the government to initiate an investigation on its own
motion when information is obtained on the existence of a subsidy.
Second, we recommend that Congress limit administrative discretion in discon-
tinuing investigations on the basis of assurances by a foreign government.
The implementing legislation should distinguish between direct or disguised
export subsidies and domestic subsidies. For export subsidies, the Treasury Depart-
ment should be permitted to suspend investigations only if the foreign government
agrees to eliminate the subsidy completely within six months, or to eliminate
entirely exports of the subsidized goods to the U.S.
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For domestic subsidies, we support allowing suspension of an investigation subject
to the right of the petitioner, concerned labor union or trade association to appeal
the decision.
To guard against violations of undertakings, it is essential to implement Article
4.6 of the Subsidies Code. This authorizes, in cases of violation of undertakings, the
immediate application of provisional measures using the best information available.
If the final determination finds that a subsidy has caused injury to domestic indus-
try, it should be mandatory to levy retroactive countervailing duties on imports
entered during the 90 days before the application of provisional measures. Retroac-
tive assessment should not apply to imports entered before the violation of the
undertaking.
To prevent an exporting country from flooding the U.S. market with a subsidized
article while negotiations on assurances are taking place, provisional duties should
be assessed as soon as preliminary findings of the existence of a subsidy and of
injury to domestic industry have been made. For non-signatory countries, no injury
test should be applied as a condition of assessing provisional duties.
The law should state that the Secretary of the Treasury shall order the withhold-
ing of appraisal as soon as a preliminary finding has been made of the existence of
a subsidy.
One of the objectives of the legislation should be to create strong incentives for
less developed countries to adhere to the Subsidies Code. Accordingly, the legislation
should specify that no injury test will be applied in subsidy cases involving non-
signatory countries, for both dutiable and non-dutiable merchandise, including arti-
cles granted duty-free treatment under the Generalized System of Preferences (Title
V of the Trade Act). For signatory countries, the law should make clear that, upon a
finding of injury to a domestic industry, countervailing duty should be assessed on a
subsidized article imported under G.S.P.
With respect to the definition of injury, we support the concept applied under the
Anti-dumping Law since January 3, 1975. That is, the injury should be "not immate-
rial and not insignificant." A finding under Section 201 or Section 203 of the Trade
Act should be regarded as prima facie evidence of injury.
We strongly support the right of labor unions to have full equality with import-
ers, exporters and U.S. producers in all procedures under the subsidies/countervail-
ing duty law. Labor unions should have the right to file complaints, and notice of a
decision to initiate an investigation should be sent to unions which have an interest.
The legislation should either provide that affected labor unions should be deemed
parties to the complaint and parties to the investigation, or provide a mechanism by
which unions may obtain that status upon request at any stage in a proceeding.
Domestic interests should have improved rights to be informed of decisions made
in the assessment process, and to comment on or challenge such decisions. There
should be a time limit on liquidation of merchandise imported under a countervail-
ing duty order. Congress should take this opportunity to do everything possible to
avoid the kind of administrative breakdown that occurred in the Treasury Depart-
ment's handling of the color television dumping case.
Under the administration' proposal, several critical stages in the countervailing
duty procedures are not stated to be subject to appeal.
Final determinations should be subject to judicial review, and in the case of an
affirmative final decision, an affected labor union or domestic producer that believes
the amount of the duty is too low should have standing to appeal.
Any negative determination, discontinuance or termination should be subject to
judicial review.
To foreclose suits in U.S. courts against U.S. practices, the legislation should
provide that no rights or obligations created by the Subsidies code (or any other
code) or by the implementing legislation may be enforced except as provided by the
legislation.
In addition, there should be a provision that unambiguously forcloses suits in U.S.
federal, state or local courts based on any claim that a U.S. practice violates the
Subsidies Code or the implementing legislation. The law should also state that
government procurement of an article which is alleged to have received a U.S.
subsidy may not be challenged on that basis.
II. GOVERNMENT PROCUREMENT
According to STR, the objective of the government procurement code is to create a
more open system that will enable Americian producers to compete for sales to
foreign governments on a non-discriminatory basis. Realization of the full potential
inherent in the agreement will depend in our view on the strength of the domestic
implementing legislation. This should aim at both creating strong incentives for
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other governments to broaden the scope of their procurement offers, and at provid-
ing facilities to assist U.S. firms interested in bidding on foreign government con-
tracts. Suitable provisions should be included on means of enforcing U.S. rights
under the agreement, including retaliation against violators in the event that GATT
procedures for consultation and dispute settlement fail to resolve a problem.
Congress is being asked to grant continuing negotiating authority, in the hope
that current signatories will agree to expand the agreement's coverage, and that
additional countries will adhere to the code.
We strongly believe that continuation of existing "Buy American" preferences on
non-covered procurements, as proposed by the administration, offers insufficient
inducement to current signatories to expand entity coverage, and in particular to
open up their telecommunications procurement to American bidders.
We urge Congress to require agencies not included in the U.S. list of covered
entities to refuse to accept bids from all foreign suppliers, unless the item is
unavailable domestically. The procuring agency should be required to certify the
domestic unavailability of the item, citing the evidence for this determination.
All federal agencies should be required to refuse bids from non-signatory major
industrial countries, as defined in Section 126(d) of the Trade Act. Further, all
federal agencies should be required to refuse bids from all non-market economy
countries. For other non-signatory countries, we agree with the administration's
proposal to grant the President authority to waive this prohibition:
(a) For countries that apply the code de facto, or agree to phase it in on an
acceptable schedule;
(b) For countries that enter into a bilateral agreement with the U.S. providing for
reciprocal treatment in government procurement; and
(c) For least developed countries, as defined by the United Nations (per capita
GNP of less than $250 in 1976 prices).
However, we strongly object to the administration's proposal to extend this waiver
authority to agency heads on a case-by-case basis. This isn't a loophole-it's an
open-sesame, and the end result will be that the larger and richer developing
countries will lack sufficient incentives to adhere to the code.
Because of the conditional most-favored-nation principle inherent in this code,
adoption of an adequate rule of origin is crucial to prevent non-signatories from
gaining undue advantages. The administration proposal to adopt the current U.S.
"substantial transformation" rule would make a farce out of enforcement of this
code. This loose rule leaves it to the discretion of the U.S. Customs Service to
determine whether an article imported for use by a federal agency contains suffi-
cient value added in the exporting signatory country. It is quite conceivable that the
Customs Service would certify an article although 75 percent of its value orginates
in one or more non-signatory countries.
We urge the Congress to provide that at least 50 percent of a product's value must
originate in a particular signatory country in order to be considered as a product of
that country. In this regard, the European Community must not be treated as a
whole, since E.C. members have not offered identical lists for covered procurements.
For imports, the U.S. Customs Service should be required to verify the origin of a
product. For U.S. suppliers, the procuring agency should be required to verify that
at least 50 percent of the product's value is of domestic origin. For contracts granted
to U.S. firms under various preference schemes, however, Congress should require
that the domestic content be at least 75 percent. This provision would apply primar-
ily to small and minority-owned businesses. Its objective is to maximize the domestic
employment opportunities generated by government procurement, without being
unduly restrictive.
An appropriate office of the U.S. Government should be designated to receive
complaints from firms, trade associations, labor unions or groups of workers con-
cerning alleged violations of the rule of origin and other unfair trade practices in
violation of domestic laws and the Agreement on Government Procurement.
III. AMENDMENTS TO DOMESTIC SAGEGUARD (IMPORT RELIEF) PROCEDURES
International agreement has still not been reached on improving the implementa-
tion of GATT Article XIX, Emergency Action on Imports of Particular Products.
The administration intends to present to Congress its legislative proposals in this
area in the Fall. The 1A.M. has long been dissatisfied with domestic import relief
procedures. Import relief, when granted at all, has been neither timely nor adequate
in most cases. We would be derelict in our duty to protect the interests of our
members if we were to support the multilateral trade agreements in the absence of
adequate protections against severe market disruptions caused by increased imports.
For this reason, our support will definitely not be forthcoming if the domestic
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447
implementing legislation does not include in the original package satisfactory
amendments to Title II, Chapter 1 of the Trade Act.
1. Amend Sec. 201 to provide a fast track procedure.
2. Substitute for the present Section 202(c)(1) the following language: "information
and advice from the Secretary of Labor on the estimated number of jobs that would
be lost in the next five years in the impacted industry, as well as the indirect job
losses in supplier firms, if import relief is denied, and the impact on communities in
which the industry is located; as well as the adequacy of adjustment assistance
under Chapter 2 as a substitute for import relief, and the extent to which workers
in the industry have applied for, are receiving, or are likely to receive adjustment
assistance;
3. Substitute for the present Section 202(c)(2) the following language: "information
and advice from the Secretary of Commerce on the industry's ability to benefit from
adjustment assistance in the absence of import relief, as well as on the extent to
which firms in the industry have applied for, are receiving, or are likely to receive
adjustment assistance under Chapters 2 and 4, and the probable effects on the
industry in the next five years if import relief is denied."
4. Amend Section 202(c)(3) to add to the criteria the President should take into
account "the national interest in an adequate production base for the article in
question."
5. Amend Section 202(c)(4) to add the following at the end of the existing clause:
"taking into account the effects of import relief on capacity utilization and the
attendant effects on production costs and sales prices."
IV. SPECIAL AND DIFFERENTIAL TREATMENT OF LESS DEVELOPED COUNTRIES
Point 1 of the GATT Framework Agreement concerns ~pecia1 and more favorable
treatment of developing countries.
In the best traditions of the labor movement, the 1A.M. believes strongly in the
principle of the international solidarity of labor. Just as we have fought domestical-
ly for legislation to achieve social justice for disadvantaged groups in the United
States, we have supported legislation to aid the poor and needy in the rest of the
world. To help workers in the Third World to improve their conditions of work and
to raise their living standards, the 1A.M. conducts overseas trade union education
programs for metaiworkers in Asia and transport workers in Africa. Moreover,
through our participation in the InternatiOnal Metaiworkers' Federation and the
International Transport Workers' Federation, we give assistance to Third World
unions in their struggles with multinational corporations and repressive govern-
ments. We support U.S. aid programs aimed at meeting basic human needs, and the
transfer of appropriate technology to promote rural development, improved health
care, sanitation, nutrition, housing and education, and to help indigenous enter-
prises to provide more employment opportunities and raise the productivity of labor.
Because we sympathize with the goal of improving the living standards of the
world's poor, we support forms of special and differential treatment that will help to
achieve that objective.
We have been critical, however, of the absence both in the trade agreements and
domestic programs of any criteria for defining a less developed country. At some
stage, an LDC must "graduate" into a more developed status.
Point 1(7) of the Framework Agreement contains a vaguely worded graduation
principle, which states: "Less-developed contracting parties expect that their capac-
ity to make contributions or negotiated concessions or take other mutually agreed
action under the provisions and procedures of the General Agreement would im-
prove with the progressive development of their economies and improvement of
their trade situation and they would accordingly expect to participate more fully in
the framework of rights and obligations under the General Agreement."
The billion dollar question is which, if any, of the so-called less developed coun-
tries participating in the trade negotiations are going to sign the agreement.
We regard it as absolutely essential for the implementing legislation to include
criteria for granting special and differential treatment to less developed countries,
and criteria for graduating countries from LDC status. As part of this domestic
implementation, Title V of the Trade Act should be amended to provide for review
and Congressional oversight of the Generalized System of Preferences. G.S.P. is a
form of special and differential treatment granted unilaterally by the United States
without requiring reciprocal concessions, in accordance with a pledge made by the
major developed countries in the Tokyo Declaration of 1973.
Statistical analysis of the distribution of G.S.P. benefits among beneficiary coun-
tries shows that the program is not working to achieve the objective of helping the
poorest countries to diversify their exports to the United States. Five countries that
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448
already had substantial export-oriented manufacturing sectors at the start of the
G.S.P program account for 68.1 percent of all G.S.P. duty-free imports in 1977.
These leading suppliers are, in descending order, Taiwan, Republic of Korea, Hong
Kong, Mexico and Brazil. In 1977 they exported $5.06 billion worth of goods eligible
for G.S.P. to the United States. However, the value of goods actually entering duty-
free amounted to $2.64 billion. Some of these goods lost duty-free entry because of
the competitive need limit. Actually, because of an error by the U.S. Department of
Commerce in calculating the annual competitive need limit, more imports have
been allowed in duty-free than called for by Section 504(c) of the Trade Act. For
1977, the limit set was $33.4 million, when it should have been $29.9 million. The
error is being announced in the Federal Register, January 12, 1979, is $37.5 million,
whereas it should be $33.4 million. The error lies in using the wrong year's value of
U.S. G.S.P. in the formula.
Each year, some of the leading beneficiary countries lose their eligibility for duty-
free entry of certain products because of the competitive need limit. Although
because of the newness of the G.S.P. program we do not have statistics for many
years, the data suggest that the poorer countries gain in market share when the
major suppliers lose their duty-free privilege.
The absence of criteria for beneficiary status and the granting of duty-free treat-
ment to advanced developing countries with major export-oriented manufacturing
sectors have created serious problems for American labor unions struggling to
protect workers in import-sensitive industries. Unions with small and overworked
research staffs have had to go through time-consuming procedures before an inter-
agency committee to argue against petitions to add more products to the list of
eligible articles, or to defend petitions for removal of times. In many cases we have
discovered that the governments petitioning to add new items are fronting for
multinational corporations, sometimes U.S-based and sometimes Japanese-owned.
These deficiencies and the absence of any review to show whether the development
of poor countriews and the welfare of their people is being advanced have generated
considerable bitterness in the American trade union movement about this program.
There is a general impression that the program is a ripoff on behalf of multination-
al companies, and that American jobs have been lost as a result.
We, therefore, urge the Congress to establish criteria for granting special and
differential treatment to less developed countries, as provided in the trade agree-
ments, and for determining eligibility for G.S.P. treatment. These criteria might be
per capita G.N.P., total value of exports to the United States, balance of trade with
the United States, and the share of manufactures in total merchandise exports. No
single one of these criteria should be taken as definitive. For G.S.P., an additional
criterion should be the total value of G.S.P. duty-free exports to the United States.
Both the World Bank and the U.S. Overseas Private Investment Corporation
(OPIC) use a graduation principle of per capita G.N.P. (adjusted for inflation) in
their aid programs. The World Bank uses 550 dollars, and OPIC uses 1000 dollars
(1975) as the cutoff point. We recommend adoption of the higher OPIC figure,
adjusted for inflation and foreign exchange fluctuations.
We recommend the following amendments to Title V:
Section 502(b)
Add to the list of countries that shall not be designated: Taiwan, Republic of
Korea, and Hong Kong.
Section 502(c)(2)
Add to the criteria the President shall take into account in designating any
country as a beneficiary developing country: "the country's total value of exports to
the United States, balance of trade with the United States, and the share of
manufactures in its total merchandise exports."
Section 504(c)(2)
Amend as follows: "A country which is no longer treated as a beneficiary develop-
ing country with respect to an eligible article by reason of this subsection may not
be redesignated a beneficiary developing country with respect to such article at any
time in the future."
Add Section 504(f)
"Whenever the President determines that any country has exported to the United
States in a given calendar year a total quantity of eligible articles having an
appraised value in excess of an amount which bears the same ratio to $200,000,000
as the gross national product of the United States for the preceding calendar year,
as determined by the Department of Commerce, bears to the gross national product
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of the United States for calendar year 1979, then, not later than 60 days after the
close of such calendar year, such country shall not be treated as a beneficiary
developing country for the purposes of this title."
Section 505
Amend as follows: "(b) On or before the date which is 5 years after the date of the
enactment of this Act, and by March 1 every year thereafter, the President shall
submit to the Congress a full and complete report on the operation of this title. This
report shall include for each beneficiary country an analysis of how it meets the
criteria specified in Section 502(c)(2) (as amended) and 502(c)(4), and a review of
requests for designation and removal of articles from the eligibility list, the recom-
mendations thereon of the Secretaries of Commerce and Labor, and the final action
taken. The first report shall in particular address itself to the reasons for designa-
ting Mexico, Brazil, Israel, Yugoslavia and Singapore as beneficiary developing
countries.
"(c) The appropriate committees of Congress shall recommend whatever legisla-
tive action they deem appropriate in light of the President's report."
V. TECHNICAL BARRIERS TO TRADE (STANDARDS CODE)
The purpose of the Standards Code is to discourage discriminatory manipulations
of product standards, product testing, and product certification systems for the
purpose of erecting barriers against imports. The Code would also encourage the use
of open procedures in the adoption of standards, such as those used in the United
States under the Administrative Procedures Act, and international standardization.
A reservation is contained in the text to protect domestic health, safety and
environmental standards and national security. Nevertheless, the administration's
proposal of March 9, 1979 for implementation of the Standards Code would place
many legitimate U.S. standards in jeopardy. Congress should draft the implement-
ing legislation to ensure that the Code does not provide an avenue for attacking
American standards which, in the judgment of the responsible legislative, adminis-
trative, and private regulatory bodies, serve legitimate purposes. Implementing
legislation should be limited to achieving the stated purpose of the Code, namely the
elimination of "discriminatory manipulations" of standards. In particular:
1. The legislation should not contain provisions admonishing U.S. standard-settin~
bodies to "take account of the effect of domestic regulations on U.S. foreign trade,'
or prohibiting the adoption of standards which "create unnecessary obstacles" to
trade, or any similar requirements. Such provisions would inevitably prove to be
impediments to the regulatory process. Standards would be subject to attack, at
both the regulatory and judicial levels, on the grounds that "trade impact" had been
inadequately analyzed and considered, or that the benefits attributable to a particu-
lar standard were so minimal in relation to its trade impact that the standard
should be deemed an "unnecessary obstacle" to trade. As a result, standards adopt-
ed for perfectly legitimate domestic purposes, with no intent of manipulating trade,
could be struck down by the courts even though the standards were fully consistent
with the regulatory criteria set by Congress, state legislatures, and other responsible
bodies. To foreclose such results, the implementing legislation should not contain
any directives or statements of policy which purport to state how American stand-
ard-setting bodies should carry out their responsibilities.
2. Injunctions should not be authorized aginst U.S. standards which a GATT panel
has found to violate the Code, even when the administering U.S. agency desires to
enforce the panel's decision. Instead, the agency (Special Trade Representative's
Office, or whatever agency is given the authority under a reorganization) should be
authorized in appropriate cases to present an international decision to the U.S.
standard-setting body which issued the standard in question, for consideration by
that body. The regulatory body with responsibility for the challenged standard
would then be in a position to determine whether a modification of the standard
would be warranted in view of the legitimate regulatory purposes governing the
issuance of the regulation in question. If a modification were warranted, it could be
made by the body which issued the standard, and which would have the fullest
knowledge and expertise regarding the standard.
3. Whatever method is adopted for implementing the Standards Code as it affects
U.S. standards, the legislation should state explicitly that the means of enforcement
provided in the legislation is exclusive. No general language should be included
regarding efforts by the federal government to ensure compliance with the obliga-
tions of the Code and/or of the implementing legislation, since such language might
be construed to authorized a number of inappropriate courses of action, such as the
withholding of federal funds from state, local or private standard-setting bodies that
are deemed to have violated the Code.
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4. The legislation should state that it is the sense of Congress that no determina-
tion by an international panel is entitled to weight under U.S. law (except as a
factor to be considered by the federal government in deciding whether to propose a
revision of a standard under the procedure described in 2. above), and in particular,
that no international finding adverse to a domestic standard should be given weight
by a "court in determining whether the standard constitutes an impermissible
burden on commerce. In the absence of such language, it is likely that U.S. courts
will give weight to adverse determinations by international panels in suits brought
against domestic standards under the Commerce Clause. The result could be that an
adverse international determination would in effect prove fatal to a domestic stand-
ard.
5. Finally, we note that the administration's March 9 draft states that not only
certain domestic standards, but also "certain U.S. laws" could be subject to chal-
lenge by virtue of the implementation of the Standards Code. The draft states that
"these laws would most likely include those that specifically require a Federal
agency to discriminate against imported products" (p. 9). We would like to be
advised of the laws to which these statements refer, and we hope that the Congress
will be alert to any attempt to weaken the enforcement of U.S. laws through a
backdoor procedure.
VI. ANTIDUMPING CODE
Article 12 of the International Anti-Dumping Code provides for anti-dumping
action on behalf of a third country by an importing country, on application of the
third country.
Domestic implementation of this provision would give the United States recourse
when U.S. export markets are lost as a result of dumping by another country's
exporters into markets outside the customs territory of the United States.
So far we have seen no attempt to draft language to implement this provision,
and we urge the Congress to do so.
With respect to other recommendations for domestic anti-dumping procedures, we
endorse the proposals of the AFL-CIO.
VII. CONGRESSIONAL DIRECTIVES ON GA11~ REVISION: SECTION 121
Sufficient progress has not been made toward realizing two of the objectives cited
in Section 121. These are:
"(4) the adoption of international fair labor standards and of public petition and
confrontation procedures in the GATT," and
"(5) revision of GATT articles with respect to the treatment of border adjustments
for internal taxes to redress the disadvantage to countries relying primarily on
direct rather than indirect taxes for revenue needs."
International Fair Labor Standards
Negotiations on this objective were not pursued during the Nixon and Ford
Administrations in spite of the urgings of labor advisers on trade policy, and have
been resisted by the Departments of State and Treasury. STR seems to have been
lukewarm, at best. Strong support has come from Secretary of Labor Ray Marshall.
In May 1978, Representative Henry Reuss introduced a concurrent resolution
requesting the inclusion of environmental and occupational safety and health stand-
ards in negotiations on international fair labor standards. Ambassador Robert S.
Strauss wrote to Representative Reuss on June 27, 1978 that an Interagency Task
Force on Labor Standards and Trade Distortions has been established to carry out
the Congressional mandate.
The Nordic countries have suggested the inclusion of fair labor standards in the
GATT safeguard provisions, so that an iniporting country forced to adjust to in-
creased imports could take into account working conditions in the exporting coun-
tries. We agree with the Nordic countries' view that the country imposing safe-
guards should not be required to adjust to imports of goods made under unaccepta-
ble working conditions.
At its December 1977 convention, the AFL-CIO adopted a resolution supporting a
binding and enforceable code of international fair labor standards.
This effort has the strongest support of the 1A.M. and of international organiza-
tions representing the world's free trade unions. It is aimed not at restricting trade
with the less developed countries, as is often alleged, but at preventing the most
flagrant abuses of working people as a way of achieving competitive advantages in
international trade.
It is our understanding that the U.S. interagency task force is investigating the
feasibility of four minimum standards for industrial production concerned with
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slave or forced labor, child labor, toxic substances in the workplace, and discrimina-
tory labor standards applied in export production or import-substitution industries.
We hope that progress in international negotiations will make it possible to include
recognition of "the human rights of workers in all lands for free association, for
organization and pursuit of democratic collective bargaining, and for withholding of
their labor in unacceptable working conditions," as stated in the AFL-CIO
resolution.
Border Tax Adjustments
No progress has been made in the negotiations towards eliminating the trade-
distorting effects of rebates of excessive value-added taxes on exports and their
imposition on imports as part of the base for calculating import duties. We hope
that this matter will be vigorously pursued in the forthcoming months, along with
reconsideration of the U.S. DISC tax loophole.
On behalf of the members of the 1A.M. and their families, I want to thank the
members of the Committee for their attention to our views. Our final judgment on
the trade agreements depends on the effectiveness of the implementing legislation
Congress decides to adopt.
Mr. VANIK. There is not any area in which your testimony is at
variance with the AFL-CIO?
Mr. P0uLIN. I think it differs in techniques and tactics. If there
are some that Dr. Kramer can highlight, I am sure she will.
Mr. VANIK. Do you have any comments you would like to give
me, Doctor?
Dr. KRAMER. I think it is more a question of emphasis and
specific details than substantive difference with the exception of
title V.
Mr. VANIK. Well, I had a couple of questions here.
What effect do you think the elimination of tariffs will have on
domestic parts production?
Dr. KRAMER. Are you referring to the civil aviation agreement?
Mr. VANIK. Yes.
Dr. KRAMER. Well, you know, this is one of the areas to which we
have not received any satisfactory answer either from the industry
or from STR and that is because, as I am sure you are aware, the
aerospace industry has been for some years engaged in various
kinds of coproduction arrangements and in the most recent period
that has had the effect of decreasing the positive influence of
aerospace exports on the balance of trade. In fact, in the Commerce
Department industrical outlook survey that appeared in January
the analyst concluded his discussion of the outlook for the aero-
space industry with the following statement and with your permis-
sion I will just read it, it is short.
"The U.S. aerospace industry leadership advantage is being
eroded through mutual defense hardware production and on the
civil side through shared risk manufacturing. These programs in-
volve large technology transfers which negatively affect the trade
balance. Civil shared programs, advertised as competitive bidding,
generally involve licensed foreign manufacturing of products deliv-
ered from abroad. The lower foreign product price is in most cases
made possible through government subsidies."
Now that is the main problem and we have no way of anticipat-
ing what the policies of the domestic industry will be once this
agreement is put into effect.
Mr. VANIK. What effect do you think the elimination of 50 per-
cent on the aircraft repairs will have?
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Dr. KRAMER. We emphasized time and again to the Special Trade
Representative that we were concerned that the effect of this part
of the agreement would be to encourage the shift of maintenance
and repair work to overseas bases, in particular to low wage areas.
The special trade representative's office responded that this was
extremely unlikely but on the other hand several years ago the Air
Transport Association tried to get a bill to accomplish this through
the Congress. Suspicion arises naturally in the minds of our people
that if the industry was seeking this kind of change then they must
have had some plans. Of course we have no assurance of what the
impact will be. As Vice President Poulin has already pointed out,
unlike Western European countries we do not have any kind of
broad economic dislocation program in this country to deal with
the impact of job loss, whether it is the result of changes in trade
or some other cause such as energy problems.
Mr. VANIK. Well, you have heard my remarks that I made earli-
er. We certainly want to address ourselves to the issues that you
have raised, and you will be able to follow carefully our final work
on markup, which will take place next week. We hope to finish it
next week, so please feel free to let us know about how you react to
the changes that we are putting in as we do it, because I am
sensitive to the recommendation you have made. I feel that we
have got to accommodate these problems in order to develop a
political case for getting the MTN through.
I want to say I don't think it is going to be a perfect proposal nor
can I expect that our implementation is going to be all that good,
that it is going to meet every problem. What we will be reaching
for is a substantial recognition of these problems, so I hope you
would judge us by the substantial recognition rather than the total
accommodation because we just can't accommodate everything in
our work. We will try to arrive at something that in the aggregate
is going to be acceptable to you and to the Congress.
Thank you very much.
Mr. P0uLIN. Thank you very much, Mr. Chairman.
Mr. VANIK. Next we will hear Mr. Willis R. Hoard, manager,
cling peach advisory board.
Mr. Coelho will introduce Mr. Hoard.
You might say, Mr. Coelho, I am a consumer of peaches.
Mr. COELHO. I have 220 different commodities.
Mr. VANIK. Very good to have you.
STATEMENT OF HON. TONY COELHO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. COELHO. Mr. Chairman and my distinguished colleagues on
the Trade Subcommittee, I am here this morning to introduce to
you Mr. Willis R. Hoard, manager, California Cling Peach Advisory
Board. Accompanying Mr. Hoard is Mr. Charles Herrington, a past
chairman of the cling peach advisory board for 25 years and chair-
man of the board's export committee. The board represents all
producers and marketers of clingstone peaches in California. Cling-
stone peaches are processed for use either as peaches or as the
principal ingredient in canned fruit cocktail. All U.S. canned cling-
stone peaches come from the State of California.
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There are approximately 1,200 peach growers in California. The
peach industry is an important one to my district. I am proud to
say that over one-third of clingstone production and acreage come
from my district.
Sale of California's cling peaches and fruit cocktail represents
about $500 million in sales annually. The California cling peach
industry has continued to expand production in order to be able to
supply export markets. Exports presently account for approximate-
ly $70 million on an annual basis. Consequently, the cling peach
industry has closely followed the Tokyo Round of the multilateral
trade negotations and has participated wherever appropriate. Mr.
Hoard and Mr. Herrington, on behalf of the cling peach advisory
board, are here to congratulate Ambassador Strauss on a job well
done for American agriculture and to urge adoption of the trade
package.
Mr. VANIK. We are certainly happy to hear from you. I might
say that your statement, Mr. Hoard, will be entered in the record
as submitted and you may read from it or proceed in any way you
see fit.
STATEMENT OF WILLIS R. HOARD, MANAGER, CALIFORNIA
CLING PEACH ADVISORY BOARD, ACCOMPANIED BY
CHARLES HERRINGTON, PAST CHAIRMAN OF THE CLING
PEACH ADVISORY BOARD AND CHAIRMAN OF THE BOARD'S
EXPORT COMMITTEE
Mr. HOARD. Thank you very much, Mr. Chairman.
We have only a few brief remarks. We appreciate the fact that
the statement has been accepted.
As Congressman Coelho has said, we have been very much inter-
ested in world trade matters involving our commodities for some
time. I should say also that the United States is our biggest market
and that includes the great States of Pennsylvania and Ohio. We
work hard in marketing domestically, investing $2 or $3 million a
year in promotion prior to working overseas.
Our overseas exports for all California specialty crops total $3
billion, and as Tony said, cling preaches account for about $70
million. We work with the Foreign Agricultural Service as a coop-
erator in market development in ten European countries, in Japan
and other Far East areas, including several developing countries,
and that is important to us.
We have had quite a little experience with section 301 and have
a case that we are not quite sure where it is. We think we have
won it but you don't quite know sometimes with the EEC what has
happened. We have problems with them as everyone does. They
remain a problem to us but we are marketing there. We think that
in other areas of the world, we don't know yet for sure, but we
expect that we have several benefits coming that will help our
cling peach exports as well as canned fruit cocktail, and that is one
of the other very great canned fruit products that is exported
worldwide.
We are concerned with the nontariff codes, with standards, with
subsidies. We want to see rules of the game that will be fair to us
as well as to others and that we can live with. Subsidies are an
administering problem. A case of cling peaches can be delivered to
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a European market in the community, including paying the duty,
for about $14 or $15 a case. Yet Italian growers and canners enjoy
a subsidy of $21 a case and that is a little hard to compete with.
We are very pleased with the efforts put forth by Ambassador
Strauss and his colleagues at STR. We are impressed with the fact
that our industries and others have input through the APAC and
ATAC committees and that has been helpful to us.
We have been working a long time with world trade matters. In
the Kennedy Round something happened. Some people say not
much happened for agriculture but for us at least something hap-
pened. The quota in Japan, which was restrictive was removed as a
result of discussions then, and that laid the groundwork for us to
grow in Japan from virtually nothing to now about $25 million
worth of our products moved into that country this current year.
Next year we expect it to be our biggest single export market.
Those are just a few summaries. We again say we support the
bill. We think it is beneficial to agriculture, to the agriculture
contribution to the balance of payments and to trade for America.
[The prepared statement follows:]
STATEMENT OF CLING PEACH ADVISORY BOARD
INTRODUCTION
This statement is made on behalf of the Cling Peach Advisory Board, which
represents all peach producers and marketers in the State of California. The Board
is organized pursuant to statutory requirements of the State of California and
engages in market development, promotional, advertising, research, and quality
control programs for the members as well as matters involving public affairs. There
are approximately 1,200 peach growers in California and total sales are close to $500
million. Exports presently account for approximately $70 million on an annual
basis. Cling peaches are marketed in the form of canned peaches, canned fruit
cocktail and other products containing cling peaches.
THE TOKYO ROUND-AN OVERVIEW
We have closely followed, and participated wherever appropriate, in this seventh
trade negotiation since the inception of the General Agreement on Tariffs and
Trade (GATT). For the first time in a major trade negotiation, the agricultural
sector of our economy has been well represented. In fact, Ambassador Strauss, our
negotiators, and the United States Department of Agriculture deserve congratula-
tions for focusing on the difficult and complex issues of agricultural trade in a
manner consistent with President Carter's mandate, which was expressed in his
1977 Annual Report to Congress on the Trade Agreements Program: "~ * * Across
the board we are pressing for equality of access for our exports in the markets of
developed countries. In particular, ways must be found to deal with problems of
agricultural trade and nontariff measures, which received relatively little emphasis
in earlier negotiations" (emphasis added).
The priority which our negotiators gave agriculture was well deserved. Our bal-
ance of trade deficit is already at a crisis level. Without agricultural exports,
including millions of dollars of exports from the State of California, the deficit
would be at a level that is difficult to imagine.
TARIFF CONCESSIONS
No official data exists with respect to specific trade concessions received for
products of interest to the Cling Peach Advisory Board. However, based on current-
ly available information, we anticipate that import duties for canned peaches and
canned fruit cocktail will be somewhat reduced in ten countries. Seven of these are
developed countries where fairly significant increases in trade appear possible. The
remaining three are developing countries where only very small export increases
can be anticipated. Until the concessions are confirmed and the specific level of
tariff decrease identified, it will be difficult to project the impact on trade with any
degree of certainty. However, we would anticipate that if the unofficial reports are
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close to being accurate that millions of dollars in additional trade for our products
will be generated.
THE PENDING SECTION 301 CASE ON EEC IMPORT RESTRICTIONS
In September of 1975, a complaint was filed pursuant to Section 301 of the 1974
Trade Act covering certain import restrictions on processed fruits and vegetables
established by the European Community ("EEC"). The Cling Peach Advisory Board
has actively participated in this case. The import restrictions involved minimum
import prices, import certificates, which are actually import licenses, provision for
suspension of imports of all processed fruits and vegetables, whether subject to
import certificates or not, and an added duty based on sugar content. Pursuant to
the 301 complaint, a panel of GATT contracting parties found the minimum import
price procedure to be contrary to the international trade rules. The proposal was
subsequently dropped by the EEC.
However, the other impediments remain in effect and the EEC has since adopted
another policy which we believe is in contravention of the provisions of GATT. A
grower subsidy program has been introduced to encourage increased internal pro-
duction of fruits and vegetables.
These policies have adversely affected exports of our products to the EEC. We are,
therefore, quite interested in any legislative action with respect to Section 301.
REVISION OF SECTION 301
In anticipation of legislative modifications to Section 301, we urge any such
amendments should have no adverse effect on cases presently pending under this
Section. Specifically, such cases should not need to be refiled. Also, resolution of
such cases should take absolute priority over cases filed subsequent to enactment of
any new legislation.
While our 301 case was partially effective in removing at least one of the EEC's
adverse trade policies, substantial problems remain because of continued imposition
of import certifications and the value added duty. In this regard, we strongly
recommend that any amendments to this section recognize the need to accomplish
resolution of such disputes within a reasonable time. The maximum time necessary
to achieve such resolution would appear to us to not exceed one year.
NONTARIFF CODES
In terms of long range considerations, the most noteworthy accomplishment of
this negotiation will probably be the initial development of non-tariff codes to
govern rules of the game in international trade. These codes, covering such matters
as licensing, government procurement, standards, subsidies and countervailing
duties will, if effectively enforced, have dramatic influence in increasing world
trade. For agriculture in general and cling peaches in particular, the proposed code
on subsidies is the most significant. As we have already noted in discussing trade
impediments implemented by the EEC, subsidies are commonly used against U.S.
agriculture exporters under the guise of encouraging and improving local produc-
tion of the commodity in question. The validity of Ambassador Strauss' plea for
equity and equal competitive opportunities in world trade has been no better illus-
trated than by the indiscriminate use of subsidies. We do not suggest the subsidies
code will be a panacea and by itself eliminate this problem. However, it is certainly
a step in the right direction.
Our major concern in this area is the very real prospect that many of our trading
partners will not accept the proposed codes. This is not an academic concern since
at present, 21 years after the institution of GATT, only 75 percent of the approxi-
mately 150 countries with which the United States conducts its major trade are
affiliated with GATT. Also, we note that the codes contain provisions which provide
for "withdrawal" from the codes within a 90-day period.
The United States has made a major effort to conform to the principally accepted
criteria for fair international trade, and we have tended to be extremely tolerant of
the indiscretions of others. The time would seem to be right for the United States to
move to a reciprocal "Most Favored Nation" policy. In the long run, if the codes are
to operate effectively, we believe this Committee must at least consider a policy that
involves granting Most Favored Nation rights only to those countries which accede
to GATT (or the new trade codes) or which bilaterially agree to comparable trade
rules. It is submitted that an effective policy in this regard should be self-enforcing
and could be accomplished by modifying our tariff schedules to provide for different
rates of duty for those countries complying with the referenced rules of trade as
compared to the rate for those which fall to comply. These particular comments are
intended to generate initial consideration of this type of approach, and depending
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upon the development of the trade package and collateral legislation, we will be
prepared to more fully develop this concept.
CONCLUSION
The Cling Peach Advisory Board urges adoption of the trade package. We con-
gratulate Ambassador Strauss and all of those connected with the negotiations who
have worked long hours against difficult odds in the interest of American agricul-
ture. Concessions which have apparently been achieved will result in increased
exports of our products.
We endorse any proposal which will have the effect of streamlining Section 301
cases and in particular which will have the effect of expediting such matters. Any
amendments to 301 should not adversely affect pending 301 cases.
Regardless of the extent of participation that our trading partners exhibit with
respect to proposed non-tariff codes, internal collateral legislation should be adopt-
ed, particularly in the area of foreign subsidies, which will have the effect of
enforcing such codes.
This negotiation represents a healthy step forward for U.S. agriculture. Peach
growers in California hope that the momentum established by Ambassador Strauss
and his negotiators will continue forward until complete equity in world trade has
been achieved.
Respectfully submitted.
Mr. VANIK. Thank you very much.
Mr. HOARD. As the Congressman mentioned, Mr. Herrington
would like to make a few comments. He is a grower and is aware of
our problems in our industry and I think you will be very interest-
ed in his comments.
Mr. VANIK. Sometime you can tell me how I can keep my trees
growing.
Mr. HOARD. We will volunteer Mr. Herrington for that. He is a
professional. He will come by and help you.
Mr. VANIK. He can give me a letter of advice.
Go ahead.
Mr. HERRINGTON. Mr. Chairman, I am anxious to emphasize the
fact that I am a grower, I spent 35 years producing cling peaches
and have made my entire living as a producer during that period of
time. It is true that I have done some work in the export field and
have taken a active part in the Peach Advisory Board leadership
and made trips to Europe and acted in the tripartite conference
and have some knowledge of export affairs but I emphasize to you
that I am basically a producer and do have expertise in the field in
the influence of legislation on producers.
I appear here today with both pride and appreciation-pride that
we live in a country where an individual producer can appear
before his Government representatives and express our desires and
our needs but appreciation that Ambassador Strauss and his people
and you, our elected officials, recognize some of the problems and
needs of our specialty crops in California that have not always
been recognized before.
I appear here officially for the Cling Peach Advisory Board rep-
resenting the 1,200 growers in California under that State market-
ing act but I think I also come here unofficially for many hundreds
and thousands of specialty crop growers in California who also
express that same pride and appreciation to Mr. Strauss and to
government in general for its recognition of the problems of our
specialty crops in California.
Mr. Chairman, our industry is a family oriented industry. Forty
thousand acres of cling peach trees in California covered by 1,200
growers is just something over 30 acres per grower. Many of those
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producers are third and fourth generation producers producing
cling peaches on the same ground that their families did before
them.
It is an accepted fact that nowhere in the world can producers
put at roadside the highest quality peaches as efficiently and as
economically as the producers of cling peaches in California. Our
processes are also recognized worldwide for their efficiency and for
their economy but after we get our peaches inside the cans some-
thing happens. Many of those things that happen are affected by
artificial trade barriers, subsidized production in many countries,
minimum import prices, manipulated freight rates and quotas.
These problems are problems that are of a badly oriented type.
The industry has no way to solve them without looking to Govern-
ment. We cannot deal with these problems without your help. Let
me comment in passing that even though we are not one of the
major commodities, the effect of markets and the restrictions on
markets and the 15 percent of our production that goes into the
export market has the same devastating effect upon our producers,
our processers, our labor that works both in the fields and in the
canneries, and upon the merchants and the general economy of
many small towns and valleys of California.
We recognize that we probably cannot be given the same recogni-
tion that some major commodities get but we hasten to say to you
again that the effects of the type restrictions on the exports and
the effects of subsidies and manipulated freight rates have that
same devastating effect upon our communities and our people that
it does on major commodities. These negotiations that have been
going on for the many past months and this trade bill appear to
have many provisions that will be helpful to our industry.
We appear here today again with pride and with appreciation for
the fact that our Government people, both Ambassador Strauss and
his people and the Members of Congress, are recognizing the prob-
lems of our specialty crop and we urge that any thing that any of
you can do to successfully see the trade bill through the various
committees in the Congress will be deeply appreciated by the spe-
cialty crop people in California.
Thank you, sir.
Mr. VANIK. Thank you very much.
Do you have any questions, Mr. Shannon?
Mr. SHANNON. No.
Mr. VANIK. Mr. Moore?
Mr. MOORE. No questions, Mr. Chairman.
Mr. VANIK. The next witness is Mr. Ronald K. Shelp, chairman
of the International Service Industry Committee of the Chamber of
Commerce of the United States.
Mr. Shelp, your statement will be admitted into the record as
submitted and you can read or excerpt from it.
LtL~_998 - 79 - 30
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STATEMENT OF RONALD K. SHELP, CHAIRMAN, INTERNATION-
AL SERVICE INDUSTRY COMMITTEE, CHAMBER OF COM-
MERCE OF THE UNITED STATES, ACCOMPANIED BY GORDON
J. CLONEY, DIRECTOR, SPECIAL POLICY DEVELOPMENT, AND
ELIZABETH PERKINS, EXECUTIVE SECRETARY, MTN TASK
FORCE
Mr. SHELP. Let me introduce my colleagues who are with me. On
my left is Mr. Gordon Cloney, director of special policy develop-
ment, U.S. Chamber of Commerce, and on my right is Dr. Elizabeth
Perkins who is the executive secretary of the MTN Task Force.
For your information the national chamber's international serv-
ice industry committee consists of approximately 35 to 40 service
companies and their trade associations that operate only in inter-
national markets. In addition, it includes a group of academic and
other experts.
Earlier this week your committee heard national chamber testi-
mony by Ambassador Eberle which concluded that the nontariff
agreement should be approved. Recommendations on implementing
legislation were cited at that time. My purpose today is to elabo-
rate on aspects of that which relate simply to service industries.
As you well know, the United States has been for many years
and was the first service economy. Over 60 percent of GNP comes
from services and some 65 to 70 percent of employment is provided
the services. Thus, we commend the Congress for its initiative in
the Trade Act of 1974 which included provisions for dealing with
various barriers to trade in services as well as in goods.
In retrospect the importance of that congressional initiative can
now be seen. By 1974, the year that the Trade Act was passed, the
services sector, which had traditionally been considered simply an
aid to merchandise trade, had grown and diversified. Total U.S.
services account trade stood at over 30 percent of all U.S. imports
and exports and the account was positive, producing a $10 billion
surplus.
Four years later in 1978 total services account trade had in-
creased by 90 percent to $129 billion, again almost 30 percent of
total U.S. imports and exports, and it had produced a $23 billion
surplus. As you know, this is probably the only positive item we
have seen on our balance of payments for some time.
With this background in mind I think it is appropriate to refresh
your memory on what Congress required in the Trade Act of 1974
vis-a-vis service industries:
By defining both "trade" and "commerce" to include services; by
mandating service industry representation on the advisory commit-*
tee for trade negotiations; by creating authority to negotiate reduc-
tions to nontariff barriers to service trade; by including services in
the recourse provisions of section 301 of the act; by including
consideration of services in the extension of nondiscriminatory
treatment of Eastern bloc countries; and by requiring reporting on
progress.
In all these areas Congress clearly mandated executive action to
deal with practices by foreign governments that deny or restrict
access by U.S. service industries to foreign markets.
It will be interesting to review what has happened since then.
For several years regrettably nothing happened. Finally, in early
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1976, Special Trade Representative Dent referred the unresolved
question of service industry negotiations to a White House Inter-
Agency Task Force on Services and the MTN. In December 1976
the task force report was released. The report concluded that sales
of U.S. services abroad were important and increasing through
both exports and foreign investment. Twenty-seven specific recom-
mendations were set forth of which the first five dealt with the
multilateral trade negotiations. These 27 recommendations are at-
tached to my written testimony.
The task force proposed that the special trade representative
specifically explore the following during the trade negotiations:
First, introducing service industry problems into discussion of
the codes on subsidies and government procurement;
Second, discussing barriers to service trade in the bilateral phase
of the MTN; and
Third, introducing service industries in the broader context of
improving the GATT.
Now that you have a program before you that is the result of the
negotiations we would like to examine exactly how many of these
objectives were accomplished. Frankly, from a service industry per-
spective, specific negotiating accomplishments are clearly modest
and there is some question as to whether the principle of multilat-
eral GATT negotiations on service industry trade barriers has actu-
ally been established. As you can well imagine, we believe it
should.
First the Government Procurement Code, one of the recommen-
dations of the task force, is the only MTN "result" where there is
reference to services. Currently it deals only with "services inciden-
tal to the supply of products" while deferring "service contracts per
se" for the future when the "possibility" of expanding code cover-
age will be "explored." Hence, the subcommittee may wish to
pursue the following questions with the STR during these hearings.
With regard to the Government Procurement Code, what is
meant by "services incidental to the supply of products"? What
services are covered? What will be the advantages and disadvan-
tages to the U.S. service sector?
Second, with regard to "service contracts per se" what is the
outlook and timetable for expanding the Government Procurement
Code to include service contracts and what has been accomplished
in terms of obtaining commitments to support such expansion by
trading partners?
The Subsidies Code, viewed as a potentially appropriate vehicle
for dealing with service industry problems by the interagency task
force, contains no reference in the text to services. Some relevant
questions are:
What efforts were made to include services in the Subsidies Code
and what circumstances precluded such consideration in the final
agreement, or in fact is it precluded?
Is the Subsidies Code susceptible to the eventual coverage of
subsidies to services in international commerce and, if so, on what
basis? If not, what efforts are planned by the STR to pursue the
issue and what reponse is anticipated from trading partners?
Finally, a modest number of service barriers were tabled for
bilateral negotiations under the GATT although the results, if any,
PAGENO="0468"
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are not yet known to the public. We certainly hope that this will be
followed through on and that the concessions that were not grant-
ed will be assiduously pursued by the administration with the
particular countries involved.
Last, there is no provision to the best of my knowledge for
introducing service industries in the broader context of improving
the GATT, something that was recommended by the 1976 task
force.
It is important that the MTN implementing legislation you are
considering be cast so that further progress is possible in dealing
with service trade barriers, particularly through the Government
Procurement Code and the Subsidies Code. Obviously, sufficient
negotiating authority must continue to exist to pursue this objec-
tive.
Second, as Ambassador Eberle testified on Monday of this week,
it is important that the private sector advisory process apparently
to be established at the close of the current MTN negotiations,
include services. For your information, there is no ISAC for serv-
ices at present. The President's authority under the 1974 Trade Act
would permit a services ISAC but a private sector advisory commit-
tee for services was never established by the administration.
The accomplishments of the Tokyo Round of multilateral trade
negotiations are numerous and the national chamber supports the
nontariff agreements that have been reached. In many areas much
more has been achieved than many observers thought possible. At
the same time, further progress on a number of issues will be
needed in the future. We encourage the administration to vigorous-
ly pursue efforts to reduce remaining barriers to trade, particularly
barriers to the increasingly significant international trade in serv-
ices.
Thank you, Mr. Chairman.
[The prepared statement follows:]
STATEMENT OF RONALD K. SHELP, CHAMBER OF COMMERCE OF THE UNITED STATES
I am Ronald K. Shelp, vice president and director, American International Under-
writers Corporation and chairman of the International Service Industry Committee
of the Chamber of Commerce of the United States.
I appreciate the opportunity to appear before this Subcommittee on Trade of the
House Ways and Means Committee. Earlier this week the committee heard Nation-
al Chamber testimony which concluded that the nontariff agreements offer "poten-
tially significant benefits to the entire United States economy" and should be
approved. Specific National Chamber recommendations for implementing legislation
were cited at that time.
My purpose today, as chairman of the National Chamber's International Service
Industry Committee, is to elaborate on aspects of the trade negotiations which
relate to service industries. These include advertising, accounting, banking, insur-
ance, air transport, lodging, leasing, licensing, franchising, construction, computer
services, engineering, shipping, communications, motion pictures and others. These
industries deal in intangible or what are often called invisible products.
The service industries' trade performance is reflected in the "services" account
which includes the U.S. exports and imports of service industry products as well as
direct investment flows, fees and royalties-all intangible or "invisible" products.
The services account is a statistical counterpart to the "merchandise" account
which includes exports and imports of manufactured products and commodities-all
tangible items.
At the initiative of the Congress, the negotiating authority set forth in the Trade
Act of 1974 includes the following provisions for dealing with barriers to trade in
services as well as in goods:
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Title I, Chapter 1, Section 102 directs the President to negotiate the harmoniza-
tion and reduction of nontariff barriers and other distortions in the services as well
as in the goods trade. Congress clearly defined the parameters of international trade
in subsection (g) of Section 102:
"(g) For purposes of this section-
"(3) the term `international trade' includes trade in both goods and services."
Title I, Chapter 3, Section 135(b)(1) provides that "service industries" shall be
represented on the Advisory Committee for Trade negotiations.
Title I, Chapter 6, Section 163(a) specifically requests the President's annual
report to the Congress on the trade agreements to include services, e.g.: "the results
of action taken to obtain removal of foreign trade restrictions (including discrimina-
tory restrictions) against United States exports and the removal of foreign practices
which discriminate against service industries (including transportation and tourism)
and investment * * ~"
Title III, Chapter 1, Section 301 provides relief from unfair trade practices to
services. The President is afforded the authority to retaliate against foreign coun-
tries that maintain unjustifiable or unreasonable tariff or other import restrictions
which burden or discriminate against United States commerce. Subsection (a) states:
"For purposes of this subsection, the term `commerce' include services associated
with the international trade."
Title IV, Section 405(b)(1)(a), which enables the President to enter into nondiscri-
minatory commercial agreements with countries previously denied such treatment,
makes reference to services. As a condition of renewal it is required that: "(A) a
satisfactory balance of concession in trade and services has been maintained during
the life of such agreement."
Title VI, Section 601(10) defines the term commerce to include "services associat-
ed with international trade."
The importance of the Congressional initiative to create these provisions is as
clear today as it was in 1974. By 1974, the services sector, once considered simply an
aid to merchandise trade, had grown and diversified to the point where it was
viewed as a significant element of international trade in its own might. In that
year, total U.S. services account trade stood at over 30 percent of all U.S. imports
and exports and the account was positive, producing a 10 billion dollar surplus.
By 1978, total services account trade had increased by 90 percent to 129 billion
dollars, again about 30 percent of total U.S. imports and exports and it produced a
23 billion dollar surplus, the importance of which is heightened by the 1978 deficit
of 34 billion dollars in merchandise trade.
Therefore, by defining both "trade" and "commerce" to include services in Section
102 and in Section 601, by mandating service industry representation on the Adviso-
ry Committee for Trade Negotiations in Section 135, by creating authority to negoti-
ate reductions to nontariff barriers to service trade in Section 102, by including
services in the recourse provisions of Section 301, by including consideration of
services in the extension of nondiscriminatory treatment of eastern bloc countries in
Section 405 and by requiring reporting on progress in Section 163, Congress clearly
recognized the importance of service industry trade. It also mandated the executive
action believed necessary to deal with practices by foreign governments that deny or
restrict access by U.S. service industries to foreign markets, or which hurt the
competitive position of U.S. services in such markets, in third country markets or at
home.
Both before and following the signing of the Trade Act of 1974, the Chamber of
Commerce of the United States organized meetings between representatives of U.S.
service industries and officials from the Special Trade Representative's office and
the Commerce Department to urge the preparations that would be necessary to
apply this new authority in Geneva. We recognized a need to act with some dispatch
since negotiation on service trade barriers was not a traditional GATT activity. As a
new issue for our trading partners as well as for the U.S. negotiators, it would
present procedural challenges.
These industry-government discussions continued inconclusively for about eigh-
teen months. In early 1976, Special Trade Representative Dent referred the still
unresolved question of how to approach service industry negotiations to a "White
House Inter-Agency Task Force on Services and the MTN" whose purposes were to
identify the problems faced by U.S. service industries in international commerce
and to develop recommendations for addressing them.
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Twelve months later, in December 1976, a task force report was released.1 The
report concluded that services were of large and growing importance to U.S. inter-
national commerce although this was not widely recognized. It noted that sales of
U.S. services abroad were increasing through both exports and foreign investment.
The report therefore recommended that government should address both service
industry trade problems and service industry investment issues through appropriate
international fora. Twenty-seven specific recommendations were set forth.2
Of these recommendations, the first five dealt with the Multilateral Trade Negoti-
ations. The task force concluded that service industry trade problems should be
raised on a "carefully selected" rather than on a "wholesale" basis. The' report
cautioned against "undue expectations" as the subject was new to multilateral trade
negotiations and long-term in nature. It further noted the need to develop an
inventory of trade problems. In this context, the task force report proposed the
following actions:
"(3) The Special Trade Representative (STR) should be requested to explore the
feasibility of:
"(a) introducing selected and specific trade-related service industry problems into
discussion of codes pertaining to subsidies and to government procurement prac-
tices;
"(b) discussing a limited number of barriers pertaining to services trade with
selected countries in the bilateral phase of the MTN; and
"(c) introducing service industries in the broader context of improving the
GATT."
In mid-1977, apparently based upon these priorities established through Executive
Branch inter-agency analysis of the Congressional mandate to deal with service
industry trade, the STR introduced selected service industry issues in Geneva some
thirty months after the Trade Act was signed.
Today, over four years after the Trade Act was signed, we have before us the
product of the Geneva negotiations. What are the results in achieving the unique
Congressional mandate to begin multilateral negotiations to reduce barriers to
service industry trade?
The government procurement code provisions Part I (Scope and coverage) Section
1, subsection (a) states the agreement applies to: "Any law, regulation, procedure
and practice regarding the procurement of products by the entities subject to this
Agreement. This includes services incidental to the supply of products if the value
of these incidental services does not exceed that of the products themselves, but not
service contracts per se;".
Part IX (Final Provisions) of this Code makes provision at not later than the end
of the third year to "explore the possibilities of expanding the coverage of the
Agreement to include service contracts."
A modest number of service barriers were tabled for bilateral negotiations under
the GATT although the results, if any, are not yet known to the public.
The subsidies code text contains no reference to services-this code was cited for
attention in behalf of service industries in the Inter-Agency Task Force Study.
Finally, in reference to the priorities for negotiating service industry trade bar-
riers in the MTN set by the 1976 Inter-Agency Task Force, there is, to my knowl-
edge, no provision for "introducing service industries in the broad context of im-
proving the GATT."
What do we make of these accomplishments in light of congress historic 1974
mandate which urged action based upon Congressional recognition that there were
no guidelines, standards, or multilateral procedures for dealing with service trade
barriers?
From a service industry perspective, specific negotiating accomplishments are
clearly modest and there is some question as to whether the principle of multilater-
al GATT negotiations on service industry trade barriers has actually been estab-
lished.
The government procurement code, the only MTN "result" where there is refer-
ence to service, now deals only with services incidental to the supply of ~oods, while
deferring "service contracts per se" for the future when the "possibility' of expand-
1 U.S. Service Industries in World Markets: Current Problems and Future Policy Develop-
ment. The task force was chaired by the Department of Commerce. Other agencies serving on
the task force were: the Departments of State, Treasury, Labor, Transportation, Health, Educa-
tion, and Welfare, and Housing and Urban Development; the Office of the Special Trade
Representative; the Office of Telecommunications Policy; the Civil Aeronautics Board; the
Federal Reserve Board; and the Council on International Economic Policy.
2The recommendations are attached as Appendix A.
1976 Task Force Report, p. 62.
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ing code coverage will be "explored." Hence the Subcommittee may wish to pursue
certain questions with the STR during these hearings:
With regard to the government procurement code, what is meant by "services
incidental to the supply of products?" What services are covered? What will be the
advantages and disadvantages to the U.S. service sector?
With regard to "service contracts per se" what is the outlook and timetable for
expanding the government procurement code to include service contracts and what
has been accomplished in terms of commitments to suport such expansion by
trading partners?
The subsidies code, proposed as a potentially appropriate vehicle for dealing with
service industry problems by the Inter-Agency Task Force, contains no reference in
the text to services. Relevant questions are:
What efforts were made to include services in the subsidies code and what
circumstances precluded such consideration in the final agreement? and,
Is the subsidies code susceptible to the eventual coverage of subsidies to services
in international commerce (for example under Article 19, Section 7) and, if so, what
basis? If not, what efforts are planned by the STR to pursue the issue and what
response is anticipated from trading partners?
In conclusion, the Trade Act of 1974 mandated initiatives by our government to
respond to the trade problems faced by U.S. service industries through multilateral
negotiations. In light of the progress to date, this Subcommittee may want to obtain
for its record as complete an understanding of what has actually been accomplished
as possible.
Looking ahead, it is important that the MTN implementing legislation, which you
will consider, be cast so that further progress is possible in dealing with service
trade barriers. This is particularly true with regard to the government procurement
code and possibly the subsidies code. Moreover, other possibilities for progress in
reducing barriers to service trade may exist elsewhere within the GATT structure.
Obviously, sufficient negotiating authority must continue to exist to pursue this
objective.
The accomplishments of the Tokyo Round of multilateral trade negotiations are
numerous and the National Chamber supports the nontariff agreements that have
been reached. In many areas much more has been achieved than many observers
thought possible. At the same time, further progress on a number of issues will be
needed in the future. We encourage the Administration to vigorously pursue efforts
to reduce remaining barriers to trade, particularly barriers to the increasingly
significant international trade in services.
APPENDIX A
The following points are the 27 recommendations made in the December 1976,
White House Inter-Agency Study, "U.S. Service Industries in World Markets: Cur-
rent Problems and Future Policy Development."
Recommendations
1. Service industry trade problems should be raised for discussion in the MTN on
a carefully-selected basis, focusing on those problems most similar to the goods-
related NTB's already scheduled for discussion.
2. The wholesale introduction of services sector negotiations for either services as
a whole or for individual service industries should be avoided in the MTN.
3. The Special Trade Representative (STR) should be requested to explore the
feasibility of:
(a) introducing selected and specific trade-related service industry problems into
discussions of codes pertaining to subsidies and to government procurement prac-
tices;
(b) discussing a limited number of barriers pertaining to services trade with
selected countries in the bilateral phase of the MTN; and
(c) introducing service industries in the broader context of improving the GATT.
4. As services have not previously been dealt with in multilateral trade negotia-
tions, realism should be maintained and the generation of undue expectations of
success are to be avoided. A longer-term objective in raising services in the MTN
should be to put our trading partners on notice that greater attention will be paid
to services in future negotiations.
5. Building upon information developed for this report, a detailed inventory of
specific service industry trade and investment problems should be compiled and
maintained by the Commerce Department. This inventory would aid in evaluating
which barriers might be raised explicitly in the MTN and it would also be useful to
the work of the consultative and action organizations recommended below.
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Government industry consultation
6. A services sector ISAC should not be created.
7. A "Service Industries Consultation Committee" should be established under the
auspices of the Department of Commerce. This committee would be comprised of
industry and labor representatives of those services sectors that participate most
heavily in international commerce, but should not focus on the transportation
industries that already possess good communications channels with the government.
8. The Service Industries Consultation Committee should provide advice and
communication on the broad spectrum of international business and economic issues
that affect the service industries, including investment-related matters and promo-
tional questions. The committee should be outside the ISAC structure, but its
primary focus should be international commerce. However, the committee should
review relevant domestic commerce matters when they are an integral part of the
problem at hand.
9. Staff support for the committee should be provided by the Commerce Depart-
ment. A principal point of contact and responsibility for the services sector should
also be identified in the Office of the Special Trade Representative.
10. A joint Commerce/Labor study group should be formed, with input from the
International Trade Commission, to examine the feasibility and ramifications (in-
cluding both the financial and legal aspects) of extending the coverage of the trade
adjustment assistance provisions of the Trade Act to include dislocations arising
from imports of services. During the course of its examination, the study group
would be expected to meet with and seek the advice of the recommended Service
Industries Consultation Committee.
11. The President's Export Council should be expanded to include representation
by service industries that participate to a significant extent in export markets.
Government organization
12. A Commerce/State/Treasury/Labor/STR Committee, chaired by Commerce
and reporting through the EPB, should be formed to focus attention on the interna-
tional trade and investment matters relevant to the service industries-on a rou-
tine, ongoing basis. Other agencies should participate as appropriate. The committee
should have the general purpose of increasing the awareness of service industries'
problems throughout the relevant parts of these agencies; and should also serve as
the focal point for the implementation of specific courses of action that may be
decided upon as a result of this report, and for the development of such future
policies and initiatives as may be indicated. Such initiatives would make the fullest
use of existing multilateral and bilateral mechanisms for both trade and invest-
ment. The committee should be established at least at the Deputy Assistant Secre-
tary level.
13. The joint committee should, as one of its first actions, consider the means by
which the OECD Committee on Invisibles can be brought to focus more closely on
service industries than is now the case. Achievement of this objective would be a
valuable step to\yard raising other developed nations' awareness of service indus-
tries.
14. Agencies represented on the joint committee should be encouraged to review
resource allocations with a view toward increasing the now under-represented ana-
lytic and policy resources applied to services trade and investment.
Services and investment
15. Though not conclusive, the analyses in this study tended to indicate the mix
and priority of service industries' investment problems differed from those of the
extractive and manufacturing industries. This point should be discussed in the
Service Industries Consultation Committee. Its advice should be employed by the
joint committee recommended in (12) to determine whether and how the govern-
ment's process of assigning priority to individual investment issues should be modi-
fied.
16. The joint committee should also determine the means by which specific
investment problems of the service industries can more fully be included in bilateral
investment discussions, particularly with LDC's.
17. The joint committee should further serve as the point through which the State
and Commerce Departments can jointly develop an effective "early warning" system
for identifying specific service industry investment obstacles as they may occur. The
Commerce Department in particular should designate an analytic policy focal point
for service industry investment problems.
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Services and the LDC's
18. The creation of small and inefficient service companies by LDCs can in many
instances retard, rather than advance, economic development by consuming re-
sources in a less than optimal manner. Barriers to foreign service companies can
also retard the transfer of technology and managerial know-how. A study of the
economic behavior, contributions, and costs of service industry investments in LDC's
should be initiated. Its results, both positive and negative, should be provided to
U.S. service industries, developmental agencies, and appropriate LDC's.
19. The joint committee recommended in (12) should investigate the means by
which specific investment problems of service industries can be more fully included
in bilateral investment discussions with LDC's and in multilateral investment dis-
cussions, e.g. in UNCTAD.
Selected sectoral initiatives
20. Given both the complexities of the maritime industry's problems and the
extensive attention already being devoted to them, initiatives in this area-such as
those to deal with increasing bilateralism-should be left to the agencies and
mechanisms in the government most cognizant of the variety of issues present. It
would seem counter-productive either to add more agencies to this process or to seek
inclusion of the maritime industry in the MTN.
21. The joint committee recommended in (12) should develop a detailed proposal
for upgrading the existing OECD insurance mechanism into a forum that addresses
the fundamental disagreements that now exist regarding liberalization of insurance
in the developed countries.
22. The joint committee should also investigate the means by which specific U.S.
insurance industry complaints can be discussed with particular LDCs in bilateral
negotiations, and should review strategies and approaches taken by the United
States with regard to insurance in UNCTAD.
23. The Department of Commerce should begin devoting resources to the economic
and policy analysis of general and life insurance in the international economy,
broadening its present scope beyond maritime insurance. Particular attention
should be given to the role that U.S. insurance companies can play in assisting the
development of the LDC economics.
Data and information
24. A working group on international services data should be formed as part of
the joint committee recommended in (12). Membership should include the Bureau of
Economic Analysis and OMB's Statistical Policy Division.
25. The Bureau of Economic Analysis should be requested to prepare a presenta-
tion for this group on the means by which service industry international data are
presently obtained, the ways in which presently unpublished data can more broadly
be made available, and the ways in which the industry and geographic coverage of
the data can be improved within the context of the President's forms-reduction
program. Particular attention should be devoted to the manner in which services
affiliates are to be handled in the proposed new bench mark survey of the U.S.
direct investment abroad.
26. The working group should discuss with industry representatives, trade associ-
ations, and trade publications the possibilities for improving data and conducting
special surveys.
27. The working group should formulate and present to the joint committee
recommended in (12) the specific steps that can be taken to improve services trade
and investment data, along with recommendations for the provision of the requisite
resources.
Mr. VANIK. Thank you very much for your testimony.
Are there any questions? Mr. Shannon.
Mr. SHANNON. You said that the Government Procurement Code
is incidental to the training transaction. Can you explain your
views further?
Mr. SHELP. Well, I can certainly tell you what I and the members
of the service industry think that phrase should mean. I am not
sure that is what it does mean. We think that this reference is an
opportunity for the administration to vigorously broaden the serv-
ices concept in the code. For example, in my industry which is
insurance we would hope that it means that all the insurance
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transactions related to trade in procured goods would be included
and that American insurance would have the chance to compete in
supplying insurance not only on trade but supplying the insurance
on construction related to goods and their installation, and so
forth.
The same thing would go for shipping, for construction or engi-
neering services related to goods and so forth. I get the impression,
however, that the trading partners and perhaps the administration
is considering a much more narrow definition but I don't know. We
will encourage you to vigorously push for as broad an interpreta-
tion as possible.
Mr. SHANNON. Have you talked to Ambassador Strauss about
this or been in touch with the members regarding this interpreta-
tion of that clause?
Mr. SHELP. Yes, we have. They know our concerns. I would say
they are being considered.
Mr. SHANNON. Of course that is a matter of communication with
the other countries. I assume that that would be discussed other-
wise, it leaves an area open for disagreement.
Mr. SHELP. Certainly. I gather that is one of the many areas that
is to be defined in the post MTN period as they start implementing
these codes.
Mr. SHANNON. Do you feel that the sector that you represent had
its input at the negotiating table or do you feel that you were not
consulted adequately concerning your particular views?
Mr. SHELP. Well, as a personal view I think late in the game we
did. Early in the game the administration or several administra-
tions did not take a very active role on services at all so it probably
was not very important. Certainly once they began to deal with
services we had our input but regrettably that was pretty far along
in the negotiations so that not a great deal would be expected to be
accomplished by that point. Hopefully it has paved the way for
future negotiations.
Mr. SHANNON. Your European friends in the Common Market,
are they in the mold or dealing with services as well as products
amongst themselves?
Mr. SHELP. Probably not in most cases.
Mr. SHANNON. Have services been used between countries as is
norm for trade and trading areas or has it just been products as far
as it has progressed?
Mr. SHELP. It should be very important to Europeans. The invisi-
ble account is the only positive account in the British balance of
payments, for example, for many years and I think also in the
Swiss. It is one of the most important contributors of the Swiss
account.
In answer to the first part of your question, I think some persua-
sive encouragement needs to be given to the Europeans who par-
ticipate in this MTN exercise. I have had some involvement on the
private sector level in recent years and I would say that it is
beginning and we are beginning to create a realization in Europe
about the importance of services in the international trade.
Mr. SHANNON. The interagency mechanism when carried out by.
the Government, has that recommendation been acutally enforced?
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467
Mr. SHELP. Regrettably not. That was the recommendation No.
12, which was in the 1976 task force report. I understand that the
administration is now considering establishing this and the work
program is being developed. We would encourage you-and some of
the Members of Congress already have-to encourage them to get
on with it, we in industry have been doing so for years. The reason
we think it should be established is very simple because it is very
low awareness of the services in Government agencies dealing with
our foreign trade.
We need some coordination in all aspects of policymaking, but
we are not yet making policy to deal with the services. We have an
industrial bias in this country-international economic policies
made under the assumptions about manufacturing industry, and
the service industry factor is not factored in.
Second, there is the problem of involvement by different Govern-
ment departments. When we deal with them now in our industry,
we just have to go to each department. Some interagency coordina-
tion would be desirable. I know it may sound ironic to you to have
a private sector spokesman encouraging a new interagency mecha-
nism in the Government but it seems to be a wise recommendation
in this case.
Mr. SHANNON. I assume that our knowledge and management
ability in the field of business would put the United States in a
very fine position where we are able to include this as a part of
trade.
Mr. SHELP. Definitely, I think a $23 billion surplus in the service
account balance last year is a good indication of that.
Mr. SHANNON. Is there an advisory group that is set up or should
be set up as the post--
Mr. SHELP. There is not at present. One of the recommendations
we would make is that in setting up the post-Tokyo round advisory
committees which will be carrying on advising our Government,
there should be one on services. Ours at the chamber is sort of ex
officio.
Mr. SHANNON. The national chamber of commerce is officially
pushing for an advisory group?
Mr. SHELP. They have been encouraging that for several years.
Mr. SHANNON. Thank you very much.
Mr. VANIK. Mr. Moore.
Mr. MOORE. No questions.
Mr. VANIK. The next witness will be Dr. Samuel M. Rosenblatt,
senior economic consultant of the International Economic Policy
Association.
We are happy to have you with us, Dr. Rosenblatt. Your state-
ment will be made a part of the record and you may read from it
or excerpt from it, whichever you desire.
STATEMENT OF SAMUEL M. ROSENBLATT, SENIOR ECONOMIC
CONSULTANT, INTERNATIONAL ECONOMIC POLICY ASSOCI-
ATION
Mr. ROSENBLATT. Thank you, Mr. Chairman.
I have also submitted to the committee a written oral summary
which I will proceed to read rather than summarize the full writ-
ten statement.
PAGENO="0476"
468
Mr. VANIK. Without objection, your written statement will be
made part of the record.
Mr. ROSENBLATT. My name is Samuel M. Rosenblatt and I am
here today in my capacity as senior economic consultant to the
International Economic Policy Association. The association is a
nonprofit research group with a diverse but broadly representative
membership of American companies. Although the views I will give
reflect the research which the organization has done, I am not in a
position to speak formally on behalf of any specific company or
industry.
I need hardly stress to you the importance of the balance of
payments and the role that trade plays in the U.S. economy. The
absolute increases in our international trade are impressive. Our
combined exports and imports a decade ago were $66 billion where-
as in 1978 these flows totaled $318 billion. Some of this growth, of
course, reflects inflation but there has also been impressive growth
in real terms as U.S. combined exports and imports as a percentage
of GNP has doubled in the last decade.
Despite the benefits of such growing interdependence, the U.S.
trade balance has been in the red in 6 of the past 8 years.
These facts should help illuminate several fundamental problems
that affect an assessment of the trade package.
First, the U.S. is a profligate user and importer of OPEC oil-
$42.3 billion cost at present. We simply must get that hemorrhage
under control.
Second, a slow but steady decline in some areas of U.S. trade
competitiveness.
A key question which Congress and the American people need to
ask is whether the MTN results will give the United States a fair
chance to correct its adverse trade balance.
Two factors are at work here:
First, attitude of U.S. business toward international trade-and
willingness to compete. These unfortunately lag behind the eco-
nomic reality of growing U.S. involvement internationally de-
scribed above.
Second, excessive reliance on the use of floating exchange rates
to create a self-equilibrating system may also vitiate against the
need for balance-of-payments discipline. This system does not oper-
ate in a vacuum and involves considerable lags as well as foreign
government interference.
Thus in an economic sense and as a source of encouragement to
exports, this MTN package should be accepted. Similarly in a
political sense, this package of agreements represents a culmina-
tion of multilateral efforts that extend over a 4- to 6-year period
during which the international trading community was subjected
to a series of stresses exceeded only by the 1930's worldwide depres-
sion. Nevertheless, the negotiating GATT members succeeded in
perpetuating the trade liberalizing pattern followed since the end
of World War II. The trend toward tariff reductions will be contin-
ued.
Moreover, in the nontariff barrier area, this agreement marks
the first comprehensive attempt to deal with the nontariff impedi-
ments to trade that have proliferated as tariff and quantitative
restriction type barriers have receded in importance.
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469
Moving forward on these codes of conduct will clarify what is
acceptable international trade behavior and presumably open up
more international trade to international competitive forces. Thus
in an overall sense, the United States stands to benefit from the
acceptance of these agreements. But to do so, other countries will
have to implement the codes in a fair manner. That is why imple-
mentation is so important. The benefits of expanded trade tend to
be distributed more widely than the costs of adjusting to these
increased trade flows.
Since the Trade Act of 1974 we have been attempting to make
our trade adjustment assistance programs a more effective tool to
cope with import-related problems. In previous testimony befor this
committee I supported an expansion of these programs, especially
those aspects that looked toward adjustment rather than simple
maintenance and perpetuation of noncompetitive industries. IEPA
continues to support this approach.
To date it has not been possible to reach agreement on an
acceptable safeguards code, due primarily to the split between the
parties on the use of conditional, nondiscriminatory (MFN) treat-
ment.
Under this concept, article XIX of the GATT would be amended
to provide an international sanction to the use of selective import
controls against that country or countries whose import increases
where thought to be responsible for causing injury to a domestic
industry. Imports from all other countries presumably would be
unimpeded.
On the basis of recent history with the use of article XIX, or lack
thereof, section 107 of the Trade Act, and the potential for abuse of
a selective restraint program, I personally believe the United
States should continue to seek a revitalized international safe-
guards agreement that would continue to include nondiscrimina-
tory treatment.
The international safeguards program should also include provi-
sions to require a nation taking temporary safeguards actions to
adopt a positive adjustment assistance program. This would be
supportive of the idea that these safeguards were intended to be
temporary.
With regard to developing countries, a chief complaint of the
"Group of 77" has been the failure of the international trading
system to address aggressively their special problems. The devel-
oped world has attempted to respond. In 1966, part IV was added to
the GATT articles. This addition exempts the LDC's from the re-
quirement of reciprocity. Most of the developed nations also insti-
tuted generalized systems of preference-type programs.
In dealing with the developing world, on this and other interna-
tional economic policy issues, it is essential that this group of
countries not be treated as a homogeneous mass. Clearly policies
appropriate to the least developed nations should not automatically
be extended to the advanced developing countries. But this raises
the contentious question: When does a less developed country
become a developed country?
At some point the rapidly growing set of nations must take up
an equal share of responsibilities in the system and begin phasing
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out the special benefits granted to them, as implied under the
concept of graduation.
The basic thrust of the various codes of conduct agreed upon at
the GATT negotiations is in the general direction of greater trans-
parency, clarity and simplicity in the international rules of trade.
They are also intended to achieve a greater openness in the inter-
national system and so enhance the opportunities for trade. JEPA
strongly supports these general principles.
It is my understanding that the suggested implementing legisla-
tion will be designed to make the rules and criteria governing
trade more explicit and the implementing system more efficient
and so more responsive to the needs of American importers and
exporters. This is all to the good.
While I am not in a position to comment on the specific aspects
of each of the codes as regards agency responsibility, time require-
ments, burden of proof and judicial review, I would like to note the
following general principles:
The incorporation of an injury test in the countervailing/subsidy
code, along with the prohibitions against export subsidies and the
indentification of domestic subsidies is appropriate.
Efforts to expedite the processing of trade complaints are gener-
ally laudable. However, we must also make certain that ample
oppOrtunity is provided to those opposed to develop an adequate
counterposition.
We should guard against the recurrence of instances of multiple
jeopardy, such as occurred recently in the case of TV imports, from
the simultaneous filing of a number of petitions for import relief
under different statutes.
An area that is of major concern to IEPA, both in the implemen-
tation of these agreements and as a general trade principle, con-
cerns the role of services in international trade. You just heard
from the chamber on that and I think I can safely skip that portion
of my testimony at this point.
Mr. SHANNON [presiding]. Your position is the same?
Mr. ROSENBLATT. Very much in support of the need for persistent
and permanent attention to the international trade in services, yes,
sir.
Mr. SHANNON. Thank you.
Mr. ROSENBLATT. The key questions about implementation of the
trade agreements may be answerable only in terms of the way the
U.S. Government improves its organization for carrying out such
implementation.
I understand that the administration has committed itself at
least to consider these structural aspects as part of the overall
trade package, and that one leading contender is the Roth-Ribicoff
proposal to establish a new and independent Department of Trade
and Investment. There appears to be a general consensus that
reform of some sort is badly needed, but some doubt that a totally
new department is either feasible or desirable. It might be better to
build on an existing organization, with the Department of Com-
merce or an expanded STR being logical candidates.
In either event, this larger organization could be given responsi-
bility not only for the implementation of those tasks that stem
directly from the MTN's but from other trade-related matters as
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well, such as the Eximbank and OPIC, plus some Treasury trade
enforcement functions, and certainly the staffing of U.S. foreign
trade missions. But I would not want to go as far as some critics of
the present performance of the Departments of Commerce, Treas-
ury, and State on these matters, and centralize all functions, for
that might merely strip key Cabinet departments, who ~will inevita-
bly continue to have an important role in international economic
policy, of their expertise in this area. Moreover, a centralized func-
tion may be more vulnerable to being isolated by its bureaucratic
opponents.
The domestic system put in place to monitor the international
agreements must provide an effective avenue for U.S. exporters to
lodge their complaints and get appropriate U.S. Government re-
sponses and, as applicable, corrective government action.
The above, however, is only half of the problem. No matter what
decisions are made about departmental allocation of functions, the
key question is executive branch coordination and in our Govern-
ment that really can be done only at the Presidential level. So we
would urge Congress to enact, in whatever reorganization bill may
become part of the package, that there should be a body-call it a
Council on International Economic Coordination or what you will-
to be chaired by the President or his designee, comprising State,
Treasury, Commerce, and Agriculture and Labor as a minimum
with such other appointees as the President may elect. Such a body
needs a very able Presidential aide as its interlocutor. One possibil-
ity might be to build on the authorization, title, and prerequisites
of the existing STR even if the detailed staff functions are moved
elsewhere.
Thank you very much, Mr. Chairman.
[The prepared statement follows:]
STATEMENT OF SAMUEL M. ROSENBLATF, SENIoR ECONOMIC CONSULTANT,
INTERNATIONAL ECONOMIC POLICY ASSOCIATION
Mr. Chairman, my name is Samuel M. Rosenblatt and I am here today in my
capacity as Senior Economic Consultant to the International Economic Policy Asso-
ciation. The Association is a nonprofit research group with a diverse but broadly
representative membership of American companies. IEPA spokesmen have testified
before your Committee many times over the past two decades on subjects related to
America's international economic interests. We appreciate your courtesy in inviting
us back today.
Although the views I will give you today reflect the research which our organiza-
tion has done, I am not in a position to speak formally on behalf of any specific
company or industry.
We have submitted a written statement for the record and, with your permission,
I will summarize it as briefly as possible. I also hope, Mr. Chairman, that in view of
the fact that the final text of the agreements and their details have only just
become public, we can file for inclusion in your record some supplementary com-
ments based on the further advice of our expert advisors on trade matters which we
expect to be receiving during the next few weeks.
Of the topics listed in the Subcommittee's press release of April 6, I would like to
address selected aspects of Nos. 1, 2, 5, and 7.
Increased interdependence
Since you presided, Mr. Chairman, at the important hearings which this Subcom-
mittee held in 1977 on the causes of the U.S. trade deficit, I need hardly stress to
you the importance of the United States balance of payments and the role that
trade plays therein for the U.S. economy. Table 1 shows the trends of various
categories of the U.S. balance of payments over the last 16 years. Through the
1960's and into the early 1970's the U.S. current account continued to show a
surplus. This was especially true for the private sector of the economy, whereas the
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public sector, primarily government expenditures for defense and foreign aid, gener-
ally ran a deficit.1 These accounts also reveal the very large positive contribution
that the service sector, broadly defined to include return on investment, has made.
This point is emphasized below in the context of our international trade policy.
The absolute increases in our international trade are also revealed in these
figures. For example, our combined exports and imports a decade ago were only $66
billion whereas in 1978 these flows reached a total of $318 billion! Some of this
reflects inflation but in real terms, there has also been a continual and impressive
growth, whereby the U.S. interaction with the international economy as a percent-
age of GNP has literally doubled in the last decade. If services and investments are
included, our international commerce is now equivalent to one-fifth of our GNP!
Despite the benefits of such growing interdependence, the U.S. trade balance has
been in the red in six of the past eight years since 1970, and one of those was the
1975 recession year. The deficit was a whopping $34 billion in 1978. The Administra-
tion estimates a $26-28 billion trade deficit figure for 1979 and a current account
deficit of some $8-9 billion.
These figures, Mr. Chairman, sketch out several fundamental problems that affect
any assessment of this multilateral trade package.
One is that the United States is a profligate user and importer of OPEC oil,
which, at its present excessive and, in our view, unreasonable cost, accounts for
$42.3 billion of our imports. We simply must get that hemorrhage under control, no
matter what we do on other trade matters. But that staggering number trends to
mask a second problem which is a slow but steady decline in our trade competitive-
ness in other- sectors.2
It seems to us that the key question which Congress-and the American people-
ought to be asking about the MTN results is, do they give the United States a fair
chance to correct the adverse balance of trade? I put the proposition that way
because a number of factors are at work: First, there is the attitude of American
business toward international trade competition and its effectiveness in this compe-
tition. Quite frankly, these have sometimes left something to be desired. As a nation
we really have not yet caught up psychologically with the growth and significance
of the international sector to the American economy.3
Among our other self-inflicted handicaps is the belief, particularly among many
economists, that the use of floating exchange rates creates a more or less self-
equilibrating system that no longer requires balance of payments discipline. They
argue that as the deficit rises, the lower the dollar falls, the more attractive our
exports and the more expensive imports become, thereby reversing the deficit. But
we have-or should have-learned that the adjustment is not automatic, and that
the J-curve has a long downstroke and a substantial time lag. Moreover, we are now
seeing the inflationary consequences of our neglect of the dollar; if and as it rises-
which will be helped by a better trade balance-a stronger dollar will aid in curbing
inflation.
In addition, the exchange rate system does not operate in a vacuum. The protec-
tionist and/or aggressive export promotion policies of other countries-too long
encouraged by American generosity in the afterglow of or postwar economic domi-
nance-also play a key role. It is understandable, then, that various forms of
protectionism are growing in this country, and not always without justification.
From a strictly economic perspective, the foregoing data have clearly indicated
that the United States has a much greater stake in the international arena than
ever before in its history and that the country needs to take advantage of every
opportunity presented to provide encouragement to its export-oriented industries. I
believe that this can be accomplished through the acceptance of the proposed MTN
package.
In a political sense, it seems equally critical that this package be approved. The
package of agreements soon to be formally placed before the Congress represents a
culmination of multilateral efforts that extend over a four- to six-rear period,
depending on when one chooses to mark the start of the "Tokyo Round.' Over these
years the international trading community has probably been subjected to a series
1 For data on earlier years and more detail, see "The United States Balance of Payments: An
Appraisal of the U.S. Economic Strategy" (1966), and "The United States Balance of Payments:
From Crisis to Controversy" (1972), JEPA, Washington.
2 views of IEPA's president, Dr. Timothy Stanley, are contained in the record of Commit-
tee hearings on November 3, 1977 at which you invited him to join a panel of experts to discuss
this question.
~ only have exported goods risen as a percentage of all U.S-produced goods (from 8
percent in 1964 to 14 percent in 1977) but by 1977 the return on foreign investments constituted
over 35 percent of the Fortune 500's overall profit, which remains the primary source of capital
for U.S. investment and growth.
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of shocks and stresses exceeded only by the worldwide depression on the 1930's. The
solutions adopted in response to that period were clearly autarkical and protection-
ist, and certainly contributed to the political and economic tensions that resulted in
World War II. In the 1970's these pressures included the need to rework the world's
financial and payments system, the energy crisis and the associated rapid increases
in energy costs, and the large trade imbalances that developed among major regions
of the world and between the U.S. and many of its major trading partners.
In the face of these stresses, however, the member countries of GATT, as repre-
sented by these agreements, have succeeded in perpetuating the trade liberalizing
pattern followed since the end of World War II. For example, at that time, the
average ad valorem rate of duty on all dutiable U.S. imports was around 32 percent.
By the conclusion of the Kennedy Round reductions this average had fallen to
around 8 percent. The Tokyo Round calls for a continuation of this trend, with tariff
reductions to be phased in over an 8- to 10-year period. These reductions would
reduce the average tariff on industrial dutiable imports to 5.8 percent from its
present level of 8.3 percent. These should not be either large or sudden enough to
produce significant distortions in world trade patterns. But they should keep the
world moving in the direction of competition and efficiency rather than toward
protectionism, inefficiency and higher prices.
In the nontariff barrier area, this agreement may mark a historic breakthrough.
It represents the first comprehensive attempt to come to grips with the nontariff
impediments to trade that have proliferated as the tariff and quantitative restric-
tion type of barriers have receded in importance. Moving forward on these codes of
conduct in such areas as countervailing and subsidies, government procurement,
international standards and customs valuation, will clarify what is acceptable inter-
national trade behavior and presumably open up more of international trade to
international competitive forces. Thus, in an overall sense, the U.S. stands to benefit
from the acceptance of these agreements. But to do so, other countries, such as
Japan, will have to implement codes such as on government procurement, in a fair
manner. That is why implementation, which I will address below, is so important.
As has always been true regarding structural shifts associated with trade liberal-
ization, the benefits of this expanded trade tend to be distributed more widely than
the costs of adjusting to these increased trade flows. This is certainly true when one
considers the benefits to consumers in the form of wider consumer choice and lower
prices which can help dampen our raging inflation. While the benefits of increased
exports may be somewhat more narrowly focused on individual industries, regions,
or groups of workers, the economic expansions associated with these exports which
bring increased benefits in the form of more employment, wages and profits, are not
usually associated with or offset by increased costs to the economy. The exception
might be those instances when domestic shortages are forecast to result from these
increased exports, but this is a matter that can be handled under the purview of the
Export Administration Act. The particular problems of more open trade occur on
the import side of the ledger since it always is selected industries, products, work-
ers, and regions who feel the direct impacts of these increased imports.
Since the Trade Act of 1974 amendments to the trade adjustment assistance
programs, this nation has been attempting to make this series of programs a more
effective tool to cope with these specific import-related adjustment problems. In
previous testimony before this Committee, I supported an expansion of these pro-
grams, especially those aspects that looked toward adjustment rather than simple
maintenance and perpetuation of noncompetitive industries. IEPA continues to
support this approach and holds to the position that it can and should be made a
more dynamic part of our trade liberalizing efforts. For much the same reasons, we
support U.S. attempts to gain a safeguards agreement as part of this package.
Safeguards agreement
To date it has not been possible to reach agreement on an acceptable safeguards
code. This is due primarily to the split between the parties on the use of conditional,
nondiscriminatory (MFN) treatment under this code. The EC and some other Euro-
pean nations are urging the adoption of this procedure whereas the developing
countries have balked at its inclusion.
Under this concept, Article XIX of the GATT would be amended to provide an
international sanction to the use of selective import controls against that country or
countries whose import increases were thought to be responsible for causing injury
to a domestic industry. Imports from all other countries presumably would be
unimpeded.
On the basis of recent history with the use of Article XIX, or lack thereof, Section
107 of the Trade Act which called for the U.S. to attempt to negotiate a new
international safeguards procedure, and the potential for abuse of a selective re-
L~14_998 - 79 - 31
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straint program, I personally believe the U.S. should continue to seek a revitalized
international safeguards agreement that would continue to include nondiscrimina-
tory treatment.
The international safeguards agreement has been little used and easily circum-
vented. Countries have avoided its use, in part because of its retaliatory provisions
and in part because they have been able to achieve the same purposes by other
means, in particular the use of orderly marketing agreements and voluntary export
restraint programs. These have occurred outside the purview and surveillance of
any multilateral body and have generally been a reflection of the trading weight of
the individual country participants rather than any agreed upon international
principles. These agreements have also tended to proliferate, not only across sectors
or products, but within a product classification, as witnessed by the extension of
orderly marketing agreements on color TV imports from Taiwan and Korea, after
imports from Japan had been put under restraints.
We recognize that from time to time certain industries are faced with major
overcapacity or competitive pressures that may require such exceptional treatment.
However, as a general rule, these problems should be dealt with in an international-
ly accepted framework that would provide certain minimum assurances to all
trading nations about the equity of the resulting trade limitations.
We would also suggest that the international safeguards program include some
provisions that would require a nation taking temporary safeguards actions to adopt
a positive adjustment assistance program as part of these safeguards. This would be
supportive of the idea that these safeguards were intended to be temporary and not
become a permanent fixture. It would also go beyond the passive adjustment con-
cept that is implied by placing a limitation, and perhaps a deceleration, on the
duration and level of the safeguards restraints. As a minimum, this passive adjust-
ment concept needs to be part of a safeguards program.
Let me now turn to one final aspect of point 2 on your agenda which was
concerned with relations with developing countries. A chief complaint of the "Group
of 77" nations has been the failure of the international trading system to address
aggressively their special problems. Indeed many believe, or at least aver, that the
rules and performance of the system are designed to prevent them from sharing in
the benefits of trade.
The developed world has attempted to respond to some of these complaints. In
1966, Part IV was added to the GATT articles. This addition exempts the LDC's
from the requirement of reciprocity, a critical concept in the GATT, and permits
certain behavior, for example, the use of balance of payments restrictions for
development purposes, which is at least formally forbidden to the developed world.
In addition, following UNCTAD II, most of the developed nations instituted General-
ized Systems of Preference type programs. These permit certain products of the
Third World to enter developed markets at much lower or zero tariff levels.
The LDC's often claim that these preference systems are of little or no assistance
since they are not internationally binding and generally incorporate annual quotas
for imports of a specific product at these reduced tariff levels. Moreover, they also
contend that as average tariff levels come down, the value of these preferential
systems declines. While these objections are accurate and the systems could be
improved, probably with little risk to developed countries, the preferences to provide
an opportunity for export development by countries not already in these markets.
In dealing with the development world, in this and other international economic
policy issues, it is essential that this group of countries not be treated as a homoge-
neous mass. Clearly policies appropriate to the least developed nations should not
automatically be extended to the advanced developing countries. For example, some
of the fastest growing non-oil LDC's at present, namely South Korea, Taiwan,
Singapore, and Brazil, are the most deeply involved in the international trading
system. Brazil is different from the other three in that its industrial structure i:
based on great physical resources, while the first three have very little in the way of
natural resources. The rapid growth of this group of advanced developing countries
does raise a question which in the abstract should be a pleasure to consider, but in
reality is extremely contentious. When does a less developed country become a
developed country? According to IFS figures the GNP/capita of Singapore in 1977
was $2,749 (in current terms) and Taiwan reached $1,174. South Korea, while
substantially lower in GNP/capita, has been growing recently at an almost 15
percent per year rate of growth. As a comparison, the estimated per capital GNP in
Turkey is $1,140, Portugal $1,640, and Greece $2,870.
While recognizing that there are special circumstances involved in these per
capita income figures, i.e., much of the increase is associated with inflation and the
distribution of income is badly skewed, at some point these nations must take up an
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equal share of the responsibilities in the system and begin phasing out the special
benefits which have been granted to them. Notable in the trade area are the
subsidies provided to many exporters in these countries and the use of high tariff
levels to protect "infant" industries.
The point at which this process must begin is a political question, which must be
resolved so that the limited international aid resources can be allocated most
effectively. The context of the GATT negotiations provides an adequate opportunity
to confront this issue. In this sense, then, we support the graduation concept, by
which the advanced developing countries recognize the necessity of phasing out
some of these benefits along with their assuming more of the responsibilities associ-
ated with the international trading system.
Implementation of the agreements
The basic thrust of the various codes of conduct that have been agreed upon at
the GATT negotiations and that Congress will be considering, is in the general
direction of greater transparency, clarity and simplicity in the international rules of
trade. They are also intended to achieve a greater openness in the international
system and so enhance the opportunities for trade. IEPA strongly supports these
general principles.
The overall direction of the suggested implementing legislation that has emerged
from the various closed sessions held by this Committee and its Senate counterpart
has also been supportive of these concepts. As far as can be judged, efforts will be
made to make the rules and criteria governing trade more explicit and the imple-
menting system more efficient and so more responsive to the needs of American
importers and exporters. This is all to the good.
While I am not in a position to comment on the specific aspects of each of the
codes as regards agency responsibility, timing requirements, burden of proof, and
judicial review, I would like to note the following general principles:
The incorporation of an injury test in the countervailing/subsidy code, along with
the prohibitions against export subsidies and the identification of domestic subsidies
is an appropriate action to take.
Efforts to expedite the processing of trade complaints are generally laudable.
However, in an effort to achieve this, we must also make certain that ample
opportunity is provided to those opposed to these complaints to develop an adequate
defense or counter position. A legislatively imposed schedule that is too tight may
preclude this latter possibility.
We should guard against the recurrence of instances of multiple jeopardy, such as
occurred recently in the case of TV imports, from the simultaneous filing of a
number of petitions for import relief. This involves some clarification of the rela-
tionships among petitions filed under Section 201 of the Trade Act, the Antidump-
ing Act of 1921, as amended, the countervailing statute of the Tariff Act of 1930, as
amended by Section 331 of the Trade Act of 1974, unfair trade provisions of Section
337 of the Trade Act of 1930, as amended, and under Section 301 of the Trade Act of
1974.
An area that is of major concern to JEPA, both in the implementation of these
agreements as well as a general trade principle, concerns the role of services in
international trade. I noted earlier the positive contribution to our trade balance
that stems from our trade in services.
In 1978 U.S. private service sector balance of payments export earnings, including
returns on direct investment, were approximately $52 billion. On a net basis, the
sale of international services contributed over $23 billion surplus to the balance of
payments account. The services account is one of the fastest growing areas in world
trade and comprises a diverse group of industries from construction and engineer-
ing, air transport tourism, shipping and insurance, to accounting and motion picture
services.
Domestically, recent statistics from the Bureau of Labor Statistics indicate that
the service sector represents two-thirds of the total work force and by 1985 the
Bureau predicts that three-fourths of the work force will be employed in service
industries. Additionally, approximately 65 percent of the private sector's contribu-
tion to GNP in this country is generated by service industries. The importance of
services internationally was recognized for the first time with the passage of the
Trade Act of 1974. Section 102, Section 135(b)(1), Section 136 and Section 405 all
include provisions that emphasize the importance of services as part of the success-
ful implementation of this act. Section 301 is probably the most important part of
the Trade Act of 1974 that deals with services. It empowers the President to
withdraw trade agreements concessions, or impose fees or restrictions on the service
of any foreign country which burdens, restricts or discriminates against U.S. com-
merce or engages in discriminatory or other acts or policies which are unjustifiable
PAGENO="0484"
476
or unreasonable and which burden or restrict U.S. commerce. For the purpose of
this section, commerce was specifically defined to include "services associated with
international trade."
Section 601(10) also defines the term commerce to include services associated with
international trade.
The use of the term "associated with" unfortunately has limited the applicability
of certain Trade Act remedies to only those service industries associated with
international trade in goods. It is clear, however, that the intent of Congress was to
recognize to importance of service industries in and of themselves and not just as an
appendage of the goods trade. In the report of the Committee on Ways and Means
on the Trade Act, it is made clear that the Congress expected the Administration to
enter into discussions with foreign countries to eliminate tariff or nontariff barriers
against U.S. international service industries.~ However, until about 18 months ago,
the Executive made only limited moves to address service industry problems, and
despite the history surrounding the legislation, as well as the Report of your full
Committee, a narrow interpretation of services was used in these efforts so as to
restrict action to service industries directly associated with the export of goods.
When the Administration did move, after considerable pressure from service
industries and other sources, the Office of the Special Trade Representative laid on
the table in Geneva some of the problems dealing with service industries. Unfortu-
nately, since this was put forward late in the negotiating process, little progress
actually was made. Thus, for example, we understand that under the government
procurement code if the procurement includes not only goods but also services
related to those goods then those services would be open for competitive bidding if
covered by the overal code itself. In addition, certain services provided at preferen-
tial rates in support of a goods export would be considered subject to the provisions
of the subsidy code. However, services in and of themselves and the problems
surrounding service industries, including discrimination and unfair treatment are
not covered under the present MTN agreements.
It is our firm belief, Mr. Chairman, that service industries and the growth of
service returns to foreign exchange to the United States will continue to be a key
ingredient in maintaining our economic strength abroad. Apparently your commit-
tee is of the same opinion as was recognized in your April 6, 1979 Press Release No.
17. In that release you agreed to accept the Senate Finance Committee's recom-
mended provision regarding changes in 301(a) in order to clarify that services,
whether or not associated with specific products, are to be protected under Section
301. It agreed to amend that section so that "the term `commerce' includes services
associated with international trade whether or not the trade is related to specific
products."
In spite of these recommendations and in light of the historic treatment afforded
this problem, however, this change may not be adequate. As long as the term
"associated with international trade" is used, I fear that a narrow interpretation of
the words "associated with" will be maintained by any Administration which wants
to evade the issue of services. It would seem better to drop the words "associated
with" completely and indicate that "the term `commerce' includes services in inter-
national trade whether or not the trade is related to specific products." This should
also be used in Title VI, Section 601(10) where the term commerce is again defined.
Structural and organizational aspects
There is an old legal aphorism that "substance is secreted in the interstices of
procedure." The application of that statement here is that the key questions about
implementation of the trade agreements may be answerable only in terms of the
way the U.S. Government improves its organization for carrying out such imple-
mentation.
I understand that the Administration has committed itself at least to consider
these structural aspects as part of the overall trade package, and that one leading
contender is the Roth-Ribicoff proposal to establish a new and independent Depart-
Page 66 of that report states "It is the intent of the Committee that `commerce' as it is used
in Section 301(a) is to include services as well as goods. Although the Committee understands
that the trade agreements of the type authorized under Title I of the bill do not usually extend
to the treatment of services, it is much concerned over present practices of discrimination
against U.S. service industries including, but not limited to, transportation, tourist, banking,
insurance, and other services in foreign countries. It is the Committee's intent that the Presi-
dent give special attention to the practical elimination of this discrimination by the use of
authority under this provision to the extent feasible as well as steps he may take under other
authority. This intent is further indicated in the Section 163 requirement that he report to
Congress on the result of action taken to remove this discrimination in international commerce
against U.S. service industries." House Committee on Ways and Means report on the Trade
Reform Act of 1973 (enacted as the Trade Act of 1974) No. 93-571.
PAGENO="0485"
477
ment of Trade and Investment. In talking with numerous business leaders, there
appears to be a general consensus that reform of some sort is badly needed. But, in
my own view, and that of others to whom I have talked, there is some doubt that a
totally new department is either feasible or desirable. It might be better to build on
an existing organization, with the Department of Commerce or an expanded STR
being logical candidates. If an expanded Commerce Department were selected it
should be reorganized so as to deal with the dichotomy that has long existed there
between domestically and internationally oriented functions. This reorganization
might include the creation within the Department of an agency headed by a deputy
or undersecretary of Commerce.
In either event, this larger organization could be given responsibility not only for
the implementation of those tasks that stem directly from the MTN's, but from
other trade-related matters as well. It could consolidate functions such as the Ex-Im
Bank and OPIC, plus some Treasury trade enforcement functions, and certainly the
staffing of U.S-foreign trade missions. But I would not want to go as far as some
critics-and there are many-of the present performance of the Departments of
Commerce, Treasury and State on these matters, and centralize all functions. For
that might merely strip key Cabinet departments, who will inevitably continue to
have and important role in international economic policy, of their expertise and of
those experienced staffers who are sensitive to the need for a coherent foreign
economic policy. Moreover, it can be argued that when a function is centralized, it is
most vulnerable to being isolated by its bureaucratic opponents.
As noted, the reductions in nontariff barriers are the most significant result of
the MTN. Consequently, the most important domestic follow-up over the next five to
ten years will be the institutional arrangements and mechanisms used to monitor
these agreements. This differs from international monitoring. The system put in
place must provide an effective avenue for U.S. exporters to lodge their complaints
and get appropriate U.S. Government responses and, as applicable, corrective gov-
ernment action when business runs into the traditional "stone wall" or foreign
government "technocratic" stalling under one or another of these codes. If the
government fails in this regard, the next piece of trade legislation may very well
break with our 40-year plus history of trade liberalizing efforts.
The above, however, is only half of the problem. No matter what decisions are
made about departmental allocation of functions, the key question is executive
branch coordination. And in our government that really can be done only at the
presidential level. So we would urge Congress to enact, in whatever reorganization
bill may become part of the package, that there should be a body-call it a Council
on International Economic Coordination or what you will-to be chaired by the
President or his designee, comprising State, Treasury, Commerce and Agriculture
and Labor as a minimum, with such other appointees as the President may elect.
Such a body needs a very able Presidential aide as its interlocutor. One possibility
might be to build on the authorization, title and perquisites of the existing STR,
even if the detailed staff functions are moved elsewhere.
While we are all in favor of invigorating those functions which will improve
America's competitive performance in the world economy, and our exports in partic-
ular, there is only one level at which the balance between fiscal and monetary,
foreign and domestic, and many other identifiable elements can be reconciled, and
that is the White House.
Thank you, Mr. Chairman. I would be pleased to answer any questions that you
or other members of the Subcommittee may have.
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478
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PAGENO="0487"
479
Mr. SHANNON. You plan a council which would keep in place all
the other organizations we have within the Treasury, Commerce,
State Department, ITC?
Mr. ROSENBLATT. That is correct.
Mr. SHANNON. And be another layer of government overlooking
the fragmented policies that we have today?
Mr. ROSENBLATT. Well, our recommendation is in two parts. One
is to do something in terms of restructuring the departmental level
but the other is to reconstitute an organization similar to CIEP or
something at the White House or Executive Office level to provide
a more continuing and permanent intergration and coordination of
policy which seems to go off in many directions from time to time.
Mr. SHANNON. I think everybody would agree that we are struc-
tured in fragments and that we should coordinate better, and this
has impeded our trade efforts considerably, but would you be in
accord with what is being discussed quite openly and there are
some bills filed on it regarding a special Cabinet level position for
trade where all the pieces would be put together in one super
department that would be responsible to the President directly?
Mr. ROSENBLATT. No; I don't think so because you would still
have competing bureaucracies at the departmental level who would
necessarily have to be involved in these issues and in a sense
depending upon the tug and pull of bureaucratic pressures and
personalities involved, the new department could simply operate in
a vacuum all unto itself.
Mr. SHANNON. Well, we do have the structural problem of inter-
communication.
Mr. ROSENBLATT. There is no doubt about that.
Mr. SHANNON. Relating to each other's department.
Mr. ROSENBLATT. Yes, sir.
Mr. SHANNON. Thank you very much, Doctor.
Mr. Moore.
Mr. MOORE. No questions, Mr. Chairman.
Mr. SHANNON. We appreciate your being here. Thank you very
much, sir.
I would like to close the hearings at this time and announce that
they will begin tomorrow morning at 10 a.m., in this room. The
first witness will be Ambassador Robert S. Strauss, Special Repre-
sentative for Trade Negotiations, and Ambassador Alonzo Mc-
Donald, Deputy Special Representative for Trade Negotiations.
We will adjourn the hearing at this time.
Thank you very much.
[Whereupon, at 3 p.m., the subcommittee adjourned, to recon-
vene at 10 a.m., Friday, April 27, 1979.]
PAGENO="0488"
PAGENO="0489"
MULTILATERAL TRADE NEGOTIATIONS
FRIDAY, APRIL 27, 1979
HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON TRADE,
COMMITTEE ON WAYS AND MEANS,
Washington, D.C.
The subcommittee met at 10 a.m., pursuant to notice, in room
1100, Longworth House Office Building, Hon. Charles A. Vanik
(chairman of the subcommittee) presiding.
Mr. VANIK. The subcommittee will come to order.
Ambassador Strauss and Ambassador McDonald, I would like to
welcome you to the hearing this morning. I have sat here along
with my colleagues for many hours this week and I want you to
know that I have heard a lot of praise about the job you have done
and the agreements you have made with our trading partners. In
my opinion-and I believe I speak for most of the members of the
subcommittee-this praise is well deserved. It is something that we
have been able to see in the course of the colloquy and the develop-
ment of inquiry here with the various public witnesses whom we
have had.
While there are many areas that are unresolved and some dissat-
isfaction, no one has testified here that you are in any way derelict
in your responsibilities to the Congress of the United States.
As I check with some of our foreign trading partners, they seem
to have the feeling that they have lost a great deal in this conces-
sion, and probably many Americans feel that we have lost some-
thing. But that is probably the test of a true agreement, because, in
this sort of a matter, everybody has to do some giving and this
makes a relationship between our trading partners which provides
for commerce by rules that are common and uniform throughout
the world.
We still have much work to do in our consultations and develop-
ing the necessary and appropriate legislation to implement these
agreements. For example, deep concern has been brought out
during the course of our testimony on the injury and casualty
provisions in the countervailing and antidumping provisions. Simi-
lar concerns were expressed about the nature and amount of dis-
cretion the Secretary of the Treasury will have to discontinue
investigations of unfair practices under these provisions.
Questions were raised concerning the reciprocity being achieved
under the Government procurement code, particularly for some
industry sectors, if implementing legislation is not drawn to prohib-
it free rides by our trading partners. The failure to achieve a
safeguards code and the possible inadequacy of our present import
relief provisions was also stressed.
(481)
PAGENO="0490"
482
Finally, there is a lack of satisfaction in specific product areas
concerning the failure to achieve enough market access abroad or,
alternatively, reluctance to agree to a reduction in our own bar-
riers as part of the overall negotiations.
By and large, however, the theme of the hearings has been one
of general approval of the results of negotiations.
I would like to stress the importance I attach to developing
implementing legislation that will substantially meet the concerns
of our domestic industries and workers in the unfair trade prac-
tices area and other provisions I have mentioned. I am convinced
that the needed basis of support for approval of negotiations rests
on our achieving that goal.
Ambassador Strauss, we will be very happy to hear from you. I
understand that you have another commitment. I hope it is not in
the Middle East because we hope and expect that you are going to
stay with us on this trade matter until it is cleared through the
Congress.
I hope that Ambassador McDonald will be able to remain to
adddress some of the aspects of the international codes that we
have touched upon in our markup sessions.
Ambassador Strauss and Ambassador McDonald, we will be
pleased to hear from you.
STATEMENTS OF AMBASSADOR ROBERT S. STRAUSS, SPECIAL
REPRESENTATIVE FOR TRADE NEGOTIATIONS, AND AMBAS-
SADOR ALONZO McDONALD, DEPUTY SPECIAL REPRESENTA-
TIVE FOR TRADE NEGOTIATIONS
Ambassador STRAUSS. Thank you very much, Mr. Chairman. Let
me begin by saying to you that, for myself and for my two col-
leagues Ambassador McDonald and Ambassador Wolff, who is in
Europe right now for meetings on steel over the weekend, and for
our other colleagues on the staff, each of us is grateful personally
and professionally for the remarks that you have made. We have
worked so hard and I have worked my associates so very hard that
your taking the time for a bit of praise will mean very much to
them. I shall convey it to everyone in the office on my return in a
few minutes.
Let me next say that, with respect to the conclusion and windup
of these negotiations and the legislative process, a team of wild
horses could not pull me off this job until it is completed in a way
that the President wants it completed. This committee and its
counterpart in the Senate wants it completed, and the Members of
Congress do.
I say to the Members of Congress, both Republicans and Demo-
crats alike, and I would be remiss if I didn't say that, in my
judgment, the measure of progress that we have made is one that
should be shared by all of us, Republicans and Democrats alike, on
this committee and throughout the Congress and in the Senate.
Mr. VANIK. One of the unique things about our work here is that
this is one area of legislation where we have completely bipartisan
positions.
Ambassador STRAUSS. We truly have. What has impressed me is
that I have come in from a very partisan position as chairman of
the Democratic Party--
PAGENO="0491"
483
Mr. VANIK. Don't tell me you are going to move to the other side.
Ambassador STRAUSS. No; but I tell you this: It is mighty com-
forting snuggling up to my Republican friends over here. I am glad
that while I was highly partisan I was not accused of taking cheap
shots along the way. It has stood me in pretty good stead.
Mr. Chairman, let me make another reference before I address
the overall issue, and that is to a specific matter that has been in
the press lately, the status of the Japanese negotiations. It has
been so skewed and construed and misconstrued that I should like
to put on the record where we stand. I have unhappily read ac-
counts which leave a rather inaccurate perspective and perception.
We are in accord with the Japanese in almost every respect of
any consequence except in the area of government procurement. It
is my genuine and sincere belief that the Japanese have tried and
are trying very hard to meet our minimal requirements and they
have been unsuccessful in doing so because of the same kind of
political problems that we face in this country.
I think that we are always very quick to criticize, and I have
negotiated hard and strongly and firmly with the Japanese, and at
times throughout the past 2 years I have felt that they weren't as
responsive as I would like them to have been. I think they have
tried sincerely and genuinely to meet our minimum demands.
We have tried, on the other hand, to be as flexible as we possibly
can in seeing that our minimum demands are entirely reasonable.
I can assure you and the members of this committee and the
Congress and the American public that our demands are reason-
able and, while they are sincere, there is a gap and we have no
resolution of that gap; we can move no further.
That is in respect to the Government procurement code and
particularly with respect to a narrow portion of that-telecommu-
nications and specifically, in switching gears and computers. Other
than that, our issues are reasonably well put to bed.
We will solve that problem somewhere, sometime, somehow. If
we don't, we will deal with it in this country to see that the
agreement works equally both ways or not at all. We want none of
the best of it; we are not going to take any of the worst of it. It has
to be a two-way street.
Mr. VANIK. I take it that you are still optimistic.
Ambassador STRAUSS. We are at a delicate and sensitive stage,
and I don't want to comment on it in any more detail than that. I
am not here to carp or criticize but to try to put, in an unemotional
posture, where we stand and to make absolutely certain that the
record is crystal clear that we have been as flexible as we could
reasonably be, and that the Japanese Government has tried, I
think, genuinely and is trying at this very moment to achieve our
mutual objectives.
Now, Mr. Chairman, let me go on a broader basis and direct
myself to this whole week's proceedings, which we have followed
very carefully and I have followed them with great interest. I think
that, while there has not been as much press on it as I would have
hoped, it has provided the American people with a unique opportu-
nity to better understand the importance of the Tokyo round and
its implications for employers, workers, and consumers.
PAGENO="0492"
484
I am grateful for the support for these negotiations shown by
individuals representing a great depth and breadth of our Nation's
economic interests.
I have frequently said that the results of the Tokyo round should
not be oversold and not be exaggerated. Perhaps that reflects my
cautious nature, which some may fail to recognize. But we should
not undersell it, either, Mr. Chairman. Our negotiators-Bob
Strauss, Alonzo McDonald, Alan Wolff-did not get 100 percent of
what we sought or even what we think we deserve, but what we
did get represents an achievement of vast potential for the exports
of this country.
I believe that in 10 years we will look back on the Tokyo round
as the beginning-not the end, but the beginning-of the most
dramatic period of expansion in world trade in our Nation's
history.
Some will now accuse me of overenthusiasm, Mr. Chairman.
That is not my purpose. I firmly believe that what we have brought
back from Geneva stands on its own merits, despite some admitted
shortcomings. It is worthy of the strong support of this Congress
and of the American people.
The Tokyo round package that we will submit to the Congress
shortly contains many concrete benefits for the United States of
America. For enterprising American business it means new oppor-
tunities for profitable sales abroad. For our more import sensitive
industries, for which we do not at this time anticipate new foreign
markets, the Tokyo round, along with other administration pro-
grams, offers an opportunity to adjust to a changing world eco-
nomic reality with a minimum of discomfort.
The agreements offer hope and encouragement for more active
and rewarding U.S. participation in future world trade. They can
help us to restore the dynamism and the positive spirit for which
American industry is justly proud and famous.
For our workers, the Tokyo round means new job opportunities
in higher-paying industries. A good job in a company with a future
is the best kind of job security I can think of.
To our farmers, the Tokyo round means a continuing and grow-
ing role in world markets, a dramatic expansion of export opportu-
nity.
The stage is set for reducing and removing barriers erected over
the years that have blocked our exports. The stage is set for un-
leashing the most efficient, most formidable agricultural force that
the world has ever known, that of this country. Our negotiators
have protected what we have already worked so hard to achieve
and build for a future in which our exports will be given more
importance than today.
To American consumers, this round provides the most important
benefits of any of the postwar trade negotiations. Consumers will
now have a broader choice of goods at the best available price.
Perhaps even more important in the long run are the codes of
conduct which represent the key achievement of the Tokyo round.
Through these codes, consumers will have easier access to the
kinds of goods they desire. An open trading system is a major
achievement in this age of consumer awareness. It is one which few
people would have throught possible just a few years ago.
PAGENO="0493"
485
Mr. Chairman, you and members of your committee have heard
the testimony of a great many knowledgeable people over the past
10 days. There is little for me to add at this point. I do want
personally to express my appreciation to those who have labored so
diligently to reach this point in the Tokyo round process. I want to
thank the Members of Congress, as I said earlier, and particularly
their staffs and your own staff, who have already devoted many
hours to the negotiations in Washington and in Geneva.
I want to thank our more than 900 private sector advisers from
industry, agriculture, and labor. Their participation has been for
me one of the most rewarding aspects of this negotiation. I know,
Mr. Chairman, from the role you played in the 1974 Trade Act, it
must give you and those involved with you, your staff and others,
tremendous satisfaction to see what this participation-industry,
agriculture, labor, private sector-has meant.
I want to thank our negotiators and those in the many Washing-
ton agencies in the Government for supporting bringing home a
good package under trying circumstances.
I want to thank the members of the press for doing their best to
help me twll the world about the Tokyo round and for their
uncharacteristically gentle treatment of this particular negotiator.
Together we have taken many steps down a difficult road and we
are now beginning the final leg of this journey. Diligence, persis-
tence, and tenacity on the bipartisan basis that I spoke of earlier
has carried ut this far. This represents the best spirit of the Ameri-
can process and we hope to continue it.
Much of the credit truly belongs to President Carter, and I hope
the press in this room will hear what I am saying. Despite constant
pressure to act negatively, President Carter has consistently dem-
onstrated real leadership and vision. He is a leader with the char-
acter and determination to stand up for what is best for America,
for our workers and our farmers and our consumers. His courage,
his willingness to take political repercussions has made our suc-
cessful conclusion of this trade agreement possible, just as the
willingness to take political scars by both Republicans and Demo-
crats on this committee made it possible. I thank you very much,
Mr. Chairman.
Mr. VANIK. Mr. Ambassador, along with the thinking that you
have expressed, I see a moderate but steadily increasing level in
world trade but I think we have to look at the other fallout
benefits for the American people and for the rest of the world. This
is one of the most complex agreements ever negotiated between
nations and, as you know better than anyone else in this room, one
agreement leads to another. Trade is the currency of peace and, as
we exchange products, we exchange concerns and understanding.
The real achievement of the Tokyo round is that it probably
uniquely constitutes a larger mass of agreement than we can find
in almost any other part of our negotiating relationships. I think
that this interrelationship between the nations can be only for the
good.
Before you leave I have some pressing questions. First of all, the
steel caucus was very much concerned about the last-minute steel
tariff reduction offers by our trading partners and they expressed
concern to me on this point.
PAGENO="0494"
486
Apparently they say that, on the evening before the multilateral
trade pact was to be signed, the European Economic Community
withdrew its original steel tariff reduction offer of 30 percent,
where a 6.9 percent existing average tariff level was to be reduced
to a 4.8-percent level and, instead, a 21.7 percent steel tariff reduc-
tion was offered and 6.9 percent was reduced to 5.4 percent as an
average tariff level. Do you have any comment on that?
Ambassador STRAUSS. Mr. Chairman, I have general knowledge
about that. Later on Ambassador McDonald will testify on this
specifically. I think the last-minute changes that were made were
of a balancing nature, and our industry advisers were involved in
that. We made additions and withdrawals in the balancing. The
tradeoffs were satisfactory to the industry at that time.
Ambassador MCDONALD. Mr. Chairman, that is may impression.
Our industry's position, as it was communicated to us in Geneva,
was that they were far more interested in withdrawals than in
contributions of other countries. In fact, we had at one time offered
a considerably higher level of reductions, which the Europeans
were very pleased with. But our industry said that our offers were
far too high and that we should move them back. That is exactly
what we did.
Mr. VANIK. So we moved back in tandem? Is that what you are
telling me?
Ambassador MCDONALD. No; we took the initiative. The United
States moved first. We basically said: "This is our bottom line; we
cannot go any farther than this." Then it was up to the Europeans
to try to seek a balance at the lower level which we established at
the insistence of our steel industry. Our advisers clearly pointed
out to us that they were much more concerned about imports from
Europe into our country than they were about exports from the
United States to Europe. It was within that perspective that these
changes were made.
Ambassador STRAUSS. I suspect that the final agreement met
with less accord in Europe than it did here.
Ambassador MCDONALD. I am sure our European friends would
have been delighted to put them both on the table if it was in their
best interest to do.
Mr. VANIK. One problem has been created for Puerto Rico and
the Virgin Islands. The Governor the Puerto Rico complained
about tremendous revenue losses that will be sustained by the
Commonwealth because of the actions we were proposing with
respect to the wine gallon situation.
Ambassador STRAUSS. I spent a great deal of time with the Gov-
ernor also. He is unhappy and legitimately concerned. I told him
that we would continue to follow this problem and see what this
revenue loss amounts to. Our figures and his don't relate very well.
In any event, I think the Governor has a legitimate concern that
he is expressing. It is something we have to continue to direct
ourselves to. Their volume is going up so high, increasing at such a
rapid rate they are doing exceedingly well.
Mr. VANIK. I guess the consumption of alcohol and beverages
increases with the inflation rate. People are trying to take solace
in other things.
PAGENO="0495"
487
Ambassador STRAUSS. My comsumption of alcohol, Mr. Chair-
man, has increased with the completion of the negotiation and my
association with age.
Ambassador MCDONALD. Mr. Chairman, just to give another per-
spective on that issue, we are certainly aware of the concerns of
Puerto Rico and of its Governor for any reduction in tax revenues
that might be caused by this. Our own indications are, however,
that that is not the case. There could be an argument made that
they might miss potential revenue growth as a result of the conces-
sions. Based on our own figures, sir, it would appear that there has
been an enormous rise in rum consumption within our country
over the last decade. That happens to be one of the distilled spirits
which our consumers are taking a fancy to at an increasing rate.
As a matter of fact, our Puerto Rican imports into the mainland
account for 18 times the level of imports at this stage and their
growth rate just the last year was the equivalent of four times all
imports.
Mr. VANIK. The concern was that some of the rum industry
might go to the other islands that do not have a relationship with
the United States?
Ambassador MCDONALD. Yes, but we don't see any really eco-
nomic indication that that would really be a possibility. We sus-
pect, sir, that less than 1 percent of all the rum sold in the United
States will have a lower effective tax as a result of what we are
doing. We really can't see any direct loss.
Mr. VANIK. Can you tell me of any specific advantages that will
come to both Puerto Rico and the Virgin Islands as a result of the
MTN?
Ambassador MCDONALD. Yes, indeed both in terms of the choice
of goods they have and particularly some of the choice of goods at
lower priced items, many of which we import into our country and
with their particular average per capita income they are one of the
big beneficiaries of, first of all, the availability of those goods
within the United States and secondly of any measures that will in
fact reduce our high tendency toward a greater inflation rate.
Consequently, we think that they in fact will be one of the bigger
beneficiaries, certainly at the consumer level, for all of the conces-
sions that we have given. We also don't see that they are paying a
direct price, Mr. Chairman. They have benefited enormously with
the relationship that they have in terms of rum sales on the
mainland. We intend to see that they do. As Ambassador Strauss
has indicated, certainly the administration will be diligent to make
sure that their tax revenues are not affected in any appreciable
degree, certainly not to the extent that the Governor expressed
concern that they might be. This is a joint concern by everyone in
the administration in discussing this issue.
I think that the Governor can be reassured on that issue.
Mr. VANIK. We have one general theme of concern and that is
the concern of the older industrial production centers of America
like my own. The New England coalition and our older centers are
very troubled. Of course part of the trouble I realize is in the need
to modernize and rebuild our capacity.
I was always hopeful that the trigger price mechanism might
lead to some glaring announcement that our domestic steel indus-
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488
try would feel confident encough to take on some very substantial
major reconstruction to become more competitive. I felt that these
provisions that we provided, what we did in the trigger mechanism
and other steps, would be something that they should not come to
rely on permanently, that they ought to be making a real effort,
and I think this applies to the aging industries of America, to make
a real effort during this pause and during the time that is afforded
to update and shape up and become more competitive with the new
plants and modern facilities.
I have been urging a rekindling of the technology of America.
When you look at technology, it has been spurred by pressing
needs such as war and the space program. I think what we need is
a rekindling of technology on a regular basis, without the interven-
tion and reliance on those emergency situations. I have been pro-
posing and planning to sponsor and support legislation that would
provide incentives for technology, because I think that this is an
essential thing that would be useful, not only on the domestic scene
but in our capacity to compete.
I am sometimes chagrinned with the great amount of trade that
we have lost around the world. I said abroad the other day that I
didn't feel the American people had any joy when their technology
was sold under a foreign label. I think we ought to try to get more
direct sales of American technology, services and improvements
rather than let others who are specially priviledged to do it for us.
At the same time I think that we should continue to rekindle out
technology so that the world buyers look upon us as a source of
creating better products at competitive prices.
I think if these products have high quality and attractiveness
that we certainly ought to be able to compete in spite of the fact
that the cost of financing in foreign countries is very, very competi-
tive and perhaps much better than ours.
So I hope that in addition to your many other responsibilities,
Mr. Strauss, I hope that you can bear on the President and suggest
to him the urgent need for providing some real incentives to main-
tain the flow of technology and research and development in this
country, so that our goods can maintain the preminence that they
had in the past.
Ambassador STRAUSS. Thank you Mr. Chairman. I will do that.
May I conclude then with one overall observation.
I hope we all keep in mind that we have reached the stage, Mr.
Chairman, in this process where we conclude it is obvious that we
are now going to have those who are most interested in imports
into this country examine this only to find the warts of its restric-
tive aspects, tariffs remain too high, the implementing legislation
will be too tough in terms of countervailing and antidumping, and
all the other concerns that they legitimately have.
When we have finished with those who are concerned with im-
ports we turn around and find those concerned with exports and
they are concerned that the restrictive aspects are not sufficient,
that the tariffs of others have not been reduced enough. They are
both concerned, one wanting more and one wanting less, one want-
ing more, the other wanting less on injury test standards, and on
and on.
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489
We find ourselves where you begin to wonder, even though ev-
eryone of these things has been worked out carefully, this montage,
if you will, that will balance to make what I hope will be a decent,
symmetrical and attractive and decent picture, but if we just exam-
ine it in terms of its negative aspects, then we will end up, as I said
when we opened these hearings, looking at the one-fourth of the
glass that remains empty instead of the three-fourths of the glass
that is full. Of course there are imperfections. I say~ that in conclu-
sion as I said in the beginning.
We stand behind and present to you this trade negotiation in its
concluding stages with pride in our work and I will look forward to
working closely with you in the next few weeks and months as we
bring it through the Congress.
Thank you, sir.
Mr. VANIK. I hope, Mr. Ambassador, that we can accelerate the
schedule that we earlier discussed.
Ambassador STRAUSS. I, too.
Mr. VANIK. I think it is highly important that we move on this
legislation just as rapidly as possible. That is going to involve very
intensive work between the Senate Finance staff and our staff in
order to get this language nailed down, so that we can have the
implementing legislation specifically before the Congress.
Ambassador STRAUSS. I would like to get it done in mid-May, and
I see that everyone is looking at each other and shaking his head. I
don't know how to get on the record that we are going to be
driving at an early conclusion.
Mr. VANIK. Perhaps we could say early June.
Ambassador STRAUSS. Mr. Chairman, unless we are going to take
my date, let us do it in private.
What do you say we sign off on May 20 instead of June 15?
Mr. VANIK. I don't think the legislation will be drafted in that
time. As quickly as it is drafted, we will move to the implementa-
tion.
Ambassador STRAUSS. I don't want to fall down on that. We have
gone too far down the road. I just wanted to remark on those dates
to be sure everyone was alert.
Mr. VANIK. They were awake.
Now I have a series of questions that relate to the agricultural
problem. A great deal of concern has been expressed in the closing
days of our discussion on the citrus problem and how the California
producers particularly and the Northwest fruit producers are very
much concerned about how we come down on that problem. Do you
have any comment on that?
Ambassador MCDONALD. Yes, I do, Mr. Chairman. Actually I
think our citrus people have come out very well on this negotia-
tion, although less well than we had hoped because our concessions
from the Europeans were minescule in the final analysis. We were
not able to get all that we wanted. On an overall basis I think that
we have some concessions that are extremely valuable for that
industry all over Our country, not just in one particular geographic
section.
Let me just mention, taking fresh oranges as an illustration, sir,
we have one of the major concessions from Japan. We have
achieved a movement that will have taken their absorption of this
L~14-998 - 79 - 32
PAGENO="0498"
490
product up almost six times from the initial level that we had at
the time of the negotiations between Ambassador Strauss and Min-
ister Ushiba in January of last year through the implementation
period already agreed in 1983.
Not only that, we have a further commitment for additional
negotiations at that time, seeking the next level of liberalization
and the United States has already expressed its intent to press for
a complete openness of that market in their off-season. We also
have extensive concessions in grapefruit including a reduction in
the duty from the European Community, but altogether we have
concessions on grapefruit from some 13 different countries. We also
have concessions, sir, on limes and lemons, on orange juice, on
grapefruit juice and on lemon juice. I would say in total, sir,
although we would have liked to have had more, as Ambassador
Strauss said, and we were particularly disappointed by the lack of
a more forthcoming offer from our European partners, we feel that
on balance we have obtained positive results for that sector of our
agricultural industry and we believe they are far better off as a
result of these negotiations than they possibly could have been
without them.
Mr. VANIK. In the area of cheese quotas we have recommended,
if there is an allegation of subsidized cheeses undercutting the U.S.
wholesale market, the USDA should conduct a 30 day investigation
of the situation. Foreign nations should be given 15 days to stop
the practice and if they do not the President would have 7 days to
take quota or tariff action against them. Do you have any objection
to spelling out these time limits in the legislation?
Ambassador MCDONALD. We will have to look at the practicality
of implementing this within the USDA's normal framework of
operations, but to the degree that it is actually operational within
the present market monitoring system, I do not believe that we
would.
Our concern is just as that of Congress, to make sure that these
commitments are in force and lived up to. We believe that they
have been entered into in good faith by our negotiating partners,
and we have their commitment to collaborate with us to make sure
that those agreements are fulfilled.
Mr. VANIK. Do you have any objection to spelling it out in
legislative language, in the implementing language?
Ambassador MCDONALD. I will have to refer that to the USDA
for a definite answer.
Mr. VANIK. Will the existing 301 cases brought by the various
fruit and vegetable associations receive priority attention under
the new laws?
Ambassador MCDONALD. We are attempting to move all those
301 cases forward, Mr. Chairman, and we are anxious to reconcile
all those pending cases as quickly as we can so that we can begin
operating on the new system.
Mr. VANIK. What about priorities? Do you acknowledge that they
will be given priority or not?
Ambassador MCDONALD. I do not know that final priorities have
been established, sir, because we have had a request from each one
who has a pending case to give that one priority. I think we will be
looking at two or three criteria. One is how long the case has been
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491
pending already, so that we can clear out those that would appear
to be the most equitable for early attention.
We have no intention of delaying the pursuit of any of those. We
hope they can all be resolved promptly.
Mr. VANIK. There is concern by consumer groups, and I share
that concern, that the concentration of standards authority in com-
merce will weaken current line agencies that have responsibility
for food quality and other health and safety measures. Now what
can we do and how do we reassure these consumer groups that
their interests are going to be protected?
Ambassador MCDONALD. Mr. Chairman, there has been nothing
negotiated in our international agreement that will lead to that
condition. It is entirely within our hands to make sure that those
who have assigned responsibilities fulfill them fully.
Mr. VANIK. It will not disturb the independent agencies and
others involved in establishing those standards?
Ambassador MCDONALD. It should not.
Mr. VANIK. There has been testimony that the application of
antidumping laws does not make sense in the case of perishable
fruits and vegetables. Does your office have any language that you
can provide which would discourage dumping in, for example, to-
matoes and other vegetables without destroying all vegetable
trade?
Ambassador MCDONALD. We do not have the language yet
worked out, but we are actively studying that question because
there is a middle ground that we must achieve Mr. Chairman. We
have heard very carefully the testimony presented here this week
and we are seeking to find an equitable solution.
Mr. VANIK. Now is it true that Japan will cut its tariffs or the
rates actually applied rather than the higher GATT rates?
Ambassador MCDONALD. That is a question still under discussion
but it is our impression, sir, that that is what they will do. We
have been insisting upon that in our discussions in Geneva now for
at least the last 18 months that I have been personally familiar
with and we believe that is the only equitable result. Therefore we
think that can be achieved.
Mr. C0NABLE. In some cases they are cutting their rates from
what they consider their permanent rates even though they are
below the bound rate and above any temporary cuts that have been
given as concessions in the meantime. I take it that the Japanese
are winging it a little on that and offering their cuts in different
ways on different products. Is that correct?
Ambassador MCDONALD. In general, they are following the stand-
ard pattern, Mr. Conable. The only exceptions are in a few product
areas where we did negotiate time differentials on staging. We
obtained certain concessions either by delayed implementation or
by a different staging pattern. In general we are anticipating that
Japan will reduce its tariffs following a normal 8-year pattern, and
they will be reducing from their applied rates. They will also be
reducing in parallel their legally bound rates in the GATT. We
anticipate that we will begin to benefit from the tariff reduction
from an applied basis just as with other countries with whom we
are negotiating.
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Mr. CONABLE. Mr. Ambassador, I have something in mind or I
would not have asked this question. That of course is film which is
a product made in some quantity in my district. The situation
there is the Japanese have a bound rate of around 40 percent
under the Kennedy round. They reduced the rate as a matter of
grace to 16 percent for which, of course, my constituents were duly
grateful. They then made a temporary reduction under further
pressure to 11 percent.
Originally they decided that when the American tariff on film
was going down from 5 to 3.7 percent that they would be willing
over the period of this negotiation to reduce the rate on film in a
fairly straight line reduction from the bound rate of 40 percent, the
effect of which would be to have their actual charged tariff effec-
tive only the last year of the phase-in while ours was a straight
line reduction from 5 to 3.7.
I guess they agreed finally to reduce their tariff from the 16-
percent level which had become their permanent rate in effect
even though it wasn't bound. It is my understanding that if that is
the case it will be 1983 or so before their reduction begins to affect
what they actually have been charging as a temporary rate until
recently.
This seems to me like a fairly typical Japanese operation where
they are promising future benefits for actual present concessions
and I would hope that our rate won't go down at all until the
actual improvement in the rate becomes apparent. Is there some
area for negotiation on this still?
Obviously it is not a bad result in the long run but the phase-in
can have quite a bit of inequity in its effect if you have the kind of
figures that I have described to you.
Ambassador MCDONALD. I think your description, Mr. Conable, is
exactly accurate. It is an issue that we are following as we are now
going through the verification stage. The United States has re-
quested, as you might suspect, that we begin the actual reductions
from the currently applied rate, from the rates effective April 1 of
last year following the special concession.
We believe that that is where we should end up at the end of the
day. We are pursuing our discussions directly along that line.
Mr. CONABLE. I am terribly anxious that in dealing with the
Japanese that we trade current benefits for current benefits and
not current benefits to them for future benefits from them. That
has been the pattern that has been difficult to achieve because
they are good negotiators, bright people, and have perhaps the best
of intentions, but usually a time schedule which involves consider-
able lagging.
Ambassador MCDONALD. I would have to make one other com-
ment, Mr. Conable. I think that Ambassador Strauss has fully
followed the approach that you have outlined in terms of seeking
current benefits on a reciprocal basis. This is one reason that we
have had some of the discussions that we have had. We also have
reconfirmed at the negotiating table in Geneva of the agreement
worked out between Ambassador Strauss and Minister Ushiba in
January of last year. They made a breakthrough, in our view, with
the conceptual understanding to seek a rough parity between our
tariff rates at the conclusion of the implementation of the Tokyo
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493
round. Although the verifications are not yet complete but are still
in process, we believe on the basis that we have signed off will
clearly achieve that important objective.
Mr. CONABLE. Mr. Ambassador, I am not expressing dissatisfac-
tion, I hope you understand that. I have no objection to trading
future benefits for future benefits or present benefits for present
benefits. I just don't think they should trade present benefits for
future benefits to be achieved from them. I hope that we will follow
that pattern in our negotiations.
Ambassador MCDONALD. We certainly will. I think our positions
are indentical on that.
Mr. C0NABLE. Mr. Chairman, is it all right to ask an unrelated
question as well?
Mr. VANIK. Yes.
Mr. CONABLE. Mr. Ambassador, I really am a little uncertain
about the state of DISC. Perhaps I should have been here to ask
this of Ambassador Strauss but I am sure you can advise me as
well. Is there anything in the MTN that will affect this now or in
the future? It is my understanding that at some point we are going
to have to talk about this type of subsidy. I know it is a sensitive
issue with the Europeans in particular. I know there are GATT
proceedings of one sort or another that are addressed to ruling
DISC out of order and as an unfair tax subsidy. I understand the
subsidies code does not affect DISC.
Yet I assume it is going to have to be talked about at some point.
I am wondering if there are any commitments of any sort with
respect to DISC other than it will be talked about and if any
concession has been achieved by any understanding that we have
acquiesced in the finding of illegality under GATT relative to
DISC, I want to be sure I know where I stand on that. I was a
strong supporter of DISC and continue to believe that it is neces-
sary to provide some degree of symmetry in a system which does
give substantial subsidy as a result of the remission of some sorts
of taxes.
Can you tell me in categorical fashion at this point what the
status of DISC is?
Ambassador MCDONALD. The status of DISC has not been affect-
ed at all, Mr. Conable, by the course of these negotiations in
Geneva. We have deliberately placed that aside as a separate issue,
desiring and feeling the necessity to leave that as a domestic issue
to be handled and dealt with separately. We declared that intent at
the outset with our negotiating partners, and they had that view in
mind as we carried out the negotiations on the subsidy code. Our
partners recognized that this was not a problem that could be
resolved in the course of these negotiations.
So, for all practical purposes we have grandfathered DISC. We
have not affected its status whatsoever, nor do we have any obliga-
tions as a result of these negotiations that would in any way
change its status.
Mr. CONABLE. If you have no obligations what are your expecta-
tions?
Ambassador MCDONALD. Our expectations, sir, are neutral as far
as the negotiation on MTN. We have deliberately kept these issues
separate from the negotiating process.
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494
Mr. CONABLE. Thank you, sir.
Mr. VANIK. Mr. Ambassador, there has been much interest from
abroad in our executive sessions and the American implementing
process. Our subcommittee has expressed a similar interest in the
details of the European Community's implementing process as it
relates to the Commission, the Council, and the member states.
Can you throw any more light on just how the Community will
implement and the anticipating timing?
Ambassador MCDONALD. I will try to elaborate, Mr. Chairman.
One of the difficulties of being overly precise is that this is a new
experience also for the European Community. They have not nego-
tiated on such a broad scale before and they will be finding their
way to a degree in the legal implementation process.
But we have accepted from the beginning of the Tokyo round of
negotiations the decision of the member states themselves that
they were negotiating as a unit in the course of the Tokyo round
discussions. That is the way they have proceeded, and that is the
way, we have proceeded as well.
We anticipate that the Commission will be speaking with due
authority of the member states in implementing the agreements
that have been worked out in Geneva. First of all, it is our under-
standing that the agreements themselves will be translated into
the equivalent of European law, that the actual texts themselves
will be the operative versions, and therefore that will be quite an
important step in and of itself.
Second, we have requested of them that in any case where they
believe there might be some legal question about the Commission
actions being binding on member states, that they also request
signatures by their member states or follow any other appropriate
procedure within their own ranks that they think would fulfill
their complete obligation to us.
We have thus far had a number of discussions between our legal
experts on both sides. As I say, they are moving in a bit of unfamil-
iar territory but we know of nothing at this stage that would
indicate any laxness in their part in terms of following through
with full implementation exactly in line with the spirit of the
negotiations, Mr. Chairman.
Mr. VANIK. Now I personally regret that a safeguards code was
not agreed to, because I fear that safeguards action by other coun-
tries undisciplined by an international code will only divert more
trade to the United States. What are the chances of agreeing on
the code and what timing do you see is possible?
Ambassador MCDONALD. Mr. Chairman, I share completely your
views on that. We have had long discussions among ourselves and
many of your committees members and staff members about this
issue. We have not given up on having a safeguards code in the
final completed package. As a matter of fact, even in the last hours
in Geneva some 2 weeks ago before we signed the protocoal, we
agreed that we would make a final attempt following the comple-
tion of the UNCTAD meeting in Manila to assemble the negotiat-
ing group and see if we could not bridge the final remaining
differences on the safeguards code.
We are committeed to do that. My own personal estimate is that
we have about a 50-50 chance of being successful, but I can assure
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495
you that we will be giving it our full support and we will be
thoroughly disappointed if we are unsuccessful in bringing along
that code. In my personal view, sir, it is an important element, as
you have stated, in maintaining a system of law and order in
international trade. Safeguards is an area in which we would cer-
tainly like to see the rules clarified and broadened.
Mr. VANIK. Mr. Conable has a question.
Mr. CONABLE. Mr. Ambassador, what will that do to LDC's cur-
rently toward the safeguards code? They don't like selectivity for
obvious reasons. How do they stand now? They were originally I
think not very happy about a safeguards code at all but now,
because they expect the Europeans are likely to apply such a code
selectively anyway, have some greater desire perhaps to see a code
in the hope that it will limit or define the appropriateness of
selectivity.
Ambassador MACDONALD. Mr. Conable, they have shown a judi-
cious level of flexibility and tolerance, recognizing the pragmatic
difficulties they currently face. They would have certainly pre-
ferred almost an absolute prohibition of any safeguard actions
except those under the strictest interpretation of article XIX of the
GATT.
But on the other hand they are realists, and they recognized that
a proliferation of activities that are a de facto series of informal
safeguards actions, are perhaps even harder to defend and harder
to combat. Consequently their position has moved from one of
being absolutely opposed to selectivity even to the extent a few
months ago of leaving the negotiating table any time the work
came forward, to one of now trying to define selectivity within the
framework of a disciplined system with which they could live.
In the closing days of the negotiation, I found great support for
the idea of having a safeguards code among their thought leaders,
and I expect that they will be pressing very hard to have a safe-
guard code.
If that code appears to be just a total opening of a chute, down
which the disciplines of the system could disappear, then they as
well as we, will vigorously oppose it. But if they can see a vigorous
disciplined system that they can challenge on a multilateral basis,
in which reasonable criteria are being applied to any safeguards
action and in which they have an opportunity to make sure that it
is going to be handled in a open forum with objective review
processes and later recourses then my suspicion is that we might
be able to move ahead.
I think the LDC's will insist upon a situation in which any
member of the GATT who operates unilaterally in contradiction to
the general guidelines of the agreement will be considered in viola-
tion of its GATT obligations. We share that point of view.
Our views are not very dissimilar from those of the LDC's at this
point, and we will be working closely with them as well as with our
European friends in an attempt to bridge any remaining differ-
ences.
Mr. VANIK. On that same point, what about the nonmarket
economies? I urged the Soviets last week to consider becoming
involved with GATT in this structure of trade relationships that
they involve. I cited particularily the problem that we had in
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496
trying to determine methods of computing the cost of production in
nonmarket economies. What are the prospects for the so-called
ñonmarket economies signing up and complying with the codes
that are involved?
Ambassador MCDONALD. We have seen considerable interest on
behalf of several of the nonmarket economy countries that have
participated and even in the early group of signatories in Geneva.
One or two of those countries signed the overall agreement. They
have shown an interest and they are growing closer to the circle of
the system. They are beginning to diversify. They are beginning to
have need to access to other markets and they are recognizing that
they need goods also from abroad. We see that tendency.
Mr. Chairman, you have touched on one of the major unresolved
problems that is facing our trading system. We do not honestly
know what is a proper interface between market economies and
nonmarket economies. We have to do a lot more conceptional
thinking about that problem because we do not have appropriate
ways to measuring or assessing the fairness of the situation, and it
is a quasi-political question. It also involves some basic economic
thinking.
My suspicion is that how to bridge that difference will be one of
our top priorities as a country and as a trading system in the years
ahead. I would rank that even ahead of the difficulties with the
LDC's. Relations with LDC's are certainly a tough remaining prob-
lem coming out of the previous negotiations because we have failed
to totally integrate them within the system. We have made a start
with the LDC's, but we have only made a minuscule shift in
positions with the nonmarket economies.
Mr. VANIK. I would like to have you tell us very, very briefly-I
know you have been here for a long time as a witness and we have
had you spending day after day here with us-can you just summa-
rize very briefly the effect on the MTN on a sectoral basis? Are you
able to do that or would you prefer to do that for the record?
Ambassador MCDONALD. I had anticipated, Mr. Chairman, a
fairly lengthy statement. In view of the time that you have gra-
ciously already accorded me both in executive sessions and individ-
ually with members of the committee in Geneva and privately
here, I would not presume to take up the time of the group in a
public hearing to go over that. But I would welcome the opportuni-
ty with your permission, sir, to place this statement in the record
for reference, if I may do that. I would also, if I could, because we
do have a major communications problem to the general public, I
would like to make just a brief statement of overview, just skim-
ming out from one part of this a perspective on the overall negotia-
tions.
I think that it is critical to keep in mind, first of all, to reempha-
size the point made by Ambassador Strauss that the road does not
stop here even with congressional approval of the results. We have
in fact begun a much longer journey, one that you and other
members of the committee have insisted will require constant at-
tention to new mechanisms and procedures that need to be worked
out and need to be firmly established.
I would certainly urge on others within our administration and
on the Members of Congress that we maintain full diligence after
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497
this round to continue to look after our trade interests on an active
basis. I would have to testify, sir, that in the view of many of our
negotiating partners we have been a passive participant in periods
outside of the active negotiations themselves.
I think that is no longer a tolerable posture nor an acceptable
policy for the United States. Therefore, I would urge, regardless of
what format we follow or what procedure or what initiatives, that
we change that impression in the world marketplace. And I believe
that that will mean dollars and cents to our own economy. It will
mean jobs for our people and at the same time it will lead to a
realistically more equitable and fair system overall.
But we do have the fundamentals in place and these fundamen-
tals fall into four basic component areas. As Ambassador Strauss
emphasized, the nontariff measure codes of conduct really do form
the keystone of this negotiation. They open up areas in which
governments have previously held to themselves the full preroga-
tive as if these were fully domestic considerations. They no longer
are purely domestic in today's interdependent world and in this
negotiation we believe we have recognized that fact.
Second, we at the negotiating table are extremely proud to bring
home a broad and ambitious agricultural program. We have some
shortcomings, as you correctly pointed out earlier, Mr. Chairman,
in a few areas, falling short of what we had aspired to obtain. But
we believe that the agricultural package that we have brought
back is by far the best one yet negotiated in any round of this kind
and will fully merit the active and enthusiastic support of our
agricultural community and even more will help us to permit a
continuation of the superb growth record in agricultural exports
which we as a country have enjoyed over the last decade.
As you know, sir, we will be operating this year at a rate of
about $30 billion a year in agricultural exports. And one of our
primary objectives is to make sure that that road not only remains
open but that we increase the access opportunities for our farmers
and also the equity of the system in which we are resolving agricul-
tural trade difficulties.
The third deals with a series of tariff concessions of real impor-
tance, comparable to the last negotiating round. We have agreed
with our negotiating partners, the major developed countries, that
the reductions on the average among ourselves will run about one-
third. In today's rather questionable economic climate we think
that that was the maximum utilization of the generous mandate
given us by Congress that was appropriate to follow through on at
this stage of the game.
We also believe, sir, that the attention that the administration
has given to treating selectively various sectors of our industry,
recognizing our points of sensitivity, also merits your careful atten-
tion. And we are pleased with what we think is a relatively good
balance in that area.
Then the fourth area, as a framework for international trade
constituting a long-needed overhaul of the present world trading
system, we have discussed that at some length. But one of the
keynotes within that particular area of the negotiation is a vastly
improyed dispute settlement apparatus.
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We on the part of the United States have been struggling to
make sure that the GATT is not simply a long-term debating
society. We want to be open to and effective in responding to real
commercial conditions and to changes in commercial conditions.
Consequently, this dispute settlement mechanism we believe will
help enormously in avoiding some confrontations that have not
only led to economic problems, but also to political questions at the
same time.
I think, Mr. Chairman, with that very brief overview I will let
my full prepared statement be a part of the record, but naturally I
will be willing to address any other questions that you or members
of the committee have either now or any time during the course of
the deliberations.
As you know, we have come back from Geneva under the deliber-
ate instructions of the President and Ambassador Strauss to make
sure that we could make available to Members of Congress and to
the general public the actual results of the negotiations, to improve
the process of communications and to make sure that we will be at
your disposal to both understand and to recognize the full range of
commitments we have made. It has been a great personal pleasure
to work with you and your committee during the course of this
negotiation, sir, and I welcome the extensive amount of time that
all of you and the members of your staff have devoted to this
exercise and to us individually who are particularly concerned with
carrying it out.
Thank you, Mr. Chairman.
[The prepared statement of Ambassador McDonald follows:]
STATEMENT OF AMBASSADOR ALONZO L. MCDONALD, DEPUTY SPECIAL
REPRESENTATIVE FOR TRADE NEGOTIATIONS
It is a pleasure for me to have this opportunity to discuss with you the results of
the Tokyo round and to elaborate further on the testimony given by Ambassador
Strauss. These hearings could not come at a more propitious moment in my view. It
is vitally important that the Tolyo Round results be explained to the American
people as the Congress prepares to meet to consider the merits of the legislative
package to be submitted shortly.
Over the past few weeks, since my return from the negotiating table in Geneva, I
have had the opportuity to meet with business and agricultural leaders throughout
the United States. Their own satisfaction with the final result has been mirrored by
the many positive comments made before this Subcommittee in the past few days.
Throughout the long Geneva discussions U.S. negotiators relied heavily on our
Congressional and private sector advisors. We knew in specific terms what our
private sector sought from these negotiations; we went to Geneva with their advice
in our briefcases, and they made many trips to keep us up to date. We also knew
about the concerns of Congress; we met with you and your colleagues here and in
Geneva on frequent occasions. We now come back having signed the documents
concluding the negotiations, convinced that your negotiators have carried out our
mandate to the maximum extent possible. We have obtained much of what we
sought and the fundamentals we absolutely need for a new era of trade prosperity
for the United States.
Mr. Chairman, I have said before that the Tokyo Round result is potentially the
most significant development in world trade since the GATT was established over
30 years ago. Tremendous opportunities await those willing to seize them. The work
of this Subcommittee will be of fundamental importance as our nation seeks to
obtain maximum possible benefits from the agreements.
Thus, our road does not stop here nor with Congressional approval of the result.
We have, in fact, begun a much longer journey, one that will require constant
attention to the new mechanisms and procedures we have worked so hard to
establish, and diligence on the part of the United States to represent our interests
aggressively.
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OVERALL RESULT
The Tokyo Round package is comprised of four inter-related elements, each draw-
ing strength from the others: (1) A series of precedent-setting codes of conduct and
agreements in nontariff areas of increasing trade importance; (2) a broad and
ambitious agricultural package; (3) major tariff concessions to the United States,
obtained at a time when few people thought substantial tariff cuts would be possi-
ble; and (4) a framework for international trade constituting a long-needed overhaul
of the present world trading system.
Together these elements represent the biggest result ever obtained in a trade
negotiation. They were negotiated at a most inauspicious time for forward move-
ments of this kind, but ironically at a time when the world badly needs such a tonic
for political as well as economic reasons.
The Tokyo Round was a balanced negotiation. Each nation gave as well as
received. It was a joint effort that recognized our interdependence and the necessity
to work collaboratively if we are to maintain a liberal, fair and expanding system.
Thus, all nations will benefit from the Tokyo Round. Since we represent the
world's largest economy, we can be proud of that fact.
I believe that the results represent substantial improvements that will wear well
with time. We did not strike a temporary deal; we were in those negotiations for the
long pull and we came out substantially better off than when we went in. This was
a critical perception for~ us at the negotiating table because we believe the Tokyo
Round lays out the basic rules of the game for world trade for the remainder of this
century.
Mr. Chairman, I would like to summarize briefly the four major components of
the Tokyo Round package. I will want to emphasize the codes of conduct due to the
great public and Congressional interest in them, but they should be viewed in the
perspective of the overall benefits we have received in agriculture, industrial tariffs
and in the upgrading of the trading system itself.
AGRICULTURAL RESULTS
We can be proud of the special position American agriculture has earned in the
world marketplace. Through a conbination of hard work, initiative and capital we
have become the most efficient producers of food in the world. Agricultural exports
now amount to over $30 billion annually, more than four times as great as a decade
ago. In the Tokyo Round we sought to build upon that impressive base to assure
continued growth in this important sector.
As expected, the difficulty of the negotiations cannot be exaggerated. Agricultural
issues touch on many sensitive areas of national policy and even involve questions
of political stability and national security. Thus, governments tend to act conserva-
tively in this domain, especially in an environment of economic uncertainty which
plagued us during the negotiations.
There was a real danger throughout the negotiations that agriculture would be
bypassed as has happened in previous Rounds. U.S. negotiators resisted those efforts
tenaciously. We stood firm with Ambassador Struss' commitment, "no deal without
agriculture."
The results, while far from perfect, add substantially to our agricultural export
potential. They fall into essentially three categories. First, we have reduced trade
barriers to improve agriculture market access. Secondly, we have negotiated ar-
rangements which will enhance the degree of intergovernmental cooperation in
dealing with agricultural trade problems. Finally, we have negotiated special provi-
sions in some of the codes of conduct of special benefit to agriculture.
To achieve greater market access, we obtained specific trade concessions on nearly
$4 billion in U.S. agricultural exports. The concessions should provide new opportu-
nities in most of our major markets, including Japan and Western Europe.
We have conservatively estimated that these concessions will result in at least a
one-half billion dollar increase in U.S. agricultural exports at today's prices. Their
value in the future will be worth incalculably more.
On the other hand, the agricultural concessions we granted were quite modest.
Although we have made concessions in some sensitive areas, the effect, if any, will
be minimal.
As the number one agricultural producer in the world, we stand to gain more
than anyone from a smoothly functioning system.
The codes of conduct will also increase discipline in areas where distortions have
traditionally affected the free flow of agricultural products. Hence, in the interest of
brevity, I will only mention one code, the one on subsidies.
While the subsidies code will not eliminate subsidies in agriculture, a step even
we are not prepared to take, it will clearly isolate those circumstances under which
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subsidies can be used unfairly and it will make governments more responsible in
applying such practices. In fact, the agricultural section of the subsidies code could
well turn out to be one of the most important long-run contributions of the Tokyo
Round to U.S. agricultural interests.
There has been considerable discussion in connection with agriculture of the so-
called wine gallon method of assessment on imported bottled and distilled spirits. In
the negotiations on a new customs valuation code, the United States agreed to
eliminate this unique valuation system because of intense interest on the part of
our trading partners.
This U.S. concession was crucial to the negotiations. It was the top priority EC
request in agriculture and it made possible their valuable concessions to us in
tobacco, beef, poultry, canned fruit and mixes, rice, prunes and table grapes, among
others. Frankly, without the U.S. concession on wine gallon there would be no U.S.!
EC agricultural package.
Furthermore, the offer of a change in the wine gallon assessment method enabled
us to negotiate concessions in many developed countries to facilitate U.S. liquor
exports.
So, Mr. Chairman, we make no apologies for this concession. We believe it was
fair contribution on our part, and, in fact, the U.S. distilling industry itself has been
sharply divided on the issue.
FRAMEWORK FOR WORLD TRADE -
Another major result of the Tokyo Round has been to lay the groundwork for a
more modern, updated trading system based on an equitable division of benefits and
contributions. The negotiations on a "framework for world trade" were particularly
important in the context of our relations with the developing countries. They
demonstrated that a balanced and mutually satisfactory result between developed
and developing nations is possible.
The framework package significantly modernizes the GATT and makes it more
effective and credible. It is comprised of agreements in five basic areas:
1. It sets our improvements in the GATT rules and procedures for avoiding and,
where necessary, resolving trade disputes;
2. It modernizes the rules and procedures covering import restrictions taken for
balance of payments purposes;
3. It updates GATT provisions regarding safeguard actions by developing coun-
tries for development purposes;
4. It clarifies the full scope of the existing GATT rules concerning export control
measures; and
5. It establishes provisions for differential and more favorable treatment for
developing countries balanced by provisions for the progressive assumption by devel-
oping countries of greater levels of responsibility as their capacity to make contribu-
tions improves.
INDUSTRIAL TARIFF REDUCTIONS
Since industrial tariffs are not the subject of our discussions today, I will only
mention them briefly as one component of the complete package. Although tariff
cuts were the focus and essentially the substance of earlier rounds, they were much
less important in the Tokyo Round. I would rate their relative importance as no
more than 25 percent of the total package, which simply emphasizes the much
broader scope of benefits resulting from these negotiations.
The MTN tariff results will put us on a better footing vis-a-vis our major trading
partners. Overall industrial tariff cuts will average around 33 percent for developed
countries. In negotiating our reductions, we have been ever mindful of our sensitive
industries in the United States and have sheltered them from significant tariff
disruption.
The tariff reductions will open new export opportunities in specific product areas,
especially in mid to high technology industries such as electric and nonelectric
machinery, chemicals, transportation equipment, photographic equipment, paper
products, and scientific instruments where the United States enjoys competitive
advantages. These are only illustrations. There are many other benefits which will
become apparent as the full schedules are verified and become generally available.
A rough estimate of the tariff reductions impact on the American consumer
suggests potential benefits considerably greater than $10 billion. A research study
earlier showed even higher potential results. Even if we do not assume that the full
benefits of tariff reductions are passed immediately to consumers, the benefits do -
enter the economy and provide added stimulus as they work their way through the
system. This level of overall savings could represent the equivalent of a tax reduc-
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tion equal to eight-tenths of 1 percent of U.S. GNP. This would represent a tax
savings equivalent ot more than $60 per capita and some $250 per family.
I must admit to a certain skepticism, Mr. Chairman, about the validity of predic-
tive numbers of this kind, but they do give us a rough indication of the direction in
which we are moving.
The figures I have cited do not begin to take into account nonquantifiable benefits
such as improved consumer choice and the stimulus to technological innovation that
greater access encourages. Nor do they reflect corrections in prior imbalances with
our trading partners that have been achieved in these negotiations.
BENEFITS OF CODES OF CONDUCT
Mr. Chairman, I would like to devote the remainder of my remarks to the
nontariff measure codes of conduct because they in fact constitute the bulk of the
nontariff measures and the most significant single component of the Tokyo Round
package, and they are of immense consequence for this country.
CODE ON SUBSIDIES AND COUNTERVAILING DUTIES
Almost all of the Industrial Sector Advisory Committees (ISACs) and Agricultural
Technical Advisory Committees (ATACs) established under the Trade Act consid-
ered government subsidies to be a priority concern to their industries. This code was
among the most difficult nontariff assignments given U.S. negotiators because of
deeply entrenched nature of most governmental subsidy programs and the many
years of direct confrontation with other nations on this subject. Thus, all partici-
pants brought to the negotiating table a sense of animosity and frustration and, yes,
even despair about reaching an agreement in this delicate area.
For these reasons, the results are particularly gratifying. They should bring
special benefits to a number of important sectors of our economy including: agricul-
ture in general; food and kindred products; rubber and plastic materials; stone, clay
and glass products; ferrous and nonferrous metals and products made from them;
office and computing equipment; machine tools and other noneletrical machinery;
cOmmunication and nonconsumer electronic equipment; automotive equipment;
other transport equipment; electrical machines and apparatus; sound recording or
pre-production apparatus; photographic and cinemagraphic supplies.
As you can see, the list of beneficiaries is long since this area desperately needed
a new commitment to international discipline.
For the United States overall, the benefits include an obligation by foreign gov-
ernments to eliminate export subsidies completely on nonprimary products. It also
provides solid grounds for the first time to challenge domestic subsidy practices that
distort trade results.
At the same time, the United States retains our right to take countervailing duty
actions to protect domestic producers from other kinds of subsidies, including now
foreign domestic subsidies. Moreover, we also have the option in certain cases to use
provisional measures while our domestic investigations are in process. Finally, we
obtained guarantees of greater transparency in openness in the countervailing duty
proceedings employed by other governments.
The key concession by the United States in these negotiations is to include an
injury test in our domestic legislation, something our trading parterns have sought
for many years. Much of our present discussions with Congress deals with the
nature of the injury test for U.S. law. We believe that we have established an
appropriate standard for material injury in the way we have dealt with it in the
antidumping code.
We believe that the code itself is clearly beneficial to the United States but it can
be even more effective with updated and accelerated domestic procedures. Together
these two factors combined in our implementing legislation should mark this part of
the Tokyo Round results as a major step forward in this problem area, both
domestically and internationally.
GOVERNMENT PROCUREMENT CODE
Opening up the behind-the-scenes purchasing practices of foreign governments
was another major priority of our advisory groups. Given the vast potential market
overseas-upward of $20 billion in our first coverage effort-and the near 100
percent effectiveness of foreign blocks to U.S. exports, the government procurement
code should be seen as one of the major achievements of the Tokyo Round from the
U.S. point of view.
In contrast to almost all other nations, the United States maintains largely an
open purchasing system. We only have percentage preferences for domestic suppli-
ers which are clearly and openly delineated by statute. Essentially our country has
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believed that competition is healthy and that it generally prevents unreasonably
high prices, a factor of great importance when taxpayers' monies are at stake.
For the first time the code lays firm obligations and procedural requirements on
others. Also for the first time it includes effective enforcement measures which we
can use to insure observance of the rules by other signatories.
Specifically, under the terms of the code, foreign governments will be required to
publish notices of proposed contracts, accept bids from all qualified suppliers, pro-
vide inquiry rights in the course of bid preparation, provide information to losing
suppliers, and submit to tight dispute settlement procedures.
All in all we have made an impressive beginning to the opening up of government
markets. No products were excluded for any entity covered except defense minis-
tries. Several high technology industries will be included by all countries, such as
computers, business and office machinery, scientific and measuring instruments.
Other industries, such as telecommunications, electrical machinery, and aerospace
equipment will be included by some countries. We have included comparable prod-
uct coverage on our side only for those countries will to reciprocate.
From the U.S. point of view coverage is now generally balanced-except for the
case of Japan where we have emphatically said that the code will not apply unless
they agree to broaden their coverage to include the key purchases by Nippon
Telephone and Telegraph-a $3 billion market now closed to us. Both governments
have worked sincerely to be flexible on this issue and we have narrowed our
differences. Yet, a gap still remains that must be resolved.
We have estimated that the code will increase U.S. exports by between $1.3 and
$2.3 billion over the next three to five years and U.S. job opportunities by between
50,000 and 100,000. If coverage is broadened in the future as expected, we can
anticipate still more gains.
As you know, the coverage of the code was treated separately from the code
negotiations themselves. Since our negotiating partners were not able in the first
step to include all of their public sectors, we decided not to include any more on our
side than needed to achieve reciprocal balance.
It is in this area of initial coverage that we and you have heard of considerable
complaints. We understand the disappointments, but we could not in one step close
completely the gap between the level of mixed economies that have evolved. It took
us about 20 years of negotiations to get this far which represents an essential first
step if we are to move progressively in the future toward expanded coverage.
As for the code proper, we believe there have been few, if any dissenting voices. It
is a solid code, and I believe it clearly exceeds the expectations of most of our
advisors.
CODE ON TECHNICAL BARRIERS TO TRADE (STANDARDS)
Again, a large number of our advisors identified standards as a major concern.
Our government received complaints last year on this subject related to some $10
billion in trade. Since the United States already follows many of the procedural
requirements of the code, its impact will be greater on foreign practices than on our
own.
We expect to receive special benefits in a number of sectors including lumber and
wood products, office and computing equipment, machine tools, electrical machin-
ery, consumer electronic products, scientific and controlling instruments and con-
sumer electronic products, communication equipment and nonconsumer electronic
products, nonelectrical machinery, transport equipment, pharmaceuticals, food
stuffs, animal and animal products, beverages and fish and fish products.
The code will include important general benefits for U.S. exports including the
following: ensuring access to national and regional certification systems on a nondis-
criminatory basis, acceptance of U.S. goods for testing on an equal basis with
domestic goods overseas, more information on prospective standards and certifica-
tions systems with a right to submit comments, guarantees of a reasonable time
between adoption and entry into force of new standards, and an effective dispute
settlement mechanism.
CUSTOMS VALUATION CODE
This agreement is designed to eliminate arbitrary aspects from the customs
valuation of imported merchandise, a problem of increasing importance as world
trade continues to grow. By utilizing the actual transaction value of traded mer-
chandise as the primary basis for customs valuation, a major source of uncertainty
will be removed from the system.
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We believe that the code will especially benefit several important U.S. sectors
such as wood products, cleaners, plastic materials, nonelectrical machinery, trans-
port equipment, chemcials, electrical machinery, textiles and foodstuffs.
The code will benefit many U.S. exporters by eliminating the common practice of
artibrarily "uplifting," or increasing the value of imports for customs duty purposes
at the discretion of customs officials. The code establishes a clear right of appeal
when U.S. exporters are dissatisfied with assessed customs valuation overseas, and
like the other codes, establishes an effective dispute settlement mechanism.
CODE ON IMPORT LICENSING PROCEDURES
A majority of ISACs identified licensing as an important concern. It is often a
nuisance to traders and, not unsurprisingly, the most frequently complained about
nontariff measure regarding specific limitations on trade, that is quotas, embargoes,
export restraints, etc.
The code will provide a big boost for small U.S. businesses just starting in the
export field by reducing much of the red tape and uncertaintly that may have
contributed to a reluctance to enter export markets. Procedures and products sub-
ject to licensing must be published so all are aware of the rules of the game and
time limits requiring expeditious processing of license applications.
U.S. industries with a particular interest in this code include hand tools, cutlery
and tableware, nonelectrical machinery, transport equipment, ores, metals and
metal manufacturers, chemicals, electrical machinery, animals and animal prod-
ucts, foodstuffs and beverages.
AGREEMENT ON TRADE IN CIVIL AIRCRAF1~
A latecomer to the negotiations, an agreement on trade in civil aircraft was
negotiated among the major developed countries participating in this industry.
Although the United States is the dominant supplier of civil aircraft to the world,
our market share has declined in recent years. The appearance of foreign competi-
tors and the increasing tendency of their governments to subsidize or otherwise
support their national industries is an increasing incursion into the American
market share. Japan, Canada and the EC have already declared their intentions to
build strong national aerospace industries. Given this environment and the heavy
dependency of the U.S. industry on export sales (some 60 percent of commercial
transport production and 25 percent of general aviation production), U.S. negotia-
tors felt that a comprehensive agreement covering tariff and nontariff measures
would help stem the present trend and provide important benefits to our country.
In general, the agreement provides for a framework to consult and avoid or, at
least manage trade disputes. In specific terms, U.S. component manufacturers will
benefit through better access to subcontracts of foreign and engine manufacturers
and be able to compete on the same duty-free basis as EC component manufacturers
now do in intra-Europe trade.
Furthermore, signatories may no longer require that national airlines buy domes-
tically produced aircraft, nor exert unreasonable pressures on them to do so. Such
policies have been a far greater barrier in the past to U.S. exports than tariffs.
Although U.S. airframe and engine manufacturers and civil aircraft parts manu-
facturers will receive the greatest direct benefits, other U.S. interests are also
served by opening up export opportunities for the aerospace sector which is the
largest net contributor to our industrial balance of payments.
Mr. Chairman, that briefly summarizes some of the major benefits to this country
from the Codes of Conduct. These are highly technical subjects but the general
public should not let the technicalities stand in the way of their recognizing the
fundamental importance of these agreements for our country.
The groundwork is clearly laid by these codes for a fairer, as well as a more
liberal trading system in the future. But we cannot count on automatic implementa-
tion or blind adherence even by all signatories. This Committee, the Congress as a
whole, and particularly the Administration must enforce our rights with a new will,
a new resolve and a much greater degree of effectiveness.
Even from this sketchy overview, Mr. Chairman, it is evident that Tokyo round
opportunities and benefits will be spread throughout the American economy. Some
industries and agriculture will likely move quickly to increase their export stake;
other industries may need help. this Administration stands ready to provide appro-
priate assistance so that President Carter's export goals can be realized.
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Competition and an ongoing process of industrial rejuvenation have made this
country the world's greatest economic power. We need to continue to direct our
maximum energy toward building on that solid base to guarantee future prosperity.
I believe that the Tokyo round has taken a major step in making that possible.
Thank you.
Mr. VANIK. Mr. Conable.
Mr. CONABLE. Mr. Ambassador, do you feel you have the support
of the Cheese Manufacturers of America for your package?
Ambassador MCDONALD. Mr. Conable, I will say that we do not
have the support of all of them at this time. I believe that we are
rapidly moving to a better understanding that will lead us to have
a majority of that group with us, at least I think we can convince
them, which we firmly believe, that their situation will be certainly
no worse and may even be better by a combination of actions not
only on what we have done a granting concessions but also in some
administrative improyements that directly help that industry.
Mr. CONABLE. Is there pending any further action with respect to
cheese or is it just persuasion?
Ambassador MCDONALD. Well, it is question of understanding
more than persuasion, Mr. Chairman. That group was highly sensi-
tive to the possibility that we would act without due care to their
interests. And that was a natural concern since we had so many
requests of an exhorbitant kind from other nations for concessions.
They were even rightly concerned, I would say, right up to the
moment of the actual signing in Geneva. I heard from them even
the day before as much as from any other individual group.
The real concern and one reason for their sensitivity of feeling
was that we might very well be attempting to use them as a
balancing factor in the final hours of discussion. I have tried to
assure them that that was not our intention, that we had nothing
in the wings that would create surprises for them, that we had
very laboriously worked out a program that we thought was fair.
I would also have to say here, sir, that we had great help in the
course of that from a key member of your committee during the
course of our negotiations, the late Representative Steiger. He
made sure that what we were doing to that industry, among other
actions, was proper. We never operated very far afield.
Mr. CONABLE. I have one other question, Mr. Chairman.
Both the House and Senate committees are interested in clarify-
ing that services are to be included under the protection of section
301. Where do we stand with Canada with respect to the border
broadcasting dispute this morning? Are negotiations on this issue
probable? Is there a mechanism for doing it? I am most regretful
about this whole affair. And I wish it could be resolved.
Ambassador MCDONALD. We share your concern in hoping that it
can soon be resolved. It is not resolved to my knowledge yet, Mr.
Conable. But discussions are underway and we have even recently
made certain presentations. But we regret to say it has not been
resolved as of this minute.
Like you, we are hopeful that it can be. We anticipate continued
discussions until we can find an appropriate solution. I think that
our situation with Canada looks very good at this time. There are
one or two minor things on both sides that we are looking at and
verifying. But I think we can say that we are in essential agree-
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ment with Canada on the overall elements as part of the Tokyo
round.
Mr. CONABLE. Thank you, Mr. Chairman.
Mr. VANIK. Mr. Moore.
Mr. MOORE. Thank you, Mr. Chairman.
Mr. McDonald, you have already answered the question this
morning, or Mr. Strauss did, about Japanese negotiations on gov-
ernment procurement of telecommunications equipment. My only
comment is that I would hope that you would take to those negotia-
tions the concerns of Members of Congress as was expressed yester-
day on the floor of the House and by my colleagues on this commit-
tee that were very concerned, very annoyed somewhat over the
protectionism that the Japanese hold out on this issue.
I mean to see that whatever they refuse to go along with we just
refuse to go along with from this side of the aisle as well. If they
can't go along with Government procurement on telecommunica-
tions we won't either. I think they ought to understand that, that
we expect a hard line to be drawn in this area for them to come to
the bargaining table in good faith and not from a protectionist
point of view.
I know negotiations are ongoing. I ask you to take to net negotia-
tions that the Members of Congress intend to take a hard line on
this particular issue.
Ambassador MCDONALD. I thank you, Mr. Moore. I can only
confirm what Ambassador Strauss has indicated. We believe we
have operated openly and with flexibility on this issue. We do not
believe we have been unreasonable or dogmatic or arrogant in any
way. We are searching for a resolution of a principle, and that is
the reciprocal opening of markets one county to another. That has
been the guiding principle that we have attempted to follow
through these negotiations. And we are applying it in this instance
as well. I will have to say, as Ambassador Strauss did, that the
Japanese Government has understood this and they have moved
even further than they felt they could at times, I am sure.
So we are not dealing with a question of bad faith. we are
dealing with what the actual political limits are on both sides.
Recognizing our political limit, sir, we have no intention of moving
beyond the pale either.
So we must find a solution. I believe in due course we will find a
solution but we must have an equitable solution that we as negotia-
tors and you as Members of Congress can stand up before our
people and justify.
I understand and agree with what you have said. They are not
going to have access to our Government procurement markets if we
don't have access to theirs.
We have made that clear.
Mr. VANIK. Thank you very much, Mr. Ambassador. I just want
to state one closing thought, that you ought to leave some word out
there in Geneva that there is reason for many of the international
organizations to consider moving their headquarters to the new
world, to America, to even some of our own communities in the
United States that are quite satisfactory and can provide adequate
accommodations for these things.
1414~998 - 79 - 33
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One of our tremendous expenses last year in this committee was
the cost of keeping a delegation or group on hand to monitor the
negotiations. And the reason there has not been more individual
participation by members of this committee is that they simply
could not afford it.
As you know, the cost of an overnight sleep in Geneva is about
$120, and breakfast is either $12 or whatever they want to charge.
It seems to me that the negotiating countries of the world ought to
find a more efficient place to do their business. Particularly we
have something to offer in America with the present devalued
dollar and we can compete with anybody in the world for providing
facilities and accommodations where we could bring in some of
these international organizations with their francs and their marks
and their yen.
I don't think we ought to overload Switzerland. I think it is
overloaded. We ought to let them know that the cost of internation-
al negotiations is also an important factor and that the nations of
the world ought to look at the possibility of reducing these costs
which I know are going to be ongoing and they are going to
continue, that there are competitive places in the world that offer
facilities and accommodations on a permanent, lasting basis with a
much lower overload cost. Let us give them a little more competi-
tion.
Mr. CONABLE. Either that or we ought to strengthen the dollar.
Ambassador MCDONALD. I can assure you that those of us in
residence in Geneva with our families had a daily reminder in
trying to balance our budget. We share sympathetically your view.
Mr. VANIK. Thank you very much, Mr. Ambassador. We very
much appreciate your splendid work throughout the course of the
negotiation and in committee.
I would like now to stress to the witnesses that I hope that they
will summarize their statements. We have a long list of witnesses.
It is the intention of the Chair to proceed right straight through on
our business without interruption today. This process can be facili-
tated if the testimony can be directed to the key issues that are
involved which we will carefully study as we go along.
Mr. Ambassador, my thanks extend to all of the members of your
good staff whom we individually want to recognize in some other
way before we are through with our work.
Ambassador MCDONALD. Thank you very much, Mr. Chairman.
[Letters to Ambassador Strauss requesting his response follow:]
SUBCOMMITFEE ON TRADE,
COMMITTEE ON WAYS AND MEANS,
Washington, D.C., April 11, 1,97.9.
Hon. ROBERT S. STRAUSS,
Special Representative for Trade Negotiations,
Executive Office of the President, Washington, D.C.
DEAR MR. AMBASSADOR: We wish to call to your urgent attention a potential
loophole in the procedures being developed to obtain more effective countervailing
duty and antidumping procedures. This issue was not fully addressed in our review
of the subsidies-countervail code, but will certainly arise when we consider the
antidumping code. Our concern relates to the question of discontinuance of counter-
vail and antidumping procedures on the basis of foreign price assurances.
Specifically, it is our view that foreign price assurances should be adequate to
eliminate the full margin of dumping or the full amount of the net subsidy, not
merely the indeterminate amount of injury deemed to be taking place.
PAGENO="0515"
507
In order that there be a basis for determining the margin of dumping or the net
subsidy, price assurances should not be accepted until a preliminary determination
has been made. Compliance with price assurances should be monitored on the same
basis as a final determination. Breach of an assurance should result in imposition of
regular duties.
Failure to condition price assurances along the lines indicated above will result in
the type of unbridled Administration discretion which has plagued the enforcement
of these statutes and which, as a result, has given justifiable cause to complaints
that trade policy is being poorly administered.
There is currently no provision in these existing laws to require less than the full
amount of dumping margin or net subsidy. To open to subjective determination the
acceptance of a lesser amount on the theory that it would be adequate to remove
future injury would result in settlements at less than the full amount of the margin
which could actually foster rather than deter dumping or subsidization settlements
at lesser amounts and would incur a loophole in these statutes which would impair
them to a point of little or no utility.
As you can recognize this assurance is of primary concern to industry in general
and to labor and the resolution of this issue is absolutely essential to successful floor
action of the entire MTN package.
We would very much appreciate your early response.
Sincerely,
CHARLES A. VANIK,
Chairman.
Gu~ VANDER JAGT,
Ranking Minority Member.
SUBCOMMITTEE ON TRADE,
COMMITTEE ON WAYS AND MEANS,
Washington, D.C., April 23, 1979.
Hon. ROBERT S. STRAUSS,
Special Representative for Trade Negotiations,
Washington, D.C.
DEAR MR. AMBASSADOR: At the opening session of our public hearings on the
Multilateral Trade Negotiations this morning, the Subcommittee on Trade heard
extensive testimony from Puerto Rico's Governor, Honorable Carlos Romero-Bar-
celo, and Honorable Amadeo Francis, Commissioner of Commerce in the Virgin
Islands. Both witnesses expressed grave concern about severe damage to their
economies and prospects for future growth that could result from the Administra-
tion's proposal to reduce taxes imposed on rum imports by elimination of the wine-
gallon method of assessing taxes and tariffs, coupled with a reduction in the current
duty rate.
Governor Romero-Barcelo estimates that Puerto Rico will lose between 20-30
percent of its U.S. market to foreign suppliers if the tariff is reduced the full
amount and that elimination of the wine-gallon system would drastically reduce
federal excise tax collections, which by law are currently rebated to the Puerto
Rican treasury. Commissioner Francis testified that the Virgin Islands could expect
proportional losses to its rum industry and treasury because of the proposed
changes.
This is a dimension of the distilled spirits issue of which the Subcommittee has
not heretofore been aware. Therefore, to complete our record, I would appreciate
your comments about the MTN effect on the Puerto Rican and Virgin Islands
economies. Specifically, how can these economies make up for the projected revenue
and production losses if the rum concession is implemented, and what are the
expected benefits to both Puerto Rico and the Virgin Islands from the MTN agree-
ments overall?
For your convenience, I have enclosed copies of the testimony.
Sincerely yours,
CHARLES A. VANIK, Chairman.
PAGENO="0516"
508
SUBCOMMITTEE ON TRADE,
COMMITTEE ON WAYS AND MEANS,
Washington, D.C., April 25, 1979.
Hon. ROBERT S. STRAUSS,
Special Representative for Trade Negotiations,
Washington, D.C.
DEAR MR. AMBASSADOR: In the Subcommittee's public hearing on the Mulitilateral
Trade Negotiations on Tuesday, we received testimony from Congressmen Gold-
water and Lagomarsino on two points on which your comments will be helpful.
The first concerns the disadvantage our citrus producers face in exporting citrus
to the European Community, given the preferential tariff treatment imposed by the
EC on citrus imports. I am sure you are aware of the importance of the full export
potential of citrus to California producers. Is there any possibility of a reduction in
the Community's preferential tariff on citrus?
In light of the long history of the section 301 action filed by the citrus industry
against the EC on its preferential tariff on oranges, I am hopeful we can report
some progress when we formally consider the trade legislation.
Your comments will be greatly appreciated.
Sincerely,
CHARLES A. VANIK, Chairman.
Mr. VANIK. The next witness will be the American Imported
Automobile Dealers Association: Robert M. McElwaine, president;
Fred 0. LaFevers, chairman; and Bart S. Fisher, counsel.
STATEMENT OF ROBERT M. McELWAINE, PRESIDENT, AMERI-
CAN IMPORTED AUTOMOBILE DEALERS ASSOCIATION, AC-
COMPANIED BY FRED 0. LaFEVERS, CHAIRMAN, AND BART
S. FISHER, COUNSEL
Mr. MCELWAINE. Mr. Chairman and distinguished members of
the committee, we thank you for this opportunity.
Mr. LaFevers is a Volkswagen dealer in North Carolina and our
counsel, Mr. Bart Fisher, is of the firm of Patton, Boggs, and Blow.
The American Imported Automobile Dealers Association repre-
~ sents some 4,750 American businesses engaged in sale and service
of imported automobiles and the 150,000 employees of these busi-
nesses. In many ways ours is a prototype of an import dependent
industry. Various economic studies have been carried out which
have shown that this industry is a net contributor to employment
in the United States.
In our view, the multilateral trade negotiations created an oppor-
tunity to achieve a free flow, of goods in the international trade
sector of the automobile industry which is probably the largest
worldwide integrated manufacturing industry in the world. And we
believe that opportunity was lost.
Mr. Chairman, I don't mean by this statement to denigrate the
achievements of the negotiators in completing this complex and
very difficult agreement. But it would be unfair to the members of
our association not to say that they are grievously disappointed in
the outcome.
Section 101 of the Trade Act empowers the Executive to elimi-
nate any duties of less than 5 percent. The tariff on automobiles on
the effective date was 3 percent and, therefore, the possible maxi-
mum duty reduction was 100 percent.
We understand that the United States has agreed to reduce the
automobile tariff to 2½ percent which is a minimal tariff cut of
only 16 percent.
PAGENO="0517"
509
AIADA believes that the reduction is insufficent, it does not
reflect the worldwide integrated nature of the automobile industry
and it does not fulfill the negotiating objective which states that:
"The overall U.S. negotiating objective shall be to obtain the har-
monization, reduction or elimination of devices which distort trade
or commerce."
The retention of a 2.5-percent tariff on automobiles-essentially
a nuisance duty-ignores the integrated nature of the automobile
industry. The automobile industry, more so than any other, has
become truly international. The manufacture of automobiles re-
quires a huge, vertically diversified company to be competitive, and
manufacture has become concentrated in the hands of a few dozen
global corporations.
Because their sales are international, these companies have been
able to take advantage of the competitive efficiencies of the coun-
tries where they operate. This has brought about an
internationalization of production and sales and has helped create
the concept of a world car.
The Ford Pinto, for example, may include a transmission from
France, an engine from Brazil, and be assembled in Canada-yet it
is sold as a domestic U.S. automobile. Transmissions from France
are also assembled into other small Ford cars.
The Volkswagen Rabbit has brakes by Bendix, headlamps by GE,
windshield and windows by Combustion Engineering, tires from
Goodyear-and the body includes magnesium from Dow, steel from
Bethlehem Steel, and solvents from Cayuga Chemicals in Cleve-
land.
Both Ford and GM produce automobiles in Australia, Brazil,
Argentina, Mexico, and South Africa. Ford has completed a $300
million new facility in Spain. Volkswagen has commenced U.S.
production of its Rabbit. Some cars sold as imports may represent
more American man-hours than some labeled as domestic product.
Tariffs distort this internationalization of products and interfere
with the consumer's receiving the advantages of competitive effi-
ciencies of all the industrial nations of the world.
Furthermore, the U.S. automobile industry is hardly in need of
protection, when it has just enjoyed the most profitable year in its
history. Even American Motors has enjoyed the most profitable
quarter in its history despite all its problems.
Today's newspapers show that General Motors and Ford have
just enjoyed the most profitable quarter in their history. Headlines
in today's paper read: "General Motors and Ford profits and sales
soar." This shows that of the record profits enjoyed by the Ford
Motor Company in this past quarter, 63 percent came from sales
outside the United States.
AJADA feels that the United States should have honored its
pledge made to its trading partners in 1965, to further liberalize
the automobile sector of the world economy.
Furthermore, a fundamental inequity exists in U.S. automotive
trade. An automobile manufactured in Canada enters the United
States duty-free whereas automobiles from Europe and Japan
cannot. The present arrangement discriminates among captive im-
ports of U.S. manufacturers imported from Japan and Europe and
from Canada. In short, in the automobile sector the negotiations
PAGENO="0518"
510
have failed to achieve the negotiating objective of elimininating
artificial distortions of trade. Since the half percent reduction in
the tariff has been negotiated, however, we certainly recommend
that the tariff reduction to 2½ percent be carried out at one stage.
This reduction would fall within the maximum yearly percentage
reduction allowed by the Trade Act. Staging a tariff reduction of
one-half of 1 percent over several years would certainly create
unnecessarily small reductions, unnecessarily delaying the entire
process.
Contrary to the viewpoint expressed by certain administration
officials, the chicken war is not concluded. The 16.5-percent penalty
duty imposed in 1965 on automobile trucks valued at $1,000 or
more to retaliate against the higher import fees on poultry imposed
by the European Economic Community has not been eliminated.
Instead, the chicken war duty continues as an historical anachro-
nism which should have been eliminated in the MTN. AIADA'
believes that this duty could have been eliminated if U.S. negotia-
tors had not linked its elimination to extraneous issues.
Furthermore, we understand from various sources that no con-
cession was made on the basic 8.5-percent ad valorem duty on
automobile trucks. This duty was not connected with the chicken
war and could have been reduced to reflect the integrated nature
of the automotive industry and to bring to the consumer a variety
of choices and prices.
First, the United States requested a concession from Japan,
which was not a party to the chicken war but on whose exporters
of automobile trucks the main burden of the tariff has fallen in
recent years.
Second, as a condition for reducing the penalty duty, the United
States requested that the EEC reduce its duty on heavy trucks,
which were in no way involved in the original chicken war. We
believe that the chicken war should have and could have been
settled on its own terms. The original rationale for the 16.5-percent
duty has disappeared, and it seems that the device is being kept
solely as a protectionist measure.
We raise this issue now because under section 102 of the Trade
Act the negotiating authority to rectify this omission extends until
January 1, 1980. We believe the administration should attempt to
fully resolve the chicken war and eliminate the penalty duty on
automobile trucks by utilizing current negotiating authorities
while the EEC may be willing to negotiate a resolution.
NONTARIFF BARRIER AGREEMENTS
Because AIADA begins from the premise that a free flow of
goods is in the best interest of the United States, we support in
general the content of the nontariff barrier codes which should go
far in eliminating artificial distortions of trade. As negotiated, the
codes promise to harmonize international responses to various
trade practices, particularly in the definition and treatment of
subsidies, in harmonizing customs procedures, and should conform-
ing changes be made in the International Antidumping Code, to
conform treatment of antidumping and countervailing duties, as
PAGENO="0519"
511
intended by article VI of the General Agreement on Tariffs and
Trade.
The negotiated codes furnish the means to liberalize world trade,
which is in the best interests of the United States, and we urge the
committee to carefully consider any implementing legislation
which would undercut the codes agreed to by the U.S. negotiators,
because of protectionist pressures.
Trade policy must balance the benefits from the free flow of
goods against the economic dislocations caused by foreign competi-
tion. A free flow of goods brings lower prices to the consumer, acts
as a prod to innovation, and helps control inflation by restraining
prices of domestic goods.
Finally, on the part of the United States, an open trade policy
leads to favorable diplomatic fallout. Protectionist measures would
strain relations with our trading partners, weaken their economies,
and reduce American influence.
AIADA salutes this committee on its adoption of the material
injury standard as part of the countervailing duty implementing
legislation.
The material injury test was a major concession made by the
United States as a quid pro quo for other governments restricting
the use of subsidies.
If this committee had retained the proposal announced in its
press release of March 19, whereby the de minimis injury standard
of the antidumping law would have been adopted, then the commit-
tee would have gutted a major U.S. concession.
As we said previously, trade policy must reflect the balancing
process between the benefits flowing from free trade and the eco-
nomic dislocations caused by foreign competition. The benefits of
imported goods including broader consumer choice, price competi-
tion and discipline for domestic products, and greater innovation in
product development, are too well established to permit the exclu-
sion of foreign goods unless material injury to a domestic industry
can be shown.
AIADA supports the incorporation of the material injury test
into U.S. antidumping law, for the same reasons stated above, as it
is illogical to interpret GATT article VI one way for countervailing
duties and another way for antidumping duties.
Our written testimony, which we present for the record, contains
in more detail the views of the imported automobile industry on
those particular aspects of the codes which should and should not
be incorporated into U.S. law.
We urge now that this committee and Congress implement as far
as possible the provisions of the nontariff barrier codes and that
this committee in recommending implementing legislation careful-
ly weigh the benefits obtained from the free flow of goods in
international commerce and the interests of the importing commu-
nity against the pressures of the more protectionist segments of the
U.S. economy.
Thank you, Mr. Chairman. We will be happy to answer any
questions you might have.
[The prepared statement follows:]
PAGENO="0520"
512
STATEMENT OF THE AMERICAN IMPORTED AUTOMOBILE DEALERS ASSOCIATION
On behalf of the 4,750 American businesses engaged in sale and service of import-
ed automobiles and their 150,000 employees, I welcome this opportunity to comment
on issues relating to the implementation of the agreements, tariff and non-tariff,
reached at the Multilateral Trade Negotiations. The imported automobile industry
is the prototype of an import-dependent industry, and economic studies have shown
that this industry is a net contributor of employment to the U.S. economy.1
AIADA favors in general the free flow of goods in international commerce with as
few governmental restrictions as possible. The Multilateral Trade Negotiations cre-
ated the opportunity to achieve this goal in the automotive sector, which is probably
the largest worldwide integrated manufacturing industry, and that opportunity was
lost.
Tariff negotiations on automobiles
Section 101 of the Trade Act of 1974 empowers the Executive to eliminate duties
if the rate of duty existing on January 1, 1975, is less than 5 percent ad valorem.
The tariff on automobiles (TSUS 692.10) on that date was 3 percent ad valorem and
therefore the possible maximum duty reduction was 100 percent. We understand
that the United States has agreed to reduce the automobile tariff to 2.5 percent ad
valorem-a minimal tariff cut of only 16 percent. AIADA believes that the reduc-
tion is insufficient, does not reflect the worldwide integrated nature of the auto-
mobile industry, and does not fulfill the negotiating objective set forth in section
103, which states: "The overall United States negotiating objective under sections
101 and 102 shall be to obtain * * * the harmonization, reduction, or elimination of
devices which distort trade or commerce."
The retention of a 2.5 percent tariff on automobiles-essentially a "nuisance
duty"-ignores the intergrated nature of the automobile industry. The automobile
industry, more so than any other, has become truly international. The manufacture
of automobiles requires a huge vertically-diversified company to be competitive, and
manufacture has become concentrated in the hands of a few dozen global corpora-
tions. Because their sales are international, these companies have been able to take
advantage of the competitive efficiencies of the countries where they operate. This
has brought about an internationalization of production and sales and has helped
create the concept of a "world car."
The Ford Pinto, for example, may include a transmission from France, an engine
from Brazil, and be assembled in Canada-yet sold as a "domestic" U.S. automobile.
Transmissions from France are also assembled into Ford Mustangs, Mavericks and
Fiestas.
The Volkswagen Rabbit has brakes by Bendix, headlamps by GE, windshield and
windows by Combustion Engineering, tires from Goodyear-and the body includes
magnesium from DOW, steel from Bethlehem Steel, and solvents from Cayuga
Chemicals in Cleveland.
Both Ford and GM produce automobiles in Australia, Brazil, Argentina, Mexico
and South Africa. Ford has completed a $300 million new facility in Spain. Volks-
wagen has commenced U.S. production of its Rabbit. Some cars sold as "imports"
may represent more American man-hours than some labeled as domestic product.
Tariffs distort this internationalization of products and interfere with the consum-
er's receiving the advantages of competitive efficiencies of all the industrial nations
of the world.
Furthermore, the U.S. automobile industry is hardly in need of protection, when
it has just enjoyed the most profitable year in its history. Even American Motors
has enjoyed the most profitable quarter in its history.
The United States could have fulfilled in the MTN the pledge made in 1965 to its
trading partners to generalize the experience of the United States-Canadian Auto-
motive Parts Agreement, but failed to do so. In 1965, the U.S. delegate to the GATT
stated that "the United States would later be willing to consider the further reduc-
tion or elimination of United States duties on automotive products and that neither
a unilateral nor a multilateral approach could now be ruled out." (Basic Instru-
ments and Selected Documents, Thirteenth Supplement 112-125, GATT/1965-2.)
AIADA feels that the United States should have honored its pledge made to its
trading partners in 1965 to further liberalize the automobile sector of the world
economy. Furthermore, a fundamental inequity exists in U.S. automotive trade. An
automobile manufactured in Canada enters the United States duty-free whereas
automobiles from Europe and Japan cannot. Furthermore, the present arrangement
discriminates among captive imports of U.S. manufacturers imported from Japan
1 Harbridge House, Inc., "The Imported Automobile Industry, An Assessment of Key Aspects
of Its Impact on the U.S. Economy and The American Consumer" (December 1976).
PAGENO="0521"
513
and Europe and from Canada. In short, in the automobile sector the negotiations
have failed to achieve the negotiating objective of eliminating artificial distortions
of trade.
We recommend that the reduction in the tariff be implemented in one stage,
reducing the tariff by .5 percent, to 2.5 percent ad valorem. This reduction would
fall within the maximum yearly percentage reduction allowed by section 109(a)(2) of
the Trade Act of 1974. Staging the tariff reduction over several years would create
unnecessarily small reductions and unnecessary delay.
Failure to conclude the Chicken War
Contrary to the viewpoint expressed by certain Administration officials, the
"Chicken War" is not concluded. The 16.5 percent penalty duty imposed in 1965 on
automobile trucks valued at $1000 or more to retaliate against the higher import
fees on poultry imposed by the European Economic Community has not been elimi-
nated. Instead the "Chicken War" duty continues as an historical anachronism
which should have been eliminated in the MTN. AIADA believes that this duty
could have been eliminated if U.S. negotiators had not linked its elimination to
extraneous issues. Furthermore, we understand from various sources that no conses-
sion was made on the basic 8.5 percent ad valorem duty on automobile trucks. This
duty was not connected with the Chicken War and could have been reduced to
reflect the integrated nature of the automotive industry and to bring to the consum-
er a variety of choices and prices.
The nontariff barrier codes and implementing legislation
As negotiated, the codes promise to harmonize international responses to various
trade practices, particularly in the definition and treatment of subsidies, in harmo-
nizing customs procedures, and should conforming changes be made in the Interna-
tional Antidumping Code, to conform treatment of antidumping and countervailing
duties, as intended by articile VI of the General Agreement on Traiffs and Trade.
The negoitiated codes furnish the means to liberalize world trade, which is in the
best interests of the United States, and we urge the Committee to carefully consider
any implementing legislation which would undercut the codes agreed to by the
United States negotiators, because of protectionist pressures.
1. Subsidies and countervailing duties codes.-AIADA believes that the subsidies
and countervailing duties code established a workable framework for controlling the
use of subsidies in international commerce. AIADA supports the concessions made
by the United States concerning the definition of injury to mean "material injury."
The subsidies/countervailing duties code does not explicitly require that the injury
in explicit terms be "material." Instead the code would require that a significiant
increase in subsidized imports (in either absolute or relative terms) must depress
prices to a significant degree or prevent price increases, with consequent impact on
domestic producers, measured by a number of economic factors. The presence or
absence of any one factor would not be decisive. This appears to establish more than
the de minimis test now existing in U.S. practice. The benefits of imported goods,
including broader consumer choice, price competition and discipline for domestic
products, and greater innovation in product development, are too well estabished to
permit the exclusion of foreign goods unless material injury to a domestic industry
can be shown.
AIADA salutes this Committee on its adoption of the material injury standard as
part of the countervailing duty implementing legislation. The material injury test
was a major concession made by the United States as a quid pro quo for other
governments' restricting the use of subsidies. If this Committee had retained the
proposal announced in its press relaese of march 19, whereby the de minimis injury
standard of the Antidumping Law would have been adopted, then the Committee
would have gutted a major U.S. concession. As we said previously, trade policy must
reflect the balancing process between the benefits flowing from free trade and the
economic dislocations caused by foreign competition. The benefits of imported goods,
including broader consumer choice, price competiton and discipline for domestic
products, and greater innovation in product development, are too well established to
permit the exclusion of foreign goods unless material injury to a domestic industry
can be shown.
The code's factors indicative of injury to a domestic industry contain two indicia
which are of concern to AIADA and which we believe should not be incorporated
into U.S. law. These are the price discipline exerted on domestic products and the
relative increase in imports. Material injury, by definition, could hardly be estab-
lished unless it could be shown that an absolute increase in imports had taken
place. Merely to consider the price discipline imports have exerted on domestic
products would appear to be totally inadequate in determining sufficient injury to
PAGENO="0522"
514
justify countervailing duties. Such criteria as the reduction in prices, or the preven-
tion of price increases caused by subsidized imports should be scrutinized carefully
and somewhat skeptically unless an absolute increase in imports can be shown to
have occurred simultaneously.
By the same standards, a relative increase in imports-one in which imports
themselves have not increased, but domestic production, or the percentage of domes-
tic production consumed, may have fallen-would seem insufficient proof of injury
to justify such drastic action as the imposition of countervailing duties.
As J. H. Jackson, in "World Trade and the Law of GATT," pointed out: "This
concept of `relative increase' seems inappropriate in an escape clause that is based on
the policy of allocating the burdens of market adjustment. * * * Here no actual
increase in imports has occurred, so it seems very difficult to justify placing this
burden on the foreign products. It appears that the "relative" increase concept is a
protective device."
AIADA particularly supports three of the procedural aspects contained in the
code and urges their incorporation into U.S. law. These are: time limits on counter-
vailing duty investigations, sufficient evidence in the complaint showing material
injury before an investigation is commenced, and full public findings as to fact and
law and reasons therefor.
The initiation of an investigation creates uncertainty in the importing community
and interferes with the smooth operation of import transactions. Furthermore,
when provisional bonds are required to be posted, their amount may exceed the
countervailing duty finally determined to be due. On the other hand, the domestic
manufacturers desire to have as speedy an imposition of countervailing duties as
possible to remedy material injury to the industry. For these reasons, all investiga-
tions should be concluded within one year of the filing of the complaint, as required
by the code.
Second, because of the uncertain interference with commerce caused by an inves-
tigation, no proceeding should be initiated unless sufficient evidence of material
injury is demonstrated in the complaint to indicate a reasonable probability that
the proceeding will result in imposition of a countervailing duty.
In the past, notices of findings of existence of a subsidy have not set forth detailed
decisions as to what exactly constitutes the subsidy and why. There have been no
findings of fact and law in these cursory public notices, as there should be when the
rights of importers are adversely affected. Furthermore, reasoned decisions would
have some precedential value enabling both importers and foreign exporters to
anticipate which practices may be the subject of a countervailing duty investigation
or to enable them to argue against a certain practice being found to be a subsidy.
The International Antidumping Code and U.S. law
Although not yet concluded or signed, the negotiators have proposed that the
International Antidumping Code (IAC) be amended to conform in certain respects to
the subsidies/countervailing duty code. This part of our submission concentrates on
what AIADA believes to be necessary and desirable amendments to the IAC and to
U.S. antidumping law.
(a) Definition of injury.-The IAC already requires that dumped imports be the
principal cause of injury or threat thereof to the domestic industry (Article 3). The
proposed subsidies code would require that a significant increase in subsidized
imports (in absolute or relative terms) must depress domestic prices to a significant
degree or prevent price increases, with consequent impact on domestic producers,
measured by a number of relevant economic factors. Apparently, the presence or
absence of one factor would not be decisive. Thus, both codes include a material
injury test; the proposed subsidies code seems to reformulate the test. Furthermore,
this Committee has recommended that the injury standard in U.S. countervailing
duty law be a material injury standard.
The current U.S. antidumping law has no material injury test; once dumping has
been established, antidumping duties may be obtained if de minimis injury is
established.2 Nor is any degree of causality stipulated by U.S. law. That, too,
2 Antidumping Law, 19 U.S.C. § 160, as amended by the Trade Act of 1974, merely
requires that a domestic industry "is being or is likely to be injured, or is prevented from being
established" by reason of dumped imports. The Senate Finance Committee Report to the Trade
Act says the following: The term "injury," which is unqualified by adjectives such as "material"
or "serious," has been consistently interpreted by the Commission as being that degree of injury
which the law will recognize and take into account. * * * Injury must be harm which is more
than frivolous, inconsequential, insignificant or immaterial.
PAGENO="0523"
515
appears to be a de minimis test.3 The proposed subsidies code would in some fashion
create a material causation standard by requiring that the subsidized imports, and
not other factors, are the cause of injury to the domestic industry.
The IAC, however, requires that dumped imports be the principal cause of materi-
al injury (Article 3(a)). The standard proposed by the subsidies code (and acceded to
by only some of the parties) may be somewhat of a material causation standard only
because subsidized imports, and not other factors, must cause the effects which lead
to a determination of material injury. AIADA believes that the present "principal
cause" standard of the IAC should be retained and that that standard be incorporat-
ed into U.S. antidumping law.
B~ "material injury," or "material cause," AIADA means to use the term "mate-
rial'in the dictionary sense, "having real importance or great consequences" (Web-
ster's New Collegiate Dictionary (1977 ed.)).
Uniform guidance as to the factors leading to a determination of material injury
would be furnished by both the present IAC (Articles 3(b)) and the proposed subsi-
dies code, and AIADA believes that these guides should be incorporated into U.S.
antidumping law, with the exception of the price discipline factor and relative
increase in imports factor, for the reasons stated above. We believe that U.S.
response to subsidies and dumping should be uniform. First, both trade practices
and appropriate responses are covered by Article VI of the General Agreement on
Tariffs and Trade and conceptually should be treated the same. It is illogical to
interpret Article VI one way for countervailing duties, and another way for dumped
duties. Second, the dumping, particularly large-scale continuous dumping, stems in
many cases from the same economic causes as subsidized products. An increasing
phenomenon in recent years affecting conditions of international trade has been
increased government participation in the business operations of formerly private
enterprises or increased government aid to industrial sectors. The result in many
cases has been the creation of the "profitless enterprise." Unlike U.S. enterprises
which are shareholder-owned and expected to earn a profit, these enterprises can
lose enormous amounts and thereby are able to export products at less than fair
value because of government subsidization.
The second economic phenomenon in recent years follows from this trend: the
presence of large-scale or continuous dumping, encouraged by government policies,
in the form of subsidies, internal market restraints,4 or barriers to reentry of the
dumped or similar goods,5 used to subsidize excess employment or carry unneeded
capacity. The result is the export of products at less than fair value-in effect the
export of subsidized products.
Thus, the real dumping problem is no longer sporadic or intermittent dumping
which is essentially the profit-maximizing action of the private firm. In the real
world, subsidized and dumped products are the same in many cases, and the
international response and the U.S. statutory response to both situations should be
uniform. Furthermore, conceptually, the response to both problems should be the
same, since Article VI of the GATT should be interpreted in a uniform manner for
both countervailing and antidumping duties.
If the injury provisions of the subsidies code are enacted into the countervailing
duties laws while the antidumping laws remain unaffected, U.S. businesses will be
given a choice of remedies, the ease of each remedy differing greatly due to the
definition of injury. It is illogical to have a differing standard of injury to deal with
what is, in effect, the same economic situation, and for this reason, the United
States should have a coordinated statutory response to deal with related problems.
Furthermore, AIADA also supports the addition of conforming amendments to the
IAC so as to bring international resolution of dumping problem into conformity, as
intended by Article VI of the GATT.
This Committee's response may well be, if continuous dumping is a problem for
the United States, should not the injury standard be de minmis so as to ensure
more vigorous enforcement of the antidumping laws? We maintain that the use of a
de minimis injury test is not the solution for the following reason.
In the leading case of Ferrite Cores from Japan, U.S. Tariff Commission Pub. No. 360 at 4
(1971) the Commission applied the de minimis test to causation: However, if injury is attributa-
ble in part to the LTFV sales of ferrite cores and such injury is more than de minimis we must
make an affirmative determination. The relative importance of such injury to injuries caused by
other factors is irrevelant.
4 example, those imposed by the EEC under the Simonet and Davignon Plan. See "The
Economic Implications of Foreign Steel Pricing Practices in the U.S. Market", a study prepared
for the American Iron and Steel Institute by Putnam, Hayes & Barlett, Inc. at 21-25 (August
1978).
See the discussion on the closed Japanese internal market for steel in Id. at 19.
PAGENO="0524"
516
Trade policy must reflect the balancing process between the benefits flowing from
free trade and the economic dislocations caused by foreign competition. The econom-
ic interests of all segments of the U.S. economy must be taken into account.
International trade benefits the U.S. economy by providing consumers with lower-
priced goods, acting as a prod to innovation, is an effective anti-monopoly policy,
and helps stem inflation by preventing scarce local supplies from being bid up
precipitously.
Although we are not defending dumping, on the benefit side dumping represents
lower prices to consumers, results in more competition and improved industrial
performance, and acts as an anti-inflationary mechanism of price control.
Should the United States persist in maintaining the de minimis injury standard,
this balancing process will be eliminated at the outset by easing the imposition of
antidumping duties. If the benefits to consumers from international trade and
lower-priced goods are to be withdrawn because antidumping duties are imposed,
then the loss of consumer and other trade benefits should occur only when a
domestic industry has been materially injured, with the injury caused in significant
part by the dumped imports. The government should intervene in the economic
marketplace only when a domestic industry is injured to a significant or important
degree.
(b) Definition of domestic industry-The U.S. antidumping law, 19 U.S.C. § 160,
refers to injury to "an industry in the United States." In practice, the United States
has in some cases found injury to an industry if there is injury to a regional sector
of that industry. For example, in 1955, the Commission found the relevant market
to be the state of California.~ In 1970, the Commission adopted the principle that
"an injury to a part of the national industry is an injury to the whole industry."
However, because of the constitutional provision that duties must be uniformly
applied throughout the United States (Article I, section 8, clause 1), antidumping
duties (though differing as to monetary amount to reflect the margin of dumping)
must be imposed at all ports of the United States on the entry of dumped products,
thereby protecting sectors of the industry not injured and depriving consumers in
all parts of the country of lower-priced goods. Again, this situation totally skews the
balancing process in favor of parochial domestic interests.
For these reasons, AIADA believes that solely the definition of "domestic indus-
try" we understand to be contained in the subsidies code be incorporated in specific
terms into the U.S. antidumping law. AIADA also suggests that the provisions of
the IAC which permits determination of injury on a regional basis not be incorpo-
rated into the U.S. antidumping law. The regional definition of industry permitted
in the code should not be accepted for the reasons stated above, and certainly the
differing duty concept whereby countervailing duties would only be assessed on
those products accepted for constitutional reasons.
(c) A second-tier remedy procedures for setting certain antidumping cases on a
Government-to-Government level-In cases where government ownership of or inter-
vention in business operations or where other government policies contribute to
continuous dumping, or indeed, sporadic or intermittent dumping, the United States
should establish a second-tier, or "second track" settlement procedure similar to
that proposed by the subsidies code.8
The present antidumping procedures are tailored to settle a particularized adver-
sary proceeding between private parties where intermittent or sporadic dumping is
occurring as a result of conscious profit maximizing action. The present form of
proceeding cannot effectively resolve what are essentially national controversies
involving either public enterprises or enterprises harnessed in the service of a
government policy.
Therefore, AIADA proposes that the following domestic procedures, or similar
measures, be incorporated into U.S. antidumping law. A private firm, or an indus-
try, which believes it is being materially injured by dumped imports can petition, as
at present, for a Treasury investigation. Once investigation results in a determina-
tion of injury by the International Trade Commission, the Government would have
two options as to how to proceed:
(1) First, if the offending party is a private enterprise, and its pricing behavior is
not related to governmental actions, duties could not be imposed.
`"Cast Iron Soil Pipe from the United Kingdom," US Tariff Commission, mv. No. 5 (1955).
"Steel Bars, Reinforcing Bars, and Shapes from Australia," US Tariff Commission, Pub. No.
314 at 4 (1970).
8 subsidies code provides that matters can be referred by individual governments to the
Committee of Signatories for review by a panel and recommendations by the Committee to the
parties involved on a solution. These recommendations, of not followed, can evoke appropriate
countermeasures by the Committee.
PAGENO="0525"
517
(2) Whenever dumping has occurred as the result of government subsidization,
ownership of business enterprises, or other government policies, the United States
Government could choose to bring the case to Antidumping Committee of the
GATT. Through the auspices of that Committee, the United States would attempt to
negotiate on a government-to-government level the elimination of the offending
government's practices. AIADA believes that such a "second track" option would be
a far more effective way of containing large-scale dumping. If the United States is
unsuccessful in negotiating a resolution, antidumping duties would then be imposed,
pursuant to present law, on the dumped article. Furthermore, AIADA recommends
that the U.S. Government consider raising at the negotiations on the IAC, its
amendment to include a dispute settlement procedure similar to that in the subsi-
dies code, whereby the GATT Antidumping Committee would function much as the
Committee of Signatories.
(d) Price assurances-Article 7 of the IAC provides that antidumping proceedings
may be terminated without imposition of dumping duties or provisional measures
upon receipt of a voluntary undertaking by the exporters to revise their prices to
eliminate the margin of dumping or to cease to export to the area in question at
dumped prices. We understand that the subsidies code includes a provision on the
use of "assurances" to expedite the conclusion of proceedings. The Antidumping Act
of 1921, as amended, contains no provision on the use of assurances, and Treasury
practice to date has been to accept price assurances only when the margin of
dumping is less than one percent. The purpose of the Antidumping Act is to
eliminate the dumping margin, and not to act as a protectionist barrier and if that
can be achieved through voluntary action on the part of the exporter, the purpose of
the Act is thereby served.
(e) Discretionary waiver of antidumping duties.-Unlike the IAC (Article 8(a)) and
the subsidies code, U.S. antidumping law leaves no measure of discretion with
regard to the imposition of antidumping duties. The IAC states the proposition that
"[i]t is desirable that the imposition [of antidumping duties] be permissive. * * ~"
ATADA recommends that U.S. law be amended to allow the President, upon report-
ing to Congress, limited discretion (the conditions to be referenced in the Act) to
waive dumping duties where adverse economic consequences may result from their
imposition, for example, serious anti-competitive effects. Due to the complexity of
the economic issues involved, waiver should be permitted where the impact on the
U.S. economy does not counterbalance the barriers to the free movement of goods
and consequent competitive benefits.
(f) Termination of finding of dumping-The Antidumping Act contains no explicit
provision for the termination of findings of dumping and the lifting of dumping
duties. Both the IAC (Article 9(a)) and, we understand, the subsidies code contain
provisions which would require that antidumping or countervailing duties remain in
force only so long as, and to the extent necessary to counteract, the dumping or
subsidization which is causing material injury. The subsidies code would also re-
quire review of the continued need for the countervailing duty. Conforming changes
may be made to the IAC, and AIADA supports those amendments. Furthermore,
AIADA urges that conforming changes be made to U.S. antidumping law, and
procedures established to provide for a review process initiated by either govern-
ment investigating authorities or by interested parties. Our submission is based on
the premise that because trade policy must reflect the necessary balance between
the free movement of goods, with its consequent benefits, and protection of domestic
interests, dumping duties should be imposed only when material injury to the
domestic industry has been found to exist. Thus, when that material injury no
longer exists, dumping duties should no longer be necessary.
Mr. VANIK. I just want to say this. We are very carefully watch-
ing the trade imbalances. For example, while they have been going
down with our relationship with Japan we are very much con-
cerned about how the Iranian crises and the shift toward more
imported or gasoline efficient cars is going to affect us.
I can only say this, that the happiness you express with respect
to one company's profitability resulting from a great percentage of
overseas business does not really meet the root of the problem, and
that is the way it affects American labor and American industry.
I think I have made myself clear about my great fears of an
automobile problem resulting principally from the failure of the
American industry to realize that they ought to get into the gaso-
PAGENO="0526"
518
line efficient car market. They offer very few choices compared
with the vast number of choices that are provided by the imported
product. The imported product in effect has forced and is forcing
the American industry to a point of reconciliation of this issue of
conservation.
So, there has been that fallout and help that I think has oc-
curred. They are not going to move unless they are economically
shoved. While we are having a good year and we have blossomed
into 1979 with little problem in the intervening period, I think that
as the problem of gasoline prices becomes more and more acute
and as the inflation in America continues to be more and more
unrestrained because of the fact that we have this continued reli-
ance because of the fact that we have this continued reliance on
imported sources for oil, I am worried about the yearend figures.
America certainly can't tolerate the tremendous imbalance of
trade resulting from a massive shift to an imported product. I just
urge that you and the countries which produce the products that
you sell realize that you have a healthy piece of our market, a
healthier piece of our market than is afforded to imported auto-
mobiles in any other part of the world.
No other country in the world provides such an access as is
provided in the United States. The only thing that I could counsel
to your industry and all of the producing countries is that if they
are interested in importing, they should try to protect a share of
the American market for American workers.
I suggest moderation. I suggest a mindful eye as to what effect
massive incursions can cause in the American economy. You have
always the ever-present problem of dealing with some drastic ac-
tions that Congress can quickly take to curb huge intrusions and
upsetting conditions in our own domestic industry.
You have to be mindful of the limit of tolerance. I know this is
very difficult. Aggressive salesmen can't help but do their work.
But your. industry must be mindful of the acceptable limits and
avoid adverse effects over the long term for your industry.
So I think that you have to be mindful of that and keep your eye
watchfully attuned to the deficits, because those trade deficits are
going to have more of an effect on how this Congress accepts your
industry in America than any other thing I can think of.
Mr. MCELWAINE. Mr. Chairman, we do continuous economic pro-
jections. Even at the present time when we are having quite a
boom in sales because of fears over gasoline and pricing, our projec-
tions still show the imported automobile sales taking no more than
17 to 17.5 percent of the market through 1979.
The reasons for this being numerous:
One, the many price increases we have had with the falling
dollar.
Two, the fact that many of our dealers frankly are running out
of cars. The supply is limited of imported cars.
Mr. VANIK. We had 500,000 from one country the 1st of January
and they have been practically cleaned out.
Mr. MCELWAINE. Yes, but that is not an unusual inventory, Mr.
Chairman. When you are selling 2 million cars a year, as we are,
that is a 3-month inventory. Our normal inventory is 4 months. So
that is not unusual.
PAGENO="0527"
519
Mr. VANIK. I just wanted to apprise you of the overall problem.
Thank you very much.
Mr. MCELWAINE. Thank you, Mr. Chairman.
Mr. VANIK. The next witness we have is the National Tool, Die &
Precision Machining Association and Small Business Legislative
Council. Mr. Frank Wikstrom.
I want to point out that we have reached a point in our proceed-
ings where everybody here is the next speaker. There is no audi-
ence here that we have to worry about too very much. So, if you
want the Chair and the members of this committee to really tune
in on the issues that are critical, I would suggest that you try to
get to the key issues. Otherwise, we might not follow as carefully
an extended statement that is based on your full statement.
So, I want to say, Mr. Wikstrom, your entire statement will be in
the record as submitted. You may read from it or you may excerpt
from it, but try to give us the punchlines, because we are getting
punchy up here.
STATEMENT OF FRANK WIKSTROM, NATIONAL TOOL, DIE &
PRECISION MACHINING ASSOCIATION, AND SMALL BUSINESS
LEGISLATIVE COUNCIL, ACCOMPANIED BY HERBERT LUBEN-
SON, VICE PRESIDENT OF ENVIRONMENTAL AFFAIRS OF
THE NATIONAL SMALL BUSINESS ASSOCIATION AND ASSO-
CIATE DIRECTOR, SMALL BUSINESS LEGISLATIVE COUNCIL,
AND BRUCE N. HAHN, MANAGER, GOVERNMENT AFFAIRS, NA-
TIONAL TOOL, DIE & PRECISION MACHINING ASSOCIATION
Mr. WIKSTROM. Thank you, Mr. Chairman.
I would like to introduce myself and introduce the two gentle-
men with me. I am Frank Wikstrom, chairman of the Government
Relations Committee and a past president of the National Tool, Die
& Precision Machining Association. Our association represents over
10,000 small businesses who manufacture tooling, dies, special ma-
chines, molds, or perform precision machining in the United
States.
This industry is the foundation of all American manufacturing,
for every product manufactured in this country must rely on our
industry for primary components used in the manufacturing proc-
ess. Similarly our industry's products are critical to all defense and
aerospace procurement in the United States.
I am also appearing today on behalf of the Small Business Legis-
lative Council (SBLC), an organization of national trade and profes-
sional associations whose membership is primarily small business.
SBLC focuses on issues of common concern to the entire small
business community. The SBLC membership and their affiliates
represent approximately 4 million small business firms nationwide.
Sitting with me on my left is Mr. Herbert Lubenson, vice presi-
dent for government affairs of the National Small Business Associ-
ation. He is associate director of the Small Business Legislative
Council.
Sitting on my right is Mr. Bruce N. Hahn, manager of govern-
ment affairs for the National Tool, Die & Precision Machining
Association.
I will read my summary first and then take a few excerpts from
the full statement presented to you.
PAGENO="0528"
520
We feel that Congress should not approve the multinational
trade agreement in its present form. This country is simply giving
up so much more than it is gaining.
Small and minority business will be hurt the most. Some 98
countries would be eliminating restrictions on a total of around $22
billion in contracting. That averages under $250 million per coun-
try. We would get to compete with these 98 countries for a share of
that business. We would in effect give up by virtue of elimination
of much of the Buy American Act and the Labor Surplus Procure-
ment Act program at least $14.2 billion in executive procurement
alone.
GSA figures show that at least $4.4 billion of that is direct small
business procurement. Of course, small and minority business
groups do considerable subcontracting for the remainder.
By contrast to those figures Ambassador Strauss estimated that
the total amount of small business contracts which would be in
jeopardy would be $300 to $400 million. This he said in his testimo-
ny on March 20 before the House Committee on Small Business.
He gives numbers which are from one-eleventh and one-fifteenth of
the figures which are shown in GSA published statistics.
I think he is totally misleading the American public and Con-
gress if he is trying to put those figures over. There is no evidence
of export assistance for small and minority business from SBA,
Department of Commerce or Eximbank.
The administration of the small business community agrees that
small business is not equipped to make export effort without help.
All three organizations have testified that resources available to
help small and minority businesses are stretched to the limit.
Despite administration promises, there are no significant appro-
priations to help these organizations take care of the so-called 22
billion birds in the bush. The Buy American Act recognizes that
U.S. business has many more regulations and restrictions than its
foreign competition. It also recognizes that much U.S. business
profits and payrolls are returned to the Government in the form of
income taxes, corporate and personal, thereby reducing the effec-
tive cost of U.S. products. It just makes good economic sense and
should be retained.
Finally, most of the figures we see are fuzzy. Where we have
been able to secure hard government data on the Trade Office, we
find the administration buys as much as 1,000 percent. In no case
do we think Congress should be expected to approve any trade
agreement until it receives hard and specific, line-by-line data on
the effect on U.S. small minority and large business and on the
balance of payments.
The multilateral trade agreement does not, one, address internal
buying policies of other nations. It does not address the question of
farming out to nonsignatory nations. It does not address the fact
that the least developed countries get special treatment.
Even if they do not sign the code, therefore, there is no need to
change their status. It does not address the fact that all of the
industrial nations who are signatory to the code have widespread
State participation in industry.
Thus, we would compete with the State-owned firms where there
is no need to earn profits, no fear of bankruptcy, no dividends to
PAGENO="0529"
521
pay. They enjoy low-cost loans, et cetera. All of these factors defy
rules of capitalism as practiced in the United States.
Now, I ask you is it possible to outbid such firms in the market-
place? One person who read about the proposed program made this
comment about trying to do business here. I would like to quote. I
am having just a bit of trouble finding that particular page. Give
me 1 minute.
One small manufacturer made this comment about the proposed
MTN action. He says, and I quote:
If I were responsible for a U.S. company that was seeking Federal contracts and
had not been successful, I would move my headquarters to San Marino, Bermuda, or
Haiti, where I would not be concerned with OSHA, social security, income taxes,
labor standards, minimum wages or labor unions, and find myself in a much better
position to compete and actually to obtain U.S. Government contracts.
We just feel that a terrible thing is being done to small business
in the United States. We are the patsies. We are the ones who are
going to get hurt. Big business is not going to get hurt to the extent
small business is. We have had this effort to set aside, we have had
these programs to provide setasides for small business. Now, these
things are being traded away.
Thank you.
[The prepared statement and attachments follow:]
STATEMENT OF THE NATIONAL TOOL, DIE AND PRECISION MACHINING ASSOCIATION
AND SMALL BUSINESS LEGISLATIVE COUNCIL
My name is Frank Wikstrom. I am Chairman of the Government Relations
Committee and a past president of the National Tool, Die and Precision Machining
Association. Our association represents over 10,000 small businesses who manufac-
ture tooling, dies, special machines, molds, or perform precision machining in the
United States.
This industry is the foundation of all American manufacturing, for evey product
manufactured in this country must rely on our industry for primary components
used in the manufacturing process. Similarly our industry's products are critical to
all defense and aerospace procurement in the U.S.
I am also appearing today on behalf of the Small Business Legislative Council
(SBLC), an organization of national trade and professional associations whose mem-
bership is primarily small business. SBLC focuses on issues of common concern to
the entire small business community. The SBLC membership and their affiliates
represent approximately four million small business firms nationwide. The SBLC
supports an increased share for small business in Federal procurement, and this
position is supported by 40 national associations.
On behalf of the nation's small business community, we wish to express our
displeasure with the approach taken in the Administration's negotiated Multilateral
Trade Agreement (MTA). This Agreement restricts many of the long-standing pro-
grams gained after many years of effort by small business.
Soon the Administration will be sending to the Hill the Multilateral Trade
Agreement.
Before action is taken on MTA, we express our concern about two aspects of the
Agreement which would repeal, for all practical purposes:
(1) The Buy American Act under which foreign companies must underbid U.S.
firms by 12% to obtain Federal Procurement Contracts:
(2) The Labor Surplus Procurement Program which restricts competition on cer-
tain contracts to firms which will perform a substantial proportion of the produc-
tion under the contract in a high unemployment area.
It is true that total emasculation of these two laws-Buy American and Labor
Surplus Program-will not occur since there are exemptions included in the MTA.
Ambassador Strauss stated before the House Committee on Small Business on
March 20 that no exact figures were available on just how much in current small
business sales to Federal agencies will be lost to MTA. He speculated that it might
be $300-400 million. At his side at the time was Robert Griffin, formerly Deputy
Administrator with the General Services Administration. Mr. Chairman, for many
years each Federal Agency has been required to file detailed quarterly reports on
LtL~-998 - 79 - 3~
PAGENO="0530"
522
procurement with the Office of Finance of the GSA. We find it hard to understand
why this information could not be provided to the committee. And we also find the
estimate ridiculously low. According to the data compiled, provided by GSA's Office
of Finance, the annual small business procurement by the executive agencies is 28.6
billion.1 Approximately 9 billion of this is direct small business procurement and a
significant portion of the remaining 19.6 billion results in subcontracting contracts
to small business. GSA figures show that only half of the small business direct
contracting will be exempted. Large contractors will fare much better-about two-
thirds of the large contracts will still remain exempt. We are giving away over 4
billion in small business procurement and 6.8 billion in large business procurement.
Our estimate is that we are talking about five to six billion dollars in small and
minority business procurement contracts-not the 300 to 400 million as Mr. Strauss
has speculated.
Another matter that concerns us are rumors that the "price" for restoration of
the small business set asides will be the elimination of NASA procurements from
the exempt list. If that happens subtract another $3.4 billion in exempt procure-
ment and add it to the $10.8 billion giveaway. Remember also that you are talking
about depending on foreign sources for critical technology. Technology developed for
our space program is technology which is eventually applied to our defense pro-
gram. Is it in the interest of the United States to be dependent on other countries
for the ability to produce sophisticated systems and ordinance for our military
needs? This technology also filters down into consumer products, giving domestic
industry a head start in such areas as mini computers and many other areas.
In spite of the set-aside changes already made in MTA, the business community
in the United States is bound to be affected by provisions still in the Treaty. If the
door is shut to big business by the elimination of the Buy American Act, consider-
able subcontracting to small or minority business by large business or by govern-
ment will be lost. The total government procurement that could be affected perma-
nently in sales to Civilian Executive Agencies is $14.2 billion.
Ambassador Strauss has testified that a number of products and agencies will be
excluded from the Code. In addition, purchases by certain governmental agencies,
not covered by the Code, are excluded tentatively.
If a foreign producer sells to one agency of the Federal government at a price
lower than an American firm, the pressure will be on all agencies of government,
whether or not they were included in the MTA, to purchase from the foreign
producer-Canada is a good example.
Here is the breakdown by program: minority business enterprises subcontracting
to large business-$1.207 billion; small business subcontracting to large business-
$863,652,000; prime procurements from other than small business-$20.12 billion.
Procurements in the labor surplus area would also be affected. Presently, under
preference procedures for labor surplus areas an additional $227 million in con-
tracts would be affected (see attachments A through N).
We believe it important that, in light of the tentative exemptions in the MTA,
Congress should demand line-by-line specificity as to the amount of government
procurement that will be affected with respect to current domestic sales by large
and small business to agencies of the U.S. government. Only when that information
is provided can a reasonable and fair comparision of benefits and concessions be
made.
The present Federal Procurement Regulations provide aI~folJows:
Sec.1-6'.104.4 Evaluation of bids and proposaLs
(a) Unless otherwise determined by the head of the agency in accordance with the
Buy American Act, where the procedures in this § 1-6.104-4 result in the acquisi-
tion of foreign end products, the acquisition of domestic source end products would
be (1) unreasonable in cost or (2) inconsistent with the public interest (see § 1-
6.103.3).
(b) Except as provided in paragraph (d) of this section, bids and proposals shall be
evaluated as provided in this section so as to give preference to domestic bids. Each
foreign bid shall be adjusted for purposes of evaluation by adding to the foreign bid
(inclusive of duty) a factor of 6 percent of that bid, except that a 12 percent factor
shall be used instead of the 6 percent factor if the firm submitting the low accept-
able domestic bid is a small business concern or a labor surplus area concern (as
defined in § 1-1.701 and 1-1.801 respectively), or both. However, if an award for
more than $100,000 would be made to a domestic concern if the 12 percent factor is
applied, the case shall be submitted to the head of the agency for decision as to
whether the award to the small business concern or labor surplus area concern
1 attachments A-H.
PAGENO="0531"
523
would involve unreasonable cost or inconsistency with the public interest (see § 1-
6.103-3). If the foregoing procedure results in a tie between a foreign bid as evaluat-
ed and a domestic bid, award shall be made on the domestic bid. When more than
one line item is offered in response to an invitation for bids or request for proposals
the appropriate factor may be applied to any group of items as to which the
invitation for bids or request for proposals specifically provides that award is to be
made on a particular group of items.
It is important to note that Federal procurement with certain exceptions must go
to a U.S. small business if its bid is within 12 percent of the foreign offer. The 12
percent differential represents partial offsetting of the lowered cost of doing busi-
ness by foreign competitors who are not subject to compliance with wage laws, U.S.
government regulations, pension programs, etc.2
The MTA scraps this 12 percent differential in favor of competition by businesses
from some 98 nations. Those countries, in practical effect, will subsidize this compe-
tition because they need not conform to U.S. business regulations (see attachment
N).
Ambassador Strauss' defense that contracts of $190,000 or less are exempt should
be given no weight since he has produced no figures to show the average contract
under the Buy American Act or the Labor Surplus Procurement Program.
(This same exemption of $190,000 was trumpeted by the Ambassador in advocat-
ing elimination of set-asides as negating any material effect on that program. He
withdrew that defense when it was established that the average minority set-aside
is $222,357, and the average set-aside for manufacturers is $526,821. As you know,
the proposed MTA until approximately five weeks ago severely limited the present
small and minority business set-aside program. After vigorous opposition by mem-
bers of the House Small Business Subcommittee on Government Oversight and
Minority Enterprise this limitation on set-aside was removed. Ambassador Straus
was able to accomplish this in 48 hours in negotiations with 98 nations!)
The erroneous answer of the Ambassador to those who question the provisions of
MTA is that there will be no loss to small business but a gain, since the "quid pro
quo" is that sales to the procurement offices of some 98 foreign nations (Japan is an
exception) will now be opened up to U.S. business. The export "opportunities" are
supposed to total $20 billion, but this means little to small business for these
reasons.
(1) The $20 billion of export opportunities is not exclusively for U.S. business, but
for 98 nations competing for that $20 billion;
(2) Many firms in the 98 nations can underbid U.S. business-and still make a
sizeable profit-because they don't have the added costs of compliance with U.S.
mandatory regulations. (See Attachment M). We know of no requirement that
foreign firms will have to comply with such regulations;
(3) U.S. small business does not have the wherewithal or the marketing expertise
to penetrate the foreign market. U.S. big business, including their already in-place
multi-national companies, are in a preferred position to take advantage of MTA (See
Attachment N-Journal of Commerce March 3, 1979.) Moreover both the Small
Business Administration, Export Import Bank and the Department of Commerce
have testified that adequate funding for additional small business export opportuni-
ties is not available.
After years of practice we have established a successful SBA program that certi-
fies whether small business has the competency to compete on a government con-
tract. Will the many thousands of foreign businesses, who want to compete on U.S.
government contracts, be subjected to the same certification program? Who will
administer the program to ensure competency?
At the White House Conference on Small Business in Dallas, Texas on January
23, Ambassador Strauss said: "President Carter has recognized the enormous poten-
tial for small business in international trade. A principal part of the expanded
export promotion policy announced by the President last September was the chan-
neling of up to $100 million of Small Business Administration loan guarantees to
small business exporters to provide seed money for entry into foreign markets."
A review of the appropriations does not indicate an additional request for loan
guarantees for the purpose of exporting.
Other major industrialized nations have long histories of aggressive export promo-
tion and blocking imports of our members products, not through trade sanctions but
through customs rules, subsidies, distribution complications and all manner of
delays. Will the Strauss "Open Door" change this? Are the $20 billion phantom
opportunities-the birds in the bush-offered by Mr. Strauss actually better for
American business than the business in hand?
2 Attachment M.
PAGENO="0532"
524
One small manufacturer made this comment about the proposed MTA action: "If
I were responsible for a U.S. company that was seeking Federal contracts and had
not been successful, I would move my Headquarters to San Marino, Bermuda, or
Haiti, where I would not be concerned with OSHA, Social Security, income taxes,
labor standards, minimum wages, or labor unions, and find myself in a better
position to compete and actually obtain U.S. government contracts.'
The end result of the MTA if adopted by Congress will mean a sizeable loss to the
U.S. small and large business which now sells, or hopes to sell, to Federal agencies;
loss of U.S. jobs to cheap labor abroad; and a step backward for U.S. small business.
More than Federal procurement is involved. Once the door is opened more widely
to U.S. Federal procurement to the nations abroad, the next step will be for foreign
business to further exploit the U.S. state-county-city-metro government market.
When members of Congress stated their strong opposition to limiting the set-aside
program under MTA, Ambassador Strauss was able to remedy the situation quickly.
He can do the same with respect to the Buy American Act and the Labor Surplus
Program if Congress strongly registers its opposition. Unless the MTA is amended
to correct these two inequities, we urge you to vote against its adoption.
The proposed MTA in reducing small business' share of Federal procurement runs
counter to the position of 40 members of the Small Business Legislative Council who
support an increased share for small business of Federal procurement. These 40
members are the following trade and professional organizations:
American Association of Nurserymen, Washington, D.C.
American Textile Machinery Association, Washington, D.C.
Association of Diesel Specialists, Kansas City, Mo.
Association of Physical Fitness Centers, Bethesda, Md.
Automotive Warehouse Distributors Association, Kansas City, Mo.
Building Service Contractors Association International, McLean, Va.
Business Advertising Council, Cincinnati, Ohio.
Direct Selling Association, Washington, D.C.
Electronic Representatives Association, Chicago, Ill.
Furniture Rental Association of America, Washington, D.C.
Independent Bakers Association, Washington, D.C.
National Association of Plastics Distributors, Devon, Pa.
National Association of Retail Druggists.
Independent Business Association of Washington, Bellevue, Wash.
Independent Sewing Machine Dealers of America, Hilliard, Ohio.
International Franchise Association, Washington, D.C.
Institute of Certified Business Counselors, Lafayette, Calif.
Local and Short Haul Carriers National Conference, Washington, D.C.
Machinery Dealers National Association, Silver Spring, Md.
Manufacturers Agents National Association, Irvine, Calif.
Marking Device Association, Evanston, Ill.
Menswear Retailers of America, Washington, D.C.
National Association for Child Development and Education, Washington, D.C.
National Association of Brick Distributors, McLean, Va.
National Independent Meat Packers Association, Washington, D.C.
National Office Machine Dealers Association, Zanesville, Ohio.
National Beer Wholesalers' Association of America, Falls Church, Va.
National Burglar and Fire Alarm Association, Washington, D.C.
National Electrical Contractors Association, Bethesda, Md.
National Family Business Council, West Bloomfield, Mich.
National Home Furnishings Association, Washington, D.C.
National Home Improvement Council, New York, N.Y.
National Independent Dairies Association, Washington, D.C.
National Office Products Association, Alexandria, Va.
National Paper Trade Association, New York, N.Y.
National Patent Council, Arlington, Va.
National Pest Control Association, Vienna, Va.
National Small Business Association, Washington, D.C.
National Tire Dealers and Retreaders Association, Washington, D.C.
Printing Industries of America, Arlington, Va.
PAGENO="0533"
525
ATTACHMENT A
Procurement by civilian executive agencies, fiscal 1978 (in $ million)
Total
Executive Total Small Business Other than Minority
Procurement Procurefl~ent Procurement Small Business Business
28,566 8,446 20,120 580
Exempted
Agencies
DOE 7,522 1,055 6,467 64
DOT 1,131 466 665 68
TVA 5,699 2,570 3,129 5
TOTAL 14,352 4,091 10,261 137
DOE, DOT
& TVA
Amount not
exempt
(Line 1 -
Line 6) 14,214 4,355 9,859 443
PAGENO="0534"
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PAGENO="0541"
533
ATTACHMENT 1.-Minority business enterprises subcontracting program
Minority business enterprises subcontracting to Government $152,204,000
Minority business enterprises subcontracting to large business 1,207,673,000
Total 1,359,877,000
Source: Procurement by civilian executive agencies for the period Oct. 1, 1977, to Sept. 30,
1978. (Prepared by General Services Administration, Office of Finance.)
ATTACHMENT J.-Small business subcontracting program
Small business subcontracting to Government $506,761,000
Small business subcontracting to large business 863,652,000
Total 1,370,413,000
Source: Procurement by civilian executive agencies for the period Oct. 1, 1977, to Sept. 30,
1978. (Prepared by General Services Administration, Office of Finance.)
ATTACHMENT K-Total prime procurement
From small business $8,446,206,000
From other than small business 20,120,046,000
From minority business enterprises 579,658,000
Total 28,566,252,000
Source: Procurement by civilian executive agencies for the period Oct. 1, 1977, to Sept. 30,
1978. (Prepared by General Services Administration, Office of Finance.)
PAGENO="0542"
ATTACHMENT L
PROCUREMENT IN LABOR SURPLUS AREAS
Source: Procurement by Civilian Executive Agencies for the Period Oct. 1, 1977 to Sept. 30, 1978
(Prepared by General Services Administratiofl, Office of Finance)
c-~1
CA~
UNDER PREFERENCE PROCEDURES
UNDER
NONPREFERENCE
PROCEDURES
TOTAL LABOR SURPLUS
SET ASIDES
(SMALL BUSINESS)
TOTAL LABOR SURPLUS
SET ASIDES
(GENERAL)
Total
$ 54,115,000
Total
$ 173,457,000
From Small
Business
$ 97,876,000
Total
$ 10,758,285,000
From Small
Business
$ 1,947,328,000
PAGENO="0543"
535
ATTACHMENT N
ILLUSTRATIVE LIST OF MANDATORY REGULATIONS
REQUIRED OF FEDERAL PROCUREMENT CONTRACTORS AND SUBCOHTRI\CTORS
Cost Accounting Standards
Audit
Renegotiation
Allowable Cost, Fixed-Fee, and Payment
Negotiated Overhead Rates
Inspection
Standards of Work
Reports of Work
Key Personnel
Foreign Travel
Competition in Subcontracting
Changes to Make-or-Buy Program
Services of Consultants
Notice to the Government of Labor Disputes
Insurance - Liability to Third Persons
Printing
General Services Administration Supply Sources
Government Property
Authorization and Consent
Patent Rights
Rights in Technical Data
Copyright Infringement
Reporting of Royalties
Private Use of Contract Information and Data
Buy American Act Supply and Service Contracts
Clean Air and Water
Required Source for Jewel Bearing
Covenant Against Contingent Fees
Officials Not to Benefit
Uti 1 i zation of Ilinori ty Business Enterprises
Utilization of Small Business Concerns
Minority Business Enterprises Subcontracting Program
Small Business Subcontracting Program
Labor Surplus Area Subcontracting Program
Convict Labor
Disabled Veterans and Veterans of the Vietnam Era
Employment of the Handicapped
Equal Opportunity
Walsh-Healey Public Contracts Act
Contract Work Hours and Safety Standards Act
Overtime Compensation
Preference for U.S. Flag Air Carriers
Use of U.S. Flag Conviiercial Vessels
Federal Reports Act
Workers Compensation
PAGENO="0544"
536
[From the New York Journal of Commerce, Mar. 29, 1979]
AFFACHMENT N.-WORLD TRADE, DEFENDERS OF SMALLER U.S. FIRMS FORCE
STRAUSS To AMEND NEGOTIATING PLANS ON PROCUREMENT PRACTICES CODE
(By Richard Lawrence, Journal of Commerce Staff)
WASHINGTON.-In these days when billions are tossed around like so much loose
change (in Washington, anyway), who'd have thought that less than a half-million
dollars would mean so much to so many?
It happened last week. A small band of congressmen carrying the small business
banner forced Trade Representative Strauss to amend his negotiating plans. As part
of the government procurement practices code about to emerge from Geneva, the
Carter trade team was to open up to foreigners procurement reserved for smaller
U.S. companies.
But Democratic congressmen, such as New York's John LaFalce and Joseph
Addabbo and Baltimore's Parren Mitchell, protested with heat that foreigners
would than grab away the small, and especially minority, contracts. U.S. trade
negotiators are "guilty of complicity," Rep. Mitchell scolded Mr. Strauss, in inflict-
ing "enormous damage" on minority enterprise.
Mr. Strauss insisted that small businessmen stood to win "substantial gains" at
only "infinitesimal risk" from the proposed code. He cited estimates that only about
7 percent of federal business reserved for small business would be opened to foreign
competition. In 1978 terms, that would amount to $350,000.
OPPOSITION VOWED
Still, Rep. Mitchell vowed to "fight hard" against the code-and implicitly against
the entire Geneva trade package Mr. Strauss hopes to bring Congress in the next
month or so. But, the congressman added, "You'll probably win."
He was wrong. A few days later, Mr. Strauss-in his latest move to try to
guarantee that Congress approves the Geneva package-relented, and so the busi-
ness the federal government sets aside for small and minority enterprise will not be
touched by foreign hands.
Later, Mr. Strauss was said to have called the small businesss fuss a "tempest in
a teapot," and he was right, in strict dollar terms but not in political terms-if
there had been enough small business votes on Capitol Hill to threaten the code, or
worse, the whole Geneva trade package.
What about this government procurement code? A lot of numbers are flying
about, as people try to explain its potential impact. One official estimates it could
open an additional $30 to $35 billion in potential exports for U.S. firms, another
talks of "upwards of $20 billion." It isn't even certain how much in foreign goods
federal agencies procured last year.
At least one thing seems clear-the code is basically a creature of the U.S., which
has long protested that other countries virtually exclude outsiders from government
contracts. The U.S., however, has been criticized for its "Buy American" policies.
But, U.S. officials counter, Washington's procurement rules are not hidden in a
bureaucratic cloak. And federal purchases of foreign goods total perhaps as much as
$2 billion a year, according to one agency estimate.
Basically, the code pledges nations to open government procurement to foreign
suppliers in a nondiscriminatory way through the publication of procurement rules,
advertising of bid requests, and by citing technical specifications that don't arbitrar-
ily favor local suppliers.
Hardly all government entities-here, in Europe or in any adhering country-are
likely to come under the code, at least at first. The U.S., for instance, may exempt
completely the Departments of Energy and Transportation, NASA, TVA, the Army
Corps of Engineers, Amtrak, Conrail and the Postal Service.
The code will cover only goods, not services, and not even goods purchases of less
than $190,000. Goods "necessary to national security" would be excluded. State and
local "Buy American" practices are beyond the code.
Moreover, the Defense Department will keep buying only domestic textiles, cloth-
ing, shoes, food, specialty metals, ship and ship components, handtools and stainless
steel flatware.
The General Services Administration, the federal procurement agency, will con-
tinue to grant U.S. suppliers a 50 percent "Buy American" price differential,
against foreigners, in its flatware and handtool purchases for civilian U.S. agencies.
What, then, will the U.S. offer foreigners? It will waive the 6 and 12 percent price
preferences GSA extends to domestic suppliers for such civilian agencies as State
PAGENO="0545"
537
Department, the departments of Urban Development and Housing, Education and
Welfare-in other words, those now excluded from the code.
Similarly, the Defense Department's 50 percent preference for domestic suppliers
will be waived on goods other than national security items and the listed exemp-
tions.
FOREIGNERS SHARE
How much U.S. procurement will go to foreigners from these moves? Nobody can
say. For one thing, negotiations are still going on. Besides, U.S. agencies have not
yet assembled all the background data necessary for a good guess. All that can be
said now is that foreigners would win the chance to bid on something less than an
additional $12 billion a year in federal contracts. How much less is unclear.
(Last year, total federal procurement-goods and services-approximated $79 bil-
lion.)
What sales gains U.S. exporters would reap from the code is also nebulous. The
European Community (EC) has offered to open procurement to outside suppliers on
roughly $10 billion a year in contracts. Japan's offer so far amounts to only $3 to $4
billion-quite inadequate, U.S. officials insist. Smaller concessions are expected
from Canada, Switzerland and the Nordic countries.
Say, overall, that foreign nations will let U.S. and other outsiders compete on an
extra $20 billion a year in government contracts. That doesn't mean an added $20
billion in U.S. exports. An uncompetitive U.S. might wind up with only a few billion
in orders.
The same competitive factors hold true for foreigners seeking more U.S. govern-
ment business.
Mr. JONES. Thank you very much.
Do any of your colleagues have any statement?
Mr. WIKSTROM. My two colleagues here have helped prepare the
data. We have many tables here from SBA and others which are
contained herein. They have helped me develop these figures in
support of the entire written statement.
Mr. JONES. Thank you.
Maybe I should ask if they want to make some additional com-
ments.
Mr. LUBENSON. Based on testimony before the House Small Busi-
ness Committee, it is very obvious minority and small business
organizations were going to be quite opposed to any treaty agree-
ment. As a result, within about 48 hours they were able to renego-
tiate on two provisions which was the small business fees set-aside
and on the minority set-aside.
However, "Buy American" and "Labor Surplus" still exists in
the contract. We have been warned that if the small business set-
aside and the minority set-aside were retained here in this country,
they were going to be traded for something else.
What we now suspect and we have some evidence to the effect
that where in the past NASA contracts were excluded in exchange
for the set-aside provisions, they now have thrown something like
$3.3 billion of NASA contracts into the pot for the foreign govern-
ments to bid on.
Mr. JONES. It sounds to me like you are more interested in
protecting these markets here than aggressively pursuing markets
abroad. Is that a fair statement?
Mr. WIKSTROM. I would say that since we represent small busi-
ness, and when I am talking small business I am talking about
really small business. My own company is a company of 25 people,
including me, on the corporate payroll~ We are not by and large
people who are going out into the export market which they say
now we make available to you.
I~L~_998 - 79 - 35
PAGENO="0546"
538
Small business is not export oriented and we have no evidence
that there is anything being done to help us. Despite what is being
said by the administration we find no evidence that there is any-
thing being done to help us export.
Also, small business does not have large capital nor does it have
generally the large manufacturing programs with the tremendous
volumes of products produced and would, therefore, in most cases
not be able to compete for the market in those other countries.
The 98 countries we are talking about are countries which are
already serving those markets, already have an in. And many of
them do not have the burdens of doing business that are imposed
on the American producer.
Therefore, I think we are at a grave and serious disadvantage in
trying to offset by going into the international trade field.
Mr. JONES. I would say that you are right. Much small business
and much large business is not export minded or conscious of our
export potential. But there are some aggressive small businesses in
my area in Oklahoma who are doing a whale of a job in developing
markets overseas and they have employees numbering in the 20 to
40 category. Mr. Frenzel and I will be introducing some legislation
to expand and give new incentives to exporters with special empha-
sis on small business, so hopefully we can develop more of the
consciousness necessary for exports from this country.
Mr. LUBENSON. May I add, sir, that just recently the Department
of Commerce, Small Business Administration, the Export-Import
Bank, and the OPIC group admitted that they had very little going
in the way of programs, effective programs, for the small business
community. In effect, we know that from the last 20 years the
Department of Commerce has failed miserably in terms of their
programs for the small business community.
Mr. JONES. You are preaching to the choir on that. I agree with
you wholeheartedly. Hopefully we are going to have a little legisla-
tive boost to change some of that.
Mr. WIKSTROM. You spoke, sir, about small people doing export
business. I, myself, with a small business do export. I have my
machinery in England, Belgium, .Germany, Italy, Spain, Canada,
Kuala Lumpur, Malaysia, and there is some in Japan. Hopefully I
will get into Australia. So, I do know a small business with the
product for which there is a need in the world market will be able
to export but that is because there is something special about that
product that makes people want to buy it regardless of trade bar-
riers. There is a special need we fill. When we are going into the
general contracting and general export that is not recessarily the
same situation at all. I am sure that your constituents in Oklaho-
ma certainly have a good product for which there is a worldwide
market regardless of any trade agreement and, therefore, they are
successful in that field. I am glad to hear they are.
Mr. JONES. I differ with you on your testimony. I think Ambassa-
dor Strauss and our negotiators have helped to break down sub-
stantially some of these subtle barriers in international markets
that prevent our product from competing. We have a difference of
opinion on that.
Mr. Moore.
Mr. MOORE. Thank you, Mr. Chairman.
PAGENO="0547"
539
Gentlemen, I understand from reading your testimony and lis-
tening to you that your main complaint is the "Buy American"
protection being taken away.
Mr. WIKSTROM. That is correct.
Mr. MOORE. Do you foresee any situation that would allow for-
eign companies to have access to Government procurement being
acceptable to you?
Mr. WIKSTROM. I don't know what it would be. I really don't
know how to answer that question because I don't know what is
going to be made available.
Mr. MOORE. The next question is let us assume that the MTN
does become law and we do have the problems that you are talking
about, and I assure you we are all concerned about small business
and have no desire to see you put out of business, but to the
contrary, to make you competitive and do what you believe you can
do. We believe that American business with proper incentive
shackles taken off can compete with anybody. What can we do in
Congress to make you competitive? You mentioned OSHA. What do
we need to do to make you competitive so that you can compete?
Mr. WIKSTROM. Our concern is that we have burdens upon us.
We have burdens that costs of manufacture which are not imposed
on people that we compete with. We don't know how we are going
to overcome those factors. We can't say that other people must
carry these burdens unless you are going to put some kind of
special tax on them to make a compensating offset.
Mr. MOORE. That is what we can't do.
Mr. WIKSTROM. I know that, That is why I don't know how we
are going to do it. Either you are going to have to put some kind of
burden to make it equitable or you are going to open the door to
them. I don't know the easy answer.
Mr. MOORE. There is not an easy answer I am sure. What we
have talked about is the possibility of rapid rates of depreciation
for Government order devices or procedures.
Mr. WIKSTROM. Those should have been done a long time ago.
Mr. MOORE. You mentioned capital. I know in your business if
you have a customer that buys your dies or your tooling processes
or whatever, it may well be he is going to have to have some
capital formation, tax incentives to have the money to buy dies
from you and retool.
I would appreciate your doing this. This particular chairman and
myself are very interested in these sorts of things. I would appreci-
ate it if you would take the time-the record has been left open
until Wednesday of next week-if you could take the time to sit
down with your board or whatever and give us some advice or
some comments on paper, even a shopping list, if you will, of what
we can do if this passes to make you competitive. We very much
appreciate that. We are trying to build evidence of what happens
after MTN as much as we are about MTN. I would appreciate such
a list from you.
Mr. WIKSTROM. I appreciate the opportunity to put something
additional in the record. I will see what we can come up with in
the response to your questions.
Thank you very much.
PAGENO="0548"
540
Mr. JONES. Chairman Vanik, I think, had some questions he
wanted to ask.
Mr. VANIK. Did the set-aside provision take care of small busi-
ness? You know, we pressured for that change. so I think you are
protected on the set-aside issue.
Mr. HAHN. That is what Mr. Strauss has maintained.
Do you want to handle that?
Mr. LUBENSON. Yes, we feel protected on the set-aside with the
negotiations. They were still negotiating at the time of the testi-
mony before the House committee. And they made the set-aside
and minority set-aside change. However, many of the firms that
obtain prime contracts that normally would subcontract to the
smalls and minorities, if those large firms are going to get cut out,
so will the smalls and so will the minorities.
Mr. VANIK. If there is any innovation, I think you are in a
position to provide it. I do realize the special problems you have in
getting some of this foreign business because it is a very complex
operation and small businesses can hardly afford it unless they
develop some consortium arrangement.
You are at a level where I think you can compete really. In some
parts of the free world there is nothing like the free small business
activities that we have in the United States. I think we probably
lead the world in this kind of business activity. I think you ought
to be able to really cut into these markets if you could just be
spared the tremendous overhead cost of negotiating and selling and
merchandising the product. You can't afford negotiating. You can't
do a lot of those things that are essential. I am hopeful that in
whatever we do that we provide some means of really exploring
the real potential for the small business group.
We have some adversity we have to sometimes suffer. But in my
community we have more small businesses than we have almost
anywhere else in the United States. We have a capacity for self-
survival.
Mr. WIKSTROM. I believe that.
Mr. VANIK. Anything needed in the world can be made in my
area. I was impressed by the 900-day seige of Leningrad. The
Russians are very sensitive about the risk of war and the people in
the streets are all concerned about SALT. They ask, "Do we really
want peace?" And to an extent that we can't even measure, there
is nothing comparable in the United States; our people are indiffer-
ent. When you look at cities like Leningrad where they lost more
people than we did in all wars combined in that 900-day seige,
when you look at the capacity of that little area and the way they
were able for 900 days to create all the things they needed, to
create all the things they needed to sustain life at a very low level,
but yet they produced, and they produced weapons, and they pro-
duced defensive things against the attack of the Nazis, and that is
the kind of capacity that is so important in our country.
I was deeply impressed, however, it worked out, that with their
resourcefulness they were able to survive that way and for that
long.
I want to address myself to this special thing because I think one
man running his own industry or one small group running its own
PAGENO="0549"
541
enterprise can cut corners that larger enterprises get lost in in
their computers.
One of the special things I want to address my efforts to is the
need to maintain this very highly competitive power that we have
in small business enterprise. One of the things I am hoping that we
can come out of this Congress with is a stimulus on technology. I
would hope you would be supportive of this. I feel that we are
running out of technology, and as I told the Soviets last week that
there was no joy in America when American technology was sold
to them under a foreign label.
I don't like the way our multinational corporations can sell our
technology that we can't directly sell. I don't know how to get a
handle on this problem. But I want you to know that to the extent
that we can we are going to try to figure out some way either
through centralized trading organizations or some such facility to
create real openings in these markets.
Second, I hope we can refurbish your technology incentives that
will make it possible for you to make some technological break-*
throughs. You can do it with a plant of ten as well as you can do it
with a plant of 100,000. You probably can do it more effectively.
Among your own workers are people who can point out some
technologies. I always feel that this opportunity to develop a better
way is very, very broad. You have within the capacity of your own
plants people who probably can come up with an idea at practically
little cost which a big, powerful industry would have to spend
millions of dollars on research to acquire.
So, be mindful of this. We know your special problems. We know
that your strength and vitality is one of the keystones of our
American system. Thank you very much.
Mr. LUBENSON. I might say this committee can do a great deal to
stimulate innovation and technology through the incentives that
can be provided, tax incentives particularly.
Mr. MOORE. That is precisely what you should tell us in a letter,
precisely what we can do, cut taxes, give investment tax credits.
You tell us so that we can consider that. You are correct, we can
do something about it.
Mr. WIKSTROM. Thank you very much.
Mr. JONES. Thank you.
Our next witness is Patrick F. J. Macrory, counsel, West Mexico
Vegetable Distributors Association and Union Nacional de Produc-
tores de Hortalizas.
Mr. VANIK. Excuse me, Mr. Jones. I want to tell you to be careful
about these fellows. I made a trade speech and appearance in
Mexico and I confronted members of their organization in an en-
counter during which they brought in all the television media and
chewed me all over the place.
I want you to be careful, because this is a very powerful and
effective group. I know that the industry has an overlap effect in
some of the adjoining States. We have had Congressman Udall and
others who have been very sensitive about the need for an under-
standing of the special problems that relate to the Mexican tomato
industry.
This is a vital source of a winter supply of vegetables for the
American people. I hope we can work out a relationship which will
PAGENO="0550"
542
be mutually beneficial. The need for tomatoes in America is so
great in the winter that we ought to be able to use everybody's
tomatoes if we just work out an orderly system of getting them to
the market in a way that they do not disrupt our American
business.
In my own community we have probably the Nation's largest
tomato production under glass. I know there is a great interest in
the Florida industry. It seems to me we ought to be able to work
out a system. we need vegetables so critically in our American
market during the winter that there ought to be a good productive
role for every segment of the industry.
We certainly want to maintain our good relationships with
Mexico. We will buy some of your tomatoes if you will sell us some
gas and oil with it, you know. Maybe we can work out a combina-
tion arrangement.
Remember that we don't particularly like to pay more than we
pay Canada. All of these things are interrelated.
So as you go back to your community remind them that we want
* to develop a broader interrelationship in all segments of our com-
merce between our countries.
STATEMENT OF PATRICK F. J. MACRORY, COUNSEL, WEST
MEXICO VEGETABLE DISTRIBUTORS ASSOCIATION AND
UNION NACIONAL DE PRODUCTORES DE HORTALIZAS
Mr. MACRORY. Thank you, sir.
I know my client will deeply appreciate your remarks.
Mr. Chairman, I appreciate the opportunity to testify here this
morning. I should note that I am accompanied by Mr. Albert
Yamada.
As Chairman Vanik pointed out, Congressman Udall testified
eloquently on this subject on Wednesday. So I can be extremely
brief.
For the record, I am testifying on behalf of the West Mexico
Vegetable Distributors Association, an association of some 50 U.S.
companies based in Nogales, Ariz., and the Union Nacional de
Productores de Hortalizas, an organization of Mexican vegetable
growers. Members of these two groups are currently involved in a
massive investigation under the Antidumping Act, which covers
five winter vegetables imported from Mexico-tomatoes, eggplant,
peppers, cucumbers, and squash.
This case is the first one to deal with perishable goods under the
act in its present form. It has thrown up an anomaly in the act
that if not corrected will have rather profound consequences ad-
verse to consumers in this country and also to our relationships
with Mexico.
My purpose in testifying is to try to make the subcommittee
aware of this anomaly and request that it consider some corrective
measures. I will first describe the anomaly, and then go on to
discuss the consequences if it is not corrected. Finally, I will sug-
gest some possible solutions.
First, I would like very briefly to touch on the legislative history
of the Antidumping Act. The act as a whole does not appear to be
geared toward agricultural products. Its primary aim is to deal
with the problem of dumping of industrial products. The Anti-
PAGENO="0551"
543
dumping Act was passed by Congress as title II of the Emergency
Tariff Act of 1921. Title I of that act placed extra specific duties on
various agricultural products. And the House report on that bill
stated that this part of the bill was specifically designed to deal
with the large surpluses of farm products in this country caused
chiefly by the dumping here of great quantities of foreign products.
During the debate on the bill the chairman of the Senate Fi-
nance Committee noted that while it was possible to place addition-
al duties on agricultural products,
It is impossible to provide adequate and logically framed compensatory duties on
the manufactured products. It is hoped, therefore, that the antidumping provision
will to some extent relieve our manufacturing interests.
It seems rather clear from this that Congress did not particularly
have in mind the problem of agricultural products in its passage of
the Antidumping Act.
Now, in 1975 Congress added section 205(b) of the act. And al-
though it is a rather complex provision, it provides essentially that
sales below cost to the United States are to be regarded as dumped
sales even if they are no lower than the home market price.
I think the rationale is rather clear. It was felt that a number of
foreign countries give more support to their companies than in this
country, and that these companies were therefore able to sustain
below cost sales for a longer period of time than was possible for
American companies. It was felt to be unfair that they should come
in the U.S. market with these advantages and to be able to com-
pete on what Congress believed to be unequal terms with their U.S.
competitiors.
The purpose of 205(b), I believe, was to equalize the terms of
competition between American and foreign companies in the U.S.
market. I am aware that* the cost of production provisions in Sec-
tion 205(b) does not meet with universal favor. I believe the Gener-
al Accounting Office recommended that it be repealed. I am cer-
tainly not prepared to fight that battle this morning.
My concern is its impact on perishable products. I don't believe
Congress had perishable products in mind when it passed either
the orginial Antidumping Act or section 205(b). The fact is that
whatever the situation in the industrial sector, sales at full produc-
tion cost are a necessary part of every produce business whether in
the United States or elsewhere.
Why is this? I think basic economic principles make this quite
clear. Unlike, say, a manufacturer of television sets, where prices
decline to below full production costs, the tomato grower can't stop
production. He can't close down his factory and he can't store his
product. There are alternatives available to a manufacturer.
The produce grower does not have those options. He is bound to
sell his product as long as he recovers anything more than his
variable cost-in other words, his cost of harvesting and market-
ing-so that he will offset at least some part of what can be called
fixed costs, the costs already incurred prior to harvesting in the
production of the fruit or vegetable. I think that is a very elemen-
tary proposition.
At page 7 of my written testimony I have given citations from a
number of economic textbooks which spell out this principle. It is a
very basic principle of agricultural economics. In fact, the Florida
PAGENO="0552"
544
growers who initiated this investigation themselves state the prin-
ciple very clearly in their petition-it's one of the best statements
we could find, far clearer than most textbooks. They point out that
if the market price is above the harvesting cost but below the total
of sunken and harvesting cost, the farmer will harvest and market
the crop hoping to recover some of his sunken cost.
We had a study done of the California lettuce industry which
produces a very large portion of the total U.S. lettuce consumption.
This was prepared by Dr. Robert Firch of the department of eco-
nomics, of the University of Arizona. He studied sales from these
two producing areas over a 10-year period. The results of this are
summarized in the tables which are attached to my statement.
They make it very clear what the pattern is in a typical produce
industry.
If you look at the tables the horizontal lines marked with the
figure 1 represent the full production cost and the lines marked 2
represent the variable cost. What this shows is that it is absolutely
normal to have quite a large number of sales below full production
cost. In fact, totaling it up, Dr. Firch estimated that some 30
percent of the time that lettuce is being sold from these areas all
sales are below full production cost. For an additional 40 percent of
the time some are above, some are below.
This is a normal condition and to be expected in this industry.
Indeed, I think if one found a situation where all produce sales
were being made above the full production cost one might suspect
that something was interfering with the free market forces.
The Treasury Department, however, appears to believe that the
Antidumping Act requires each and every individual sale of im-
ported produce to be above full production cost. Now, I really don't
believe that Congress had this in mind in enacting the act. And, of
course, the effect would be extraordinarily discriminatory because
U.S. producers will be able to sell below cost whenever the market
requires it but importers will not be able to. What was meant to be
an equalizing statute to equalize terms of competition between
foreign sellers and U.S. producers in the U.S. market will become a
means of placing a highly unequal burden on importers.
I might note, as I will discuss later in a little more detail, that
the Robinson-Patman Act, which is the domestic counterpart of the
Antidumping Act and which prohibits price discrimination domes-
tically, has specific language dealing with the problem of perisha-
ble products. It recognizes that you cannot apply a rigid anti-price-
discrimination rule in this area. Also, there are State statutes
forbiding sales below cost generally, which have language specifi-
cally dealing with the problem of perishables.
Let me speak for a moment as to the possible consequences of an
antidumping finding here. There are two possibilities as I see it,
and neither of them is very palatable.
The most likely effect of an antidumping finding in this case is
that simply that imports will cease. This is a far more drastic
result than the normal dumping case where the foreign manufac-
turer will yell and scream a little about unfairness, but eventually
he will adjust his price upwards. He may lost a little market share
in the United States, but he will continue to do business.
Here it is different. And let me explain why.
PAGENO="0553"
545
First of all, look at the situation from the point of view of the
importer. Of course, I am talking now about the importer in No-
gales, Ariz. It is important to keep in mind that the importers are
required to pay the antidumping duty, and they may not get reim-
bursed by the growers. The law is clear on that. The importer must
pay. The importer has been told by the Treasury Department that
he has to make every sale above full cost. I suppose the next step
would be to try to find out what that full cost is. The importer
might get in touch with the grower he represents and say: "How
much is it costing you to produce a package of tomatoes?" The
gorwer will respond:
I haven't the faintest idea. Call me up at the end of the season and I will tell you.
I don't know now. I don't know how much I have put in, how many times I have to
fertilize or irrigate. Above all, I don't know that my yield will be. It will depend on
the weather and incidence of disease. That is what determines my unit cost.
The wretched importer is stuck with an impossible situation. He
has been told he has to sell above production cost. If he gets it
wrong he will be liable to heavy duty, but he can't find out what
that production cost is. There are tremendous variations in the
production costs. In the course of the investigation we have devel-
oped costs for 40 of the growers, and they are all over the place.
There is as much as 100-percent variations simply because of differ-
ent relative efficiencies, disease, weather, and so forth. It is impos-
sible to make a guess ahead of time.
The importer will always have to live with the possibility that a
profitable year where he thought he made a $20,000 profit sudden-
ly turns into a disastrous year, when he gets a bill a year or two
later from Customs for additional antidumping duties. Several of
my clients say they don't think they can live with that. In fact,
they believe that taking their money and putting it on the tables at
Las Vegas would be a more predictable way of making a living.
As for the grower, his economic situation is altered because he
has now been told he can't sell in the United States whenever
market prices are below full production cost. So at these times
when he would normally expect to recover at least part of his fixed
cost he will have to destroy his crop because in this situation there
is no alternative outlet for this industry.
As a result, I think there is a very strong likelihood that applica-
tion of the antidumping here will dry up sources of foreign perisha-
ble products. Fifty percent of winter vegetables consumed in this
country are imported from Mexico. If those disappear prices will go
up an supplies down. Indeed, I understand that Chairman Kahn
testified before the Joint Economic Committee yesterday and spoke
quite strongly about his concern with this problem.
Now, suppose I am wrong. Suppose my fears are not warranted.
Suppose that some of these growers and importers do manage to
live with this situation. That is going to create an administrative
nightmare. It is not like a normal antidumping case where you
have perhaps half dozen foreign manufacturers. I received figures
from my clients yesterday. There are 400 growers shipping toma-
toes to the United States from Mexico, 800 shipping cucumbers, 400
shipping squash and bell peppers, and 150 shipping eggplant. An
antidumping finding here would mean that the Customs Service
will have to determine the cost of production for each one of these
PAGENO="0554"
546
growers individually. They can't take an average. They will have to
apply those figures to each individual sale. We estimate that there
are more than a million individual sales a year.
Just to give you an idea of the magnitude of the problem, in the
investigation that is going on now Customs selected 39 growers and
25 distributors. The allowed them to report 1 day a week of sales
because of the great burden of reporting all sales. That alone has
turned up between 40,000 and 100,000 individual transactions. We
are using a computer to analyze them. Even with that, it is a
colossal task. To try to do that with every individual sale would be
a nightmare. It will undo all the efforts now being made to stream-
line the duty assessment phase of the antidumping cases. It will
certainly make the administration of the steel trigger price system
look like child's play. I think this makes it rather clear that
Congress did not visualize the act being applied in this way to
perishable products.
Another thing to keep in mind is that with the Treasury Depart-
ment interpretation of the Antidumping Act, these consequences
will come about not as a result of predatory conduct on the part of
foreign growers, but because of normal practices which are accept-
ed in the produce business everywhere.
Let me turn for a moment to possible solutions. I certainly, hope
that the subcommittee will consider as part of its reforming work
on the Antidumping Act, which is being dealt with as part of the
MTN implementing legislation, an amendment to correct what is, I
submit, an obvious anomaly. I think there are a number of options
available. And I will just sketch out three of them.
No. 1, one could simply exclude perishable products altogether
from the purview of the Antidumping Act in view of the obvious
administrative unworkability of a dumping finding. I might say
here even without the difficulty of the cost of production it would
still be incredibly difficult to apply. Some of the growers involved
in this case make sales to Canada as well as the United States.
These are made by shippers in Nogales who ship to both countries.
They treat both countries as one market. The f.o.b. Nogales price
they quote at any one time is identical. The price is the same.
The difficulty in trying to make comparison for antidumping
purposes is that changes occur so frequently. In the cases where
there are Canadian sales we have lined them up with the U.S.
sales on the same day. Usually the prices are the same, but some-
times they are not because the market price sometimes changes
within a given day, or there may be a problem with the quality of
the vegetables. It is incredibly difficult to make the kind of careful
close analysis that the Antidumping Act requires.
Total exclusion is therefore one possibility, and one can recognize
that there are other remedies available if, in fact, domestic produc-
ers are being injured by imports.
Now, there are two other possibilities that I have outlined here.
One is language which I have included as a proposal A appended to
my statement. This would be a modification of the Robinson-
Patman Act provision. It would essentially say that no dumping
duties would be collected on the importation of perishable agricul-
tural merchandise where the sales below foreign market value or
constructed value have occurred as a result of imminent or actual
PAGENO="0555"
547
deterioration of the merchandise. That is the language used in the
Robinson-Patman Act. If this language is adopted it is important to
make it clear, as I believe the Robinson-Patman Act makes clear,
that it does not simply mean an exception where the fruit is on the
verge of going rotten. I think this is meant to embrace the broader
concept that often you have to sell this type of product for what-
ever the market will bear because you can't store it, you can't keep
it for more than a couple of days. I think that is important in
considering this proposal.
Now, I have also appended proposal B. This is rather more
complex. I am afraid that is inevitable when amending a technical
statute. The concept, however, is rather simple. It provides that
perishable goods would not be treated as dumped or less than fair
value sale provided two conditions are met.
No. 1, the volume and extent of sales taking place below cost
have been no greater than occur in the ordinary course of trade in
perishable agricultural merchandise. So you would determine what
are the normal standards in the industry, and provided that below
cost sales met those standards, then there would be no LTFV sales.
If, on the other hand, there was some kind of predatory manipula-
tion of volume of sales or prices during the season, then I think
this amendment will take care of that.
No. 2, the second condition would be that the growers recover
their costs plus a profit on their sales to the United States within a
period of time that is reasonable for perishable agricultural mer-
chandise. This is the part I regard as absolutely critical, because it
would enable the Treasury Department to get away from a sale-by-
sale approach which I have tried to point out is not only unrealistic
but also unworkable.
The language here would allow the Treasury Department to
determine what is reasonable. I think it is important to point out
here that I don't think this should be limited to one season. People
in this business don't necessarily expect to make a profit every
single season. I think if you would turn for a moment to the third
page of the charts-marked page 11 at the top-I can illustrate
this point rather graphically. It is clear that in 1974 the growers
had an extremely good year. They made profits on most of their
sales. In 1975 obviously it was not such a good year. There were
losses made on more sales than there were profits. 1976 seems to be
about an average year.
So that is, as I said, my second proposal for an amendment. I
think it is that second part that is critical. The first part is compli-
cated and maybe unnecessary.
Congressman Vander Jagt on Wednesday expressed some con-
cern that any amendment made does not simply permit foreign
producers to continue to sell below cost at all times. I think it is
clear that the second part of this amendment requiring you to
make a profit over a reasonable period of time would prevent that
kind of practice.
In conclusion, Mr. Chairman, I do not believe what I am suggest-
ing is unreasonable. I am not proposing blanket immunity for
foreign producers to engage in predatory conduct that may ad-
versely affect U.S. interests. I am asking Congress to ensure that a
legislative provision which was designed to require foreign suppli-
PAGENO="0556"
548
ers to compete in the U.S. marketplace on an equal footing with
their U.S. competition, does not become a means of imposing a
grossly unequal burden on the foreign suppliers, with its attendant
costs for U.S. consumers.
I would ask that my full statement be included in the record.
Thank you very much indeed for, this opportunity to testify.
[The prepared statement and attachments follow:]
STATEMENT OF PATRICK F. J. MACRORY, ON BEHALF OF THE WEST MEXICO VEGETABLE
DISTRIBUTORS ASSOCIATION AND THE UNION NACIONAL DE PRODUCTORES DE H0R-
TALIZAS1
PROPOSAL
An amendment to the Antidumping Act to authorize the Treasury Department
when conducting investigations involving imports of perishable produce to take
account of the peculiar economic constraints affecting such produce.
SUMMARY OF PRESENTATION
The Treasury Department is currently conducting' an investigation under the
Antidumping Act which, for the first time, requires it to apply Section 205(b) of the
Act (the cost of production provision, added in 1975) to imports of perishable
produce. To apply the provision in a way that would require each individual ship-
ment of imported perishable produce to be sold at above its full cost of production
would be contrary to common sense and the economies of produce growing.
The inability to control short-term output, coupled with the perishable nature of
the product and the substantial price fluctuations dictated by market conditions,
require the grower to sell whenever he can recover more than the costs of harvest-
ing and marketing. To forbid access to foreign producers when market prices are
below full cost, while at the same time U.S. producers are free to continue selling
below full cost whenever the market so requires, would be highly discriminatory. It
would also hurt consumer interest, by reducing supply and increasing prices. The
effect of such a ruling might well be to effectively prohibit all imports of perishable
produce.
An amendment to the Antidumping Act, that would authorize Treasury to com-
pare returns to the produce grower with his costs on a realistic basis, rather than
sale-by-sale, is needed to avoid these highly undesirable consequences.
INTRODUCTION
I am testifying on behalf of the West Mexico Vegetable Distributors Association,
an association of some 50 U.S. companies based in Nogales, Arizona, and the Union
Nacional de Productores de Hortalizas, an organization of Mexican vegetable grow-
ers. Members of these two groups are currently involved in a massive investigation
under the Antidumping Act, which covers five winter vegetables imported from
Mexico-tomatoes, eggplant, peppers, cucumbers and squash.
It would not be appropriate to discuss that particular investigation in detail. The
point I wish to bring to the attention of this Subcommittee is that the investiga-
tion-the first under the Antidumping Act in its present form to involve perishable
produce-has brought to light a serious anomaly in the Act, as the Treasury
Department interprets it. If not corrected, this anomaly will probably bring an end
to imports of the vegetables in question into this country. The impact upon U.S.
consumers would be very severe, since around half of all the fresh vegetables
consumed in this country in winter months are imported. Availability will be
sharply reduced, and the prices of what is available will increase substantially.
Moreover, the same principle could be used to block imports of other perishable
produce, such as fruit, cut flowers, and other types of vegetables.
* This testimony was prepared by a member of the firm of Arnold & Porter, 1229-19th
Street, N.W., Washington, D.C. 20036, on behalf of the firm's clients, the West Mexico Vegetable
Distributors Association of Nogales, Arizona, an organization of U.S. distributors of imported
fresh vegetables, and Union Nacional de Productores de Hortalizas, Blvd. Zapata Km. 2, Culia-
can, Sinaloa, Mexico, an organization of Mexican fresh vegetable producers. Since UNPH is a
foreign organization, Arnold & Porter is registered with the Department of Justice under the
provisions of 22 U.S.C. § 611, et seq., as an agent of such foreign principal. Copies of this
testimony are being filed with the Department of Justice, and copies of Arnold & Porter's
registration statement are available for public inspection at the Department of Justice. Registra-
tion does not indicate approval of this material by the United States Government.
PAGENO="0557"
549
The anomaly can be described in the form of a simple question-must each
individual shipment of perishable produce imported into this country be sold at a
price above its full cost of production? As I will explain in more detail, such a
requirement would be totally at odds with economic reality and the everyday
practices of produce growers in all countries. It would place foreign growers wishing
to export to the United States at an extraordinary disadvantage compared with
their U.S. counterparts, who are already protected by quite substantial tariffs.
The Antidumping Act was not intended to be applied to perishable produce
It seems quite clear that the Antidumping Act was enacted primarily with indus-
trial rather than agricultural products in mind. The Act became law as Title II of
the Emergency Tariff Act of 1921. Title I of that Act imposed substantially higher
duties on agricultural products, specifically to deal with the problem of the "large
surplus of farm products in this country caused * * * chiefly by the dumping here
of great quantities of foreign products." (House Report No. 1 to accompany H.R.
2435, 67th Cong., 1st Sess., April 13, 1921). During the debate on the measure
Senator Simmons stated that the antidumping provisions were "almost of as much
importance to the general industry of the country as the emergency tariff provisions
are to the agricultural industry."l
In other words, title I was intended to alleviate the problem of dumped agricultur-
al products; and Title II, the Antidumping Act, to deal with the dumping of indus-
trial products. Very recently, the General Counsel of the Treasury Department has
stated that "the law clearly is not tailored to deal with the special problems" where
agricultural products are involved.~
The basic tests under the Antidumping Act
The primary test under the Antidumping Act as originally enacted was a com-
parison of the prices of sales in the United States with prices in the producer's
home market. If there were no sales in the home market, sales to some other export
market would be used. Only in the very rare instance where the foreign producer
made all its sales to the United States-or for some reason its home market or third
country sales did not provide an adequate basis for comparison-was it necessary to
ascertain production costs in order to determine what is termed "constructed value"
(essentially cost of production plus profit).
In 1975 Congress added Section 205(b) to the Antidumping Act. Although rather
technical in form, Section 205(b) in essence provides that sales to the United States
below cost of production are to be treated as dumped sales, regardless of their
relationship to home market or third country prices.3 Although the legislative
history is rather thin, the amendment seems to have been engendered by a belief
that for a variety of reasons, including the greater availability of governmental
support, foreign companies are often in a position to sustain below-cost sales for a
considerably longer period of time than U.S. companies. The purpose of the amend-
ment was simply to require foreign companies wishing to enter the U.S. market to
compete on equal terms with their U.S. counterparts, and to prohibit them from
practices that U.S. companies are unable to engage in.
The absurdity of applying a rigid cost of production standard to perishable produce
Like the original Antidumping Act, Section 205(b) seems rather clearly directed
toward industrial products. It cannot logically or reasonably be applied to imports of
perishable produce, at least on a sale-by-sale basis. For, whatever the standards
applicable to the industrial sector, it is perfectly normal and accepted practice for
produce growers to sell below full production cost at certain times of the season.
11 61 Cong. Rec. 911 (May 2, 1921). See also p. 1067, where Senator Penrose (chairman of the
Senate Finance Committee) stated: "While this bill imposes compensatory duties on certain
cotton and wool manufactured articles, it is impossible to provide adequate and logically framed
compensatory duties on the manufactured products. It is hoped, therefore, that the antidumpin~
provision and the valuation provision will to some extent relieve our manufacturing interests.'
(Emphasis supplied.)
2J~tter dated March 20, 1979, from Robert H. Mundheim to Congressman Morris K. Udall. It
is perhaps also relevant to note that there are laws which specifically provide for the imposition
of import restrictions on agricultural imports under certain circumstances, e.g., Section 22 of the
Agricultural Adjustment Act, Section 8(e) of the Agricultural Marketing Agreement Act of 1937,
and Section 204 of the Agricultural Act of 1956. These provisions do not, of course, apply to
industrial products.
3 provision applies wherever the below-cost sales have been made in substantial quanti-
ties for an extended period of time, and are at prices which do not permit the recovery of all
costs within a reasonable period of time. The exception implicit in this language might well
have been intended to cover precisely the type of situation being discussed here-i.e., sales
below cost occurring in the normal course of business. However, Treasury appears to give it
much narrower interpretation.
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The distinction, of course, is an obvious one. In the first place, supply and demand
in agriculture are much less predictable, so that market prices fluctuate far more
substantially than in the industrial sector. Additionally, unlike a manufacturer of,
say, television sets, the produce grower cannot slow down or stop production in the
short run, and he cannot store his product. His access to alternative markets is
strictly limited by shipping time. So long as he can recover more than his costs of
harvesting and marketing, he must sell his crop, in order to recover at least part of
his fixed cost.
No one can take serious issue with this proposition. Every textbook on the subject
sets it forth as an elementary principle.~ Even the Florida growers, who initiated
the current investigation, stated the point succinctly in their petition: "When the
crop reaches maturity the farmer has only a short time period within which to
judge the market and decide whether or not to harvest his crop. If the market price
is below even his harvesting costs it does not make economic sense to harvest the
crop; instead it will be left to rot in the field in order to cut his losses. If the market
price is above harvesting costs, but below the total of sunken and harvesting costs,
the farmer will harvest and market his crop hoping to recover some of his sunken
costs and cut his ~
And a recent study of the two largest lettuce-producing areas in California-areas
which face no import competition that could arguably affect prices-shows that for
some 30 percent of the time that lettuce from these areas is sold, all sales are below
cost; during another 40 percent of the time some sales are below cost; and for only
30 percent of the time are all sales above cost. Attached to this statement are charts
prepared by Dr. Robert S. Firch, of the Department of Economics of the University
of Arizona, which vividly demonstrate the extent of sales below full cost that
routinely take place in this type of industry.
Thus, some sales below cost are a normal and necessary condition of the produce
business. Yet, the Treasury Department is being urged to apply the Antidumping
Act in a way that would require each individual sale of imported produce to be
above full cost. I do not believe that Congress had such an arbitrary and unrealistic
result in mind either when it passed the original Antidumping Act or when it added
Section 205(b) in 1975. A ruling along these lines would be grossly discriminatory to
foreign suppliers, since their U.S. counterparts would free to continue the normal
practice of selling below cost whenever the market so dictates. and the consequences
of such a ruling would be extremely serious, as I will now point out.
The consequences of an adverse determination
What will be the consequences of a finding that sales of imported produce below
cost, even though no greater in extent than is normal for this kind of business,
constitute dumping? There are two alternatives, each highly unpalatable:
(a) Imports of perishable produce will cease-The likelihood is that foreign grow-
ers would simply cease to supply the U.S. market. Look at the situation from the
standpoint of the importer. Any sale he makes below the grower's full production
cost will render him liable for antidumping duties. By law he cannot pass the duties
back to the grower. And by the time the extra duties are assessed it will be much
too late for him to include them in his prices to his customers. In order to protect
himself, therefore, at the beginning of the season a distributor might ask his grower
how much it will cost him to produce a package of tomatoes this season. The
grower's response would be: "I haven't the slightest idea. I don't know how many
times I will have to irrigate my land, to use pesticide, etc., so that I don't even know
what my overall costs will be. But above all, my cost per unit will depend on m,'
total yield for the season, and I can't tell you that until the season is over.'
So the unfortunate importer faces an impossible situation-he will be penalized if
he makes any sale below a particular dollar figure, but he cannot find out what that
figure is until the end of the season. He might take the grower's cost of the previous
year and add a safety factor. But that will not help him if the grower's yield is
sharply reduced by, say, disease or flood occurring toward the end of the season.
Thus, the importer would have to constantly live with the fear of receiving a large
bill from the Customs Service for imports made a year or more before, that could
turn a profitable year into a financial disaster. If I were an importer faced with this
kind of uncertainty, I think I would try to find a safer way of earning a living.
~See, for example, Dummeier and Refleblower, "Economics with Application to Agriculture"
(1940), ~ 223, 247; Bromley and Buse, "Applied Economics: Resource Allocation in Rural
America (1975), p. 392; Wilcox and Cochrane, `Economics of American Agriculture" (1951), pp.
462, 465.
` of the Florida Fresh Winter Vegetable Industry Under the Antidumping Act of
1921 Concerning Fresh Tomatoes, Peppers, Cumcumbers, Eggplant and Squash Imported From
Mexico" (Sept. 12, 1978), at 43.
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The situation would not be much brighter from the grower's perspective. He will
be told that he cannot sell in the U.S. market at any time that the market price is
below full production cost. At these times, then, since he has no viable alternative
outlets, he must simply destroy his crop, and cannot recover even part of his fixed
costs. The economics of his business would be radically changed, quite possibly to
the point of unprofitability.
Where does this leave the American consumer? Imports supply a large proportion
of U.S. demand-in the case of winter vegetables around fifty percent. Without
these supplies to supplement U.S. production, the availability of this important
nutritional source will be substantially reduced and the prices will rise sharply.
Fresh produce would be entirely unavailable in many parts of the country in winter
months, because domestic producers simply cannot supply the whole country them-
selves.
(b) An administrative nightmare.-Even if some imports continue despite these
enormous difficulties, the administrative problems for the Customs Service would be
literally mind-boggling. The pending investigation, which has involved a carefully
selected sample of 36 growers and 24 importers, has been complex enough. Over
100,000 individual transactions must be examined. Even with the aid of a computer
the task is colossal. But it is insignificant compared with what would happen after a
finding of dumping.
Each year Customs would have to calculate individual production costs for each of
the relevant products for each of the thousands of Mexican growers who export
their produce to the United States.6 It would then have to obtain from the importers
details of each individual sale-which probably number more than a million annual-
ly-and compare these with the cost of production. Administration of the steel
trigger price system would seem like child's play by comparison. Assessment of
duties in this one case could negate all the commendable efforts of the Administra-
tion, encouraged by Congress, to speed up and streamline the duty assessment phase
of antidumping cases.
The consequences I have sketched out are not very appealing. And they could
come about not because of any predatory or abnormal activities by the foreign
suppliers, but as a result of perfectly standard market practices being forbidden by
a law which obviously was not designed to cover this type of situation.
I might add in passing that application of the Antidumping Act in a way that
would prohibit any sales of perishable produce below full cost could well come back
to haunt U.S. farmers. I understand that the Canadian Government is quite con-
cerned about below-cost imports of perishables from the United States at certain
times of year. Until now, the Canadian antidumping law has not been used in this
situation, but action by the United States Government along these lines might be
seen by Canada as an open invitation to follow suit.
Possible solutions
It is for these reasons that I urge the Subcommittee to consider, as part of its
work on the Antidumping Act, an amendment that would make it clear that the
Act does not have to be applied to perishables in a way that requires each sale to be
made above cost. The simplest solution might be to exclude perishables from the
purview of the Act altogether, in view of the obvious administrative difficulties of
applying the Act to such products. There is much to be said for this approach.
An alternative would be to incorporate language similar to that appearing in
Section 1(a) of the Robinson-Patman Act (15 U.S.C. § 13(a)), an anti-price-discrimina-
tion statute that is the domestic counterpart of the Antidumping Act: "[N]othing
herein contained shall prevent price changes from time to time when in response to
changing conditions affecting the market for or the marketability of the goods
concerned, such as but not limited to actual or imminent deterioration of perishable
goods, obsolescence of seasonal goods * * *~" 7
This provision recognizes that anti-price-discrimination measures cannot be ap-
plied rigidly to perishable produce. I have attached to this statement as Proposal A
a possible amendment to the Antidumping Act modeled on this provision.
Another perhaps more conservative approach would be to amend the Act along
the lines of Proposal B, also attached to this statement. This amendment would, I
6 Act requires antidumping duties to be calculated based on each individual producer's
sales and/or costs figures, and does not pemit use of an industry average. See Section 212(3), 19
U.S.C. § 170a(3). Even if it were legal, use of some kind of an average would be extremely unfair,
since production costs vary substantially from grower to grower, depending both upon relative
efficiencies and the vagaries of local weather, the incidence of pests and disease, etc.
It is interesting to note that almost identical language appears in Section 303(b) of HR. 3442,
th~~ection of a major antidumping bill introduced earlier this month by Congressman Murtha
that deals with private antidumping actions.
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believe, provide adequate protection for U.S. producers against any kind of unfair or
predatory competition on the part of foreign suppliers, while at the same time
permitting the foreign suppliers to continue to engage in normal market practices.
Although the language looks quite complex 8-inevitable, I am afraid, in amending
a highly technical statute-the concept is really quite simple: suppliers of perishable
produce would not be liable under the Antidumping Act provided that two condi-
tions were met:
1. The volume and extent of below-cost sales were within the normal limits for
this type of business. If, on the other hand, there had been some kind of manipula-
tion of sales volume and/or prices that took the volume and extent of below-cost
sales outside the usual range, then the Act would apply.
2. The growers had recovered their costs (and, where constructed value is in-
volved, a profit) over a period of time that is reasonable for this type of business.
This would ensure that Treasury does not apply the production cost test on an
unrealistic sale-by-sale basis, while at the same time protecting against long-term
predatory below-cost selling. I do not think it would be appropriate to tie this test
down to a single season, since many farmers do not expect to make a profit every
season. Agriculture is highly cyclical, and a common pattern is for the farmer to
make small losses in the majority of seasons, interspersed with occasional very
profitable years.
I do not believe that what I am suggesting is unreasonable. I am not proposing
blanket immunity for foriegn producers to engage in predatory conduct that may
adversely affect U.S. interests. I am asking Congress to ensure that a legislative
provision which was designed to require foreign suppliers to compete in the U.S.
marketplace on an equal footing with their U.S. competition, does not become a
means of imposing a grossly unequal burden on the foreign suppliers, with its
attendant costs for U.S. consumers.
PROPOSAL A
Section 202 of the Antidumping Act, 1921 (19 U.S.C. Sec. 161), is amended by
adding at the end thereof the following new subsection: "(d) No dumping duties
shall be levied, collected and paid on the importation of perishable agricultural
merchandise where such sales below foreign market value (or, in the absence of
foreign market value, constructed value) as have taken place have occurred as a
result of the actual or imminent deterioration of the merchandise."
PROPOSAL B
1. Section 202 of the Antidumping Act, 1921 (19 U.S.C. Sec. 161), is amended by
adding at the end thereof the following new subsection:
"(d) No dumping duties shall be levied, collected and paid on the importation of
perishable agricultural merchandise where, in the absence of foreign market value,
the Secretary of the Treasury determines that (1) the volume and duration of sales
below constructed value have been no greater than occur in the ordinary course of
trade in perishable agricultural merchandise, and (2) within a period of time that is
reasonable in the ordinary course of trade in perishable agricultural merchandise
the revenues received by the producer on its sales of such merchandise to the
United States have enabled it to recover:
"(a) All costs incurred in producing such merchandise; -
"(b) An amount for general expenses and profit as defined in Section 165(a)(2) of
this Act; and
"(c) The cost of all containers and coverings of whatever nature, and all other
expenses incidental to placing such merchandise in condition, packed ready for
shipment to the United States.'
2. Section 205(b) of the Antidumping Act, 921 (19 U.S.C. Sec. 154(b)) is amended by
inserting the following language between the second and third sentences thereof:
"In the course of making such a determination in a case involving perishable
agricultural merchandise, the Secretary shall take due account of the fact that sales
at less than cost of production may be a part of the ordinary course of trade in such
merchandise, and he shall not disregard sales made at less than cost of production
where he determines that (1) the volume and duration of such sales have been no
greater than occur in the ordinary course of trade in perishable agricultural mer-
chandise, and (2) within a period of time that is reasonable in the ordinary course of
trade in perishable agricultural merchandise, the revenues received by the producer
8 J should note that the Treasury Department is quite familar with the term "ordinary course
of trade," since this expression appears in the existing definition of Foreign Market Value,
Section 205(a). The Department has quite frequently had to determine whether foreign market
sales were in "the ordinary course of trade," so should have no difficulty with the concept here.
PAGENO="0561"
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on its sales of such merchandise in the home market, or, as appropriate, to coun-
tries other than the United States, have permitted it to recover all costs incurred in
producing such merchandise."
L~L~_998 - 79 - 36
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Mr. JONES. Thank you. Your full statement will be included.
Let me compliment you, Mr. Macrory, on a very fine statement
in setting out the problem as you perceive it, and in giving a range
of options to the committee to solve that problem. I think that is
very fine testimony that you gave.
Mr. Moore?
Mr. MOORE. Thank you, Mr. Chairman.
Are there justifiable times when the products you are talking
about are sold in the United States at below the price they are
selling at where they came from?
Mr. MACRORY. No, sir. You mean in Mexico in this case?
Mr. MOORE. Yes.
Mr. MACRORY. No. In fact, this industry was set up and designed
to serve the U.S. market. In fact, it is the reverse of a dumping
situation. Anything that is not sold to the U.S. market is sold in
Mexico for whatever price they can get. It is usually rather low
because in the winter months there is local production in Mexico
around Mexico City and other markets. And there really aren't any
substantial markets for their products.
I might also state that the Mexican growers will only ship the
top quality product to the United States. In the case of tomatoes it
is U.S. No. 1 grade. Anything that does not meet that standard
they will sell locally in Mexico at very low prices. Often the prices
are a fraction of what they get on their U.S. returns, which is
another reason why this case does not fit within the normal con-
cept of dumping as economists view that term.
Mr. MOORE. Thank you.
Mr. JONES. Thank you very much, Mr. Macrory.
The next witness is William K. Quarles, Jr., president of the
California-Arizona Citrus League.
STATEMENT OF WILLIAM K. QUARLES, JR., PRESIDENT,
CALIFORNIA-ARIZONA CITRUS LEAGUE
Mr. QUARLES. I have David P. Bernstein with me, counsel for the
Citrus League. The league consists of farmer cooperatives and inde-
pendent shippers who handle over 85 percent of the fresh citrus
fruit produced in Arizona and California.
The league speaks on behalf of the California-Arizona citrus fruit
industry on matters of general concern such as legislation, foreign
trade and other similar topics.
Representatives of the league have devoted much time and effort
to the promotion of exports and have concerned themselves with
international trade problems since the early 1920's.
The California-Arizona citrus industry, over a long period of
years, has developed a substantial export market for both fresh
and processed citrus products. The maintenance of this export
market is absolutely essential to a healthy economic situation
within this industry.
For the 10-year period ending 1976-77, exports represented 34
percent of total shipments of fresh citrus from California and Ari-
zona. During this period, the proportion varied from a low of 27
percent to a high of 45 percent. Consequently, our export markets
are truly vital to us.
PAGENO="0571"
563
The committee has asked for advice on several aspects of the
trade negotiations of concern to our industry. Of course I think it is
recognized that we are speaking here from reported information,
having no exact details on the negotiations available.
First, however, the league wishes to express to Ambassador
Strauss and the other members of the U.S. negotiating team its
appreciation for the dogged persistence with which they have pur-
sued gains beneficial to U.S. agriculture.
Ambassador Strauss' task has been a formidable one; namely, to
increase market access and reduce trade barriers which restrict the
free flow of trade in an era characterized by an increasing drift
toward protectionism.
Ambassador Strauss' aim was to try to achieve fairer rules for
freer trade. In this context he has continually focused on gains for
American agriculture.
He has impressed upon his counterparts from other countries
that these negotiations cannot be concluded without a positive
result in the agricultural sector.
He not only deserves credit for negotiating the U.S. interest, but
we think also deserves credit for pushing trade negotiations, the
whole negotiations process.
As he mentioned this morning, in 10 years we will look back and
consider that the Tokyo round was the beginning of the rapid
spark of world trade. I kind of wonder if maybe we also would be
looking back in 10 years and instead of calling it the Tokyo round,
we might be calling it the Strauss round.
We are most appreciative of his efforts and believe that we
should all commend him for it.
Now with regard to tariff concessions on citrus, there were re-
ductions, it is reported, in 11 countries. Five of these are developed
countries where some modest increases in trade appear possible.
The remaining six are in lesser developed countries with the pros-
pect of at least introducing some trade.
The precise impact of the negotiations on our industry is difficult
to gage. We are also, as was indicated, trying to make an assess-
ment without the exact knowledge of the results of the negotia-
tions. Ambassador McDonald mentioned earlier today the gains of
the citrus industry in Japan.
Japan has and maintains an illegal import quota on fresh or-
anges and orange and grapefruit juice. The goal of our industry,
certainly during the trade negotiations, was the total elimination
of that illegal import quota.
Also, they maintained some extremely high duties on fresh
grapefruit and fresh oranges-40 percent during this time of year
and 20 percent during the summer and fall months.
As far as the results are concerned, based upon reports, the
citrus industry did not approach its objectives. However, the con-
cessions reportedly gained are a sharp movement in the right
direction.
In the fruit and vegetable area, not only citrus, but overall, there
were 21 tariff reductions granted by Japan, most of which are 50
percent reduction or greater. Only six, we understand, were less
than 40 percent.
PAGENO="0572"
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Of major interest on citrus, reductions on fresh lemons will be 50
percent-from 10 percent ad valorem to 5 percent; and on fresh
grapefruit there will be a 40-percent reduction. These numbers are
significant and their impact will be felt.
However, we are disappointed that the tariffs remain on fresh
lemons and fresh grapefruit in light of the fact that Japan does not
produce either commodity on a commercial basis.
The illegal import quota on fresh oranges will be raised from the
1977 base of 15,000 metric tons up to 82,000 metric tons in 1983.
The dollar impact cannot be accurately assessed until all the
details of the negotiations are disclosed. However, our rough esti-
mates at present are that the increased trade and the concessions
negotiated on citrus with Japan should be in excess of $40 million.
While we had hoped the illegal import quotas would be complete-
ly eliminated, as was indicated, the reported package with Japan is
progress.
Our support for it is based in large part on what we understand
is the collateral agreement between the United States and Japan
to commence discussions in 1982 with the ultimate objective of
total elimination of the illegal quotas.
Shifting now to the European Community, the current status of
negotiations at least on citrus, as we understand them, is a major
disappointment.
The European Community is the world's largest importer of
fresh oranges. They withdrew most-favored-nation tariff treatment
from the United States some time ago, and our market share has
dwindled significantly from that time.
They conduct and administer a tariff preference scheme which is
of particular concern to the navel orange growers in Arizona and
California.
Basically, in the West we have two groups of oranges, navel
oranges which are winter oranges, and the valencia oranges which
are the summer oranges. All the gains that we are aware of as a
general rule during the trade negotiations would benefit only the
valencia oranges. Our navel oranges growers are concerned. We
have an area here in the European Community where we could
benefit the navel orange growers.
The denial of most-favored-nation treatment to the United States
takes the form that in mid-October through March the United
States must pay a 20-percent duty on fresh oranges going into the
European Community. At the same time, Spain, their next-door
neighbor, pays only 12 percent, Morocco, right across the Mediter-
ranean, pays only 4 percent. Virtually all the other Mediterranean
Basin citrus producers are scattered between 4 percent and 12
percent at some level, again while the United States is paying 20
percent.
It is our understanding that at present there has been absolutely
no offer of a movement on this issue by the European Community.
We are not suggesting that the lack of progress is due to a lack of
effort on behalf of Ambassador Strauss and his staff. Quite the
contrary, they have been pushing extremely hard and it is our
belief that they are continuing to push on this issue, but the
operation is extremely strong as well. Nonetheless, we feel that it
would be a very poor precedent if the United States were to accept
PAGENO="0573"
565
less than substantial movement back toward most-favored-nation
treatment on this very important issue.
The failure of the EEC thus far to progress this matter under-
scores the need of this committee to urge resolution of the western
citrus industry's pending section 301 case. On January 18, 1977, the
California, Arizona, Texas, and Florida citrus industries joined in
an action pursuant to section 301 of the Trade Act of 1974 covering
the EEC's system of preferential tariffs on fresh and processed
citrus. This case is still pending.
It is our understanding this committee intends to consider the
possible revision of section 301 in connection with its review of the
trade package. Section 301, in our opinion, must be modified to
insure that pending cases are resolved within a reasonable time,
preferably within a year.
As was indicated, the tariff preference scheme violates the basic
provisons of the GATT, the most-favored-nation provision of article
I. The United States should insist on receiving most-favored-nation
treatment within a reasonable time after the negotiations are over
or retaliate as contemplated under section 301.
Mr. Chairman, the members of the California-Arizona Citrus
League have followed these negotiations with great interest and
concern. We acknowledge the concessions Ambassador Strauss has
achieved with Japan. We know that the concessions obtained from
Japan were the result of some tough negotiations. We continue to
have confidence in the ability of our negotiating team to face and
surmount equally tough opposition from the EEC.
The league looks forward to actively supporting the trade pack-
age as soon as some significant progress is made for citrus in the
EEC negotiations. Concomitantly, we urge a quick resolution of the
citrus industry's pending section 301 case. The importance of this
issue transcends the domestic citrus industry. If the EEC can arbi-
trarily withdraw most-favored-nation status from the United States
for citrus, what is to stop the EED from similar actions on other
products?
Thank you, Mr. Chairman. I will be pleased to answer any ques-
tions.
[The statement follows:]
STATEMENT OF THE CALIFORNIA-ARIZONA CITRUS LEAGUE
INTRODUCTION
This statement is made on behalf of the California-Arizona citrus industry by the
California-Arizona Citrus League. Our members are farmer cooperatives and inde-
pendent shippers who handle over 85 percent of the fresh citrus fruit produced in
Arizona and California. Our member-growers produce oranges, lemons, grapefruit,
tangerines and limes. This fruit is marketed in both fresh and processed forms.
The League speaks on behalf of the California-Arizona citrus fruit industry on
matters of general concern such as legislation, foreign trade and other similar
topics. Representatives of the League have devoted much time and effort to the
promotion of exports and have concerned themselves with international trade prob-
lems since the early 1920s. The California-Arizona citrus industry, over a long
period of years, has developed a substantial export market for both fresh and
processed citrus products. The maintenance of this export market is absolutely
essential to a healthy economic situation within this industry. For the ten year
period ending 1976-77, exports represented 34 percent of total shipments of .fresh
citrus from California and Arizona. During this period, the proportion varied from a
low of 27 percent to a high of 45 percent. Currently the dollar value of citrus and
citrus products exported by the California-Arizona citrus industry exceeds $216
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566
million annually. The importance of the maintenance and continued expansion of
this level of exports cannot be overemphasized.
THE MTN: A GENERAL ASSESSMENT
This Committee has asked for advice on several aspects of the trade negotiations
of concern to the California-Arizona Citrus League. First, however, the League
wishes to express to Ambassador Strauss and the other members of the U.S. negoti-
ating team its appreciation for the dogged persistence with which they have pur-
sued gains beneficial to U.S. agriculture. Ambassador Strauss' task has been a
formidable one: namely, to increase market access and reduce trade barriers which
restrict the free flow of trade in an era characterized by an increasing drift toward
protectionism. Ambassador Strauss' aim was to try to achieve fairer rules for freer
trade. In this context he has continually focused on gains for American agriculture.
He has impressed upon his counterparts from other countries that these negotia-
tions cannot be concluded without a positive result in the agricultural sector.
TARIFF CONCESSIONS: AN OVERVIEW
In the area of tariff concessions, unofficial reports indicate that duties on com-
modities of direct interest to this industry will be somewhat modified for exports to
eleven countries. Five of these are reportedly developed countries where some
modest increases in trade appear possible. The remaining six are developing coun-
tries where the prospects for at least introductory trade are promising. Compensat-
ing concessions appear to have been granted to non-market less developed countries
for various products of interest to us. The citrus industry is pleased overall with the
prospect of these concessions.
The precise trade impact is difficult to gauge. However, it has been said that the
difference between a surplus and shortage is often only ten percent of a total crop.
It is our experience that this generality is more or less accurate, and in any given
year, trade concessions which at first glance appear insignificant can have an
important effect in marketing an agricultural crop.
CONCESSIONS FROM JAPAN
One of the key goals of the citrus industry in this round of negotiations was the
elimination of Japanese import quotas on fresh oranges and citrus juices and a
sharp reduction of the extremely high duty on all citrus commodities. Prior to the
negotiations, foreign market penetration into Japan for these commodities was
minimal, especially when viewed in light of the total magnitude of U.S. imports
from Japan.
We understand that the negotiations with Japan have now been concluded. While
the citrus industry did not approach its objectives, the concessions obtained from
Japan are a movement in the right direction.
In all, twenty-one tariff concessions were obtained on fruits and vegetables. Most
are 50 percent cuts or greater, and only six were less than 40 percent. Unofficial
reports are that the tariff on fresh lemons will be reduced by 50 percent and on
grapefruit by 40. These numbers are significant and their impact will be beneficial.
However, we are disappointed that the tariffs remain in that Japan does not
produce either commodity commercially. Japanese orange imports on a fresh equiv-
alent basis, taking into account the concession on concentrated orange juice, will
increase from 25,000 in 1977 to 136,000 tons by 1983.
The dollar impact on exports cannot be assessed until the precise provisions of the
actual trade package with Japan have been disclosed. However, we conservatively
project that the value of increased trade for the fresh orange and citrus juice
concessions in Japan alone will be in excess of $40 million. While we hoped that the
quota system and certain citrus tariffs would be completely eliminated, the reported
package with Japan is progress. Our support for it is based in large part on what we
understand is a collateral agreement by the U.S. and Japan to enter into further
disucssions in 1982 aimed at achieving the ultimate objective of complete elimina-
tion of the quota.
TARIFF CONCESSIONS FROM THE EEC
Unlike Japan, the current status of the negotiations on citrus with the EEC
represents a major disappointment to our industry. As we understand it, the negoti-
ations with the EEC have not yet been concluded. However, to date, we understand
no concessions whatsoever have been obtained for citrus from the EEC. Elimination
or reduction of the EEC's preferential import duties on fresh oranges and citrus
producers for the benefit of selected Mediterranean countries is of the highest
priority for the U.S. citrus industry. The EEC is the world's largest importer of
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567
fresh oranges. Due to the preferential treatment granted to other exporters, our
share of exports to Europe has dwindled to about half what is was just a few years
ago.
The preferences operate as a particular hardship to the thousands of navel orange
growers in California and Arizona. This is due to the fact that the preferences are
most pronounced during the winter months, which is the peak harvesting and
shipping season for these growers. For example, from October 16 through March 31,
U.S. orange imports are subject to a 20 percent ad valorem duty. During this same
period, oranges from Spain are subject to a 12 percent duty, and oranges from
Cyprus and Israel pay an 8 percent duty. Oranges form Algeria, Morocco and
Tunisia pay on a 4 percent duty.
The California-Arizona Citrus League does not intend to imply that this lack of
progress with the EEC was a result of a less than complete effort by our negotiators.
We are confident that throughout the negotiations, Ambassador Strauss has never
waivered from his resolve to "go to the mats" for the citrus industry. The opposition
to granting a concession in this area form the EEC is undoubtedly strong. Nonethe-
less, the California-Arizona Citrus League urges the members of this Committee to
impress upon the office of the Special Representative for Trade Negotiations the
need for Most Favored Nation (MFN) treatment from the EEC in this most impor-
tant area prior to a conclusion of the negotiations. It would indeed be a blow to our
industry if the U.S. were to leave the negotiating table with no progress on this
MFN issue.
THE CITRUS INDUSTRY'S PENDING SECTION 301 CASE
The failure of the EEC thus far to progress this matter underscores the need for
this Committee to urge resolution of the western citrus industry's pending Section
301 case. On January 18, 1977, the California, Arizona, Texas, and Florida citrus
industries joined in an action pursuant to Section 301 of the Trade Act of 1974
covering the EEC's system of preferential tariffs on fresh and processed citrus.
We understand that the Committee intends to consider possible revision of section
301 in connection with its review of the trade package. Section 301 must be modified
to insure that the pending cases are prosecuted and resolved within a reasonable
time, preferably not to exceed one year.
As was earlier indicated, the system of tariff preferences also violates one of the
most basic provisions of GATT, the Most Favored Nation provision of Article I. This
provision essentially provides that any contracting party shall receive the same
advantages and privileges granted by any other contracting party to any product
originating in any other country. Assessing the United States at 20 percent duty
while assessing Algeria and Morocco a four percent duty for the same product at
the same time cannot by any stretch of the imagination meet the requirements of
this provision. The U.S. should insist on obtaining the MFN treatment it deserves.
If our negotiators cannot achieve elimination of the EEC's discriminatory, unjusti-
fiable and unreasonable preference system within a reasonable time after adoption
of the trade package, the U.S. must retaliate as contemplated by Section 301.
NON-TARIFF CODES
In terms of long-range considerations, the most noteworthy accomplishment of
this negotiation will probably be the initial development of non-tariff codes to
govern the rules of the game in international trade. These codes, covering such
matters as licensing, government procurement, standards, subsidies and countervail-
ing duties will, if effectively enforced, have a dramatic influence on world trade.
For agriculture in general and the citrus industry in particular, the proposed code
on subsidies is the most significant. Aside from the tariff preference system we have
already noted, the EEC also implements subsidies which are commonly used against
U.S. agricultural exporters. We do not suggest the subsidies code will be a panacea
and by itself eliminate this problem. However, the establishment of a generally
accepted set of rules for subsidies is a step in the right direction.
CONCLUSION
The member-growers of the California-Arizona Citrus League have followed these
negotiations with great interest and concern. We acknowledge the concessions Am-
bassador Strauss has achieved with Japan. We know that the concessions obtained
from Japan were the result of some tough negotiating.
We continue to have confidence in the ability of our negotiating team to face and
surmount equally tough opposition from the EEC. The League looks forward to
actively supporting the trade package as soon as some significant progress is made
for citrus in the EEC negotiations.
PAGENO="0576"
568
Concomitantly, we urge a quick resolution of the citrus industry's pending
Section 301 case. The importance of this issue transcends the domestic citrus indus-
try. If the EEC can arbitrarily withdraw MFN status from the U.S. for citrus, what
is to stop the EEC from similar actions on other products?
Mr. JoNEs,~-Thank you very much.
Mr. Moore.
Mr. MOORE. No questions, Mr. Chairman.
Mr. JONES. I was interrupted a couple of times, but specifically,
as far as recommendations on the implementing legislation or any-
thing of that nature, do you have anything that you are asking us
to do?
Mr. QUARLES. Basically, what we are asking you to do is that if
the trade negotiations result in less than substantial movement
toward most-favored-nation treatment with the European commu-
nity on citrus, we are requesting that this committee recommend
retaliation in trade with the European Community.
[The following was subsequently received:]
CALIFORNIA-ARIZONA CITRUS LEAGUE,
Van Nuys, Calif. May 4, 1979.
Hon. CHARLES VANIK,
Chairman, Subcommittee on Trade, House Committee on Ways and Means, Rayburn
House Office Building, Washington, D.C.
DEAR CHAIRMAN VANIK: Thank you for the opportunity of appearing before your
Committee to express the views and concerns of the California-Arizona Citrus
League with respect to the multilateral trade negotiations. Following my oral pres-
entation, Congressman Jones inquired as to any specific legislative proposals or
requests which the citrus industry might have for inclusion in the trade package
and its implementing legislation.
I would simply like to reiterate what I previously stated orally and in my written
statement. In connection with any proposed revision of Section 301 of the Trade Act
of 1974, it is suggested the Committee urge in its Report that STR immediately
prosecute and resolve the western citrus industry's pending Section 301 case. We
would further urge that this resolution occur within a reasonable time, preferably
within one year following adoption of the trade package. Furthermore, we would
urge STR to prosecute the pending cases in the order in which they were filed. I am
enclosing for your consideration some proposed language for inclusion in the portion
of the Committee's Report dealing with amendments to Section 301.
Thank you, Mr. Chairman, for your attention to this matter of serious concern to
the western citrus industry of California, Arizona and Texas.
Very truly yours,
WILLIAM K. QUARLES, Jr.,
President.
PROPOSED LANGUAGE FOR INCLUSION IN LEGISLATIVE HISTORY OF AMENDMENTS TO
SEcTIoN 301 OF THE TRADE ACT OF 1974
The Committee recognizes that under the existing Section 301 of the Trade Act of
1974, 19 U.S.C. § 2411, the President must use the full authority of his office to
cause foreign governments to dismantle discriminatory preferential tariffs which
reduce foreign sales of competitive United States products.
The Committee feels strongly that amendments to Section 301 should have no
adverse effect on cases filed under Section 301 which are still pending prior to the
enactment of this legislation. Pending cases need not be refiled. The Committee
recommends that they be taken up by STR in the order in which they were filed.
Simultaneously with its efforts under formal Section 301 proceedings, the Commit-
tee urges STR to pursue resolution of the matter through bilateral negotiations.
Resolution of pending cases is to take absolute priority over cases filed subsequent
to enactment of this legislation.
Regardless of whether STR chooses to resolve pending Section 301 cases bilateral-
ly or under the General Agreement on Tariffs and Trade, the Committee recognizes
the need to accomplish such resolution within a reasonable time, and no later than
one year following the enactment of this legislation. If the United States is not able
PAGENO="0577"
569
to obtain equal treatment for its products within one year, the Committee finds that
the United States shall take retaliatory measures as set forth under Section 301.
The Committee recognizes that the U.S. citrus industry's pending Section 301
case, Docket No. 301-li, is a pertinent example of a case requiring speedy resolu-
tion. It was filed in December, 1976, to obtain remedial action against the EEC's
imposition of discriminatory tariff preferences for citrus and citrus products. This
discriminatory tariff preference had previously been the subject of similar actions
brought in 1970 and again in 1973 when the EEC was enlarged from six to nine
countries. These earlier cases were filed pursuant to Section 252(d) of the Trade
Expansion Act of 1962, the predecessor provision to Section 301. Yet the matter of
the EEC's discriminatory, unreasonable and unjustifiable tariff preference on citrus
and citrus products has never been resolved. The Committee urges that resolution of
this case should be given top priority by STR.
Mr. JONES. Thank YOU very much. We appreciate your testimony.
Our next witness is Mr. Wayne Swegle, president, Millers' Na-
tional Federation.
Your entire statement will be included as part of the record. You
may summarize or proceed as you wish.
STATEMENT OF WAYNE SWEGLE, PRESIDENT, MILLERS'
NATIONAL FEDERATION
Mr. SWEGLE. Thank you, Mr. Chairman. I will summarize.
The Millers' National Federation is the trade association of the
wheat flour milling industry in the United States and our members
represent about 87 percent of the flour milling capacity of the
country.
Our interest in the multilateral trade negotiations stems from
two points of interest. I am a member of the agricultural policy
advisory committee, and from that standpoint I would like to com-
mend this committee for its wisdom in the Trade Act of 1974 in the
method by which it involves the private sector in the policy deci-
sions and technical aspects of the trade negotiations.
Second, our interest is addressed to our 301 case which involves
illegal EEC subsidization of flour exports to third-country markets
which have effectively displaced us from most of those markets
around the world.
We feel that our negotiators have done an exceptional job for
agriculture, both in terms of improved access to markets and in the
area of nontariff barriers, which as you know are perhaps more
important than the tariff levels themselves.
As an industry we have a particular interest regarding the subsi-
dy code and amendments to section 301. We filed a brief on Novem-
ber 21, 1975, a complaint regarding the European subsidies. Hear-
ings were held the following January.
Nevertheless, the matter remains unresolved. We understand
that certain amendments will be made to section 301 to make it
consistent with the new subsidies code.
The Millers' National Federation would urge this committee to
specify in its report that pending section 301 cases will not be
adversely affected by the proposed changes to section 301.
We feel that we should not have to refile our case. Further,
Millers' National Federation would ask this committee to recom-
mend that pending section 301 cases be taken up by STR in the
order in which they were filed.
In addition to pursuing the resolution under section 301 proceed-
ings or under provisions of the GATT, Millers' National Federation
`p4-998 - 79 - 37
PAGENO="0578"
570
urges the United States to simultaneously utilize the procedures
available under the proposed subsidies code for pursuing removal
of the EEC's export subsidy on wheat flour.
The proposed subsidies code includes its own dispute settlement
mechanism. The committee report should instruct STR on its own
motion to begin immediately, following passage of the trade pack-
age, to prosecute the federation's case under the new subsidies
code.
In closing, Mr. Chairman, we would urge swift passage of the
trade agreement and necessary implementing legislation.
[The prepared statement follows:]
STATEMENT OF THE MILLERS' NATIONAL FEDERATION
INTRODUCTION
This statement is made on behalf of the Millers' National Federation, the nation-
al trade association of the flour milling industry of the United States. Our members
represent approximately 87 percent of the commercial flour milling capacity in the
United States.
The Millers' National Federation has been active in international trade matters
on behalf of its members since 1952. The Export Subcommittee of the Federation is
charged with direct responsibility for assisting the U.S. milling industry with its
interest in international trade. Wheat flour is exported from approximately 30
states through 40 ports on the Atlantic, Pacific, Gulf Coast and Great Lakes and has
gone to more than 100 countries in the world.
The Millers' National Federation is here today to express its support for the
efforts of the office of the Special Representative for Trade Negotiations in this
seventh "round" of the trade negotiations since the founding of the General Agree-
ment on Tariffs and Trade (GATT). We in the flour milling industry are pleased
with the importance that Ambassador Strauss, Ambassador Wolff, Ambassador
McDonald and others on the U.S. negotiating team have placed on agriculture in
the negotiations. The further reduction of both non-tariff and tariff barriers for
individual agricultural products and the establishment of new international rules to
assure that trade will be conducted more fairly and equitably between nations are
two goals that we support.
THE NEW SUBSIDIES CODE
The efforts of our negotiators to ameliorate non-tariff trade barriers represent a
new dimension in multilateral trade negotiations. Of greatest importance to Millers'
National Federation and to U.S. agriculture is the proposed non-tariff code on
subsidies. Under the provisions of the proposed subsidies code, use of export subsi-
dies in such a manner as to displace the trade of other countries in third markets,
or to result in material price undercutting in such markets, would be prohibited.
Exports of wheat flour from the United States have been severely damaged as a
result of export subsidies granted to EEC flour millers. With the aid of export
subsidies, EEC flour millers have been able to displace sales of U.S. flour in third
countries. In addition, the EEC's protectionist system has virtually eliminated previ-
ously existing market opportunities for U.S. flour within the EEC.
The EEC is not a successful wheat producer when viewed from the standpoint of
either economics or quality. One of the U.S. negotiating objectives, which the
Millers' National Federation applauds, is the development of a world trading system
based on efficiency in production and fairness in opportunity.
THE PENDING SECTION 301 CASE ON EEC WHEAT FLOUR SUBSIDY
In order to seek remedial relief from the EEC's illegal subsidy on wheat flour, the
flour milling industry determined to invoke the use of Section 301 of the Trade Act
of 1974, 19 U.S.C. § 2411. This section provides that the President must use the full
authority of his office to cause foreign governments to remove export subsidies
which reduce exports of competitive U.S. products. The brief in Docket 301-6 was
filed on November 21, 1975, over 3½ years ago. Hearings were held the following
January. Nonetheless, the matter remains unresolved. It is our understanding that
certain amendments to Section 301 have been proposed to make it consistent with
the new subsidies code. The Millers' National Federation would urge this Committee
to specify in its report that pending Section 301 cases will not be adversely affected
PAGENO="0579"
571
by the proposed changes to Section 801. The Millers' National Federation should not
have to refile its case. Further, Millers' National Federation would ask this Commit-
tee to recommend that pending Section 301 cases be taken up by STR in the order
in which they were filed.
THE EEC'S WHEAT FLOUR SUBSIDY: A VIOLATION OF GAT1~
The EEC's subsidy on wheat flour also violates its contractual obligation to the
United States under Article XVI of the General Agreement on Tariffs and Trade.
There is no question that the EEC's direct payments to its flour millers upon the
exportation of their wheat flour constitute subsidies. The proposed subsidies code, if
accepted, should strengthen the ability of the United States to insist that the EEC
honor its commitment under GATT.
THE EEC'S WHEAT FLOUR SUBSIDY: A VIOLATION OF THE NEW SUBSIDIES CODE
In addition to pursuing resolution under Section 301 proceedings or under the
provisions of GATT, the Millers' National Federation urges the United States to
simultaneously utilize the procedures available under the proposed subsidies code
for pursuing the removal of the EEC's export subsidy on wheat flour. The proposed
subsidies code includes its own dispute settlement mechanism. The Committee
report should instruct STR on its own motion to begin to prosecute the Federation's
case under the new subsidies code immediately following passage of the trade
package.
The flour milling industry in the United States has confidence that the United
States can obtain the removal of the EEC's export subsidy on wheat flour. If this
cannot be accomplished within a reasonable time, or at most, within one year of the
passage of the trade package and its implementing legislation, then the only other
alternative is for the United States to retaliate under the provisions of 19 U.S.C.
§ 2411.
CONCLUSION
The Millers' National Federation believes that Ambassador Strauss has kept his
pledge that any package he brought back would include meaningful gains for
agriculture as a whole. Chief among these gains is the proposed subsidies code. The
U.S. now has essentially three separate vehicles for attacking the EEC's illegal
export subsidies on agricultural products: Section 301 proceedings, proceedings
under the new subsidies code, and Article XVI of GATT. The question presented by
the wheat flour industry's case is much broader than the subsidy on wheat flour.
The policy of the United States for some time has been to eliminate foreign export
subsidies which damage U.S. exports in third markets. This case squarely presents
the issue as to whether or not the U.S. will use the applicable law to eliminate
export subsidies. If the challenge to the EEC wheat flour export subsidy is not
successful, then it will signal to the EEC and other GATT members that the U.S.
does not intend to enforce its domestic law or to prevent export subsidies by foreign
countries. Millers' National Federation urges that a most appropriate follow-up to a
successful conclusion of the negotiations would be for the United States to simulta-
neously invoke Section 301, the proposed subsidies code and GATT to persuade the
European Economic Community to terminate its damaging export subsidies on
wheat flour. We urge swift passage of the trade agreements and necessary imple-
menting legislation.
Mr. JONES. Thank you very much, Mr. Swegle, for your testimony.
I think the recommendations and requests you make are very
reasonable. I have taikéd to committee counsel about including
those things in the report.
Mr. Moore, do you have any questions?
Mr. MOORE. No questions, Mr. Chairman.
Mr. JONES. Thank you very much.
Mr. SWEGLE. Thank you, sir.
[The following was subsequently received:]
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MILLERS' NATIONAL FEDERATION,
Washington, D.C., May 2, 1979.
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade, Ways and Means Committee,
US. House of Representatives, Washington, D.C.
DEAR MR. CHAIRMAN: Congressman Jones was Serving as Chairman in your
temporary absence from the hearing room. In our oral testimony as well as in our
written statement, we covered essential points of concern to the Millers' National
Federation. These relate to the European Community's illegal subsidy on wheat
flour. This illegal subsidy has effectively displaced the flour industry of the United
States in commerical export markets around the world.
We filed a complaint under Section 301 in 1975, which is as yet unresolved. We
have an interest therefore in: (1) amendments to Section 301 as they might affect
our case; and (2) in gaining attention to our case under the proposed new subsidies
code.
Congressman Jones' comments at the close of our testimony are encouraging. We
would feel greatly reassured if the elements we presented were reflected in the
Committee report. To that end, I am taking the liberty of submitting some suggest-
ed language directed at these two items for your consideration.
Thank you, Mr. Chairman, for your attention to our concerns.
Cordially yours,
WAYNE E. SwEGLE, President.
PROPOSED LANGUAGE FOR INCLUSION IN LEGISLATIVE HISTORY OF AMENDMENTS TO
SECTION 301 OF THE TRADE ACT OF 1974
The Committee recognizes that under the existing Section 301 of the Trade Act of
1974, 19 U.S.C. § 2411, the President must use the full authority of his office to
cause foreign governments to remove export subsidies which reduce foreign sales of
competitive United States products. The amended Section 301 would make the
existing provisions consistent with the subsidy/countervailing duties code and its
implementing legislation.
The Committee feels strongly that the amendments to Section 301 should have no
effect whatsoever on cases filed under Section 301 which are still pending prior to
the enactment of this legislation. Pending cases need not be refiled. The Committee
recommends that they be taken up by STR in the order in which they were filed.
Simultaneously with its efforts under formal Section 301 proceedings, the Commit-
tee urges STR to pursue resolution of the matter through bilateral negotiations.
Resolution of pending cases is to take absolute priority over cases filed subsequent
to enactment of this legislation.
Regardless of whether STR chooses to resolve pending Section 301 cases bilateral-
ly or under GATT, the Committee recognizes the need to accomplish such resolution
within a reasonable time, and no later than one year following the enactment of
this legislation. If the United States is not able to obtain equal treatment for its
products within one year, the Committee finds that the United States shall take
retaliatory measures as set forth under Section 301.
The Committee recognizes that the pending Section 301 case of the Millers'
National Federation, Docket No. 301-6, is a pertinent example of a case requiring
speedy resolution. It was filed on November 21, 1975 to obtain remedial action
against the EEC's imposition of export subsidies on its wheat flour. Since that time,
hearings have been held but no action has been taken to obtain removal of the
EEC's export subsidy. The Committee urges that resolution of this case, which has
been pending for nearly 3½ years, should be given top priority by STR.
PROPOSED LANGUAGE FOR INCLUSION IN LEGISLATIVE HISTORY OF IMPLEMENTING
LEGISLATION FOR SUBSIDIES CODE
Under the provisions of the new subsidies/countervailing duties code, use of
export subsidies in such a manner so as to displace the trade of other countries in
third country markets, or to result in material price undercutting in such markets,
is prohibited. The implementing legislation for the new subsidies/countervailing
duties code constitutes an entirely new provision of United States law. The Commit-
tee emphasizes that it is separate and apart from either the provisions of Section
301 of the Trade Act of 1974 or the countervailing duty statute. In the Committee's
judgment, it is important that where export subsidies are the subject of a pending
case brought under Section 301 prior to the enactment of this legislation the United
States shall immediately pursue its remedies under the subsidies code in addition to
PAGENO="0581"
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pursuing resolution under Section 301 proceedings or under the provisions of GATT.
STR should initiate action pursuant to the procedures set forth in the subsidies code
on pending Section 301 cases no later than 30 days following enactment of this
legislation.
The Committee is particularly concerned that the pending Section 301 case filed
by the Millers' National Federation, Docket No. 301-6, be initiated quickly under
the new subsidies code provisions as well as prosecuted promptly under Section 301.
This case was filed nearly 3'/2 years ago, on November 21, 1975, to obtain remedial
action against the EEC's imposition of export subsidies on its wheat flour. Hearings
were held over three years ago, in January, 1976. Nonetheless, the matter remains
unresolved. The Committee urges STR on its own motion to immediately begin to
prosecute the Millers' case under the subsidies code.
Mr. JONES. The next two witnesses are our former colleague,
Sheldon Cohen, and Bart S. Fisher, representing Wometco Enter-
prises, Inc., and Buffalo Broadcasting Co.
Mr. Cohen, welcome back to the committee.
STATEMENT OF SHELDON COHEN AND BART S. FISHER, ON
BEHALF OF WOMETCO ENTERPRISES, INC., AND BUFFALO
BROADCASTING CO.
Mr. COHEN. Thank you, Mr. Chairman.
Mr. JONES. Your statement will be included in full. You may
summarize if you wish.
Mr. COHEN. I will try to save the committee's time by summariz-
ing as much as I can.
As you indicated, I appear on behalf of Wometco Enterprises, the
parent company of KVOS-TV, which has a station in Bellingham,
Wash., and on behalf of Buffalo Broadcasting, which has a station,
WIVB-TV in Buffalo, N.Y.
I am accompanied by Bart S. Fisher of Patton, Boggs & Blow,
who is working on this case with us.
We are concerned about Canada's action, or lack of action, in
respect of some very discriminatory action, taken toward the
border broadcasting stations.
In 1976, the Canadians enacted a piece of legislation which
denies to Canadian advertisers the right to deduct advertising
which is shown or played on American stations located in the
United States along the border.
There are a number of those stations in addition to the two that
we represent. The harm to our stations has been quite dramatic.
The fall in the revenue of those stations has driven some to loss
or break-even positions, and has harmed dramatically some of the
others.
The number of dollars involved is very small. The Canadians
have stated that they considered their legislation to be a domestic
matter and they have refused in every instance our entreaties,
those of the other stations, those of our State Department, those of
our Treasury Department negotiators in regard to the tax treaty,
and those of the STR representatives in regard to negotiating out
an understanding.
We have offered several compromise positions, and the various
U.S. Government representatives have been extremely cooperative
in putting forth the positions that our clients and those similarly
situated have put forth.
PAGENO="0582"
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The Canadians, on the other hand, have been entreating this
committee and the Senate Finance Committee to make changes in
our domestic law which they feel adversely affects them.
Those provisions involve section 274(f) of the Internal Revenue
Code, which was amended several years ago by our 1976 act. That
section restricts in some measure the ability of American business
people to deduct the cost of multiple foreign conventions. The
Canadians wish to have an exemption from certain aspects of that
statute. We take no position on liberalization of the foreign conven-
tion rule. We don't favor it, and we don't oppose it.
We find it quite anomalous and quite objectionable that the
Canadian Government, and Canadian enterprises, should be en-
treating our legislature to treat them better than we treat other
foreign governments at the same time they are treating American
business people quite low on the scale, much worse than they
would treat Canadian business people.
Of course, the Canadian advertisers get a deduction for full
expenses on Canadian broadcasting. At the same time, Mr. Chair-
man, the Canadian cable television industry is fully utilizing the
American product without cost.
So, we find all of this anomalous. We also find that the Canadian
Government in responding to our section 301 complaint, which was
filed with the Office of Special Trade Representative some while
back, has made some statements that section 301 was not intended
to cover this type of broadcasting or TV services.
We believe, as stated in our memorandum, that it was. Then
Senator Walter Mondale amended the act a number of years ago
when he was in the Senate to cover services.
However, we are asking this committee and we have asked the
Senate Finance Committee that appropriate language be put into
section 301 by amendment and appropriate committee report lan-
guage be placed in the reports of the committee so that no one
could have any miscomprehension that this committee and the
Congress believe that services are an integral part of international
trade. Services move hand in hand with other types of trade, and
indeed our Government believes in fair treatment for both foreign
and domestic suppliers of those services.
We believe that this additional pressure may help our govern-
mental representative and special trade representatives and our
Treasury representatives in dealing with Canadian officials.
Thank you very much.
[The prepared statement follows:]
STATEMENT OF WOMETCO ENTERPRISES. INC. AND BUFFALO BROADCASTING Co.
Mr. Chairman, my name is Sheldon Cohen of the law firm of Cohen & Uretz in
Washington, D.C. I am appearing on behalf of Wometco Enterprises, Inc., parent
company of KVOS Television Corporation, licensee of KVOS-TV, Bellingham,
Washington, and on behalf of Buffalo Broadcasting Co., Inc., licensee of WIVB-TV,
Buffalo, New York. I am accompanied by Bart S. Fisher, Esquire, of Patton, Boggs &
Blow, who will assist me in answering any questions you may have.
We are responding to the Subcommittee's notice asking whether or not the trade
negotiations have been successful. Where U.S. border broadcasting services are
concerned, the negotiations have not been successful in eliminating a major non-
tariff barrier to trade in U.S. broadcasting services. Specifically, we are referring to
the tax law of Canada, known as Bill C-58, which denies deductibility for cross-
PAGENO="0583"
575
border advertising directed primarily towards a market in Canada. This is a burden-
some form of tax discrimination against U.S. broadcasters.
I recently appeared before the Committee on Ways and Means concerning the
proposed "North American" exemption to section 602 of the Tax Reform Act of
1976, which limits the deductibility of expenses of attending foreign conventions.
These two issues are linked, and we are here to testify that the MTN was not
successful as a forum for achieving the elimination of a major non-tariff barrier to
trade in advertising and broadcasting services, and that other measures are neces-
sary to bring Canada to the negotiating table.
Negotiating objectives of the Trade Act
Section 102 of the Trade Act directs the President to take all appropriate and
feasible steps to harmonize, reduce or eliminate non-tariff barriers to the interna-
tional trade of the United States. Section 102 includes trade in services as part of
international trade. Services were not originally explicitly included within the
terms of the Trade Act. However, the Senate Finance Committee adopted an amend-
ment proposed by Senator Mondale, which became the language of section 102(g)(3).
The Senate Finance Committee Report on the Trade Act states: "The Committee
also feif strongly that barriers affecting services as well as goods should be eliminat-
ed" (Sen. Rep. No. 93-1298 at 74). That negotiating objective has not been fulfilled
with respect to U.S. border broadcasting services.
Bill C-58 and the histoiy of US-Canadian broadcasting relations
In September, 1976, the Government of Canada implemented a non-tariff meas-
ure, commonly knwon as Bill C-58, as section 19.1 of its Income Tax Act. Bill C-58
denies an income tax deduction to Canadian business for the cost of advertisements
broadcast to a primarily Canadian audience by a "foreign broadcast undertaking,"
that is, by the border U.S. broadcasting station. A deduction is permitted for similar
advertisements placed on Canadian stations.
The U.S. broadcasting industry developed much faster than its Canadian counter-
part and Canadians grew accustomed to seeing U.S. programs over the air. As
Canadians grew increasingly fond of watching U.S. programming, the Canadian
cable industry was spurred to development, and U.S. signals were sent all over
Canada. It is generally admitted that the immensely profitable Canadian cable
system was built up on the strength of the U.S. signals. On the U.S. side, the border
broadcast stations received no tangible benefits for the service they were providing
to Canada until Canadian advertisers recognized the popularity of U.S. signals with
Canadian audiences, and began to purchase time on U.S. stations. Thus, an interna-
tional trade in advertising took place in which Canadian businesses purchased U.S.
advertising services; the advertisements themselves were broadcast across the
border. The broadcasting services are thus associated with international trade in
advertising services and in many cases are associated with international flows in
the goods advertised. The total dollar flow was small compared to the overall
Canadian and U.S. television industry revenue base, but became significant to the
border stations.
These stations' Canadian advertising revenues fell drastically following implemen-
tation of Bill C-58. Gross Canadian advertising revenues dropped by more than 50
percent from $18,185,000 in 1975 to $9,171,000 in 1978. The net amounts, excluding
Canadian commissions, dropped from $14,052,665 to $6,133,273. Canadian revenues
for WIVB-TV dropped to 50 percent of their former levels between 1975 and 1978,
and KVOS-TV has been reduced to operating at a break-even level.
Bill C-58 is classic protectionist legislation. It is a unilateral reversal of the
traditional broadcast relations between the two countries. Furthermore, it is inequi-
table, in that it chokes off any opportunity for the stations to be compensated, in
the form of advertising revenues, for the services they provide to Canada.
In January, 1978, many of the border television stations petitioned the Office of
the Special Trade Representative to raise the issue with the Canadians at the MTN.
This was done and the response of the Canadians was that an internal tax measure,
and therefore Bill C-58 and the resulting shift in cross-border advertising and
broadcasting services, were "non-negotiable." Thus, the MTN did not serve as a
forum for achieving the elimination of a nontariff barrier blocking trade in U.S.
border broadcasting services.
In August, 1978, fifteen border stations filed a complaint pursuant to section 301
of the Trade Act of 1974 with the Section 301 Committee. Hearings were held in
November, 1978. At the hearings, certain Canadian witnesses and Committee mem-
bers questioned whether section 301 covered broadcasting services. Specifically, the
question presented was, how could broadcasting services be covered if they were not
linked to "the" international trade in a specific good. Thus, some witnesses argued
PAGENO="0584"
576
that section 301 covered only certain services, e.g., marine insurance, which were
associated with trade in goods. In addition, certain witnesses assumed that broad-
casting services were somehow sui generis, and therefore exempted from section
301.
We maintain that broadcasting services are protected by section 301 and that Bill
C-58 is an unfair foreign trade practice as meant by section 301. The Section 301
Committee has jurisdiction to consider our complaint and that much was admitted
by John Donaldson of the Office of the Special Trade Representative in testimony
before this Subcommittee.
Broadcasting services are covered by section 301. That section defines "U.S. com-
merce" as including services associated with international trade. Section 301(a)(2)
provides as much protection for services as for products and is nowhere delimited to
coverage of services related to products that move through international ports of
entry. The legislative history for section 301 reveals that both the Senate and House
intended section 301 to have the widest possible coverage with respect to services.
Moreover, the recommended amendments of this Subcommittee and the Senate
Finance Committee would clarify any possible ambiguity in the reading of section
301 and reiterate the original intent that broadcasting services were meant to be
covered.
Broadcasting services are associated with international trade on three different
levels:
First, broadcasting is associated with international trade in cross-border advertis-
ing. The commodity being sold is time, or the ability to influence the viewer, to the
Canadian client. The Canadian entity sends the money to the U.S. broadcaster,
which in return broadcasts the commercial message across the border.
Second, broadcasting services are linked to three levels of international trade in
merchandise. First, broadcasters themselves import the tape cartridges and films of
Canadian commercial messages sent down from Canada. The revenues from the sale
of time to advertisers enables U.S. broadcasters to purchase foreign television pro-
graming. Second, advertising services are associated with international trade in the
products bought by Canadian consumers in response to the advertisements. For
example, a Canadian shoe store imports shoes and subsequently advertises on a
border station to increase its Canadian sales. Third, many of the constituent parts of
products sold by cross-border advertising are imported into Canada, e.g., parts and
accessories for Volvo automobiles which are assembled in Canada.
Finally, broadcasting services themselves are "trade." There is a trading relation-
ship between a user and a supplier of broadcasting services, through the taking and
use of the service, both on an off-air and cable basis. The "taking" is particularly
evident with Canadian cable television systems, which take these signals, augment
them, and retransmit them several hundred miles from the border. This is not a
case where the signal crosses the border without anything happening to it.
The petitioners intend to vigorously pursue the merits of their section 301, and if
necessary to seek retaliatory action against Canada, pursuant to the terms of
section 301. We urge the incorporation of this Committee's amendment to section
301(a)(2) into the Trade Act and adoption of report language indicating clearly that
broadcasting services are covered by section 301. Bill C-58 is an unreasonable and
an inequitable foreign trade practice, and intransigence of the Canadian Govern-
ment in the MTN forces us to use section 301.
We also intend to pursue other routes to achieve a negotiated resolution to Bill C-
58. We will press for continued linkage between Bill C-58 and relief for Canada
from section 602 of the Tax Reform Act of 1976, which limits the deductibility of
expenses of attending foreign conventions. The Congress has affirmed on two previ-
ous occasions the linkage of these two tax issues. In April 1977, the Senate defeated
48-45 an amendment to provide a North American exemption. The defeat of this
proposal was in part attributable to concern over Bill C-58. In September 1978, the
House Ways and Means Committee reported on a bill which would have made
Canada's benefit from the North American exemption contingent on beginning
negotiations on the future of broadcast relationships between the two countries. You
should note that at the same time the Canadian Government has been rebuffing
U.S. initiatives regarding amendment of Bill C-58, saying that it is an internal tax
measure, it has been seeking amendment of the Internal Revenue Code. Linkage
between Bill C-58 and other bilateral issues is necessitated by the intransigence of
the Canadian Government, in the MTN and elsewhere, in refusing so far to negoti-
ate the elimination of this non-tariff barrier. However, we believe that an opportu-
nity for negotiations may present itself, and that linkage of these issues should
continue until then. The Consultative Committee on the Implications of Telecommu-
nications for Canadian Sovereignty (the "Clyne Committee") published the results of
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577
its inquiry on April 11, 1979. It recommended that "the federal government should
renew discussions with the United States with a view to resolving the border
television dispute at an early date." The Committee was moved by the "serious
friction" and the possibility of "retaliatory measures in other fields of enterprise"
which has resulted from Canada's treatment of the U.S. border stations. The Com-
mittee concurred in the statement made to it by the U.S. border stations: "~ * we
urge that the problems of the Canadian broadcasting system (in this particular
matter) can only be resolved in the context of an amicable understanding between
the two countries."
What is the basic issue here? The basic issue is the reliability of Canada as a
trading partner. Bill C-58 is a unilateral response to a bilateral problem and its
refusal to even negotiate indicates that Canada may adopt this posture where other
bilateral trading issues are at stake, for example in its dealings with the United
States regarding the natural gas pipeline. The U.S. border stations are simply
asking for equitable treatment by the Government of Canada. If Canadians want to
see our signals and if the Canadian cable systems are to make great profits from the
use of our signals, then we should be able to earn compensation for our services
through the medium of Canadian advertising revenues. The Government of Canada
should at least negotiate the issue.
Mr. JONES. Thank you, Mr. Cohen. I might say most of us on the
subcommittee are familiar with this problem. If not unanimously, a
substantial majority of us agree with the position you have taken. I
believe that the final product in the implementing legislation and
the report dealing with 301 will reflect the position you take in
your testimony. It will be strongly supported by the subcommittee.
Mr. COHEN. Thank you, Mr. Chairman.
Mr. JONES. Thank you very much.
Our next witness is Mr. George Prill, consultant to the Aero-
space Industries Association and General Aircraft Manufacturers
Association. Mr. Prill, your statement too will be included in its
entirety and you may summarize.
STATEMENT OF GEORGE C. PRILL, CONSULTANT, AEROSPACE
INDUSTRIES ASSOCIATION OF AMERICA AND GENERAL AIR-
CRAFT ASSOCIATION
Mr. PRILL. Thank you, Mr. Chairman.
I have a fairly short statement. We will have for the Congress, of
course, a very complete report which will give the full views of the
industry.
I am appearing here as a consultant to both the Aerospace
Industries Association of America and the General Aviation Manu-
facturers Association. The membership of the two associations in-
cludes all of the companies involved in the export of civil aircraft
produced in the United States. I have had the pleasure of serving
as chairman of the Aerospace Industry Sector Advisory Committee
since it was formed.
We will submit to the Congress a complete report on the indus-
try's analysis of the agreements reached. However, for the purpose
of the committee today, I think it will suffice to say that the
aerospace industry supports the package of tariff reductions and
agreements on nontariff measures resulting from the multilateral
trade negotiations and recommends its adoption. Our interest, of
course, centers on the agreement on trade in civil aircraft.
We do not see the package as a victory for our side in the sense
that it would be a defeat for the other. Rather, we see it as a
balanced agreement providing reciprocity for all the signatories. As
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578
with all good agreements, all signatories benefit and there are no
losers in the world's aerospace industries.
The basic philosophical concept that shaped the approach of the
U.S. industry, in our effort to achieve what we have been calling
the "Marquis of Queensbury Rules" of the international market-
place, was our recognition that competitior1 over the next two
decades will be very different from that of the last three.
The U.S. private industry is faced with competent, technological-
ly advanced, well managed competitors that are owned or closely
integrated with national governments. If these competitors were to
play the game with the brass knuckles of government-directed
procurements, offset production demands and government-granted
inducements, it would be a very rough game.
On the other hand, if the United States continued imposing
tariffs on aircraft imports or were to discriminate against imported
aircraft using licensing or certification procedures, we would limit
Canadian, Japanese, and European access to the world's largest
single national market, the United States.
Such a situation would be a de facto trade war with resultant
loss to the airlines and general aviation users as well as to the high
technology aerospace industry of the United States and its allies.
Thus, we believe that opening the borders increases competition,
while requiring that competition be fair.
I might add for the record that Chairman Vanik was asking
earlier about the need for research and development to keep
American technology strong and moving and we support that, obvi-
ously, very strongly. It is essential that we have that.
However, governments will not, under the terms of this agree-
ment, subsidize individual production programs. That applies to us
as it does to others. Subsidy is a very complicated issue. We do not
expect it to be settled easily but the basic principle that has been
agreed is a good one.
Operating under this implemented MTN package, we expect that
we will export more and export on a secure basis, thereby insuring
that there will be more jobs in our industry and more business for
the thousands of our small business suppliers who do not always
consider themselves as "international traders," but who export by
virtue of their sales to subcontractors or directly to the manufac-
turers of civil aircraft.
Because we have rules, there will be more certainty and, there-
fore, a better opportunity for long-range planning. This is essential
to the buildup of skilled labor forces and the acquisition or con-
struction of new facilities.
You heard testimony just a few moments ago, Mr. Chairman,
about the problems of small business. I might put into the record
that our industry is a classic example of how small business ex-
ports by selling to primes and to so-called second tier manufactur-
ers.
Just for one typical wide-bodied airliner, there are more than
4,700 different companies which supply components to the prime
contractor. Of those, 3,600 are small business. When you move
down a tier, there are at least 40,000 second tier suppliers. Of
those, three-quarters, or another 30,000, are small business.
PAGENO="0587"
579
So, we see in our industry a great avenue for small business
exports. These small businessmen are suppliers to the primes. The
primes cannot exist without them. They are very competitive. They
will not be undersold, and we see them prospering as a result of
this agreement.
The next two decades will provide a market for the civil aero-
space industry of about $300 billion-no small sum. The biggest
individual market, but still less than half, will be the United
States. We, the U.S. market, will be decreasing in percent even
though our sales will go up, between now and the year 2000.
No mangement in the United States, Canada, Japan, or Western
Europe can undertake a new program with any sense of success
unless they can be assured of a ~fair shot at world sales. Obviously
the bigger and more advanced the aircraft, the more true this is.
But the principle carries through to the smaller general aviation
aircraft and helicopters, as well. In short, we all need a world
market to compete, and rules are needed to define this market.
Obviously, if we do not have rules, we will be in trouble.
The other subject that I would like to stress today is the need for
the implementing legislation to set up a strong, flexible system for
industry participation in the monitoring, enforcing, consulting, and
amending process that will follow MTN. If these agreements are to
work, we need strong, authorized industry participation at all
times and at all levels. Our industry believes we should participate
primarily as a sector, but also in the cross-sector discussions on
other, more general codes.
Every witness emphasized this is the beginning, not the end. We
certainly agree with that. We certainly want to see ourselves tight-
ly tied into the ongoing process. I was delighted Ambassador
Strauss applauded the industry advisers. We applaud him back but
there is no doubt in our minds that the industry advisers have
contributed a great deal and the industry government team has
worked together very well. We want to see that continue.
The other signatories to the aircraft agreement know our indus-
try and fully expect it to be a very active partner with the U.S.
Government in the followup process. In the same way, we know
their aircraft industries. We respect them and we are certain that
representatives of their industries will be integral parts of their
national teams. It should not be otherwise.
Thank you, Mr. Chairman, for this opportunity to discuss this
important subject. You will have our full, detailed and, I am afraid,
somewhat dull analysis at a later time. However, in summary, we
in aerospace urge adoption and implementation of the MTN pack-
age, including the aircraft agreement. This should be coupled to
continuing strong industry involvement and the facility for proper
monitoring and surveillance.
Mr. JONES. Thank you, Mr. Prill. I think you represent an indus-
try which has been very aggressive and innovative and certainly
has helped the U.S. position in the world markets. Your main
suggestion to this committee, then, in writing the implementing
legislation is to set up a mechanism to monitor and make recom-
mendations for further changes. Is that basically your recommen-
dation?
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580
Mr. PRILL. Yes. That is a very strong recommendation. In our
full report we have a number of points. In the approval, on an up
or down basis, in the Congress, we certainly think the package
should be approved. It is so complicated that no one truly under-
stands all the implications. The highly desirable aspect of the
agreement to us is that instead of saying we will have another
round a few years off, it says we will continue to implement
change, we will talk, we will consult, we will act like adults in
trying to work out problems, and we applaud that.
We have seen it work. I have had the personal pleasure of being
a participant for the last year and a half, or 2 years in this and I
know it works. In an industry such as ours, the high technology
industries, we know the other side very well. and we can work
things out with them.
Mr. JoNEs. When we have follow-on legislation to put together a
cabinet level department for international trade, maybe we need to
build into that agency, that department, what you are talking
about: a mechanism or a bureau to have this exchange of ideas or a
monitoring presence of the private sector.
Mr. PRILL. We think that is highly desirable, Mr. Chairman. The
fact is that almost all of the high technology industries around the
world are owned by national governments. As we look into the
next 20 years, looking at the year 2000, all of our activities were
aimed at the year 2000, as we look to the future, we see ourselves,
more and more, competing with new phenomena on the world
scene, well managed government-owned international or multina-
tional companies.
We do not have these organizations in the United States. It is a
new type of organization. A good example of it is Rolls Royce. A
good example is Airbus Industries, and deHaviland and Canadair
in Canada. They are fine companies, well managed and highly
competitive.
We do not object to their national government owning them.
That is their system. We are not trying to rewrite history or
change facts. However, unless we have fair rules of competition
and the U.S. Government works with our industry, we are in for
deep trouble.
Mr. JONES. So, you are really recommending that we institution-
alize the industry advisory groups on an ongoing basis?
Mr. PRILL. And keep them flexible. One of the problems we have
had in the ISAC's now in effect is that they were not very flexible.
They operated with the small cacoons of their own industry. They
did not go cross-industry. They had great problems with negotiat-
ing secrecy. We could not set up subcommittees of experts. We will
give you detailed recommendations leading to more flexible ISAC's.
Mr. JONES. I wish you would give detailed recommendations.
After we dispose of the MTN there are a number of us who want to
establish an international trade bureau to address these questions
of ways to improve exports as well as ways to protect the legiti-
mate interests of the United States. So any suggestions would be
welcome.
Mr. MOORE. Thank you, Mr. Chairman.
That concern I share. You made a comment that we need to
work a little better between Government, business and this coun-
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581
try. I take it what you are getting at is a favorite theme of mine.
When we dispose of MTN we need to sit down and assess our
regulatory situation and our tax laws to assist our businesses to
make sure they remain competitive or become competitive.
The chairman has left the record open until Wednesday of next
week. If you have anything specific that will aid your industry to
be competitive, we will be interested in receiving that.
Mr. PRILL. I will see that we broaden our submission on this. Our
industry has made numerous recommendations over the past in
bits and pieces. One of the great advantages of this implementing
legislation will be the chance to put all of this together.
We certainly appreciate the committee's recognition of the need
for a strong export policy.
Mr. JONES. Thank you very much, Mr. Prill.
Our next two witnesses represent the Ferroalloys Association,
Mr. George A. Watson and Thomas M. Lemberg. Your statement
will be included in the record in its entirety and you may summa-
rize as you wish.
STATEMENT OF GEORGE A. WATSON, EXECUTIVE DIRECTOR,
FERROALLOYS ASSOCIATION, ACCOMPANIED BY THOMAS M.
LEMBERG, COUNSEL
Mr. WATSON. Good afternoon, Mr. Chairman. I am George
Watson, the executive director of the Ferroalloys Association. With
me today is Mr. Thomas Lemberg, our counsel.
As you said, we have prepared and submitted our full statement
to your committee which we request be part of the record. Today I
would like to summarize our statement and cover only three of the
four points we made in the written statement. The Ferroalloys
Association, as a word of explanation, represents the vast bulk of
the noncaptive U.S. producers of chromium, manganese, and sili-
con ferroalloys, metals, and related products. These ferroalloys and
metals are additive materials produced from various metallic ores
and are essential ingredients in the production of all carbon and
specialty steels, iron castings and many aluminum products.
First, with regard to the subsidies code and the implementing
legislation, we object to the addition of an injury test and as well
the presently proposed definition of injury and the casual linkage
required between the amount of subsidy and the extent of injury.
At a minimum, any injury test should not require a domestic
industry to bear the burden of proving that its injury is material,
however that might be defined.
We sincerely hope the implementing legislation will resolve
these and other problems we see in the code that we have detailed
in our written statement.
The second point is that some GSP countries enjoy not only the
benefits of GSP but also grant export subsidies which are bounties
or grants under the countervailing duties statute. Congress, we
think, should amend the GSP provisions of the Trade Act to with-
draw such GSP benefits with respect to a product from a GSP
country as to which countervailing duties are assessed.
Third is the question of tariffs. The Trade Act of 1974 states as
its purpose that, "The trade agreement should harmonize or reduce
and eliminate barriers to trade on a basis which assures substan-
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582
tially equivalent competitive opportunities for the commerce of the
United States."
We submit that the tariff agreements as we understand them as
presently proposed not only fail in this objective but actually in-
crease duty disparities and substantially reduce the domestic fer-
roalloy industry's competitiveness in world competition.
As a result of the unilateral U.S. duty concessions in the Kenne-
dy round and the extension of GSP in 1976, our industry has had to
endure a large duty disparity because of our declining ferroalloy
duties and the much higher tariffs charged by both Japan and the
European Community. This unjustified disparity in duties has
made our country the focal point of world ferroalloy exports to our
industry's grave detriment.
The present agreements do nothing to reduce this disparity and
indeed in some respects increase it, a clear case of negative harmo-
nization.
We regret to say that our advice to our trade negotiators through
respective ISAC's may have been heard but unfortunately was
never really understood. We asked as an industry only for equality
in duties and furthermore stated our willingness to go to zero
duties on all products if Japan and the European Community
would do the same.
Since the inception of these prior unilateral reductions ferroalloy
imports have risen from 15 percent in 1968 to 51 percent of the
domestic market today. We ask you to sit back and think for a
moment what 51 percent import penetration means to an industry,
an industry that is as modern and efficient as any in the world. We
do have all the latest technology in the production of ferroalloys.
We have not lagged behind the rest of the world as I have heard
some remarks made today about other industries.
In our case, this penetration has closed U.S. plants. It has export-
ed U.S. jobs. It has decreased our company's profitability and it has
adversely affected our country's balance of trade and has seriously'
increased our country's dependence on potentially uncertain
sources of ferroalloys critically essential to our economy and na-
tional defense.
Now, the present agreement will reduce our duties again while
Japan and the European Community have offered only minor con-
cessions with the result being an increase in the unjustified dispar-
ity. Our industry welcomes free and fair competition. But, what we
cannot survive is competition in which the deck is stacked against
us and only us.
The present tariff agreements, if finalized as they now stand,
portend for our industry a long and dark night.
On behalf of our industry, we thank you for the opportunity to
present our views on the trade package. Mr. Lemberg and I will be
delighted to answer any questions you may have.
[The prepared statement follows:]
STATEMENT OF GEORGE A. WATSON, EXECUTIVE DIRECTOR, THE FERROALLOYS
ASSOCIATION
The Ferroalloys Association represents the vast bulk of the non-captive United
States producers of chromium, manganese and silicon ferroalloys, metals and relat-
ed products. These ferroalloys are additive materials produced from various ores
PAGENO="0591"
583
and are essential ingredients in the production of all carbon and specialty steels,
iron castings and aluminum products.
The U.S. ferroalloys industry has been sorely beset by imports for some years.
The problem has been aggravated by actions and policies of our own Government-
particularly the substantial unilateral ferroalloy duty reductions by the U.S. in the
Kennedy Round, and, since 1975, other essentially unilateral import policy deci-
sions, such as the extension of GSP to a number of ferroalloy products. As a result,
surging imports have come to threaten the very existence of the U.S. industry.
The Ferroalloys Association wishes to make four specific sets of comments encom-
passing duty inequities, the subsidies code, the application of the GSP program to
the ferroalloy industry and the relationship of developing country subsidies to the
GSP program.
1. The Geneva negotiations of ferroalloy duties
Our industry's most important concern is with the duty levels for ferroalloy
products which have just been negotiated in Geneva. The Ferroalloys Association
strongly objects to the duties agreed upon by the principal consumers of ferroalloys:
namely the United States, the European Community and Japan.
Unilateral U.S. actions-Kennedy Round concessions, extension of GSP and artifi-
cially low conversion of specific duties to an ad valorem basis-have created a
massive, economically unjustified and harmful disparity between U.S. ferroalloy
duties and the ferroalloy duties of the EEC and Japan. Although it was to have
been one of the goals of the Tokyo Round to eliminate or greatly alleviate this
disparity, the Geneva negotiations have left the disparity firmly and fully in place.
As a result, the Tokyo Round negotiations have, with respect to ferroalloys, failed to
obtain the "harmonization, reduction, or elimination of industrial trade barriers and
distortions" and of "devices which distort trade or commerce" required by Section
103 of the Trade Act of 1974. They must, therefore, be repudiated.
Prior to the Kennedy Round negotiations, U.S. duties on ferroalloys were some-
what greater than comparable Japanese and EEC tariffs. In the Kennedy Round the
U.S. made substantial reductions in its ferroalloys duties while both Japan and the
Common Market placed ferroalloys on their "exceptions" lists. Unfortunately, ac-
tions by the U.S. Government since the Kennedy Round negotiations-culminating
in the aptly named Tokyo Round-have only increased the disparity.
Because many U.S. ferroalloy duties are specific or compound, price increases
reflecting nothing more than inflation have substantially eroded actual U.S. duty
levels-a situation which has not affected Japan and the EEC with their purely ad
valorem duties. And the recent conversion of these rates to ad valorem duties was
calculated by the Administration on the basis of the recent year in which prices
were the highest and, hence, the converted duties became the lowest of all of the
possible alternatives.
Further, in 1975 the U.S. extended duty-free GSP treatment to a number of
ferroalloy products. By contrast, the EEC has denied any such treatment to ferroal-
by products; and, Japan has granted GSP to ferroalboy products subject to a severe
quantity limitation (less than one percent of Japanese consumption) which has
rendered its GSP "generosity" utterly meaningless. The result has been to exacer-
bate the duty disparity created by our Kennedy Round concessions.
The result of these one-sided U.S. tariff reductions has been all too plain and all
too damaging for U.S. ferroalloy producers. Thanks to these unilateral policies-(i)
our Kennedy Round concessions, (ii) our extension of GSP and (iii) our decreases in
the ad vaborem equivalent of specific duties brought about by the impact of inflation
on and the Administration's arbitrary choice of the conversion year to ad vaborem
tariffs-the U.S. has become the focal point for world ferroalloy imports coming
both from Japan and the EEC and from third world countries. Ferroalboy imports
which averaged about 15 percent in the late 1960s before all these concessions have
multiplied fourfold on an absolute basis, and in 1978 seized an incredible 51 percent
of our U.S. home ferroalboy market.
Thus, in large part as a direct consequence of our Kennedy Round and other
unilateral duty reductions, imports have grabbed over half of our market. Forced to
compete with foreign producers which often are subsidized and which bear a consid-
erably smaller cost for such regulatory items as pollution control than do U.S.
producers, we alone of all world ferroalboy producers were also forced to compete
without significant duty protection. In a highly competitive, greatly price-sensitive
world market, the fact that our duties were twenty five to forty percent of the
duties of Japan and the EEC sent massive import tonnages to our shores.
And, so, I am here asking you to sit back and think for a moment about what 51
percent import penetration means to an industry which is as modern and efficient
as any of its overseas competitors. In our case, it has closed U.S. plants, exported
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584
U.S. jobs, adversely affected U.S. industry earnings and our country's balance of
trade and increased U.S. dependence upon potentially uncertain foreign sources of
the critical products which our industry produces.
Clearly, the U.S. ferroalloy industry desperately needed elimination of the duty
disparity that has been a major factor in literally killing us. We spent many hours
and much energy fully informing our trade negotiators of our plight. But, most
unfortunately, what we got from the Tokyo Round was something quite different
from the elimination of the disparity which law, economics and fairness demanded.
The U.S. ferroalloys industry's complaints about the Tokyo Round duty negotia-
tions focus upon both our concessions and, even more significantly, the failure of
our negotiators to extract the needed concessions from our trading partners. Under
the circumstances, we should not have subjected any ferroalloy to any U.S. duty
cuts whatever. Some of the cuts our industry received-for example the unilateral
reduction on the critical, import-beset product silicomanganese-are substantial and
certain to be harmful. And, what hurts now and will hurt for years to come is the
fact that both the EEC nor Japan were permitted to avoid making significant
reductions. Indeed, each of them withdrew significant ferroalloy items from their
initial, themselves meager, offers list at the last moment.
As a result of the Tokyo Round negotiations, the disparity between U.S. ferroalloy
duties and comparable Japanese and European duties has not shrunk. Before the
Tokyo Round began, the EEC's duties (on a weighted average basis) were 2.2 times
the U.S. ferroalloy duties. The proposed Geneva agreements would actually increase
the EEC to U.S. duty disparity ratio to 2.6 to 1. Prior to the Tokyo Round negotia-
tions, Japan's duties (on a weighted average basis) were 3.0 times comparable U.S.
duties. The agreements reached in Geneva would actually increase that disparity to
a 3.7 to 1 ratio.
The U.S. ferroalloy industry is far from protectionist. We have consistently urged
the worldwide elimination of all ferroalloy duties. We want to reduce trade bar-
riers-but not if this nation is to act alone. Our industry sincerely wishes that it
could appear before you today to applaud the job our government has done in
Geneva. We wish that we could come before you and cheer an agreement which had
eliminated all ferroalloy duties and non-tariff barriers in the U.S. and the EEC and
Japan and provided for a genuinely free and open world competition. We want free
and fair competition. What we cannot survive is a competition in which the rules
are stacked against us-American ferroalloy producers-and only us.
It appears as if our industry, like many other American industries, has been
sacrificed on the altar of the Administration's determination to gain some kind of
trade agreement, no matter how destructive or at what costs. Our industry is being
destroyed by our government's apparent decision to have this country be the only
major ferroalloy market essentially unprotected. With imports having taken advan-
tage of our Kennedy Round and other concessions to seize over half of our market
already, the proposed tariff agreements increasing these excessive, unjustified duty
disparities portend for our industry a long and dark night.
2. The subsidies/countervailing duties code
The Ferroalloys Association strongly objects to amending the U.S. countervailing
duty statute to conform to many aspects of the Subsidies/Countervailing Duty Code
negotiated in Geneva. A domestic industry's burden of proving an unlawful subsidy,
even though it may be generally known to exist, has been difficult enough without
adding to the burden by adopting code provisions as U.S. law.
The Ferroalloys Association would deplore any amendment to the U.S. counter-
vailing duty statute to require an injury determination for dutiable products. And,
if an injury test is added, our industry would deplore an amendment permitting a
subsidies investigation to be dismissed in its initial stages on injury grounds (as
Code Article 2, Section 4 would provide).
Today, it is no secret that certain International Trade Commissioners persist in
interpreting the injury criteria in the antidumping statute in a far more stringent
way than Congress has (by statutory language and legislative history) clearly man-
dated. The addition of an injury test would give a Commissioner similar license in
countervailing duty cases to impose upon a domestic industry a far greater burden
of proving subsidy-caused injury than that specified in the words of any statute
Congress enacts.
More fundamentally, proof of subsidy-caused injury is very difficult (especially in
light of the code's efforts to make any causal tie that can justify an injury finding
be very clearly delineated). This is so even though the causal factor can generally be
presumed: since imports usually get business by underselling U.S. producers, and
any subsidy is obviously crucial to the exporter's willingness and ability to under-
sell. It is likely to be very difficult indeed to isolate-and prove to the satisfaction of
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the ITC-the injury which the subsidized sales have caused from the effect of other
possible causes of an industry's injury. As such, to add an injury test is likely to
deprive a U.S. industry which is genuinely suffering as a result of unlawfully
subsidized imports from receiving the relief which the countervailing duty statute is
meant to provide. At a minimum, any injury test added to the statute should be
carefully drawn so that the extent of the injury and of the causal tie between the
unlawful subsidy and that injury which a domestic industry must prove is reason-
able and not unduly burdensome. For example, any requirement that the injury
proven be "material" would go a long way towards rendering the countervailing
duty statute useless.
The Ferroalloys Association also objects strongly to other aspects of the code. For
example, the code uses such phrases as "significant increase in subsidized imports"
and "significant price undercutting" in the injury provisions of Article 6, Section 2,
and, in Article 14, creates a powerful, perhaps unsurmountable, presumption that
subsidies by a developing country are to be tolerated by a U.S. industry without
complaint. These provisions would, if adopted into American law, greatly weaken
the effectiveness of the statute. Likewise, consider the provision that the counter-
vailing duty assessed should be less than the amount of the subsidy if a lesser duty
would remedy injury (Article 4, Section 1). And, consider the provision that any
countervailing duty finally calculated which exceeds the provisional calculation is,
to the extent of the difference, not to be collected (Article 5, Section 6). If enacted,
these and other provisions scattered throughout the code would unjustifiably
weaken a statute of great importance to assuring that imports enter the United
States fairly and by the rules-a statute whose proper enforcement is essential if
any free trade policy is to work, and to work without continual Congressional
involvement in the details of each affected industry's problems.
Unfortunately, the code seems to rest on the assumption that the subsidization of
exports, so detrimental to the U.S. ferroalloy industry, is really not so bad after all
and should, except in rare circumstances, be tolerated. But, the rules of the interna-
tional trade arena are and should be otherwise; and, the U.S. should not bowlderize
its countervailing duty statute in the manner suggested by the code.
The Ferroalloys Association applauds any efforts to streamline the time schedule
and processes pertinent to the enforcement of the countervailing duty laws.
3. GSP and the ferroalloy industry
The ferroalloy industry has suffered greatly from the duty-free status granted to
imports of major ferroalloy products under the Generalized System of Preferences.
Although the Ferroalloys Association has filed several petitions with the Office of
the Special Trade Representative seeking to have ferroalloy products especially
injured by GSP withdrawn from that program, STR has rejected each petition.
Further, our industry lives with the continuing threat that STR will some day
decide arbitrarily to extend GSP to import sensitive ferroalloys not presently includ-
ed in that program. Because GSP imports have had a devastating impact upon our
industry and because STR has been unwilling to enforce the Trade Act's require-
ment that GSP not be extended to products that are "import sensitive in the context
of GSP," Congress should enact H.R. 3344-a bill to add ferroalloy products to the
list of products statutorily exempt from GSP.
4. GSP treatment of products subject to countervailing duty
Furthermore, some GSP countries have abused the privilege afforded by GSP
treatment for their U.S. shipments by granting export subsidies which are "bounties
or grants" under the countervailing duty statute. Congress should therefore amend
the GSP provisions of the Trade Act to withdraw GSP with respect to a product
from a GSP country as to which countervailing duties are assessed.
On behalf of our industry, we thank you for this opportunity to present our views
to you. We will be delighted to answer any questions you have.
Mr. VANIK. Mr. Moore, do you have any questions?
Mr. MOORE. No questions, Mr. Chairman.
Mr. VANIK. I have no questions. I certainly appreciate your very
fine statement. We will study it.
Mr. WATSON. Thank you, Mr. Chairman.
Mr. VANIK. The next witness will be the Semiconductor Industry
Association with George M. Scalise, vice president of administra-
tion and international operations, Advance Micro Devices, and
Stanley Nehmer, consultant, and Peter B. Archie, counsel.
L~L~_998 - 79 - 38
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Your entire statement will be in the record. You may excerpt it
or read from it.
STATEMENT OF GEORGE M. SCALISE, ON BEHALF OF THE SEMI-
CONDUCTOR INDUSTRY ASSOCIATION, ACCOMPANIED BY
STANLEY NEHMER, CONSULTANT, AND PETER B. ARCHIE,
COUNSEL
Mr. SCALISE. Thank you, Mr. Chairman.
Mr. Chairman, let me begin by expressing my thanks for the
opportunity to appear and testify here today on behalf of the U.S.
Semiconductor Industry Association.
My name is George Scalise, I am vice president, international
operations of Advanced Micro Devices, Inc., located in Sunnyvale,
Calif. With me are Stanley Nehmer, of Economic Consulting Serv-
ices, Inc., and Peter B. Archie, of the Washington law firm of
Peabody, Rivlin, Lambert & Meyers.
I would first of all like to acknowledge your mention of the
importance of technology in our foreign trade and we certainly
endorse the views that you expressed earlier. I would like to em-
phasize first of all that the principle of the MTN has our full and
philosophical support. We do feel that there has been an excellent
job done in the negotiation of this very complex treaty and we too
applaud those who have been involved in that process.
However, we do anticipate that the lower tariffs in the MTN and
the new dumping and countervailing duty codes will not be deter-
minative of the trade patterns in semiconductors. In this case the
MTN does not really resolve the particular problems of a high
technology industry such as ours. The basic problems that we are
facing are the lack of access to foreign markets, the substantial
subsidization of R. & D. by foreign governments, particularly the
Japanese, and business practices condoned abroad which would be
unlawful in the United States.
Not adequately addressed by the MTN codes is the targeting by
the Japanese of the U.S. semiconductor market and the threat that
such targeting practices will injure our industry. Targeting is spe-
cifically intended to expand Japanese semiconductor production
and exports.
The massive government subsidies are designed specifically to
favor Japanese companies by increasing their share of foreign
trade in semiconductors. The Japanese R. & D. subsidy was part of
the target industry program designed to capture a large share of
the U.S. market.
The Japanese program has already succeeded by capturing ap-
proximately 35 percent of the U.S. market in only 3 years for an
important product called the 16,000 bit random access memory or
16K RAM. The 16K RAM represents the very heart of present
product technology that serves as the foundation of the next gen-
eration of integrated circuit products.
Therefore, it is of the utmost importance that this market be
maintained at some viable level.
We suggest that targeting of our semiconductor market and our
restricted access to foreign markets must be addressed as vital
problems of international trade policy.
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Finally, we suggest that the implementing legislation adopt re-
fined standards for determining threat of future injury based on
the appearance of specific early warning signals. We feel this is
very important. We also feel that it is possible to achieve this
measure through a monitoring of the rate of change of market
share of specific high-technology products.
From its inception, the U.S. semiconductor industry has been
characterized by the innovative and continuous development of
semiconductor components of ever increasing complexity. These
innovations evolved from single function devices such as transistors
and diodes to integrated circuits which contain the equivalent of 10
to 15,000 transistors per chip.
A chip is piece of silicon approximately 100th of an inch thick
and approximately one quarter of an inch square. If you look at the
head of a pin it would serve as an approximation. We are talking
today of 10,000 to 15,000 transistors per chip. We are now moving
in the area of approximately 30,000 transistors per chip.
As was stated so well by Robert Noyce, vice chairman of Intel,
one of our members:
What we have seen has been to some extent a steady quantitative evolution:
Smaller and smaller electronic components performing increasingly complex elec-
tronic functions at ever higher speeds and at ever lower cost.
Current research points to a future complexity level of up to 1
million transistors per chip in the very large scale integration, or
"VLSI", projected for the 1980's and 1990's. Again referring back to
your earlier comment, this is not an aging industry but truly a
dynamic high-technology industry.
Product development is the key to our business; it is a direct
function of research and development expenditures and capability
to fund such expenditures from current products. The new products
will finance the next phase of R. & D.
To remain viable in our industry, one must maintain continuity
from one product stage to the next. Today, the RAM is the key
product line in this chain of evolution. If at any point a foreign
competitor can break this innovative chain, the injury may be
irreparable.
The technology needed to advance to the next stage would be
inhibited if profits necessary to finance R. & D. are siphoned off by
the foreign-owned competitors. Our industry simply would have
insufficient profits to finance continuing research.
In addition, as foreign companies accumulate U.S. market share,
our companies would lose the process enhancement or experience
curve which comes with volume production. In the semiconductor
industry, declining costs and increasing yields are a demonstrable
result of continual accumulation of manufacturing experience.
The national defense ramifications of our being number two in
high technology research are particularly acute. In the 1980's elec-
tronics will become even more important in our defense systems.
We should not be dependent upon foreign countries for the most
advanced electronics, nor should we lose power to control access to
the technology which could be used against our interests.
Let me offer some of the following comments on the MTN codes:
First of all, we suggest that the injury standard in the new
countervailing duty statute, the new antidumping statute, any
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588
amendments to sections 201 and 301 of the Trade Act of 1974, and
section 337 of the Tariff Act of 1930, include provisions designed to
assure prompt relief from the threat of future injury.
Second, if new negotiating authority is included in the statute,
we strongly urge that our negotiators be instructed to address the
unique problems of our high-technology industries, including sub-
stantially equivalent access to foreign markets.
Third, we respectfully submit that execution of the MTN Govern-
ment procurement code between the United States and Japan
would be inappropriate until such time as we have tangible evi-
dence that Japan has in fact opened both its private sector and
public sector markets to our high technology products.
Fourth, we strongly endorse the position asserted by witnesses
earlier in these hearings that the U.S Government must effectively
and expeditiously enforce the unfair trade laws which are now on
our books.
Fifth, we concur that unfair trade remedies are only meaningful
if statutory deadlines are as short as possible, consistent with
standards of due process, and if our agencies and departments
strictly observe the deadlines, any assurances on pricing, subsidies
or other unfair practices must include detailed, forceful and man-
datory monitoring procedures.
Finally, we suggest that the statute include a private cause of
action against foreign manufacturers for violations of our trade
laws, including the dumping laws and the unfair trade laws, and
provide for treble damages which would deter the kinds of conduct
which we have seen destroy other U.S. industries.
In conclusion, our industry is solidly detemined that the Japa-
nese targeting effort will destroy neither our technological leader-
ship nor our industry. To succeed, our determination must be
backed by the legislative and executive branches of our Govern-
ment.
Our goal is not to duplicate the unfair and disruptive tactics of
the Japanese and not to adopt a protectionist posture, but to
achieve a solution which preserves our industry by opening the
Japanese market to our products and by eliminating unfair prac-
tices that disrupt our domestic market.
In particular, we should all seek to avoid prolonged and acrimo-
nious disputes which could leave lasting scars on all participants.
As we face the 21st century we must not forget that many of our
country's natural resources are being depleted, certainly our petro-
leum and natural gas reserves. Our hope of maintaining acceptable
trade balances must be based on an area where we have always
excelled-technical innovation. Technology is also a depletable re-
source but, unlike petroleum, it can be renewed if our markets
provide the funds for research and development. If we are unable
to maintain technological superiority in the semiconductor field,
we could soon find ourselves dependent on foreign sources for the
electronics necessary for defense and communications systems, at
risks and costs comparable to our present dependence on foreign
sources of energy.
Thank you very much, Mr. Chairman.
[The prepared statement follows:]
PAGENO="0597"
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STATEMENT OF GEORGE M. SCALISE ON BEHALF OF THE SEMICONDUCTOR INDUSTRY
ASSOCIATION
Mr. Chairman, let me begin by expressing my thanks for the opportunity to
appear and testify here today on behalf of the United States Semiconductor Indus-
try Association. My name is George Scalise, I am Vice President-International
Operations of Advanced Mirco Devices, Inc., located in Sunnyvale, California. With
me are Stanley Nehmer, of Economic Consulting Services, Inc., and Peter B. Archie,
of the Washington law firm of Peabody, Rivlin, Lambert & Meyers.
1.-SUMMARY
I would like to emphasize that the principles of the MTN have our full philosophi-
cal support. However, we anticipate that the lower tariffs under the MTN and the
new dumping and countervailing duty codes will not be determinative of trade
patterns in semiconductors. The MTN does not address many particular problems of
high technology industries. For example, product development-the key to our
industry-is a direct function of research and development expenditures and the
ability to fund such expenditures from our current profits. New products, in turn,
finance the next phase of R&D.
The basic problems facing our industry are lack of access to foreign markets, the
substantial subsidization of R&D by foreign governments, particularly the Japanese,
and business practices condoned abroad which would be unlawful in the United
States.
Not adequately addressed by the MTN codes is the targeting by the Japanese of
the U.S. semiconductor market and the threat that such targeting practices, will
injure our industry. Targeting is specifically intended to expand Japanese semicon-
ductor production and exports. The massive government subsidies are designed
specifically to favor Japanese companies by increasing their share of foreign trade
in semiconductors. The Japanese R&D subsidy was part of a "target industry"
program designed to capture a large share of the U.S. market. The Japanese
program has already succeeded by capturing approximately 35 percent of the U.S.
market in only three years for an important product called the "16 thousand bit
random access memory" or "16K RAM." The 16K RAM represents the very heart of
present product technology that serves as the foundation of the next generation of
integrated circuit products.
We suggest that targeting of our semiconductor market and our restricted access
to foreign markets must be addressed as vital problems of international trade
policy.
Finally, we suggest that the implementing legislation adopt refined standards for
determining threat of future injury based on the appearance of specific early warn-
ing signals.
11.-BACKGROUND
Semiconductors,, which contain one or more electronic functions on a silicon chip
approximately ¼ inch square, replaced vacuum tubes 25 years ago as the primary
medium for amplifying or switching electronic signals. Semiconductor technology
provided the fundamental basis for the end equipment market estimated at $100
billion in 1979, which is forecast to rise to $200 billion by 1985. The end equipment
market includes computers and related equipment, telecommunications equipment,
industrial products and consumer products. Defense systems throughout the world
are increasingly reliant upon semiconductors.
The U.S. semiconductor industry has been characterized by the innovative and
continuous development of semiconductor components or ever increasing complex-
ity. These innovations evolved from single function devices such as transistors and
diodes to integrated circuits which contain the equivalent of 10 to 15,000 transistors
per chip, to large scale integrated circuits which contain on the same small chips
30,000 equivalent transistors. As stated so well by Robert N. Noyce, Vice Chairman
of Intel, one of our members: "what we have seen has been to some extent a steady
quantitative evolution: smaller and smaller electronic components performing in-
creasingly complex electronic functions at ever higher speeds and at ever lower
cost." 1
Current research points to a future complexity level of up to 1,000,000 transistors
per chip in the "Very Large Scale Integration" ("VLSI") projected for the 1980's and
1990's. Ours is truly a dynamic industry and this innovation results in a short life
for each generation of products.
"Microelectronics", Scientific American, September, 1977, vol. 237, No. 3, p. 63.
PAGENO="0598"
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111.-DISCUSSION
1. Competitive posture of foreign companies
Innovative process and product development in our industry requires that evolu-
tion from one product stage to the next be maintained for viability of the industry.
Today, the RAM is the key product line in this chain of evolution. If at any point a
foreign competitor can break this innovative chain, the injury may be irreparable.
The technology needed to advance to the next stage would be inhibited if profits
necessary to finance R&D are siphoned off by the foreign-owned competitors. Our
industry simply would have insufficient profits to finance continuing research. In
addition, as foreign companies accumulate U.S. market share, our companies would
lose the process enhancement or "experience curve" which comes with volume
production. In the semiconductor industry, declining costs and increasing yields are
a demonstrable result of continual accumulation of manufacturing experience.
Our principal competitors are Japanese and European companies-which are
typically large, integrated firms as compared to the U.S. industry which includes
many smaller firms. In addition to pitting small companies like ours against large,
well-financed Japanese companies, the Japanese system has structural differences
which should be taken into account in considering our industry:
Japan's government directs and supports certain industries targeted for growth,
and several years ago "targeted" the integrated circuit and computer industries.
Japanese companies are highly leveraged through loans by the Japanese banks
which are closely controlled by the government and are frequently related to
manufacturing companies.
Japanese firms do not depend on the equity market to finance growth and hence
do not have to achieve a high rate of return in order to attract capital.
The bank credit permits the companies to finance long run deficits necessary to
penetrate foreign markets.
Japan's home market is protected by a variety of barriers, "Buy Japan" attitudes
and restrictive business practices.
Japan frequently has two tier pricing in target industries-a high price in the
protected home market and a low foreign price designed to capture market share.
As part of its targeting of electronics industry, Japan's government subsidized a
massive research effort and sanctioned cooperative research which would violate
our antitrust laws.
Practices such as two tier pricing and target industries have long been regarded
by many in the United States as presenting unfair trade issues. Many joint research
activities which are common in Japan would probably be challenged under our
antitrust laws if duplicated by our companies without government approval. Thus,
our semiconductor companies are unable to counter the substantial advantages of
our foreign competitors.
These policies have been particularly effective in accelerating the development of
the Japanese semiconductor industry. New U.S. high technology semiconductor
devices have been designed into Japanese equipment, only to be replaced in large
part by Japanese made devices which duplicate the U.S. product. Virtually every
type of semiconductor product in use today in Japan-including diodes, transistors,
bipolar ICs and mos circuits-was initially imported from United States companies.
In every area U.S. semiconductor firms now hold declining market shares as Japa-
nese production comes on stream.
Using the policies I have just outlined, the Japanese operate a nearly closed
domestic semiconductor marketplace. Some sections of the Japanese economy are so
closely controlled that semiconductor procurement is limited to Japanese suppliers
by formal government policy. The recent display of great reluctance on the part of
Nippon Telephone and Telegraph to open its procurement to foreign producers is a
graphic illustration of Japan's restrictive market policy.2
The massiye government sponsored target industry program in Japan-aimed
directly at our semiconductor and computer industries-constitutes in my view a
threat of future injury of proportions which should be cognizable under the unfair
trade provisions of our trade treaties and the implementing statutes. However, even
if our government undertook to challenge these practices by enforcing laws present-
ly on the books, the delays make remedies such as countervailing duty and anti-
dumping actions less meaningful to the semiconductor industry than to other indus-
tries.
Let me explain.
2"US.,Japan Talks on Procurement Again Break Down," The Wall Street Journal, Apr. 2G,
1979, p. 18 (Eastern edition).
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As indicated a moment ago, research and development is the key to success in the
semiconductor industry. Some products may be obsolete long before any subsidy or
dumping violation could be determined and the sanctions implemented.
2. The massive Japanese research effort
The massively subsidized VLSI program for semiconductor research exemplifies
the process by which the Japanese government channels and coordinates technologi-
cal development by its companies. MITT and the Japanese computer industry agreed
on a four year plan that would achieve the critical first step for a Japanese
computer industry capable of penetrating the United States market. The Japanese
goal is worldwide leadership in semiconductors and computers by the 1980's. They
are well on their way toward this goal.
The major Japanese electronics firms formed, under MITT direction, a VLSI
cooperative research laboratory. These industry groups contributed scientists and
facilities while substantial financing came from government sources. If the Japa-
nese target of substantial U.S. market penetration is achieved, I suggest to you that
the profits to repay the research "loans' will come from U.S. consumers.
3. Basis of the Japanese threat to our industry
Because both Japanese investment and research funds are channeled by the
government and not based on profit performance, Japanese companies tend to
invest heavily in production capacity. If this results in excess capacity, it motivates
dumping in the world markets. Their protected domestic market permits artifically
high, noncompetitive prices which cover all overhead costs and permits them to peg
export prices at the very low levels necessary to cover incremental variable costs.
Such aggressive export prices assure a strong and expanding foreign market posi-
tion and rapid penetration of the U.S. market.
And with this two tier price structure, when a cyclical down-turn occurs in the
economy and demand weakens at home, the Japanese, with their heavy fixed
obligations and guaranteed employment, have an incentive to flood the export
markets with products at below cost prices until their capacity limits are reached.
We have seen this in industries such as steel, and color television.
By comparison, the U.S. approach to the semiconductor market has been charac-
terized by an open market and free trade philosophy. U.S. semiconductor firms have
freely licensed technology to Japanese firms with no restrictions from our govern-
ment. We have exported our advanced products to Japan. We have allowed imports
to enter the U.S. at consistently low tariffs. We have allowed the Japanese unre-
strained and unlimited import market access. We have allowed Japanese equity
investments in, and outright acquisition of, U.S. semiconductor firms. Finally, we
have placed no restrictions at all on the establishment of foreign-owned subsidiaries
in the United States.
The U.S. market is thus vulnerable to dumping of Japanese products as well as to
market penetration of new products developed under the Japanese research subsidy
program.
There has been minor liberalization on the part of the Japanese, but only under
the most extreme pressure. In 1974, Japan for the first time relaxed its laws
prohibiting direct foreign investments and liberalized imports of many semiconduc-
tor devices. More recently, again under foreign pressure, MITT disclosed for the first
time heretofore secret patents of the VLSI Technology Research Association. But
the patents were disclosed only when American semiconductor makers vigorously
attacked the Association's exclusive patent ownership. Excluded, however, is that
part of the technology using processes determined to be "government owned."
For the past thirty years we have generously shared our technology with the
Japanese. We have licensed many more patents to them than we have received in
return. Their industry's foundation is our technology. But what do we get in return?
Very little. Their market is virtually closed and some of their key patents are still
classified "secret" and apparently reserved for the exclusive use of the Japanese
companies.
4. Japanese protectionist attitudes
Still not addressed, however, are the deeply ingrained social and institutional
attitudes that have led to a bias against imports, a "buy Japanese" policy at most
Japanese companies, and the ever increasing balance of trade in favor of Japan. The
Japanese have a litany of excuses for this imbalance and for not buying any
American products when Japanese products are available:
Non-compliance with Japanese "standards," although the Japanese typically de-
cline to specify the standards or to disclose how our products fail to comply;
Assertions that U.S. product quality is somehow deficient;
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592
The U.S. companies have not made a sufficient effort to develop the Japanese
market; and
The U.S. companies have a "lack of understanding" of the Japanese market.
Speaking for the semiconductor industry, these arguments simply lack merit. For
example, from the beginning, the U.S. semiconductor industry has been very export
minded. Our industry launched major marketing efforts in all world-wide semicon-
ductor markets, including Japan. This effort has been successful in all foreign
markets-including Japan, at least during the early life cycle of a high technology
product. But after Japanese firms duplicate the design of advanced products origi-
nally developed and produced here, United States companies are denied continued
access to those markets in Japan.
Over the last three years, imports of Japanese ICs into the U.S. have climbed
steadily. Last year the balance on semiconductor trade for the first time was in a
deficit position.
For example, in the 16K RAM market-a key component of our most sophisticat-
ed computers-the Japanese target program has proved successful. The Japanese
companies have captured a 35 percent share of the United States market in just
three years.
5. National defense implications
The national defense ramifications of our being "number two" in high technology
research are particularly acute. In the 1980's electronics will become even more
important in our defense systems. We should not be dependent upon foreign coun-
tries for the most advanced electronics, nor should we lose power to control access
to the technology which could be used against our interests.
6. Implications for the MTN package
Against this background description of the U.S. semiconductor industry and the
challenge it faces from imports, let me offer the following comments on the MTN
codes:
We suggest that the injury standard in the new countervailing duty statute, the
new antidumping statute, any amendments to Sections 201 and 301 of the Trade Act
of 1974, and Section 337 of the Tariff Act of 1930, include provisions designed to
assure prompt relief from the threat of future injury;
If new negotiating authority is included in the statute, we strongly urge that our
negotiators be instructed to address the unique problems of our high technology
industries, including substantially equivalent access to foreign markets;
We respectfully submit that execution of the MTN Government Procurement
Code between the United States and Japan would be inappropriate until such time
as we have tangible evidence that Japan has in fact opened both its private sector
and public sector markets to our high technology products;
We strongly endorse the position asserted by witnesses earlier in these hearings
that the United States government must effectively and expeditiously enforce the
unfair trade laws which are now on our books;
We concur that unfair trade remedies are only meaningful if statutory deadlines
are as short as possible, consistent with standards of due process, and if our
agencies and departments strictly observe the deadlines;
Any assurances on pricing, subsidies or other unfair practices must include de-
tailed, forceful and mandatory monitoring procedures;
Finally, we suggest that the statute include a private cause of action against
foreign manufacturers for violations of our trade laws, including the dumping laws
and the unfair trade laws, and provide for treble damages which would deter the
kinds of conduct which we have seen destroy other U.S. industries.
Let me comment briefly on these points. Because of the technology evolution in
our industry, the statutory in~jury standard which is most likely to be meaningful is
the "threat of future injury.' In our industry, relief after the fact of actual injury
may come too late to preserve the historic position of our technological leadership.
Once leadership in our domestic market is lost, there will be insufficient profits to
finance "catch up" technology. As our enforcement agencies have been reluctant to
award relief solely on the basis of such a threat, Congress should:
Make clear that a threat of injury alone is sufficient to award relief; and
Establish criteria which establishes a presumption of threat.
The actual injury experienced by U.S. industries such as color television and C.B.
radios was preceded by events which can be used to predict injury. A sudden
For example, these standards would permit relief if the market share of foreign-owned
producer imports accelerates sharply over a short period of time such as has already occurred in
segments of the RAM market.
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increase in the market share of imports of foreign manufacturers is the best
evidence of a threat and should be sufficient to support an award of relief.
We feel that realistic standards can be developed on the basis of the rate of
change of market share which would enable the enforcing agencies to act responsi-
bly and quickly to prevent a threat from becoming a reality.
We feel that assurances should not be a substitute for adjudicated relief. If
adopted, however, the following conditions should be included:
Any quantities limitations should be administered by U.S. Customs.
Substantial liquidated damages should be imposed for violations.
The arrangement must be insulated from foreign political relationships.
Possibilities of administrative abuse should be substantially reduced.
CONCLUSION
Our industry is solidly determined that the Japanese targeting effort will destroy
neither our technological leadership nor our industry. To succeed, our determina-
tion must be backed by the legislative and executive branches of our government.
Our goal is not to duplicate the unfair and disruptive tactics of the Japanese and
not to adopt a protectionist posture, but to achieve a solution which preserves our
industry by opening the Japanese market to our products and by eliminating unfair
practices that disrupt our domestic market. In particular, we should all seek to
avoid prolonged and acrimonious disputes which could leave lasting scars on all
participants.
As we face the 21st century we must not forget that many of our country's
natural resources are being depleted-certainly our petroleum and natural gas
reserves. Our hope of maintaining acceptable trade balances must be based on an
area where we have always excelled-technological innovation. Technology is also a
depletable resource, but, unlike petroleum, it can be renewed if our markets provide
the funds for research and development. If we are unable to maintain a technologi-
cal superiority in the semiconductor field, we could soon find ourselves dependent
on foreign sources for the electronics necessary for defense and communications
systems-at risks and costs comparable to our present dependence on foreign
sources of energy.
Mr. VANIK. You have pointed up some very special problems,
some of which are beyond the MTN. I think you will concur, the
thing that we have to do is deal with our antidumping code. I am
very concerned about your industry. I hope that we can promptly
deal with it.
Do you have any questions, Mr. Moore?
Mr. MOORE. Thank you, Mr. Chairman.
I want to compliment you on a very thorough statement. I have
read it. It is a very excellent statement. I think we have a two-part
consideration. The chairman has hit on a part I thoroughly agree
with.
To make MTN work once it is adopted, we must vigorously
enforce the codes we have on the books. I assure you that members
of this subcommittee I have heard speak have indicated that same
desire and same will.
I note on page 5 you point out something very interesting. That
is the necessity of capital in your high technology industry to
develop new technology. You point out how the Japanese have no
problems of gaining capital like you do.
I did some research the other day and discovered 10 years ago
American industry research and development funding was growing
at 10 percent per year. Today it is growing at less than 2 percent
per year. We are spending less money on research and develop-
ment.
We also learned that we have fewer engineers and scientists who
work today in private industry than 10 years ago. There is no
excuse for that either except possibly we in Congress are not doing
something to make that possible. I would appreciate if you would
PAGENO="0602"
594
give us a detailed statement on what we can do to help you amass
the capital other than to protect you from targeting which we will
certainly attempt to do.
I think you will need more capital even if we are successful in
doing that. I would appreciate your submitting to the committee, if
the chairman will agree, by no later than Wednesday of next week,
any ideas you have on how we can help you formulate the capital
you need to develop the technology you need to stay competitive.
Mr. SCALISE. I appreciate the opportunity to do so. We will go to
work on that immediately and prepare specific recommendations
for you.
Mr. MOORE. Thank you, Mr. Chairman.
Mr. VANIK. Thank you very much. We very much appreciate
your testimony.
The next witnesses are the National Customs Brokers and For-
warders Association, Mr. Sigmund Shapiro, vice president and di-
rector, and Mr. Morris V. Rosenbloom, director, Washington Office.
Your entire statement will be submitted in the record. You may
excerpt from it or read from it any way you see fit.
STATEMENT OF MORRIS V. ROSENBLOOM, DIRECTOR, WASH-
INGTON OFFICE, NATIONAL CUSTOMS BROKERS AND FOR-
WARDERS ASSOCIATION, ACCOMPANIED BY M. SIGMUND
SHAPIRO, VICE PRESIDENT AND DIRECTOR
Mr. ROSENBLOOM. Thank you very much.
Mr. Chairman and members of the subcommittee, my name is
Morris Victor Rosenbloom. I am president of American Surveys
and appear here today in my capacity as director of the Washing-
ton office of the National Customs Brokers and Forwarders Associ-
ation of America, Inc. (NCBFAA).
I am pleased to be joined by Mr. M. Sigmund Shapiro, president
of Samuel Shapiro and Co., Inc., customs brokers and international
freight forwarders of Baltimore and Washington. M~. Shapiro is
vice president for Customs Brokerage and a director of the
NCBFAA. In addition, he is a director of the American Importers
Association.
On behalf of NCBFAA President William R. Casey, Jr., who is
president of the Myers Group, Inc. of Rouses Point, N.Y., I should
like to express his regret at being unable to be in Washington
today to present our testimony. His views and those of our national
association are conveyed in the brief remarks that follow.
In accordance with Chairman Vanik's request that presentations
be limited in length, we shall focus our remarks on two subjects of
particular concern: (1) The importance of retaining the f.o.b. duty
collecting system rather than change to the CIF method of customs
valuation; and (2) The need to have Presidential proclamations that
announce a change in duty status of a particular item become
effective on merchandise exported on or after the date of the
proclamation.
Rather than be repetitious by offering specific recommendations
which would parallel those expressed to the subcommittee by the
American Importers Association, we prefer to endorse in general
the positions of AlA on legislation dealing with countervailing
PAGENO="0603"
595
duties, antidumping, shortened time limits, and aspects of import
licensing.
Before calling upon Mr. Shapiro to provide additional views, I
shall present a few comments regarding a question that has been
raised about changing the £o.o. duty valuation system to collecting
duties on a cost, insurance, and freight (CIF) basis. We believe that
such a change would be a serious mistake.
The f.o.b. system, which has been in effect for more than 150
years, has a major advantage in that it does not discriminate in the
amount of duty between ports of entry or between the mode of
transportation.
Many organizations are on record in opposition to such a change
in customs valuation. One of them is the board of commissioners of
the Port of New Orleans. Another iS our affiliated association in
New Orleans. In a recent telegram to Senator Russell Long, Presi-
dent Paul F. Wegener included the following points:
If CIF values were used for customs dutiable purposes, there would be a distinct
advantage to importers of merchandise from the far east to enter their goods on the
West Coast of the United States, therefore paying duty on a lower value.
There would be a distinct advantage on imports from Europe for the importers to
pay duty on the East Coast of the United States, therefore avoiding the payment of
duty on higher values that would be assessed against cargo arriving at Louisiana
ports.
Due to the complexities of ocean freight rates in various conferences being sepa-
rate for each coast of the United States, we do not feel CIF value is the proper
method of collecting duty and would urge you to forego your support of this
measure.
We believe that the proper method for dutiable purposes should be FOB value or
transaction value.
NCBFAA President Casey, in supporting the views expressed in
the telegram sent by the New Orleans Association, added in his
mailgram to Senator Long that: "In the interest of fair and equita-
ble competition, we urge that you not introduce a CIF valuation
type of legislation."
An important fact to be considered is that CIF dutiable values
discriminate against small business importers who must pay high
freight rates on small shipments, whereas large importers buying
identical articles from the same country pay low freight rates for
such items as cargo shipments. Another is that CIF dutiable values
discriminate against inland States that have a port-international
airport-of entry. An example would be St. Louis, Mo.
In closing my remarks, our association is the only nationwide
organization representing the customs brokerage and international
freight forwarding industry. A nonprofit organization, the original
group was incorporated in 1897. Located in all of the major ports of
the country, the NCBFAA has 23 affiliated local associations of
brokers and forwarders which maintain close liaison with the na-
tional association.
Our members include customs brokers licensed by the U.S.
Treasury Department as qualified to enter and clear merchandise
through Customs, ocean freight forwarders licensed by the Federal
Maritime Commission to handle export shipments, international
air cargo forwarders licensed by the Civil Aeronautics Board, and
IATA air freight sales agents. Through our membership we handle
most of the general cargo imported into, as well as exported from,
this country.
PAGENO="0604"
596
It is now my pleasure to ask Mr. Shapiro to present several
observations about the significance of the MTN and specific points
about our two areas of primary concern.
Thank you.
Mr. VANIK. We will be happy to hear from you, Mr. Shapiro.
Mr. SHAPIRO. Thank you, Mr. Chairman.
As Mr. Rosenbloom has mentioned my affiliations, I shall not
take your time to repeat them.
We welcome this opportunity to present or views on issues relat-
ing to implementation of the multilateral trade negotiations-
MTN. Inasmuch as our role in the international trade picture is
that of expediting and facilitating the movement of both export
and import traffic, I will confine my remarks to the administration
and implementation of the MTN rather than to its substance.
My hope, in doing so, is to be able to convey to the subcommittee
the need for simplification of the laws and regulations that at
present hinder the flow of our export and import trade.
We applaud the efforts that have been made to modernize our
valuation statutes. It is important to us and to our trading partners
to operate our customs and tariff laws under a customs valuation
system that is applicable, familiar, and equitable to all of our
trading partners.
The MTN customs valuation can do a great deal to contribute to
uniformity of treatment. We deplore, however, any efforts to
change our method of customs valuation from f.o.b. to CIF.
We recommend that the f.o.b. basis of customs valuation be
retained with a uniformity of definition that either encompasses an
ex-factory price or an f.o.b. port of export price, but not both.
We feel that imposition of CIF would discriminate between sup-
pliers, distort trade patterns, discriminate between U.S. ports and
increase costs to the consumer. We also believe that any such
change would require compensation to our trading partners which
would entail a whole new round of tariff-cutting negotiations.
As I said at the outset, our comments are mostly procedural and
as an example of the need for cutting through the complexities of
tariff administration, I would call the committee's attention to an
existing practice which should be modified as it hampers the order-
ly administration of our trade laws.
Existing laws give the President wide latitude to change duty
status under the generalized system of preferences or other provi-
sions of law. It has been the practice for the President to issue a
proclamation changing duty status of a particular item "entered on
or after the date of the proclamation." The effect of this procedure
means that merchandise on the high seas can be subject to differ-
ent duty treatment with no warning to the parties involved with
the transaction. It also means that cargo landing at, for example,
the west coast, could be afforded different duty treatment from
cargo aboard the same vessel arriving later at an east coast port.
Efforts have been made by our association and other interested
parties to modify this procedure by having the proclamations effec-
tive on merchandise exported on or after the date of the proclama-
tion. We believe that this is a sound and reasonable proposal which
would eliminate a number of uncertainties in international trade.
PAGENO="0605"
597
In those instances where the President is prohibited by law from
issuing a proclamation in such a manner, he should publish 30
days in advance of the issuance of a proclamation his intent to
issue such a proclamation. This would enable businessmen to con-
duct their operations without the threat of economic loss because of
duty status change.
We believe that the MTN is an opportunity to create a world
partnership in trade which the United States should not let go by.
We hope, however, that it be permitted to operate in a fashion that
would do the greatest good for the greatest number of people.
Thank you.
Mr. VANIK. I want to thank you very much. Any questions, Mr.
Moore?
Mr. MOORE. No questions.
Mr. VANIK. We certainly appreciate your statement. I hope you
understand our position. We are getting near the peril point of our
exhaustion. Your statement will be carefully analyzed.
Tom Kossel, counsel of the firm of Daniels & Houlihan, repre-
senting Imperial Arts Corp.
STATEMENT OF TOM KOSSEL, COUNSEL, ON BEHALF OF
IRWIN SCHNEIDER, PRESIDENT, IMPERIAL ARTS CORP.
Mr. KOSSEL. I will be as brief as possible. My name is Tom
Kossel. I am here to testify on behalf of Mr. Schneider of Imperial
Arts, Inc., which is an importer of dinnerware. Briefly, in a nut-
shell, the upshot of my client's testimony is that they have been
denied procedural due process by the International Trade Commis-
sion and Special Trade Representative. They are being saddled
with a tremendous increase in duty of over 400 percent, that this
increase in duty is destined to devastate their business, that they
have never had a genuine opportunity to object or to present the
merits of their position, and that it is within the power of this
committee to recognize injustice without any way jeopardizing the
MTN trade package or the implementing legislation.
I will read portions of the statement; most of it has been deleted
for the sake of brevity.
I am here today because, according to all of the information I
can obtain, the administration proposes to raise the duty on the
dinnerware that I import from 11 percent to 48 percent-an in-
crease in duty of more than 400 percent.
There is no economic need for an increase in the duty on dinner-
ware from Japan from 11 to 48 percent. The particular variety of
dinnerware that we import from Japan is not even made in this
country. It is not dumped by the Japanese. It is not subsidized by
the Japanese. It is fairly exported by them and fairly imported by
us and it hurts no one.
I make these economic points to this committee because we were
never given an opportunity to make them anywhere else. Mr.
Strauss' office would deny that we never had an opportunity to
make our case. The Office of the Special Representative for Trade
Negotiations would tell the committee that the STR and the ITC
held hearings on this matter at which we had an opportunity to
testify. Indeed, they did have hearings. The notices, however, which
appeared in the Federal Register of April 4 and April 27, 1978,
PAGENO="0606"
598
listed the dinnerware as, "Articles which may be considered for
increases in existing duties * * * incidental to modifications in the
tariff nomenclature".
We submit that no one can reasonably and fairly say that this
statement gives us fair notice that the STR was thinking of in-
creasing the duty from 11 percent to 48 percent. We submit that no
one can reasonably say that this increase in duty from 11 percent
to 48 percent, an increase of 400 percent, is incidental to modifica-
tions in the tariff nomenclature.
The notices are attached to our statement which I request be
submitted in full. The committee can decide for themselves wheth-
er proper notice was given.
[The prepared statement and attachments of Irwin Schneider
follow:]
STATEMENT OF IRWIN SCHNEIDER, PRESIDENT, IMPERIAL ARTS CORP.
Mr. Chairman and Members of the Committee, my name is Irwin Schneider. I am
President of Imperial Arts Corporation of Elk Grove Village, Illinois. Our company
imports dinnerware which is sold to a variety of institutional users such as airlines,
hotels, restaurants, schools and hospitals.
I am here today because, according to all of the information I can obtain, the'
Administration proposes to raise the duty on the dinnerware that I import from 11
percent to 48 percent-an increase in duty of more than 400 percent.
For this astronomical duty increase to be part of a package that supposedly is
designed to liberalize trade is, in my view, outrageous.
There is no economic need for an increase in the duty on dinnerware from Japan
from 11 to 48 percent. The particular variety of dinnerware that we import from
Japan is not even made in this country. It is not dumped by the Japanese. It is not
subsidized by the Japanese. It is fairly exported by them and fairly imported by us
and it hurts no one.
I make these economic points to this Committee, Mr. Chairman, because I was
never given an opportunity to make them anywhere else. My understanding is that
the laws of this country-such as Section 201 of the Trade Act of 1974-normally
give people on all sides of an issue an opportunity to state their case before a
decision to restrain imports by astronomically high duties is made. But Ambassador
Strauss' office did not do that in the case of the dinnerware we import.
Candor requires me to inform the Committee that Mr. Strauss' office would deny
that we never had an opportunity to make our case. I am sure that the Office of the
Special Representative for Trade Negotiations would tell the Committee, as they
have told us, that the STR and the International Trade Commission held hearings
on this matter at which we had an "opportunity" to testify. Indeed, they did have
hearings. The notices, which appeared in the Federal Register of April 4, 1978 for
the ITC and 4pril 27, 1978 for the STR, listed the dinnerware which I import (TSUS
Item 533.38) as: "Articles which may be considered for increases in existing duties,
to the extent permitted by Sections 101(a) and 101(c) of the Trade Act, incidental to
modifications in the tariff nomenclature." (Emphasis added.)
Mr. Chairman, how can anyone honestly and fairly say that this statement gave
us fair notice that the STR was thinking of increasing the duty on the dinnerware
we import from 11 to 48 percent? How can anyone honestly and fairly describe an
increase in duty from 11 to 48 percent as "incidental to modifications in the tariff
nomenclature"? Attached to my testimoney are copies of the two notices that
appeared in the Federal Register-the only notice that was given that any action
was in anyway being contemplated. Committee members may decide for themselves
whether that is fair and adequate notice to anyone.
Mr. Chairman, my company cannot even be certain that the duty increase from
11 to 48 percent is exactly what Mr. Strauss has proposed, because we are told by
his office that the matter is confidential and as a mere importer affected, I cannot
even be told what the details are. The Office of the STR, however, has confirmed
that our understanding is "generally correct".
Mr. Chairman, I do not understand all of the legalities of the procedure under
which the Committee is operating and under which the Congress will operate in
implementing this trade package. I do know that everything I have heard or read
about the actions of the Congress and the U.S. Government in these trade negotia-
PAGENO="0607"
599
tions was to try to liberalize trade and to improve the rules of international trade.
How can an increase in duty of 400 percent in anyway fit into a program like that?
I do know that the Constitution gives the Congress the authority to regulate
foreign trade, and through hearings such as this, you are doing that. I would ask
this Committee to exercise its legal authority to regulate foreign trade by prevent-
ing the STR from raising the duty on the dinnerware we import. This Committee, as
the watchdog on foreign trade for the Congress, should not permit any duty increase
on any product at anytime to be accomplished in the way the Administration tried
to accomplish the dinnerware duty increase-by totally inadequate, if not mislead-
ing, announcements in the Federal Register about products which "may be consid-
ered for increases" "incidental to modifications in the tariff nomenclature". If they
proposed to raise a duty on a product, they should be required to say so clearly and
accurately to give everyone an opportunity to make a case.
Second, this Committee should not tolerate the inclusion of such astronomical
duty increases as part of a package designed to liberalize and reform international
trade. Increased protectionism of this magnitude is contrary to the spirit, if not the
letter, of the Trade Act of 1974.
Thank you very much.
PAGENO="0608"
600
. 14146 ~ . ~ NOTICES
to NLsseI neither increased NLsseI's Trade Act is for the purpose of advis- Street NW., WashIngton, D.C. 20436.
mrslet share nor decreased that of Ing the President of the Commission's not later than noon, Wednesday April
U.S. producers. U.S. converters In- judgment as to the probable economic 26 1078.
creased their sales aigniSieantly during effect on the induetry concerned of The hearings will proceed continu-
this period and increased their market the immeditate termination of the ously and consecutively. The Conirnis-
share by 023 percent. L~i addition. relief provided for by Proclamation stan will hear testimony and receive
some purchasers indicated that orders 4436 of April 30, 1976, with respect to thfoi~atioui first with resPect to the
were sometimes l)lzCed for Jcponese the ceramic articles provided for lii section 203(i)(2) inve.stii:ation: second
lab b f q I ty It ins Q23 01 923 07 3 13 ci 0 3 1 Vith t t ti I 131(b)
Likelihood of injurp.-)nformation of the Appendix to the Tariff Sched- Vest1OO~ion, IflCi third ~tli resPect to
compiled in this iriveatigation does not tiles of the United States (TSUS). the section ~3(c) ri~est1faliOfl. It is
reveal that on industry in the United Section 131(1) investigation. The In- requested that persons subiiitting re
States is being or is likely to by in- vesti~ation under section 131(b) of the ~ e1~ 0 P~ ~ `hi `~ ~ *~ `~
Jured by LTFV imports. To the con- Trade Act is for the purpose of advis- ~ * C~ ~ ~
tracy. there is evidence of a healthy Ing the President of the Commission's 0 C .
recovery from the level of op er ations judgment- * Issued: March 30. 1078.
in the recession year 1975. In view of (a) With respect to eoch srttcte described By order of the Commission.
the Incretsing trends noted some with In LIst F of the Special Representative's
respect to U.S. producers altipnients, notice, as to the probable erosonsie elPot c~ EriusETli . 500. -
employment, and profitability and the the continuanee or reduction of United .
decreasing trend of LTFV imports, we States duties en doescatic industries produc- me SrF.CtoL Ptsriavseorssvsve roe
do not feel that there is lil:ctiloos'J of lug Lice or directly eoiespei.ltlcc articles and Tia.savst'eoacecrioss,
injury to the U.S. industry. Further- an es:.euesers, and - Foulietun.
ace, iris ussiotos penclitir' bet--cen th Ib) With respect to all c.rttr-les provided
- ., ., tar in ThUS Series 533.11 ttsrusih a33.77. Hen.D'atcc?..n.eulcw.
C tTifll d-~ebt IstII I S dPi C rio U5Ile I TroslCes
.3 ran wth t t 2 vi El p b b unto tires? I DC C
ti f or .. I b i t the ret h h us d ty Dean C s I cc Is a. I
United States toay preclude any RD to lcssptrosent the nororaclaturo propavrsl his decisian on Apr it 30, ISiS. to Svrreiiate
nificont increase tn the quantity of provided by Chic Cousisricnios under Pars- Inspect relict tad reslece caucasian rats-s at
such exports. graph 1 of his notice seOutsi have on dorneo- duty on imported ceramic tableware, Peesi
* tie hidactries producIng like or direeUy c-ceo. dent yard directed tile Special rrrde Itipre- -
- CONCLUSION petitive articles and an caiwsensers. oetttahlve to reviess the ciossificatiorcs 2nd
- rates of dote on reranste dinnerware and re-
It is clear from the abase consider- Secfion 332 invcstiqaticitt. TOte tnvcs- lstvd article's us the Tarift Schedules of the
at o s that th U S ELt I I 7 en n 3 tg) ~ U I d St .-.o IT Is I an 11 ssa. 1
impression fabric in lice United Slates Tariff Act of 1530 is for the purpose of clan ma tee necessary to close tonIC loop-
3011 dIiy is d ts ott 1 p n thc Np ci Jo cent t e- ~ is ~J ~, b t1 eJ
es lb th ~-op I I t nm Itus fit dt bit rtt I
d c-I f d 53 1 es a- -t lea p -`-- ~ 10 ~ c~ Os
p .~n as C n "s S s. 53311 h RI t in ott learn d trimS I h
1 1 .3 Is th L. ir .5 to tv -5 , i taran so aid L d I us d rev ar~ Th
States at LTFV. Ttsercmorr, S.C find in ]ooptrotrs. rtirvinute provisions based ~ comic tableware provisions ci the TSCIS
the negative. price levels thai no sayer exist. and crier- u-eec nobsequenthy reviewed by tire Trade
- . , ally bring the yseecenclature Into con(or- Policy Stall Cssaosittee, which concluded
S mmtss fl or s I mrs t en t -r. p-~ ~ th t r C t n I LI l~ Il I ti
lsst.ed I ch 2 1 I tag t t prose 1 taos p10515. ri I ~ ~~t1'I b lot
Na. r'hurtPs.rco Ape Sd ftn an turef rates. Idly
- Secrcfcrg, notch ceramIc articles is attached to if possible, It Is cur IntentIon to haisdie
[FR Do- 7C-0~5l ~ 3 ~- ~* this notice and made ci part thereof. the nooditication of the tableware peosisians
-. . - iv. ,- -, - .4 sin] Consili(fofccl Pu-the Hearings Or- In the context ot the Itultilatere.I Trade Pb e-
V derer.f. Public Isearingo in connection cotlotsons. However, beCoro we caci proceed
[7020-02] sa Oh t con S is ~ ~ ,~ lurch o ER at r lent W d 1 f I
D1'A 03-4 `IA 137tH 331' 1001 ~ g1 ~ `1 tl ft Si C fl t -of th TarsffAt. os~'ó ice
- CR51504 cscsisic AesICLES Trade Commission lltsitd.cng, 705 N direction of thin President, Etsat the Caoocds-
- Street NW., Wcsitincl.on, D.C., begin- nion provide me wills o proposal on boss' tile
CouuioEdotrd tusr,ftcc?ioni ond Heo,teau ning at 9:30 am., e.d.t., Monday. May ssnnsenelature ond rates of duty for rera-
1- t- - - h b ` ~ t~ 1, 1978. Persons requesting to appear niirie articles provided for In TSUS tOctss
Un I S St ic mt 1 ci 1 Trd tot th I nngr h uld at L 11 s ~ ~ thro In Id l~ 1e~I~
Cornnsission on March 30, ~ at 1110 retary of the Commission, in -svrsthng, dons based on prier levels that iso tanu:rr
reqtiest of Elte Special Represeustative is o cc 0. stsht.igto.i, 01 51 exist, and nonentIty bring the necresnlnture
for Trade Negotiations. instituted ran- ________ - Into can.fornioiire with cositerrelal conCh
ss1idatrd investi-a'io' s und- ~ . V lions prrsaihlng st the pneaeat ttnse.
- `- - - -. - List I attached to the STR request 005100 2. Puisou.nt Ia neellon 203i1i12) of tire
2 3(r)C2t and 13_b) of the Trr,cle ct oIl articles (or ohicts 11cr J'rrrldent orIginal- `rode let 001074 and oeeIton blat at Pore.-
of 194 (19 U.S.C. 22zr3tiI(2) and 19 ly proclotnied report octal pin-roast to the Else Order 11t4(, I request that the Corn-
U.S.C. 215Db), respectIvely) and ccc- proeistaos oh eviction 351 of thir Trade Es- iulesion ads-ire the Presldrnt, through the
tion 332tg) of the Tariff Act of 1930 panslon Act of IPS 2. in view of ttsls Import tlpreish Trade Hrpreaootcstive, of its lads-
(19 U.S.C. ]3321gtt with respect to ccr- relief action. the l'residvnt lie_s fbi tireviuos- toent as to the probsirle economic dIed on
t°in ceramic ~rtieles `Ihe lelte Iris p regoraled Irons the Ceiriiolssion `proS- Ohio domestic hodostey cozieernrd of the Irs-
Oh Np lIt 0 1 e q t g it fleet C I II 05 it mdl ~ti°~° xi ~,auihils t~ it f 011
nscIyl Ill I e ~ tie hr to mrofl tIn test t Ih pro Ii ms 02301 8107 313 and
- .Seelzon 203 intrsfgoloa. Tile I1i5CS~ Items 533.11 thrauth 533.17 In eubpaet C of 3. In seeordaoee wilti seethon i3t(ot of 1110
tlgatlon uttder section 203(10(2) of tlhe Part 2 at aehedule S of the TSUS. - Tx-asIc Act of 1974 and seclion `rich of Execu-
FEIIPAL SOOthER, VOL 43, 990. 6.5-T1JEtDAY, APRIL 4, 1978
PAGENO="0609"
NOTICES 14147
LIST I daurn; plates aver 9 bat not ever 11 Inches
Set I wht hsvlttb nJdedf te dl $1 5b 2t p d d aed
United Slates daties, ar addttienat dnties, ~ creamers, sagan, eegetob(e dahea ar
the extent permitted by aections 101(a), bowls, plattern ar chapdnhec, batter
ltl(b),10t(r), and 109cr the Trade Art. ~ boats or gravIes and
2'SttS ilem' nad articles coIned aver $2 bat nat ever 00.49 per
~rtlcteurhic'flynsedforpreparmg,nere; sstT't.cupsrriuedover$nobutrot
~ tearept artl- $0.95 bat nutueer $1.75 per deves; plates
clea presided far In itrmc 122.ld and 532.1$ d d ~t ma..smsm diameter
ttl TN S I IS Uruld p dew pit Sbtnt 11
Available in specified ~i,5- . theSes In musbnum diumetrr and voltird
533.21 p1.' In any pattern fur which the ow- ever $2.65 but nat aver $4.05 per davee;
gergste value el the articles listed In trowel- and rreamerw awaurs, vegetable dishes or
nutr 2(5) at subpset C, pwrt 2 a! schedule besets, platters er rhep dishes, butter
5 af thu Torllf Schedules of the United dtvhes or trees, gravy busts er gravies and
Slcteu In user $12 but net aver $23 _ atnnds, any ot the fen-gulng articles
Net avsdsbie In specified sets: valued ever $3.40 but not ever 31.20 per
133.31 pt. Stehns mtd mugs, N eulued not doers.
ever $3.60 per duavn. . .
Other articles: . ScoT IS
533.33 pt. Cues entoed nut ever 10.00 per Aetietru which may be runvidered far In'
dueen; saucers vutued net ever $0.30 per creases In owhtine dsties, Is the eutent per-
deem, plwtew net aver 9 Inches tn mast- aaftted by avvtiee.s lulls) and lutles of tire
sworn dimt 10~ Tr'sdAt lead taltenso,,cfestnornth
avgwes,erfetabietlishesor s~ampt~~iee~ ltsttSifem semI articles
or chop dishes, butter dishes or trays, Articles chiefly used toe prrpuelne, were-
gravy boats or ga-sates wed steeds, any of tog, or eterieg feud cc beverages, or loud or
the fueegoing articles valises cut over o1 beveroxo Ingredients:
per dozen. . 533.11 Of ruuroe-grsined ewethenware, or
533.35 ph Cups vetoed ever $0.50 but not of eostse-grwined aienew'ere.
ever $1 per deeen; esscees vatuvsl ever Of lice-cruised rurthrns'see, whether or
fO.30 hut net ever $0.55 per doeets; p1st-s not devvewted. traehsf a reddish-eeiored
net over 0 harhes hs masiosuee diweoeter body and a lustrows gtsze which, so tea-
and esiwed ever $0.30 but not user heel - pots, aesy be r.ny color, but which, era
per dwveo; pistru over 5 hot not oeee 11 ether criietes, ascot be moitied, stresSed,
toetces In mswimtcm dioeseter end valved or solidly colored brow'ot to bisek with me-
over $1 but net acre 31.53 pvr dvevt:; and totice oshu or colt;
grrsmers, augurs, vvgetobie dishes er 533.24 Vcsiued not over $1.50 per dozen oe. -
bvwis, plotters or rhop d:shvs, hotter tieies. -
dishes or tewys, grwvy boats or graaies and 533.1$ Vstuvd over $1.09 pvy dozen orlietew
olsods, aey at the loertoiev ortictes Of fine-ga-steed eseehrnware fvoeept wa-ti-
eoiced over ft but out over $2 per dvevra. c-leo provided ter In items 333.14 and 533.16)
533.30 pt. Cssps valued over 31 bsct ccl over or af fiee-grslved ateoea-uee:
fl.70 per deere; sascees valoed orrr 20.55 Available Inicpeeified eels:
but trot over $0.95 err dozen: pistes cot 533.23 Ia r,oy pattern tsr which the oggre-
acer 9 Inches In msabautu diameter oovt gate estue ef the artir(es listed In bred-
eslued acer $0.00 bat not acer $1.55 pee note 2(b) of subpart C, na-ct P at sehvdvde
___________ 5 01 ttse Tariff Schedules of the Ueilc-d
`Tire tenn "raiating" Is used hereio os des States is net aver P3.30.
fined ht tection Oftl'fl of the Ta-ode Act: 533.25 to stay pattern for wh!rh the avery-
"The tens `mahtine' mecca tAt whew ass-d, gate estee at the arttctvs lasted to heist-
v-ithowt the apevifiestisa of soy dstr with note 2ibl at ash7wrt C, pare 2 of vebedaie
revtrc-rt to oev otsller rrtwlio- Is rs~ -n~ 5 of the Tariff Setscdutes ef the Ue:ted
jsio or rsrrviec out a trade ~grretscni ~ Ststea Is aser 53.30 bat cal ever P7.
other echos sutharterd by tith Art, evistive 533.20 tn soy patters for which the aegew'-
Ott tIre b-is' an w-Sielt sorb trade agreement gate awlue el the ,`ateles tinted to heod-
Is raterrd iota or starts ettser action is tsben' note 2(51 eI asbpset C, poet 2 ae echedule
ood (Ott a-lies sawed with respect In a rote of S of tise TurIff Srtcrrteies of tSr United
duty Ihsewrcrr rvtabltsSed, snd cern ttroireh States Is aver $7 but rat oser 112.
trsssi:or.'sriiy wasyroded by Art of Coop ~ 533.20' In any psttrrn for whIch the sz-
oroitcer-a-heh vet forth In rcte cotemo ~~n- grrgsle voice of tite srttetrs twied In bead-
bered 1 of the aeherlutee 1 thvosgls 7 of the nate 215) of aobpsvt C, psvt 2 of arhudste
Tsritt Schedules at tile Uniird Ststrs an 5 of tIer Tweitr Schedules of tlse Uesteat
tIer dste wyerilied or lie no date Is specified) States Is aver $12.
dO Not avollabte los apeeltied arts:
U.S.C. 12021.
`Ttsese astlel es arm cerrently asabjecl to `Port at tbts btrm Is mesa-realty aabJvet In
sunset vetirt trrueldvd lesitistly pursuant to Impert relief preelded hesuilsliy psrsasnt to
section 51 at the 7eude Eapsosten Ad at arctloo 351 at the `taste Eapsoslon Act at
lvu2 Its U.S.C. lhftt acid estrartert puns- 10-32 tIl U.S.C. 111111 oed eatrosird paean-
ant ta Section 2u3ttst(31 of the `uTaste Act at ant to leeches 203151131 ot the Trade Act at
107-I t19 U.S.C. 2253151(3)1. - 1974 119 U.S.C. 2253151131), -
FEDERAl RtOIIIER, VOL 43, PlO. 65-TU1IDAY, MItt 4, 1075
601
Item Order 1114$, I om turotsbhsg the Com-
mhssleo herewith the notice, whirls Is bring
published io the Federal Otegistre, that the
ceramic artietva lnitisiiy corisded from the
aelctnsl os(tve at iuternotienol trode negstl-
o(iens, based is Jwwsary 157$, msy In the
Iotsre be ransidered In ouch ne.totlsttosm.
reaucat thuS the Cammimiors provide me
airS Ito odeire, Is ocvordsneu ss'(th aectiao
131(b) af the Act-.
tat With resyeet to rueS crttcle descrIbed
In List I a! the prrsvat native, as to the
probsbte evuosmie rfirnt of the reotinwanee
or rmdsavliso et tteited States drcties on Sw-
mestie iodostries nrodaciog live am directly
cowtpetittve artiviva endow roossosers, and
tbl 7'r'ith rtvyest to alt artIcles provIded
lee In TINS itemu 533.11 theosgic 133.77.
described in LIst If of the preucet notice,
the prabobie t-vesaosie effect esiaieh any In-
crrases in dirty trvecmory to iwipleosrot the
nowsenetottare proposal provided by the
Cow.mis inn andvr psrsgewpit 1 whore would
hscm an domestic iedostrics producing like
or directly rempetitice articles end an ron-
wppreciste your supplying me
o-i(h the above odriec m enpeditiwssiy as
possible, hot net istem than Jonu 1. 1570.
Sinerrrly, -
- Rooruc S. Seteavus. -
Onetwe. or gate Sea-eta Rar'ouswecsyrve roe
To.asa Nmoemeeoss
1. In rvnformily yule Section 131 of the
7'rode Act el 1t7-l 115 U.S.C. 21511, erotiee is
lceeeby rivers oP srtic(ea that msy by macaid-
eecd fnr errodilirstiso or rswhinsssrcu of
ttoitcd S:wes doties. or addihassl drctiro.
tlrcve wetivtes cue oct feeth is List I and List
II below.
2. Sscee of the ortteies Is List I wetd parts
ot tome al the iNcas in List II ((hove that
etc mactech e:ihls so rsteriskl esrrreotly are
c~'hicet to icryvet reSef previded Irciliaiiy
esnrrrsst to th-eliwo 351 of the 7Tsde L°a-
ysesino Act al ltd2 ill U.S.C. lbsl) and mc-
ili `cded prcesswwt to Srr(ino 2531h)(31 ot Ibm
:`i'tvce Act ut 1v74 (15 ((S.C. 22a3((s(13t1, So
aerordserve aith Seetiwu 127151 rI tam Trede
- Set ml tv75 1h55 test-'. e135). tAe d'reetrtrai ho
`mess-a-nine meets wehetce, orparbefirews,
,u'w.v's ielemnhunel iredr oevotirrtiees u.s
lesyn.eomeieipse-treheforhiosisiorfIemb
- wiN respeel to iheee~ This cotter of ttte 1155-
e.o:e totare rerev Nestle ol wrcc(s srleeles or
recta or Items itt (mrtmrs-rtisnsl iesrie nego(l-
t'isrrs, and tire rer,rreat for odaive ot the
5.5. Iotervstisnsh Tesde Ceimslw-i(wn em-
treed he Irs psesgesyts 3 he(ors, oem behug
ass ho prei:see lee else pvesi5ility mt oegw
- s:ross ssI:h rs'syeet to tleeoe threadd the
suvrt retiet anion trruriashe.
3. The U.S. Iwtrrnslissst 7'rr:de Cmenmh-
is hrisg rercsrestrd to boeaeisrs ha odehee,
evasset In Seecien 131 oh the l'rsrhe Act at
lb. as to lice rewbatse menserrtle rlferia at
e etsclli(rstircrrv me resil svsrtrrv of rslstiog
t;sert dusllea lee hlrm eel errs in Lhsh I; ostd
lvevrsss's In raisIng daiieu, Itreirlental to
a--tcfienhior.a In bhr' t:arilt ostsartrchutarm,
P Use bleats sn Lisr II.
Rescue P. Svnsene,
SpreialAepwmentmfstmfor
- 3vndm A'reufietiaeae.
44-998 - 79 - 39
PAGENO="0610"
z
0
PAGENO="0611"
0
0
r
z
0
-C
z
PAGENO="0612"
604
NOTiCES
CUI1ISENT P 1.\\TtIT PI1C)VTSIONS FflR E IIEN\VAflE ANI) STONEWARLe
TARIFF SChEDULES OF.TIIE 15 TED STATES ANNOTATED (1978)
SCHEDULE 5. - NONMETALLIC MINENALS AND PRODUCTS
Part 2. - Ccranoic Products
lte.n
Articles
Rates of Duty
Articles chiefly ssrd far preparing, eresiti, or
atoriog food or beoecages, or ford or hevorago
fegrodienia:
533.11 if oaoso-geaieed eurthoccoro, or of coarse-
groined stoorsars 2.52 ad vat.
Cf uite-~rafted earthooaaro, tahethor or sot
decorated, haoiv% a roddtsh-coloeod body
end a lootroas glaoe tahich. cocoa pots, s-fly
be aty color, hot slich, on ether articlos,
root ho rattled, stracho d, so solidly oolvsod
boos-c to blocS s-feb cetallic ecido er colt:
533.14 Valord sot coor $1.M per dcoonustict 6% ad vat.
533.16 - Val:ad soar $1.50 par doves articles. 6% ad s-al.
Of fico-grairtd oaetheotaaee (accept articles
provided fee in itens 533.14 aud 533.16) cc -
* efLice-geaiccdetooecarc: -
Avjilable in cprcificd sets:
333.23 It coy pattern fir ni:ieh the
afgrogatc re lao ci tho aoticlcs
lietcd it hoadonto 2(b) of this -
* :obyaft in act over $3.30 5: per do:. pee.
+l4Zadval.
533.25 Is coy pattern for rhich the a~gcegnte 1 (14.3 AlE)
* valne ci the articles l~atod in
- bo:dncta 2(55 of thIs tobyort is -
c-eec $3.30 bat tat aver $7. lii per do:. poe.
+2IZadsci.
533-26 Is any pattern fc~ ahich thoeflrotatt (2l.i 1'TE)
voIce ef the e.rticlns listad Is head-
note 2(b) ef thIs subpart in euro 07
- hot tot over $12 dee. poe.
* *. . -4-2lladn'al.
333.20 . - Is eey patters foe rhich the a(fre4sto (26.1 AyE) -, -
v:loo cf the articles listed io head- .
eote 2(b) of this :shpart is :vec .
512 Sf per duo. pcs.
+ 10.5% ad vol. 1,
- *. . S - -. . . - (11.4 AyE)
If 7eeris(ca sobject to trnysoaoy tariff adjnst000t - - -
rodlficotloc (iN Poe do:. p05. + 21% ad val.) . -
1-6Df&AL 8EGifTtR. VOl. 43, NO. 45-TUESDAY, APRiL 4, 1978
1
2
15% ad vat..
25% ad vol.
252 ad vat. .
bc poe doe. pes.
+ 50% ad vat. -
Sic per do:. `as.
-i-.50X ad vat. . --
lOt poe doe. pat.
+ 502 ad vol. -
lOcserdoe. pos.
+ 503 ad val.
PAGENO="0613"
NOTJCES 14151
CUIUmNT r1:n'.TANRNT PL2OYIS$ONd FOR EMITI1ENWARE AND STONF.WAIOE
TIsRIIF SCHLI)ULCS or TIlE UN1TCD ST\TES AN~0TVrLD (197$)
~. SC1IEDUL.~ 5~ - NONMETALLIC MINERALS AND PRODUCTS -
9°art 2. - Ceramic Products -
Ites
.
Articles . .~
Baste of Duty
iiiiiiii_-.-
2
Articles chiefly used foe perpuriog. ersuieg. set.
(coo.):
Of fioe-graievd earchrevarr. etc. foes.):
1101 eeailablo is specified sets:
* Steite. oa~s,. caudy hours. decautcee.
* psych heels, pe.v:eol dishes, tidbit
dishes, tiered servers, uod booboo
dish
Othcr ~etit1rs:
* Cups raloed cot over $0.50 per
* . doeee. sutures valordoot
ever $0.30 per deere, plavos
sotesrr9iovhes isecotec-,
* diasoter cud v.siued out
$0.50 per deuce, platev ever 9
but cot scot ii ieohes iv
euoteeoodiuueteeaudvalcod
ever $1 per doocs, aed
* . - . .. other aef$tloo valued eec
over $1 per. doors..
Cops valved over $0.50 but rat
* . . areo$lpordueeo, saucers
valued ever $0.30 but oat over
$u.ss tee daoov, plates out
over 9 itches iu oauiouq dice-
ever cud valued over $0.50 but
cot scor $0.00 per duuee,
piete.s ever 9 bat cut over $1
iethoo it e-.ouio,u discolor cud
velued over 51 but cot ovor
91.55 ?rr dorm, atd other
ertttles ealuod over $1 bat
sot over $2 per doses
Cups ealued ever $1. but sot over
$1.50 per deuce, savversva lord
ever $0.55 but tot over $0.95
perdaoeo,plateotutover9
$ethes is caui'vvs dioeetev cud
valued over 10.90 but out over
$1.55 per deuce, plates ever 9
bus cot e-ece 11 beSet it ccci-
eve diasrsor cud valo.td over
$1.55 bat eat cure $2.95 pee
doses,. *od ocher artleirs valved
seer 02 but sat over $3.40 per
Cope ealued ovee $5.70 per dore~,
saucers cc iced over 00.95 per
deeet,.platrseuto'eoe9itvhes
iesua.utuuudiaveterasdvalued
over $1.55 prr doom, plates over
9 but cot ever 11 ivehes ic tact-
cuss dime tee cud valued suer 02.65
per deuce, cud other articles
valued ever 13.40 per doses
U Peouisiss esub$eet Ca ee.sporcsv taetff adJaesest
codttiuatioe (ICC per doe. pee. + 212 ad vat,)
605
533.31
533.33
533.35
533.36
.533,35
per due. pet.
4 12.52 ed ccl.
(13.6 AVE~
Srpee-doe. pot.
+ 12.52 od cal.
(10.6 AlE)
lot per deo.. pm.
4 211 ad cal.
(27.5 AlE)
lot per duo, pet.
+ 212 ad cal.
(24,6 AlE)
Si pee due. poe.
4 111 ad cal, 11
($1.6 Alt)
bc pee dos. pvc.
+ 501 ad cal, .
lot per duo. pat.
+ 502 ad ccl.
lOt per dec. per.
4 502 ad vat.
lot poe due. prs.
4 Sill ad vat.
lOt per duo. pus.
+ 501 ad vat.
IfDf$M16G1S199,VOL.43,NO.65~Wt5DAT~AflIt~,)9Th
PAGENO="0614"
dotiolee o~siofly osod far p pariog. sorciog.
stareg fard or baro.~ or foad or boosrago
Ofoose-giovdrthoaara~orofcoarae-
iordttarsaro.
Of fi-22ood ethovasre * achether os oot
doss-ate d~ h logs ~`dish-ooIoret body sod
lostroas z~aoe s-blob, or teapots, oaf be
say odor, bot s-°oio~s or other articles, east
ho oottlod, toaaird, or solidly oslored bosses
to bOoth nOb ootallic oride or salt.
Of fior-gs-aiood o:rthrooas-o (eooept ortiolos
ps-ooidrd for io 4002 533.15) or of fits-
geaioodotorvrave:
Aooilable do speoifiod tots:
- It soy poSsess for shioh ohs
aggeegote valise of the sotioles
listed do hrodoase 2(b) of this
zabpart is soot 000r $1/
606
.14152 . NOflCES
)tprrATlVE )POtlCLiTlfRE PRO, .L
Too EARThEh'IARE AIS ST050W400
,..~_
Artloles *
6sses of Dety
~
1
2
533.11
533.15
533.22
2.50 ad vol.
60 ad vol.
3,
150 ad seal.
250 ad vol.
iOe per doe. psa.
4 500 ad va'..
Off pea don. pta.
4 50Z ad vat.
lOf p-er des. pcs.
+ 500 ad oat.
1O~ per dos. per.
4 500 ad cal.
533.24 1c toy p0000ro foe ohiob the
sltseiate oaloo s! the ortioles
listed it heads-ott 2(5) of this
oobpart it ass-er $ lf_ Of per dos. poe.
4 10:50 ad vol.
Pot soailoble do opeoified sets:
533.32 Stoios sod tags. . 5g par do:. paz.
-o 12.50 ad vat.
533.37 . Otloor es-tides. .1/
3/The valoos sod/or rstesof daty to be - ~ s ~-*
4 dby h 0' d
FEDERAL RE011TER VOL 43,140. 65-TUESDA.'. APZIL 4, l97~
PAGENO="0615"
ltoo
-. ... `. .
£tticloo
Rates ~f Duty
-5---.
1. 2
Articlos ~hirf1y osed for propar log. serviog. etc.
(coo.): . . . . 5
Of booo chicau.aoo.. 17.51 ad val. -
Of cooboco chioasor. or of oobpcrcoiaio:
tote] or rootauraut var, aud othor rare
sot household stare. SOC pot doo. pcs.
/ . +tSladvai.
Soooehcld rare available Iv oyeclfiod oott: . (60.2 AYE)
I yp f hi'c h g g
eaioo of ~ orticlou listod to .
boadtoio 2(b) of this ouhpart to -
tot ovor $10 41$f per doe. pot.
+ 481 ad vat.
In any pattero for uhich the a~gccgato (30.6 ATE)
value of the aociclao listed to' . . . .5..
* boodocic 2(h) of this subpart is `
over $10 but oat-over $24.. JiOf per dcc. pco.
-- ** I +)5zads,ol.'
So coy pattvoo for obieb thoalgoega to (57.0 A\,~) :
voice of the aoticlos lOoted iv houd-
* tote 2(b) of this oApart is over 124
but oct over $56 S lOg per dcc. you.
5 5 . S - }4SOZadsal.
* . . So aoy puttero for ehich the aggrvrcto (37.7 ATE)
valus cT the articlos listod iv head- , S -
soto 2(3) of thOu rubpart is over
- *56 it pot dcc. yes.
S ~ +loiadtoal..
Pot coveted by ices 533.63, 533.65. . (18.3 AYE)
533.66. or 533.60, aod it toy pot0000 ° .
for thiob th vo~zrc~acv `:olue of the
artirios lOtted to ho~duete 2(c)
of this osbyato is ceor $8 .... Sc por do,. p00.
S .. + 181 ad val.
S - (18.9 AYE)
607
* S. ` NOTICES * * 14153
CUI1T(VNT PERMANENT PESOV1SIONE Foil ChIi~]A5VAIlE AND suflPo~çIt.AIf5~ * S
TAI5.IFF SCHEDULES or THE UNITED STATES ANNOTATED (1038) ~. . -~.
* SCHEDULE S. - NONMETALLIC MINERALS AND PRODUCTS S * -.
Part 2. - Ccrsrnic Products S
333.41
333.51
533.63
333.6)
533.66
533.60
533.69
lOcp.r duo. pos.
+ 301 ad va].
1Cc per doo. p00. -
+ 701 ad va].
100 per dov. poe. -
+ 701 ed cal.
SOc per dcc.. pco. -
.4- 781 ad val. -
lot per duo. p05.
+ 301 cd vat. -
SOC pvr doc. you.
4 101 ad cal.
fEDERAL REGISTER, VOL 43, NO. 65.-TUESDAY, APRIL 4, ]973
PAGENO="0616"
608
NOTICES
* -~ CU1lRf'NT pEnM~Ni.:Nr..PPOV!sTo'dia FOIl ( Y\WAPI~ AND SUnPORCE
TARiFF SCHEDULES OF TilE UNITED STATES ANNOTATED (1978)
SCHEDULE Si - NONMETALLIC MINEHALS AND PRODUCTS
Part 2. - Ceramic Products
*
Itea.
-
Articles
Rates of toty
~~-----~-*-.---------.~-
)rtioies chiefly coed for prepar jog, tervirj, etC.
(roe.):
07 soobooe chievoare or of :ubporo~1aio foes.):
Ros:eheld care cot revere d by 05cc 533.63,
533.65, 533.66, 533.63, or 533.69:
itcios, 5.ugo, occdy loves, d eeaotcrs,
pooch heels, yectoal dishes, tidbit
dishes, tiered sero-eru, cod booboo
dish
Oiherort lobs:
Cops valved cot s-ocr $1.35 per
dovee, :cvoerovaiordcvscvrr
00.00 per do:eo, p1 aCes rot
ovre9irobcsisvvoivvs
dicootor cod voiced cot ever
$1.30 pee dooco, plates over
9 hot cot ever 11 icchrv in
sueiosevdicoetrroodcobvod ~
sot ever $2.70 per docro, evd
* other articles valued tot ever
$4.50 per doeee. 5~ pot doe. pvc.
+22.Siodvul.1/
* - Cops valoed ever $1.55 but rot (24.7 AVE)
eeer$dperdo:ee, tovoors
valved ever $0.90 but tot eves
$1.90 per doves, plutes tot
evrr9icehesivvaoivovdiav- -
* rtrr cod valved ever 11.30 hot
* * sotaraell.Llperdo:ev,
p3atesev-rribotrrtevrrll
derbeo do ravicvo diovotor and *~ * -
valued ever $2.70 hot rot over - *
-. $6psr.deooo,ordevherarc±- *
* - des t.lcrd e',er $4.50 hut rot
* *- - * erre $11.50 per deuce. Sc per doe. pen.
* - 4-302adval. 2/
Cops calved ever $4 per doree, (30,9 AyE)
* eooerrsvobued ever $1.9$prr
doeeo, pbotesrotcver97cvheo
istcvievs-.dlavecrreodvalved S
- - over $3.40 per doers, ptateu
o-err9botrote-;erilitches
* * is ruotton diaocorr cod valved
ooer$6perdo:ao,aodeeher 1-
courSes valved over 011.5$
* por.d lcperdoe.yes.
- - * ~ 417.1% ad osol,
3 (16.0/XE)
1/ Prev$stov ovbjeet to teryorary tariff adje:teseot 7 *~
eaiifieetiev (iii per doe, pot. ÷ LR ad vat.) *. * --
2/ Peevivtev tvb~eottoervpcraryturi6f odjastreot
sodlfitarieo (toe pee dec. pee. + 55% ad vol.)
22.57. ad val,
533.71
533.73
533.75
533.77
700 ad cal,
101 per doe. pee.
+ 70% ad val.
bc per doe. pet.
+ 70% ad vat.
lie per doe. pee.
+ 70% Ad vol.
FED0RAL REGiSTER, VOL. 43. HO. 65-TUESDAY, A?R1L 4, icic
PAGENO="0617"
Aetioles bhiefty os~d for price, sce~es~
Of boos chioa.
* Of ooobooo ohiesoare or of eobporoelaie:
* Itotel or oro t aarao C oaoo aed other.
* vatetethooholdoaea.
Eoesehold rare arailable lospeolfied
It ooy patt000 for rb(oh tho
*ggregaoe ~ of the artioleo
* littod fo hoodooto 2(b) of this
bp $1!
Is coy pateero for rhioh the
segregate saloc of the artiole,
* . listod 10 hoodooto 2(b) of this
sobyart is ocor (1/
...lioesohold. tare rot accilablo Ic
tpeoifird tots.: - -
Steios,oc'gs,ocedybooeo.
* derooters, peeob boolo yrotoel
dishes, tidbit dishes, tiorod
* - terrors, cod hoabre diohrr
- Other artioles.
1/ The raloes cod/or rates of defy to be -
deteeoieed by the Prosidoot.
(FR Doe. `18-8812 FIled 4-3-78; 8:45 aros)
PODS RAL REGISTER, VOL 43, NO. 68--TUESDAY, APRIL 4, 3978
609
NOTICES 1415~
. `ItSTATSVf NCOENCLACLt0I PROPOSAl. *. *. - - * -:
FOR COSIIAWASE 450 SfoPOoCE~IN . - -
S fDay
Articles - -
.1 2
533.41
523.51
333.62
533.64
533.71
533.74
17.5% ad vol.
1O~ per doe, pot.
+ 4)2 ad ocl.
1/ -
Sfpordoo.yos. -
elflodvcl.
22.5% ad cal. -
3,
lOt per doo. pot.
70% ad oat.
lOc per doe. pot.
+ 702 ad vat.
SOf per doo. pot. -
s-70%adsal.
lOt per doe. p05.
+ 70% ad s'al.
70%adsoal. -
SOc per doe. p~os.~-
+ 30% ad oai.
PAGENO="0618"
C)
t~ cno~ ~
~ -~~a
~ ~ ~
~ ~
r ~ ~. ~
~ ~ ~ ~
q ~
p. ~ ()~)
~ ~ ~
~
p. p. p ~
~25~ a~ ~
PAGENO="0619"
611
NOTICES
-. not over 11 inches in esaxiestlrn diameter 533.11 Of goaene'grained earthenware, or
* and valued over $1 but not over $1.55 of coarae.grained atoneware.
:par dozen: and ereansers, sugars, vegota- : Of fisegrained earthenware, whether or
* bie dishes or bowia, platters or chop out decorated, having a reddlsh~cal-
dishes, butter dishes or trays, gravy . ored body and a lustrous glaze which,
* boatu or gravIes and otands, any of the on teapots. may be any color, but
* foregoing artieleu valued over $1 but not which, on other articles must ho mot
aver $2 per dozen, tied, atreaked. or solidly colored brawss
533.30 pt, Cups vaiaed over $1 bat not over to biaak with metalile oxide or salt:
$1.70 per dozen: saucers valued over 533.14 Valued not over $1.50 per dozen ar-
$0.55 bat not over $0.95 per dozen: tides.
plates not over 5 inches in maaimses dl- 533.10 Valued over $1.50 per dozen articles.
ameter and valued aver $0.00 bat not
over $1.55 per dazes: plates oeer 9 bat Of dine.grslned earthenwsre (except arti'
stat aver 11 Inches in neashnass diameter eles peastlded far in items 033.a4 and 533.19)
and valued aver 01.55 hat not aver 02.95 or of flse.grained atoneware:
per dozen: and creamers, sugars, vegeta-
ble dishes er bawb, platters or chop a a e P
* dishes, butter dishes or trays, gvsvy 533.23 In any pattern for which the aggre-
boats or gravies and stands, anyaf the gate value ag the articles listed las head.
foregoing articles valued aver 02 bat not sate lIb) of subpart C, part 2 of ached-
aver $3.40 per dozes. isle 5 of the Tariff Schedales of the
533.30 pt' Caps valued aver $1.70 bat not Ualted States in not aver $3.30.
aver $3.10 per dazes: macem valued aver 533.25 In any pattern far which the aggre-
* $0.90 bat not aver $1.75 per dozen: gate value of the articles listed in head'
* plates not aver 0 inches in esasirnans di- . note 21b) of asbpozt C, part 2 of ached'
aeseter and valued aver $1.55 bat not isle 5 of the TarIff Schedules af the
aver $2.05 per dozen: plates aver $ but United States in aver $3.30 bat nat aver
not aver 11 inches in maninosm diameter $7. . .. .*
* and valued aver $2.9) bat not aver 04.05 $33.20 In any pattern for which the aggre-
per dozen: and creamers, sugars, vegeta- gate value of the articles listed in head'
ble dishes or bawls, platters or chop note 21b1 of subpart C, part I of ozhed~
dishes, batter dishes or teaps, gravy isle S of the Tariff Svhedales of the
boats or gravies and atands, any of the United States Is aver $7 hat nat aver
* farezaing artiales valued aver $3.40 bat . $13.
* not aver 90.20 per dozen. 533.20' In any pattern for which the aggee-
00 hin f 0 1 in . gate value of the articles listed in head'
H h Id 1 it ft ` note 21b5 of asbpart C, part 2 of ached-
53s.93, 533.90, 533.00, 133.90, or 133.00 of U~tdSt the Tariff Schedalcn af the
the Tariff Sahedales of the United States Soot available in specified acts: -~
533.71 P~3 OOd if valued nat 533.31 Steno, esaga, candy Oozes, decant-
P - . em, panch boats: pretzel dishes, tldalt.
Other articles: dishes, tiered aervers, and bonbon
53373 pt' Cups valued sat over $1.35 per dishes.
dozen: asseera valued sot aver 10.90 per
dazes: plates sat aver 9 inches in esazi- Other articles.
esues diameter and salved not aver $1.30 533.33 Caps valued sat aver $0.50 per
per dozes: plates aver P bat sot aver lt dazes, saucers valved sot aver $0.30 per
inches in essainvam dIameter and vslaed dozes, plates sot aver 0 inches in esazi-
sat aver $2.70 per dozes: and creamers, mom diameter and valued sat aver $0.50
aagam, vegetable dishes or boats, plat- per dozen, plates aver 9 butT sot aver 11
tars or chop dishes, batter dishes or inches In rnazlesam diameter asd valued
trayo, gravy boats or gravies asd stands, not aver $1 per dozes, and oliver articles
any of the foregoing articles valued sat valaevtsat over $1 per daavn.
ever 94.50 per daeen. 533.35 Caps valued aver $0.50 bat sot aver
533.75 pL' Caps valsed aver $1.15 bat sot $1 per dozes, saucers valued aver $0.30
aver $4 per dazes: saucers valued aver bat sot avrr $0.5) per doves, plates sot
90.90 bat sot aver $1.00 per dozen: aver 9 inches in maximum diameter sad
plates not averS Inches in esaslmaes di. valued aver $0.50 bat sot aver 10.90 per
aesater and valued avar 91.30 bat sat dazen, plates aver 9 bat sat aver 11
aver $3.40 per dozen: plates aver 9 bat inohes in esazbnaas diameter and valued
sat aver 51 loghes in esanirnavs diameter over $1 bat sot aver $1.55 per dazes, and
and valued aver 92.79 bat sot aver $0 other -articles valued aver $1 bat sat
per dszzn: and creamers, sugars, vegcta~ aver PIper dozen.
fete dished or bawls, platters or chap 53335 Caps valued aver $1 bat sat aver
dishes, hatter dishes or trays, gravy $9.70 per dazes> naacers valued aver
boats or gravies and stands, any of the $0.55 but sat aver $0.95 pee dazes,
faeagaing articles valued over 94.50 but plates sat over 9 Inches in eaanlmarn di-
sot aver 911.10 per dozes. . arneter and valaed over $0.00 bat sot
over $1.55 pee dozen, plates ever 9 beet
LIar ~ not aver 11 inzlsvs in essslzeeaes diameter
Articles whIch may be eoesidered far in- and valued aver 1a.as bat cat aver $2.95
geousea In existing daties, to the eslznt pcr~ per dozen, and other articles valued aver
milled by sections allis) and lOtici of the $2 bat sat evee $3.40 per dazvn.
Trade Aat, iseidenlal to madifiestlaes is the
tariff soeiil1St~~Z "``` `Part at this Item Is carcestly aablect to
Insport relIef peasided inItIally psesoant to
TSfJS 11cm asd Articles aeclion 35t of the Trade Expansion Aat of
Articles chiefly osed for preparing, sore- 1001 (19 USC. 19515 and cotesded puma-
ing, or atoriog food or beverages, or fead or ant to Section 20311sl13i of the Trade Act of
bcaerage ingredIents 1974 (19 U.S.C. 22531h11355.
* 18077
533.39' Caps valued over $t.70 per dozes,
saucers valzed over $0.95 per damn,
* ptates sat over 9 inches is esanirnarn di-
ameter and valued ever $1.55 per dozen,
plates aver 9 but sot ever 11 ischcs in
ssanbsaes diameter and valued ever
* $2.05 per dazes, and ether artizlas
valued aver 13.40 per dozen.
533.4t Of bose cisinaware.
Of sasbase chinaware or of aubpareelals: -
533.5t Ifatel or rcvlaurast ware and ether
ware sat haaachald ware.
Itausohald ware available in apecified arts:
533.03 In any pattern far which the aggre-
gate veJac of the articles listed in head-
solo 2 (b) ol subpart C, part 2 of sched-
ule 5 of the Tariff Schedule ef the
* United States in not aver sta.
533.05 In any pattern for winch the aggro-
gate valoc et the articles lisled in head'
* note 2 db) of subpart C, part 2 of ovhOd-
isle 5 of the Tariff Schedule ef the*
* United States in aver $10 but not ever -.
$24. - - * - - * -
533.0$ In- asp pattern far which the oggre-
* gate value of the articles thIrd Is hood-
sate I lbs of aubpart C, part I of ached-
isle 5 of the Tariff Schedule of the -
* United States in ever $24 bat not ever
* - $59. * * - . *
133.00 In any pattern foe szhich the aggre-
gate value of the articles listed in head
note 2 (bI of subpart C, part 2 of ached-
isle 5 of the Tariff Schedule of the
United Slates is aver 050.
533.69 Plot covered by Item 133.03, 533.95,
* 533.0$, or 533.00, and in any pattern foe
winch the azgzrgate value at the articles
intcd in hcsdsolo 2 Ic) of aabpart C,
* part 2 of achedule 5 ef the Tariff Sshcd'
ale of the Usiied States in ever 10.
Honaehold wore not covered by Item
533.03, 533.65, 533.69. 533.00, or 133.09:
533.71 Stcins, mv~s. rnndp hoses, drrsst-
era, panch bvwls, pretzel dishes, tidbit
dishes, ticeed acrvcrs, and bonbon
dishes.
Other articles:
533.73' Caps valued sot ever $1.35 per
dozes, aaocees esised not over 10.09 per
doOrs, plates not over 5 inches in mani-
esa.'n diameter and valued sot over 11.30
per dozen, plates aver 9 bat sot ever 11
inches is esani'oeem diameter and valued
sot over $2.70 per dvzcs, and other arti-
cles calaed sat aver 14.50 pee dazrs. -
533.75' Caps valved aver $1.35 but seat aver
$4 pvc dazes, voaccca valued aver $0.90
bat sot aocr 11.00 per dozen, plates sot
over $ hezhca in maximum dilaesedcr and
- valued over 91.30 bat not over $3.49 per
dazes, -plates over $ bat not over lt
Inches in moxiesam diameter ond valued
over 12.70 hot sat over 16 per dazes, and
- other artlclvs vatacd ever 94.Sa bat sat
over otoas per dazes.
533.77 (alps valavd aver $4 per dozes, vsa~
cers valard over $1.00 per dozes, plates
sat over 9 lathes In esaoimom dismctcr
and vatacdoorr 13.40 per dozes, plates
over 9 bat eat over 11 inches In esanl~
mom diameter and vatoed over 90 per
dazes, and other articles valued acer
$11.50 per dones.
(FIt Sac. 73-113)2 PIled 4-29-79: 8:45 and
F5DtRAt 8101501k, VOL 43, NO. 82-THOtSDAY, APRIL 27, lOPS
PAGENO="0620"
612
Mr. KOSSEL. I just would like to add a comment or two.
My client is not denied the utility of modifying the arbitrary and
obscure distinctions pertaining to ceramic dinnerware which were
contained in schedule 5 of the tariff schedules, on the contrary it
believes that the commercially vital distinction between earthen-
ware/stoneware on the one hand and nonbone China and subporce-
lain on the other made little commercial sense and resulted in
unnecessary discrimination.
We are also not here to object to the substance of the nomencla-
ture in modifications the exact nature of which we cannot even
know in any case because the matter is confidential although the
information that we do have available indicates to us that the
classifications are not to be based solely upon the end use of the
product which seems to me by its very nature is discriminatory and
lends itself to fraud. We do believe, however, that as a party whose
business will be devastated by incidental increases in the tariff rate
amounting to 400 percent we should have been permitted a genu-
ine opportunity to shape the end result of the nomenclature modifi-
cations.
We do believe that the Federal Register notices were in no way
calculated to inform American interests that tariff rate increases
from 11 to 48 percent were contemplated. I can assure you, Mr.
Congressman, that if such a result in any way would have been
read into this notice that there would have been strong and vigor-
ous representation on the part of not only the importers of ceramic
dinnerware but of the primary end uses-hospitals, schools, restau-
rants, airlines, nursery homes, hotels. The fact that none of these
parties were present itself speaks to the adequacy of the notice.
My client has a compelling case showing that producers of din-
nerware have no such need for such exorbitant protection that
they are profitable, and even now that the production combined
with the imports cannot meet U.S. demands we are not here to
argue that either. What we would object to is that the merits of
those contentions were never heard, that no genuine opportunity to
put our thoughts forward was supplied.
Mr. Congressman, we believe that the situation is correctable
and that it can be rectified without interfering with the MTN trade
package or the implementing legislation. We are willing at the
convenience of any members of the committee or of Congress to
meet with them and discuss concrete proposals which can provide
the procedural due process that is owing and where we can discuss
this issue and where solutions can be set forth.
In this connection I might suggest that we would fully support a
provision that would be added to the implementing legislation
which would provide the President with a residual authority to
permit further reductions in tariff rates and that a clause be added
to that provision which would give preference to those parties who
were seriously injured either by accident or design as a result of
the efforts of the Special Trade Representative to meet the legiti-
mate goals of the trade negotiations.
That concludes my statement.
Mr. VANIK. Thank you very much.
As you know, we cannot really do very much on the tariff codes
but I am certainly hopeful that we can find some way to provide
PAGENO="0621"
613
the relief you seek. Our staff will be available throughout these
hearings. I would be pleased if you would carry on further colloquy
with some of the members of the staff and address yourselves to
this issue because Mr. King was here the other day and testified.
You may have a special problem and you may want to discuss it
with staff.
Mr. Moore?
Mr. MOORE. Thank you, Mr. Chairman.
We have heard testimony yesterday on this subject from the
other side.
Mr. KOSSEL. Yes, sir.
Mr. MoORE. What is basically the difference as you understand
between stoneware and chinaware? It seems to be we treat them as
one at the higher tariff rate rather than two different things, one
at the lower rate and one at the higher rate. So what is the
difference between the two? I could not tell.
Mr. KO55EL. I am not a technician or an engineer. I don't know
the technical distinction. My understanding is that it has to do
with the ability to absorb. I understand that under the old tariff
schedules the distinction was based on the degree of translucence.
Now my client does not disagree that those distinctions were arbi-
trary and resulted in discrimination. They do not disagree that
there was a need to modify the nomenclature in those tariff sched-
ules. The are not particularly happy with the end result of those
modifications as we understand them because as I understand
them the tariff duty rate now is based upon the end use of the
product.
Well, think of that. That by its very nature is discriminatory in
the first place and in the second place it is a system that is
designed for fraud because how can customs verify at the time of
importation what the end use of that product is going to be? So I
don't think that what they did come up with is particularly that
per se. Aside from that, however, we don't really care to argue that
issue. That is a result that has been concluded and we don't feel
that we can do anything about it at this point but what we do
think we can do something about is the unnecessary result, the
incidental result of a 400-percent duty increase on the products
that we imported to this country, a duty increase that will put us
at a 48.5 percent competitive disadvantage and which will devas-
tate and ruin our business.
Mr. MOORE. Basically then what you have just said is that you
agree there should have been a clarification of the nomenclature of
these items that were coming in, that you object to them coming
into a higher rate, they should have come into a lower rate be-
tween two different types of nomenclature.
Mr. KossEL. Yes, sir. Our clients have proposed on a number of
occasions that all of these products contain the same duty rate,
that there be a uniform duty rate, that there is no real commercial
distinction between the products.
Mr. MOORE. Thank you.
Thank you, Mr. Chairman.
Mr. VANIK. Thank you very much.
The record will be open through May 2 for any other material
that you and other witnesses may want to put in.
PAGENO="0622"
614
On Monday morning at 10 o'clock this committee will commence
hearings on the beef bill which will take all day on Monday and
perhaps into the night. Tuesday we will begin at 10 o'clock with
the markup session on the MTN and at 2 o'clock on Tuesday we
will break in on that process to mark up the beef bill. On Wednes-
day, Thursday, and Friday we hope to complete all our work on the
markup of the MTN.
The committee will now stand in adjournment until 10 o'clock on
Monday.
[Whereupon, at 1:55 p.m., the hearing was adjourned.]
[The following was submitted for the record:]
JOINT STATEMENT OF RETAIL CLERKS INTERNATIONAL UNION AND AMALGAMATED
CLOTHING & TEXTILE WORKERS UNION
I. INTRODUCTION
This statement is submitted on behalf of members of the Retail Clerks Interna-
tional Union and the Amalgamated Clothing and Textile Workers Union whose
workers in the footwear industry are concerned with the pending legislation to
implement the Multilateral Trade Negotiations. The domestic nonrubber footwear
industry has been faced with injurious competition from imports for more than a
decade. A decade of various governmental relief programs has still left the import
problem largely unresolved. We are hopeful that legislation to implement the MTN
will result in a more effective mechanism to deal with ever increasing imports of
nonrubber footwear, particularly imports subsidized by foreign governments. Al-
though nonrubber footwear has been exempt from tariff cuts in the MTN because
this industry received import relief under the "escape clause" of the Trade Act of
1974, shoe workers have suffered from the consequences of the moverrient to free
trade because imports are concentrated in the labor-intensive industries.
We should like to present to the Subcommittee a brief discussion of the current
state of the domestic industry and the impact of imports on our workers and firms.
In addition, we should like to examine the Administration's attempts at import
relief for the footwear industry and the continuing problems with the present
import relief program. We then present our views on the legislation now under
consideration to implement the MTN package.
II. THE NONRUBBER FOOTWEAR INDUSTRY AND IMPORT IMPACT
There have been serious reductions in the number of firms and workers in the
domestic nonrubber footwear industry since the 1960's. The number of plants oper-
ating in the industry has declined dramatically-by almost one-third-from 1967 to
the present. Since 1968, production has declined without interruption except for one
year (1976). Production in 1978 was actually the lowest in 43 years.
Concurrently, employment has followed a downward trend. Between 1968 and
1978 there was a displacement of 68,300 production workers and an overall reduc-
tion in total employment of some 77,600 employees, representing a decrease of a
third of the labor force in a decade.
Imports of nonrubber footwear have continued upward, relentlessly capturing an
ever-increasing share of the domestic market. From 1968 to 1978, imports rose from
175 to 374 million pairs and imports as a percent of the domestic market rose from
21.5 to 49.4 percent in this period.
A significant feature of the avalanche of imports has been a shifting of foreign
source supply with substantial amounts of nonrubber footwear increasingly coming
from such low-labor cost countries as Taiwan, Brazil, Hong Kong, Argentina, Korea,
India, Romania, and Poland, with Korea becoming the third major supplier after
Taiwan and Italy beginning in 1976.
Labor input plays a major role in the production of nonrubber footwear and,
therefore, wage rates constitute a major cost variant in production costs. In the
United States, labor cost, in fact, represents over 30 percent of the final cost of
production. Well over 40 percent of domestic production costs also is represented by
the input of raw materials.
The significance of heavy labor-intensiveness and reliance on domestic raw mate-
rials is that U.S. nonrubber footwear production costs are substantially above for-
eign production costs, especially in the developing countries where wage rates are at
PAGENO="0623"
615
exceedingly low levels and where overall production costs for export markets may
benefit from direct or indirect government subsidy programs.
In its escape clause report to the President dated February 8, 1977, the Interna-
tional Trade Commission estimated that in 1975, hourly earnings in Korea and
Taiwan averaged 14 percent of the U.S. rate. A Bureau of Labor Statistics study
showed that estimated hourly compensation (including fringe benefits) for produc-
tion workers in leather products industries in mid-1976 was $4.25 in the U.S.; $.63 in
Brazil; $.46-.50 in Korea; and $.47-.49 in Taiwan.
Such disparities, reflecting higher relative costs of U.S. vis-a-vis foreign labor,
leather and other raw material inputs, have enabled foreign suppliers to capture an
ever increasing share of the domestic market. Meanwhile, the domestic nonrubber
footwear industry has experienced a continued decline in production and employ-
ment.
III. IMPORT RELIEF PROGRAM PROVES UNSATISFACTORY
The footwear industry has been especially concerned about the effects of import
competition on domestic production and employment since 1967 when imports of
nonrubber footwear exceeded 100 million pairs for the first time and reached 18
percent of U.S. consumption.
Several investigations into the economic state of the footwear industry have been
conducted by the International Trade Commission (and former Tariff Commission)
since 1967. In April 1976, President Ford opted for expedited adjustment assistance
for firms and workers in an "escape clause" case under the Trade Act of 1974 rather
than provide import relief as recommended by the ITC. Imports continued to in-
crease, while domestic production and employment continued downward. Firms and
workers found adjustment assistance totally unsatisfactory. It has provided no solu-
tion to unemployed workers from this industry.
The most recent ITC investigation, concluded in February 1977, resulted in a
second unanimous finding of injury by the Commission. During the hearings leading
up to the determination, industry representatives urged a global system as the only
effective form of import relief for the footwear industry. Expert witnesses estimated
that an effective five-year program of import relief could increase domestic produc-
tion by 100 million pairs annually. This would bring output back to a level experi-
enced just a few years ago. Moreover, the industry felt that the employment effects
of such increased production would be most dramatic, resulting in an additional 40
to 60 thousand jobs, including jobs in supplier industries. Given the locale of most
shoe plants and supplier establishments, the majority of these jobs would represent
additional jobs in rural or semi-rural areas.
A majority of the Commission recommended a tariff-rate quota as the import
remedy in this case. One of the Commissioners, who offered an alternative tariff
remedy, also estimated substantially increased domestic production and employ-
ment levels if import relief should be granted.
The import relief remedy chosen by President Carter in April 1977 was that of
orderly marketing agreements (OMA's with only two principal foreign suppliers, i.e.,
Taiwan and Korea. The agreements, implemented on June 22, 1977, were on a four
year basis with quota levels containing some built-in growth during the life of the
agreements.
To a limited extent, the OMA's were effective-imports from the two controlled
countries were reduced from 225 million pairs in 1977 to 148 million pairs in 1978.
However, the overall effect of the OMA's as an import relief mechanism proved to
be highly unsatisfactory. Imports from uncontrolled countries rose dramatically
from 143 million pairs in 1977 to 226 million pairs in 1978, and were well above the
1976 levels from uncontrolled countries. The net result was another increase in
imports of nonrubber footwear from 368 million pairs in 1977 to 374 million pairs in
1978. Import penetration also continued to increase, and reached a record 49.4
percent in 1978.
At the time of President Carter's grant of import relief for the shoe industry in
April 1977, there were 159,000 employees in the industry. In December 1978, there
were only 152,000. Indeed, for the full year 1978, average employment at 155,800
employees was the lowest recorded level for the nonrubber footwear industry. Re-
duced employment in 1978 likewise reflected a level of production which was the
lowest in 43 years.
These figures concern the industry and its workers, for they show the OMA's
have fallen far short of their intended objectives to give the industry a necessary
respite against further import surges and an opportunity to adjust to import compe-
tition.
PAGENO="0624"
616
IV. COUNTERVAILING DUTY ACTIONS TO OFFSET SUBSIDIES HAVE ALSO BEEN LARGELY
UNSUCCESSFUL
It should also be noted that efforts by the domestic industry over a period of years
to offset foreign government subsidies on footwear exports to the U.S. have also
been largely unsuccessful. Countervailing duty petitions with regard to footwear
from Korea and Taiwan have led to de minimis findings because of various ques-
tionable offsets to subsidies cailculated by Treasury. A petition with regard to
Uruguayan footwear resulted in a waiver of the countervailing duty in January
1978, a revocation of the waiver in November 1978 when Treasury discovered it had
made an error, and the termination of the countervailing duty in March 1979 based
in part on Uruguay's termination of a key subsidy on exports to the U.S. and a
doubling of the subsidy on exports to other countries. Small countervailing duties
are in effect on footwear from Spain, Brazil, and Argentina. In the case of Spain the
countervailing duty originally established some years ago was reduced suddenly
without public notice in June 1978, only to be increased again several months later
when Treasury realized it had erred in reducing it. In the case of Brazil, the
industry had to sue the Secretary of the Treasury in Federal Court to get action. In
the case of Argentina, Treasury initially rejected a countervailing duty when the
Argentine Government terminated its footwear subsidies and then had to reinsti-
tute the investigation when Argentina reneged on its commitment. The final deter-
mination in the Argentine footwear case took 11 months longer than the statutory
deadline specified in the Trade Act of 1974.
V. CONCERNS REGARDING IMPLEMENTING LEGISLATION FOR MTN PACKAGE
We are concerned that the legislation being drawn up at present to implement
the MTN package should provide for effective redress of unfair trade practices.
Based on the foregoing analysis of the impact of imports on the footwear industry
and its workers, we wish to call the following specific points to the attention of the
Subcommittee.
(1) Definition of injury.-An effort is being made to require a stiffer test of injury
in the countervailing and antidumping statutes than presently exist under the
antidumping statute. Inclusion of a standard of material injury within the frame-
work of the new countervailing duty statute would introduce an unreasonably stiff
injury requirement to gain relief from a subsidy which is, after all, a clear unfair
trade device. We do not believe that the injury test should be frivolous or that the
threshold of injury should be inconsequential. But we do strongly believe that now
that an injury test has been imposed as a requirement before a countervailing duty
can be levied, the threshold of injury should not be more stringent than the one
that has been in use under the antidumping statute since the Trade Act of 1974 was
enacted.
(2) Termination of countervailing duty cases on basis of certain assurances.-
Apparently consideration is being given to permit certain assurances from foreign
entities with regard to price and with regard to quantitative limitations on exports
as bases for terminating countervailing duty proceedings. We believe such assur-
ances have no place in a countervailing duty statute.
Furthermore we understand that the price assurances being considered in the
implementing legislation would be those which would offset the injury and not
offset the amount of subsidy. We think this would be most unfortunate. It will be
extremely difficult to use any objective criteria to determine whether price assur-
ances are adequate to offset the injury. On the other hand price assurances that
would offset the amount of subsidization is a more easily determinable concept.
Assurances with regard to quantitative limitations are equally objectionable in
the countervailing duty statute. Would these quantitative limitations be voluntary
restraint arrangements or orderly marketing agreements? Would U.S. Customs
administer these limitations? Who would determine the level at which the quantita-
tive assurances should be set?
Clearly the wide discretionary authority that would be involved in provisions for
assurances would be nothing more than an extension of the waiver authority which
Congress has recently extended to the end of September 1979, the same kind of
discretionary authority that has been consistently abused by the Treasury Depart-
ment.
(3) Filing fee.-We believe it is unconscionable for any petitioner to be required to
pay a fee to the Federal Government to secure the relief that may be prescribed
under a statute. We understand that the Senate Finance Committee has proposed
that there be a $5,000 filing fee to accompany countervailing duty petitions and that
the Ways and Means Committee has considered a filing fee of $1,000. Very clearly
the posting of a filing fee would effectively inhibit future efforts to secure redress
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from foreign subsidy practices. Ample authority exists for the administering agency
not to accept a frivolous petition and no filing fee should be required to accomplish
that purpose.
(4) Continued role of Treasury Department-The record of the poor performance
by the Treasury Department under the present countervailing duty statute makes it
clear that the Treasury Department is not philosophically in tune with the aims of
the countervailing duty statute. That agency incorrectly views the countervailing
duty as a protectionist restriction to trade rather than as a device to insure fair
trade. Treasury has mismanaged the countervailing duty program and we believe it
would be a serious mistake to continue to entrust the implementation of the
countervailing duty statute to the hands of that agency. We recommend instead
that this function be transferred to a new Department of Trade and, in the interim
before such a department is created, we would recommend that this function be
transferred to the Office of the Special Trade Representative or to the Department
of Commerce.
(5) Export restrictions should be countervailable.-If a foreign government forbids
or prohibits the export of an internationally traded raw material while at the same
time the United States Government does not do the same, the effect of this action is
to depress the price of such raw materials in the foreign country, giving foreign
manufacturers a competitive advantage with regard to their raw material that is in
effect a subsidy. In the case of hides and skins, the raw material for leather
footwear, such restrictive action is pursued by the governments of Brazil, Uruguay,
India, Argentina and Colombia. The net effect is that leather product manufactur-
ers in those countries are able to effectively under price U.S. leather product
manufacturers in shipments to this market. Unfortunately Treasury does not accept
this distorting tactic as a subsidy. The new countervailing duty legislation should
make it clear that such export restrictions are countervailable.
(6) Closing a loophole-Another serious loophole exists in cases where a foreign
government eliminates its subsidies on exports to the United States but increases its
subsidies on exports to other countries (see above). This has occurred recently in the
case of the Uruguayan Government which eliminated its tanner subsidy on the
export of leather products to the United States, but doubled such subsidy on exports
of leather products to all other countries. The effect of such action has been to give
the Uruguayan exporter the same subsidy payments, permitting no changes in unit
prices in Uruguayan leather product exports. Yet Treasury has found such a prac-
tice not tobe countervailable under U.S. law. We recommend strongly that in the
implementing legislation this matter be dealt with to close a serious loophole in the
countervailing duty statute.
(7) New negotiating authority-It has come to our attention that the Senate
Finance Committee has tentatively approved a measure to grant the Executive
Branch a new five-year authority to cut tariffs and allow for indefinite authority in
negotiating non-tariff barriers, the latter on the basis of the so-called "fast track"
procedure.
In regard to cutting tariffs, we think any granting of such authority at this time
would be premature. Such considerations should be made only after the results of
the Tokyo Round have been recorded and their implications fully understood. Even
then, measures which grant such authority should be duly considered in Congress.
We object to the inclusion of these provisions in the MTN package. Proposals to
allow tariff cutting or negotiating authority in non-tariff barriers should be consid-
ered in Congress through the normal legislative process.
AMERICAN FARM BUREAU FEDERATION
Washington, D.C., April 20, 1979.
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade, House Committee on Ways and Means, Washing-
ton, D.C.
DEAR MR. CHAIRMAN: In response to your press release of April 6, inviting
comments on the Multilateral Trade Negotiations and the necessary implementing
legislation, the Ameri9an Farm Bureau Federation submits the following comments
for inclusion in the printed record.
The code provisions of importance to U.S. farmers are:
1. The Code on Subsidies and Countervailing Duties,
2. The Standards Code, and
3. The Code on Safeguards (not yet concluded).
We offer the following specific comments on sensitive areas of these codes and the
implementing legislation:
~i-998 - 79 - LiQ
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1. Subsidized prices.-Adequate provisions should be made in the code and in
implementing legislation to prevent the undercutting of market prices. A country
should have the right to seek and obtain a remedy as quickly as feasible if its
domestic prices are undercut by subsidized imports.
The possibility of price undercutting under the increased cheese quota has been of
concern to American dairy farmers. We believe that the remedy for price undercut-
ting which was recommended and described in your subcommittee's press release of
April 6, if implemented, would address adequately any possibility of price undercut-
ting in the case of cheese imported under the quota.
In addition, adequate provisions need to be made to address the serious problems
of sales diversion and disruption of trade in third markets by subsidized exports, as
in the current case of subsidized EC wheat.
We are informed by the trade negotiators that the new subsidies/countervailing
duty code will bring discipline to this problem. Farm Bureau would have preferred a
provision which eliminated the use of export subsidies on agricultural products.
However, we have been told that this was an impossibility since it would have
meant, in essence, the dismantling of the European Community's Common Agricul-
tural Policy (CAP). Thus, acceptance of a discipline on export subsidies, rather than
an outright attack on the use of subsidies, was the only choice with a chance for
success.
We are troubled, however, by reports that some EC ministers are saying that
acceptance of a discipline under the new subsidies code "legitimizes" the use of
export subsidies by the EC and, consequently, the EC's Common Agricultural Policy.
It is essential that we not give the impression that export subsidies and the variable
levies of the CAP are to become a part of a permanent approach to world trade. We
remain dedicated to the elimination of export subsidies. Therefore, we would like to
see a strong statement of policy in the implementing bill which would dispel the
notion that acceptance of a subsidies discipline legitimizes a subsidy. We remain
hopeful that, in future negotiations, changes can be obtained in the European
Community's Common Agricultural Policy which will break down the protectionism
that exists there.
In addition, while we are opposed to export subsidies, we believe it is important
that the U.S. government retain the legal right to subsidize U.S. exports if the
disciplines of the new subsidies code break down after their implementation.
2. Health and inspection standards should be used only to insure wholesome and.
sanitary products. The code and implementing legislation should, to the fullest
extent possible, preclude their use to restrict trade.
3. Injury test.-We prefer the present system of not having to prove injury;
however, we understand that it was necessary to accept an injury test. The code and
the implementing legislation should define injury, with reference to agricultural
products, as interference with domestic agricultural support programs or other
interference with the orderly marketing of agricultural products. It is most impor-
tant that implementing legislation not cripple the operation of Section 22 of the
Agricultural Adjustment Act, as amended, which has been vital to the well-being of
U.S. agriculture.
4. Time limits on countervailing and antidumping investigations-We believe
that, in the past, the time between the filing of complaints and the taking of
appropriate action has been too long, particularly in cases where a subsidy is easily
identified and the threat of injury is apparent. We are not in a position to recom-
mend a precise time limit. However, we feel that the specified time limits should be
as short as feasible.
Expedited process for relief from injury-Perishable Commodities: As indicated
earlier, the Code on Safeguards has not been completed. Nevertheless, we believe
that it would be prudent to amend the "escape clause" of the Trade Act of 1974 to
provide faster relief procedures for injury caused by the importation of perishable
commodities.
Section 301 procedures.-We suggest that the procedural requirements for com-
plaints filed under section 301, as outlined in your subcommittee's release of April
6, be modified by addition of the words underscored below:
"5.b. Initiation of procedures-STR must respond to the complaint within 45 days
by either beginning a formal section 301 proceeding, or by publishing the substan-
tive reasons as to why the case is lacking in merit and thus will not be pursued."
Mr. Chairman, you also invited comment on the implications of "conditional,
nondiscriminatory (MFN) treatment" for the trading system. We believe that U.S.
farmers continue to lose export sales in a number of important markets because
certain nations do not have most-favored-nation status and the right to receive
export credits. Farm Bureau policy on this subject is as follows:
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"We favor the sale of American farm and industrial products in world markets
wherever this will advance the best interest and security of the United States.
"The U.S. should approve most-favored-nation (MFN) tariff treatment for any
countries that agree to reciprocate and conduct themselves in accordance with the
General Agreement on Tariffs and Trade."
We will appreciate your consideration of these comments.
Sincerely,
JOHN C. DATT,
Director, Washington Office.
CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D.C., May 9, 1979.
Hon. AL ULLMAN,
Subcommittee on Trade, Longworth Building,
Washington, D.C.
DEAR AL: I have taken the liberty to enclose a statement from Dan Younkins
concerning the "dumping" of precious metal fine wire in the United States, which I
understand was the subject of a recent hearing before the Trade Subcommittee. Mr.
Younkins is President of an industry in my district effected by this "dumping."
Any consideration you would give Mr. Younkins and the fine wire industry
concerning their plight would be greatly appreciated.
With best wishes,
Sincerely,
RICHARD SHELBY.
Enclosure.
STATEMENT OF DANIEL YOUNKINS II, PRESIDENT, AMERICAN FINE WIRE CORP.,
SELMA, AL&.
The American Fine Wire Corporation is one of about ten U.S. companies that
produce fine (small) wire from precious metals and alloys (eg. gold, platinum) for use
in the electronics, biomedical, and defense industries. None of these U.S. companies
is large by the standard number of employees-the range is perhaps as small as
fifteen to the largest of about seventy. Our company has twenty-seven employees.
However, there is a very small man/machine ratio to the total selling price of
product due to the material in the product and the nature of its production.
In 1978 the combined production of these companies was in excess of one billion
feet of wire with a market-place value of $50 to $65 million. The U.S. production of
such wire has had modest growth in the past few years, yet selling price has
declined by 50% and more. This is not due to any breakthroughs in manufacturing
technique-today, wire is made much as it was sixty years ago when such wire was
used in radio-type vacuum tubes.
BACKGROUND SITUATION
As in any manufacturing process, product selling prices is composed of three
elements-raw materials, labor, and overhead and profit.
(1) Raw Materials.-Although precious metal prices vary from day to day
throughout the world, they are commodities and have a stable price at any point in
time. (i.e. no company would sell gold for $200 per ounce when the world price was
$250 per ounce).
(2) Labor.-As I am positive you know so well, the Japanese labor rates in skilled
and semi-skilled manufacturing catagories are equal to or greater than comparable
U.S. wage rates. The Sunday, April 29, 1979 edition of the Atlanta Journal/Consti-
tution carried a feature article on this subject. Of major industrial nations of the
world, the Japanese manufacturing labor rates are highest at an average of about
$6.86 per hour. The United States ranked sixth at about $5.50, and behind such
other countries as West Germany, Sweden, and Switzerland. In the case of Ameri-
can Fine Wire Corporation, our labor rates in Selma, Alabama are less than average
U.S. rates.
(3) Overhead and Profit-In our industry, all of the companies are small, private-
ly held firms. There are exceptions where there are fine wire divisions of larger
companies-these divisions are comparable in size to the individual companies.
Overhead is consistently low and profits are meager to non-existant. Competition is
as keen as in any high technology industry with our number of suppliers.
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CURRENT SITUATION
Occurring in the fine wire market-place is:
(1) Non-American competition is selling their fine wire products in the U.S.A. for
prices 20 to 30 percent below their costs. I have been shown and discussed price
quotations from Far East fine wire producers with a very large U.S. Semi-conductor
producer. In one case, the Far .East products price was less than our unburdened,
labor cost, exclusive of raw material, overhead, and any profit. This is a pure case of
"dumping."
(2) Non-American producers are also selling their fine wire products to U.S. firms
at electronic assembly facilities of these firms in the Far East. This wire then enters
the U.S.A. assembled in an electronic device, circuit, or finished consumer product.
Much data has been gathered by various U.S. firms (ie-integrated circuit manufac-
turers, calculator/watch producer, computer peripheral manufacturer) describing
situations where off-shore competition sells their product to the U.S. owned, foreign
based facility and the sub-component parts re-enter the U.S. This is nothing more
than "dumping" with a circuitous route.
(3) Current import regulations impose a 20 percent import duty on the foreign
gold wire content of devices entering the U.S.A. We are convinced and we are told
that, in many instances, this duty is being avoided.
These products are being "dumped" on the U.S. market and represent a major
unfair competitive advantage for foreign companies. This, so obviously, can and is
having a devastating effect on these small U.S. companies. Several are being forced
to abandon these markets and are threatened with extinction. Articles in the March
26, 1979 issues of Electronic News and Time Magazine outline fully how this
activity is hurting the Electronics Industry of the United States.
A full and flourishing fine wire industry in American is essential to our well-
being as a country. If the fine wire manufacturing capability is not kept strong we,
as a country, could lose much of our self-sufficiency in the electronic industry which
is so vital to our national defense.
Your understanding and cooperative assistance in bringing this situation to light
is most important. Moreover, when legislation is drafted, and eventually enacted, it
should include whatever protection is possible for this small, yet critical, portion of
American manufacturing capability.
STATEMENT OF AMERICAN TEXTILE MANUFACTURERS INSTITUTE, WASHINGTON, D.C.
The American Textile Manufacturers Institute (ATMI) supports the national
trade policy within the context of the Administration's Textile Program as an-
nounced by President Carter at the White House on March 22, and attached
herewith as Annex A. In examining the results of the Multilateral Trade Negotia-
tions (MTN) published thus far, we have developed the following suggestions with
respect to the implementing legislation now being developed by this Subcommittee:
1. Subsidies code
We support the recommendations made by Mr. Charles R. Carlisle in his testimo-
ny of April 23 before this Subcommittee. ATMI is a member of the Ad Hoc Subsi-
dies Coalition for which he spoke.
2. Government procurement code
As provided in the Administration's Textile Program, textiles and clothing cov-
ered by the "Berry Amendment" to the Defense Department Appropriation Act are
to be excluded from the Code's coverage. Thus Defense will continue to purchase
textiles and clothing solely from United States sources. Both the Code and the
implementing legislation should spell this out very specifically.
3. Safeguards code
This Code has not been completed at Geneva; however, we understand that
negotiations are continuing. Such a Code, if completed, must in no way impinge
upon the GAIT Multifiber Arrangement (MFA).
4. Counterfeiting code
This Code also has not yet been completed. We believe it essential to retain the
draft provision requiring confiscation of counterfeit goods.
5. Tariff snapback
The new tariff rates agreed at Geneva have not yet been published but we
understand that certain United States textile and apparel duties have been reduced.
The Administration's Textile Program contains a commitment (Annex A, page 3)
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that a "snapback clause, effective during the implementation of the MTN tariff
reductions, which will restore textile and apparel tariffs to their pre-MTN levels if
the MFA does not continue to be in effect or a suitable substitute arrangement is
not put into place, will be adopted as part of the implementation of the MTN tariff
reductions." Precise language to accompany this should be part of the legislation as
well as of the GATT Protocol.
6~ Extended authority
The Senate Finance Committee on April 5 announced tentative agreement to
include in the MTN implementing legislation an extension of the President's negoti-
ating authority granted by the Trade Act of 1974. ATMI strongly opposes any
extension of the President s negotiating authority beyond its scheduled expiration
date, January 2, 1980. Tariff reductions negotiated under the Trade Act of 1974
cover, it is understood, almost all of the products imported into the United States
which are subject to duty. These reductions which are, it is reported, slated to be
implemented over a period of up to 10 years, were negotiated in the context of the
general economy, as well as the health of the domestic industries involved. We
respectfully submit that it would be inappropriate to negotiate additional reductions
in duties before the full effect of the reductions already negotiated can be measured.
Accordingly, we urge that the Congress not extend the President's negotiating
authority given under the Trade Act of 1974.
ADMINISTRATION TEXTILE PROGRAM
Pursuant to the President's statement of November 11, 1978
The Administration is determined to assist the beleaguered textile and apparel
industry and is committed to its health and growth. This industry provides employ-
ment for almost two and one-half million people, the largest single source of jobs in
our manufacturing economy, and provides our consumers with a reliable, competi-
tively priced, vital source for all the many vital clothing, medical, military, industri-
al and other products of its modern technology.
In 1978, U.S. imports of textiles and apparel amounted to seven billion dollars.
U.S. exports amounted to only 2.6 billion dollars, a differential of almost five billion
dollars. This situation, with trade restrictions abroad and our lack of success in
exporting, contributed to unemployment at home. It must be improved in the
national interest. Accordingly, today, the Administration is announcing a new ap-
proach to deal more effectively with the serious problems that face this industry.
GLOBAL IMPORT EVALUATION
The United States Government will, on a continuing basis, conduct a global
import evaluation, consisting of a continuous evaluation of textile and apparel
imports, from all countries, category-by-category. The purpose will be to analyze the
impact of textile and apparel imports from all sources in the context of U.S. market
growth and conditions in the industry. The results of this analysis will be evaluated
for their negative and positive consequences for trade measures, in the light of U.S.
rights under the Multifiber Arrangement (MFA).
A member of the Cabinet, pursuant to a directive from the President, will have
personal responsibility for overseeing the global evaluation program, in cooperation
with the agencies having responsibilities with respect to textile trade, and will
report quarterly to the President on its implementation. The program will begin not
later than March 31, 1979.
IMPORT CONTROLS
Based on the continuous global import evaluation of textile and apparel imports
from all countries, category-by-category, the following actions will be taken:
1. Import surges that cause market disruption, as defined in Annex A of the MFA,
will be aggressively controlled, whether they occur from one source or many, under
agreements or otherwise. In all of the import control actions, special attention will
be paid to the most import-sensitive or import-impacted product categories.
2. There will be aggressive and prompt enforcement of U.S. international rights,
including the use of MFA Article 3, and Article 8 (involving circumvention) where
the criteria of these articles are met.
3. Understandings with respect to existing agreements with the leading major
exporting countries will be reached to tighten controls for the remaining life of
these agreements, and to eliminate threats of further market disruption through
import surges which arise from one agreement year to another due to: (i) the use of
flexibility provisions; (ii) partially filled quotas in one year followed by more fully
filled quotas in the next year; or (iii) surges that occur in the course of a single
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agreement year when an undue proportion of the year's shipments is concentrated
in a short span of time. In order to preclude harmful fluctuations, where quotas
have been substantially undershipped in the preceding agreement year, in concur-
rence with the MFA concept of orderly growth in trade, year-to-year increases in
such cases should not normally exceed the previous year's shipment's plus one-half
of the unfilled portion of the previous year's quota but in no event more than the
current year's quota. Thereafter, the applicable growth and flexibility provisions
would apply.
4. Where necessary to preclude further disruption from the leading major export-
ing countries, the Administration's objective will be to assure that (1) 1979 imports
will not exceed 1978 trade levels or 1979 base levels, whichever are lower, and (2) in
each of the three following years, import growth will be evaluated annually by
category (including all flexibility provisions for each category) in the context of the
estimated rate of growth in the domestic market in that category, and adjustments
made. Particular attention shall be paid to the most sensitive categories, especially
in apparel, where the import to domestic production ratio is high and indicative of
market disruption. The industry and government will cooperate to the fullest extent
possible so that current data on domestic production on a category or product basis
will be available to assure the effective working of this provision.
5. The United States Government has just negotiated a more effective bilateral
arrangement with Japan to remove the serious problem of disruptive fluctuations.
Strong efforts must also be made by the Government and industry to expand
substantially textile exports to Japan.
6. Recognizing the potential for sharp and disruptive growth in textile and appar-
el imports from any major new supplying country, the United States Government
will seek to negotiate import restraint levels with the supplier as close as possible to
the most recent levels of trade for heavily traded or import-sensitive products and to
secure an effective means to expeditiously deal with disruptive import surges in any
other category, in the context of the global import evaluation program described
above.
7. There will be improvement in quality and timing of monitoring efforts to
provide the information for prompt evaluation and appropriate actions. The present
system will be reinforced and, working with industry and labor, means for faster
feedback and response will be developed.
8. Consistent with federal practices and procedures, there will be full and prior
industry/labor consultation on strategy, outlook and problems with respect to bi-
lateral agreements.
MTN
A snapback clause, effective during the implementation of the MTN tariff reduc-
tions, which will restore textile and apparel tariffs to their pre-MTN levels if the
MFA does not continue to be in effect or a suitable substitute arrangement is not
put into place, will be adopted as part of the implementation of the MTN tariff
reductions. In the event the MFA is not renewed or a suitable arrangement is not
put into place, legislative remedies will be proposed to allow the President authority
to unilaterally control imports of textile and apparel products consistent with the
policy enunciated in this statement.
As a matter of continuing policy, the textile and apparel items included in the
Berry Amendment will be excluded from coverage of Government Procurement
Code liberalization.
LAW ENFORCEMENT
A major effort, made possible by a special appropriation of the last Congress,
designed to dramatically improve the administrative enforcement of all our textile
agreements, is currently proceeding. This program must be carried through expedi-
tiously.
U.S. trade remedies against foreign unfare trade practices, including the counter-
vailing duty law and antidumping act, will be improved, their administration made
more responsive and their procedures accelerated in accordance with legislation
implementing the Multilateral Trade Negotiations.
Customs will improve and make more thorough its monitoring and enforcement
efforts, including the use of penalties available under law where appropriate, with
respect to improper transshipments, country of origin requirements, and violations
of quantitative limits, with the objective of preventing evasion of restraint and
quantitative limitations.
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INDUSTRY EXPORT DRIVE
The industry will initiate a major export drive, with the U.S. Government's
commitment of full support, including: a market development program, and vigor-
ous USG efforts to tear down foreign trade barriers.
HIGH-LEVEL TEXTILE POLICY GROUP
The President will appoint a high-level Industry-Labor-Government Policy Group
to identify and bring public attention to problems affecting the competitiveness of
the industry.
OTHER SPECIFIC ACTIONS
The pilot program to enhance productivity in the apparel industry will be expand-
ed to include the ladies' apparel industry.
U.S. INDUSTRY COMPETITIVENESS
The textile and apparel industry indicates its resolve to make maximum efforts to
maintain international competitiveness, through promoting efficiency within the
industry, to continue to act responsibly pursuant to the President's anti-inflation
program guidelines, and to support the national trade policy, which includes as an
integral part the program of orderly growth in textile trade as outlined above. For
its part, the Administration will act expeditiously to put the foregoing program into
effect and expects concrete results in sixty days.
CONCLUSION
This textile program is an integral part of the MTN package. However, the
Administration will begin implementation of the program immediately and many of
the essentials will be in place within the next several months.
STATEMENT OF HON. ADAM BENJAMIN, JR., A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF INDIANA
Mr. Chairman, thank you for allowing me the opportunity to testify before the
subcommittee on Trade regarding the recently initialed Multilateral Trade Pact and
its implementing legislation.
Oil price increases, worldwide recession, international monetary instability,
widely varying rates of inflation and the emergence of developing countries as
exporters of manufactured products have placed strains on the trading system,
shifting patterns of trade and producing large imbalances in the flow of trade. Some
of these factors have disrupted the U.S. economy and caused a significant disloca-
tion of workers. Under these circumstances, opposition to the MTN Agreement and
pressure for more restrictive trade practices is growing.
I would like to commend Ambassador Strauss and the Special Trade Representa-
tive's staff and Chairman Vanik and the other members of this Subcommittee for
their diligent work in this complex and critical field of international trade.
I support the objectives underlying the U.S. Government's approach to the multi-
lateral trade negotiations. I concur in the need for expansion of world trade and its
resulting benefits to the world economy.
While I support the MTN objectives, I am concerned with the MTN results. The
initialed MTN codes contain generalizations which must be clearly defined in the
implementing legislation if our domestic industries are to be protected from unfair
foreign competition.
The steel industry in particular has been severely impacted by foreign competi-
tion. Steel imports have averaged about 20 million tons a year over the past two
years, taking 18% of the U.S. market. The steel trade deficit alone last year was
about $5.6 billion, and it has become the second largest contributor to the U.S. trade
deficit.
I believe the Trigger Price Mechanism is a good faith effort by the Treasury
Department to enforce the anti-dumping laws which has long been allowed to be
ineffective. However, this program involves trade-offs somewhat against the best
interests of Amercian steel, since it allows European steel to come into this market
below costs.
I am concerned that our domestic industry also be protected from unfair competi-
tion through a clearly defined anti-dumping code and countervailing duty statute. It
is essential that these mechanisms incorporated substantive requirements which
provide for impartial enforcement, insulated from political manipulation.
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It is equally imperative that there be firm time limits on the length of the
investigation period prior to a preliminary determination on both anti-dumping and
countervailing duty complaints.
Regarding the reduction in tariffs applied to U.S. imported steel, I find it difficult
to justify the U.S.'s offer to reduce its steel tariffs to a lower level than those of its
trading partners. The EEC, Japan, Canada and the U.S. should have similar, if not
identical, steel tariffs. It is also disconcerting to feel that the steel industry is being
scarificed for the substantial gains in the agricultural markets.
The Procurement Code is another area which demands close examination, in
order to avoid eliminating buy American laws without providing adequate replace-
ments. We must insure that the code's provisions facilitate the operation of fair,
open and rational bidding systems by all signatories.
I am very pleased to note the development of an international steel committee as
a result of the trade negotiations. I believe this committee will provide a valuable
communications channel which can assist in stabilizing our world steel industry and
therefore our economy in general. I sincerely hope the U.S. will continue to actively
participate in the development of this worthwhile organization.
In conclusion, I believe we must keep foremost in our minds the need for an
international trade agreement which will establish a structural mechanism which is
functional. We must insure the use of clear and concise criterion which leave no
room for political manipulation and will protect our domestic industries from unfair
competitive practices.
JOINT STATEMENT OF FRANK B. SN0DGRA55, VICE PRESIDENT AND MANAGING DIREc-
TOR, BURLEY & DARK LEAF TOBACCO EXPORT ASSOCIATION, AND KIRK WAYNE,
PRESIDENT, TOBACCO ASSOCIATES
Our two organizations strongly supported the Trade Act of 1974, which provided
the authority for the Tokyo Round of negotiations. We have historically supported
all attempts aimed at obtaining freer access to international markets for U.S.
produced leaf tobacco.
During the Tokyo Round, we had representatives serving on the Agricultural
Technical Advisory Committee [ATAC] for tobacco, who made numerous trips to the
E. C. and Geneva, Switzerland, assisting the U.S. negotiating team through our
contacts in that area.
We have followed the Trade Negotiations and urge the committee to report
favorably upon the MTN package which has been submitted by the President's
Special Trade Representative.
This trade package will be very beneficial to the U.S. leaf tobacco trade and to
our economy.
The MTN have brought forth significant tariff reductions for U.S. unmanufac-
tured tobacco exports from several major trading partners. Our understanding of
the tariff concessions gained in these negotiations are as follows:
The European Community has offered to cut duty by one-third on imported flue-
cured, Burley, dark fired, and Maryland types of tobacco. In 1978 the European
Community was a market for nearly one-half of total U.S. unmanufactured tobacco
exports at a value of $618 million, of which flue-cured exports totaled $470 million,
Burley $85.4 million, dark fire-cured $35 million and Maryland and other $28
million.
Australia, a $27 million market for U.S. unmanufactured tobacco exports in 1978
has offered to reduce their import duty by 60% and maintain present share of
imports in their tobacco usage.
New Zealand a $7 million export market for U.S. tobacco in 1978 has offered to
cut tariffs by up to 45%. The U.S. will be the primary beneficiary of this tariff
concession.
Finland, a U.S. tobacco export market for $14 million in 1978 has offered to
reduce and bind their tariffs on tobacco at a duty-free level.
The significant importance of the above outline duty concessions for $666 million
of U.S. unmanfactured tobacco exports is brought further into perspective when
considering that these markets represent 85 percent of U.S. tobacco shipments to
countries where tariffs have an impact on trade.
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STATEMENT OF THE CALIFORNIA AVOCADO COMMISSION
SUMMARY
The California Avocado Commission supports passage of the proposed trade pack-
age resulting from the multilateral trade negotiations. We urge the inclusion of
implementing legislation which will give the President authority to take emergency
unilateral safeguard action in order to prevent possible serious injury to domestic
producers of perishable crops.
INTRODUCTION
This statement is submitted on behalf of the California avocado industry by the
California Avocado Commission. The Commission represents all producers and mar-
keters of avocados in the state of California. California produces approximately 80%
of the avocados grown in the United States.
The California Avocado Commission applauds the efforts and accomplishments of
the Office of the Special Trade Representative in the seventh "round" of trade
negotiations since the founding of the General Agreement on Tariffs and Trade
(GATT). We are pleased with the importance that Ambassador Strauss, Ambassador
Wolff, Ambassador McDonald and others on the U.S. negotiating team have placed
on agriculture in the negotiations.
The proposed agreements have essentially two purposes: (1) the establishment of
new international rules to assure that trade will be conducted more fairly and
equitably between nations, and (2) the further reduction of specific barriers, both
non-tariff and tariff, for individual products. The efforts of our negotiators to ame-
liorate non-tariff trade barriers represents a new dimension in multilateral trade
negotiations and involves important changes from the existing General Agreement
on Tariffs and Trade.
TARIFF CONCESSIONS
Unofficial reports have indicated that a significant duty concession has been
achieved for exports of avocados to Japan. If such a concession is confirmed, we
believe that the concession for avocados will be most helpful to our future trade
with that country.
California avocado growers are concerned, however, with reports of a significant
reduction in the current import duty for both fresh and processed avocados entering
the United States. Because of the rapid growth and supply situation in other
avocado producing countries, U.S. avocado growers rely primarily on the U.S.
market to sell their product. In fact, only about 5% of our avocados are exported
outside of the U.S. Currently, avocado production and demand in the United States
are balanced. Demand is continuing to gradually expand as is production. Our
growers have invested heavily in both production and market development. The
industry has been fearful that a significant change in U.S. tariff policy may cause
great market disruption for the U.S. avocado industry. The prices of avocados from
our principal, and often only supplier, the Dominican Republic, have not changed
materially for many years. We judge that this has occurred because avocado produc-
tion there is largely a "cottage" industry which has been little affected by world-
wide inflation. In real terms, the prices of U.S. imports of avocados have been
declining over time. Should this continue, we forecast difficulties in the future. A
significant reduction in the U.S. import duty for avocados would compound these
difficulties significantly.
PERISHABLE PRODUCTS
The Commission wishes to address the need for implementing legislation which
will provide the President with domestic authority to take emergency unilateral
action to prevent potentially serious injury to domestic producers of perishable
crops. Many perishable commodities have short marketing life after harvest or are
harvested in only a short time period each year. Market disruption from imports for
such commodities, if not quickly corrected, could nullify a producer's performance
with that commodity for an entire year. Further, corrective action effective after
the completion of harvest or marketing would not ameliorate the disruption and, in
effect, would invite similar disruption in future years.
The last such authority was contained in the Trade Agreements Extension Act of
1951. It required accelerated corrective action in the instances described. Similarly,
under Section 22 of the Agricultural Adjustment Act of 1938, accelerated action was
provided whenever the Secretary of Agriculture advised the President that condi-
tions existed requiring emergency treatments. Such fast track handling is not now
provided in the Trade Act of 1974.
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The General Agreement on Tariffs and Trade, Article XIX, permits rapid injury
investigations and the establishment of provisional measures in "critical circum-
stances". In such critical circumstances no prior consultation with affected export-
ers is required. The proposed safeguards code would also have permitted such rapid
injury investigations and provision import restrictions in critical circumstances. The
MTN implementing package presents an opportunity to reinstate into U.S. law,
consistent with the GATT, procedures to deal with the unique problems of perisha-
ble products such as avocados. The legislation should give the president authority to
temporarily restrict imports of perishable commodities if the International Trade
Commission, or other designated body, determines that the particular commodity is
being imported in such increased quantities and under such conditions as to threat-
en serious injury to domestic producers of like or directly competitive products. The
legislation should provide for the monitoring of perishable commodities imported,
daily or weekly tabulation of import statistics as necessary, and rapid injury investi-
gations by the International Trade Commission or other designated body upon
request by either the President or a member of the affected industry.
An outline of appropriate legislation providing for prompt surveillance, investiga-
tion, injury determination, report and Presidential action has been drafted by the
U.S. Department of Agriculture. The California Avocado Commission urges that the
language of that draft be made a part of the legislative proposals submitted to the
Congress for the purpose of implementing the multilateral tariff negotiation agree-
ments.
CONCLUSION
On balance, the California Avocado Commission believes that the achievements of
the Tokyo Round of the multilateral trade negotiations represent a step forward for
U.S. agriculture. Rather than closing markets or erecting more trade barriers,
adoption of the agreements will mean additional market access for U.S. agricultural
products and a liberalization of existing agricultural trade barriers. Ambassador
Strauss has kept his pledge: namely, that any package he brought back would
include meaningul gains for U.S. agriculture. Therefore, we urge approval of the
trade package. The package should include implementing legislation which will give
the President authority to take emergency unilateral safeguard action in order to
prevent possible serious injury to domestic producers of perishable crops.
STATEMENT OF CITC INDUSTRIES, INC.
One of the most unfortunate aspects of the MTN proposal is the one which deals
with the American Selling Price (ASP) as it relates to rubber-soled footwear with
fabric uppers.
The Special Trade Representative (STR) Conversion rates run counter to the
objectives of the Tokyo Round because they provide for duties far in excess of the
current ASP duties. In addition, a large number of shoes not presently under ASP
will carry duties almost double the existing rate.
It is a matter of record that approximately 72.4 percent of the footwear under
700.60 is not dutiable under ASP. Yet STR under the guise of eliminating this
objectionable non-tariff barrier-American Selling Price-recommends that the
duty on such non ASP items as boots and open toes, slip on type be increased from
20 percent ad valorem to 37½ percent ad valorem.
An objective view of the other categories will show that the popular footwear
purchased by low and lower-middle income wage earners will bear the highest
duties while the higher priced shoes purchased by the higher income consumer will
be dutiable at the lowest rate. Much of the footwear that will be dutiable at the new
high rates is non-competitive with the domestic product. The producers in this
country have not in recent years shown a real interest in manufacturing low end
goods.
A domestic spokesman has told the Committee that the rubber-canvas footwear
industry "will not emerge from the Tokyo Round with greater protection than it
now has." An objective comparison of the current rates and the projected rates
indicates that the protection will not only be greater but will apply to a wider
variety of footwear. This same witness for some domestic companies referred to
STR's request to the International Trade Commission (ITC) for data looking toward
conversion of ASP to straight ad valorem rates. It is noteworthy that, in the ITC
report to STR, the Commission's proposed converted rates of duty, based on actual
Custom's entries, did not exceed 48 percent and unlike the STR proposal left at 20
percent most of those shoes which had never been under ASP.
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Despite the unrealistic rates in STR's proposal, especially in the athletic and
leisure categories, where duties will range between 60-70 percent, the domestic
industry advised you that if this doesn't appease them they may be back for more
protection.
When can the consumers and the taxpayers of America expect "protection for
themselves? The domestic footwear industry, especially in the area of athletic and
leisure footwear, has transformed its method of operation to automation. The vast
majority of this type of footwear made in the United States is today machine
produced. It is becoming increasingly difficult for exporting countries to compete
with domestic automated shoes even with minimal duties. If the manufacturing
costs are comparable between the United States and its trading partners merely
adding the freight cost to the shoe cost will make it difficult to import canvas-
rubber footwear on a competitive basis. It is our respectful recommendation that
you urge the STR officials to revise downward the proposed rates and provide for
future staged reductions.
STATEMENT OF THE CONSUMERS FOR WORLD TRADE
Consumers for World Trade respectfully ask this Committee and the Members of
Congress to review the recently-concluded multilateral trade agreements and to
consider the package of proposed implementing legislation in the light of its impact
upon the interests of American consumers-the one "special interest" group which
includes all Americans, regardless of job, income level, age, sex, or state of resi-
dence. CWT believes that consumers-especially low- and moderate-income fami-
lies-the elderly and other fixed-income groups will benefit from lowering trade
barriers and expanding world trade, as the best means to provide American consum-
ers with the widest possible choice of goods at the lowest possible prices-a matter
of high priority in this time of continuing inflation.
Consumers for World Trade is a new organization, formed early in 1978 by
concerned citizens, economists, trade experts, and others who are alarmed by the
growth of protectionist attitudes in many quarters. We are keenly aware of infla-
tionary pressures which are hurting all Americans, and especially the most vulner-
able lower- and middle-income families. CWT supports expanded foreign trade to
help promote healthy economic growth at stable prices. We believe it essential to
support policies that will expand choices for consumers, and will help to counteract
inflationary price increases which are now reported in almost every sector of the
economy.
Thus, we have three major areas of concern to bring to the attention of the
Congress:
Availability of imported goods is a $2 billion per year bargain to the American
public-but at the same time, American consumers are now paying up to $15 billion
in higher prices every year, as a result of restrictions on imports of foods and
manufactured goods, such necessities of daily life as sugar, meat, dairy products,
textiles, clothing, footwear, and dozens of other products.
A recent study by a Brookings Institution economist documented direct savings to
American consumers of about $2 billion annually, thanks to the availability of
imported goods. These savings are especially important to lower-income buyers,
since the price ranges in which they buy are particularly served by imports. In
addition to these direct dollar savings, there are further, incalculable savings to
consumers as import competition helps to keep down prices of comparable domestic
goods.
While there are no exact figures on the costs to American consumers of all the
protectionist laws, regulations and administrative policies now on the books; respon-
sible studies by government agencies and private research institutions suggest that
the extra bill-paid by American consumers-is up to $15 billion per year. For
example, the President's Council on Wage and Price Stability estimates that the
average 29.3 percent tariff on apparel imports costs American consumers $2.7
billion perU year. Rigid quota limits on textile and apparel imports cost another
$369.4 million annually; and since the lowest-cost apparel items are subject to the
most severe restrictions, the low-income consumers is the one who suffers the
greatest penalty.
Similarly, the President's Council calculates that limitations on beef imports cost
American consumers between $350 million and $1 billion in added costs. Again, this
hits hardest at low- and middle-income families, since our imports of beef-compris-
ing only 7 percent of total U.S. Consumption-are primarily lean cuts used for
hamburger and relatively-low-cost manufactured meat products.
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Protection for the steel industry, including "orderly marketing agreements" and
the new trigger-price mechanism (TPM), is estimated to cost American consumers
more than $4 billion this year in inflated prices. Use of the trigger price system has
in effect set a floor for steel prices, insuring against any lowering of steel prices,
domestic or foreign. In the months since the TPM was put into effect, U.S. steel
producers have raised their prices more than 9.5 percent, or an average increase of
more than $50 per ton.
One more example: The Congress is well aware that American consumers already
pay more than 60 percent above the world price for sugar, an essential ingredient in
almost every food product we buy except meat. Legislation pending before you this
year to raise the wholesale price of sugar to 15.8 cents per pound (compared to the
current world price of about 9.4 cents, landed in New York) would, in effect, impose
a 68 percent tariff, that would cost American consumers $1.4 billion annually. The
built-in escalator provisions in that legislation would add another $250 million every
year in costs of cane and beet sugar, and an extra $330 million annually if the price
of corn sweeteners rose, as anticipated, in tandem with beet and cane sugar.
We hope that Congress will take meaningful steps to counter inflation through
legislation that will lower these restrictions on trade, and allow your constituents
the widest possible access to goods at the most reasonable prices possible.
We support the lower tariff schedules and those new agreements negotiated in the
Tokyo Round which will reduce the non-tariff barriers to trade-especially those
barriers such as special valuations procedures and national restrictions on govern-
ment procurement. These barriers obstruct world trade at great costs to American
producers seeking to expand our exports of farm and manufactured products-and
they have raised prices to consumers and taxpayers. (Let's remember who pays for
government purchases!)
The proposed code on Subsidies and Countervailing Measures appears to offer a
realistic approach to overcoming the ambiguities and inconsistencies of the GATT's
provisions on subsidies, with new definitions and proposed procedures that should
promote openness and fairness in international trade. New agreements on import
licensing and customs valuation will reduce or eliminate needlessly burdensome
procedural impediments to international trade, and new mechanisms for settlement
of disputes appear to be a positive step.
Essentially, the MTN package goes a long way toward modernizing and strength-
ening the world's commercial code, the General Agreement on Tariffs and Trade or
GATT, as Congress asked in the 1974 Trade Act. Although some important elements
of the package are not yet complete-the package initialed in Geneva, April 12, does
not include an agreed Safeguards Code, and the extent of Japanese participation in
the proposed government procurement code is still uncertain-we remain hopeful
that those portions of the negotiations can be concluded in a way that will enhance
prospects for American producers and consumers.
It is our understanding that we have successfully negotiated with our main
trading partners a balanced set of tariff reductions to be phased in gradually over a
period of years. Although these cuts are not as steep as the reductions taken in
previous GATT negotiations, we welcome this progress toward the further disman-
tling of tariff barriers to trade. It is sometimes stated that tariffs no longer matter.
The truth is that they remain as the most pervasive restraint on international
trade. Their effect is to distort the use of productive resources and to make antional
economies less efficient. Since the MTN reductions will be made in small incre-
ments over a long period, there will be ample time for industries to make adjust-
ments to lower tariff protection. It is simply not true that the tariff bargain will be
disruptive to domestic producers.
Implementation of the agreements remains the area of our greatest concern. We
have indicated in recent statements our concern that concessions by the Adminis-
tration to particular industry groups demanding additional protection will add
billions of dollars in extra costs to consumers. We fear that certain objectionable
provisions, if enacted into legislation, would have long-term detrimental effects,
raising new procedural barriers which would stifle trade and inevitably boost costs
to American consumers.
In particular, we oppose more compressed time limitations governing various
stages in proceedings arising under Anti-dumping, Escape Clause and Countervail-
ing Duty statutes. While the government's procedures may well need streamlining,
and it is vital to assure prompt and fair determinations of complaints, we fear that
the proposed accelerated investigations and rigid time limitations would seriously
limit the opportunity to gather adequate data to conduct a fair investigation. These
proposals virtually deny due process to American firms seeking to import goods, and
PAGENO="0637"
629
almost insure adverse findings which will-in the end-lead to more limited choices
and/or higher costs for American consumers.
The "Pay first, we'll determine the guilt later" procedure for assessing penalties
in cases of alleged dumping appears to be unwise and unfair. To levy fines even
before any investigation has been conducted or findings made that goods have, in
fact, been "dumped" places unfair burdens on traders. The current system of post-
ing bond appears to have worked adequately.
Most important, the more restrictive definition of injury in Countervailing Duty
cases, does not appear to comply with the definition negotiated in the MTN Subsi-
dies Code, and there seems to be serious doubt that our trading partners (especially
the European Common Market) will accept language that does not require a show-
ing that the alleged injury to American producers constitutes "material" injury
justifying imposition of countervailing duties.
We emphasize that CWT supports vigorous and fair administration of statutes
designed to protect U.S workers and industries from unfair or unlawful foreign
competition. Those companies and workers are adversely affected by such practices
should be able to obtain prompt resolution of their appeals, and effective adjustment
assistance; and those suppliers who violate internationally-accepted codes should be
subject to penalties as provided by law.
Finally, we understand that the Treasury Department is currently conducting an
investigation to determine whether tomatoes and other winter vegetables from
Mexico are being "dumped" in the U.S. market. We also understand that the
Antidumping Act may be applied in this case in a way that would require each
individual shipment of imported vegetables to be sold at above its full cost of
production. Such a requirement would, in our view, be absurd, since the substantial
price fluctuations that are characteristic of produce markets and the lack of a
produce grower's ability to control short-term output make it impossible for him to
recover his full cost on every sale. A ruling by the Treasury Department along these
lines would discriminate against foreign suppliers, since U.S. producers would be
free to continue to sell below cost when the market so dictates. It would also be
highly damaging to consumers, by reducing supplies and increasing prices of these
important items.
We, therefore, urge the Committee to consider amending the Antidumping Act in
a way that would authorize the Treasury Department to apply the Antidumping Act
to imported perishable produce in a manner that recognizes the economic realities
of the produce business, and would not require it to examine returns on a sale-by-
sale basis.
In conclusion, we would stress that Consumers for World Trade supports the
general thrust of the MTN agreements as steps in the direction of expanded trade
that will benefit American consumers. We hope that the Carter administration will
conclude the negotiations on those parts of the MTN still to be resolved to the
mutual benefit of all Americans and our trading partners.
We urge the Congress to implement these agreements in a manner that will bring
all American consumers the benefits of trade-more goods, greater variety, innova-
tions in style and technology, and, above all, better bargains for the consumer's
dollar.
STATEMENT OF ROBERT C. LIEBENOW, PRESIDENT, CORN REFINERS ASSOCIATION,
INC.
We are pleased to present the following comments on the Multilateral Trade
Negotiations (MTN) on behalf of the members of the Corn Refiners Association, Inc.
(membership list attached). Specifically, our comments will address the disadvan-
tages to the corn refining industry brought about by concessions made by the
United States on tariff items and the proposed code on subsidies.
On December 8, 1978, Corn Refiners Association, Inc. (CRA), filed a petition with
the United States Customs Service alleging that producers of potato starch in the
European Economic Community (E.C.) are the recipients of bounties or grants on
the production of dextrines and soluble or chemically treated starches (T.S.U.S. item
number 493.3000) within the meaning of Section 303 of the Tariff Act of 1930 (19
U.S.C. § 1303, "~ 303"). In our petition we urged that a countervailing duty (CVD)
equal to the net amount of these bounties and grants be promptly imposed upon
such items.
CRA has learned that, at a time when the corn refining industry is seeking to
establish that European producers of starches and dextrines are heavily subsidized
for export to the U.S. market, the Special Representative for Trade Negotiations has
offered to reduce tariffs currently collected on items entering the United States
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630
under T.S.U.S. item number 493.3000. In addition, tariff reductions on the other
items of concern to the corn wet milling industry have been made (i.e., T.S.U.S. item
number 135.5000, potato starch, and T.S.U.S. item number 135.5500, starches other
than potato starch). The Corn Refiners Association and/or its member companies
were not privy to the fact that major reductions in tariffs on the above-listed items
were being contemplated before offers were made in the MTN negotiations.
We are extremely concerned, that while an investigation of the subsidy practices
of the E.C. on dextrines and soluble or chemically treated starches is underway, the
rules for determining subsidies and CVD imposition are being changed. We do not
approve of the need for an injury test in CVD determinations and are distressed by
the apparent lack of an automatic imposition of CVDs under the MTN agreement.
We do not feel that a United States industry should have to suffer damage through
sales volume loss or priäe effects before a CVD may be imposed.
Finally, we wish to declare emphatically for this record that with respect to the
U.S. offer on T.S.U.S. item number 493.3000, Corn Refiners Association, Inc., was
effectively excluded from being able to advise the government.
During the committee's deliberations, we urge members to keep in mind that the
corn wet milling industry stands to lose an important domestic market for dextrines
and soluble or chemically treated starches if the U.S. offer on T.S.U.S. item number
493.3000 is finalized. Loss of this market would occur at the expense of many
American jobs.
MEMBER COMPANIES
ADM Corn Sweeteners (A division of Archer Daniels Midland Co.), Cedar Rapids,
Iowa
American Maize-Products Co., New York, N.Y.
Amstar Corp., San Francisco, Calif.
Anheuser-Busch, Inc., St. Louis, Mo.
Cargill, Inc., Minneapolis, Minn.
Clinton Corn ProcessmgCo. (A division of Standard Brands Inc.), Clinton, Iowa
*CPC International Inc., Englewood Cliffs, N.J.
The Hubinger Co., Keokuk, Iowa
National Starch and Chemical Corp., Bric~gewater, N.J.
A. E. Staley Manufacturing Co., Decatur, ill.
CORNING GrAss WORKS,
Corning, N. Y, April 25, 1979.
Chairman CHARLES A. VANIK,
Subcommittee on Trade, Committee on Ways and Means,
House of Representatives, Washington, D.C.
DEAR CHAIRMAN VANIK: My name is Henry F. Frailey. I am Vice President of
Corning Glass Works and Chairman of the Imports Committee of the Tube Division
of the Electronic Industries Association. This letter is written in response to your
request for comments on the Multilateral Trade Negotiations and the implementing
legislation which the Administration will propose to the Congress within the next
few weeks. I would be pleased if you included this letter in the record of your
Subcommittee's formal hearing on this matter.
As your Subcommittee is well aware, the Imports Committee, which I now chair,
filed a petition with the Secretary of the Treasury in March of 1968 which eventual-
ly resulted in the publication of a formal dumping finding, Television Receivers
From Japan-T.D. 71-76. Unfortunately, the record of our Government in providing a
remedy for the injury suffered by our industry because of the relentless dumping by
Japanese television manufacturers over the past ten (10) years is dismal. Members
of the American tel~vision industry and its workers have experienced and will
continue to experience enormous injury and suffering because our Government
refuses to assess and collect the special dumping duties called for by law. Since the
present efforts of the Imports Committee are directed at obtaining proper enforce-
ment of a formal dumping finding, I will limit my remarks to those aspects of
existing law which most directly effect our present efforts.
There are several problems to which I would like to direct the attention of the
Trade Subcommittee at this time. The first, and perhaps the most important, deals
with the potential impact which the implementing legislation to the MTN Agree-
ment ma~r have on our industry's ongoing efforts to secure proper enforcement of
Treasury s long standing dumping finding on television receivers. The Treasury
department has refused to liquidate all but a few entries of television, receivers
PAGENO="0639"
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which were imported after June 30, 1973. It is absolutely essential that the entire
backlog of entries from July 1, 1973 to the present date be liquidated as soon as
possible. Any changes which the implementing legislation may have on the assess-
ment and collection of dumping duties should not be made retroactive so as to apply
to customs entries made prior to the effective date of the new legislation. All
television receivers which enter this country prior to the date when the implement-
ing legislation is signed by the President must be liquidated according to existing
law. If the provisions of the new Antidumping Code regarding assessments are made
retroactive, the relief for which the American television industry and its workers
who have waited so long will be subjected to further delays and uncertainties.
In order to improve the enforcement merchanism for the assessment and collec-
tion of special dumping duties following the publication of a formal dumping finding
by the Secretary of the Treasury, three separate statutes must be amended:
(1) The provisions for administrative and judicial review of assessments available
to both importers and domestic manufacturers, producers, etc. under sections 514-
516 of the Tariff Act of 1930, as amended, 19 U.S.C. 1514-1516.
(2) The jurisdictional provisions of Title 28 of the U.S. Code respecting the subject
matter jurisdiction and powers of the U.S. Customs Court.
(3) The substantive provisions of the Antidumping Act of 1921, as amended, 19
U.S.C. § 160 et seq.
There are a number of deficiencies in the administrative and judicial review
provisions of §~ 514-516 of the Tariff Act of 1930, as amended.
(a) The statute fails to make any distinction between the treatment of ordinary
customs cases on the one hand and unfair trade practices cases on the other hand.
In cases involving dumping, there are formal findings of wrongdoing and injury
which justify administrative and judicial review procedures capable of dealing with
unlawful practices and providing remedial benefits for the domestic interests more
expeditiously and decisively.
(b) The statute fails to provide a formal role for the real party in interest-
members of the injured domestic industry-in the assessment process and in the
administrative review of an importer's protest from a dumping assessment. The
Customs Service is therefore deprived of the special knowledge and expertise which
the members of the domestic industry could contribute to the complex assessment
calculation.
(c) The statute fails to insure that the domestic industry is furnished with suffi-
cient information with respect to the methodology used to assess special dumping
duties so as to permit it to evaluate whether those duties were properly assessed.
Procedures permitting the domestic industry's access to information used by Cus-
toms in the assessment process should be promulgated which include provisions for
safeguarding business confidential information under protective orders rather than
denying interested parties access to such information.
(d) The availability of administrative and judicial review is not balanced as
between importers and the domestic industry.
Importers review
(1) Is conducted on an entry by entry basis at both the administrative and judicial
levels
(2) Evidence may be submitted on three separate occasions-prior to assessment,
during the administrative protest, at a trial de novo in the Customs Court
(3) The result of a successful appeal to Customs Court is applicable immediately to
all unliquidated entries
(4) There is no provision for formal participation by the injured domestic industry
in the enforcement process. The Customs Service is poorly positioned to challenge
the factual data submitted by foreign manufacturers and importers. Active partici-
pation by the domestic industry with its specialized knowledge and expertise would
help Customs overcome this problem
Domestic industry's review
(1) Representatives of the domestic industry have extremely limited access to
information needed to properly evaluate the methodology and factual basis for the
Customs Service assessment action.
(2) Challenge of the Customs Service action cannot be made on an entry by entry
basis. Rather, Customs selects test cases-one entry per port-which the domestic
interest may protest and appeal to the Customs Court. The use of test cases is
entirely inadequate where Customs action with respect to individual entries does
not present common legal or factual issues of general applicability with respect to
all entries.
PAGENO="0640"
632
(3) The results of a specific Customs Court challenge is prospective only. The rule
of the case applies only to merchandise which is imported following the Customs
Court ruling. All prior entries must be liquidated using the assessment methods
under challenge. There is no procedure for withholding of appraisement pending a
Customs Court ruling.
(e) Challenges to the assessment of special dumping duties, whether by an import-
er or by a member of the domestic industry, should go through an unitary adminis-
trative review and appeal process where all interested parties may participate.
Under the present system the party satisfied with the initial determination is left
behind when that determination is taken through the review and appeal process by
the other party.
In order to deal with the broad range of issues which will arise from any new
legislation which addresses the problems outlined above, the subject matter jurisdic-
tion of the Customs Court must be expanded and that Court given broad equity
powers.
(a) The Court should be given powers to issue injunctive orders and writs of
mandamus against government officials in appropriate cases.
(b) The Court should have authority to order the withholding of appraisement on
merchandise in appropriate cases and to compel the assessment and collection of
special dumping duties in case where that is appropriate.
(c) The scope and availability of judicial review in the Customs Court should be
clarified with respect to the broad range of issues over which that Court will have
jurisdiction.
The inability of various domestic interests to obtain relief under the Antidumping
Act is due in a large measure to the failue of the Treasury Department to adminis-
ter the Act properly and the inaccessibility of the Courts to remedy that failure in
all but the most extreme cases. Changes in our legislative approach niust be made
in order to make the Treasury Department accountable for its actions.
Very truly yours,
HENRY F. FRAILEY.
STATEMENT OF THE COUNCIL OF UNITED STATES FEED INGREDIENT PROCESSORS AND
EXPORTERS, WASHINGTON, D.C.
OVERVIEW OF THE COMMON AGRICULTURAL POLICY OF THE EUROPEAN COMMUNITY AS IT
RELATES TO PRESENT AND POTENTIAL PROBLEMS FOR U.S. PROCESSORS AND EXPORTERS
OF FEED INGREDIENTS (NGFI)
The European community-an excellent market for non-grain feed ingredients
U.S. processors and exporters of feed ingredients have a large stake in the
maintenance and expansion of the non-grain feed ingredient market in the Europe-
an Community. It is well-known that the U.S. has a major interest in the Communi-
ty as a market for soy meal and that this market has been growing steadily.
However, in recent years, the European Community also has become an excellent
market for other non-grain feed ingredients (NGFI), including corn gluten, corn by-
products, wheat millfeeds, rice bran, beet pulp, citrus pulp, brewers and distillers
grains, and feed tallows. In 1978, the U.S. shipped more than $250 million of these
commodities to the E.C. (see Appendix I).
Imports of non-grain feed ingredients by the Community have increased dramati-
cally in recent years because domestic and imported supplies of grains, such as soft
wheat, barley, and corn, are relatively expensive in comparison with non-grain feed
ingrethents as a result of the E.C.'s grain price system and import policies.
To the extent feed rations will allow, there is a great incentive for European feed
mixers to substitute non-grain feed ingredients for grain whenever possible. As a
case in point, the Dutch compound feed industry is reducing steadily the grain
share in its formulas by replacing grains with non-grain feed ingredients. In 1967
the grain portion constituted two-thirds of Dutch feed rations. However, the grain
share in total feed production dropped from 23.8 percent in 1975-76 to 18.2 percent
in 1976-77, and it is believed that a further decline to 15-16 percent occurred in
1977-78.
Because of the recent growth in imports of non-grain feed ingredients, the E.C.
has taken certain actions and it is considering others designed to restrict directly or
indirectly the importation of non-grain feed.
The European community's common agricultural policy
In order to understand the reasons for Community alarm over the growth of non-
grain feed ingredient imports, it is necessary to have a general understanding of the
PAGENO="0641"
633
E.C.'s Common Agricultural Policy (CAP), especially as it relates to grains (see
Appendix II).
The CAP is a fundamaental part of the European Community. The E.C.'s agricul-
tural policies have resulted in high agricultural prices, stimulated chronic surplus-
es, and generally insulated the E.C. from world competition. The net effect of E.C.
grain policy has been to raise domestic grain prices to a level almost twice that of
the world price. The grains policy has caused the accumulation of burdensome
surpluses of soft wheat and barley which must be subsidized heavily if they are to
be sold in the export market. Further, as a result of the variable import levy, E.C.
importers have not been able to buy cheaper grain from foreign sources as long as
domestic grain is available.
International trade agreements
The CAP is very effective in preventing competitively priced grains-such as corn,
barley, and wheat-from entering the E.C. market except to serve the residual
needs of the community. However, as a result of previous international trade
agreements, the E.C.'s import levy system does not apply to many of the non-grain
feed ingredients.
The E.C. is a member of the General Agreement of Tariffs and Trade (GATT) and
has participated in all multilaterial trade negotiations, beginning with the Dillion
round of the negotiations in 1960-61. During these trade rounds, in exchange for
reciprocal trade concessions from other countries (i.e., the U.S.), the E.C. has agreed
to bind (or fix) their external tarriffs on many of these non-grain feed ingredients at
zero, or at relatively low levels (see Appendix III).
The principal reason the NGFI market has expanded to its current level is
because the variable import levy does not apply uniformly to imported grains and
NGFI; as a result, imports of non-grain feeds enter the Community at prices lower
than alternative domestic or imported feedstuffs.
Euopean community officiaLs threaten to impede the flow of NGFI imports
For the last year or so, the E.C. has been considering ways to restrict imports of
certain non-grain feeds. The E.C. has addressed this issue under two separate but
inter-related plans.
One method would provide a competitive advantage to locally produced feedstuffs
by means of a domestic subsidy; the second method would raise the import levy or
duty on non-grain feeds.
To encourage the use of more domestically produced vegetable protein, the Com-
munity has introduced production subsidies for field peas and beans when they are
incorporated into animal feed. The existing subsidy on the production of dried
forage also has been expanded. While these subsidy programs contain no outright
import restrictions, they encourage production and use of domestic protein feeds.
These subsidies affect directly the volume of imports of the same type of products
and indirectly the imports of other protein feed.
A more direct approach than the use of domestic subsidies is the increase of the
duty on certain or all of the non-grain feed ingredients. This has been threatened,
but not done, on soy meal, wheat bran, and manioc. In terms of volume, manioc and
soy meal represent by far the Community's largest non-grain feed ingredient im-
ports.
The E.C. has frequently stated that it must impose some discipline on imports of
soybeans and soy meal. The U.S. has resisted this aggressively because of the
importance of the E.C. market which now accounts for $2.5 billion. Under interna-
tional agreement, the E.C. has bound its duty for soybeans and soy meal at zero;
according GATT rules the U.S. would be entitled to compensation for any trade lost
as a result of an E.C. impairment (renunciation) of this zero tariff binding. Because
of the huge trade flow involved, such an action would be very expensive for the
Community; it therefore seems unlikely that the E.C. will make a frontal attack on
soybeans or soy meal.
The Community also has discussed openly during recent years restrictions on
manioc imports because it strongly believes that manioc has had a destabilizing
impact upon its internal domestic grain situation. Ninety percent of the E.C. supply
of manioc comes from Thailand; the other ten percent from Indonesia. Manioc
imports from Thailand were six million metric tons (mmt) this year, an increase of
50 percent over 1977, and are estimated to exceed 11.5 mmt by 1985.
Manioc contains primarily starch and very little cellulose. It is used as a grain
substitute with protein supplements. If manioc imports from Thailand could be
reduced, more E.C. feedstuffs-particularly soft wheat and barley-could be utilized
internally. Thailand, at present, is not a member of the GATT. It is possible
L~4_998 - 79 -
PAGENO="0642"
634
therefore that the B.C. could raise the duty on manioc imports from Thailand
without vio1atin~any international trade agreement. -
Last year £Fie E. C. threatened to increase fourfold the duty on wheat bran. Milling
residues, including wheat bran, represent a potential target for E.C. actions since
the import duties for these products are not bound under the GATT. Duties on bran
and certain corn by-products could be raised by the E.C. without violating an
international trade agreement; however, the U.S. can be expected to protest such
action. The E.C. was restrained from taking such action on wheat bran by vigorous
official U.S. protests. These U.S. efforts were in large part prompted by the then
newly-formed Council of U.S. Feed Ingredient Processors and Exporters.
There is presently no indication that the E.C. will take action against those NGFI
tariffs (i.e., corn gluten, beet pulp, brewers by-products or other products of the
starch industry, citrus pulp) that are bound under GATT. The E.C. is aware that an
impairment of these bindings would elicit costly U.S. reprisals; however, there is no
guarantee that at some time in the future the E.C. may not impair these bindings in
order to appease domestic grain farmers.
Conflicting interests within the European community
The E.C. believes that a restriction of non-grain feed ingredient imports would (1)
lead to greater usage of domestic grains such as soft wheat and barley; (2) lead to
higher feed costs, thereby reducing the chronic surplus in the dairy sector; and (3)
result in a more balanced domestic market for both grains and dairy.
The argument that a reduction or elimination of imports of relatively low priced,
high quality non-grain feed ingredients could solve the problem of burdensome
surpluses in the grains and dairy markets places the cost adjustment on the animal
feed industry and livestock producers, the consumer, and the E.C.'s trading part-
ners. Therefore, the internal domestic pressure within the Community to take steps
to restrict imports of non-grain feed ingredients is somewhat offset.
These relatively low-priced non-grain feed ingredient imports, which can be incor-
porated into animal feeds either as grain substitutes or protein supplements, are of
great benefit to E.C. feed compounders who want to supply high quality feed-stuffs
at reasonable prices for use by E.C. livestock farmers. On the other hand, E.C. grain
farmers desire the highest possible price. Therefore, gains to E.C. growers resulting
from reduced imports of non-grain feed ingredients would be negated by losses in
the feed industry and livestock sector. Both the feed and livestock industries would
face reduced profit margins and lowered demand as a result of higher input costs
associated with a reduced availability of imported non-grain feed ingredients and an
increased use of high-priced domestic grains or vegetable protein. Ultimately, this
burden would fall upon the E.C. consumer.
A more logical but politically more difficult alternative would be for the E.C. to
reduce or freeze the current levels of domestic price supports for grains and dairy
products. Lower prices for these products would either stimulate demand or cause a
reduction in production. This action would result in lower consumer cost, reduced
E.C. outlays for farm price supports, and the continuation of non-grain feed ingredi-
ent imports. The E.C. is currently considering several proposals of this type; howev-
er, proposals suggesting internal price freezes will not be popular with the farmers
affected by such actions. So the easiest political route for the E.C. is to deal with
NGFI imports.
Outlook for NGFI imports to the community
To achieve the magnitude of reduction in non-grain feed ingredient imports
desired by the Community, the indication is that manioc will be a prime candidate
for some type of import limitation. Recently Thai manioc exports to the E.C. have
been growing much faster than other non-grain feed ingredient trade.
The E.C. Commissioner of Agriculture recently returned from Thailand. During
his visit, it was apparently decided that the E.C. will take no formal action at this
time to restict manioc imports from Thailand. The E.C. will not raise the tariff on
manioc imports, nor will it enter into any formal "orderly marketing arrangement"
with the government of Thailand. However, the Thais have agreed to hold their
manioc exports to the E.C. to the same level as last year. In exchange for this
commitment, the E.C. will form a "joint-working party" with the Thai government
in order to study potential production of a crop alternative to manioc in Thailand
and will lend financial and technical assistance to this project.
It remains to be seen whether or not this will achieve the results desired by the
Community. If this agreement does not prove to be effective, then the E.C. may feel
compelled to move to a more formalized restriction against manoic. The E.C. may
also propose a deconsolidization (unbinding) of the current six percent duty on
manioc.
PAGENO="0643"
635
There are two bodies of opinion within the E.C. regarding manioc import restric-
tions. Some elements in the Community would be satisfied with controls over the
expansion of manioc imports. Once this was accomplished, no other action would be
taken on non-grain feed ingredients. Other elements within the E.C. desire stronger
and more sweeping measures, believing that manioc should be only the first step in
a systematic plan to restrict all imports of non-grain feed ingredients.
There are presently no indications which group will prevail, nor, if the second
body of opinion is adopted, what actions the E.C. might take with respect to other
non-grain feed ingredients.
Because of the volatile nature of this situation, U.S. processors and exporters of
feed ingredients must keep a watchful eye on the Community. The fundamental
problem in the E.C. is their policy on grains; in fact, it may be said that non-grain
feed ingredient imports may be exerting some downward pressure on the E.C. grain
price level. However, there are no indications the Community will take the domestic
actions necessary to solve the grain and dairy surplus problem.
Instead it appears likely that the E.C. will take some steps to insure that manioc
imports do not continue to grow at the expansive rate of recent years. The Commu-
nity also may challenge other non-grain feed ingredients, either by restrictions on
imports or through a program designed to stimulate domestic production.
The U.S. has a huge stake in the maintenance and expansion of the non-grain
feed ingredient market in the Community. The members of the Council of U.S. Feed
Ingredient Processors and Exporters enjoy this trade and wish to remain reliable
trading partners. However, if the E.C. threatens to restrict the level of these
imports by trade restrictions or discriminatory domestic actions, the Council stands
ready to take whatever action is necessary through the Executive Branch or Con-
gress to protect these important markets and defend U.S. trade rights with the
Community.
PAGENO="0644"
APPENDIX I
Alfalfa (Dehy.&
Sun-cured)
Wheat Mill-
feeds
Rice Bran
Beet Pulp
Citrus Pulp
Brewers &
Distillers
Grains
TOTAL
TRADE ESTIMATES OF U. S. EXPORTS OF NON-GRAIN FEED INGREDIENTS
DOLLAR CIF VALUE (MILLIONS)
018.5
1064.7
707.5
926.1
1012.1
1123.0
1194.0
TOTAL EXPORTS
EXPORTS TO E.C.
~~TOTAT~TO E.C.
600.9
660.1
495.3
527.9
556.7
573.1
597.0
59.%
62.%
70.%
57~%
55.~
51.%
50.%
58.9
73.6
80.5
105.7
135.2
217.2
315.0
TOTAL EXPORTS
EXPORTS TO E.C.
% of TOTAL TO E.C.
57.1
91.7
78.1
103.6
132.5
212.9
309.0
97.%
98.%
97.%
98.%
98.%
98.%
98.%
23.8
34.0
25.8
28.2
49.0
21.6
21.0
TOTAL EXPORTS.
EXPORTS TO E.C.
% of TOTAL TO E.C.
--
--
.3
10.4
29.4
13.8
13.7
0.0%
0.0%
l.%
37.%
60.%
64.%
65.%
10.6
8.7
7~6
11.8
30.0
10.1
12.0
TOTAL EXPORTS
EXPORTS TO E.C.
% of TOTAL TO E.C.
9.4
16.4
4.6
11.3
29.4
8.5
10.1
89.%
189.%*
6O.%*
96.%
98.%
84.%
84.%
2.7
1.3
1.3
2.2
9.7
4.9
3.9
TOTAL EXPORTS
EXPORTS TO E.C.
% of TOTAL TO E.C.
1.3
1.7
1.3
2.2
9.4
4.5
3.6
48.%
132.%*
100.%
100.%
97.%
92.%
92.%
10.9
10.8
24.0
29.2
54.4
31.8
59.0
TOTAL EXPORTS
EXPORTS TO E.C.
%ofTOTALTOE.C.
5.3
4.0
1.2
8.2
25.0
16.9
10.0
49.%
37.%
5.%
28.%
46.~%
53.%
17.%
25.4
17.6
30.4
41.8
78.4
52.2
82.0
TOTAL EXPORTS
EXPORTS TO E.C.
% of TOTAL TOE.C.
21.3
17.2
26.4
41.0
76.0
51.2
80.4
84.%
98.%
87.%
98.%
97.%
98.%
98.%_
1.9
-
5.5
7.0
5.1
8.5
5.3
6.0
TOTAL EXPORTS
EXPORTS TO E.C.
% of TOTAL TO E.C.
1.5
4.6
4.6
4.0
8.2
4.3
4.9
78.%
83.%
65.%
78.%
96.%
81.%
81.%
1152.7_
1236.2
884.1
1150.1
1377.3
1466.9_
1692.9
TOTAL EXPORTS
EXPORTS TO E.C.
% of TOTAL TO E.C.
696.8
795.7
611.8
708.6
876.6
885.2
1028.7
6O.%
64.%
69.%
62.%
64.%
60.%
61.%
1 972/73
Soy Meal
Corn Gluten
1973/74 1974/75 1975/76
1976/77 1977/78
1978/7RV
~/ Data for 1978/79 are preliminary.
* Different shipping period caused difference.
PAGENO="0645"
637
APPENDIX TI-CoMMoN AGRICULTURAL Poucy1
The Common Agricultural Policy (CAP) forms a basic part of the European
Community or Common Market. The basic outlines of a common system of farm
support and protection were described in Title II of the Treaty of Rome, the
document establishing the Community. The CAP can be best described in terms of
three principles: common pricing, Community preference, and common financing.
Common pricing involves the establishment of a Community wide price system
whereby theoretically a single level of price support is supposed to apply for each
farm commodity throughout the Community. Similarly, there should be free agricul-
tural trade between Member States of the Community. However, in practice there
are large variations among national farm prices within the Community, and taxes
(and subsidies) are applied to intra-E.C. farm trade. Community preference insures
that domestic products will always have a competitive advantage over the imported
like product. Common financing requires the Community to fund any activity or
effort that may be required to effect the Common Agricultural Policy.
Almost all significant agricultural products are now covered by a common market
organization-that is, a CAP. The Common Agricultural Policy relies largely on a
price support policy to maintain farmer incomes; but indirect or deficiency pay-
ments, presently used only in limited cases, are gradually becoming more favored.
Also, with minor exceptions, the Community does not apply production quotas or
controls. The characteristic mechanism used to protect the Community price sup-
port system from imports is the variable levy.
The E.C. grains policy affords the best example of the operation of a common
market organization in the agricultural sector. It can be regarded as central to the
Community agricultural system because of its ramifications for derived products
and for competing corps.
The market for the most important grains is supported by government purchasing
of any amount offered at fixed support, or "intervention" prices. The intervention
price is somewhat below the "target" price, which may be described as the desired
wholesale price. The threshold price is equal to the target price, which is set for the
most deficit grain area at Duisberg, Germany, minus transport costs from Rotter-
dam.
Imports are prevented from selling at less than the target price because their
prices must meet the minimum import or "threshold" price. To insure that grains
do not enter below the threshold price, the Community calculates each day a
variable levy equal to the difference between the threshold price and the lowest CIF
offer price for grain, adjusted for quality. This levy is added to the CIF price. The
Community also makes use of export subsidies for grains or processed grain prod-
ucts, to relieve pressure on the internal market. Basically, these subsidies are set at
whatever level is necessary to enable the Community to compete in the world
market.
1~urce: Facts on Agriculture in the United States and European Communities, Office of the
Agricultural Attache, U.S. Mission to the E.C., Brussels, September, 1978.
PAGENO="0646"
638
APPENDIX III
The principal non-grain feed ingredients which could be con-
sidered for tariff or levy increases by the European Comrrn.*nity.
Tariff or Levy
CXT No. Product ~ GATT Binding
07.06 I~anioc Levy (6%) 6%
23.02 Al Braris of corn and rice Levy Not bound
23.02 All Brans of other grains
(including wheat bran) Levy Not bound
23.03 Al Byproducts of the starch
industry -- corn with
over 40% protein Levy Not bound
23.03 All Corn gluten feed (less
than 40% protein) Free Free
23.03 BI Byproducts of the sugar
industry, including
sugar beet pulp Free Free
23.03 BIl Brewers' byproducts and
other byproducts of the
starch industry Free Free
23.06 A Fruit residues, including
citrus pulp Free Free
23.06 B Other feed of vegetable
origin (EXCLUDING
oilcake and meal 4% 2%
Source: Corrmon Customs Tariff of the European Economic Community
STATEMENT OF DIAMOND/SUNSWEET, INC., STOCKTON, CALIF.
Mr. Chairman, we appreciate the opportunity to express views of Diamond!
Sunsweet, Inc., a major marketer of dried fruits and tree nuts in California, in
connection with the procedure by which the House builds a legislative history to
support what we hope will be acceptance by the Congress of the implementing
legislation now being developed in Committee.
The Tokyo Round of international negotiations represent clearly the ultimate
challenge to the imagination and resourcefulness of U.S. business and to the inter-
national community in attempting redefinition and restructuring of the "rules of
the road" for worldwide trade.
The language of the codes to be proposed to the Congress has been agreed to. Now
the Congress and the Administration must agree on the precise nature of the U.S.
statutory language need to implement them.
While the language of U.S. statutes will constitute interpretation in this country,
other nations can be expected to interpret the codes with probably different empha-
sis, and perhaps more aggressively. We believe, therefore, that U.S. statutes should
clearly defend U.S. producers and growers against unfair and illegal actions by
foreign governments and foreign countries whether such acts occur in this country,
in such foreign countries or in third countries. The language should be clear and
fair and not inconsistent with code language, and should in the most unequivocable
manner possible, the intent of Congress to defend its industries and growers against
illegal and prejudicial actions of foreign countries or companies.
At the outset, Mr. Chairman, permit me to recall that Diamond!Sunsweet, Inc.
interest in the entire MTN matter centers around the need for, and indeed the
obligation of, the United States to let nothing interfere with fair and responsible
access by domestic companies to foreign markets. Inevitably this includes increased
access where there is economic advantage and where export sales reflect that
advantage. This cooperative asks no favors; no subsidies, no special export incentive
PAGENO="0647"
639
prôgrãrns, not even tariff reductions though it will accept what was negotiated on
its behalf. Diamond/Sunsweet asks only that its government defend it against
efforts of foreign governments to disrupt its export trade by placing illegal or
prejudicial restraints on them, and putting them at risk by their adoption of their
own uneconomic production.
Fully 35 percent of Diamond/Sunsweet production is exported, and 50 percent of
that is to the EEC. It cannot survive the continuing harassment to which it has
been subjected during the past 3 years.
Mr. Chairman, as you know, Diamond/Sunsweet and other members of the indus-
try came before this subcommittee in 1977 to seek its support for House Resolution
238 which expressed its dissatisfaction with EEC regulations designed to interrupt
historic trade patterns for dried prunes, walnuts and certain other fruits and
vegetables. We appreciate your unanimous support and that of the entire House.
Combined with similar Senate action, the EEC backed off. We are grateful for your
support.
Yet, top officials of Diamond/Sunsweet and other representatives of the trade
returned only last week from a "fishing" expedition to Europe in an effort to
uncover the source of the latest clandestine effort by certain EEC interests to place
a "safeguard" tax on walnut exports from California (almonds and filberts were also
mentioned). Only after a 10 day effort, including visits to the trade, European
government leaders other than in France, and the EC Commission in Brussels and
our own mission in Brussels, was this group able to determine the nature of the
charge and temporarily forestall it.
The language of the codes negotiated by Ambassador Strauss and his dedicated
staff with consumate skill is statesman-like and broad. In that connection we would
summarize our views regarding the basic thrust of several of the codes and the
implementing language we support.
Section 301 of the Trade Act of 1974 is defective as a dispute settlement mecha-
nism. It is not a public process as it must become. It contains no time limits for
decisionmaking which is essential to commerical adjudicatory procedure. It contains
no recommendation to the President by the STR for resolution of any finding of
injury, nor any provision for public disclosure of action taken, or refused, by the
President, which we believe is crucial to the entire process. While such language
should be harmonized with the procedures under the subsidy code a resolution of
the dispute which defends domestic growers and producers by retaliation if needed
is requirement.
We commend to the subcommittee the language offered in 5. 538, and support the
published agreements by the Senate Finance Committee and this subcommittee.
Further we commend to you the language agreed to by both committees on the
Dumping proposals generally embodied in 5. 538. We do not believe there is any
compelling need for any injury test that is differenct in concept, and clear language,
of Section 201 of the Trade Act of 1974. In our statement before Trade Policy Staff
Committee of the STR on March 19, 1979 on behalf of Western Growers Association
of Newport Beach, California we described in detail our views on "Definition of
Industry," "Injury Test," and "Disputes Settlement Procedures," in connection with
anti-dumping proposals. We quote from that statement as follows:
"I. DEFINITION OF INDUSTRY
"Defining an `industry' for the purpose of determining whether subsidized imports
have caused or threaten injury should remain the comprehensive and flexible
process described in the Trade Act of 1974, Section 201, (b), (3) (C). Note should also
be taken of the language of 19 UST 4352, IAC Article 4, (a) (ii). With reference to
the IAC language, we believe the words `in exceptional circumstances' should be
stricken, and the words `or serving each market' be inserted in line 3 between
`market' and `regarded.'
"The compelling question in dumping matters is whether less than fair value
pricing by a foreign company or companies serves to disrupt and distort established
supply patterns, and thereby causes injury to U.S. industry or agricultural produc-
er. The compelling question involving use of government subsidies applied to com-
monly produced or grown products of foreign companies is whether such subsidies
serve to disrupt and distort established supply patterns in one or more markets in
the Untied States.
"We believe that the IAC and the subsidy/countervail code and in particular U.S.
statutes should be so constructed as to permit definition to include any producer or
grower or combination thereof who serves a regional market by producing or
growing within that regional market or who serves such regional market through
PAGENO="0648"
640
distribution to such regional market, and, to include any producer or grower who
serves a particular class of trade in the United States.
"The emphasis in these proceedings should be less on intricate formulae for
defining industry and much more on the trade disruption and distortion impact of
such LTFV sales or subsidized foreign products; loss of sales, loss of profits, inability
to attract capital and loss of domestic jobs. It is the predatory pricing feature
resulting from dumping and subsidized foreign products that is to be penalized
when unveiled.
"II. INJURY TEST
"As in the matter of industry definition, the measurement of injury must be kept
comprehensive and flexible. The standards to be matched, in our view, should be
illustrative but without precise numbers included. We share the view that an injury
test should not become an esoteric and academic analysis of the factors of produc-
tion and distribution. Any attempt to quantify and rank the elements, in toto,
which might contribute to injury, would end in fruitless and frustrating controversy
and would contribute nothing to resolution of the dispute.
"The language of the IAC, 19 UST 4351, Article 3, paragraph (a) is helpful. If the
word `the' in the second line were changed to `a' when modifying `principal cause'
an adequate and simple `Determination of Injury' requirement would have been
stated. If, under paragraph (b), the evaluation process includes such items as sales
trends, profit trends, market share, return on investment and employment as illus-
trative, not compelling, of injury analysis, a quite adequate and simple `valuation'
requirement would have been stated.
"We find adequate as well for injury determination purposes the Section 201, (b),
(4) of the Trade Act of 1974, `For purposes of this section the term "substantial cause"
means a cause which is important and not less than any other cause.' Since
all these disputes are matters of judgment, we feel language should stay away from
assigning specific values to the various factor.
"In view of the fact that no provision is likely to be made for assessment of double
or treble damages for trade disruption activities, we believe our statutes should
provide for relief of, or retaliation for, unfair trade disrupting and distorting prac-
tices of foreign companies or governments within the shortest possible time frame,
in accordance with simple automatic adjudicatory administrative procedures and
with the same kind of `transparency' this government historically has practiced and
which we all should endlessly urge all other nations to duplicate.
"Ill. DISPUTES SETI'LEMENT PROCEDURES
"We support all efforts to regularize trade disputes settlement through simple,
clearly stated administrative procedures, and with fixed time limits omitting most
previously granted discretion to mid-level government executives to decide issues
presented by U.S. citizens, and with publication of considerations and results in
each case, affirmatively or negatively.
"We commend to your attention to 5. 223, 5. 264, and 5: 538 in the Senate, and
HR 2612 in the House; all bi-partisan efforts to defend fairly U.S. growers and
producers from predatory pricing practices of foreign companies, and the subsidy
practices of foreign governments.
"In the most fundamental sense we believe that a policy of fariness and firmness,
exemplified by specific disputes settlement mechanisms that work, actually promote
trade. Application of simple commercial rules, including penalties, rewards and
procedures with a beginning and an end are constructive forces in internatinal
trade if achieved in an impartialforum and in the sunshine.
"On the other hand, use of wide discretion in government decision-making in such
matters has 2 basic flaws:
"A. U.S. trading partners, lacking a clear understanding of the rules guiding U.S.
policy (Treasury indecision and STR deferral) and prompted by their domestic
companies, may take political liberties (risks) which place trade entirely in the
political arena, and invites needless confrontation between governments. We view
this as an impediment to trade, a deterrent.
"B. U.S. petitioners are not now certain or satisfied that due process has been
achieved or whether their complaints have been dealt with on their merits, or
rather sacrificed for some unknown and perhaps unworthy cause, all done under
the guise of `confidentiality.'
"We submit that a simple procedure going to the heart of the impact of the
actions by foreign countries and governments in terms of trade disruption and
distortion, not endless verbiage, will in fact promote the interests of trade. Support
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641
by the STR for these key changes referred to above in implementing language
would insure acceptance by the House and Senate."
In further reference to import relief under Section 201, support the Senate Fi-
nance Committee agreement for an expedited procedure calling for a 90 day investi-
gation under certain circumstances. This procedure, however, does not reach certain
types of potential injury which can befall the perishable fresh fruit and vegetable
industry because of the very short season, perhaps 8-10 weeks. A sudden or continu-
ing surge of imports at peak domestic harvest could easily destroy domestic growers
however efficient they are. Such destruction of an efficient industry is not in the
best interests of the United States.
I recommend a special expedited procedure, therefore, for the fresh fruit and
vegetable industry, with the USITC completing the investigation within 20 days,
and the President to decide on appropriate measures 10 days after that in the case
of an affirmative USITC finding.
There are those who worry that "due process" will be denied in an investigation
of injury shorter than 1 year. We submit that due process is not a function of time,
but rather a function of diligence, fairness, availability of reliable data and a well
disciplined administrative procedure.
In that connection, our information suggests clearly that the USDA is presently
equipped to report fresh fruit and vegetable import data in whatever form needed
for use by the USITC to support or not a probable cause of serious injury well
within the 20 day period. The USITC has the experience. We know of no other
requirement except to draft the legislation and proceed to satisfy due process.
Fundamental to all investigatory and dispute settlement is a time schedule, and
public notice of progress and results, especially where commercial matters are
concerned. The experience of recent history clearly indicates chronic administrative
slippage by Treasury and other agencies. We are not interested in assessing respon-
sibility. A simple time schedule, continuing public notices and the support of an
aggressive and perceptive Congressional oversight activity should provide timely
resolution of alleged violations of U.S. statutes.
Some observers attempt to relate the results of the current MTNs to the U.S.
overall deficit trade balance and to judge the negotiations as a success or failure to
the extent that our exports will surge either a result of tariff cuts or as a result of
code interpretation by the United States and foreign countries.
Since an MTN is designed to "balance" concessions as between nations and among
nations, it would be reasonable to presume that the trade balance matter would
remain after the negotiation~ pretty much where it began. Therefore, we conclude
that the purpose of the MTNs was not to redress the international trade balance in
one nation's favor as against another, but perhaps to improve the quality of life for
all citizens of the world.
At the same time, the deficit trade balance clearly needs attention.
Our view is that the deficit is structural, and long term. It does not depend upon
the fluctuations of the international exchange rate of various currencies, nor should
it. What is desperately required is a mechanism to focus on the development and
implementation of a national trade policy. What is further needed is legislative
support for an expanded, imaginative, firm and fair and realistic export policy, such
legislative authorization is not now in place, and advantage should be taken of the
current and natural interest in the impact of international trade by Congressional
and industry leaders to push ahead with at least the beginnings or blueprint for a
national export policy.
This subcommittee has a Special Task Force chaired by Congressman James
Jones whose perspective analysis and reporting of trade barriers, in Japan for
example, has served well the public's need to know the barriers in place. The
Foreign Relations Committee of this House has issued a report delineating trade
export incentive progrranis put in place by our major trading partners. The GAO
plans to issue a report this summer further analyzing Japanese trade barriers.
We think the time has come to translate much of our information into practical
legislation. While we support a new department of international trade, we are
aware that substantial opposition exists in this House against any precipitous
action. Therefore, an intermediate course might involve putting into law certain
export incentive programs broadly discussed.
One such example is that proposed by Senators Bentsen and Danforth, 5. 1003. It
patterns some of its concepts after the French and Germans with respect to taxes,
and combinations of companies to operate overseas. It refers to Japanese practices
which may be germaine. None of them by themselves constitute a blueprint for the
United States. All of them do serve to highlight the nature of the competition which
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exists in the world vis-a-vis U.S. exports. We believe there are lessons worth learn-
ing. We believe that there are programs which can be enacted into law which can
make a major contribution toward redressing the adverse balance of trade which
the United States faces, and will continue to face.
Mr. Chairman, we appreciate deeply this opportunity to express our views.
STATEMENT OF MICHAEL L. HALL, PRESIDENT, GREAT PLAINS WHEAT, INC.
Our organization is pleased to have this opportunity to present our views on the
relative merits and deficiencies of the various provisions of the Multilateral Trade
Agreement Package under consideration by the Congress.
Great Plains Wheat (GPW) is a nonprofit, nonpartisan organization of U.S. wheat
farmers, organized through respective state wheat commissions in Colorado, Kansas,
Minnesota, Nebraska, North Dakota, Oklahoma, South Dakota, Texas and Wyo-
ming. The GPW foreign market development program for wheat is an ongoing
process, broad-based program of market intelligence, trade servicing, technical and
marketing assistance, and nutritional and related activities. All of these programs
are carried out by GPW on behalf of U.S. wheat farmers and under U.S. wheat
farmer auspices and approval in order to develop, expand and maintain foreign
markets for all five classes of U.S. wheats.
The GPW market development program is now entering into the third decade of a
very successful and rewarding effort for both the U.S. wheat farmer and the United
States. U.S. wheat farmers produce on the basis of efficiency and economies of scale,
looking to the export market for a signifcant percentage of their income. The U.S.
economy and balance-of-trade have benefited because of the export earnings from
U.S. wheat exports. For example, twenty years ago the United States was exporting
only around 400 million bushels of wheat. In this 1978-79 season, the United States
will export one billion bushels of wheat, a performance that has been achieved in
six out of the last seven years. Consequently, our organization is extremely interest-
ed in the outcome of the GATT negotiations because the international climate and
rules for trade in wheat will be affected by this GATT trade package for fundamen-
tal and genuine reasons.
In 1978 U.S. agricultural exports accounted for $27.3 billion, and were a major
factor in preventing an even greater trade deficit that year and offsetting to a
considerable degree the substantial pickup in U.S. imports, particularly petroleum
at ever increasing import prices. Although the overall quantity of U.S. agricultural
exports continues, its aggregate value remains constant or is declining by various
commodities because of depressed prices in the U.S. farm sector and a depreciating
dollar in the world money markets. Given these circumstances, the projected record
volume of about 122 million tons of U.S. agricultural exports in 1979 will account
for export earnings of around $30.3 billion-up about $3.0 billion from the $27.3
billion in 1978. U.S. wheat exports accounted for just under $4.1 billion of our
export earnings in 1978, which represents a substantial component in our agricul-
tural sector of U.S. total trade, or for about 15 percent of the total value of farm
exports, notwithstanding that the current value of wheat is down from the immedi-
ate past years.
To develop, maintain and expand foreign markets is not only vital to the overall
U.S. economy and balance of trade; it is crucial in order to maintain a healthy U.S.
wheat economy. And a vigorous U.S. export expansion program for U.S. wheat is
the most viable and significantly sustaining vehicle in which to travel on that road
to higher and more remunerative prices for U.S. wheat farmers. U.S. wheat farmers
want to produce for the export market because they have realized improved net
income during those seasons of sustained levels of wheat exports as a percentage of
total U.S. production and/or during those same seasons of sustained levels of U.S.
wheat exports as a percentage of total wheat trade.
It is difficult if not impossible to make an overall assessment of this GATT trade
package, a view that is shared by many observers because of the myriad of interna-
tional trade measures treated by this comprehensive set of negotiations commonly
called the Tokyo Round. This judgment or assessment process is the prerogative of
the U.S. Congress in ratifying the package. In addition, this process is made even
more difficult simply because the Congress must either accept or reject as a whole
the negotiated trade package. There is no opportunity for selected modification or
augmentation to the various provisions and measures in the package. Nevertheless,
the Congress will be developing enabling legislation to provide for implementation
by and participation of the United States in this International Trade Agreement.
This process would allow the sense and purpose of the Congress to be well expressed
in some troublesome areas of the trade package.
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643
With respect to the proposed GATT trade package, GPW is very concerned by the
apparent lack of any gains or benefis for wheat in the area of international trade.
Our organization is equally about the possibilities of potential set-backs in maintain-
ing a competitive posture and aggressive international trade policy for U.S. wheats.
This general judgment about the progress or gains for U.S. wheat in these latest
multilateral trade negotiations is based on four criteria, the purposes of which have
consistently been cited in support of the Tokyo Round:
(1) reduction or elimination of tariff or nontariff trade barriers;
(2) fair and effective competition for foreign markets;
(3) improved rules to govern the use of export subsidies;
(4) liberalization of international trading rules to facilitate expanded world trade.
Based against that set of criteria, there have been no gains for U.S. wheat
farmers for various reasons. And even at the concluding stages of the trade negotia-
tions in Geneva and the development of enabling legislation for the trade package
in Washington, U.S. wheat exports were and are faced with almost unbelievable
barriers that serve to prevent further growth in wheat trade in various markets,
and particularly developed country markets.
As you are well aware, both Japan and the nine-member countries of the Europe-
an Communities (EC) maintain exorbitantly high tariff or nontariff measures
against U.S. wheat exports. For the week of April 17, 1979, the EC variable import
levy against third-country wheat imports was a record high of U.S. $179.49 per
metric ton (or U.S. $4.88 per bushel). The landed price for U.S. wheat in Rotterdam,
The Netherlands, was only U.S. $150.50 per ton (or U.S. $4.10 per bushel) for U.S.
Dark Northern Spring wheat at 14 percent protein. Consequently, the EC processor
or consumer of U.S. wheat is required to pay an import tariff at the border 119
percent higher-yes, one-hundred and nineteen percent higher-than the actual
landed commercial value of the U.S. wheat.
Another example also serves to further underscore our view about the lack of any
progress for U.S. wheat farmers in the current round of trade negotiations.
Japan maintains in principle a similar restrictive import regime for wheat, not-
withstanding some difference in the mechanisms, vis-a-vis the European Communi-
ties. On the basis of wheat prices today and the rate of exchange between the U.S.
dollar and the Japanese yen, severe barriers are maintained by the Japanese Food
Agency (JFA) against U.S. wheat imports. During the week of April 17, 1979, the
landed value of U.S. Hard Red Winter wheat at 12 percent protein in Japan was
approximately U.S. $169.45 per ton (U.S. $4.61 per bushel). Nevertheless, the JFA, a
state monopsonistic buyer on the international side and a monopolistic seller on the
domestic side, resold that wheat at an average price of U.S. $320.00 ton (or U.S.
$8.71 per bushel). As in the case of the EC wheat import regime, the JFA assessed
an import tariff at the border of U.S. $150.55 per ton (or U.S. $4.10 per bushel). This
Japanese border tariff or duty is only 88 percent of the landed commercial value of
U.S. Hard Red Winter wheat in comparison with the EC import duty on wheat.
Consequently, the Japanese miller, and ultimately the Japanese consumer, are
forced to pay much higher prices for U.S. wheat because of Japanse tariff or
nontariff barriers against imported wheat.
With respect to the EC agricultural import system that employs variable import
tariffs against imported wheat, we believe it is significant to recite briefly the
international trade history that has resulted in a record import duty of 119 percent
against U.S. wheat. During the initial stages of the development of the EC Common
Agricultural Policy for Grains, the United States and the EC Commission signed an
exchange of letters on March 7, 1962, that mutually agreed that the United States
". . . shall have all the contractual rights held by them on quality wheat on
September 1, 1960". During the series of international negotiations for various
wheat agreements and the so-called Kennedy Round of multilateral trade negotia-
tions, the United States and the EC Commission mutually reaffirmed the U.S. grain
rights in a series of letters commonly called "standstill agreement". The United
States reiterated these grain rights on July 19, 1974, with respect to the enlarge-
ment of the European Communities from six to nine member countries.
The U.S. grain rights for wheat on September 1, 1960, were based on a fixed 20
percent import duty on U.S. wheat imported into Germany; a 30 percent import
duty in France; a 30 percent import duty in Italy; and a zero import duty in The
Netherlands and Belgium. That is to say, prior to EC membership and during the
late 1940's and 1950's, these countries agreed individually to bind their respective
import duties on imported wheats. The U.S.-E.C. standstill letters on these U.S.
grain rights confirm these (GATT) bound import duties, along with a mutual agree-
ment for negotiations on tariff schedule modifications under the GATT should the
EC CAP result in modifying the September 1, 1960, fixed import duties. A compari-
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son of the level of fixed import duties on wheat as of 1960 and the current level of
variable import duties based on April, 1979, prices is as follows:
1960 fixed level 1979 variable level
Percentage
S/By $/MT $/Bu $/MT increase
Germany
0.80
1.23
1.23
0
30.10
45.15
45.15
0
4.88
4.88
4.88
4.88
179.49
179.49
179.49
179.49
410
297
297
488
France
Italy
Netherlands
Belgium
0
0
4.88
179.49
488
Our organization is extremely concerned with the EC variable import levy mecha-
nism of the CAP on both imported wheat and corn inasmuch as it is this mechanism
that provides for the collection of receipts from which the EC Commission defrays in
large part the expenses for EC subsidies for European wheat exports. Moreover, we
are concerned that the U.S. negotiators may not have pressed their European
counterparts on this issue of the exorbitantly high import duties at the border
against U.S. wheat and the disruptive practice of subsidizing wheat to third-country
markets.
The fundamental concern and apprehension of our organization are over the
public and private assertions of EC Commission officials that the United States has
now accepted in principle and in fact the operations of variable import levies and
export subsidies as integral features of the CAP. These assertions from Brussels
suggest that the EC Council of Ministers has accepted the U.S. advocacy of the
current proposed code on export subsidies in return for the U.S. acceptance of
having U.S. industries prove "material injury" before the U.S. Government would
impose countervailing duties against directly subsidized exports to the United
States. There is a strong concern that this code also contains an inherent acceptance
of market sharing by the major trading countries in the world. Consequently, the
proposed GATT negotiated code on export subsidies and countervailing duties be-
comes the essential baseline from which U.S. wheat farmers assess the multilateral
trade package as they look to the export market in the decade of the 1980's.
1. Subsidy and countervailing duties code.-The provisions of this proposed code
do not appear to address the fundamental causes for which they were advanced for
negotiation in the current round of international trade negotiations. Unless the
proposed code places a genuine restriction on the use of export subsidies, little
would be gained for the United States to accept anything less than an outright
prohibition on this exporting practice. Failing the willingness of other countries to
accept full responsibility to prohibit at best or restrict at least the use of export
subsidies, then the best code for the United States would be simply to put into place
a selective wheat export subsidy program to offset and counteract any such practice
by competitive wheat exporting countries.
A. We are concerned too with the apparent interlocking provisions of the pro-
posed code with proposed international commodity arrangements or other GATT
instrumentalities. It is not clear in the language of several public documents wheth-
er the issue of export subsidies would be considered and resolved under the auspices
of 1~he proposed GATT consultative council on international commodity agreements
or under the prevailing commodity agreement for wheat. Neither a procedure nor a
time frame is clearly defined for such resolution of trade disputes, an area that
could be addressed in the enabling U.S. legislation.
B. The draft language in the subsidy code that would apparently modify Article
XVI of the General Agreement on Tariffs and Trade strongly suggest an acceptance
of market sharing by the United States. Moreover, it suggests that some countries
would be permitted to continue to subsidize agricultural exports in order to be
competitive to maintain a predetermined share of the market. Such phrases as
"equitable share of world export trade"; "bearing in mind the development on world
market"; "normal market conditions"; and "prices materially below those of other
suppliers" are simply qualitative criteria over which little, if any, agreement could
ever be reached between countries in disputes over the injurious effect of export
subsidies. The use of such qualitative criteria in the language of the proposed
subsidy code only confirms the unwillingness of some major exporting countries to
participate in such an agreement wherein which precision and specificity would
prevent their use of export subsidies.
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C. In addition to our concern over such undefined criteria, we believe that it is
extremely important for the United States to preserve its unilateral freedom of
choice to implement export subsidies for wheat and other commodities when faced
with severe and unfair subsidized competition for foreign markets. In this regard,
we would like to note that our organization filed a Complaint under Section 301 of
the 1974 Trade Act with the Office of the Special Trade Representative. This
Complaint was filed on November 2, 1978, about the sustained use of wheat export
subidies by the EC Commission. A complete file of this Complaint was published in
the December 2, 1978, issue of the Federal Register, the purpose of which was to
announce public hearings on the 301 Complaint on February 15, 1979. Our organiza-
tion has not received any official response to our Complaint about this disruptive
practice of EC wheat export subsidies to third-country markets.
D. In order to appreciate U.S. wheat farmer concern about wheat export subsidies
or an international code on subsidies, it is important to understand the direct
income effect on U.S. wheat farmers from uncontested and unchallenged subsidies
from other countries.
During January 1979, the EC Commission established a record high for wheat
export subsidies, placed at 80 units-of-account or equivalent to about US$131.20 per
metric ton (or US$3.57 per bushel). At that time, the authorized level of EC wheat
export subsidy was just about equal to the commerical value of the commodity at
port shipping positions in Europe. In order to meet the subsidized competition for
foreign wheat sales from the European Communities at that time, other competitor
countries began to discount the export prices of wheat. The Argentine National
Grain Board reduced the minimum export clearing price for wheat down sharply
from the previous level of US$146.03 per metric ton (or US$3.97 per bushel) to
US$130.00 per metric ton (or US$3.54 per bushel). The Canadian Wheat Board
(CWB) sold sizable quantities of Spring wheat at prices apparently discounted by
approximately US$6.50 per ton (or US$0.18 per bushel) compared with U.S. Hard
Red Winter wheats at the Gulf. Australia made sizable sales to the People's Repub-
lic of China at prices reported at US$124.00 per metric ton (or US$3.40 per bushel)
at Australian export positions.
Consequently, the EC wheat export subsidies, relatively small in volume as a
percentage of world wheat trade, was much like dropping a price pebble in a placid
pond. The rippling effect was tremendous inasmuch as the Common Market wheat
export subsidies broke the international wheat price by US$10.00 to US$15.00 per
ton (or US$0.25 to US$0.40 per bushel) over the past several months.
E. Although the matter of countervailing duties is not of direct and immediate
concern and consternation to U.S. wheat farmers as is the matter of export subsi-
dies, it is conceivable under an extremely unfortunate set of circumstances that U.S.
wheat farmers could be called upon to request countervailing duties against import-
ed wheat or wheat flour products. It is our position that the only test that should be
required is to determine whether a commodity or a product receives an export
subsidy into the U.S. market before countervailing duties are imposed. For the
United States to agree to include a domestic injury test in such a countervailing
duty code is only to complicate, confuse and ultimately obscure the real issue under
examination: whether a commodity or product receives an export subsidy at what-
ever level in order to be competitive in the U.S. market. To determine domestic
industry injury is extemely difficult because of many economic and social factors;
therefore, any product or commodity determined to have received an export subsidy
should immediately be faced with a comparable U.S. countervailing duty at the
border.
2. GATT consultative council on international commodity agreements-We have
expressed reservations about and objections to various aspects of the proposed code
on export subsidies and countervailing duties. They are compounded by the appar-
ent comprehensive set of interlocking commodity agreements for dairy, meat and
sugar products as well. The proposed international commodity agreements for agri-
cultural commodities range from one containing a comprehensive schedule of fixed
minimum and maximum prices to be adjusted on the basis of quality differentials at
identified FOB positions to several ones that are only consultative in nature. It is
difficult to determine the role and function of such a proposed GATT Consultative
Council on International Commodity Agreements. But the role and function of such
a proposed Council take on a greater significance with respect to the code on export
subsidies and countervailing duties as this code appears to be the controlling docu-
ment over the operations of the proposed international commodity agreements. We
believe that additional explanation and clarification are required before anyone
were to advise in favor of the United States entering into that proposed agreement,
and particularly because of the draft language therein that would require partici-
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pating countries to submit any proposed changes and modifications of national
agricultural production and trade policies to that council prior to the implementa-
tion of such new programs.
CONCLUSION
With respect to our views on the proposed subsidy and countervailing duty code
and the GATT Consultative Council for International Commodity Agreements, we
fail to see any overall achievements in facilitating the expansion of market access
for either U.S. wheat or feed grains. Nor do we believe that there has been any
movement towards a freer international agricultural system by the lowering or
removal of many import barriers to U.S. wheat and feed grain exports. Quite the
contrary! There appears to be an evolving U.S. acceptance of highly protected
import constraints for wheat and other agricultural commodities in other countries,
complicated by the use of disruptive export trading devices to ameliorate chronic
surplus production of agricultural products, particularly in the grains sector.
We realize that there are other commodities and products, industrial and agricul-
tural, for which the United States may well have obtained meaningful concessions
from other countries for greater access to foreign markets through either the
reduction or elimination of nontariff barriers, tariff barriers or both. These gains in
obtaining greater foreign market access for various speciality crops, meat, citrus
and tobacco are significant. In addition, there appears to be some achievements in
obtaining greater foreign market access for U.S. rice exports, particularly to the
Common Market. These gains for the United States must ultimately be weighed
against the concessions either received or granted by the United States with respect
to the predominant export earning crops such as wheat, feed grains and soybeans.
The gains in the industrial sector must be weighed against the gains or losses in the
agricultural. This judgment or assessment must be made by the Congress. Because
of the lack of progress for U.S. wheat based on the four criteria identified at the
outset of this statement and the genuine potential for set-backs in the future with
respect to sanctioning unfair competition, our organization must conclude that there
is little, if any, demonstrable benefits in this GATT trade package for U.S. wheat
farmers. And on a broader level, we fail to understand the assertions that this
proposed trade package will serve to abate the rising tide of trade protectionism
around the world. Based on our assessment, this proposed trade package could well
serve to provide the international sanction for and acceptance of the current trade
protectionist patterns and regimes. This implied acceptance of such practices would
only lead to more protectionist measures by our trading partners under the hollow
allegiance to freer and fairer trading principles, all of which are currently prevail-
ing in the area of international trading of wheat and grains.
STATEMENT OF THE GTE PRODUCTS CORP.
GTE Products Corporation ("GTE") is a wholly-owned subsidiary of General Tele-
phone & Electronics Corporation. GTE manufactures and markets a wide variety of
products and services in the United States and in foreign countries to the private
(consumer and commercial) and governmental sectors. GTE imports and exports
articles in both finished and unfinished states; it competes in markets that are
sensivitve to import competition and in markets that present significant export
opportunities. GTE employs nearly 100,000 persons in its domestic and international
operations; its, sales during 1978 were $4.1 billion.
I. GENERAL POSITION
Among the goals of the United States during the multilateral trade negotiations
("MTN") were the expansion of opportunities for United States commerce in inter-
national trade and the maintenance of a disciplined, open-world trading system.
GTE believes that U.S. labor and industry can benefit from liberalized international
trade and that a resurgence of a protectionist trade philosophy is to be avoided; but
only if the United States follows a dedicated tough-minded approach to assure that
it receives the commercial benefits for which it negotiated. To that end, GTE
supports the following positions:
Expansion of section 301.-Amend Section 301 of the Trade Act of 1974 (19 U.S.C.
2411) to allow interested U.S. parties:
(i) To file complaints against foreign practices which violate the Codes;
(ii) To participate in complaint investigations; and,
(iii) Most important, to obtain from the U.S. Government information necessary
or appropriate to determine whether U.S. benefits under the Code are being im-
paired by foreign practices.
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Creation of Trade Department-Create a separate, cabinet-level department of the
executive which would coordinate U.S. trade policy among the 57 agencies presently
handling international trade, and which would effect trade policy without the need
of interagency review and prior approval. Such a department should be charged
with obtaining, more efficiently than under the present system of inter-agency
negotiation and accommodation, Code benefits due to U.S. commerce.
Continuation of dispute resolution agency.-Continue the International Trade
Commission ("ITC") as an independent agency to resolve, in conformance with
applicable Codes and applicable U.S. laws, unfair trade practice and other issues
concerning foreign trade.
The ITC would continue its present cease and desist (and contempt) power over a
non-Code matter. It would also find fact and recommend to the President (and, at
the president's direction, order) remedies to proscribe the adverse affect of a foreign
trade practice which violates a Code or implementing law, if that practice is not the
subject of, or is not satisfactorily resolved through, a dispute settlement mechanism.
The ITC would also serve as the surveillance arm under GATT and the Code dispute
settlement procedures.
End bifurcated proceedings in countervailing duty and antidumping matters.
Expansion of Presidential retaliatory power. -
(i) Allow the President to take timely and effective retaliatory action in the event
that a Code dispute settlement mechanism is not available and/or fails in its
essential purpose and foreign practices are found to impair the flow to the U.S. of
Code benefits in the U.S. domestic market or in a foreign country; and,
(ii) Allow the President to take retaliatory action, on a country-by-country and
product-by-product basis with respect to each Code to which a foreign country is a
signatory.
Provisions for public information-Provide greater availability of information to
the public with respect to trade matters being discussed between the U.S. and a
foreign country.
Promulgate appropriate rules concerning ex parte conversations (during the pend-
ency of adjudicatory or other administrative proceedings) involving a U.S. Govern-
ment entity and representative(s) (private or official) of foreign trade, to provide
that when such conversations take place, there be promptly made public a fair
summary of such conversations, including identification of the parties taking part in
such conversations.
International trade as an important policy matter.-
(i) Require that an administrative agency include as part of the economic impact
study undertaken prior to the promulgation of regulations, a study of the impact of
the regulations on U.S. foreign trade;
(ii) Express in the history of appropriate implementing legislation that the U.S.
intends affirmative assistance to and the development of U.S. exports; and
(iii) Avoid the use of trade policy as an adjunct to other U.S. policies such as
foreign relations.
II. POSITIONS WITH RESPECT TO IMPLEMENTING LEGISLATION FOR SPECIFIC CODES
GTE believes that the MTN implementing legislation, or future legislation con-
cerning foreign trade, should encompass the concepts contained in the following
comments.
A. Antidumping
I. Injury, causation, similar product-With respect to determining the existence
of injury, criteria should be flexible enough to allow evidence of injury which may
be peculiar to an industry; undue weight should not be given to any specific
criterion. Also, proof of injury should not depend on whether there exists a relative
or absolute increase in dumped imports over a particular period. As qualified by
these comments, the criteria set forth in the Senate Finance Committee statement
of April 5, 1979, are acceptable.
As to causation, the dumped imports should be a substantial cause of injury if
there exists more than one cause; that is, the dumped imports should be a substan-
tial cause when compared to any other cause, but it may not be the only or most
important cause. Within these criteria, the injury is "by reason of' the dumped
imports as required by the Countervailing Duty Code. (We understand that the
injury and causation sections of the U.S. Antidumping law will be modifided to
conform to those same sections in the Countervailing Code. Also, it is our under-
standing that the Causation definition in the Countervailing Duty Code would allow
for several coexistant causes of injury and that the preceding comments about
causation would be consistent with the Code).
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The term "similar products" should be defined to include products with character-
istics substantially similar to those under consideration, in addition to, rather than
as an alternative to, identical products, if there is a significant degree of commerical
interchangeability between the identical and substantially similar products.
2. Montoring LTFV activity after termi~zation of finding-For at least three years
after a final dumping finding is terminated, the administering authority should
monitor the importation of merchandise which was subject to the determination:
(i) If less than fair value ("LTFV") sales are found during the monitoring period,
and antidumping investigation with respect to injury should be initiated promptly.
(ii) In the event that a final dumping finding is terminated because LTFV sales,
although present and continuing, do not give rise to an actionable level of injury,
and if during the monitoring period such LTFV sales again reach an actionable
level of injury, the dumping finding should be reinstituted.
3. Effect of discontinuance of antidumping proceeding on other matters.-A final
negative determination with respect to (or the discontinuance of) an antidumping
investigation should not require termination of a separate investigation with respect
to the same class or kind of merchandise. For example, assuming bifurcated anti-
dumping proceedings continue, a notice by Treasury to the ITC of discontinuance of
an antidumping investigation should not require that an ITC investigation with
respect to the same class of goods (other than an investigation undertaken pursuant
to the antidumping statute) be discontinued.
4. Equalizing certain rights of importers and domestic manufacturers.-In order to
improve the enforcement mechanism for the assessment and collection of special
dumping duties, Sections 514-516 of the Tariff Act of 1930, as amended, and Title 28
of the U.S. Code with respect to subject matter jurisdiction and powers of the
Customs Court, should be amended as follows:
a. Amend Section 514 (19 U.S.C. 1514) to provide for members of an injured
domestic industry a formal role in the process of assessing special dumping duties
and in the administrative review of an importer's protest from a dumping assess-
ment. In this way, customs service will gain the special knowledge and expertise
which members of the domestic industry can contribute to the complex assessment
calculation.
b. Amend Section 516 (19 U.S.C. 1516) to balance between importers and the
domestic industry the availability of administrative review. A domestic manufactur-
er should have the right to protest, at least annually, a determination by the
Secretary of Treasury as to the proper amount of duty due on an imported item
with respect to as many entries as necessary to correct assessment errors which
work to its detriment. Presently, Section 1516(c) allows a manfacturer to contest
only one entry per port of entry. Where there do not exist legal or factual issues
which are common to all entries adversely affecting the domestic manufacturer (as
is likely in a complex dumping case) this test-case method of protest is ineffective.
c. Amend Section 516(g) to allow a Customs Court order, which upholds the
protest of a domestic manufacturer to a dumping duty assessment, to be retroactive
to the date of the incorrect appraisement. Presently, if a manufacturer successfully
challenges a duty determination via a test case, only merchandise entered for
consumpition (or withdrawan from warehouse for consumption) after the date of the
Customs Court order overruling the challenged determination, is subject to the
correct appraisement. All past unliquidated entries and all entries up to the date of
the Court order must be liquidated in accordance with the overruled assessment.
d. Amend Section 516(a) to give the domestic industry access to information
needed to evaluate properly the methodology and factual basis for a Customs
assessment action. Such information may be made subject to appropriate protective
orders. Present law provides only the the domestic industry may be told the amount
of the special dumping duty assessed.
e. Expand the subject matter jurisdiction of the Customs Court and specifically
give that Court equity powers to deal with the broad range of issues which will arise
if the administrative review provisions of the Tariff Act of 1930, recommended
above, are adopted. Also, the Court specifically should be given powers to issue
injunctive orders and writs of mandamus against government officials in appropri-
ate cases. The Court should also have authority to order the withholding of ap-
praisement on merchandise and to compel the assessment and collection of special
dumping duties.
B. Subsidies and countervailing measures
1. Injury, causation, and similar product-Place in the subsidies legislation the
same injury, causation, and "similar product" criteria as discussed in item II. A.1. at
page 5, with respect to Antidumping.
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2. Regional industry concept.-Provide a regional industry concept whereby if one
or several producers sell all or a substantial portion of their production in a distinct
region of the United States which region constitutes an isolated market from other
regions of the United States, then such producer or producers may be considered as
a separate industry. Such a regional industry concept should continue in the Anti-
dumping law.
3. Public information-Provide public information in the countervailing duty
("CVD")/subsidy context as discussed in item I. at page 4, above, with respect to
Antidumping.
4. Monitoring subsidy activity after termination of finding.-In cases where a final
CVD determination is terminated, provide a monitoring system with respect to the
existence of subsidies and to injury which may be caused by subsidies, similar to the
monitoring system discussed in the Antidumping context at item II.A.2. at page 6,
above.
5. Limitation on terminating a CVD finding-A final CVD determination should
not be terminated so long as exports by a United States industry are being impaired
by shipment of the subject subsidized articles to export markets of the U.S.
C. Customs valuation
1. Reasonable means valuation.-The implementing or companion legislation
should not proscribe the duty of customs officers to ascertain the foreign market
value or constructed value of articles "by all reasonable ways and means" in certain
antidumping situations. (See 19 U.S.C. 168.)
2. Assists-An importer in a arm's-length transaction with a foreign exporter to
the U.S., should not have to account for the value of assists provided to such
exporter by such importer.
3. Confidential information-Confidential information supplied to Customs by a
private party should be made available to a non-U.S. Government party but only
under an appropriate protective order from a court of competent jurisdiction.
D. Government procurement
1. Equitable treatment by signatories-Signatory countries which exclude U.S.
competition from procurement by their government-owned or controlled telephone,
postal, or other such entities, or which discriminate against U.S. competitors in any
way associated with their government's procurement process, should not be granted
any right under the Code to bid for U.S. Government contracts at specified entities
or, alternatively, for U.S. Government contracts covering the same class of products
which such countries exclude or against which they discriminate. The intent should
be to secure as much trade opportunity (on an absolute or fair relative basis) for the
U.S. as the U.S. gives to each other signatory.
2. Equalize social engineering costs-Legislation should be enacted to require U.S.
Government contract officers to equalize bids between U.S. and foreign competitors
so that accounting regulation costs and social engineering costs (such as those
associated with EEO, OSHA, and EPA), which must be borne by U.S. firms but not
by foreign firms, do not put U.S. businesses at a competitive disadvantage.
STATEMENT OF FRANK CASALE, GENERAL PRESIDENT, INTERNATIONAL LEATHER
GooDS, PlAsTIcS & NOVELTY WORKERS' UNION, AFL-CIO
I. INTRODUCTION
My name is Frank Casale. I am General President of the International Leather
Goods, Plastics and Novelty Workers' Union, AFL-CIO. I want to record the strong
concerns of our member workers in handbag factories that legislation to implement
the multilateral trade negotiations must be drawn so as to ensure a more effective
mechanism for relief against unfair subsidized imports than now exists under the
current procedures for implementation of the countervailing duty statute.
In this connection, firms and workers in our industry have repeatedly turned to
the Executive Branch seeking redress'against subsidized imports through imposition
of countervailing duties provided for by Congress. Unfortunately, our experience has
been that the industry has been unjustifiably denied this means to offset unfair
import competition as Congress clearly intended and American workers expected by
the provisions of the countervailing statute. Therefore, we believe it is critical that
the future statute which results from the new international code on subsidies and
countervailing duties should be placed under the administrative responsibility of an
agency other than the Treasury Department. Based on our industry's deplorable
experience, that Department has been guilty of woeful mismanagement of the
current statute. It has clearly misused its statutory authority. This has been demon-
L~14_998 - 79 -
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strated numerous times by Treasury's unjustified waiving of the imposition of
countervailing duties, even though Treasury's own investigation had determined
that practices exist in foreign countries that are clearly bounties or grants and
therefore countervailable within the meaning of the countervailing duty statute. In
at least 2 cases involving a leather product, though not handbags, Treasury even
exceeded the timetable specified for final determinations in the statute. This is
indicative of that Department's sloppy management procedures. Treasury has
shown a disposition to make decisions based more on foreign policy considerations
than on economic facts. How else can one react to its negative findings in several
handbag cases where various offsets were calculated to reduce the net bounty to a
de minimis determination?
II. HANDBAG INDUSTRY HAS BEEN CRUELLY BUFFETED BY IMPORTS
1. There has been serious erosion of jobs and firms
Many industries in the United States confront competition from imports, but few
industries have experienced so devastating a toll in the loss of over one-fifth of all
manufacturing establishments and of production workers' jobs under pressure of
imports as has the United States handbag industry. Although 1976 is the last year
for which official data are available regarding domestic shipments these data as
well as later estimates give evidence of a serious structural deterioration in the
handbag industry. For the decade between 1967 and 1976, Bureau of Census data
reveal that output fell dramatically by 24 percent while imports increased by 128
percent in volume and a staggering 312 percent in value so that the import penetra-
tion rate nearly tripled. It amounted to nearly 30 percent on a value basis and 53
percent on a quantity basis in 1976, but since then, erosion of the industry as a
result of imports has become even more devastating.
Comparing 1978 with the preceding year, imports rose 50 percent, while estimated
domestic production showed a critical decline. The value of shipments rose only 5.3
percent while units of output actually declined by around 2 percent. As a result,
imports have taken an even heftier slice of the domestic market, accounting for 64
percent of the market in 1978 against 57 percent in 1977 on a quantity basis.
Measured on a value basis, imports accounted for 39 percent in 1978 against 31
percent in the preceding year. Obviously, no industry can withstand such persistent-
ly injurious import competition and still survive. The handbag industry is no excep-
tion. -
It needs to be stressed that the gains made by imports at the expense of domestic
production and employment are not due to style or quality but primarily are due to
price advantages which in turn can be attributed to lower foreign labor costs, and,
especially, the benefits enjoyed by many foreign suppliers due to the subsidies
received under foreign government incentive programs.
Labor represents from 20 to 25 percent of the cost of handbag production and
therefore the disparity between U.S. and foreign wage scales constitute a significant
competitive factor. The wide gap is reflected in unpublished data of the Labor
Department which show that in 1976, estimated hourly compensation in the leather
products industry (including all fringe benefits) amounted to $4.25 in the United
States, but only 63 cents in Brazil, 46 cents to 50 cents in Korea, and 47 cents to 49
cents in Taiwan.
Imports have also been stimulated by the U.S. tariff cuts in the Kennedy Round
which sliced the U.S. import duty on leather handbags by 50 percent. However, the
most significant stimulant to imports, particularly from the developing countries,
has been the maintenance by foreign governments of export incentive programs
benefitting their producers and exporters of handbags. These have contributed to
the burgeoning levels of imports of handbags and have created major disruption to
the domestic industry.
It should be kept in mind that the domestic handbag industry, though relatively
small in comparison to many other industries, takes on added significance by virtue
of several distinguishing characteristics.
It is heavily labor-intensive. Some three-fourths of its workers are black or His-
panic origin. The labor force, moreover, is predominantly semi-skilled, with women
constituting 65 percent of the total.
Manufacturing is carried on principally in several states on opposite coastlines.
However, the heaviest concentration is in the metropolitan New York area, mainly
in New York City. Since 1972, based on official Census data, it has been estimated
that some 5,000 handbag production jobs have been lost which has meant unemploy-
ment for perhaps double that number of workers in the industry as a result of the
closing of companies. There were 496 handbag establishments in 1967; fewer than
400 now remain.
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2. Export subsidies have not been remedied through Treasury's implementation of
countervailing duty statute
Particularly the developing country suppliers have used export incentive pro-
grams to undersell U.S. handbag producers and thus capture a larger share of our
market. Domestically produced handbags compare favorably with foreign made
merchandise on the basis of style and quality. However, foreign suppliers have been
able to penetrate the U.S. market in leather, vinyl and all other types of handbags,
not only because they have definite advantages in terms of lower wages but most
unfairly, they have the unwarranted advantage of the substantial export subsidies
provided to them by their governments.
Treasury has acknowledged such subsidies exist and provide significant unfair
competitive advantages to the foreign suppliers by its affirmative countervailing
duty decisions with regard to leather handbags from such countries as Colombia,
Uruguay, and Brazil. In all three cases, however, Treasury has seen fit to waive the
imposition of countervailing duties because it obtained certain assurances from the
supplying countries that these subsidies will be eliminated. In our opinion, such
foreign assurances have been vague, inadequate and not in accordance with the
Congressional intent. In their effect, these separate waiver actions by Treasury have
been clear rebuffs to the domestic industry in its efforts to stay afloat against low-
cost, low-wage and subsidized imports.
Such actions in handbag countervailing duty petitions make it apparent that
Treasury regards a countervailing duty more as a restriction on competition than as
a corrective action against unfair competition in our market.
III. TREASURY HAS EXERCISED VAST DISCRETIONARY AUTHORITY IN ITS IMPLEMENTATION OF
THE COUNTERVAILING DUTY STATUTE
1. Calculating net subsidies has resulted in negative findings
This is reflected in Teasury's policy, which they justify as provided for in the
countervailing duty statute, of reducing the gross amount of subsidy by various
offsets. Although in most cases the reductions are in the form of indirect taxes
related to the product which receives the subsidy, Treasury has found some rather
exotic items with which to reduce the subsidy. These include, in the case of the
waiver on handbags from Colombia, the effects of the devaluation of the peso on the
grounds that the Colombian Government allows as much as nine months to elapse
before subsidies are paid. In this case Treasury even reduced the subsidy by the cost
of the interest on the money not received by Colombian handbag producers and
exporters during this nine-month period. Treasury describes this offset in the Feder-
al Register of May 2, 1978 as "the present value effect of the (exporter's tax
certificates) resulting from the inflationary impact on . . . delayed payment." Fur-
thermore, since these exporter's tax certificates are sold in the Bogota Stock Ex-
change, Treasury also allowed as an offset the "discount paid by holders of (export-
er's tax certificates) in the stock exchange, thus effectively not providing full value
of the (exporter's tax certificates) once sold." It is interesting to note that several of
these offsets were disallowed in a more recent case involving Colombia textiles and
apparel, and when this was called to Treasury's attention, the Department had no
recourse but to go back to its earlier decision and recompute the countervailing
duties on Colombian handbags.
It is so important to recognize that the reductions which Treasury makes in the
subsidy through subtracting the indirect taxes related to the products, ignore com-
pletely the fact that in virtually all of the foreign counties concerned these indirect
taxes would have been borne by the manufacturer even in the absence of the
subsidy program, and that the subsidy program clearly is intended to give the
foreign manufacturers an edge in selling to the U.S. This is exactly what the
countervailing duty statute is aimed at offsetting, but Treasury nevertheless goes on
deducting these indirect taxes to the point where many negative or de minimis
determinations result or the countervailing duty is significantly smaller than it
should be.
2. Accepting unverified information as basis for decisions
In another handbag case-relating to handbags from Taiwan-brought to Treas-
ury jointly by the International Leather Goods Plastic and Novelty Workers' Union,
AFL-CIO and the National Handbag Association, Treasury found that that Taiwan-
ese handbag industry had received de minimis aggregate benefits from the Govern-
ment of the Republic of China, but that indeed three Taiwanese firms had recieved
benefits considered to be bounties or grants within the meaning of the countervail-
ing duty laws. Such benefits were preferential short-term finance, income tax holi-
days and incentives for firms located in export processing zones. As a result, on
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June 3, 1977 Treasury assessed a countervailing duty on shipments from these three
Taiwanese handbag manufacturers.
However, on the basis of information presumably received from the Government
of Taiwan, Treasury later announced the lifting of the countervailing duty on two of
these companies and Treasury also announced that benefits received by a third
company were now considered to be of a de minimis nature. In short, by its
announcement in the Federal Register of November 23, 1977 Treasury revoked the
original countervailing duty order published in the Federal Register of June 3, 1977.
Clearly, such back and forth decisions by the Treasury Department, based on
unverified information received from foreign representatives, are objectionable and
do an injustice to the workers in an industry such as ours who have been so cruelly
buffeted by subsidized imports.
3. Treasury has misused its waiver authority
This Subcommittee has had brought to its attention numerous examples of Trea-
sury's misuse of its waiver authority. However, one of the earliest and most glaring
examples of such misuse was the action of the Secretary of Treasury Simon on May
11, 1976 to suspend the 14 percent U.S. countervailing duty on Brazilian handbags
effective July 1, 1976. Ostensibly this action was taken on the basis of Brazilian
government assurances that it would phase out its export subsidies on handbags
over an 18 month period beginning July 1. In reality the Secretary made his
decision following a visit to Brazil where there was discussed various trade policy
matters and where obviously the handbag waiver decision was part of a negotiated
"deal" with the Brazilian authorities.
U.S. workers and firms in the handbag industry strongly objected to that waiver
action by Secretary Simon on the basis that the action was inconsistent with the
provisions of the Trade Act.
Congress provided that three conditions had to be met, at least two of which were
not in this case, before the Secretary of Treasury could waive the countervailing
duty.
Condition one requires a determination that "adequate steps have been taken to
reduce substantially or eliminate the adverse effect of the bounty or grant". Treas-
ury made no investigation of the effects of its action on the state of the health of
the handbag industry. No inquiries were made of the industry to see what the
effects of the action might be as was clearly the intent of Congress in the Trade Act
with regard to all import actions affecting an industry.
Condition three requires a determination that "the imposition of countervailing
duties would be likely to seriously jeopardize the satisfactory completion of (the
multilateral trade) negotiations". Certainly, the attitude of Brazil, even as one of
the leaders of the developing countries, would not affect the outcome of these trade
negotiations and it is difficult, therefore, to see now the U.S. countervailing duty on
handbags could at that time have been considered by the Treasury Department to
"seriously jeopardize" the satisfactory conclusion of trade negotiations in which
Brazil could gain much but had little to give. Could anyone have reasonably deter-
mined in 1976 that the MTN negotiations were going to succeed?
In light of the above, the domestic workers and firms in the handbag industry
considered the Treasury action as grossly unfair and unwarranted. Keeping in mind
that Brazil in just a few short years had increased its leather handbag exports to a
level making it one of the top foreign suppliers, clearly Treasury's 1976 waiver of
the imposition of countervailing duties on Brazilian handbags had a serious adverse
impact on domestic production and jobs in the domestic handbag industry.
IV. IMPLEMENTING LEGISLATION MUST ENSURE MORE EFFECTIVE RELIEF AGAINST UNFAIR
IMPORT COMPETITION
Handbag workers are not in disagreement with the aim of the multilateral trade
negotiations, in that they represent a major international effort to control a broad
range of government policies regulations and other actions that tend to restrict
trade, whether or not designed for that purpose.
We think it entirely proper and desirable that the U.S. and other countries should
seek to adopt mutually beneficial rules and procedures to deal with international
trade problems such as those relating to product standards, customs matters, safe-
guard actions, government procurement and especially in the important area of
subsidies and countervailing duties. Indeed, the avowed aim of the latter code,
which is to control and restrict the international use of subsidies in international
trade, is a commendable one. Yet, rhetoric apart, the real influence of the subsidies
code and the other international codes of conduct will depend to a significant
degree, not on the language of the codes negotiated in Geneva, but on their imple-
menting legislation, how the codes are administered by the U.S. and foreign govern-
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ments, and how they are interpreted internationally through decisions and actions
by GATT institutions.
Workers in the handbag factories whose livelihoods have been jeopardized by
unfair import competition resulting from the prevalent use of export subsidies by
foreign supplies in our market, are fearful that the implementing legislation which
this Committee and the Senate Finance Committee are now considering with the
Administration may further dilute the present mechanism, even though admittedly
weak and ineffective as it is now. Our concerns in this regard have been generated
by what we see in the preliminary decisions taken by this Committee and the
Senate Finance Committee in shaping a future countervailing duty statute through
implementing legislation. Specifically, we are concerned over the implications of the
following provisions now under discussion. We believe these require careful reeva-
luation and revision in order that the new countervailing duty statute should
provide an effective and expeditious means for an industry such as ours to bring a
case and to receive relief.
1. Discretionary authority of administering agency must be clearly delineated
One of the great weaknesses in the current statute is the vast discretionary
authority Treasury has assumed in accepting unverified information from foreign
representatives as a basis for its, determinations, and in accepting foreign assur-
ances. In this regard, this Committee and the Senate Finance Committee are consid-
ering permitting certain assurances, from foreign entities with regard to price and
with regard to quantitative limitations on exports to be accepted as a basis for
terminating countervailing duty proceedings.
We believe price considerations have no place in a countervailing duty statute,
even one in which injury becomes an element for the imposition of countervailing
duties.
Price considerations as they are now utilized under the anti-dumping statute are
those linked to offsets of the dumping margin, not to injury. How would the
International Trade Commission go about developing objective criteria to determine
whether a given assurance by a foreign government would be adequate as an injury
offset? It would seem more logical, if price assurances were to be used in the subsidy
statute, that they be calculated as offsets to the amount of subsidization.
Similarly, we see much legal confusion and ambiguity with regard to the issue of
quantitative assurances. If a foreign subsidized supplying country provides assur-
ances of such a nature, who or what is to be the controlling and surveillance
mechanism? Is it to be a U.S. or foreign responsibility? Are these quantitative
limitations to be compulsory or voluntary? Such questions suggest that far from
reducing the discretionary authority of the agency administering the new counter-
vailing duty statute, quantitative assurances in the statute would inevitably lead to
an extension of administering agency discretionary authority.
2. Stiffer injury test in statute would create new impediment for relief actions
Some developing countries view an export subsidy as a substitute for, or to
supplement, some internal or external financial policy. From their point of view,
therefore, subsidies may be justifiable for their internal economic development.
In fact, subsidies augment an already substantial cost advantage enjoyed by
developing country suppliers in the U.S. handbag market. Subsidies thus enable
foreign subsidized suppliers to penetrate our market substantially over and above
the level that could be anticipated to materialize without benefit of such unwarrant-
ed additional cost benefits. By virtue of such cost benefits, foreign subsidized hand-
bag producers and exporters have exercised a potential for further sales in the U.S.
market as their own marketing strategies dictate.
Flowing from this is the question of the definition of injury in the statute now
under consideration
First, we strongly believe that any injury test requirement to which the U.S. has
agreed at Geneva should not be a serious impediment for relief under the statute.
Ours is an industry composed of small to medium-size scale firms which neither
have the resources nor the time to engage in extensive and expensive litigation. An
injury test would make this so.
What concerns our union even more is that the definition of injury may go
beyond that standard which is described in the language of Section 201(a) of the
Anti-dumping Act, 1921, as amended. Under that present anti-dumping standard,
injury must be more than de minimis, not one which is material injury. To the
handbag industry, inclusion of a standard of material injury within the framework
of the new countervailing duty statute introduces an unreasonably stiff injury
requirement to gain relief from a subsidy which is, after all, an unfair trade device.
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In summary, the handbag industry is opposed to any definition of injury which
would be included in the countervailing duty statute that would require a higher
threshold of injury than has been the case under the present anit-dumping law.
3. Filing fees as a requirement for a countervailing duty petition impose a new
burden for petitioners
This Subcommittee is considering a filing fee of $1,000 and the Senate Finance
Committee is said to be considering a filing fee of $5,000 for any petition seeking
redress under the countervailing duty statute. Again, handbag workers and the
industry as a whole, composed as it is of small scale companies which have limited
financial resources at its disposal, would find such filing fees a deterrent to their
efforts to seek redress against unfair competition as the Congress provides for under
this statute.
4. The Treasuiy Department must not be the administering authority for any new
countervailing duty statute
The ample experiences of the handbag industry in the countervailing duty peti-
tion process confirm our belief that the administration of any new countervailing
duty statute must be removed from the Treasury Department to an agency more
philosophically in tune with the aims of the statute.
5. Closing a loophole
Also, this Subcommittee should give careful attention in the implementing legisla-
tion to close a serious loophole in the present countervailing duty statute by specify-
ing more precisely that a foreign government's action to eliminate subsidies only on
exports to the U.S., while retaining subsidies on exports to other countries, is not in
compliance with the U.S. countervailing duty statute.
Reference can be made to a recent action by Treasury in which a countervailing
duty determination relating to Uruguayan leather handbags was revoked on the
grounds that the Uruguayan government had eliminated its subsidies. However, the
Treasury Department acknowledged that one specific subsidy-a tanners' subsidy-
had at the same time been doubled with respect to all countries other than the
United States.
In this connection, Treasury stated in the Federal Register of March 22, 1979 that:
"It is the position of the Treasury Department that while the doubling of the
tanners subsidy on exports to third countries clearly creates a distortion in interna-
tional trade, no remedy is available to this action within the limits of the counter-
vailing duty law. It is possible that a more appropriate remedy to this sort of
distortion is available through other sections of the U.S. tariff and trade laws."
Since substantial quantities of Uruguayan handbags are shipped to countries
other than the United States the net effect is that Uruguayan handbag manufactur-
ers exporting to this country and elsewhere can maintain their present price struc-
ture on shipments to this country and to all other countries, and yet, as interpreted
by the Treasury Department, not be engaged in a practice that is countervailable
under U.S. law. -
We think this type of foreign practice-in its intent and in its effect-is to negate
any relief the U.S. handbag manufacturers may obtain through the imposition of
countervailing duties, and should be countervailable.
V. IMPLEMENTING LEGISLATION SHOULD NOT INCLUDE NEW NEGOTIATING AUTHORITY
The concerns of handbag workers, as previously discussed, focus primarily on the
preservation of an effective relief mechanism against unfair imports. Handbag
workers are not opposed to imports per se-we are opposed to imports where
unwarranted competitive advantages are bestowed in our market to foreign suppli-
ers.
In this regard, it is understood that the Senate Finance Committee is agreeable to
an Administration request for a new five-year authority to cut tariffs and to convey
an indefinite authority for negotiation on non-tariff barriers, the latter on the basis
of the so-called "fast track" procedure.
We do not agree that such provisions belong properly in the implementing legisla-
tion in the MTN package. Rather such actions require and deserve intensive sepa-
rate attention and study by the Congress in the normal legislative fashion.
Further tariff cuts on any product should be considered only after the full impact
(and results) of the Tokyo Round as fully known and can be objectively evaluated.
Negotiations to remove non-tariff barriers are a desirable effort but negotiation of
any non-tariff agreements likewise deserves separate consideration in Congress'
usual legislative procedures.
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INTERNATIONAL UNION, UNITED AUTOMOBILE,
AEROSPACE & AGRICULTURAL IMPLEMENT WORKERS OF AMERICA,
Washington, D.C., May 2, 1979.
Hon. CHARLES VANIK,
Chairman, Subcommittee on Trade, House Committee on Ways and Means, Washing-
ton, D.C.
DEAR MR. CHAIRMAN: The International Union, UAW, has long been counted
among the ranks of those American unions committed to liberal international trade
policies. The leadership of our union has always held that a freer flow of goods
should increase competition, lower prices to the consumer, and even increase job
opportunities.
But our trade experiences since the Kennedy Round have disappointed us. The
expectations of benefits to American workers fed during that earlier round of trade
liberalization were not borne out. And the ones that were, have not been very
equitably distributed.
Trade since the Kennedy Round has not contributed to price stability. Not only
have our exports not kept up with imports, but our exports, jobs, trade balances and
the value of the dollar have fluctuated widely. Workers are experiencing high rates
of unemployment, with inadequate government assistance to protect them. It is no
wonder that they are skeptical of the Tokyo Round trade package now before you.
The UAW still believes that expanded trade can be beneficial to the American
people, both as workers and consumers. But this will take some adjustments in the
implementation of the new trade policies, taking into account the dramatic changes
that have occurred in the world economy-namely, high unemployment and a world
market dominated by giant multinational corporations that control prices, affect
currency fluctuations, and increase worker and community insecurity through their
ability to shut down plants without warning and move overseas.
Our experience as labor advisors to the negotiators during the past four years,
does not lead us to believe that adequate provisions have been adopted so far that
take these conditions into account. If adequate guarantees are not forthcoming on
these issues, through legislation or specific actions, the UAW does not believe that
our membership could be persuaded to support the trade package.
We have made it clear time and again that it would be incorrect to presume
UAW support of MTN unless and until we have satisfactorily protected the inter-
ests of our members.
We would like to propose some recommendations, and we would appreciate your
including them as part of the hearing record.
1. We believe it is highly unlikely that members of the committee would sacrifice
their jobs to get this trade bill passed-even though the bill might prove beneficial
to the American consumer. Yet this is exactly what Congress asks American work-
ers to do when it passes such legislation with inadequate compensation for their job
loss. Or for the loss of their social security pension credits, seniority, and company-
paid health insurance.
If it is in the national interest to expand trade, then the costs and sacrifices
resulting from that expansion should be shared equitably by all of us.
There already exists several examples of decent federal adjustment assistance
programs for workers whose jobs are lost due to government actions. The Redwood
Employee Protection Program (REPP) provides approximately equal compensation
to wages and benefits lost. The compensation period is determined by the age and
seniority of the worker at the time of lay-off. Compensation covers health and
pension benefits, and provides job training as well. Amtrak, Conrail, and Urban
Mass Transit legislation offer similar programs.
This contrasts sorely to the currently offered trade adjustment assistance pro-
grams, in which benefits are kept low, fringe benefits are wholly unprotected,
eligibility criteria are extremely difficult to meet, and inexcusable delays are en-
countered in determining eligibility. A recent Congressional Budget Office study
calls the program "far from adequate."
The New York Times, in a recent editorial, called for better programs "on
grounds of fairness." Even a majority of the Board of Directors of the Chamber of
Commerce, twice voted in favor of better adjustment assistance programs, on recom-
mendations drawn up by current Treasury Assistant Secretary Fred Bergsten.
The UAW urges Congress to adopt a comprehensive adjustment assistance pro-
gram at least matching those benefits of other existing federal adjustment pro-
grams.
2. The present trade assistance program has been denied to workers laid off by a
company which supplies parts or services to a separate company whose sales drop
due to imports. However, such workers would qualify if the two companies were
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instead one vertically integrated company. Eligibility for benefits should depend on
whether imports constitute a sufficient cause of unemployment; eligibility should
not hinge on the extent of vertical integration of the corporations in an industry.
Last month the Ways and Means Committee approved the Vanik Bill which
included the Downey Amendment to put supplier workers on the same footing as
end-product workers: they would receive benefits if imports "contribute important-
ly" to their unemployment. The committee removed language from the original bill
that would have placed an additional arbitrary barrier to their eligibility. The
original bill's language for supplier workers would require not only that imports be
an important cause of unemployment but also that 25 percent of their output go to
firms previously certified as import-impacted. This added requirement would serve
no purpose but to deny or delay benefits to workers laid off due to imports.
We urge the approval of the Downey Amendment.
3. Another concern of workers that impels them toward protectionism is the
danger that their standards may be undermined by competition from imports pro-
duced by exploited labor. Moreover, we are seeing more and more cases of corpora-
tions running overseas to escape OSHA and environmental regulations-and
unions.
Foreign governments must not be allowed to win competition for the U.S. market
by providing the most repressive substandard labor conditions to employers-often
runaway U.S. companies.
In the 1974 Trade Act, Congress explicitly directed the President to negotiate an
agreement on international fair labor standards. However, the Office of the STR has
virtually ignored this mandate in the four years since. They have instead focused
their efforts on agreements sought by business groups, such as subsidies, standards,
government procurement.
Only in recent months have U.S. negotiators begun issuing pronouncements on
fair labor standards. But they propose to begin negotiations on standards only after
the Tokyo Round is completed.
We cannot wait for another ten years before we reach agreement on this vital
issue. The Congress should require the Administration to initiate a new round of
GATT negotiations on international fair labor standards, backed by a provision that
would limit approval of the new trade agreement to a specified period of time,
unless, within that period, there is submitted to and approved by Congress an
additional agreement providing for such labor standards.
The UAW urges the committee to require the Administration to live up to its
commitment on labor standards.
4. American workers are also cynical over promised foreign trade benefits when
they see their own companies close up shop, go overseas, and export back to the
U.S. market. U.S. law provides that all taxes paid to foreign governments on income
earned abroad can be directly credited against U.S. tax liabilities on that income. In
contrast, state and local taxes paid in the U.S. by corporations are simply a deduc-
tion for federal tax purposes. This difference provides an automatic incentive to
invest outside the U.S. Such overseas investments are not due to the rationales
ascribed to "comparative advantage"-but to conscious U.S. government policy.
Another tax break favoring foreign over domestic investment is the deferral
provision by which corporate income derived abroad is taxed only when it is repatri-
ated to the U.S.
In effect, U.S-based multinationals are provided billions of dollars in interest-free
loans or profits that remain entirely free of U.S. taxes if they are not repatriated.
The UAW urges the committee to eliminate the deferral provision and replace it
with a tax on foreign source corporate income as earned.
The House Ways and Means Subcommittee on Trade is not technically required to
consider the above issues as part of the legislation approving the trade agreement.
But unless these measures are included as integral parts of legislation approving
the trade agreement, the chances for its enactment are negligible to non-existent.
On the more narrow issue of legislative language to accompany the MTN codes,
we would like to make the following recommendations:
THE STANDARDS CODE
The UAW has fought long and hard for decent health and safety protection for
American workers. We have only dented the surface with existing federal regula-
tions-they must be constantly improved.
The purpose of the Standards Code is to prevent the foreign manipulation of
product standards and certification systems. It is currently an acknowledged prac-
tice among all governments to devise product standards and testing procedures that
domestic industries can meet more easily than their foreign competitors.
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The UAW is concerned that in addressing the problems of foreign standards
manipulation, the Code could be manipulated by our own companies to undermine
worker health and safety regulations. Signatories are supposed to use international
standards-which are usually less stringent than U.S. standards-as the basis for
their own regulations. Regulators are admonished not to devise standards "with the
view to creating obstacles to international trade".
The UAW urges the committee to adopt strong implementing legislation such
that pursuit of effective standards more stringent than international norms will not
be inhibited by approval of this code. We also want legislative guidance for U.S.
standards setters to the effect that workers' health and safety must always be their
paramount concern. We will oppose any legislation counselling regulators to "take
into account the effects of U.S. domestic regulations on trade."
GOVERNMENT PROCUREMENT CODE
STR has apparently backed away from two reasonable positions taken last
summer in its presentation to the Labor Policy Advisory Committee. First, for those
countries not giving substantial access to U.S. companies to bid on government
contracts, the U.S. threatened to raise substantially the currently low Buy Ameri-
can differential. Second, in order to avoid being assessed by that Buy American
differential, the bidder (foreign or American) would have to show that most of the
value added would be done in the U.S. or a country making substantial concessions
under the Code. If the Code is passed, Congress should raise the Buy American
differential for non-signatories and require of other bidders that at least 50 percent
of the content be produced by signatories. A number of U.S. laws now require
minimum levels of American content for specific types of government purchases.
Without a signatory content requirement, the U.S. Buy American law would be
undermined vis-a-vis non-signatories.
U.S. COUNTERVAILING DUTY LAWS
The 19th century term "bounty or grant" can no longer suffice as the definition of
countervailable foreign government practices. The new statute should clearly list
those practices that deserve sanctions.
While the UAW favors the stiffest sanctions on subsidies used solely to promote
exports, we would urge a more flexible approach toward subsidies designed to
remedy pressing domestic problems.
There are two types of subsidies that require further study by the committee:
location subsidies and international tax practices.
In the auto industry in particular, profitable companies are demanding competi-
tive bribes-in the form of direct subsidies, tax holidays and below cost land, plants
and infrastructure loans-for the location of their new plants. Such economic canni-
balism serves as one more welfare program for the rich that distorts economic
decisions. The subsidy competition does not increase output. It only serves to en-
courage early abandonment of current plants. Assistant Secretary of the Treasury
for International Affairs, Fred Bergsten, has acknowledged the need to end govern-
ment competition for new plant locations and the failure of the subsidy code to deal
adequately with the problem. The Administration should be directed to pursue
further negotiations on this issue, particularly with Canada, that would cover not
only national, but also state, provincial and local levels of government as well.
Differing systems of international taxation have also worked to distort trade. The
European system of value-added taxes that are rebated on exports, for example,
often make European prices-though not production costs-cheaper than compara-
ble U.S. products. Because of the complexity of the problem, we would support a
separate international conference to deal with it.
LOCAL CONTENT, CO-PRODUCTION AND OFFSETS
In order for American companies to sell to certain countries, they must meet
certain local content, co-production and offset requirements.
Under local content requirements, a company must produce or purchase parts
such that the total value-added it generates within the country, is above a fixed
percentage of the company's sales there. Much of Latin America has used the
technique and raised the floor percentage to force expansion of domestic auto
industries. However, Mexico has now gone beyond developing its economy internally
by requiring local production worth 110 percent of domestic sales by 1981, thus
insuring net exports.
While foreign governments must purchase imports (such as aircraft for their
military or government-owned airlines), competitive bidding for co-production and
offset arrangements have been used to play off U.S. companies against each other.
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Co-production entails a negotiated amount of subcontracting by local producers as a
condition of purchase. For offset requirements, the exporting company must agree
to offset the balance of payments defict for the purchasing government by arranging
to buy goods or make local investments unrelated to the company's export. Here
again, some countries have established offset levels above 100 percent of the U.S.
company sales amount and thus required net exports.
While the recent aircraft agreement addresses the issues of co-production and
offsets, it does so in such a feeble way that it is not clear that any past practice is
outlawed. Further agreements to curb local content requirements, co-production,
and offsets are needed.
SPECIAL AND DIFFERENTIAL TREATMENT FOR LESS DEVELOPED COUNTRIES
The UAW has always supported a more equitable distribution of wealth within
our own country-and internationally as well.
Within the context of the MTN, we support the principle of special and differen-
tial treatment for the less developed countries. But we would urge the committee to
make exceptions of consistent violators of human and trade union rights. If these
countries are to receive special treatment, it should be in the form of sanctions-not
special assistance.
We also believe there should be some procedure to "graduate" certain "advanced
developing countries," e.g. Brazil, Mexico, South Korea, to assume full GATT obliga-
tions. The GATT now explicity permits self-appointed developing countries to re-
strain imports more restrictively than developed countries.
The "framework" agreement sanctions preferential treatment toward developing
countries and provides for graduation. However, the language is very loose and
imposes obligations enforceable only by unilateral action or bilateral negotiation
rather than by the GATT itself. The U.S. government should now take advantage of
the graduation clause to get better treatment for U.S. exports and police unfair
trade practices by advanced developing countries.
In conclusion, the UAW will support an MTN package that remedies the defects
we've cited above. We continue to believe in the benefits of liberal trade. But we
cannot support a policy that does not share those benefits fairly and equitably.
American workers want to share in the benefits of open trade, along with the rest
of American society. But we are no longer willing to shoulder the burdens-alone.
Sincerely,
DOUGLAS A. FRASER, President.
STATEMENT OF THE JOINT RETAIL COMMITTEE ON FREE TRADE
This statement is filed on behalf of the Joint Retail Committee on Free Trade,
which is composed of the American Retail Federation, the National Retail Mer-
chants Association, 30 other national retail associations, and the 50 state retail
associations. The Committee, through its membership, represents over a quarter of
the U.S. Gross National Product, and over one million retail stores, employing well
over 12 million employees.
The Joint Retail Committee on Free Trade (JRCFT) urges the Congress of the
United States to ratify the International Trade Agreements and Codes negotiated by
the President of the U.S., and to enact legislation which will implement the codes
without substantial modifications from the International Agreements. Retailing
supports the ratification of the International Agreements and Codes for the follow-
ing reasons, each of which is discussed later in this statement:
1. It is important that the International Agreements, which form a framework for
solving many problems that are anticipated in the next decade, be ratified in order
to avoid the prospect of increased protectionism, both within the U.S. and among
our international trading partners.
2. In a time of rising inflation, there are modest benefits which accrue to the U.S.
consuming public through the International Codes and Tariff Reduction Schedule.
3. The International Agreements encourage competition by establishing new in-
ternational rules to promote fair trade, by developing new settlement mechanisms,
and by limiting unfair trade practices.
It is essential that the Congress of the United States, in writing implementing
legislation jointly with the Administration, avoid restrictive amendments which
neither benefit the economy as a whole, the United States consuming public, nor
the principle of free trade competition, both in the domestic market and in the
international market. Although the Agreements fall short of the objectives retailing
had for the Multilateral Trade Negotiations, they represent a balanced approach
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that considers all segments of the economy. The U.S. trade position and the U.S.
offer on tariffs and non-tariff barriers were worked out through continuous negotia-
tions on a broad scale with industry, labor and agricultural advisory committees
representing the principal segments of the economy and an overall advisory com-
mittee reporting directly to the President.
Retailing opposes the present attempt by industries represented in those advisory
committees to negotiate with the Congress new and more restrictive trade positions
than those adopted by the President and his advisors in the negotiations with the
international community.
1. It is important that the International Agreements, which form a framework for
solving many problems that are anticipated in the next decade, be ratified in order
to avoid the prospect of increased protectionism, both within the U.S. and among
our international trading partners.
The International Agreements are a step in the direction of containing worldwide
protectionism by reaffirming the free world's philosophy to build international
trading relationships on agreed-to rules of conduct. At this time, with inflation
being a major problem in all free world nations, with energy costs skyrocketing, and
with unemployment being a serious problem, both in the United States and for most
of our international trading partners, it is a victory in itself that the negotiators
were able to agree on codes to limit non-tariff barriers, to establish new GATT
frameworks, and to agree on tariff reductions.
The international implementation of these agreements and codes will be recipro-
cal, so that it is still very possible for negative, destructive trade practices to be
adopted either by the U.S. or by other of the signatory nations to the detriment of
international trade. The restrictions which the United States impose at this time
can be as injurious to the process of international trade as a rejection of the
Agreements.
The responsibility of leadership in implementation of the Agreements rests
squarely on the Congress of the United States. This nation is the first of the major
powers to begin the process of implementation and, literally, the eyes of the world
are upon the Congress. Our trading partners will take their lead from the Congress.
Restrictive interpretations and narrow construction of rights and responsibilities by
this nation will become a prototype for such action by other nations. Congress has
the responsibility to provide the quality of leadership which has maintained this
nation's position as the world economic leader. We, therefore, urge, and will define
hereinafter, specific areas where protectionism should be avoided and where the
Agreements should receive the full endorsement of Congress.
2. In a time of rising inflation where the United States consumer has a decreasing
disposable income, there are modest benefits which accrue to the U.S. consuming
public through the International Codes and Tariff Reduction Schedule.
The Trade Act of 1974 for the first time required the President to consider the
impact of international trade actions on the consuming U.S. public. Even with this
injunction, there will be only modest benefits which accrue to the United States
consumer. The area where consumers could have benefited most was through tariff
reductions.
The Trade Act of 1974 empowers the President to make reduction of up to 60% of
existing tariffs. As the negotiations began, the U.S. made a very dramatic and
significant offer to reduce tariffs with a high harmonization factor. This was met
with little enthusiasm by our trading partners. In the intervening years, this
formula has been adjusted to the point that it no longer has a substantial effect on
consumer goods, and will only have a small influence on prices. Because of statutory
requirements, goods which were protected under safeguard procedures were manda-
torily excluded from the tariff reductions. While the Multilateral Trade Negotia-
tions have been under way, several safeguard proceedings have been brought under
Title II of the Trade Act of 1974. At the conclusion of those proceedings by the U.S.
International Trade Commission, relief was granted to certain consumer products,
as color television receivers and non-rubber footwear. Tariff reductions on these
items were, therefore, excluded from the Tariff Reduction Formula.
Another group of consumer products, certain rubber footwear, which has been
covered by the American Selling Price doctrine, has had additional tariffs imposed
upon it that were to be the equivalent of the protectionism received under the
American Selling Price doctrine. In a number of cases, the tariff protection will
amount to greater protection than ASP, resulting in higher landed costs for import-
ers and retailers.
A fourth major group of consumer items which is part of the Multilateral Trade
Negotiations is apparel and textile products. These products are already receiving
the protection of the Multifiber Arrangement which establishes quotas. That quota
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protectionism has worked substantial increases in the price of consumer goods, with
the major amount of the economic benefit flowing to the exporting nations, away
from the U.S. consuming public. A whole system of purchased quota allotments has
arisen in foreign nations in connection with this Multifiber Arrangement. In spite
of that protectionism, and the fact that textile products and apparel are covered by
higher duties than many other products, the apparel tariff reductions agreed to by
the U.S. will amount to only 12 percent to 14 percent and will not commence until
1982. In addition, the Administration has agreed to a whole new series of controls in
order to gain the support of the textile and apparel industry.
There is no great windfall for American consumers in tariff reductions, but the
reductions themselves are welcome and will help in the fight against inflation. Price
competition in the retail industry is such that the savings or reduction in the
landed cost of goods is normally passed on to the consumer. This is true of imports
which compete with like or similar products. A recent market survey and analysis
conducted by William R. Cline, senior fellow of The Brookings Institution, and the
Survey and Research Laboratory of The University of Illinois, is evidence of this
principle. Through 4,300 direct price observations and purchases of competing like
products, Dr. Cline established that imports in the common market are an average
10.8 percent cheaper than domestic products, of the 168 products tested. The savings
was 13.1 percent for the low income U.S. consumer. We have attached a copy of that
survey to this testimony and ask that it be made part of the record of these
proceedings.
Dr. Cline conducted his study for the Joint Retail Committee on Free Trade, but
was given complete control over methodology, the products surveyed, the choice of
cities and stores, and the time frame in which to conduct the survey analysis. It
should be emphasized that this study is based on the actual products and prices
available to the U.S. consumer at the time of the price observation or purchase. It is
readily apparent that imports of consumer items do have an important competitive
effect on the United States market.
Price and quality competition is extremely important during this period of high
national inflation. The consumers hardest hit by restraints on international trade of
consumer products are the consumers to whom price is the most important. That is
the consumer with the least money. In many cases, price outweighs all other
factors, such as quality, fashion, and durability. The low-end consumer goods which
these fixed income consumers select are hardest hit by quotas such as those now
established by the Multifiber Arrangement and the Orderly Marketing Agreements
on non-rubber footwear. Interestingly enough, these consumers receive the least
benefit from the proposed tariff reductions, or the lack thereof, negotiated in
Geneva.
If the Cline report were not enough to establish the pass-through of benefits by
retailing to the consumer, a second series of statistics should be examined by the
Congress. In this period of inflation, the highly competitive nature of retailing keeps
prices low. The total percent rate of increase from 1967 to 1977 of the Consumer
Price Index was 87.6 percent, while the General Merchandise Index rate of increase
from that period was only 54 percent. The rate of price inflation in general mer-
chandise retailing is less than half the national rate of inflation and, in fact, is
below the goal set by the President in his deceleration program. Intensive competi-
tion is further reflected by the low level of profit margins in general merchandise
reatiling. These range from 2.5 percent to 3.4 percent in the past ten years. It is
with this anti-inflationary effect in mind that retailing urges the Congress of the
United States to implement the non-tariff barrier agreements and to put no further
pressure on the Administration to adopt procedures which would have an inflation-
ary effect on consumer prices.
Now that the Tariff Reduction Schedule is agreed to, the U.S. should carefuly
examine the U.S. Tariff Schedule to determine whether other tariff reductions could
be made that would benefit the United States consuming public and help to reduce
inflation. There will no longer be any need for the United States to withhold tariff
concessions in order to benefit our trading posture in the Multilateral Trade Negoti-
ations. The United States should unilaternally make the miximum tariff reductions
for all products where less than 5 percent of the domestic demand is being produced
in the United States. In such cases, there is no protection of the U.S. industry and
the tariff is merely a revenue measure which works directly as a hidden inflation-
ary contributor to consumer prices. When the temporary protection of the Orderly
Marketing Agreements on non-rubber footwear and color television sets expires,
there should begin staged reductions in the tariffs on those goods, consistent with
the reductions negotiated on other industrial goods.
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3. The International Agreements encourage competition by establishing new in-
ternational rules to promote fair trade, by developing new settlement mechanisms,
and by limiting unfair trade practices.
Retailing believes competition is the basic element of a free market system. It is
one of the underlying foundations of the capaitalistic economic system. It is retail-
ing's great support of the principle of free competion in the marketplace that led to
its support of the Trade Act of 1974 and of the Multilateral Trade Negotiations. The
principle of competition should operate internationally as well as within the United
States market. The industrial policy of some nations has impeded the growth of
international competition and has worked to the detriment of U.S. industry. Retail-
ing supports the efforts of the Administration to reduce these anti-competitive
forces in the international markets, to eliminate non-tariff barriers and to establish
international standards.
However, the United States must be careful to avoid constructing a system of
organized international trade which would have the effect of raising prices and
eliminating fair competition. The retail industry views with some skepticism those
who cry for free enterprise in the domestic market, but seek extensive protection
against international competition. The elimination of international competition or
the erection of permanent barriers make an industry sluggish, reduces the pressures
for growth in productivity and makes that industry dependent on the support of the
federal government. Such industries do themselves a great disservice and may well
end up dying of a self-inflicted wound. In fact, general merchandise retailers are
finding that the same Orderly Marketing Agreements Quotas, erected for the pro-
tection of industries which could not compete with low-end foreign goods, are now
working to force or encourage foreign producers to compete only in a higher quality
and higher price range of goods which were heretofore not competitive with U.S.
goods. Thus, low-end and low-priced goods fall completely out ot the marketplace.
The Valuation Code is a very beneficial thing to the entire trading community. It
eliminates a complex and archaic system of valuation and replaces it with transac-
tion value as the principal valuation procedure. In the area of consumer goods,
transaction value should cover better than 90% of the imports wiithout the use of
the correlary means of determination in the International Code. However, there is
now discussion that the United States should adopt a CIF (cost-insurance-freight)
basis of valuation instead of the FOB system now in use. Such a system would work
great discrimination against the U.S. consuming public, against certain modes of
transportation, and against selected U.S. ports. The adoption of a CIF basis of
valuation would require a re-negotiation of the tariff reductions or compensation by
the United States to its trading partners. Since all countries are not of equal
distance from the U.S., freight and insurance will vary according to countries.
Either a complex adjustment formula would be necessary or a series of bilateral.
negotiations with our trading partners would have to begin immediately.
A CIF basis of valuation would increase the tariffs of the United States and take
away the already small benefit of proposed tariff reductions which would accrue to
the United States consuming public. In addition, air freight carriers, which are
more costly, would be injured, but in some cases that cost would have to be assumed
and passed on, especially in the fast-paced area of fashion goods. Fashion goods are
perishable items and must reach the marketplace during the unique period of
demand or their worth is greatly decreased. American flagships, when their costs
are higher, would be avoided with freight being shipped in the carriers of other
nations. Ports of entry which are the least distance from the exporting nations, in
most cases the major ports on the east and west coasts, would be used in order to
avoid increased freight costs as part of the valuation base. Retailing strenuously
opposes the adoption by the United States of a CIF basis of valuation, and urges
that the present FOB basis be retained.
In the area of unfair trade practices, retailing stands with the rest of the U.S
industry in condemning unfair and anti-competitive trade actions by other nations.
The addition of an injury test in the Subsidies International Agreement is most
welcome.
There is a great pressure being exerted to make the countervailing duty law and
the anti-dumping law of the United States more restrictive. In both of these pro-
ceedings, a retailer must rely upon the U.S. government to fairly and impartially
find facts, make conclusions of law, and determine remedies.
The cost of products abroad, the subsidies of a foreign nation to its manufacturers,
the price at which a foreign manufacturer sells in his own market and the price at
which such a manufacturer sells to other importers and retailers are all beyond the
scope of knowledge of any U.S. retailer. Indeed, there are antitrust laws which
prevent the communication of such information. Consequently, when an anti-dump-
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ing or countervailing proceeding is instituted at the U.S. Treasury, the government
is as responsible to the retailer as it is to the domestic manufacturer to make an
adequate and fair determination. Without specifically discussing the reduced time
limits now under consideration, it should be noted that in the absence of new
methodology, authorizations and appropriations, it is unlikely that the government's
determinations will improve in quality, even though they are made with greater
speed.
Since the burden of additional duties falls upon the retailer or importer, and not
on the manufacturers (in the exporting country) which received the subsidies or
permitted the dumping, there should not be provisional or retroactive measures in
U.S. law which unnecessarily discriminate against U.S. retailers and importers.
Retailing will strongly oppose any attempt to include provisional and/or retroactive
measures in U.S. law.
Although the International Code on Subsidies calls for material injury as the
standard, there is great resistance to the incorporation of that word in the language
of our countervailing duty law. Material injury and substantial cause are key
elements in an unfair trade practice proceeding. If the United States reduced the
threshold level for relief so that countervailing or anti-dumping remedies are availa-
ble for less than important and material injury, or where the imports are not a
clear identifiable cause of such injury, the effect would be to invite an array of
insignificant and trivial proceedings that would prevent the fair and accurate
handling of petitions where U.S. industry is, in fact, the victim of unfair trade
practices by foreign governments or manufacturers.
In the area of fair competition, the Congress should await the outcome of negotia-
tions on a safeguards code before amending the U.S. law. Congress must be careful
not to permit the development of a system of quotas and non-tariff barriers through
Orderly Marketing Agreements for a lengthy period to prop up industry which
cannot compete in world trade.
In both fair and unfair trade practices, there is opposition to discretionary author-
ity on the part of the Executive Departments and the President, even though cases
have a more far-reaching effect than just on the industries filing the petitions for
relief. This is a serious problem since discretionary authority may be abused or may
be a cloak for inaction. At the same time, rigid systems which call for far-reaching
economic penalties can be just as injurious. There is an element which weighs on
the side of discretion for the Executive. The U.S. has in recent years placed retailers
and importers in a position of multiple jeopardy where, for the same series of
transactions, a series of different restrictive proceedings have been commenced. This
multiple jeopardy does not allow for the real termination or settlement of an
international problem. The attempt to limit the procedural time periods, reduce the
burden of proof necessary for relief and broaden the availability of proceedings to
firms beyond those making like and directly competitive products argues that some
elements of discretion must still be available to the President in order to protect
broad U.S. interests and avoid anti-competitive action.
CONCLUSION
Since retailing is such a large and diverse part of the U.S. Gross National
Product, its fortunes are tied directly to the economy as a whole. Unemployment in
any sector or community of the United States affects retail sales and retail employ-
ment in that area. The retail community will be seriously affected by the imple-
menting legislation accompanying the International Agreements, but it will survive
either enactment or rejection of those Agreements by Congress. The consumer will
pay a greater burden in this inflationary age if the Congress demands protectionist
provisions be included in the implementing legislation to be sent by the President.
The economy as a whole will suffer if the Agreements are not ratified. Retailing,
therefore, urges their adoption without significant change.
PAGENO="0671"
663
IMPORTS AND CONSUMER PRICES: A Survey Analysis
William R. Cline
Senior Fellow
The Brookings Institution
Summary
Imports are playing a vital role
in fighting inflation. A study* con-
ducted by William R. Cline, senior
fellow of The Brookings Institution,
reveals American consu mers receive
significant direct savings by pur-
chasing imported products which are
less expensive than comparable do-
mestic products. In addition, they
receive measurable indirect savings
from the effect imports have in
restraining prices charged by domestic
producers.
Despite growing pressure to in-
crease restrictions on certain imports,
the study clearly reveals that a liberal
import policy is a powerful force in
fighting the country's number one
economic problem. In examining
whether imports are less expensive
than domestic goods of comparable
quality, the study concludes:
o Imported products are an
average of 10.8 percent cheaper than
domestic products.
o American consumers receive
direct savings of more than $2 billion
annually from the availability of
imported consumer goods (not in-
cluding automobiles and food).
o Based on spending patterns
of low income consumers, imported
goods purchased may be as much as
13.1 percent cheaper than domestic
goods.
In over three-fourths of the 168
products sampled, imports from the
newly industrialized countries of Asia
and Latin America are less expensive
than comparable domestic products.
Because of large exchange rate move-
ments among the industrialized coun-
tries, many imports from Europe and
Japan are now as expensive or more
expensive than domestic supplies.
Nevertheless, the addition of products
from Europe and Japan which com-
pete with and add to the total domes-
tic supply has the effect of restraining
prices domestic firms charge.
*Note: The analysis was based on a survey conducted in August 1978 by the Survey
Research Laboratory of the University of Illinois which collected 4300 observations
on prices of imported and domestic goods, spread evenly across four geographically
diverse cities (Atlanta, Chicago, Los Angeles and Philadelphia) and four types of
retail establishments.
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On the other hand, the imposi-
tion of quotas or other nontariff
barriers which restrict the influx of
imported goods results in large con-
sumer losses. While the price of
imported goods may remain below
that of comparable domestic goods,
domestic producers are able to main-
tain higher prices than would other-
wise be possible. Such is now the
effect of quotas on apparel, footwear
and color television sets imported into
the U.S., and there are pressures for
still more import restrictions.
In short, imports fight inflation
because their prices are lower than
those of comparable domestic goods.
Even when imports sell at the same
664
price as domestic goods, they restrict
the price domestic producers can
charge. Domestic supply is an average
of 12 percent higher in price than
imported products and if imports
were cut off, domestic prices would
rise still higher.
It is clear from this study that
policies to assist specific domestic
industries suffering adjustment diffi-
culties from imporEs should not
seek to further restrict imports by
seeking imposition of tariffs or non-
tariff barriers. Alternatives such as
adjustment assistance are preferable in
order that consumers may continue
to receive the full benefits from
imported products.
PAGENO="0673"
1. Introduction
It is a critical time for public
policy on imports. In recent years
there have been several protection-
ist actions. The United States has
negotiated voluntary quotas on im-
ports of shoes from Korea and Tai-
wan, on color television sets from
Japan, and on specialty steel. The
administration has implemented a
program of trigger prices for steel
that, in effect, limits steel im-
ports (though not as severely as
alternative measures might have
done). The United States has re-
newed bilateral agreements on im-
port quotas for textile products
under the MultiFibers Arrange-
ment, restricting imports from
18 principal supplying countries.
Moreover, there are calls for much
more extensive protection against
imports. Largely the result of
high unemployment stemming from
the worst recession since the 1930s
(in 1974-1975), these protectionist
forces may derive additional sup-
port from concerns about the
sharp decline of the dollar and
the large trade balance deficits
experienced in 1977 and 1978.
Yet there is another economic
problem that is paramount for the
country: inflation. For several
months in 1978 the consumer price
index accelerated to annual infla-
tion rates on the order of 10 per-
cent. The administration's program
of wage and price guidelines, and
its package of measures announced
on November 1, 1978, to deal
665
with the declining dollar and infla-
tion (including an increase in the
discount rate by a full percentage
point) are ample evidence that
at this juncture inflation is the
country's number one problem.
Imports play a vital role in
fighting inflation. This study seeks
to examine, perhaps more rigorous-
ly than ever before, one aspect of
that anti-inflation role: the extent
to which imports provide a savings
to consumers by making available
products at prices below those of
comparable domestic products. To
the extent that imports do restrain
inflation, the calls for increased
protection directly jeopardize the
prospects for dealing with the most
serious economic problem, infla-
tion. Protection would aggravate
inflation in two ways. First, by re-
ducing the availability of cheaper
imported goods (if they are cheaper
--the main subject of this study)
increased protection would cause
a shift to more costly domestic
supply. Second, by limiting the
availability of total supply, pro-
tection would lead to an indirect
rise in prices, as domestic firms
raised their prices and consumers
paid more in order to reach a new
equilibrium between smaller supply
and, therefore, smaller demand
(which could only be reduced by
the discouragement to consumption
coming from higher prices).
Some advocates of higher pro-
tection maintain that imports do
not restrain inflation because retail-
~-998 - 79 - 143
PAGENO="0674"
666
ers do not passon to consumers the
savings available from imported
products, but pocket large profits
instead. As evidence these critics
cite a recent study by the Library
of Congress that implied that retail
stores charge higher markups on
imports than on domestic pro-
ducts. 1
These critics miss a major
point about the inflation-retarding
role of imports. Even if imports
are sold to consumers at prices
identical to those of domestic pro-
ducts, the very presence of imports
causes the prices for domestic
goods to be lower than they other-
wise would be. For products with
monopolistic tendencies, imports
provide a source of competition
that restrains prices domestic firms
can charge. For products with
competitive organization, imports
hold down prices simply by virtue
of the fact that they raise total
supply, causing supply to equate
with demand at a lower price
(that is, a price whereconsumers
will buy enough more to absorb
the added supply).
However, a legitimate empiri-
cal question is whether indeed im-
ports are cheaper than domestic
products of comparable quality. If
they are, then there is a direct
anti-inflationary contribution of
imports in addition to their indirect
role of increasing supply.
The purpose of this study
is to examine whether imports
are cheaper to the consumer than
domestic goods of comparable qual-
ity. The method applied in the
study is that of survey analysis.
This study employs a large sample
survey of prices for imports and
domestic goods. The Survey Re-
search Laboratory of the University
of Illinois carried out the survey
in retail establishments of all major
types and in diverse geograph-
ical locations. The survey collected
price data on well-specified pro-
ducts, providing the maximum pos-
sible assurance that the quality
of product was comparable for
domestic and imported goods.
The survey approach is far
preferable to the investigation of
markups as a way of determining
whether the consumer receives a
savings from cheaper imports. The
survey examines directly what the
consumer actually pays. By con-
trast, information on product mark-
ups provides only an indirect hint
about whether the consumer pays
lower prices for imports. More-
over, information on markups is
extremely fragmentary. Further-
more, it is insufficient to determine
whether markups are higher on
imports than on domestic pro-
ducts. An accurate analysis must
consider in addition whether any
such higher markup exceeds the in-
crement required to cover higher
costs associated with purchase
abroad (such as the lack of the
option of returning merchandise,
the travel and research costs re-
quired to establish reliable foreign
PAGENO="0675"
suppliers, and so forth).2
Section 4 below sets forth the
empirical results of the sample survey
on import prices compared to domes-
tic prices. First, however, section 2 ex-
plores the theoretical logic behind the
analysis, and section 3 describes the
nature of the sample survey itself.
2. Theoretical Issues
Before turning to the sample
survey, it is necessary to discuss in
theoretical terms whether one would
expect imports to be cheaper than do-
mestic products. First, the discussion
clarifies that the availability of im-
ports makes prices lower even if im-
ports sell at the same price as domes-
tic goods. Second, "product differen-
tiation" is explored as a general
reason why imports prices could dif-
SUPPlY
I I
qi qO o
667
fer from (and be cheaper than) do-
mestic goods of comparable quality.
Third, the discussion examines the
case of imports under quotas, and
shows that imports could be cheaper
than domestic supply because some of
the "rent" generated by the presence
of quotas could reach the consumer.
2.1. Availability of Imports and Equi-
librium Price
It is possible to use elementary
supply and demand analysis to show
that the availability of imports re-
duces prices even if the imported
product sells for the same price as
the domestic product. Consider a
graph of supply and demand (like
those in introductory economics text
books), Figure 1.
The three graphs show price on
P
P
Supply d
Supply d
Domestic Supply
FIGURE 1
P
Supply (after shift)
p1
Supply
p0
Si'ipplyl
I I
0 I---q0---'l
Total Supply and Demand
Import Supply
A B
C
IMPORT AND DOMESTIC SUPPLY
PAGENO="0676"
the vertical axis and quantity on the
horizontal axis. Part A shows the im-
port supply at a constant and low
purchasing price of ~m. Part B shows
the domestic supply curve, rising from
low price for low quantity to high
price for high quantity. Part C shOws
total supply-the combined supply
from imports at price ~m and domes-
tic production ranging from the lower
left to upper right. Now at the odtset
suppose a quota of q0 is allowed for
imports, then the horizontal portion
of the total supply curve along price
~m will be the amount q0 coming
from imports (part C of the figure).
The total supply curve begins at the
left with a small initial portion of
low-cost domestic supply; it then
continues horizontally at price ~m
for the amount q0 of imports under
quota; then it rises at higher cost for
domestic supply.
With a total demand curve of DD
(showing little quantity demanded at
high price, much demanded at low
price), the initial supply-demand equi-
librium occurs at E0 where the supply
and demand curves cross. At this
point the price is Po for all goods, do-
mestic and imported (and importers
get a windfall gain equal to the excess
of P0 over ~m, though in this model
the consumer pays the full P0).
Now suppose the import quota is
cut in half to q1, it will cut the hori-
zontal length of the total supply curve
at price ~m. As a result, the total sup-
ply curve for domestic supply costing
more than ~m will shift over to the
left by the amount of reduction in im-
ports. The new equilibrium of demand
and supply will occur at E1, where
price is higher (P1).
668
The new equilibrium of demand and
supply will occur at El, where price
is higher (P1).
Therefore, the standard analysis
of supply and demand shows that
when import supply is cut back, mar-
ket prices will rise even if the price
paid by the consumer is the same for
both imports and domestic goods.
2.2 Product Differentiation
The price of imports may differ
from the domestic price, however.
The simple textbook diagram of sup-
ply assumes that all supplies of a
"good" are identical. In reality dif-
ferent supplies are different in some
degree. Even in extremely homogen-
ous products, such as wheat or corn,
there are numerous grades reflecting
different properties and differing mar-
ket tastes.
Imports almost by definition are
affected by "product differentiation",
the term designating differing percep-
tion by consumers for similar pro-
ducts. This differentiation makes it
possible for the import to sell at a
*different price from the domestic
good. Furthermore, there is not
necessarily an implication of super-
iority or inferiority of an import be-
cause it sells for more or for less than
the domestic product. The case of
imported automobiles illustrates this
point most graphically. Several years
ago the Mercedes Benz and the Dat-
sun (for example) sold at reasonable
or even bargain prices relative to their
American competitor cars (such as
the Cadillac and the economy Ford,
PAGENO="0677"
669
respectively). Now, after massive ap-
preciation of the German mark and
the Japanese yen, these imports sell
for much higher prices relative to the
American substitutes than they did
before. No one would argue that sud-
denly the quality of German and
Japanese automobiles has become
superior and the quality of American
automobiles has become inferior. In-
stead, the changing relative prices
reflect changing supply and demand
of separate, differentiated products.
Consider the example of automo-
biles in graphical terms. Suppose parts
A and B of Figure 2 show the supply
and demand for a domestic good and
an imported good that, by objective
criteria (horsepower, styling, du ra-
bility, etc.) are comparable. Suppose
that at historical period o the import
is at low cost, and sells for ~m, well
below the domestic price. An analysis
of import price relative to domestic
at that point will find imports cheaper.
Now suppose that a later histori-
cal period foreign supply becomes
much more costly. The supply curve
for imports shifts to S'S' and the do-
mestic demand for the import item
falls from Q0 to ~i. The new import
price, ~m, is shown to be higher than
the domestic price. The quality of
the imported good relative to that of
the domestic good has not changed.
What has changed is that fewer people
P
p
S
0
Qi Go
DOMESTIC IMPORT
PRODUCT PRODUCT
FIGURE 2
PAGENO="0678"
670
are able to purchase the import. A
measure of the loss of consumer bene-
fit from the new, higher price of the
import is the loss of so-called "con-
sumer surplus". This concept refers
to the total of consumer savings of
what they actually paid compared to
what they would have been prepared
to pay, and it equals the area under
the demand curve but above the mar-
ket price level. As shown in the dia-
gram, when the import price rises,
consumer surplus declines from area
A+B+C to area A alone.
In summary, the analysis of pro-
duct differentiation suggests that even
for products of comparable quality
the import price may differ from the
domestic price, and that moreover
this difference may switch from the
imports being cheaper, to its being
more expensive than domestic sup-
plies even though there is no change
in relative quality of the two products.
At the level of actual experience,
it seems likely that precisely this type
of shift has occurred for imports
from Europe and Japan. Once a great
bargain, they may in many cases be
as expensive as, or even more expen-
sive than, domestic supply, because of
changing exchange rates and changing
costs abroad compared to U.S. costs.
Following this reasoning, it is prob-
ably supply from newly industrializ-
ing countries, such as Korea, Taiwan,
Brazil, and Mexico, that still pro-
vides bargain prices for the American
consumer (and still provides the larger
area of consumer surplus). These
newly industrial countries still have
low labor costs, and increasingly they
have the skilled manpower available
for manufacturing. Moreover, imports
from these countries are often carried
out by multinational corporations
(either as producers or pOrchasers),
providing assurance that quality con-
trol characteristics necessary for the
American market are met. This
question is an empirical one, and is
examined below. The main point
here is that product differentiation
provides a theoretical basis for accept-
ing evidence that the price of an im-
ported good may differ from the
price of a domestic good even though
there is no objective quality difference
between the two.
2.3. Quotas
There is a second reason why
imports may be cheaper than domes-
tic supply even when quality is com-
parable. For imports under quotas,
the market process does not "clear".
Low cost foreign supply is available
only in the limited quantities allowed
by the quota. As a result, foreign
supply is not expanded to the point
where it reaches higher cost compara-
ble to domestic production cost. 3
Because the foreign cost remains low,
there exists a "windfall rent" for some
party along the production to con-
sumer chain-a rent equal to the
difference between domestic produc-
tion cost and foreign production cost.
Some of this rent may reach the
consumer, providing him with a lower
price on imports than on domestic
goods. Some of the rent may accrue to
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the foreign supplier or to the import-
ing intermediary. (Of course, the fact
that imports under quotas may be
cheaper than domestic goods does not
imply that quotas benefit the consum-
er. On the contrary, the presence of
quotas enables domestic producers to
hold prices higher than they otherwise
could, causing a loss to consumers.
Although imports at prices below
domestic prices may provide partial
relief to consumers from the loss
imposed by quotas through higher
domestic prices, the restricted quan-
tities permitted under quotas will
keep this relief limited.)
The case of quotas is relevant for
American imports of apparel, foot-
wear, and television sets. The United
States has quotas on textile imports,
quotas on footwear from the two cru-
cial low-cost suppliers (Korea and Tai-
wan, which accounted for almost two-
thirds of import volume in 1977), and
quotas on television imports from
Japan.
Whether those products under
quotas will in fact be cheaper than
domestic production is an ambiguous
question. The point is that they may
be cheaper. It is true that when facing
quotas, foreign suppliers may decide
to raise their prices, absorbing all of
the potential rent themselves. But if
they do not wish to run the risk of
losing market share to similar sup-
pliers in other countries (especially
Japan, where apparel quotas are not
fully used, or Europe, where they do
not exist), then the suppliers may
absorb relatively little of the wind-
671
fall gain. For their part, the importing
merchandisers. might absorb the wind-
fall gain if their market structure were
non-competitive. But with numerous
merchandising firms competing among
themselves, these windfall gains will
tend to be small. That leaves the con-
su mers. Under these circumstances,
there can be a windfall gain to con-
sumers in the form of a lower price.
A lower price for imports than for
domestic goods, despite comparable
quality, does imply some form of
disequilibrium; the market is not
"clearing", with all potential custo-
mers receiving all the low-priced
imports they want. Instead, some
form of rationing is implied, such as
queueing up for imports that are
"on order" but not as readily avail-
able as the more expensive domes-
tic product.
In summary, economic theory
suggests three points of fundamental
relevance to this study. (1) The avail-
ability of imports makes prices lower,
than they otherwise would be, even if
the imported product sells at exactly
the same price as the domestic pro-
duct. (2) Product differentiation ex-
plains why the import price may be
either higher or lower than the price
of a domestic good with character-
istics that are identical on objective
criteria. Therefore lower price for im-
ports does not necessarily mean lower
quality of the imported product.
(3) The presence of quotas (as in the
case of apparel, footwear, and televi-
sion sets) gives rise to a windfall rent
that may reach the consumer, making
PAGENO="0680"
672
the price of the import cheaper than
that of the domestic good.
3. The Sample Survey
Appendix B provides a complete
account of the sample survey. The dis-
cussion here summarizes its most im-
portant features.
To begin with, the sample was
large. Approximately 4,300 price ob-
servations were collected on 168spe-
cifical ly identified products. Too
often in congressional testimony on
import prices one side has produced
an assortment of cheap imported
sweaters (for example) while the other
side has produced its own small collec-
tion of import items just as expensive
as domestic equivalents. This level of
discourse is inadequate to the formu-
lation of public policy. Instead, this
study employs a large and scienti-
fically designed sample survey that
can provide the basis for a rigorous
answer to the question of whether
the American consumer receives a
direct s~vinn~ nn imnorted orodiicts
The sample draws from geo-
graphically diverse areas, in order
to be representative of U.S. con-
sumption. The sample was evenly
divided among Los Angeles, Chi-
cago, Philadelphia, and Atlanta.
The products sampled were
chosen for their representativeness of
consumption and imports. A total of
168 products entered the sample. 4
41 in footwear, and the remainder
in hardgoods. Therefore, the product
coverage encompasses the full range of
consumer items found in retail stores.
The only main consumer products
excluded are automobiles, food pro-
ducts, and pharmaceuticals.
Each product was defined in
relatively specific terms, as may be
seen from table B-i in Appendix B.
The instructions to enumerators were
to make the utmost effort at collect-
ing prices only for comparable quality
items for the product in question.
(Appendix B reports the instructions
to enumerators.) Because of the de-
tailed specifications assigned to each
product, and in view of the instruc-
tions to enumerators, it is reasonable
to expect that the price observations
for imports and domestic products
refer to products of cornparable
quality. Any remaining divergences in
quality among observations should be
random, and with the large sample
taken, that randomness should pose
no problem (because there will be
enough observations that those erring
in one direction will be offset by
those erring in the other).
The sample was designed to ob-
tain equal numbers of observations
for imports and for domestic pro-
ducts, in order to provide the basis
for analysis of the difference between
the prices of the two. In particular,
for each of the 168 specific products,
an attempt was made to obtain, in
each of the four cities, 6 observations
on domestic goods and 6 observations
on imported goods.
The sample design also took into
account the type of retail outlet. In
each city for each product, anattempt
PAGENO="0681"
673
was made to obtain at least one do-
mestic and one import observation
from each of the four store types:
chain, department, discount, and
specialty. In addition, the survey
data recorded whether the product
was on sale or not. Although the basic
analysis below uses the actual trans-
actions price (that is, the sale price
if the product was on sale), in the
cases of sale items the original price
was recorded as well, for the analysis
of markdowns.
Finally, the period of the survey,
August 1978, was selected after dis-
cussion with retail merchandising ex-
perts, as a "typical" period for the
survey. In particular, the survey was
timed to avoid the end of season
clearance sales that are common in
July. Moreover, summer items were'
avoided in favor of fall items, in order
to avoid leftover stock likely to be on
sale.
Appendix B of this study, pre-
pared by the Survey Research Labora-
tory of the University of Illinois, re-
ports further details of the sample.
4. Empirical Results
The results of the price survey
are summarized in Tables 1 through 4
of the text and Tables A-i, A-3 and
A-4 of Appendix A. The central focus
of the empirical analysis is upon the
question: Are imports cheaper than
comparable domestic products? All of
the analyses distinguish between two
subgroups of imports: those from
Europe, Canada, and Japan (Region A);
and those from Latin America and
Asia excluding Japan (Region B). 5
This distinction is essential because
imports from Europe and Japan are
likely to be~more expensive than those
from the developing countries, given
the movement of exchange rates in
recent years and given probable in-
fluences of taste and fashion.
4.1. Frequency of Cheaper Imports
Table A-i of Appendix A reports
for each of the 168 products sampled
the average domestic price, average
price for imports for Region A, and
average price for imports from Region
B. The table also shows the corres-
ponding price ratios of imports rela-
tive to domestic products, the number
of observations for each case, and "t
statistics" for a statistical test for dif-
ference of means between import
price and domestic price (with a separ-
ate test for each region).
In order to assess the extensive
results of Tab~c A-i, text Table 1
presents a summary of these results.
Table 1 reports the results by 19
product groupings. Within each group-
ing, the table shows the number of in-
dividual sample products for which
comparisons between domestic price
and import price were available. It
then shows the percentage of those
individual products for which imports
from the region in question were
found to be cheaper than domestic
goods. For example, the first two en-
tries in the table indicate that there
were 10 products in women's apparel
with price comparisons between im-
ports from Region A and domestic
PAGENO="0682"
674
Table 1
Percentage of Sampled Products with Imports Cheaper than Domestic Goods
Imports from Europe, Japan, Imports from Latin America,
Canada Asia
(Region A) (Region B)
Number of Percentage of Number of Percentage of
Sub-products Sub-products Sub-products Sub-products
with with Imports with with Imports
Product Group Comparison Cheaper Comparison Cheaper
(A No.) (A %) (B No.) (B %)
Apparel
Women's 10 70% 14 71%
Men's 11 36% 18 83%
Girls' 6 67% 10 50%
Boys' 3 67% 9 78%
Subtotal 30 57% 51 73%
II. Footwear
Women's 9 0% 9 78%
Men's 12 17% ii 91%
Girls' 5 0% 8 88%
Boys' 6 0% 4 100%
Subtotal 32 6% 32 88%
Ill. Hardgoods
Watches 4 0% 4 75%
Tools 3 100% 1 100%
Recreational 10 40% 10 90%
Small appliances 7 29% 5 80%
Typewriters, calculators 3 100% 2 100%
Housewares 11 36% 13 85%
Radio, TV, stereo 4 100% 4 100%
Photographic 3 33% 2 50%
Furniture 3 100% 3 33%
Floor, wall coverings 2 100% 2 50%
Miscellaneous 14 21% 12 67%
Subtotal 64 45% 58 78%
All Products 126 38% 131 78%
Source: Appendix A, Table A-i
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goods. Of these 10 products, 70 per-
cent (or 7 products) showed imports
being cheaper than domestic supply.
The first major pattern shown in
Table 1 is that imports from Region
B are systematically cheaper than
domestic goods. This finding holds
almost without exception; it is almost
equally true of the three broad groups
-apparel, footwear, and hardgoods;
and it generally shows up strongly,
with on the order of 80 percent of the
sample products showing imports
from Region B as cheaper than domes-
tic goods.
The second pattern shown in
Table 1 is that, unlike imports from
Region B, those from Region A are
not generally cheaper than domestic
products. The majority of products
show Region A imports as cheaper
for apparel. For footwear, however, a
large majority of products show im-
ports from Region A as not cheaper
than domestic supply. For hardgoods,
the simple majority of products shows
imports from Region A as not being
cheaper than domestic products, al-
though here the simple average is
misleading. Region A imports are
cheaper in some crucial goods such as
radio, television, and stereo, so that
a weighted average finds imports
from the region to be cheaper than
domestic supply (as discussed be-
low).
Taking the simple sum for all
products, imports from Region B are
cheaper than domestic supply in 78
percent of the product cases, but
from Region A imports are cheaper
675
in only 38 percent of the cases.
Again, however, it is necessary to
weight the products by their relative
importance in trade, as is done below.
4.2 Results by Store Type
A question that immediately ari-
ses is whether these results are reliable
even when the type of merchandise
outlet is taken into account. For
example, if most of the observations
on imports from Region B come from
discount stores while most of the do-
mestic observations come from expen-
sive department or specialty stores,
the data might represent only differ-
ent levels of retail services and costs
rather than any true distinction be-
tween the prices of imports and do-
mestic goods. For this reason the
same calculations as shown in Appen-
dix Table A-i have been conducted
for four separate groupings of data:
observations from chain stores, de-
partment, discount, and specialty
stores, respectively. Using these separ-
ate calculations it is possible to exa-
mine whether imports tend to be
cheaper than domestic supply even
when "holding constant" the influ-
ence of store type.
Table 2 presents a summary of
the results by store type. It is clear
from the table that the strong pattern
of cheaper imports from Region B in
Table 1 persists even when distin-
guishing among store types. The per-
centage of products for which imports
from Region B are cheaper than do-
mestic supply remains high, on the
order of 70 percent.
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676
Table 2
Percentage of Sampled Products with Imports Cheaper than Domestic Goods
By Type of Store
imports from Europe, Japan, imports from Latin America,
Canada Asia
(Region A) (Region B)
Number of Percentage of Number of Percentage of
Sub-products Sub-products Sub-products Sub-products
with with imports with with imports
Type of Store Comparison Cheaper Comparison Cheaper
(A No.) (A %) (B No.) (B %)
Chain
Apparel 9 44% 46 70%
Footwear 18 33% 18 78%
Hardgoods 36 69% 24 71%
All Products 63 56% 88 72%
II. Department
Apparel 16 62% 44 73%
Footwear 25 32% 19 74%
Hardgoods 34 35% 24 79%
All Products 75 40% 87 75%
Ill. Discount
Apparel 7 71% 39 64%
Footwear 11 45% 21 38%
Hardgoods 35 45% 29 72%
All Products 53 55% 89 61%
IV. Specialty
Apparel 15 33% 42 69%
Footwear 26 15% 26 81%
Hardgoods 57 53% 28 86%
All Products 98 40% 96 77%
Source: Project palculations.
PAGENO="0685"
The results of Table 2 for im-
ports from Region A are similar to
those of Table 1 with respect to rela-
tive positions of different product
groups. Thus, imported apparel and
hardgoods tend to be cheaper or com-
parable in price to domestic supply,
while footwear imports from Region
A tend to be more expensive than
domestic, just as in Table 1. However,
the addition of detail by store type
makes a sizeable difference in the
degree of these price differences. In
general, when store type is neutral-
ized (Table 2), imports from Region
A are found to be cheaper than do-
mestic supply much more frequently
than when store type is not distin-
guished. For example, within each
store type, footwear imports from
Region A are cheaper than domestic
in about one-third of the cases. But
if all store types are considered to-
gether, footwear from Region A is
cheaper than domestic in only 6
percent of the cases. Thus, for foot-
wear much of the apparent greater
cost of imports from Region A
really reflects a concentration of
these imports in the higher cost
stores-department and specialty
stores.
Despite these distinctions, Ta~
bles 1 and 2 broadly point to the
same conclusions: imports from Re-
gion B (developing countries) are
almost always cheaper than domestic
supply; imports from Region A are
also generally cheaper for apparel,
but they are comparable in price for
hardgoods and they tend to be more
677
expensive than domestic supply for
footwear.
4.3. Significance Tests
Before turning to analysis incor-
porating weights by product, further
results reported in Table A-i of the
Appendix warrant attention. The
table reports t-statistics for tests on
significant difference of means. That
is, for each product there are several
domestic observations and several im-
port observations. The simple test
for difference of means enables one
to say whether prices of domestic
and import supply differ in a statis-
tically significant way. 6 In many
cases there are frequently too few ob-
servations on a single product to per-
mit a clear significance in the differ-
ence of means. For those products in
which the mean prices do differ sig-
nificantly, however, the results are as
follows. For Region B, there are 40
products (out of the total of 168) in
which imports are significantly
cheaper than domestic supply, but
only 3 products for which domestic
supply is significantly cheaper (at the
10 percent statistical level). Thus,
the significance tests strongly support
the general pattern of the results for
Region B: imports are systematically
cheaper than domestic supply.
For Region A, the cases of sta-
tistically significant difference in price
tend to show imports as more expen-
sive than domestic supply. There are
31 products for which imports from
Region A are significantly more ex-
pensive than domestic supply, and
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678
only 14 products for which Region A
imports are significantly cheaper than
domestic goods.
4.4. Weighted Aggregate Results
Table 3 presents the central em-
pirical results of this study. In this
table, the relative importance of each
product group is taken into account.
The table is therefore more meaning-
ful for general conclusions than Tables
1 and 2, which refer to simple fre-
quencies for the sample products,
which include as "products" items as
significant as a color television set
(number 142) and as modest asa cork-
screw (number 131).
The calculations underlying
Table 3 follow these steps. First, with-
in Regions A and B separately, the
weighted average ratio of import
price to domestic price is calculated
for the product group in *question.
For the various hardgoods categories,
each individual sample product is
weighted in proportion to the value of
imports in 1975 (Appendix A, Table
A-2), for the specific region. Thus, a
single figure is obtained for the per-
centage difference of import price
from domestic price for each of the
11 sub-categories of hardgoods, for
Region A and Region B separately.
For apparel and footwear, the im-
port data are of aggregation that make
the use of the entire categories prefer-
able to any attempt to distinguish
sub-categories. (In particular, the
trade data do not divide by the cate-
gories "men's, women's, boys', and
girls' ".) Because of the large number of
products in each of these broad cate-
gories (52 for apparel, 41 for foot-
wear), and because of the frequent
occurrence of products with an ex-
tremely small number of observations
from the region in question, it was
necessary to weight each product by
the number of import observations
for apparel and footwear. 7
The first two columns of Table 3
report the results of these calculations
for Regions A and B separately. As
shown in the table, imports from
Region B are systematically cheaper
than domestic supply. These imports
from developing countries are cheaper
by approximately 12 percent for ap-
parel, 24 percent for footwear, and 24
percent for hardgoods. (The weighted
average figure for all hardgoods uses
the import value for each sub-category
as the basis for weighting.) Imports
for Region A are slightly more expen-
sive than domestic supply in apparel
(4 percent) and in footwear (20 per-
cent). These results suggest the in-
fluence of fashion and brand attrac-
tion in these softgoods.. In hardgoods,
by contrast, even the imports from
Region A are cheaper than domestic
supply. Here, certain subsectors are
especially important to the overall
result. In the category for radios,
televisions, and stereos, in particular,
imports from Region A are 30 percent
cheaper than domestic supply, and
this category accounts for 25 percent
of the value of hardgoods imports
from Region A (Table A-2, Appendix
A). The only hardgoods categories
where there appears to be a premium
PAGENO="0687"
679
Table 3
Percentage Difference of Import Price from Domestic Pricea
Ill. Hardgoods
a. Within regions, weighting is proportional to the value of imports by product group (Table A-2,
Appendix A). Weights between regions for individual product groups are proportional to quan-
tity of imports, determined from relative import values as adjusted by relative price from each
region. For footwear, weights between regions are based directly on 1977 data for number of
pairs imported (International Trade Commission data).
Product Group
I. Apparel
II. Footwear
Imports from
Europe, Japan,
Canada
IRegion A)
+ 4.3%
+ 19.9%
+ 74.4%
- 30.4%
+ 12.5%
+ 8.7%
- 27.6%
- 15.6%
- 30.0%
+ 8.9%
- 10.4%
- 14.1%
+ 1.0%
- 5.4%
- 0.4%
Imports from
Latin America,
Asia
(Region B)
- 11.6%
- 23.5%
- 13.8%
- 25.8%
- 34.1%
- 9.1%
- 27.2%
- 29.9%
- 30.2%
- 26.4%
+ 1.8%
n a.
- 19.9%
- 23.7%
- 16.3%
Watches, clocks
Tools
Recreational goods
Small appliances
Typewriters, calculators
Housewares
Radio, TV, stereo
Photographic equipment
Furniture
Floor, wall coverings
Miscellaneous
Subtotal, hardgoods
All Products
A/l
imports
- 8.7%
-11.5%
+ 31.2%
-29.9%
- 4.9%
+ 7.8%
-27.6%
-19.4%
-30.0%
+ 6.0%
- 8.5%
-14.1%
- 7.8%
-11.8%
-10.8%
Source: Tables A-i and A-2, Appendix A.
PAGENO="0688"
680
for taste or fashion for imports from
Region A are watches and clocks, and
photographic equipment.
At the aggregate level, imports
from Region A are almost identical
in price to domestic products. The
savings on imported hardgoods are
offset by premiums on imports of
apparel and shoes from these indus-
trial countries. From Region B, by
contrast, aggregate imports are much
cheaper than domestic supply, costing
16 percent less (average based on im-
port value weights).
In order to arrive at a final
evaluation of the relative price of
imports, it is necessary to aggregate
imports from both Regions A and B.
The procedure followed in Table 3
does so while retaining the valuable
information about the different rela-
tive prices for the two regions. The
final column of the table is a weighted
average difference of import price
from domestic price. The weights as
between Regions A and B for each
product group are quantity weights. 8
For footwear, these quantity weights
are available directly from 1977 data
on the number of pairs imported from
each region. 9 For the other product
categories, the content is too hetero-
geneous to make weighting for ob-
served "units" meaningful. There-
fore the quantity weights are derived
indirectly. The import values (Table
A-2) are used as the basis for the
weights, but only after "deflating"
the import value for Region A by the
relative price of Region A goods com-
pared to Region B goods as implied
by the first two columns of Table 3.
These "deflated" values then provide
the basis for quantity weights to ob-
tain the weighted average import
price relative to domestic price (final
Column, Table 3). 10
The aggregate results shown in
the final column of Table 3 show that
overall imports are indeed cheaper
than domestic supply. Imports are
cheaper in each of the three broad
categories: apparel, footwear, and
hardgoods. Imports are cheaper in
each of the three broad categories:
apparel, footwear, and hardgoods.
Moreover, imports are cheaper than
domestic supply by a considerable
degree: approximately nine percent
for apparel, 12 percent for footwear,
and 12 percent for hardgoods. A final
aggregate price comparison isobtained
by weighting each of the three broad
product categories in proportion to
total imports (Table A-2). This final
aggregate estimate finds that overall
imports are 10.8 percent cheaper than
domestic products.
The crucial role of supply from
developing countries in this aggregate
result deserves highlighting. The aggre-
gate result for Region A alone shows
imports almost identical in price to
domestic products. It is the large
saving on import from developing
countries (Region B) that derives the
final re It whereby aggregate imports
are approximately 11 percent cheaper
than domestic supply.
Table 3 also may shed light on
the role of protective quotas as op-
posed to such influences as taste and
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681
brand identification. In the sectors
of apparel and footwear, U. S. imports
from Region B are subject to severe
quota controls. In both of these sec-
tors, Region A supply is considerably
more expensive than supply from
Region B (by 18 percent and 57 per-
cent, respectively). In the sector of
radios, television sets, and stereos,, by
contrast, the principal U. S. quota
restriction is against imports of color
television sets from Japan, in Region
A. And in this sector, supply from
Region A is just as cheap as supply
from Region B-both being 30 percent
cheaper than domestic supply. ~These
patterns suggest that the presence of
quotas facilitates the charging of
higher prices by the suppliers not sub-
ject to the quotas. In clothing and
footwear, the restraint on lower cost
supply from developing' countries
appears to facilitate the charging of
high prices by European and Japanese
suppliers. In the case of television sets,
limits on low-cost imports facilitate
the charging of high prices from the
main alternative supplier-domestic
U.S. production-leading to a wide
price difference between domestic
and imported supply. These patterns
imply that loosening up these quotas
would provide savings to the Ameri-
can consumer by permitting a larger
shift from more expensive domestic
supply to cheaper imports (in the
case of television sets) and from ex-
pensive domestic, European, and
Japanese supply to cheaper supply
from developing countries, in the
case of apparel and footwear.
4.5. Savings to the Consumer
The results presented in Table 3
may be used to estimate the total
annual savings to the American con-
sumer made possible by the availa-
bility of imports. These `savings arise
because, unit for unit and holding
quality constant insofar as possible,
imports are found to be cheaper than
domestic production. The present
flow of imports therefore provides a
direct savings to the consumer; if
the consumer had to shift entirely to
domestic supply he would lose on
each unit shifted because of the higher
price for domestic supply. And of
course if imports were abolished
there would be an enormous add ition-
al indirect cost to consumers, because
domestic prices would ,not stay fixed
(or even continue inflating at their
previous rate) but would rise to close
the gap caused by the decrease in total
supply as imports ceased. The esti-
mate here concentrates solely on the
direct consumer savings from imports,
not the additional indirect savings re-
presented by the fact that domestic
prices would be even higher in the ab-
sence of imports.
In order to estimate the direct
savings to American consumers made
possible by imports, it is first necess-
ary to consider the amount they
spend currently on imported goods.~
In the first half of 1978, total retail
sales by general merchandise, apparel
and furniture firms amounted to
$83.3 billion,11 so that total retail
sales for 1978 may be estimated as
approximately $167 billion. This fig-
L~L~-998 - 79 - L~L~
PAGENO="0690"
682
ure corresponds approximately to the
total sales of stores in the universe of
retail firms handling merchandise of
the type examined in this study:
essentially, manufactured consumer
goods excluding automobiles and
food. On the basis of information
from the retail trade industry, the
share of imports in total retail sales
is approximately eleven percent. 12
Therefore, total retail sales of import-
ed merchandise amount to. an estim-
ated $18.4 billion for 1978. The cal-
culations of Table 3 showed that im-
ports cost the consumer 10.8 percent
less than domestic supply. Therefore,
if consumers had to rely on domestic
supply alone, they would have to pay
12 percent higher prices13 for each
unit previously imported (the direct
effect, excluding indirect effects of an
induced rise in the price of domestic
goods). Applying this 12 percent fig-
ure to the base $18.3 billion spent on
consumer imports in 1978, the result-
ing estimate is that American con-
sumers save $2.2 billion annually by
obtaining imported goods at prices
below those of domestic goods.
4.6 The Low Income Consumer
Imports may play a special role
in providing consumer savings to low
income families. Although data are
not available for the fraction of con-
sumer imports purchased by the poor,
it is reasonable to expect that families
pressed by extremely limited budgets
seek out the savings available through
imports. Moreover, as between the im-
ports from costlier Region A and
cheaper Region B, it is likely that low
income families focus their purchases
on goods from Region B. One piece of
indirect evidence on this possibility
comes from data on imports of foot-
wear. A recent sample survey of foot-
wear merchandisers reported that
Korea and Taiwan generally supplied a
high proportion of low-valued shoes in
1976 and 1977. These two suppliers
accounted for virtually the entire im-
port sales for women's plastic dress
and casual shoes of under $5.00 and
for men's plastic work shoes of under
$12.00. For leather footwear, Korea
and Taiwan supplied 76 percent of
imported work shoes and 93 percent
of imported athletic shoes, and both
categories may be assumed to be
purchased chiefly by low income
groups. By contrast, industrial coun-
tries supplied the bulk of imported
leather dress and casual shoes, which
were probably purchased by higher in-
come families than were leather work,
athletic, and plastic shoes.14 These
fragments of evidence support the
idea that imports pu(chased by the
poor come mainly from the Region B
area (developing countries).
In order to determine the likely
savings to low income Americans
through imports, it is necessary to
apply weights that represent their
consumption. Table A-5 of Appendix
A presents some approximate esti-
mates of relative weights of the cate-
gories included in this survey, based
on consumer expenditure data for
families with incomes below $8,000
in 1972-73 (approximately 40 percent
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of all households).1 5 Although the cor-
respondences n categories between
the present study and the consumer
expenditure study are incomplete, the
weights computed in Table A-S are
sufficient to obtain an idea of the
specific percentage savings from im-
ports, for low income Americans as
a group. When these consumption
weights are applied to relative prices
of overall imports (from both Regions
A and B), the result is that imports
are 10.7 percent cheaper than domes-
tic goods. However, if one accepts the
idea that most imports purchased by
low income groups come from lower-
cost Region B, then (applying the
weights of Table A-S to the second
column of Table 3) low income con-
sumers save as much as 13. 1 percent
on the purchase of imports as opposed
to domestic goods.
4.7 Discount Sales
The survey results shed some
light on practices of discount sales as
related to imports. Although the sam-
ple period of August, 1978 was spe-
cifically chosen in order to avoid a
period of major sales (and the items
where relevant, were general fall
styles so that summer clearances were
avoided), the sample results did re-
cord the sale pride and the original
price for those products found to be
on sale.
To the extent that a larger frac-
tion of imports tended to be sold at
discount than is true for domestic
goods, there would be an additional
683
source of consumer savings from im-
ports. To the extent that, when they
are on sale, imports are marked down
by a larger percentage than domestic
goods on sale, there would be still
another source of savings for consu-
mers through the purchase of im-
ports. Indeed, the Library of Congress
study on retail markups cites testi-
mony by the International Trade
Commission suggesting that when im-
ported footwear is on sale the con-
sumer receives a larger percentage dis-
count than on domestic goods on
sale.1 6
Table 4 presents the information
contained in the sample survey with
respect to discount sale practices.
As shown in the table, only a very
small fraction of the sample obser-
vations were on sale at the time of
the survey, averaging on the order of
5 percent of the sample. Moreover,
the sale markdowns were not espe-
cially large, with markdowns from ori-
ginal price by one-quarter to one-
third.
The table shows that markdowns
on apparel and footwear tended to be
larger than markdowns on hardgoods.
The largest markdowns were on foot-
wear. The table does suggest that (~)
imports are more frequently on sale
than domestic goods, and (b) mark
downs for imports are larger than
markdowns for domestic goods-al-
though neither pattern is pronounced.
Both patterns distinguishing imports
from domestic goods show up most
clearly in the case of footwear. In
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684
Table 4
Patterns of Discounting in Retail Sales:
Imports and Domestic Goods (August, 1978)
Domestic Imports
Percentage of Percentage of
Total Sales Price as Total Sales Price as
Product Observations Percentage of Observations Percentage of
Group on Sale Original Pricea on Sale Original Price
Apparel 4.4% 67.9% 4.6% 67.9%
Shoes 2.3% 65.5% 5.3% 63.7%
Hardgoods 6.4% 75.7% 5.0% 73.6%
a. Unweighted averages of percentages for individual items on sale.
Source: Project calculations
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685
this sector the percentage of imported
goods on sale was more than twice
the percentage of domestic goods on
sale. Moreover, the sale price as a
fraction of original price was slightly
lower for imports than for domestic
footwear. For hardgoods, similarly,
the sale price of imports was a mo-
destly lower fraction of original price
than the corresponding fraction for
domestic goods.
Table 4 does not begin to tell
the whole story with respect to the
impact of discount sales on the rela-
tive price of imports. As the season
nears its end, the incidence of dis-
count sales becomes much greater
for softgoods, and the fraction of
items on sale would be much higher
than the level of 5 percent found in
August. As the season moves into
periods of volume discounting, it is
possible that the modest differences
between imports and domestic goods
apparent in Table 4 become much
more significant, and that imports
become still cheaper in relative terms
because of greater volumes and per-
centages of discounting than for do-
mestic goods. However, the results of
the survey itself can speak only to the
modest differences already apparent
in the non-sale period of August,
1978..
4.8 Regression Analysis
The final set of statistical analy-
ses carried out with the survey data
involve the estimation of "regression
models" that "explain" the price of
a particular observation by a number
of "variables". Specifically, each of
the characteristics of the observation
enters as a "dummy variable" taking
on the value of unity when applicable
and zero otherwise. For a particular
product group, the average price is
then "explained" by a statistical
regression which relates the price of
each observation to its distinguishing
characteristics, as measured by a dum-
my variable for each of the following:
city of the sample, product in ques-
tion, import from Region A or B ver-
sus domestic supply, type of store,
location of store (center city versus
suburb), and budget area versus regu-
lar area. The principal concern of this
study is with the coefficients on the
dummy variables for imports. If the
import variable is negative, then the
result indicates that the import is
cheaper than domestic supply even
when taking into account all of the
other factors such as store type, city,
and so forth.
The specific regression models
applied use the logarithm of price as
the dependent variable and the series
of dummy variables as independent
variables.17 The results of the regres-
sion tests appear in Tables A-3 and
A-4 of Appendix A. Broadly speak-
ing, these results confirm the results
already discussed. The regression
analyses systematically tend to show
imports from Region B to be cheaper
than domestic products (i.e. the re-
gression coefficients on the dummy
variable for Region B are usually
negative). They show imports from
Region A to be cheaper than domes-
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tic products in some cases (apparel,
tools, televisions, furniture, floor
coverings) and more expensive than
domestic products in others (foot-
wear, watches, clocks, recreational,
small appliances, typewriters, house-
wares, photographic equipment, mis-
cellaneous) (Table A-3). The result
for apparel is interesting in that it
finds imports from Region A to be
cheaper than domestic products, with
a strong statistical significance (high
t-statistics). By contrast, apparel im-
ports from Region A are found to
be more expensive in the direct analy-
sis of price ratios (Table 3 above).
This result suggests that once store
type, budget area, location, and so
forth are held constant, even Region
A supplies of apparel are cheaper than
domestic supply. Generally, however,
the regression results echo those al-
ready calculated (in Table 3 espe-
cially) on the basis of the simpler
analysis of import price relative to
domestic price. (The regression results
for footwear, for example, strongly
confirm that imports from Region A
are more expensive, and from Region
B less expensive, than domestic sup-
ply. Similarly, strong statistical results
for the regressions support the conclu-
sion on Table 3 that all imports are
cheaper than domestic supply in the
categories of tools and of radio-TV-
stereo.)
Finally, the regression analyses
throw light on tangential aspects of
merchandise trade. Table A-4 reports
686
the coefficients for dummy variables
other than those indicating imports.
These results indicate that: (a) de-
partment stores are about 48 per-
cent more expensive than chain stores
(the base), while discount stores are
on the order of 40 percent cheaper
than chain stores and specialty stores
are 22 percent more expensive; (b)
goods sold in apparel budget areas
are 32 percent cheaper than other
goods; (c) the center city is 8 per-
cent cheaper than the suburban
shopping center for apparel, but 25
percent more expensive for hard-
goods.
4.9. Summary of Survey Results
The sample survey results strong-
ly indicate that imports are cheaper
than comparable domestic products.
In the aggregate, when weighting
results by the significance of each
product category in total consumer
imports, the prices of imports are
found to be 10.8 percent cheaper
than prices of comparable domes-
tic goods. Imports from Latin Amer-
ica and Asia excluding Japan are
even cheaper. When considering the
products weighted according to con-
sumption by low income households,
imports from developing areas are 13
percent cheaper than domestic pro-
ducts. Overall, the American consum-
ing public saves more than $2 billion
yearly as the direct result of purchas-
ing imports that are cheaper than do-
mestic goods.
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5. Conclusion
This study uses sample survey
data for a total of 4,300 observations
on domestic and import prices, collec-
ted by the Survey Research Labora-
tory of the University of Illinois,
to examine whether or not imports
are cheaper than comparable domes-
tic goods. Detailed product specifi-
cation and instructions to the survey-
ors provide assurance that the price
comparisons are for domestic and im-
ported goods of comparable quality.
The chief finding of this study is
that imports are indeed cheaper than
comparable domestic goods. Overall,
imports are 10.8 percent cheaper
than domestic products.
Within imports, products coming
from Latin America and Asia exclud-
ing Japan (Region B) are considerably
cheaper than products imported from
Europe, Japan and Canada (Region A),
as was expected. Across all products,
imports from the developing Region
B are some 16 percent cheaper than
domestic goods, whereas imports from
industrial Region A are almost iden-
tical in price to domestic goods. The
contrast is especially striking for foot-
wear, where imports from Region B
are 23.5 percent cheaper than domes-
tic supply but imports from Region A
are actually 19.9 percent more expen-
sive than domestic footwear.
The fact that imports are cheaper
than domestic products means that
American consumers save more than
$2 billion annually as the direct result
of cheaper import prices (not includ-
687
ing their indirect savings made possi-
ble by the fact that domestic prices
themselves would be driven up if
import supply were curtailed). More-
over, these savings are probably es-
pecially important to low income
families. Assuming that the poor focus
their import purchases upon the
cheapest supply, that from developing
Region B, import prices are an esti-
mated 13 percent cheaper than do-
mestic prices for low income families
(using budget weights applicable to
families in the lowest 40 percent of
the U. S. income distribution.)
The general policy implication of
these findings is that the presence of
imports has a vital role to play in pro-
viding savings to the consumer and in
restraining inflation, the nation's num-
ber one economic problem. Therefore,
any proposed measures to reduce or
limit imports should be viewed with
the utmost caution. Even in those spe-
cial cases where import injury appears
to warrant some action, the appro-
priate remedy will probably be the
use of adjustment assistance, a mea-
sure that, if administered properly,
can attend to the needs of specific
dislocated workers without jeopardiz-
ing the benefits provided by imports
to consumers.
Another more specific policy im-
plication is contained in these results.
The price data for apparel, footwear,
and radio-TV-stereo products strongly
suggest that the consumer pays an
especially high price for the systems
of voluntary quotas in these sectors.
PAGENO="0696"
Imported apparel and footwear from
developing Region B are much cheap-
er than domestic (and Region A)
supply, yet the regimes of quotas ser-
iously impede the extent to which
American consumers can take advan-
tage of these low cost supplies. Similar-
ly, import prices for television sets are
cheaper than domestic prices, yet vol-
untary quotas against Japan limit the
extent to which the consumer can
benefit. The price data for these
688
three specific sectors graphically illus-
trate how the consumer and the fight
against inflation suffer when the nation
adopts import quotas as the means to
relieve a domestic sector considered to
be injured by imports. These specific
results again point to the need to make
* the transition to adjustment assistance
so that the injury of the specific sector
may be addressed without inflicting
broader injury upon the American
consumer and the economy as a whole.
PAGENO="0697"
689
NOTES
1. U. S. House of Representatives, Committee on Ways and Means, Library
of Congress Study on Imports and Consumer Prices (Washington, D.C.: U. S. Gov-
ernment Printing Office, 1977).
2. It must be added that, in the case of the Library of Congress study, the
information available on markups did not meet criteria for rigorous empirical investi-
gation. There were no national or survey data on actual markups. Most of the infor-
mation reported stemmed from oral statements of individual observers' perceptions
of usual practice. In the section of the study concerning apparel, the Library of Con-
gress study cited testimony of four representatives of labor unions, and no represen-
tatives of the retail industry. In the section concerning shoes, the study referred to
two testimonies by representatives of the American footwear industry, one empiri-
cal study by the footwear industry, and one study prepared for the footwear retail
industry. It is possible that by selecting seven out of eight reference sources from the
side of labor and domestic producers, the study may have obtained an unbalanced
view of markup practices by the retail industry for imports as opposed to domestic
goods. Ibid., pp. 2-6.
3. That is, foreign output does not move as far out along the upward slop-
ping supply curve (toward higher cost production) as it would if foreigners could sell
larger quantities (in the absence of quotas).
4. Because there were too few observations available for some of these pro-
ducts, the surveyors also took observations on "substitute" products. In those cases
where the substitutes were very close to the original product, the analysis merges
their observations with those for the original product. Otherwise the substitute pro-
ducts are omitted from the analysis (see notes to Table B-i).
5. Region A also includes imports from all other areas excluding Latin Amer-
ica and Asia. It thus includes communist countries and Africa; but in practice im-
ports from Region A are primarily from Europe, Japan and Canada.
6. The tests apply to assumption of equal variance for the two groups being
compared. The text discussion applies a general critical level of 1 65 for the t-statis-
tics, the critical value for significance at the 10 percent level for large numbers of ob-
servations. See Paul G. Hoel, Introduction to Mathematical Statistics (New York:
John Wiley & Sons, 1962), p. 277.
PAGENO="0698"
690
7. An additional detail of the calculations is that they are not merely the
weighted average of the ratio of import to domestic price. That average would be
biased upwards; a single ratio could swamp all others, because the upper limit of the
ratio is infinity while the lower limit is zero even though the true mean for random
variation would be unity. To take this assymetry into account, all cases with the
ratio of import price to domestic price greater than unity were first imverted, then
averaged (weighting); then the inverse was taken of this weighted inverse. Then that
weighted average was combined with the weighted average of all ratios below unity
to obtain the overall price ratio. Thus:
R _~w1 ~Th+ 1/~w~ ~L
~di ~mj
where R is the weighted average ratio of import to domestic price, w is the product
weight, ~m and ~d are import and domestic price respectively, and subscript i and
refer to all cases with product price ratio ~m'~d below and above unity, respectively.
8. Within each product group it is appropriate to use quantity weights, not
value weights, to obtain the overall ratio of price for imports relative to domestic
supply for the product group. Proof: within a given product group it is desired to
find ~m'~d where ~m is average import price (region A and B combined) and ~d is
domestic price. But ~m = Vm/Qm where Vm is total value of imports and 0m is
total quantity. But Vm = VA + VB and 0m 0A + ~B where subscripts A and B
denote region of origin. We are given the individual price ratios PA and PBfrom the
~d ~d
separate regional analysis (where ~A. ~B are import prices from Regions A and B,
respectively. The proposition to be demonstrated is that
0A + ~B . 0B = ~rr
~d 0m ~d 0m
that is, that quantity weights should be used. If this last equation may be shown
to be valid, the proposition is demonstrated. It may be rewritten as:
PAGENO="0699"
691
VA + VB
~d~m ~d~m
or, therefore, as
VA + VB
~d0m
and further, as
1 Vm
~d ~m
and the proposition is demonstrated.
9. According to I.T.C. data, 72.3 percent of the quantity of nonrubber foot-
wear came from Region B in 1977, and 27.7 percent from Region A. International
Trade Commission, "Non-Rubber Footwear: U.S. Production, Imports for Con-
sumption, Apparent U.S. Consumption, Employment, Wholesale Price Index, and
Consumer Price Index: Fourth Calendar Quater 1977" (Washington, D.C.: I.T.C.,
1978).
10. The specific procedure used is the following.
Let )~ = PA / PB for each category (Table 3). Then Pm is calculated as:
~d ~d
= PA VA/A ~ VB
~d (VA/a) + VB ~d (VA/h) + VB
11. U.S. Department of Commerce, Current Business Reports: Monthly
Retail Sales and Accounts Receivable, B R-78-06, June 1978, p. 4.
12. Discussions with retail industry experts provided specific data on the
share of imports (both directly purchased abroad and purchased from intermediary
import firms, but excluding U.S-assembled products using foreign components) for
23 major retail firms representing a total of $45 billion in net sales for 1977 (Stan-
dard and Poor's Corporation Records). When each firm's import share is weighted by
its fraction of total retail sales for the 23 corporations, the result is an industry-wide
estimate of eleven percent for the share of imports in total sales.
PAGENO="0700"
692
13, That is, 1.00/(1.00-0.108) = 1.12.
14. Brimmer & Company, Inc., Retail Sales of Non-rubber Footwear 1976-
1977 Reported in the Survey of Retailers' Non-rubber Footwear Transactions
15. Ideally the appropriate weights to use for each product group would be
the share in total imports of consumption goods purchased by low income families.
That is, ideally the same basis as that used in table 3 -- share of each product group
in total imports -- would be used again, but limited to the set of imports purchased
by the poor. In the absence of such data, it is necessary to weight by consumption
shares for the poor, implicitly assuming that the share of each product group in the
imports of the poor is proportional to the share of each product group in their
consumption.
16. "Library of Congress Study. .. ", p. 5.
17. For hard goods, the model estimated for each sub-category was:
lnp=a+b1CHI+b2LA+ b3PHL
+ c1DPT+c2DIS+c3SPL
+d1CEN
+e1IMPA+e2IMPB
+F1X1 +F2X2+FnXn
where OH!, LA, PHL, DPT, DIS, SPL, CEN, IMPA, IMPB, and X~ take on values of
unity if the observation is from (respectively) Chicago, Los Angeles, Philadelphia,
department store, discount store, specialty store, center city, Import Region A, Im-
port Region B, and sub-product group "i"; and these variables take on the value of
zero otherwise. For apparel and (separately) for footwear, a series of price range
dummy variables based on the average price for the sub-product replaced the series
of product dummy variables.
In this formulation, the antilog (natural base) of the coefficient on a particu-
lar dummy variable tells the fraction which the variable causes the price to be mul-
tiplied by, all else held constant. For example, the model states that
P = ea+bCHI... + e2MPB +
PAGENO="0701"
693
Suppose the result is that coefficient e~ = -0.2. Then a product imported from Re-
gion B is the fraction e°*2 0.82 times as expensive as the domestic product which
serves as the base for the estimate, or 1 8 percent cheaper than the domestic product.
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PAGENO="0705"
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Product Group and Number
Clothing
1-52
II. Footwear
53-93
Ill. Hardgoods
Watches, clocks
94-97
Tools
98, 100
99
Recreational
101,103
102; 104-112
Small appliances
113-115; 118-121
116
117
Typewriters, calculators
122, 123
124
Housewares
125, 127, 152
126-128, 130-131, 135-136
129
132, 137,138
133, 134
Radio, TV, stereo
134
140, 141
Photographic equipment
143-1 45
Table A-2
Imports of Consumer Products by Product Group
($ millions, 1975)
SITC Import Code
84
851
Value of Imports from:
Region A Region B
533.2 1,991.3
757.8 518.2
864
695.2
729.6
733.1
894.4
725.03
725.04
725.01
714.1
714.3
666
697.2
na.
6569170a
6327220a
891.1
724.2
861.4,861.5,
861.6,862.4
289.2
156.5
25.0
109.9
164.1
28.0
34.2
25.4
143.7
128.5
238.5
63.7
n a.
2.9
13.8
526.5
366.8
399.0
137.1
21.6
0.1
23.6
75.1
1.4
0.3
0.7
5.9
0.5
22.0
37.2
n .a.
4.4
32.9
76.6
293.9
24.4
~4-998 - 79 - 145
PAGENO="0706"
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Table A-2 (continued)
Value of Imports from:
Product Group and Number SITC Import Code Region A Region B
Furniture
146-150 821 328.9 68.4
Floor, wall coverings
151,153 657 57.8 45.9
Miscellaneous
154, 157 831 54.5 162.9
155 8994100a 3.4 18.4
156 897.1 92.9 34.2
158 891.4 27.5 6.7
159 697.1 15.4 17.6
160,164 894~00a 41.5 3.5
161 8612210a 26.7 4.7
162 690520 5.5 0.1
163 5541000a 4.1 0.3
166 717.3 172.0 13.8
167 8992420a 10.1 1.9
168 8942420a 7.8 7.2
Total, Group III 3,563.8 1,143.3
Total, Groups I-Ill 4,854.8 3,652.8
aU.S. Schedule A, Department of Commerce
Source: (1) SITC data: United Nations, Commodity Trade Statistics 1975~ United States,
ST/ESA/STAT Ser. D/77-14
(2) Schedule A data: U.S. Department of Commerce, FT 135, December 1974, U.S.
General Imports: Schedule A Commodity by Country..
PAGENO="0707"
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Table A-3
Regression Analysis: Coefficients on Import Dummy Variables
Regression Coefficients Number of
Product Group on Imports from: Observations
Region A Region B
Apparel -0.195 -0.0062 1461 0.367
(3.18) (0.19)
II. Footwear 0.425 -0.213 1074 0.339
(9.47) (5.06)
Ill. Hardgoods
Watches, clocks 0.976 0.362 130 0.629
(5.18) (1.68)
Tools -0.284 -0.283 74 0.807
(2.89) (1.45)
Recreational goods 0.300 -2.202 260 0.536
(2.17) (1.47)
Small appliances 0.198 -0.107 214 0.891
(2.00) (1.14)
Typewriters, 0.729 0.683 84 0.216
calculators (2.17) (1.28)
Housewares 0.313 -0.309 308 0.811
(3.84) (3.48)
Radio,TV,stereo -0.272 -3.26 105 0.859
(2.86) (2.79)
Photographic 0.806 0.579 81 0.573
equipment (3.54) (1.68)
Furniture -0.011 0.054 62 0.841
(0.07) (0.38)
Floor, wall coverings -0.687 -1.065 27 0.792
(0.85) (1.03)
Miscellaneous 0.218 -0.013 357 0.860
(2.59) (0.12)
Source: Project calculations.
t-statistic in parentheses.
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TableA-4
Regression Analysis: Coefficients on Dummy Variables
for City, Store Type, Budget Area, and Location
Dummy Variable I. Apparel II. Footwear Ill. Hardgooclsa
Cityb
Chicago 0.059 -0.141 0.262
(1.3) (2.7) (2.2)
Los Angeles 0.018 -0.005 0.449
(0.04) (0.1) (3.8)
Philadelphia 0.060 -0.049 0.232
(1.4) (1.0) (2.04)
Store TypeC
Department 0.391 0.327 0.532
(9.5) (6.5) (4.4)
Discount -0.427 -0.463 -0.970
(9.3) (8.5) (0.8)
Specialty 0.256 0.202 0.098
(6.0) (4.6) (0.9)
Budget Aread -0.377 n.a. n.a.
(3.6)
Center Citye -0.082 -0.012 0.222
(1.9) (0.2) (1.9)
t-statistics in parentheses
apool of all hardgoods sectors except watches and clocks, typewriters and calculators, and
photographic equipment
bBase = Atlanta
CBase = Chain stores
dBase = Regular areas of store
e Base = suburban shopping center and other
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Table A-5
Product Weights for Consumption of Low-Income Families
Survey Categoty BLS Categorya Weightb
Apparel ~`l ( .543
( Clothing
Footwear ) .114
Watches, clocks n.a. n.a.
Tools n.a n.a
Recreational goods na, na.
Small appliances Small appliances .015
Typewriters, calculators n .a. n .a.
Housewares Housewares .010
Radio, TV, stereo Television .077
Photographic equipment na. na.
Furniture Furniture .147
Floor, wall coverings Floor coverings .040
Miscellaneous Household Miscellaneous .054
Total 1.000
a. Bureau of Labor Statistics, Consumer Expenditure Survey: Integrated Diary and Interview
Survey Data, 1972-73, Bulletin 1992, Washington, D.C., 1978, pp. 28-29.
b. Calculated from Ibid. Disaggregation of clothing into apparel and footwear applies consumer
expenditures on the two sectors in 1973, as reported in C. Almon,Jr., M. Buckler, L. Horowitz,
and T. Reimbold, 1985: Interiñdustry Forecasts of theAmerican Economy ~Lexington, Mass.:
Lexington Books, 1974), p. ElO.
`4LI_ggB - 79 - `46
PAGENO="0710"
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APPENDIX B
Methodology and Implementation of
the Sample Survey
(prepared by the Survey Research Center
of the University of Illinois)
Preliminary work took the form
of meetings with representatives of
several companies heavily involved in
the retailing of both domestic and
imported goods. Their opinions were
sought on such questions as: For what
goods would both domestic and im-
ported versions be found in the
stores? Which four cities would pro-
vide a good representation of the total
U. S. retailing market? Which time of
year would be best for doing the
study? What kinds of stores should be
included?
Meetings were held with repre-
sentatives from Montgomery Ward,
Sears, Roebuck and Co., Kmart, and
the Associated Merchandising Cor-
poration. In addition, some time was
spent making store visits in Cham-
paign-Urbana and in Chicago, to learn
more about what was available.
The methods of the Consumer
Price Index were also studied, and
inquiry was made into using some of
the CPI specifications for this study.
This did not work out, however,
since the CPI procedure has recently
changed quite radically from speci-
fying items very precisely to leaving
a lot of choices to the pricer. In addi-
tion, the objectives of the two surveys
were very different, that of the CPI
being to follow price trends of items
over time, while ours was to compare
the domestic and import prices of an
item at one point in time.
It was decided that the four
cities to be included would be Los
Angeles, Chicago, Atlanta, and Phila-
delphia, and that the period of pric-
ing would be the month of August,
to allow time for the summer mer-
chandise to be largely cleared away
and the new fall merchandise to be
stocked. All four store types-depart-
ment, chain, discount, and specialty
-would be included. These were de-
fined as follows:
Chain stores are large stores
containing a variety of departments
with nationwide branches located in
the major cities of the United States.
Examples of stores meeting the cri-
teria of chain store for this study are
Sears, Roebuck & Co. and J. C.
Penney Co.
Department stores are large
stores containing a variety of depart-
ments. However, their marketing area
is limited to the city or region in
which they are located. In each city
all major department stores were visi-
ted.
Discount stores are also large
stores containing a variety of depart-
ments. However, the distinguishing
feature of these stores is the selling
of merchandise in volme at reduced
prices. Stores that specialize in only
one type of item, for instance, dis-
count clothing, were not included.
Four discount stores were surveyed
in each city.
PAGENO="0711"
Specialty stores are relatively
small, non-departmentalized stores
which sell primarily one type of item,
for instance, men's and women's
clothing stores, sporting goods stores,
hardware stores, and jewelry stores.
Every type of specialty store which
corresponded to the types of items
being priced was surveyed in each
city. f-jowever, the number of stores
visited of any one type varied across
cities. For example, shoe stores were
visited in every city, but the number
of shoe stores visited per city fluctua-
ted with the ease or difficulty of as-
certaining a domestic and imported
price on the specific shoe under in-
vestigation. The total number of
specialty stores surveyed per city
were Atlanta, 95; Chicago, 72; Los
Angeles, 68; Philadelphia, 61.
Initially, the plan was to price
100 items (40 apparel, 20 footwear,
and 40 hard goods), obtaining five
domestic and five imported price
observations for each item. The num-
ber of items specified was expanded
to 168, to allow for unavailability of
some items in one or more locations,
and the number of price observations
desired was changed from five to a
minimum of four and a maximum of
six. Ideally, a pair of observations
(an imported and a domestic version)
would be obtained from each store
type. Approximately 50 apparel, 40
footwear, and 75 hardgoods items
were specified.
Data from the national Con-
sumers Expenditures Survey of 1972-
73 and from Commerce Department
703
reports on imports were used to es-
tablish the initial, somewhat broad,
categories to be priced. The chain
store catalogues (which indicate im-
ported items) were used as an aid to
selection and specification of pro-
ducts. A complete listing of the item
specifications, designed to maintain
comparable quality of the items
priced, is presented in Table B-i.
Since imported goods must, by
law, be clearly labeled as to country
of origin, the absence of such labeling
was taken to indicate domestic manu-
facture or assembly. For the purposes
of this study, country of origin was
determined by where the item was
assembled, if that differed from the
origin of materials used.
A limited field period (6 days
in each city) and budgetary con-
siderations necessitated an efficient
and economical study design. Infor-
mation from leading department
stores across the country indicated
that within a city prices on items be-
tween branches of a store tended to
be identical. Therefore, if only one
store of any number of branch out-
lets was surveyed, the prices collec-
ted would be representative of all
branches of that store. For instance,
if one store of the many Marshall
Field stores in Chicago was visited,
those prices would represent all
Marshall Field stores in Chicago.
With this information and the
goal of collecting approximately 340
prices (170 domestic and 170 im-
ported) in 4 types of stores within a
limited field period, the most reason-
PAGENO="0712"
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- able approach to achieve this goal was
to visit areas in which the 4 types of
stores were clustered; namely, shop-
ing centers and downtown shopping
areas.
The shopping centers visited
were designated on the basis of con-
taining at least one chain, one depart-
ment, and a variety of specialty stores.
These 3 types of stores.were worked
simultaneously at each selected shop-
ping center and downtown area until
all chain stores and the major depart-
ment stores had been surveyed. Down-
town locations were worked in all
cities to ensure representation of
small stores and shops in that area.
Since discount stores are not generally
located in shopping centers or in
downtown areas, there stores were
visited on separate trips. Some special-
ty stores, such as hardware stores, are
not usually located in major shopping
centers; these, also, were worked on
separate trips. In general, cooperation
from the managers of the selected
stores was good. Incidents of refusals
or hesitation to participate in the
survey were few and primarily from
specialty stores.
The data collectors for each city
(except Chicago) consisted of a team
of 4 SAL staff members, plus a local
person who had been recommended
by a research organization in the area.
In addition to serving as a data collec-
tor, a secondary function of the local
person was to advise the staff mem-
bers of the best routes through the
cities and to supply additional infor-
mation about shopping areas. This
assistance tended to increase the
efficiency of the field operation.
The data collection team worked
the entire item list in every chain,
department, and discount stores sur-
veyed. Obviously , in specialty stores
only the prices for items which per-
tained to that type of store were
collected. In some cities where a speci-
fied item was not available, substitu-
tions were made. For instance, in Los
Angeles downhill skis were not avail-
able, so another sporting good item
was substituted. Substitution due to
unavailability of an item was a minor
problem since most items were fairly
common consumer goods available in
most stores and cities. Approximately
1 ,000 prices per city were gathered
during the month of August, 1978.
The data collection periods for each
location were as follows:
Chicago1 - August 1-2, 8-18
Los f-Angeles - August 14-19
Philadelphia - August 21-26
Atlanta - August 22-26
The instructions to data collec-
tors appear in Annex B-i. A few
changes were made after the begin-
ning of field work and these are
footnoted.
1Because Chicago served as a training ground for all field personnel, and because of some
procedural changes made after the start of field work, data collection here was carried out over
a longer period than elsewhere.
PAGENO="0713"
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Women's Apparel
No. Item
001 All-weather coat
002 Pants
003 Bow blouse
004 Shirt
005 Shirt
006 Cardigan sweater
007 Pants
008 Shell
009 Ski jacket
010 Vest
011 Hat
012 Velour pullover
013 Yoked blouse
014 Scarf
015 Gloves
TABLE B-i
Item Specifications
Specification
Cotton-poly blend poplin, single-breasted trench coat
-zip or button out pile lining, belt, pockets
Elastic waist, polyester knit, front creases stitched,
solid color
Polyester knit, button front, bow-neck, cuffed long
sleeve
Polyester knit, pointed collar, cuffed, long-sleeve,
front button placket
50/50 poly-cotton plaid tailored shirt, front button
placket, cuffed long-sleeve
V-neck, 2 front patch pockets, ribbed orion acrylic,
set-in sleeve
Corduroy, front zipper, waist band, elaborate pocket
trim
Sleeveless, double-knit nylon or polyester, plain
jewel neckline, long zipper
Nylon, fiber filled, multi-colored, zip front, 19-24
in. long
Jr. sizes, corduroy, 3-4 buttons, patch pockets
Acrylic knit, ski cap type, solid color
V-neck or crew neck, cotton-poly ribbed cuffs, neck-
line, bottom
Jr. size, poly crepe, round collar, gathered at yoke~
long sleeve, cuffs, button front
27 in. square, polyester (silky look),decorative
design
Women's leather look, acrylic knit lined, 11 in. long
PAGENO="0714"
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Men's Apparel
016 Down-look jacket Quilted nylon shell, hip-length, hood, closed pockets;
regular size
017 All-weather coat Cotton-polyester blend, zip or button out lining of
acrylic pile, pockets, above knee length.
018 Knit shirt Long-sleeve pullover, poly-cotton knit, collar, 4-but-
ton placket; one pocket, solid color
019 Plaid shirt 100% cotton flannel, 2 flap pockets, shirttails
020 Dress shirt 65% poly/35% cotton broadcloth, long-sleeve, one-
button cuff, chest pocket, solid color
021 Dress shirt Same as above, but short-sleeved
022 Dress slacks Double-knit poly, slant front, inset back pockets,
flared, Ban-rol type of waistband
023 Dress slacks Woven polyester, slant front, inset back pockets,
flared, Ban-rol type of waistband, solid color
024 Fashion jeans Western style, front scoop pockets, embroidered or
pleated back pockets, regular denim
025 Jeans, regular Perma-press, 100% cotton; scoop front, patch back
pockets, flared (orange stitching)
026 Pullover Wool-blend - (70-80%) full-fashioned or set-in sleeves,
rib-knit trim cuff, hem, neck
027 V-neck pullover Qrlon acrylic, long set-in sleeves, solid color
028 Sport coat Corduroy, single-breasted, nylon lining, 2 patch
pockets
029 Western shirt Cotton-poly plaid, snap or button closures with yoke
030 Robe Kimono-style wraparound velour (acetate-nylon)
patch pockets, solid color, knee length
Terry cloth robe Same type
031 Men's warm-up suits 100% acrylic, rib knit cuffs and waist, zippered
jacket, straight leg pants
032 Pajamas Button coat style, elastic waist, long sleeve, ankle-
length pants, poly-cotton fabric
033 Turtleneck Medium weight knit, solid color, pullover, 100%
acrylic
PAGENO="0715"
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Girls' Apparel
034 Shirt-7-14 50/50 poly-cotton broadcloth; long sleeve, one-but-
ton cuff, shirttails, solid color
035 Slacks, dress 7-14 Double knit acrylic, elastic waist, button trim on
waist
036 Jeans, 7-14 Western-style, front scoop and back patch pockets,
100% cotton denim, solid colors
031 Sweater, 7-14 V-neck, cable stitch, ribbed collar and cuffs, acrylic,
solid color
038 Turtleneck pullover Nylon-poly rib knit; long sleeve, reinforced cuffs
and bottom; solid color
039 Sweater vest Ribbed pullover, ribbed trim on neck, armhole, and
waist
040 Sweatshirt Sized 2-6x; hood, zipper front acrylic-cotton blend.
2 pockets, knit cuff, waistband.
041 Snowsuit Infant, newborn to size 2, one-piece nylon, zip-up
- front with legs
042 Knit pant set Toddler girl; poly-cotton blend striped or printed top,
pull on pants
043 Coveralls Infant size; cotton corduroy, zipper front, crotch
snaps, solid color, trimmed collar
Boys.' Apparel
044 Flannel shirt Printed plaid; size 8-16; long-sleeve 100% cotton
flannel
045 Pajama Coat style; polyester flannel
046 Nylon warmup jacket Flannel-lined, shirt style collar, snap front slash pock-
ets, elasticized wrists, drawstring
047 Down-look jacket (Size 8-20) stand up collar, flap patch pockets, hood,
zip front, storm flap
048 Knit sportshirt Collar and placket style, 3 or 4 button, long-sleeve,
square hemmed bottom
049 Sweater Crew-neck, acrylic-blend knit, set-in sleeve
050 Jeans Western style, front scoop pocket, set-in back pock-
ets, reinforced knees, flared legs
PAGENO="0716"
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Boys'Apparel (continued)
051 Dress pants Polyester knit, modified flare, 2 front slash and 2
back pockets
052 Shirt-overall set Infant size; knit poly-cotton shirt, corduroy overalls,
snap crotch
Women's Shoes
053 Dress boots Leather uppers, full-length zipper, about 15 in. high,
unlined
054 Women's leather Slip-on style; cusioned lining, crepe wedge sole
casual shoe
055 Classic pump Leather uppers, 1-3/4 in. heel, closed heel and toe
056 Plastic rain boot Clear or smoke color, slightly over ankle height
057 Casual boot Uppers man-made; full length side zipper; 2-in.
heel; crepe sole and heel
058 Sandal Open toe, 3-5 crossed straps, leather uppers; 2-3
in. heel.
059 Traditional slip-on Crepe sole covered wedge heel 1h/2~2 in., man-made
upper with gathered moc-toe
060 Leather moc Unlined, all leather or suede
061 Athletic shoes Smooth leather uppers, suede split, leather trim,
padded collar, vinyl soles
062 Slippers Women's scuffs, open heel and toe, acrylic uppers,
vinyl soles
063 Sling-back pump Uppers man-made materials, closed toe, adjustable
strap, approx. 2 in. heel
064 Oxford sneaker Cotton duck upper, rubber sole, no trim, 4 eyes
PAGENO="0717"
709
Nylon upper with split leather reinforced toe, heel,
eyelet area; traction treaded
Plain toe adjustable strap, leather upper, leather sole
Plain toe, tie shoe, leather upper and sole
Leather upper and sole, matching leather vamp band
Strap and buckle slip on, calfskin upper, leather
lined; leather sole
Sueded split-leather uppers, unlined moc-toe~styling,
crepe rubber sole and wedge heel
Leather shaft, rubber sole and heel. Chain tread sole,
unlined
Black, zipper front, lined
Leather with man-made sole
Leather with man-made sole and heel
Leather uppers, 6 - 8 in. high, traction tred soles
and heels
Black oxford, rubber soles and heels, leather uppers
Rubber soles and heels lugged for traction, cushioned
insole, leather uppers
Cotton canvas uppers, reinforced rubber toe, metal
eyelets, rubber soles
Moc-style T-strap casuals; vinyl uppers; buckle strap;
wedge heel, cushioned nylon tricot linings; rubber
outsoles
Men's Shoes
065 Athletic shoes
066 4 1/2 strap and buckle
boot
067 Classic oxford
068 Moc-toe slip-on
069 Dress shoe
070 ` Men's chukka bbots
071 Rubber and leather~
boot
072 Zippered rubber dress
boot
073 Romeo style slipper
074 Monk strap
075 Work style boots
076 Work shoes
077 Hiking boots
078 Tennis shoes
Girls' Shoes
079 Casual shoe
080 Casual shoes
Sueded oxfords; suede split-leather uppers; rubber
outsoles and wedges with ridged bottoms
PAGENO="0718"
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081 Casual shoe Strap and buckle slip-on. Leather uppers with con-
trast stitched trim. Moc-toe styling. Any synthetic
ribbed wedge bottom
082 Saddle shoe White leather uppers with vinyl trim; oblique toe;
sturdy foam sole and wedge heel
083 Jogging shoe Nylon and sueded split leather uppers; vinyl stripes;
nylon tricot lined; padded vinyl collar, peaked back;
rubber toe guard; traction-treaded rubber sole;
cushioned insole
084 Dress shoe T-strap; crinkle vinyl upper; cutout design across
vamp; vinyl sole and heel
085 Boot Approx. 10" high, vinyl upper, man-made sole and
heel, unlined, full-length side zipper
086 Oxford sneaker Rubber sole, canvas uppers
Boys.' Shoes
087 Athletic shoes Nylon upper with split leather reinforced toe, heel,
eyelet area; traction treaded sole
088 Tennis "sneakers" Oxford style, cotton duck uppers; metal eyelets,
rubber soles
089 Hiking boots Padded collar, speed laces, leather uppers
090 Leather oxford Moc-toe, 3-4 eyelets, leather uppers, ridged sole and
heel
091 Oxford casuals Moc-toe, suede split-leather uppers, contrast stitch-
ing on vamp, crepe style shoes
092 Slip-ons Plain toe, monk straps, leather uppers, adjustable
buckled strap
093 Work style boots Leather uppers, 6 - 8 in. high, traction tred sole and
heel
Watches
094 Men's watch, metal LED (Light emitting diode) display of red light. 5
band function (hours, minutes, seconds, day and date).
Quartz movement.
PAGENO="0719"
Tools
098
099
100
102
103
104
105
106
107
108
109
110
111
112
Hammer
Electric drill
Pipe wrench
711
LCD (liquid crystal display) constant readout. 5
function. Quartz movement
Hour, minute and sweep hand. Day of the week and
date display. 17 jewel movement, self-winding. Metal
case and band
Men's expansion link, metal, one piece
Watches (continued)
095 Men's watch, metal
band
096 Men's watch
097 Watchband
Recreational Goods
101 Bicycle
Volleyball
Tricycle
Cross-country skis
Fishing reel
Tennis racquet
Camp stove
Backpack
Soccer ball
Jump rope
Tennis balls
Children's roller
1 6-oz steel head, wood handle, curved claw
3/8 variable speed reversible; insulated; 1/3-1/2 HP,
2.4 to 3.2 amps. (no top or side handle)
10 in. size, heavy duty
Men's lite-weight, 10 speed, 23 in. frame, 26" or 27"
wheels, drop bars
Leather, official size and weight
12" front wheel, metal frame
Light touring, fiber glass
Ultra-light spin cast reel (ex. Zebco 113)
Nylon strung, leather grip, hardwood ply construc-
tion
Double burner, white gas or propane -
Nylon, padded shoulders, zippered pockets, no frame
(record size)
Regulation, leather covered
Swivel handles, with nylon bearings
Canister of 3 regulation size and construction USTA
approved
All metal, outdoor use. Fits on shoe
skate~ -
PAGENO="0720"
712
Small Appliances
113 Mist curling iron 20-40 watts. Dot signal when ready for use.
114 Mist hair curling 20 rollers in an electric cabinet. Between 200 and 300
watts
115 Cordless electric Comes with several brushes
toothbrush
116 Men's electric Foil head, not rotary. Cord model, not rechargable.
shaver Built in trimmer
117 Compact refrigerator Between 2 and 3 cubic feet capacity. Freezer section
118 Hand mixer 5-speed electric, chrome plated beaters, push button
ejector, approx. 90-100 watts plastic case (no rack,
bowls)
119 2 slice automatic Snap open crumb tray
toaster
120 Blow hair dryer 1000-1 200 watts, low and high settings for speed and
heat (no attachments)
121 Food processor Stainless steel blade, plastic housing, plastic contain-
er, 2-4 additional cutting disks
Typewriters, Calculator
122 Electric typewriter 12 in. power return, standard (not cartridge) ribbon
123 Manual typewriter 12 in carriage, portable, back-space, full-width tabu-
lator, steel frame, plastic shell
124 Calculator Inexpensive, 6-function, sq. root and % keys, 8 digit
display, floating decimal, LED display, memory
Hardgoods-House wares
125 Coffee mugs Ceramic, 8-10 oz. capacity, simple or no design
126 Steak knives 6-piece steak set; stainless steel blades, wood holder-
flat board (not box or cube base)
127 Stoneware dinner sets 45-piece service for 8. Oven proof and dishwasher
safe
PAGENO="0721"
713
Hardgoods-Housewares (continued)
128 Frying pan Teflon-like (non-stick) interior, painted porcelain
enamel exterior; 10" open skillet
129 Kitchen (diet) scale Comes with bowl, weighs up to 1 lb., marked in ozs.
and grams
130 Meat slicing knife Stainless steel, 9-10 in., smooth (non-serrated) edge
131 Corkscrew Winged-style, chrome-plated
132 Toaster cover 2-slice size, vinyl material
133 Spice rack Colonial hard-wood rack, 12 bottles
134 Wooden salad bowl 3-piece bowl and 2 servers
set
135 Tableware 50-piece service for 8, stainless steel flatware, knives
have forged blades
136 Kitchen shears Heavy duty blades
137 Placemats Poly-cotton blend, not quilted
138 Tablecloths 52" x 70", cotton, perma press
Radio, TV, Stereo
139 Stereo phonograph With AM-FM radio and 8 track player. 3-speed record
changer on top of receiver with 2 separate speakers,
100% solid state, separate bass, volume and treble
controls; AFC. Simulated wood grain. Diamond
needle, ceramic cartridge. Head phone jack. 2 speak-
ers per cabinet, approx. 5 in, speaker. Comes with
dustcover, adjustable stylus pressure. (No anti-skating
adjustment, pressure magnetic cartridge, cueing lever,
or Dolby noise reduction feature)
140 CB radio 40 channel mobile unit, 100% solid state, LED
READ OUT (on unit, not mike) 4 watt output power
PLL digital frequency synthesizer (needs no crystals)
(No automatic scanning, antennas)
141 Digital clock-radio Snooze control; AM/FM, 100% solid state
142 Color TV 19" portable; VHF to UHF, 100% solid state chassis
PAGENO="0722"
714
Photographic Equipment
143 Binocular Standard angle, 7 x 35 mm lens
144 110 Camera Uses 110 film cartridge, built-in telephoto lens, 24-25
mm. lens, automatic exposure
145 Camera film 35 mm., 36 exposure, color slide film, ASA 64
Processing not prepaid
146 4-drawer chest Wood-grained laminate on chipboard, hardboard back
and drawer bottom; side guide for drawers, approxi-
mately30xl6x39
147 Bentwood rocker Cane seat and back, wood frame
148 Director's chair Hardwood frame, hemmed canvas seat and back
149 Cube lamp Approx. 10 in. high, colored base, 6-in, round globe
150 Pole lamp Extendable; 3 lights, 60W; decorated swivel shades,
Ceiling to floor style
Floor and Wall Coverings
151 Broadloom Machine woven, 80% - 20% blend, 40 yards
carpeting
152 Ceramic tile 4%" x 4%" standard bathroom floor tile, white
153 RYA style rug Approx. 4 feet by 6 feet. 50 - 80% acrylic fiber
Hardgoods, Misc.
154 Bag, attache-type Women's leather, double handles, zipper top, stitched
trim, outside zippers
155 Umbrella Women's, nylon, crooked handle
156 Gold chain 16 in. 14K gold fine link chain
157 Shoulder tote bag Approx. 15 x 14 x 7; vinyl on cotton; zip top; out-
side and inside pocket, shoulder strap
158 Acoustic guitar Full size, 6-string with case
159 Microwave oven Basic memory ability
PAGENO="0723"
715
Hardgoods, Misc. (continued)
160 Cigarette case Leather pouch with metal fastener
161 Sun glasses Polar~ lenses, plastic frames, simple design
162 Cuticle scissors 3/4", ver~y sharp points with fine cutting blades
163 Bar soap Scented, bath size
164 Cigarette lighter Disposable butane lighter
165 Travel alar,rn clock Fold up, leather case, brass hinges
166 Sewing machine Free arm, touch and sew, wide variety of stitches
167 Hair brush Women's flat brush with wooden handle and natural
bristles
168 Chess set Small traveling set with metal board and magnetic
pieces in wood box
Substitutions
Chicago
601a (100) Pipe wrench 8" size, heavy duty
Philadelphia
801a (038) Girls' turtleneck Cotton-poly rib knit, long sleeve, reinforced cuffs and
pullover bottoms, solid color
802a (128) Porcelain frying Teflon-like interior, 10" size, unpainted silver
pan exterior
803b (099) Crescent wrench 10" size, all steel
804b (112) Boot roller skates Vinyl boots with hollow steel wheels for outdoor use
805b (168) ~ackgammon set 12 x 6", folding wooden box, felt-lined, plastic pieces
806b (099) Electric sander 1/5 HP, 115 volts, double insulated, orbital and
straight sanding motion, 8 x 4.5 sander, screw in
sandpaper
PAGENO="0724"
716
Can opener Electric with removable cutter and magnetized lid
holder, standard size
Desk lamp All metal with 18" folding arm, 1 bulb, round shade
Los Angeles
701a (001)
702a (005)
703a (006)
704b (018)
705a (020)
706a (028)
707a (034)
708a (036)
709a (037)
710a (035)
All-weather coat
Shirt
Cardigan sweater
Knit shirt
Dress short
Sport coat
Shirt
Jeans
Sweater
Dress slacks
Same as regular from No. 001 except 100% polyester
Same as regular item No. 005 except 65-35 poly-
cotton
Same as regular item No. 006 except cable stitched
and 100% acrylic
Same as regular item No. 018 except short sleeved
Same as regular item No. 020 except 100% cotton
Same as regular item No. 028 except with inset
pockets
Same as regular item No. 034 except 65-35 poly-
cotton
Same as regular item No. 036 except has decorative
stitching on pockets
Same as regular item No. 037 except has crew neck
Same as regular item No. 035 except it has pockets
and doesn't have button trim
Same as regular item No. 043 except made of broad-
cloth
Atlanta
501a (038) Girls' turtleneck Same specs as No. 801 in Philadelphia
502a (043)
503a (074)
504a (102)
505b (115)
506b (119)
507b (149)
pullover
Overalls Same as regular item No. 043, except no shirt
Mens' monk straps Same.as regular item No. 074, except leather bottoms
Volleyball Same as regular item No. 102, except leather-look
Shower head Wall mount, multiple spray, pulsating action shower
head
711a (043) Coveralls
PAGENO="0725"
717
Same as regular item No. 050 except has patch
pockets
Same as regular item No. 050 except no reinforced
knees
Moo-toe, leather upper, other parts man made, one
inch heel~
Unlined, man-made sole, closed heel and toe, wedge
heel with jute trim
Wood spiked heel (2-3" high), wood sole, 2-4 crossed
straps, leather uppers
Same as regular item No. 067 except with man-made
sole
Suede uppers, other parts man-made, ridged bottoms,
3-4 eyelets
Leather uppers, 2-3 eyelets, man-made ridged bot-
toms, moc-toe
Contrast stitching, man-made bottoms with traction
tread, padded collar, suede uppers
Same as regular item No. 100 except 8"
Metal with cloth cover
Same as regular item No. 110 except no nylon
bearings
Same as regular item No. 137 except is quilted
100% wool pile, 5' x 9', oriental design
Same except comes with flash and film
Hard wood board, continuous track
Leather u~3}ers, 2-3 eyelets, other parts man-made,
ridged bottoms
712a (045) Pajamas
Same as regular item No. 045 except made of broad-
cloth
713a (050)
714a (050)
715b (056)
716b (060)
717b (063)
718a (067)
719b (071)
720b (072)
721b (092)
722a (100)
723a (104)
724b (110)
725a (137)
726b (151)
727a (144)
728b (168)
729b (071)
Jeans
Jeans
Leather strap and
buckle slip-on
Canvas slipper
Sandal
Classic oxford
Moc-toe oxford
Oxford casual
Athletic-style
suede shoe
Pipe wrench
Canteen
Jump rope
Placemats
Area rug
110 camera
Cribbage game
Oxford casual
Notes:
a. Product observations merged with those of main product listed in parentheses for purposes of
empirical analysis.
b. Product observations excluded from empirical analysis.
4~4-998 - 79 - `47
PAGENO="0726"
ANNEX B-i
Field Instructions
Purpose and Objectives
718
The purpose of this study is to
compare the retail price of a number
of different items of merchandise
that are produced in this countrywith
items of essentially the same quality
that are sold in this country but are
imported from elsewhere. To do so,
we shall be seeking price information
on the domestic and imported ver-
sions of approximately 100 products
in each of four cities. The products
are divided into broad categories such
that we shall be seeking price quota-
tions on approximately 40 items of
apparel, 20 footwear items, and 40
hardgoods items.1 The cities in which
this information will be sought are
widely scattered major urban areas
of the country, namely, Chicago,
Philadelphia, Atlanta, and Los An-
geles.
To allow for differences in pric-
ing policies and other factors, five
price quotations are to be sought for
each of the domestic and imported ver-
sions of each item in each city. As a
result, we Will be seeking in this study
from each city, 500 price quotations
for items of retail merchandise pro-
duced domestically, and 500 price quo-
tations for corresponding items that
are imported from other countries.
The prices of these items are to
relate to prices asked in the store, as
noted by the price tags. Where there
is any question, the focus of the data
collection Operation is on the fall
merchandise lines, not on merchan-
dise lines that are presently being
depleted.
The price quotations will be
sought in each city during the period
of one week by.a staff of four people.
Since the synchronization of the col-
lection of these data by four people
working more or less independently is
very tricky, arrangements will be
made for the members of each team
to meet at the end of every day, and
to tally what information has been ob-
tained and what is still needed. This
will also provide an opportunity to
discuss problems that arise during
the day, and to adjust the logistics
of the operation as such instances
indicate.
1 number of items was expanded as described above in the Methodology Report.
PAGENO="0727"
719
Guidelines for Selecting Items in Stores
When you walk into a store, you
first have to make a decision whether
to introduce yourself to the store per-
sonnel, or to look for the particular
items on your own. If it is a very large
store, or if the sales people seem to be
very busy, it may be best not to try
to take up their time by introducing
yourself, but rather to look for the
items yourself. This is especially so
if you are able to orient yourself so
that you do not have much difficulty
in locating the section where the par-
ticular items may be located.
If, however, you are not sure
where to find items, or if you are ap-
proached by the salesperson, it may
be best to introduce yourself at the
very start, and possibly enlist their
help in locating items. When you
introduce yourself, explain that we
are doing a price comparison study on
behalf of the American Retail Federa-
tion, an organization of the major re-
tailers in the country, and show them
the letter of introduction that you
will have with you. Do not go into
details on the purpose of the study,
or what the Retail Federation may
hope to obtain as a result of this
study. Simply say that it is our task
just to collect this price information
in the best way that we can, that we
are not interested in price compari-
sons among individual stores, but
rather in comparing prices for impor-
ted versus domestic versions of the
same product, and that we would
appreciate their help in obtaining
the necessary price information.
In working with the store per-
sonnel, feel free to show them the list
of products for which you are looking
for price information for that type of
store. Do not, however, under any cir-
cumstances, let them see sheets con-
taining price information that you
may have collected from other stores.
Such information is to be treated in
absolute confidence, and is not to be
shown to any other stores that you
visit.
In discussing the availability of
different items with the personnel of
the store, it is a good idea to make
notes on what they say with regard to
whether particular items that are not
available may not be available in that
city at all, or only may not be avail-
able in the particular store. It would
be especially useful if you record item
specifications for products that store
personnel say are available, and which
they suggest might substitute for pro-
ducts that they say are not available.
Such information is especially useful
in making substitutions in the latter
part of the week for items that do
not seem to be available at all in that
city. Please keep in mind, however,
that any such items must be available
both in imported and domestic ver-
sions.
You may have to exercise a con-
siderable amount of judgment in de-
ciding when a particular item in the
PAGENO="0728"
720
store corresponds with the item on
your list. The correspondence will
not always be exact in terms of the
item specifications, but the differ-
ence in the specifications may be sd
little as to be of no practical conse-
quence to the average consumer. This
is in fact the criterion that you should
use in deciding whether to record the
price of an item or not. In other
words, if the item in the store differs
from your specifications in a way as
to be of no practical consequence in
terms of the serviceabiftty or the at-
tractiveness of the item to the con-
sumer, it may be assumed that it
meets the written specifications.
To be sure, cases of doubt are
bound to arise. In such instances,
when you record the price, also be
sure to record what is the nature of
the difference between the specifi-
cation of the item in the store, and
the specification on your record sheet.
Whether or not such a difference is
large enough to warrant excluding the
item can be discussed at the meeting
of the teams that evening, and this in-
formation can also serve as a basis for
deciding in the office at a later time
on the reasonableness of your de-
cision S
When you-visit a particular store,
be sure to try to obtain price quota-
tions for as many different items as
are listed on your record sheet. For
this purpose, the imported and the do-
mestic versions of a particular product
are different items, and price quota-
tions for each may be obtained in the
same store if both the imported and
the domestic versions of that item are
carried by that store. Do not, how-
ever, record more than one price for
a particular item. For example, if you
find two price quotations for a domes-
tic man's shirt corresponding to the
specifications on the form, record
only one of those prices. The price,
that should be recorded is that of the
more heavily sold item (if that in~or-
mation is available), or otherwise the
lower price. -
In choosing the price for an item,
be sure to choose the price for the
"standard" item of that type. In the
case of a man's shirt, for example, do
not record the price of the "extra
large" model, or of a~ model that is
atypical in terms of color scheme or
style.
The following additional guide-
lines should be kept in mind while
selecting items for pricing:
1. Do not record sale prices. If
an item you select appears to be on
sale, find the original price.
2. Do not select leftover summer --
stock items.
3. Avoid selecting items that are -
intended to be a part of a set (for ex-
ample, the vest of a 3-piece suit); try
to find separates. /
4. Avoid verbal price , quotes
from sales clerks-get the prices from
printed tags or stickers.
PAGENO="0729"
721
In connection with the collection
and recording of price information,
you will be using three forms.
Form A contains the specifica-
tions for the items for which you will
be seeking price information. It is
organized by major category of goods
so that you need make use of only
those sheets for the product cate-
gories with which you are working.
This form is not confidential, and you
may feel free to show it to any store
personnel from whom you may seek
assistance.
The form lists by product cate-
gory each of the items on which we
will be seeking price information.
Within each category, each item hasa
number and a descriptive name fol-
lowed by the information on the spe-
cifications for that item. These speci-
fications are those which you will
seek to match in the stores. It is per-
haps needless to say that virtually all
of the items will have other character-
istics as well (such as different colors
and patterns for clothes), but these
other specifications are not relevant
for the present purposes.
Form B is the Item Record
Form. There will be at least one such
form for every store that you visit.
The name and address of the store are
indicated in the upper left-hand cor-
ner. The store type is indicated in the
upper right-hand corner. In the body
Forms
of the form, each pair of rows repre-
sents a different item; one row is for
the domestic price, and another row
for the price of the item, if imported.
In a particular store, you will try to
obtain as many of these prices as you
can, in accordance with the criteria
outlined in Section 11. When you re-
cord a price for a particular item, be
sure also to record all the other infor-
mation in the other columns of that
row, namely, if the item was on sale
(and if so, the original price), if the
item was in the bargain section (if it
is a department store), and the coun-
try of origin, if the item is imported.
The country of origin should be writ-
ten in beside the other category in the
column labeled origin. Some of these
data may not be ascertainable, such as
country of origin, or original price,
but before recording "n.a." make an
effort to obtain this information from
store personnel.
Form C is a tally form that will
be used by the team as a group, and
by the team leader to summarize
every evening how much price infor-
mation has been obtained on each
item. It is essential that this form be
brought up to date at every meeting
so that we can see as the work pro-
gresses, for which items we already
have enough information, and for
which items more information and
more price quotations are needed.
PAGENO="0730"
722
STATEMENT OF FRANK L. KING, EXECUTIVE VICE PRESIDENT, WRITING INSTRUMENT
MANUFACTURERS ASSOCIATION, INC.
The Writing Instrument Manufacturers Association, weighing the pros and cons
of the Multinational Trade Agreement package being submitted to the Congress,
favors its adoption, although strongly objecting to the action of our government in
offering to the GATT the maximum allowable 60 percent reduction across-the-board
on just about every mechanical writing and marking instrument and component
from TSUS No. 760.05 through 760.42, in contrast to offers from the EC of 44
percent and 37 percent, of 44 percent from Canada and even lesser offers from other
developed nations, the only exception being Japan, which made a substantial coun-
teroffer in the neighborhood of 60 percent. We depart from the views of our ISAC
No. 26 in the belief that, from the overall standpoint, the agreement represents a
big step forward for the future of our industry's international trade posture.
We have consistently asked that our negotiators hold the offers on our products to
no more than 40 percent and we now ask again that the Special Trade Representa-
tive, Ambassador Robert Strauss, modify the offers on this industry's products to a
lower level than the 60 percent formula in the initialed agreement, preferably to no
more than 40 percent.
We have maintained a long-term posture of favoring freer trade and of seeking
the reduction or elimination of the multitude of non-tariff barriers confronted by
our industry's products worldwide. We are deeply concerned that this sixth round of
trade negotiations since World War II has only partially tackled the problems posed
by such non-tariff barriers and the fact that this country took a position of stopping
at the water's edge and not asking for reciprocal elimination of such barriers in so
many sensitive areas is disappointing. It had been our hope that our government's
negotiators would have strived to develop some form of mechanism to uproot and
exterminate, to the greatest degree possible, the hundreds of troublesome barriers
posed against our products.
Clearly, these non-tariff barriers will keep us at some disadvantage in attempting
to increase our exports during the coming years. If, as we understand may be the
case, the EC pauses after the first three staged reductions to study the results and
decide their future course with regard to subsequent reductions, we strongly urge
that our own government do the same and give industries like our own ample
opportunity to present their views on the course of events at that time.
K MART CORP.,
Troy, Mich., April 23, 1979.
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade, House Committee on Ways and Means, Washing-
ton, D.C.
DEAR CONGRESSMAN VANIK: The Trade Subcommittee Press Release of April 6,
1979 invites statements addressing enumerated topics and issues concerning the
Tokyo Round of Multilateral Trade Negotiation agreements and implementing legis-
lation.
In compliance with requested Subcommittee procedure, I state that I represent
the K Mart Corporation and have set forth immediately below a brief topical
outline of points to which comments or recommendations are hereinafter made:
"[from the April 6 press release]
"5. The necessary and appropriate statutory procedures for implementing the
Multilateral Trade Negotiations, in terms of agency requirements, burden of proof,
judicial review, et cetera:"
A. Countervailing duties;
B. Antidumping duties;
C. Safeguards;
D. Customs valuation-retain FOB basis; and
E. Licensing.
The outlined comments and recommendations are as follows:
A. Countervailing duties
(1) Administering agency.-The "injury" determination portion of a proceeding
should be handled by an Administrative Law Judge, probably at the USITC.
(2) Definition of "injury'~-Legislation implementing the injury test clearly
should not adopt or set up any "presumption" in favor of a complainant, or for that
matter in favor of a respondent. "Preponderance" evidence standards should be
PAGENO="0731"
723
applied by the fact-finder in determining existence of injury to domestic producers
regardless of, separately, the causation standard(s) or criteria to be set or suggested
by amended statute. As indicated in (1), supra, an Administrative Law Judge should
preside over this quasi-judicial, fact-finding determination.
(3) Definition of "like product'~-Legislative definition of "like product" should,
realistically, take account of market-place substitutability and directly competitive
impact upon products which are very substantially similar in style, quality, and
interchangeable ultimate use, again as determined under a "preponderance" evi-
dence standard by an Administrative Law Judge.
(4) Judicial review-Administration of the countervailing duty law should be
fully subject to judicial review, based upon existing judicial standards of substantial*
evidence requirements, not upon de novo or other review standards. Application of
certain reasonable time limits circumscribing judicial review would be meritorious.
(5) Note-The implementing legislative proposals should not permit imposition of
countervailing duties on any retroactive basis, which would redound to the prejudice
of and denial of due process for American importers and retailers who purchase
goods unknowing of any foreign government subsidy.
At the same time, any legislative proposal to authorize "provisional measures"
such as payment of "estimated" countervailing duties or performance bonds upon a
"preliminary positive finding that a subsidy exists" should be avoided, where a
"preliminary positive finding" would (apparently) precede the initiation and conclu-
sion of an investigation properly subject to due process of law and an evidentiary
fact-finding by the administering agency.
B. Antidumping duties
(1) Relation to countervailing duty concepts.-The countervailing duty and anti-
dumping laws with respect to causation and injury tests should not necessarily be
the same, insofar as the countervailing duty injury test may, under the ultimate
implementing statute, be a somewhat softer or lower standard. Without the test of
implementing legislation being yet available, comment in this area is difficult.
However, the antidumping law is in essence a foreign trade price discrimination
law, with a properly strict injury standard (injury being determined only "by reason
of the importation" of certain merchandise at less than fair value prices) which
should not be softened so as to allow inclusion of apparent or inconclusive evidence
of domestic industry economic factors. To be borne in mind, is the fact that regula-
tory policy considerations are conceivably quite different in the case of countervail-
ing duty law where foreign government export subsidies of exports are involved as
contrasted to antidumping law situations whereunder discriminatory market-price
behavior of individual foreign firms is involved.
C. Safeguards
(1) Sections 201 to 203.-A preponderance evidence standard should be added by
express legislative amendment of Section 201 of the 1974 Trade Act (19 Usc § 2251)
with respect to: (1) the determination by the International Trade commission of
"substantial cause" and (2) its fact-finding of "serious injury, or the threat thereof,
to the domestic industry producing an article like or directly competitive with the
imported article." Implementing amendments should also provide that these factual
determinations be performed by an Administrative Law Judge in an evidentiary
proceeding for the protection of the interests of, both, complainants and respond-
ents. In this respect, such implementing legislative amendments would provide
more reliable standards for quasi-judicial Import Relief practice and development of
a more consistently reliable body of precedental case law at the USITc.
The earlier proposed adoption of an expedited, or "fast track", Import Relief
proceeding in the USITC which would in effect cut in half the present time limits
for an IT~ Import Relief determination proceeding, makes legislative adoption of a
preponderance evidence standard, to be applied by an Administrative Law Judge,
all the more important.
(2) Definition of "domestic industiy"~-Neither the international "Safeguards"
code agreement nor the implementing legislation should alter the definition of
"domestic industry" under existing "Import Relief~' statutory provisions (Sections
201-203 of the Trade Act of 1974) if such alteration or amendment would impair or
reduce the existing necessary factual economic basis requirements for determining
injury.
(3) Judicial review-Administration of the "Import Relief" law should be fully
subject to judicial review, based upon existing judicial standards of substantial
evidence requirements, not upon de novo or other review standards. Application of
certain reasonable time limits circumscribing judicial review would be meritorious.
PAGENO="0732"
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D. Customs valuation retain FOB basis
Care should be taken that neither the implementing legislation nor any regula-
tion promulgation authority thereunder authorizes any change from the current
FOB (Free on Board or Free Along Side) basis to a CIF (Cost Insurance Freight, i.e.,
landed) basis for import merchandise valuation methods, for the reason that such a
change would immediately and automatically increase costs of imported merchan-
dise in a major, inflationary degree. This is due to the fact that duties would then
be assessed upon extraneous insurance and freight costs in addition to the imported
product's price. CIF would also result in wide disparities in duty assessment depend-
ent upon whether East Coast or West Coast, or other, ports of entry were selected or
necessarily utilized by importers and retailers.
The chaotic result would be capricious and discriminatory duty expense impact
upon small and large importers and retailers, alike, whose selling outlets are
necessarily in or near a particular port of entry which is located at a greater
distance and higher ocean shipping cost point from given foreign source countries.
On an import from Europe, for example, the retail store located at a West Coast
port of entry would suffer a larger, discriminatory customs duty expense than would
a retail store located at an East Coast port, under CIF valuation. Under the present
FOB valuation basis, both retailers pay equal amounts of duty, as they should.
At the same time, any attempted governmental shift from FOB basis of valuation
to a CIF basis would constitute a "revenue raising" measure (or an "implementing
revenue bill" under § 151 of the Trade Act of 1974) under Article I, Section 7 of the
Constitution and require origination in the House of Representatives pursuant both
to the statute and Constitution.
E. Licensing
(1) Scope of Code.-The implementing legislation should not impose any require-
ment or authorization that the USA, as an importing country, may require import
licenses in order to administer export restraint arrangements (such as Orderly
Marketing Agreements or voluntary export restraint agreements) between the USA
and an exporting trading partner.
(2) Implementation method-Clearly, the provisions of an international licensing
code should be implemented through legislation rather than by Executive Order.
This is so because of the very purpose of the draft international licensing code to
reduce administrative "red tape" and unnecessary administrative impediments to
trade. For the Congress to allow Executive or administrative rulemaking would not
be in keeping with the stated underlying purpose of the code.
Sincerely,
JAMES C. TUTrLE,
Antitrust and International Counsel.
STATEMENT OF HUGH C. KIGER, EXECUTIVE VICE PRESIDENT OF THE LEAF TOBACCO
EXPORTERS ASSOCIATION AND THE TOBACCO ASSOCIATION OF UNITED STATES
SUMMARY
The United States is the world's largest exporter to tobacco and ranks third as an
importer. Consequently we have the most to gain from a more open international
trading system.
U.S. tobacco exports now total about $2 billion annually and our tobacco imports
are valued at about $500 million. Our net trade in tobacco is about $1.5 billion
which makes a major contribution to our balance of payments.
Our association strongly supported the Trade Act of 1974 which provided authori-
ty for the Toyko Round negotiations. Over the years we have urged legislation
aimed at reducing, reciprocally, tariffs and nontariff barriers to trade and reforming
the international trading system.
We feel that the new set of codes will curb nontariff restrictive practices and
represents an important revision of the international trading rules.
The trade package provides substantially better access for U.S. tobacco in some
key markets and concessions by the U.S. tobacco will not have a significant impact
on U.S. tobacco imports.
In our view the trade package is one that will be very beneficial to U.S. tobacco
trade, to U.S. trade and to our economy as a whole.
On balance we feel that the MTN package will result in long-term and stable
export growth and expanded trade opportunities. In our view, failure to approve
this trade package would have a seriously damaging effect on the U.S. and the
entire world economy.
PAGENO="0733"
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We strongly urge that Congress approve the trade package negotiated in the
Tokyo Round of the MTN.
STATEMENT
Mr. Chairman, I am Hugh C. Kiger, Executive Vice President of LTEA and TAUS,
with headquarters at 3716 National Drive, Raleigh, N.C. 27612. These two associations
share the same executive office. LTEA is a voluntary organization of 45 leaf
tobacco exporters. The 56 regular members of TAUS consist of leaf tobacco export-
ers as well as some manufacturers, warehousemen, storage firms, and processors
and the 66 associate members of the association consist of firms directly or indirect-
ly engaged in the handling, financing, transportation, servicing, or storage of leaf
tobacco and its products. Attached to our written statement as Appendix A is a list
of the members of LTEA. Appendix B is a list of the members and associate
members of TAUS.
Members of these two associations purchase about 70 percent of U.S. tobacco
crops and account for practically all of our shipments of tobacco to overseas mar- -
kets. We appreciate this opportunity to express our views on the multilateral trade
negotiations (MTN).
Tobacco trade has played a key role in the history and economy of our country.
The shipment of tobacco from Jamestown, Va., over 360 years ago was the begin-
ning of international trade in this country. Tobacco exports have been an important
part of U.S. trade since that time.
The U.S. plays a dominant role in world tobacco trade. We are the world's largest
exporters of tobacco and rank third as an importer. -
The importance of the foreign market for U.S. tobacco cannot be overemphasized.
The export market provides an outlet for about one-third of our total tobacco crops
and provides an outlet (in the form of leaf or products) for over half of our flue-cured
tobacco.
U.S. exports of tobacco and tobacco products now total about $2 billion annually.
The value of U.S. tobacco imports is about $500 million. Thus, our net trade in
tobacco is now about $1.5 billion-a significant contribution to our balance of
payments.
The domestic market for tobacco has been static during the past few years and it
appears that this trend will continue. On the other hand, world tobacco trade is
expected to increase and the export market provides the best potential as an outlet
for our tobacco. If the U.S. is to participate in this expanding world market, it is
important that we gain better access to foreign markets.
Over the years our associations have recognized the fact that trade is a two-way
street-to export we must import. We have supported trade legislation designed to
reduce tariff and non-tariff barriers to trade with our trading partners on a recipro-
cal basis.
We strongly supported the Trade Act of 1974 which provides authority for the
Tokyo Round of the MTN. I have been serving as a member of the Agricultural
Policy Advisory Committee (APAC) for Trade Negotiations and as Vice Chairman of
the Agricultural Technical Advisory Committee (ATAC) for tobacco. Thus, I have
had the opportunity to observe the negotiating progress and results achieved from
an on-the-sport viewpoint.
During the previous seven negotiating sessions held under the auspices of the
General Agreement on Tariffs and Trade (GATT), little progress was made in
achieving better access for U.S. tobacco. However, we feel that the trade package
negotiated during the Tokyo Round is a balanced and fair deal and contain some
major concessions for tobacco.
Our comments regarding the MTN will deal primarily with the new set of
nontariff codes and with the advantages and disadvantages of benefits gained for
U.S. tobacco and for concessions which the U.S. granted on tobacco.
Prior to the Toyko Round, the previous negotiating sessions under the auspices of
GATT had dealt primarily with tariff reductions. However, in recent years as tariffs
have been progressively reduced, many nations have adopted non-tariff measures to
restrict tobacco imports. In many countries such measures have replaced tariffs as a
primary obstacle to trade. In our view the new set of codes of conduct, which
establishes new ground rules for world trade, will effectively diffuse the protection-
ist measures contained in the nontariff barriers to trade. This represents the most
important revision of international trading rules in 32 years and is a real plus for
the United States.
Subsidies.-Some subsidies are used by our trading partners to displace our
tobacco exports. We feel that this code will prohibit export subsidies, provide a new
PAGENO="0734"
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discipline for the first time on use of domestic subsidies, and set up rules relative to
counter measures against subsidized products that adversely affect trade.
Standards-To date new product standards have not been a major source of
tobacco trade disputes. However, we feel that standards and technical regulations in
the period ahead could be an impediment to international tobacco trade. We feel
that the guidelines and enforcement procedures of this code will assure that stand-
ards are not applied in a discriminatory manner to curtail our tobacco exports.
Licensing.-Over the years many countries have used import licensing to reduce
or bar U.S. tobacco exports. We feel that this code will reduce the effect on U.S.
tobacco exports of unnecessary import licensing requirements.
Government procurement-Many countries purchase tobacco through Government
monopolies but governments do not normally purchase tobacco for government use.
Under provisions of this code government tobacco monopolies can continue to pur-
chase tobacco in a nondiscriminatory manner.
Customs valuation-This code provides a standard method of duties collectible on
an import. We feel that this code will help remove the possibilities for manipulation
in customs valuation relative to tobacco.
Safeguards-Some countries use safeguard clauses which can be used to limit
imports of tobacco that injure the domestic tobacco industry. This code will require
countries to observe certain international trading rules and also make them subject
to international discipline.
A substantial concession was obtained from the European Community whereby
the tariff on our tobacco going to that key market will be reduced by about one-
third. This produces better access to that major market which, in recent years, has
provided an outlet for nearly half of our tobacco exports. The trade package also
contains some meaningful concessions on tobacco from other trading partners, in-
cluding Australia and New Zealand.
The concessions on U.S. tobacco imports are such that they will have little impact
on the level of U.S. tobacco imports.
In our view real progress was made in modernizing the GATT. The dispute-
settlement mechanisms have been improved and steps have been taken to bring the
developing countries into the disciplines of GATT.
APPENDIX A
MEMBERSHIP LIST OF LEAF TOBACCO EXPORTERS ASSOCIATION, INC.
W. A. Adams Co. Inc., Oxford, N.C. 27565.
The Austin Co., Inc., P.O. Box 360, Greeneville, Tenn. 37743.
Austin Carolina Co., Box 809, Kinston, N.C. 28501.
Carolina Leaf Tobacco Co., P.O. Box 796, Greenville, N.C. 27834.
Carrington & Michaux, Inc., Box 24597, Richmond, Va. 23224.
China American Tobacco Co., Inc., Rocky Mount, N.C. 27801.
Commonwealth Tobacco Co., Kenbridge, Va. 23944.
Dibrell Brothers, Inc., Danville, Va. 24541.
Dibrell Carolina Far Eastern Corp., P.O. Box 137, Greenville, N.C. 27834.
Dickinson Tobacco Co., Inc., Box 587, Richmond, Va. 23219.
Dunnington-Beach Tobacco Co., Box 468, Farmville, Va. 23901.
Eastern Tobacco Co., Box 338, Farmville, N.C. 27828.
K. R. Edwards Co., Inc., Box 1337, Smithfield, N.C. 27577.
Falls City Tobacco Co., Box 480, Louisville, Ky. 40201.
E. B. Ficklen Tobacco Co., Greenville, N.C. 27834.
G. R. Garrett Co., Inc., P.O. Box 796, Greenville, N.C. 27834.
Greenville Tobacco Co., Inc., P.O. Box 2007, Greenville, N.C. 27834.
Hail & Cotton, Inc., P.O. Box 70102, Louisville, Ky. 40270; and P.O. Box 2465,
Rocky Mount, N.C. 27801.
International Tobacco Co., Inc., P.O. Box 1824, Greenville, N.C. 27834.
W. B. Lea Tobacco Co., Inc., Rocky Mount, N.C. 27801.
Maury Leaf Tobacco Co., P.O. Box 693, Richmond, Va. 23206.
Jas. I. Miller Tobacco Co., Wilson, N.C. 27893.
A. C. Monk & Co., Inc., Farmville, N.C. 27828.
Monk-Henderson Tobacco Co., P.O. Box 246, Farmville, N.C. 27828.
Mullins Leaf Tobacco Co., Box 32, Mullins, S.C. 29574.
Edward J. O'Brien Co., 100 N. Sixth St., Louisville, Ky. 40202.
Piedmont Leaf Tobacco Co., P.O. Box 756, Winston-Salem, N.C. 27102.
T. S. Ragsdale Co., Inc., P.O. Drawer 937, Lake City, S.C. 29560.
E. S. Robey & Co., Franklin, Ky. 42134.
W. L. Robinson Co., Inc., Durham, N.C. 27702.
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W. I. Skinner Co., Inc., Williamston, N.C. 27892.
Southeastern Tobacco Co., Inc., 113-115 East Third St., Robersonville, N.C. 27871.
Southwestern Tobacco Co., Inc., P.O. Box 25039, Richmond, Va. 23230.
Standard Commercial Tobacco Co., 6620 W. Broad Street Road, Attn: Mr. Eugene
S. DesPortes, Richmond, Va. 23230.
E. R. Sykes & Co., P.O. Box 1387, Rocky Mount, N.C. 27801.
J. P. Taylor Co., Box 1377, Goldsboro, N.C. 27530.
J. P. Taylor Co., Box 380, Henderson, N.C. 27536.
Thorpe & Ricks, Inc., P.O. Box 271, Rocky Mount, N.C. 27801.
Tobacco Trading Corp., Box 1127, Durham, N.C. 27702; and 2110 Bardstown Road,
Louisville, Ky. 40205.
Universal Leaf Tobacco Co., P.O. Box 25099, Richmond, Va. 23260.
G. F. Vaughan Tobacco Co., P.O. Box 160, Lexington, Ky. 40501.
Virginia Tobacco Co., Danville, Va. 24541.
R. P. Watson Co., Inc. P.O. Box 30, Wilson, N.C. 27893.
Wendell Tobacco Co., 151 Third Street, Wendell, N.C. 27591.
Whitehead & Anderson, Inc., Lumberton, N.C. 28358.
Winston Leaf Tobacco Co., P.O. Box 2499, Winston-Salem, N.C. 27102.
APPENDIX B
TOBACCO ASSOCIATION OF UNITED STATES, INC., ROSTER-ACTIVE MEMBERS
W. A. Adams & Co., Inc., P.O. Box 159, Oxford, N.C. 27565.
The Austin Co., P.O. Box 360, Greenville, Tenn. 37743.
Austin Carolina Co., P.O. Box 809, Kinston, N.C. 28501.
Blair Tobacco Storage, P.O. Box 314, Richmond, Va. 23202.
Burley Auction Warehouse Assn., P.O. Box 670, Mt. Sterling, Ky. 40353.
Carolina Leaf Tobacco Co., P.O. Box 796, Greenville, N.C. 27834.
Carrington & Michaux, P.O. Box 24597, Richmond, Va. 23224.
Carrollton Redrying Co., P.O. Box 29, Carrollton, Ky. 41008.
China American Tobacco Co., Rocky Mount, N.C. 27801.
Clay Storage Co., P.O. Box 789, Mt. Sterling, Ky. 40353.
Commonwealth Tobacco Co., Kenbridge, Va. 23944.
Dibrell Brothers, Inc., Danville, Va. 24541.
Dibrell-Kentucky, Inc., P.O. Box 928, Bowling Green, Ky. 42101.
Dickinson Leaf Tobacco Co., P.O. Box 587, Richmond, Va. 23219.
K. R. Edwards Co., Inc., P.O. Box 1337, Smithfield, N.C. 27577.
Export Leaf Tobacco Co., P.O. Box 27207, Richmond, Va. 23261.
Falls City Tobacco Co., Inc., P.O. Box 480, Louisville, Ky. 40201.
E. B. Ficklen Tobacco Co., Greenville, N.C. 27834.
G. R. Garrett Co., Inc., P.O. Box 796, Greenville, N.C. 27834.
Gieske & Niemann, 55 Gwynns Mill Court, Owings Mills, Md. 21117.
Greenville Tobacco Co., Inc., P.O. Box 2007, Greenville, N.C. 27834.
Hail & Cotton, Inc., P.O. Box 70102, Louisville, Ky. 40270; and P.O. Box 2465,
Rocky Mount, N.C. 27801.
House of Edgeworth, P.O. Box 6-S, Richmond, Va. 23217.
Imperial Tobacco Limited, P.O. Box 1848, Wilson, N.C. 27893.
International Tobacco Co., P.O. Box 1824, Greenville, N.C. 27834.
W. B. Lea Tobacco Co., Inc., Rocky Mount, N.C. 27801.
Liggett & Myers Tobacco Co., Leaf Department, P.O. Box 341, Durham, N.C.
27702; Attention: Mr. J. C. Burton.
Maury Leaf Tobacco Co., P.O. Box 693, Richmond, Va. 23206.
Jas. I. Miller Tob. Co., Wilson, N.C. 27893.
A. C. Monk & Co., Inc., Farmville, N.C. 27828.
Monk-Henderson Tobacco Co., P.O. Box 246, Farmville, N.C. 27828.
Moss Tobacco Co., Inc., P.O. Box 38, Horse Cave, Ky. 42729.
Mullins Leaf Tobacco Co., P.O. Box 32, Mullins, S.C. 29574.
Edward J. O'Brien Co., 100 N. Sixth St., Louisville, Ky. 40202.
Overseas Commodex Corp., 109 5. Main St., Rocky Mount, N.C. 27801.
Parker Tobacco Co., Maysville, Ky. 41056.
Piedmont Leaf Tobacco Co., P.O. Box 756, Winston-Salem, N.C. 27102.
T. S. Ragsdale Co., Inc., P.O. Drawer 937, Lake City, S.C. 29560.
E. S. Robey & Co., Franklin, Ky. 42134.
W. L. Robinson Co., Durham, N.C. 27702.
Rudolph Hach & Co., Inc., P.O. Box 77, Hopkinsville, Ky. 42240.
W. I. Skinner & Co., Inc., Williamston, N.C. 27892.
Southeastern Tobacco Co., Inc., 113-115 East Third Street, Robersonville, N.C.
27871.
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G. Stalling & Co., Lynchburg, Va. 24505.
E. R. Sykes & Co., P.O. Box 1387, Rocky Mount, N.C. 27801.
Thorpe & Ricks, Inc., P.O. Box 271, Rocky Mount, N.C. 27801.
Tobacco Trading Corp., 2110 Bardstown Road, Louisville, Ky. 40205; and P.O. Box
1127, Durham, N.C. 27702.
Universal Leaf Tobacco Co., P.O. Box 25099, Richmond, Va. 23260.
G. F. Vaughan Tobacco Co., P.O. Box 160, Lexington, Ky. 40501.
Virginia Tobacco Co., Inc., Danville, Va. 24541.
R. P. Watson Co., Inc., P.O. Box 30, Wilson, N.C. 27893.
E. V. Webb & Co., Inc., Kinston, N.C. 28501.
Whitehead & Anderson, Lumberton, N.C. 28358.
W. H. Winstead Co., Inc., P.O. Box 118, Upper Marlboro, Md. 20870.
Winston Leaf Tobacco Co., Inc., P.O. Box 2499, Winston-Salem, N.C. 27102.
TOBACCO ASSOCIATION OF UNITED STATES, INC., ROSTER-ASSOCIATE MEMBERS
Alitrans International, Inc., P.O. Box 7184, Portsmouth, Va. 23707, Attn: Mr. H. J.
Hulderman; and Trans Freight Lines, Inc., One Harmon Plaza, Secaucus, N.J.
07094, Attn: Mr. Harold G. Holden, Vice President-U.S. Manager.
Alltransport, Inc., Suite 1104, First Virginia Bank Tower, 101 St. Paul Boulevard,
Norfolk, Va. 23510, Attn: Mr. Raymond N. Weller.
Alton Box Board Co., P.O. Box 3124, Wilson, N.C. 27893, Attn: Mr. Palmer G.
Laughridge.
AMF Incorporated-U.S. & Canadian Operations, P.O. Box 601, South Windsor,
Conn. 06074, Attn: Mr. Jeffrey W. Allen, Manager, Administrative Services.
Anders Williams & Co., Suite 400, Two Commercial Place, Norfolk, Va. 23510,
Attn: Mr. Roif Williams, President.
Associated Container Transportation (USA), 90 West Street, New York, N.Y.
10006, Attn: Mr. M. B. Northern, President; and Room 205, Building 4D, 7737
Hampton Blvd, Norfolk, Va. 23505, Attn: Mr. John Respess.
Arenco-Cardwell, Inc., P.O. Box 3797, Richmond, Va. 23234, Attn: Mr. Henry S.
Holland, III, President.
Atlantic Container Line, Limited, Suite 200, Citizens Office Bldg., Norfolk, Va.
23510, Attn: Mr. L. J. Platteel.
Bank of America, 315 Montgomery Street, San Francisco, Calif. 94104, Attn: Mr.
Robert J. O'Neill, Assistant Vice President; and Bank of America International of
Florida, 1000 Brickell Avenue, Miami, Fla. 33131, Attn: Mr. William C. Holmberg,
Vice President.
Bank of Virginia, P.O. Box 25339, Richmond, Va. 23260, Attn: Mr. William H.
McCarthy, Sr., Vice President.
Barber Steamship Lines, 17 Battery Place, New York, N.Y. 10004.
Branch Banking & Trust Co., Wilson, N.C. 27893.
Citibank, N.A., 55 Wall Street, New York, N.Y. 10043, Attn: Mr. Jaap S. Kiep,
SAO, Agribusiness Department.
Containship Agency, Inc., 7737 Hampton Blvd., Bldg. 4D, Rm. 213, Norfolk, Va.
23505, Attn: Mr. H. M. Williams.
Continental Forest Industries-Corrugated Division, 128 Crews Drive, Columbia,
S.C. 29210, Attn: Mr. Mike Murphy; and Office Park Two, Greenwich, Conn. 06830,
Attn: Mr:Tony White.
Contact Marine Carriers-do Transocean Transport, Inc., P.O. Box 524, 10 5.
Franklin Turnpike, Ramsey, N.J. 07446, Attn: Mr. T. F. Cermack, Sr., Vice Presi-
dent.
Vernon H. Craggs, Inc., 10 E. Baltimore St., Baltimore, Md. 21202, Attn: Mr.
Vernon H. Craggs, President.
The Dai-Icho Kangyo Bank, Ltd., One World Trade Center, Suite 4911, New York,
N.Y. 10048, Attn: Mr. Yutaka Toda, Manager, Planning & Investment.
Dart Containerline, Inc., 5 World Trade Center, Suite 9343, New York, N.Y.
10048.
Farrell Lines, Inc., 7737 Hampton Blvd., Norfolk, Va. 23505, Attn: Mr. W. L.
Durrett, Regional Manager.
First & Merchants National Bank, P.O. Box 27025, Richmond, Va. 23261, Attn:
Mr. Henry P. McGill, Jr.
First State Bank, Greenville, N.C. 27834, Attn: Mr. Jerry Powell, Executive Vice
President.
Fishburne Equipment Co., Inc., P.O. Box 338, Arden, N.C. 28704.
First Union National Bank of North Carolina, Charlotte, N.C. 28288, Attn: Mr.
James R. Simpson, Vice President.
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Fred P. Gaskell Co., Inc., P.O. Box 3157, Norfolk, Va. 23514, Attn: Mr. Robert E.
Garris, President.
Gen-Trans International, Inc., P.O. Box 3564, Norfolk, Va. 23514, Attn: Mr. Wil-
ham F. Tierney, President.
Hampton Roads Steamship Agency, Inc., P.O. Box 3324, Norfolk, Va. 23514, Attn:
Mr. Paul V. Fox, Sr., President.
Hapag-Lloyd AG, do U.S. Navigation, Inc., 1 Public Square Building, Cleveland,
Ohio 44113, Attn: Mr. James F. DeChant.
The Hipage Co., P.O. Box 3237, Custom House Station, Norfolk, Va. 23514, Attn:
Mr. J. G. Page, President.
T. Parker Host, Inc., C & 0 Terminal Building, Newport News, Va. 23607.
International Paper Co., Route 2, Box 245 Beaverdam, Va. 23015, Attn: Mr. Calvin
F. McAlexander.
"K" Line-Kerr Corp., 90 Washington Street, New York, N.Y. 10006, and Kerr
Steamship Co., Inc., P.O. Box 3477, Norfolk, Va. 23514, Attn: Mr. J. E. Thompson,
General Manger.
Lavino Shipping Co., North Carolina Maritime Bldg., P.O. Box 300, Wilmington,
N.C. 28401, Attn: Mr. Jack Tilley.
Lockwood Trade Journal Co., Inc., 551 Fifth Avenue, New York, N.Y. 10017.
Machine & Conveyor Mfg. Ltd., P.O. Box 24342, Richmond, Va. 23224, Attn: Mr.
Horace L. Odom.
Marsh & McLenna, Inc., P.O. Box 1857, Richmond, Va. 23215.
Maersk Line, 1 World Trade Center, Suite 3527, New York, N.Y. 10048, Attn: Mr.
William J. Honan, Jr.
Maritime Terminals, Inc., 7737 Hampton Blvd., Norfolk. Va. 23505, Attn: Mr.
James N. Crumbley, General Manager.
Mitsui 0.5K. Lines, Ltd., 1 World Trade Center, Suite 2211, New York, N.Y.
10048, Attn: Mr. K. Muranaka, General Manager.
North Carolina National Bank, P.O. Box 120, Charlotte, N.C. 28255, Attn: Interna-
tional Division.
Norton, Lilly & Co., Inc., P.O. Box 569, Norfolk, Va. 23501.
Peninsula Ports Authority of Va., P.O. Box 338, Newport News, Va. 23607.
Proctor & Schwartz, Inc., 7th St. & Tabor Road, Philadelphia, Pa. 19120, and 1151
Hanover Green Drive, Mechanicsville, Va. 23111, Attn: Mr. Burke Owen Jr.
Prudential Lines, Inc., 303 E. Fayette St., Suite 500, Baltimore, Md. 21202, Attn:
Mr. Reginald L. Rinder, Regional Sales Manager.
Richmond Waterfront Terminals, Inc., P.O. Box 446, Richmond, Va. 23203, Attn:
Mr. E. H. Phillips, President.
Sea-Land Service, Inc., P.O. Box 309, Portsmouth, Va. 23705, Attn: Mr. Jerry R.
Belote, Sales Manager.
Seaport Shipping, P.O. Box 747, Morehead City, N.C. 28557, Attn: Mr. Clifton A.
Lynch.
Seatrain Agencies, Inc., 88 Pine Street, New York, N.Y. 10005, Attn: Mr. Bernard
G. Monaghan, Vice President, Sales.
Seatrain Lines, Inc., Container Division, Suite 1050, Bldg. J., 6855 Jimmy Carter
Blvd. Norcross, Ga. 30071, Attn: Mr. Edward C. Bromeier, Vice President, National
Accounts.
Southern Overseas Corp., P.O. Box 2110, Wilmington, N.C. 28402.
Southern Stevedoring Corp., P.O. Box 3242, Norfolk, Va. 23510, Attn: Mr. R. J.
Nolan, President.
Speight Seed Farms, Inc., P.O. Box 507, Winterville, N.C. 28590, Attn: Mr. Wil-
liam Kitt Snyder, Vice President.
Tobacco Reporter-Harcourt Brace Jovanovich Publications, 757 Third Avenue,
New York, N.Y. 10017, Attn: Lois Sanders, Vice President; and 700 Walnut Bldg.,
Room 312, Cincinnati, Ohio 45202, Attn: Roslyn Segal, Publisher.
Union Camp Corp., 2701 Peyton Street, Richmond, Va. 23228, Attn: Mr. E. L.
Greene, Manager, Tobacco Packaging.
Union Planters National Bank of Memphis, P.O. Box 387, Memphis, Tenn. 38174,
Attn: Mr. James C. Shelley, Vice President.
United States Lines, 8 Selden Arcade, Norfolk, Va. 23510, Attn: Mr. Frank John-
son.
United Virginia Bank, P.O. Box 26665, Richmond, Va. 23261, Attn: Mr. Edwin D.
Brooks, Jr., Vice President.
Virginia National Bank, P.O. Box 600, Norfolk, Va. 23501, Attn: International
Section.
Virginia National Bank/Richmond, 707 E. Main St. Richmond, Va. 23214, Attn:
Mr. J. Timothy Sexton, Vice President.
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Virginia Ship Agency-Division Eller, 428 Law Building, Norfolk, Va. 23510, 1
Mr. T. 0. Winingder, Consultant.
Wachovia Bank & Trust Co., N.A., P.O. Box 27886, Raleigh, N.C. 27611, Attn:
Sam Northrop, Jr.
Waters Associates, Inc., 34 Maple Street, Milford, Mass. 01757, Attn: Mr. H
Clemente.
Weyerhaeuser Co., P.O. Box 11435, Lynchburg, Va. 24506, Attn: Mr. Daniel
Rudolph, General Manager.
Yamashita-Shinnihon Steamship Company, Ltd., No. 1 Commercial Place, I'
folk, Va. 23510, Attn; Mr. W. L. Friedlein, Assistant Manager.
MAN-MADE FIBER PRODUCERS ASsoCIATION, INc.,
Washington, D.C., May 4, 19Th
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade,
Washington, D.C.
DEAR CHAIRMAN VANIK: The Man-Made Fiber Producers Association is concern
about certain provisions in the implementing package for the Multilateral Tra
Negotiations and appreciate the opportunity to express our views. Our Associati
represents the manufacturers of more than 90 percent of the man-made fibe
produced in the United States. Man-made fibers, in turn, account for 75 percent
all the fiber used in American textiles.
Our Association supports national trade policy within the context of the Admini
tration's Textile Program which was announced by President Carter on March ~
and a copy of which is attached. We feel that strong and effective legislatio
implementing the MTN will contribute significantly to the effectiveness of th
Administration's Textile Program.
MMFPA is a member of the Ad Hoc Subsidies Coalition and strongly endorses th
testimony presented to the Subcommittee by Mr. Charles R. Carlisle, chairman a
the Coalition. Particularly, we believe, the new countervailing duty statute shoul
rule out discontinuance of cases based on price or other assurances; it shouk
severely restrict the amount of "offsets" by which countervailing duties may b
reduced, and the injury test should be no more onerous than that applied tc
antidumping cases since January 3, 1975. These are equally important from thE
standpoint of the antidumping statute and should be included in the legislation.
We are surprised that requests have been made for continued authority to reduce
duties and to negotiate on non-tariff barriers to trade. Our industry is opposed to
this provision for a five year extension of duty-cutting authority and permanent
authority to negotiate on non-tariff barriers because we believe such a far-reaching
proposal should be subject to the normal legislative process.
While the final duty reductions made under the MTN have not been officially
published, newspaper reports reveal that substantial duty reductions were made on
man-made fiber, textile and apparel during the Tokyo Round. We know these
reductions will result in increased imports in critical areas and before further duty
cutting authority is granted the impact of the current reductions must be evaluated.
In addition, no one ever dreamed that the Trade Act of 1974 would be self-
perpetuating. Certainly nothing within the Act suggests that Congress intended to
extend the Act's principal provision beyond January 3, 1980.
We do not believe this extension is needed, but if Congressional consideration is to
be given, it should be through the regular legislative process, complete with public
hearings and the privilege of amendment. Congress should not grant this broad
authoritr under a legislative procedure that bars amendment and requires an "up
or down' vote within 60 days of submission.
We are confident that after full evaluation and review, the Ways and Means
Committee will reject this proposal.
Finally, Mr. Chairman, we are highly pleased that the President in his Textile
Program recommended a "snap-back" clause under which textile tariffs would
revert to their original levels if the Multifiber Arrangement is not continued or
suitably replaced. The Program also stipulates that clothing covered by the "Berry
Amendment" to the Defense Department Appropriation Act are to be excluded from
the coverage of the Government Procurement Code. The implementing legislation
should specifically contain both these provisions.
We appreciate the opportunity to offer these suggestions and we request that our
comment be made part of the hearing record.
Sincerely yours,
CHARLIE W. JONES.
Attachment.
PAGENO="0739"
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FEBRUARY 15, 1979.
ADMINISTRATION TEXTILE PROGRAM-PURSUANT TO THE PRESIDENT'S STATEMENT OF
NOVEMBER 11, 1978
The Administration is determined to assist the beleaguered textile and apparel
industry and is committed to its health and growth. This industry provides employ-
ment for almost two and one-half million people, the largest single source of jobs in
our manufacturing economy, and provides our consumers with a reliable, competi-
tively priced, vital source for all the many vital clothing, medical, military, industri-
al and other products of its modern technology.
In 1978, U.S. imports of textiles and apparel amounted to seven billion dollars.
U.S. exports amounted to only 2.6 billion dollars, a differential of almost five billion
dollars. This situation, with trade restrictions abroad and our lack of success in
exporting, contributed to unemployment at home. It must be improved in the
national interest. Accordingly, today, the Administration is announcing a new ap-
proach to deal more effectively with the serious problems that face this industry.
GLOBAL IMPORT EVALUATION
The United States Government will, on a continuing basis, conduct a global
import evaluation, consisting of a continuous evaluation of textile and apparel
imports, from all countries, category-by-category. The purpose will be to analyze the
impact of textile and apparel imports from all sources in the context of U.S. market
growth and conditions in the industry. The results of this analysis will be evaluated
for their negative and positive consequences for trade measures, in the light of U.S.
rights under the Multifiber Arrangement (MFA).
A member of the Cabinet, pursuant to a directive from the President, will have
personal responsibility for overseeing the global evaluation program, in cooperation
with the agencies having responsibilities with respect to textile trade, and will
report quarterly to the President on its implementation. The program will begin not
later than March 31, 1979.
IMPORT CONTROLS
Based on the continuous global import evaluation of textile and apparel imports
from all countries, category-by-category, the following actions will be taken:
1. Import surges that cause market disruption, as defined in Annex A of the MFA,
will be aggressively controlled, whether they occur from one source or many, under
agreements or otherwise. In all of the import control actions, special attention will
be paid to the most import-sensitive or import-impacted product categories.
2. There will be aggressive and prompt enforcement of U.S. international rights,
including the use of MFA Article 3, and Article 8 (involving circumvention) where
the criteria of these articles are met.
3. Understandings with respect to existing agreements with the leading major
exporting countries will be reached to tighten controls for the remaining life of
these agreements, and to eliminate threats of further market disruption through
import surges which arise from one agreement year to another due to: (i) the use of
flexibility provisions; (ii) partially filled quotas in one year followed by more fully
filled quotas in the next year; or (iii) surges that occur in the course of a single
agreement year when an undue proportion of the year's shipments is concentrated
in a short span of time. In order to preclude harmful fluctuations, where quotas
have been subtantially undershipped in the preceding agreement year, in concur-
rence with the MFA concept of orderly growth in trade, year-to-year increases in
such cases should not normally exceed the previous year's shipment's plus one-half
of the unfilled portion of the previous year s quota but in no event more than the
current year's quota. Thereafter, the applicable growth and flexibility provisions -
would apply.
4. Where necessary to preclude further disruption from the leading major export-
ing countries, the Administration's objective will be to assure that (1) 1979 imports
will not exceed 1978 trade levels or 1979 base levels, whichever are lower, and (2) in
each of the three following years, import growth will be evaluated annually by
category (including all flexibility provisions for each category) in the context of the
estimated rate of growth in the domestic market in that category, and adjustments
made. Particular attention shall be paid to the most sensitive categories, especially
in apparel, where the import to domestic production ratio is high and indicative of
market disruption. The industry and government will cooperate to the fullest extent
possible so that current data on domestic production on a category or product basis
will be available to assure the effective working of this provision.
PAGENO="0740"
732
5. The United States Government has just negotiated a more effective bilateral
arrangement with Japan to remove the serious problem of disruptive fluctuations.
Strong efforts must also be made by the Government and industry to expand
substantially textile exports to Japan.
6. Recognizing the potential for sharp and disruptive growth in textile and appar-
el imports from any major new supplying country, the United States Government
will seek to negotiate import restraint levels with the supplier as close as possible to
the most recent levels of trade for heavily traded or import-sensitive products and to
secure an effective means to expeditiously deal with disruptive import surges in any
other category, in the context of the global import evaluation program described
above.
7. There will be improvement in quality and timing of monitoring efforts to
provide the information for prompt evaluation and appropriate actions. The present
system will be reinforced and, working with industry and labor, means for faster
feedback and response will be developed.
8. Consistent with federal practices and procedures, there will be full and prior
industry/labor consultation on strategy, outlook and problems with respect to bi-
lateral agreements.
MTN
A snapback clause, effective during the implementation of the MTN tariff reduc-
tions, which will restore textile and apparel tariffs to their pre-MTN levels if the
MFA does not continue to be in effect or a suitable substitute arrangement is not
put into place, will be adopted as part of the implementation of the MIN tariff
reductions. In the event the MFA is not renewed or a suitable arrangement is not
put into place, legislative remedies will be proposed to allow the President authority
to unilaterally control imports of textile and apparel products consistent with the
policy enunciated in this statement.
As a matter of continuing policy, the textile and apparel items included in the
Berry Amendment will be excluded from coverage of Government Procurement
Code liberalization.
LAW ENFORCEMENT
A major effort, made possible by a special appropriation of the last Congress,
designed to dramatically improve the administrative enforcement of all our textile
agreements, is currently proceeding. This program must be carried through expedi-
tiously.
U.S. Trade remedies against foreign unfair trade practices, including the counter-
vailing duty law and antidumping act, will be improved, their administration made
more responsive and their procedures accelerated in accordance with legislation
implementing the Multilateral Trade Negotiations.
Customs will improve and make more thorough its monitoring and enforcement
efforts, including the use of penalties available under law where appropriate, with
respect to improper transshipments, country of origin requirements, and violations
of quantitative limits, with the objective of preventing evasion of restraint agree-
ments and quantitative limitations.
INDUSTRY EXPORT DRWE
The industry will initiate a major export drive, with the U.S. Government's
commitment of full support, including: a market development program; and vigor-
ous USG efforts to tear down foreign trade barriers.
HIGH-LEVEL TEXTILE POLICY GROUP
The President will appoint a high-level Industry-Labor-Government Policy Group
to identify and bring public attention to problems affecting the competitiveness of
the industry.
OTHER SPECIFIC ACTIONS
The pilot program to enhauce productivity in the apparel industry will be expand-
ed to include the ladies' apparel industry.
U.S. INDUSTRY COMPETITIVENESS
The textile and apparel industry indicates its resolve to make maximum efforts to
maintain international competitiveness, through promoting efficiency within the
industry, to continue to act responsibly pursuant to the President's anti-inflation
program guidelines, and to suppor the national trade policy, which includes as an
integral part the program of orderly growth in textile trade a outlined above. For its
PAGENO="0741"
733
part, the Administration will act expeditiously to put the foregoing program into
effect and expects concrete results in sixty days.
CONCLUSION
This textile program is an integral part of the MTN package. However, the
Administration will begin implementation of the program immediately and many of
the essentials will be in place within the next several months.
CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D.C., April 24, 1979.
Mr. JOHN MARTIN,
Chief Counsel, Committee on Ways and Means,
Washington, D.C.
DEAR MR. MARTIN: Enclosed is a letter from one of my constitutents who makes
an excellent point about the benefits of expediting certain agreements contained in
the Mu1tilatera~ Trade Negotiations.
As you are currently holding hearings on this issue, I would like to submit these
comments for inclusion in the record.
Sincerely,
PAUL N. MCCLOSKEY, Jr.
NCR CORP.,
DATA PATHING DIVISION,
Sunnyvale, Calif. April 18, 1979.
Hon. PAUL N. MCCLOSKEY, Jr.,
U.S. House of Representatives,
Washington, D.C.
DEAR CONGRESSMAN MCCLOSKEY: The Office of the Special Trade Representative
has negotiated with Japan a very favorable duty rate reduction on computers and
business equipment. The Japanese have agreed to reduce their extremely high
protectionist rates down to around six per cent. Although this will continue to be in
excess of the U.S. rates (which will go to 3.7), they are nonetheless a significant
improvement over the current situation.
If these duty reductions were to be implemented promptly, so that the industry
could realize the benefits over a relatively short period of time, we would be
satisifed with the results. However, the Japanese current international bound rates
for these products range from 15 to 25 per cent. They have indicated that they
intend to implement the duty reductions over an eight-year period from these rates
rather than the current applied rates ranging from 10.5 to 17.5 per cent. This
proposal eliminates any real duty reduction for at least the first four years and does
not effectuate the final offered duty rate (six per cent) until 1987.
Recognizing the rapid change of technology in our industry and various other
competitive factors, this would result in the virtual nullification of any apparent
benefits from the Japanese offer.
NCR has advised STR Ambassador Strauss of the seriousness of this situation and
now request your assistance in pressing the matter. The most important action at
this time would be to have the Japanese concede to implement the reductions from
their current applied rates (the 10.5 to 17.5 per cent rates) rather than the higher
international bound rates. In addtion, they should accelerate the implementation of
these rates so that the benefits can be realized within three to five years (before
current technology is obsolete). This can be accomplished by developing a shorter
phase-in period or by agreeing to greater rate reductions during the first few years
and lesser reductions for the remainder.
We appreciate your attention and assistance in this matter.
Sincerely, .
0. E. CooK.
L~L~_998 - 79 - 48
PAGENO="0742"
734
METZGER, SHADYAC & SCHWARZ,
(FOR) MELEX USA, INc.,
Raleigh, NC., April 27, L979.
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade, House Committee of Ways and Means, Washing-
ton, D.C.
DEAR MR. CHAIRMAN: This firm represents Melex USA, Inc. ("Melex USA"), a
wholly-owned subsidiary of Pezetel, the Foreign Trade Enterprise of the Polish
Aviation Industry.1 Melex USA is a Delaware corporation with principal offices at
1201 Front Street, Raleigh, North Carolina and is the importer of golf cars from
Poland. The purpose of this letter is to offer our comments on behalf of Melex USA
in connection with the Subcommittee's hearings on the Multilateral Trade Negotia-
tions, currently under way. I very much hope this letter will be made part of the
record of these hearings and that the Subcommittee will take our views into
consideration in connection with their deliberations on this very important matter.
It is my understanding that Article 15 of the proposed MTN Subsidies and
Countervailing Duties Code sets forth acceptable standards for calculating the "for-
eign market value," for purposes of calculating a dumping margin, of a product
imported from a state-controlled-economy country ("SCEC"). As the Subcommittee
knows, the issue of how to fairly calculate such a "foreign market value" is the
subject of Section 205(c) of the Antidumping Act of 1921 (the "Act"), as enacted by
the Trade Act of 1974, and has been the subject of a great deal of considered
deliveration at the Treasury Department and Customs Service. Since Poland has a
state-controlled economy and since Melex USA imports its product from that coun-
try, this issue is of critical importance to the ability of Melex USA to continue its
business.
Melex golf cars have been sold in the United States since 1971. Sales are made to
independent U.S-owned distributors who purchase and install U.S.-made batteries
and chargers and then resell or lease the vehicles to municipal and independent golf
courses and others throughout the United States. These U.S. distributors also pro-
vide extensive after-sale service as well as necessary marketing. Approximately one-
half of the retail sales price of Melex golf cars `returns" to Pezetel in Poland.2
While the Melex golf car has achieved a measure of acceptance in the U.S. market
because of its simple and economical design, Melex golf cars account for only a
small share of the U.S. golf car market, which is dominated by two major U.S.
corporations, Textron, Inc. and AMF Incorporated, whose reported revenues for
1978 were $3.2 billion and $1.3 billion, respectively. Golf car sales by those two
corporations account for approximately 70 percent of all U.S. golf car sales.
We wish to make one point of great concern to our client:
Article 15 of the Subsidies and Countervailing Duties Code of the MTN provides
that, with respect to the application of a signatory nation's antidumping legislation
to imports from SCEC's, the foreign market value may be determined by reference
either to the price of a like product in a third country (not the importing signatory)
or the constructed value of a like product in a third country (not the importing
signatory). No preference is given to either price-based calculations or to a con-
structed value basis for foreign market value and prices in the importing country
(duly adjusted) can only be used as a base if neither of these two tests can be
applied. Section 205(c) of the Act and amended Customs Service Regulation 19
C.F.R. § 153.7 are consistent with the provisions of Article 15 and are the result of
experience and considered deliberation with respect to the problem. Congress should
not change that law or the administrative practice currently being observed without
a careful* examination of the long-range impact upon U.S. trade with state-con-
trolled economy countries.
Melex USA and its U.S. distributors have a vital interest in how the Act is
administered. Since November, 1975 imports of golf cars from Poland have been
subject to a Finding of Dumping (T.D. 75-288) based not upon any evidence of sales
at less than home market prices, prices to third countries or constructed value, but
rather based upon finding during the "fair value" stage of the proceeding (covering
the 1974-75 period) that Melex golf cars were sold in the U.S. market for less than a
small "Mom and Pop" Canadian producer of golf cars sold its product in Canada.
The Canadian company, which reportedly produced only a few hundred custom
made golf cars compared with Melex's production capacity of about 10,000 per
annum, in no way could be considered to reflect "the normal costs, expenses, and
profits" of the Melex golf car as required by Section 205(c) of the Act. Not only did
1 This firm is registered with the Department of Justice as the agent of Melex USA, Inc.
under the Foreign Agents Registration Act of 1938, as amended (Registration No. 2861).
`VJhere, in fact, the dollars received by Pezetel are ultimately used to purchase U.S. exports
to Poland, which have long been substantially in excess of Polish exports to the United States.
PAGENO="0743"
735
the small Canadian company's golf car price not bear any resemblance to the
economic efficiencies extant in the Polish production of golf cars, its prices were not
even known to the Polish producer at the time of exportation~ The extensive data
submitted by Melex USA regarding the constructed value of the Melex golf car in
Canada and establishing that sales were not made at less than fair value were
ignored. We have taken the position that this approach to an admittedly difficult
problem violated several rules of fundamental fairness as well as the then existing
law.
More recently, the Treasury Department determined to base the Melex golf car's
"foreign market value" for entries during much of the 1976-1978 period on the price
of the largest selling U.S. golf car, the E-Z Go golf car, manufactured by Textron.
Again, extensive constructed value data submitted by Melex USA were ignored. The
use of E-Z Go's U.S. selling price as Melex's "foreign market value" (FOB Poland)
renders it impossible for the Melex golf car even to meet the price of the E-Z Go
car, since the cost of transportation to the U.S., entry costs, normal duty and
insurance will apparently not be deducted from this "foreign market value." Next
to an embargo, it's hard to imagine a more effective device for bringing all trade to
a halt. Moreover, even if such adjustments were made Melex could not compete in
this market with prices legally pegged to those of its much larger competitors.
Apart from its manifest anticompetitive nature, which will do nothing but entrench
the existing duopoly, it is clear that Congress, when it enacted Section 205(c) of the
Act in the Trade Act of 1974, never granted Treasury the authority to use United
States prices as "foreign market value" for merchandise from state-dontrolled-econo-
my countries, where competent, verifiable constructed value data was timely sub-
mitted. It should not do so now.
The basic unfairness of using the prices of other producers, including U.S. produc-
ers, which do not reflect the normal costs, expenses and profits of producing the
Melex golf car is self-evident. In an effort to deal with this problem and, more
generally, the problem of valuing all merchandise from SCEC's for antidumping
purposes, the Treasury Department amended Customs regulation Section 153.7 (19
C.F.R. § 153.7) last September, and this new regulation will apply to entries made
after that date. Under this amended regulation another producer's prices can still
be utilized as "foreign market value," but only if the third country and the relevant
industry are found to be comparable in terms of economic development to the SCEC
producer. If prices do not exist in a comparable country, then a constructed value
test is employed which recognizes the elements of production in the SCEC, but costs
them out in a comparable market-economy country. The amended Section 153.7 is
more nearly consistent with Section 205(c) of the Act than the former Section 153.7.
More importantly here, though, Section 205(c) of the Act, as now applied by Section
153.7, is consistent with the letter and spirit of the Antidumping provisions of the
MTN agreements.
As noted above, Article 15 of the Subsidies and Countervailing Duties provisions
of the MTN states that either "the price at which a like product of a country other
than the importing signatory * * * or * * * the constructed value of a like prod-
uct in a country other than the importing signatory * * * "is the stated test. No
preference is given for either prices or constructed value. This same standard is
embodied in Section 205(c) of the Act. Accordingly, it is not necessary to change
existing U.S. law in this respect in order to conform to the MTN agreements. It is
also clear in both Section 205(c) of the Act and the principal provision of Article 15
that if prices are used as a basis of fair value they must not be U.S. prices. The
Article 15 test is the price "of a country other than the importing signatory"
(emphasis added). Section 205(c) already embodies this approach: "* * * the Secre-
tary shall determine the foreign market value of the merchandise on the basis of
the normal costs, expenses and profits as reflected by * * * the prices * * * at
which such or similar merchandise of a non-state-controlled-economy country or
countries is sold * * *
"(A) for consumption in the home market of that country or countries, or (B) to
other countries, including the United States * * *~~(Italics added.)
Since the United States is not an "other" country with respect to itself, the term
"non-state-controlled-economy country" in the context of Section 205(c) does not
include the United States.
The only provision in Article 15 for use of prices in the importing signatory is
when neither a third country price nor a third country constructed value can
provide an adequate basis for determining fair value. In essence, it is to be used
only as a "last resort." Section 153.7 is fully consistent with this MTN provision.
Section 153.7(b)(3) states:
PAGENO="0744"
736
"If neither section 153.7(b)(1) nor (b)(2) provides an adequate basis for determining
the price or constructed value of such or similar merchandise, then the prices or
constructed value, as determined from the sales or production of such or similar
merchandise in the United States, shall be used."
Thus, in this respect as well, existing U.S. law conforms to Article 15. Long-
standing Treasury practice also conforms to this approach. It is our understanding
that, except as noted above in the Melex case, Treasury has never used US. prices as
"foreign market value." It is regrettable that it has chosen to do so in the case of
golf car entries during 1976-78, contrary to the requirements of Section 205(c) of the
Act, since ample constructed value data was presented to Treasury and should have
been used as the basis of "foreign market value."
We understand that the basic purpose of these hearings is to consider changes in
U.S. law which are necessary to implement the MTN agreements. It should not be
the occasion for making changes to U.S. law unnecessary for that purpose or, more
seriously, changes which actually contravene the MTN provisions.
We respectfully urge the Subcommittee to recommend no changes to Section
205(c) of the Act, which already embodies the meaning and spirit of the MTN
agreements, and instead to reaffirm in its Report that, indeed, no change is neces-
sary because Section 205(c) is already in compliance.
Sincerely yours,
CARL W. SCHWARZ, Counsel.
MIRRO ALUMINUM Co.
Manitowoc, Wis., April 17, 1979.
Hon. AL ULLMAN,
US. House of Representatives,
Washington, D.C.
DEAR CONGRESSMAN ULLMAN: I am writing in regard to metal cookware imports.
The results of the current Multilateral Trade Negotiations will be submitted soon to
the Congress for acceptance and ultimate approval. Although the specifics of the
package are not known at this time, I want you to be aware of some thoughts I have
concerning the matter of metal cookware imports.
Since January 1, 1976, the General System of Preferences has allowed many
products to come into our country duty free from developing nations, such as Korea,
Taiwan, Mexico and others. Metal cookware is among those products imported and,
in 1978 on a unit basis, imports amounted to almost 48% of the total units produced
by domestic manufacturers.
The imports of metal cookware have a serious affect on United States manufac-
turers. It is estimated that the U.S. cookware industry lost close to $50 million in
shipments in 1978. Production capacities were vastly underutilized, resulting in the
employment of fewer hourly-paid production people. In our own specific case, the
MIRRO Corporation had 100 less production employees in 1978.
We believe in fair trade; we also believe in being treated fairly. As you consider
legislation resulting from the Multilateral Trade Negotiations, I ask that you seri-
ously consider the problems of the metal cookware industry. We are looking for fair
trade rules, giving us an equal opportunity to complete in domestic and foreign
markets.
Sincerely,
C. W. ZIEMER, President.
STATEMENT OF M. K. HAYENGA, EXECUTIVE VICE PRESIDENT, NATIONAL CORN
GROWERS ASSOCIATION
Our organization is pleased to be able to present our views on Multilateral Trade
Agreement. The National Corn Growers Association represents grower members in
47 states. We are gravely concerned as to what happens in trade agreements since
we have international marketing arms accross the world. We have worked over the
years to obtain these markets for our producers. The exporting of corn is of major
concern to us and should and well be to you serving on the Ways and Means
Committee. The agricultural industry is one that is helping very significantly to
defray the deficit in the Balance of Trade. When agricultural commodities such as
corn were removed from trade, the deficit would become substantially higher.
We are dissatisfied with the trade negotiations that have taken place. Coarse
grains have gained nothing. We realize that gains were made in some areas of
PAGENO="0745"
737
industrial uses. These gains must be weighed against the exportation of grains and
no gain or loss that may have resulted.
We realize the time and effort spent by professionals that went into this and
respect the results that were obtained, even though coarse grains did not benefit.
We realize the length of time~ spent and a decision must be reached by Congress
and Senate, so let's make the decision and move ahead.
STATEMENT OF THE NATIONAL C0rF0N COUNCIL OF AMERICA
The National Cotton Council of America is an overall industry group which
represents cotton farmers, ginners, warehousemen, seedcrushers, merchants, cotton
spinning mills, and cooperatives. Our membership extends from the Carolinas to
California in what is known as the Cotton Belt.
Since we must export approximately fifty percent of our production in order to
maintain a healthy and viable cotton industry in the United States, our members
are highly interested in international trade. We are convinced that a high level of
international trade on a multilateral basis is vital to the prosperity of our country
and contributes to peace. We also believe that maximum efforts should be made to
eliminate unreasonable restrictions against U.S. exports by foreign countries. Fur-
thermore, when foreign products, which are competitive with U.S. domestic prod-
ucts, are shipped to the United States at prices made possible by subsidies, we think
that countervailing duties should be imposed equal to the foreign subsidies.
While we favor a high level of international trade, we believe that international
trade should be carried out on an orderly basis. In this regard, we believe that the
Administration should continue to support appropriate federal action to provide
reasonable restraints against imports of products manufactured from cotton and
cottonseed, and those commodities directly competitive therewith, in order to hold
such imports at levels which will not cause excessive adverse interference with our
domestic markets. If Bilateral Agreements are negotiated under the Multifiber
Agreement with all significant suppliers of textile products to the United States and
if the Multifiber Agreement (MFA) and the Bilateral Agreements thereunder are
administered effectively, it is considered that the textile imports into the United
States would be on an orderly basis.
While we understand and appreciate the concept that the Developed Countries
should give reasonable preferences to imports from the Developing Countries in
order to help them develop economically, we do not believe that such preferences
should be granted if the preferences would significantly adversely affect any seg-
ment of our economy.
ENFORCEMENT OF THE RIGHT OF THE UNITED STATES UNDER TRADE AGREEMENTS
In regard to the various Agreements and Codes covered by the "MTN Package,"
the Council fears that the United States would diligently enforce the provisions of
any agreement which we enter into but that many other countries would be lax in
their enforcement. In our opinion, this would place U.S. firms at a disadvantage vis-
a-vis foreign firms.
While the Council does not agree with all of the suggested provisions included in
the various proposed agreements, the Council does agree that it would be desirable
to more clearly define the provisions of the General Agreement on Tariffs, and
Trade (GATT) so that obligations, rights, and responsibilities under GATT are more
clearly understood by the signatories.
In respect to agricultural policy, the Council agrees that it would be desirable for
the agricultural policy officials of various countries to consult on a continuing basis
in order to try to preclude development of problems that might arise as a result of
actions taken under national agricultural programs.
SUBSIDIES AND COUNTERVAILING MEASURES
A healthy and viable U.S. cotton industry is dependent upon a strong U.S.
domestic market as well as a significant export market. Imported textiles displace
U.S. domestically produced cotton textiles which are made principally with U.S.
cotton. While some imported textiles contain cotton, they are not necessarily made
from U.S. cotton. In fact, less than thirty percent of such imports, on the average,
contain U.S. cotton. Accordingly, the Council believes that reasonable restraints
should be applied to textile imports in order to hold such imports at levels that will
not cause excessive interference with our domestic markets.
The Council recognizes and appreciates that efforts are being made to reasonably
control international trade in textiles through the MFA and the Bilateral Agree-
ments thereunder. But the Council considers that the rate of growth of textile
PAGENO="0746"
738
imports into the United States should be limited to the growth of the U.S. domestic
market. While the Council understands that the special and deferential treatment
that will be accorded to the Developing Countries under the MTN regulations will
permit them to subsidize exports, the Council does not think that textile and
apparel items covered by the MFA should be accorded such treatment. Such action
would undermine the MFA.
The Council believes that countervailing duty investigations should be concluded
in the minimum possible time, and preferably within 90 days.
The Council concurs that the U.S. DISC Program should not be considered as a
subsidy program for U.S. exports. In addition, the Council supports the continuation
and expansion of U.S. government export credit programs, provided the terms of
such credit are not concessionary. Furthermore, the Council takes the position that
industry and government supported cooperative cotton market development activi-
ties should be carried out in foreign countries by the United States, in order to
maintain and expand markets for U.S. cotton and cotton products in such countries.
TECHNICAL BARRIERS TO TRADE
The Council agrees that Section 22 of the Agricultural Adjustment Act of 1933 is
basic to the U.S. Agricultural Program and that no action should be taken under
the MTN agreements which would rescind or undermine this important legislation.
The Council recognizes that the "Universal Standards" for upland cotton, which
are established by the U.S. Department of Agriculture in consultation with U.S. and
foreign industry and trade representatives, are the basis for selling, buying, and
arbitrating American-type cotton all around the world. Under the circumstances,
the Council believes that special efforts should be made to assure that the "Univer-
sal Standards" are not undermined by any of the MTN regulations.
GOVERNMENT ACTIONS
The Council agrees that the U.S. Department of Defense's purchases of textiles
and apparel should be exempt from coverage by the MTN government procurement
regulations.
In cases where foreign government agencies (such as the Cotton Corporation of
India) purchase cotton, the MTN regulations should assure that U.S. cotton is
equitably considered by such agencies. Furthermore, the MTN regulations should
assure that U.S cotton is fairly treated under any import licensing procedures that
are established by signatories to the MTN regulations. In addition, in respect to
Customs valuation, the MTN regulations regarding Customs valuation should not
discriminate against imports from the United States.
The Council urges that U.S. patents, copyrights, and trade names be protected
under the MTN regulations against infringement by foreign entities.
INTERNATIONAL COMMODITY AGREEMENTS
The Council does not consider that the United States should enter into any
international agreements regarding market allocation or buffer stocks or make any
commitments which would result in controlling or limiting the production, trade,
stock level, or price of U.S cotton, cottonseed, or their products. We do not believe
that such agreements would be in the best long-term interests of U.S. cotton, U.S.
agriculture, or our national economy.
GENERAL
The Council endorses the principle that international trade should be more open
and fair and welcomes the progress that was made in this regard during the Tokyo
Round negotiations. Also, the Council supports efforts to liberalize international
trade as long as such efforts are in the best overall interests of the United States,
and provided U.S. agriculture, particularly the U.S. cotton industry, is treated fairly
and realistically. While the U.S. negotitators did not fully achieve all of the U.S.
objectives during the MTN negotiations, indications are that the implementation of
the "MTN Package" could materially assist us in overcoming our trade and pay-
ments imbalances and would result in long-term trade benefits to our country.
SUPPLEMENTAL STATEMENT OF THE NATIONAL CorroN COUNCIL OF AMERICA
After submitting our April 25, 1979 statement in regard to the Multilateral Trade
Negotiations and the International Codes agreed to in Geneva, the National Cotton
Council of America learned that in the proposed implementing legislation considera-
tion is being given to the possibility of extending the President's negotiating author-
PAGENO="0747"
739
ity granted by the Trade Act of 1974 beyond its scheduled expiration date of
January 2, 1980.
Accordingly to our understanding, the Administration has requested that the
President's current tariff-cutting authority be extended for five years, and that the
President's authority to negotiate on all non-tariff barriers be made permanent. In
our opinion, the implementing legislation for the "MTN Trade Package" should not
grant any authority for future negotiations. Furthermore, we believe that the
granting of any authority for future negotiations should be handled in the custom-
ary legislative fashion after full hearings have been held.
Since significant tariff and non-tariff matters were negotiated during the Tokyo
Round of the Multilateral Trade Negotiations, we believe it would be unwise to
extend the President's autority to negotiate additional reductions in U.S. tariffs or
non-tariff measures until we have had an opportunity to measure and evaluate the
results of the Tokyo Round negotiations.
In addition, after submitting the statement on April 25, 1979, the Council learned
that consideration is being given to the development of criteria for determining
injury under the Subsidies Code which would make it difficult, if not impossible, for
manufacturers of products that have been severely impacted by imports to obtain
reasonable relief from such imports. We believe that the criteria for determining
injury should be reasonable and that the countervailing duty investigation should
be concluded in the minimal possible time.
Since subsidization constitutes a per se violation of fair-trade concepts, the Coun-
cil presume that subsidization of exports to the United States by foreign countries
results in de facto injury to U.S. manufacturers of competing products. Under the
circumstanes, we do not believe that an "injury test" should be necessary in cases
where there is a clear demonstration that foreign subsidies have been applied to
products exported to the United States. However, if the Subcommittee considers
that it will be necessary for the United States to agree to an "injury test" in order
to obtain the cooperation of other countries for the inclusion of "internal" subsidies
under the International Subsidies Code, the Council considers that the "injury test"
applied to countervailing duty investigations should be the same as that applied
under our Antidumping Act since January 3, 1975. Consequently, if the implement-
ing legislation includes a procision for an "injury test," the Council recommends
that the "injury test" for countervailing duty cases be the same as the "injury test"
for antidumping cases.
STATEMENT OF THE NEW YORK STATE GRANGE EXECUTIVE COMMIrFEE, CHESTER
SMITH, MEMBER, STATE GRANGE DAIRY COMMITrEE
The Executive Committee of the N.Y. State Grange isopposedl to the multilateral
trade agreement which is about to go before Congress. The Committee's opposition
is based primarily on the loosening of present countervailing duty regulation which
would be allowed by the agreement. These regulations now protect American dairy
farmers from subsidized imports of dairy products, particularly cheese from the
European Common Market. The Committee also opposes expansion of the quota for
cheese imports contained in the agreement.
Under the proposed new pact the United States would agree to seek amendment
to the countervailing duty statute to require domestic industries to prove injury
from subsidized imports before such duties are applied. We are aware that last
minute negotiation recognized opposition of U.S. dairy interests by making a special
provision for cheese in the form of a so-called "fast track", 55 day limit to review
injury from subsidized imports, with such review under the jurisdiction of the
Secretary of Agriculture. This modification of the "proof of injury" provision is
insufficient protection to American dairy farmers from the unfair competition of
subsidized imports.
As long as dairy exports are heavily subsidized by some countries, as they are by
the EC, American dairy farmers need full protection from such unfair competition,
as now provided by the countervailing duty statute. They obtained the present
measure on needed protection only after a long and hard fight in recent years. Any
lessening of this protection by any after the fact "proof of injury" provision would
be a case of locking the barn door after the horse is stolen. This conclusion is based
on the known reluctance of some Administration officials to enforce the countervail-
ing duty statute. Proof of injury may well prove to be practically impossible to get
recognized, even under a fast track 55 day rule. It would likely be a giveaway of the
American dairy industry.
1 Position adopted by the State Dairy Committee on April 19 and endorsed by the Executive
Committee on April 20, 1979.
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The Grange Executive Committee is well aware of the importance of foreign
markets to some segments of American agriculture, particularly grains and oilseeds,
and that generally speaking the principal of free trade is commendable, but inad-
equate protection from the unfair competition of subsidized imports is not free
trade.
Dairying is the dominant farm enterprise in New York. The Empire State is the
third leading dairy state in the Nation. Its 21,000 commercial dairy farmers had
gross income of over one billion dollars in 1978. Seventy five percent of this income
went for production expenses and was a major source of the business of feed stores,
hardware merchants, machinery dealers and banks in hundreds of rural communi-
ties, as well as support of the tax base for school districts and town governments.
For the above reasons, and since it cannot be amended, the Executive Committee of
the New York State Grange opposes the trade agreement.
COUNTERVAILING DUTY STATUTE
I. Basic requirements of Subsidies Code.
A. Bars use of export subsidies for non-primary products.
B. Specifically allows use of subsidies in agriculture. Only limits are when subsi-
dies:
(1) Displace other nation's exports in a market.
(2) Result in material price undercutting.
C. Amendment of countervailing duty statute to require proof of injury and
demonstration that imports are the cause of injury.
II. Consequences of the proposed change.
A. It would (in the case of dairy) permit full resumption of subsidized imports.
This means elimination of even the minimal restraints provided under countervail-
ing duty waiver agreements.
(1) Present export subsidies on cheese are: EEC, 20 to 60 cents per pound; Sweden,
40.1 to 55.5 cents; Finland, 18.6 cents-$1.6; Norway, zero to 20 cents; Switzerland,
58.3 to 96.4 cents.
(2) Certain basic cheeses and other products are proscribed from subsidization
under the waiver agreements: Swiss (EEC, Austria); Monterey, Colby, Cheddar,
Industrial Block (EEC).
B. The bulk of the import expansion proposed is from the subsidizing nations.
C. The requirement that material price undercutting be present and that injury
be proven showing imports as the cause removes any protection of the domestic
industry.
(1) Material price undercutting specifically allows for lower pricing of imports
through subsidization. Actions such as multiple sale rebates, transfer of product
between units of multinational firms further allows deception, evasion.
(2) A proof of injury requirement in any form reverses the intent of the law.
Countervail has been a technique to prevent injury. It would now be a law permit-
ting, even requiring, injury.
D. The basic change in the statutory intent would destroy the case history
underlying the law.
E. The demonstrated unwillingness to pursue enforcement would be granted legal
sanction. This would be true whether administration remained in Department of
Treasury, were moved to another existing agency or placed in a new Department of
Trade.
III. Improved administrative procedures do not promise relief and could be carried
out under present law.
A. Expedited action on complaints: Present law requires a decision within 12
months. It does not require Treasury to take 12 months to reach a decision.
B. Provisional relief measures. These could be provided now. This is essentially
what is being done by Treasury pending action on the waiver extension. If it is legal
in this instance, it would be legal as a general practice.
IV. Given these facts, the only alternative is to leave the countervailing duty
statute in its present form, without the addition of an injury requirement of any
type. The intent of the trade talks was to limit the use of export subsidies, not
sanction them. The latter has been done. The agreement is worse than existing law.
With reluctant enforcement or no enforcement, a domestic industry at least has
recourse to the courts to obtain action. Implementing of the agreement permits
subsidization, allows price undercutting, requires injury, and removes the ability of
domestic industry to obtain redress.
EXPANSION OF SECTION 22 IMPORT QUOTAS ON DAIRY PRODUCTS
I. Multilateral Trade Negotiations (as thus far re~aled):
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741
A. Increase cheese quotas from 57,960 metric tons to 110,333 metric tons, an
increase of 90.4 percent.
B. Place all cheese imports other than sheep and* goat's milk varieties and soft
cured cheeses such as Cammembert and Brie under quota.
II. Effect of actions:
A. This would increase the "base" from which future evasions and/or quota
expansions will take place. Since 1966 alone, cheese quotas have been permanently
increased as follows:
(1) 1966, Cheddar quota raised 33 percent
(2) 1967, Cheddar quota raised 261 percent; quota established on "Other Ameri-
can" cheese to cover evasion products
(3) 1968, Quotas established on processed Edam and Gouda and pricebreak system
established on Swiss, Gruyere-Process and "Other, NSPF" to cover evasion products
(4) 1969, Quotas established on Italian, not in original loaves to cover evasion
product; Pricebreak quota on "Other NSPF" increased 43 percent
(5) 1971, Pricebreak quota established on Low Fat Cheese to cover evasion
(6) 1972, Swiss quota increased 378 percent; Gruyere-Process quota increased 242
percent; "Other NSPF" increased 62 percent.
B. The proposed expansion is equivalent to adding 670 million pounds of milk to
the U.S. supply. The adjustment for this must be made in the American market.
Absorption in the short term will add $75 million per year to the cost of the dairy
price support program. In the long, term it will require reducing domestic produc-
tion by that amount-the equivalent of forcing 1,200 to 1,500 dairy farmers out of
business.
C. There is a major impact on farm income. Updating of the 1974 USDA study on
such impact shows the farm price of milk reduced by 21 cents per hundredweight
for each 500 million pounds milk equivalent of imports. This means a $343 million
income loss based on 1978 milk production levels from the cheese import expansion
alone. Adding the expansion to the level of dairy product imports in 1977 (1,968
million pounds milk equivalent) yields farm income losses of over $1.35 billion.
III. The U.S. already has the most open market for dairy products of any major
producing nation. Other nations use rigid quota systems, licensing procedures, or
variable duties to bar imports. On the basis of any valid economic comparison, the
EEC would provide a major market for U.S. dairy products. This is not the case due
to their exclusionary practices which they declared "non-negotiable" in the MTN.
This position was accepted by the U.S.
IV. The negation of the countervailing duty statute has the effect of expanding
cheese imports by 66 percent. 62,621 metric tons of the 94,984 metric tons imported
in 1977 entered from countries who must use export subsidies to penetrate this
market.
V. Assurances provided the Senate Finance Committee during consideration of
the Trade Act of 1974 (by letter to Senators Nelson and Mondale) call for Congres-
sional review and approval of any expansion of cheese import quotas through the
same process used for approval and implementation of other segments of the MTN
agreements. To date no notification has been given Congress.
VI. The only alternative, given the negative effect of the expansion and the lack
of any offsetting measures, is to reject the expansion of Section 22 import quotas on
cheeses.
STATEMENT OF SENATOR MIGUEL A. HERNANDEZ AGosTo, PRESIDENT, POPULAR
DEMOCRATIC PARTY AND PUERTO Rico MINORITY LEADER
The Puerto Rican economcy will receive a very serious blow if the proposed 30
percent reduction in tariff for imported rum is approved and if the present tax
assessment method for distilled spirits is changed from the wine gallon to a proof
gallonage method. Both changes are part of the package agreement negotiated by
the United States in the so called Tokyo Round.
We understand it is part of an effort by the U.S. to foster freer international
trade and to assist developing nations in their goal to achieve greater participation
in that trade.
This new outlook by the U.S. in its commercial foreign policy is justified in many
ways and we do not question its validity. We agree that unfair conditions that do
not allow developing countries to compete on an equal basis with the U.S. market
should be eliminated. We feel Puerto Rico should not oppose these changes merely
because they may be harmful to us. However, we are forced to oppose the proposed
tariff and change of tax assessment method for distilled spirits because such
changes, while allowing other countries to compete within the U.S. market, would
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742
put Puerto Rico at a definite disadvantage in competing with imported rums from
other countries in the U.S. market.
Ever since Congress approved the Trade Expansion Act of 1962, which served as
the basis for the tariff agreements now under consideration, it was anticipated that
the new agreements might affect certain commercial sectors and industries within
the U.S. That is why the act provides mechnanisms to try to avoid undue harm to
said industries and sectors, or if unavoidable, to establish adequate compensation.
From the very beginning in its political and economic relationship between
Puerto Rico and the United States, Congress realized that the Puerto Rican govern-
ment needed to be provided with special sources of income that would allow it to
render the necessary governmental services to its citizens. That is why our first
organic act, the Foraker Act of 1902 which established Puerto Rico's relations with
the federal government, made the allowance that all tariffs collected by U.S. Cus-
toms on foreign products imported into Puerto Rico, as well as taxes imposed in the
states on all products produced in Puerto Rico for sale in the U.S., would be
returned to the Puerto Rican treasury. These tariff and tax reimbursements have
been an important source of revenue with which the Puerto Rican government has
been able to finance its public administration. This is especially true of the funds
generated by sale of Puerto Rican rums and tobacco in the U.S.
In the case of Puerto Rican rum, the funds obtained from tax reimbursement of
sale of our rum in the U.S. during the Second World War, allowed Puerto Rico to
establish its Operation Bootstrap shortly after `the war. Operation Bootstrap was
widely hailed for its success in helping bring Puerto Rico out of abject poverty and
into the developing industrial world. During the past year, for example, the Puerto
Rican treasury received some $180 million from federal tax reimbursements on rum
sales in the U.S. That amount was 12 percent of net receipts to Puerto Rico's
general fund for that year. In addition to other negative factors, the changes now
being proposed in tariffs and tax assessments would endanger this important source
of government revenue.
Puerto Rico received a similar blow in the 1930s when tobacco sales slacked off
considerably in the U.S. market. The difference with the present situation is that
rum sales are so much larger than tobacco sales ever were so that the decrease in
revenue would be that much greater. In addition to the Puerto Rican treasury, one
of our major industries and an important sources of direct and indirest jobs would
also be adversely affected. The rum industry is one of the pillars of our industrial
community. Investment in this industry is in the hundreds of millions of dollars. It
employs some 1,400 workers who are paid annually some $10 million. Together with
the beer industry, this sector generated a gross product of some $297 million during
the year 1978, which represents a substantial part of the overall Puerto Rican gross
product.
Since most foreign countries block Puerto Rican rum with their own tariffs, the
U.S. market remains the sole market for our product. Last year, for example,
Puerto Rico shipped 16.9 million gallons of 100% proof rum to the states and only
0.86 million gallons to other countries. If our rums were made to compete with
foreign rums on an unequal basis, we might be losing our only market, and with it,
an important source of government revenue, commercial production and jobs.
Since 1917, imported distilled spirits entering the U.S. market at or above 100%
proof have been taxed on the basis of alcohol volume. If however, imported distilled
spirits enter the U.S. at less than 100% proof they have been taxed on the basis of
liquid volume content, or wine gallons. If this assessment method is changed and all
imported spirits are taxed by their proof gallonage, foreign bottled rum would pay
$5.88 less on each case sold in the U.S. With the 30 percent reduction in tariffs, the
combined savings per case of foreign rum would increase to $6.04 during the first
year. That would put Puerto Rican rum in a very difficult competitive position if
you take into consideration the fact that our rum producers face much higher
production costs due to application of federal minimum wages, the Environmental
Protection Agency (EPA) requirements, the Federal Occupational Safety and Health
(OSHA) standards and other cost factors not faced by the foreign rum producing
countries.
We firmly believe that the essence of our political and economic relationship
existing between Puerto Rico and the U.S. predicates the need for Puerto Rico to
participate in the decision-making process in which important tax changes such as
the one now being contemplated are taken. That is why, during the 1960 Kennedy
Round in Geneva, the U.S. allowed Puerto Rican representatives to sit in on the
talks as observers and our views were taken into consideration before any accords
were reached. It was due to that observer status that the Puerto Rican economy was
not adversely affected, in spite of the wide tariff reduction agreed upon by the U.S.
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743
That procedure should have been followed in the present round of talks and we
would hope that it will be followed in the future.
Perhaps some compensation is being considered to offset the damages to Puerto
Rico's economy, should these changes go through as they have been announced. In
this respect, it is important to point out that in order for compensation to be
adequate to the damage being done to our economy, a mere appropriation of funds,
would not suffice. One must bear in mind that what is being damaged is our
producing capacity and that compensation must, therefore, be in such a measure as
to allow our economy to replace jobs and to improve our capacity to generate
income which would be lost due to these tariff and tax changes.
STATEMENT OF HECTOR JIMENEZ JUARBE, EXECUTIVE VICE PRESIDENT, PUERTO
RICO MANUFACTURERS ASSOCIATION
The Puerto Rico Manufacturers Association is a private, voluntary, non-profit
organization established in 1928 for the purpose of uniting all Puerto Rican Manu-
facturers into a strong and effective body in order to further their mutual interests
as they relate to the public and private sectors of the Commonwealth of Puerto
Rico.
Particularly, the Association's efforts are interwoven with the development and
advancement of programs designed to improve the economy of this small and
isolated island, and, especially, in the development of those programs which contrib-
ute to the improvement of the climate for industrial growth.
The membership of the Manufacturers Association includes most of the major
manufacturing corporations operating in Puerto Rico. In all, 1,024 companies, of
which 280 are only manufacturing-related, belong to the Association. It is relevant
of state that these member companies employ no less than 75 percent of the
manufacturing force in the island.
Throughout the history of the Association and even before "Operation Bootstrap"
came into being, this organization has worked closely with the public sector devising
innovative structures to strengthen and develop the socio-economic conditions of the
people of Puerto Rico. Basically, our efforts have been channeled through joint
ventures with the Economic Development Administration Fomento.
The comments of the Puerto Rico Manufactureres Association before the Subcom-
mittee on Trade of the Ways and Means Committee House of Representatives at the
Hearings on the Multilateral Trade Negotiations follow:
The Rum Industry in this island generates 12 percent of the public revenue and is
responsible for thousands of direct jobs.
Lower tariffs on imported rum could create havoc in our economy. In 1977 our
unemployment rate was abnormally high, hovering around 21 percent. Today it is
still over 17 percent, even though we have been recovering from the world-wide
stagflation phenomena of 1974-75.
Any action by Congress to reduce or eliminate the tariffs on rum imported to the
U.S. would be a death blow to our economy and to the effort and achievements that
we, as a people, have made during the last thirty years to overcome historically
adverse economic conditions.
It is also relevant to state that such action by Congress would impose a harder
task in our self-esteem and on the American tax payer, for then, more Puerto
Ricans would depend on the welfare measures of both the federal and local govern-
ment.
In any case, the net result would be adverse to the interests of the United States
and Puerto Rico in terms of political and socio-economic conditions.
The adverse effect upon the economy of Puerto Rico would be compounded by
granting the petition of the European Economic Community, Canada, Jamaica,
Trinidad-Tobago, Poland and Bangladesh to the effect that the federal tax on
bottled imported distilled spirits at 100 percent proof or less, shall be based upon
the gallon proof.
This change (now the tax on wine gallon basis) would have two quantitative
effects that would translate into economic benefits for the imported rum, in detri-
ment of the competitive position of the Puerto Rican rum, its economy and industry.
As a result, the foreign rum importer would reduce his investment per case by
some $6.88.
And it all means, again, the same: the rum industry in Puerto Rico, its competi-
tive position and the economy of this island would suffer the consequences.
It must be noted that 85% of the rum produced in Puerto Rico is sold on the
mainland and that this irreparable harm to Puerto Rico will come about by a
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744
decision of Congress based on non-economic reasons, in favor of imported rums and
against the best interests of Puerto Rico.
We trust that you give this important matter the urgent attention it requires. We
make ours the petition of the Government of Puerto Rico.
Respectfully submitted.
RELIANCE ELECTRIC Co.,
Cleveland, Ohio, April 30, 1979.
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade, House Ways and Means Committee, Washington,
D.C.
DEAR CHAIRMAN VANIK: We generally support the objectives of the multi-lateral
trade negotiations, and believe that the reduction of tariff and other trade barriers
should be beneficial to the United States. However, the reduction of such barriers
makes it that much more important that our laws dealing with unfair trade prac-
tices be strengthened, rather than weakened. For that reason we are writing to
express our company's deep concern over some of the countervailing duty law
amendments being proposed.
There are three areas we find particularly important:
1. Injury Test-The United States initialed the Subsidies/Countervailing Duty
Code in Geneva on April 12. That Code obligates the United States to adopt an
injury test in its countervailing duty law. This will make it more difficult for
domestic industries to obtain relief against subsidized imports. While it may have
been a political necessity for the United States to concede this point in Geneva, we
urge that the injury test be no more difficult than the injury test currently applied
under the Antidumping Act.
2. Effective Date of Injury Test-Since the United States obligation to adopt an
injury test did not come into being until April 12, it seems to us that the injury
amendment to the countervailing duty law should only apply to complaints filed on
or after April 12. In that connection Reliance Electric filed a countervailing duty
petition on February 14, 1979 with respect to scales and weighing machinery from
Japan which are subsidized under Japan's High Yen Measures Law.
3. Offsets-In our view, the Treasury Department has been lax in its enforcement
of the countervailing duty law. One of the worst examples of administrative under-
mining of the law involves the question of "offsets". Over the years Treasury has
effectively narrowed the scope of actionable subsidies by interpreting the law to
permit an increasing range of offsets against foreign subsidies. For example, Treas-
ury has reduced the amount of countervailing duties in certain cases of "phantom"
indirect tax rebates (i.e., offsets for indirect taxes that were not rebated on export
but could have been rebated on export if the foreign government had so desired) and
by the degree of economic disadvantage of locating in one region versus another.
Our understanding is that the Subcommittee has tentatively approved language
which would ratify Treasury's practice in this regard and would give Treasury
discretion to expand the range of offsets even further. This would seriously emascu-
late the countervailing duty law. We earnestly hope, Mr. Chairman, that when your
Subcommittee makes its final decision on this matter it will limit these offsets to (1)
application fees and similar payments to the foreign government necessary to
obtain the subsidies, (2) the loss in value of the subsidy resulting from delayed
remittance by the government, and (3) any export tax designed to neutralize the
effects of the subsidy on exports.
We wish to express our admiration of your leadership role in formulating the
trade policy of the United States at this most important juncture in history. I
believe that the recommendations we have made in this letter will promote the best
interests of the United States and that they are deserving of your support.
Sincerely yours,
HUGH D. LUKE, Chairman.
SHARRE?rS, PALEY, CARTER & BLAUVELT, P.C.,
Washington, D.C., April 25, 1979.
Hon. CHARLES A. VANIK,
Chairman, Subcommittee on Trade, House Committee on Ways and Means, Washing-
ton, D.C.
DEAR MR. CHAIRMAN: These comments are in response to the Subcommittee Press
Release of April 6, 1979, concerning implementation of the Multilateral Trade
PAGENO="0753"
745
Negotiations (MTN) and should be included in the record of the hearings conducted
by the Subcommittee from April 23-27, 1979. This submission is not made on behalf
of any particular client, but is a reflection of our long experience as legal practition-
ers in the international trade and customs' law field.
The Subcommittee has asked for comments on the advantages and disadvantaged
to the U.S. of the international codes, and on changes in existing laws which may be
either necessary or appropriate to implement these agreements. The Subcommittee
is specifically concerned with procedures affecting agency responsibility, timing
requirements, burden of proof, and judicial review.
We wish to confine our comments primarily to the subject of Antidumping. As we
understand it final agreement has still not been reached on revisions to the Anti-
dumping Code, but nevertheless proposed amendments to U.S. law have been the
subject of Executive Branch consultations with the Congress. Our failure to address
the other subjects raised by the Subcommittee should not be construed as either an
endorsement of or opposition to the agreements or proposed legislation to imple-
ment them. Rather we have narrowed the focus of our analysis so as to highlight
our concerns that certain proposed modifications to the Antidumping Act are inimi-
cal to the national interest.
The purpose of the MTN is, and has been to continue the liberalization of the
multilateral trading system which developed after the Second World War, centered
about the General Agreement on Tariffs & Trade (GATT). Successive rounds of
tariff negotiations have led to a downward spiral in the high levels of tariff protec-
tion previously erected by the industrial countries. These protective walls were the
residue of the chaotic period of the 1930's when the bigger-thy-neighbor policies of
the major trading nations contributed to and reinforced world-wide depression. For
the U.S., the mandate for this round of negotiations is contained in the Trade Act of
1974, wherein the Congress enjoined the President to work toward the reduction
and elimination of barriers to trade which prevent the development of an open and
non-discriminatory trading system. For the first time these negotiations were to
address themselves in a comprehensive way to the problems of the various non-
tariff barriers to trade-the importance of which have increased as the general level
of tariff protection has decreased. It is, therefore, incumbent upon us when evaluat-
ing the results of the MTN to keep the ultimate objective in mind-the continued
liberalization of the multilateral trading system. While progress has been made in
addressing several major barriers to trade, unfortunately some MTN implementa-
tion proposals now being considered would have the opposite effect.
Any amendments to the U.S. law must specifically adopt the material injury
standard set forth in Article VI of the GATT and in both the original and renegoti-
ated Antidumping Code to bring the U.S. into conformity with its international
obligations. Furthermore, in order to rationalize the statute the amendments should
include the requirement that the dumped imports must be an important cause of
injury, and not less important than any other cause. If these imports are an
unimportant cause of injury then obviously dumping duties will not correct the real
problems of the domestic industry but will actually be counterproductive because
they will be viewed as alternatives to steps which could be really effective in
reversing the industry's decline.
There have been numerous additonal suggestions for amending the Antidumping
Act including recommendations of the Senate Finance Committee, and draft legisla-
tion developed by special-interest groups and various members of Congress. These
amendments which would fall under the "appropriate" category in the implementa-
tion legislation since they are not required by MTN agreements, are to some extent
designed to make antidumping procedures parallel to modified countervailing duty
inquiries, and appear designed to make the Act a more efficient tool for restricting
imports into the United States. These attempts are, we believe, stimulated by the
diminished competitiveness of U.S. manufacturers in world markets and massive
U.S. trade deficits. We should not be deluded by the rhetoric of special interests.
These developments are not the result of "dumping" or "unfair trade practices"
abroad, but flow from a continued relative decline in productivity in the United
States and the massive balance of payments effects of OPEC oil price increases.
Solutions, therefore, must address these underlying causes.
It is not within the scope if this Subcommittee's proceedings and it would be
therefore inappropriate to address these issues in greater depth here. The fact
remains, however, that the Congress and Administration have come under great
pressure from declining American industries because of these developments-steel,
textiles, consumer electronics to name the most prominent and most vociferous-
and have been willing to increasingly go along with "solutions" to the basic weak-
nesses of these industries which limit imports, at consumers' expense, but fail to
PAGENO="0754"
746
provide any reasonable expectation that these industries will regain their competi-
tiveness.
Many of the proposals to amend the Antidumping Act are simply attempts to
convert the Act from a remedial to a punitive statute. It has been proposed, among
other things, that the pricing investigatory authority be transferred from the Treas-
ury Department to the USITC or Commerce Department because Treasury is too
subject to taking."policy" into consideration; that time limits be radically shortened
to provide expedited relief to petitioners; that discretion to~ reject petitions which
fail to present a prima facie case of Sales at Less Than Fair Value (SLTFV) or
injury be eliminated or restricted; that preliminary injury analysis by the USITC to
weed out weak cases be eliminated as too burdensome to petitioners; that dumping
duties be assessed retroactively; that importers be required to deposit estimated
duties based on stale investigations and analyses which ignore intervening price
revisions; that Treasury's adjustments to foreign market value which are small and
"bothersome" be ignored; that discontinuances based on price assurances be elimi-
nated; that findings be revoked only after many years of price monitoring; that
safeguards heretofore applied to maintain the confidentiality of business confiden-
tial information be virtually eliminated; that Customs require pricing information
on all invoices and that the data thus collected by published periodically.
This list is far from exhaustive, but the intent is obvious. It is self-evident that
suggestions such as these are in complete contradiction to the mandate to liberalize
and eliminate trade barriers contained in the Trade Act of 1974. Such amendments
cannot be considered as "appropriate" to that purpose and should not be considered
as part of the MTN implementation package.
Because of the peculiar nature of the legislative process mandated by Sections 102
and 151 of the Trade Act, it will not be clear which changes the Administration will
seek in the Act until the bill, which cannot be amended, is submitted to the
Congress. However, the deliberations and recommendations of the Senate Finance
Committee, insofar as they have been made public, provide guidance as to those
proposals which seem most likely to be a part of the package. We have, therefore,
confined our comments primarily to these issues:
TIME LIMITS
We believe proposals to shorten maximum time limits for completion of various
stages of antidumping inquiries to be ill-advised. The time for completion of the
initial fair value investigation has already been compressed by more than half over
the past decade. Given the complex nature of the data foreign exporters are re-
quired to produce within 30 to 60 days under current procedures, and the necessity
that this data be verified by U.S. Customs representatives in the foreign country,
any further compression would simply lead to initial arbitrary and incorrect deter-
minations requiring later modification.
The Senate Finance Committe recommendations would provide that in normal
cases preliminary Sales at Less Than Fair Value determinations and withholding of
appraisment decisions must be made within 120 days of the receipt of a petition.
This compares to the present statute which allows approximately 7 months. In
complex cases the Committee proposes a maximum of 165 days, compared to the
present limit of 10 months. The Committee proposes to allow 75 days for the final
fair value decision-extendable by 60 days upon the request of petitioners or re-
spondents-and 45 days for USITC to make its injury finding following the final fair
value decision.
These restriction to the time for carrying out investigations are unacceptable if
the statute is to be administered in an objective way. The shortening of the initial
investigatory period, proceding the preliminary determination is especially unrea-
sonable because:
It is during this period that the basic judgments which control the course of the
investigation must be made. It is very difficult later to decide for instance that third
country prices, or constructed value are appropriate for foreign market value,
instead of home market prices. The period following the preliminary can only be
used to "fine tune" the determination by seeking additional information or verifica-
tion of particular claimed adjustments.
Initiation and preliminary SLTFV decisions will have to be made on incomplete
information, causing unnecessary diversion of investigatory resources to cases that
will eventually result in negative decisions, makin git more difficult to focus on
instances where relief is really appropriate.
Trade will be unnecessarily disrupted by arbitrary withholding of appraisement
decisions, even though they may be reversed at a later stage of the investigation.
PAGENO="0755"
747
Antidumping investigations deal with extremely complex issues-prices must be
adjusted for differences in home and foreign markets and for variations in merchan-
dise. Cost of production inquiries obviously require even a more detailed and compli-
cated factual inquiry. Furthermore, there may be large numbers of foreign manu-
facturers concerned (in the Mexican vegetable case for instance there are over 4,000
different producers who will be subject to any finding) who keep their records
differently, who are geographically remote from the investigating authority, who
are not within the sovereign authority of the United States and who speak and keep
records in foreign languages. Furthermore, a single "class or kind" of merchandise
which is the subject of an investigation may often include numerous different
products-different sizes, shapes, qualities, etc.-for each of which data must be
collected and analyzed. The task of identifying the producers and products in any
case, delivering questionnaires, and translating documents, without any analysis or
verification, can easily absorb all or most of the 100 days between initiation and
preliminary determination that the Senate Finance Committee would allow in
normal cases. "Complicated cases" such as those involving cost of production analy-
ses and/or manufactured products where significant and sophisticated variations
existed between products sold in different markets may require the use of outside
technical experts to assist in the investigation. In such cases the formulation of
questionnaires-that is merely asking the right questions-may take weeks. Often it
may not be clear until an advanced stage of the initial pricing investigation that a
cost of production issue exists, which means in effect that the investigation must be
restarted, with a whole new set of questions to be answered by respondents. Trips
abroad by teams of Customs officers and outside experts may be required as in the
recent cost of production investigation of steel plate from Japan. The Senate Fi-
nance Committee limitations would not permit such procedures.
There has been criticism of the verification process and demands that it be made
more meaningful. Verification of costs, prices and other factors affecting foreign
production and sales is difficult to begin with given language difficulties and differ-
ent bookkeeping and data retention standards around the world, and it will perforce
be even less meaningful if investigating authorities are given insufficient time for
the process. A further source of criticism has been that petitioners are given
insufficient opportunity to participate in the investigatory process. Recently efforts
have been made, and are evidently to be expanded, to assure that more and more
information is provided to petitioners during the inquiry so that they may be aware
of the issues, and submit relevant information themselves where appropriate. Short-
ened time period for investigations will largely foreclose any meaningful opportuni-
ty of this kind for petitioners as decision makers will not have the luxury of waiting
for petitioners' response to respondents' submissions before making determinations.
We believe that the maximum time for completion of the initial fair value
investigation must be at least 6 months from the date a petition is received if the
determination to withhold appraisement is to be made on the basis of anything
more than allegation. In complicated cases an additional 3 months is required, and
any case requiring a cost of production analysis, either because of allegations in the
petition, or because of information developed during the course of the investigation
should automatically be designated as complicated.
The 75 days (extendable by 60 days upon the request of either petitioners or
respondent) recommended by the Committee for reaching a final fair value determi-
nation is sufficient. However, we believe that the USITC must continue to have the
90 days afforded to them by present law following the final fair value determination
in order to give proper consideration to the question of whether injury was by
reason of the Sales at Less Than Fair Value.
PAYMENT OF ESTIMATED DUTIES
The proposal to require the payment of estimated dumping duties after a finding,
based on the fair value investigation, rather than to require (as is now the practice)
that financial security be posted pending assessment on an entry-by-entry basis, is a
clear effort to punish importers even if no Sales at Less Than Fair Value are
occurring. If prices have been adjusted to eliminate any SLTFV, as is the rule in
dumping cases, the purpose of the Act has been accomplished. Even if estimated
duty payments are later returned when the assessment process is completed and no
margins are found to be present, importers have lost the use of their money for
extended periods of time. Furthermore, it should be noted that calculating estimat-
ed duties based on margins found to exist during fair value investigations would be
unreasonable and capricious. Fair value determinations are not subject to the
rigorous statutory mandate which governs the assessment process following a find-
ing. Often different, less accurate methods of price comparison have been used to
PAGENO="0756"
748
determine fair value-methods which are necessarily abandonded to a more exact-
ing analysis during the assessment stage and which radically alter the initially
calculated margins.
It is argued that the collection of estimated duties is necessary to force exporters
to produce the pricing data necessary for assessment in a more timely manner. We
do not believe this to be the case. Delays in assessment have historically not
resulted from the failure of foreign manufacturers to cooperate, but from long
delays in Customs' preparation of "master lists" upon which assessments depend.
This process has of necessity been given low priority by Customs and Treasury
because they have had insufficient resources, both quantitatively and qualitatively
to devote to this activity. The answer to streamlining the assessment process is,
therefore, not to sanction arbitrary and inequitable procedures, but to commit the
necessary human resources to the task on a continuing basis.
If despite these arguments to the contrary it is decided to require the deposit of
estimated duties following a finding, there must be some limitations placed on the
use of stale analyses for computing the amount of duty to be required in the
interests of equity and to prevent the complete stifling of trade in products subject
to such a finding. The 18 months limit from entry to assessment which the Senate
Finance Committee proposes could lead to situations where estimated duties were
being calculated on sales which took place two and a half years before the entry in
question! To prevent such a patently irrational situation Customs should be re-
quired to issue a new master list within 6 months of the submission of all relevant
data by an individual manufacturer. Furthermore, Customs should be required to
inform respondents within 45 days of such submissions as to the adequacy of the
data submitted, whether additional data will be required, and what a preliminary
review of the submission indicates. If Customs fails to meet these requirements,
adequate financial security would be acceptable on entries until such time as new
master lists are issued. Such a procedure would provide importers and foreign
manufacturers with some assurance that they would not continue to be penalized
because of bureaucratic delay.
DISCLOSURE OF CONFIDENTIAL INFORMATION
Various proposals have been made to provide for the disclosure of business confi-
dential information, otherwise exempted from disclosure under the Freedom of
Information Act, through the use of protective orders. The Senate Finance Commit-
tee recommends that information submitted in confidence to Treasury or the USITC
could be made available to counsel for interested parties under either "an adminis-
trative or court protective order." Further details of the Committee's proposal are
lacking but we understand that the sanction for violation of the administrative
order is intended to be prohibition from all appearances before the agency for 7
years, and that such orders would be issued only with the approval of the party
submitting the information. Court orders, which presumbly would be more meaning-
ful in that violations could subject attorneys to contempt of court citations, would be
issued by the Federal District Court for the District of Columbia.
We find these proposals unnecessary and extremely prejudicial to the legitimate
interests of those subjected to scrutiny under the Act. These procedures are investi-
gatory, not judicial or adversary in nature. The matter at issue here is the appropri-
ate tax due from the taxpayer-the importer and manufacturer-to the U.S. Gov-
ernment. While the petitioner has a role to play in providing sufficient information
to the administering authorities to cause the initiation of an inquiry, his participa-
tion in the investigation itself must be strictly limited. It is totally inappropriate for
him to be allowed in effect to sift through his competitors' tax return! The data
required of manufacturers in an antidumping inquiry include the most precious of
trade secrets, prices, discounts, sales organization details, marketing methods, not to
mention cost of production. Nothing could be more anti-competitive than to require
that this data be made available to the manufacturer's competitors. It has often
been suggested that many antidumping petitions are filed with as much hope of
ferreting out the competitors' trade secrets as of obtaining an affirmative finding.
Furthermore, it is difficult in many instances to distinguish between counsel and
his client where relationships are of a continuing and longstanding nature, despite
the most honorable of intentions on the part of counsel.
The procedures necessary to provide for a meaningful and objective review of the
facts prior to the determination of whether a protective order should be issued can
only further impede the rapid completion of these investigations. The present
system of requiring non-confidential summaries of confidential information, as im-
perfect as it is, is far preferable to the alternative suggested.
PAGENO="0757"
749
PRELIMINARY INJURY EXAMINATION
In order to eliminate frivolous cases, which drain the resources of the administer-
ing agencies at great cost to the taxpayers, while diverting attention from domestic
industries really in need of relief, all petitions should be directed to the USITC as
well as the Treasury. The USITC would determine shortly after the initiation of an
investigation whether sufficient evidence of injury exists to warrant continuation of
the proceedings. While currently the law does provide for such a procedure, in
instances where the Secretary of the Treasury determines "substantial doubt" of
injury to exist, logically all cases should be subject to preliminary scrutiny by the
agency charged with analyzing evidence of injury so that unnecessary inquiries can
be quickly ended. The present test, which requires the USITC to determine that
there is "no reasonable indication of injury" should be reversed, making it a
positive, rather than a negative standard. Unless the Commission finds the exist-
ence of a reasonable indication of material injury and of a causal link between the
allegedly dumped imports and that injury, the investigation should be terminated as
is required by Article V of the Antidumping Code. The Senate Finance Committee
has recommended a somewhat similar procedure but specifics, other than allowing
45 days for the USITC consideration of the issue, are thus far lacking.
PRICE ASSURANCES
A major step toward increasing the effectiveness of the statute as a remedy for
injurious price discrimination, and relieving the administrative burden which has
come with the increased number and complexity of cases, would be a revision of the
presently restrictive use of price assurances as a means of expeditiously resolving
antidumping investigations in a non-arbitrary fashion, while providing the protec-
tion to affected industries contemplated in the Act. While price assurance/discon-
tinuance procedures could presently be modified by Treasury without recourse to
legislation, it is understandable that the Department is hesitant to take a step of
such magnitude without Congressional acquiescence, given current criticism of its
administrative efforts.
It is interesting to note that of the some 70 dumping findings outstanding at the
end of 1977, only 14 pre-date 1970. Of course many older findings have been
revoked, but it is also true that previously a much more flexible "price assurance"
policy was in effect. If SLTFV were found producers were encouraged to adjust
prices, give assurances of no future sales below fair value, and the antidumping
procedure was terminated (on the theory that the statutory objective had been
accomplished). Under pressure from those who believe this procedure was too le-
nient to foreign producers, and provided no monitoring of their future price behav-
ior, the Treasury radically revised its price assurance policy. In May, 1970 two
changes were made. First, investigations would no longer be terminated with a
negative SLTFV determination when price assurances were received, but only dis-
continued with a requirement for continued price monitoring by Customs. Second,
price assurances would only be accepted when margins of Sales at Less Than Fair
Value were "minimal." Minimal margins were interpreted as no more than 1
percent on a weighted average basis (that is, for example, margins of 50 percent on
2 percent of sales, or margins of 1 percent on 100 percent of sales). While this
definition has been expanded slightly over time it is basically still the benchmark
used to determine whether discontinuance is appropriate.
With the benefit of hindsight, it is clear that while the former modificiation made
sense, the standard adopted in the latter was far too inflexible. Those familiar with
fair value investigations know that the mathematical margin for error alone far
exceeds 1 percent-S to 10 percent is closer to the mark. Furthermore, keeping in
mind the remedial objectives of the statute, why impose any numerical limitation
on the acceptance of price assurances? The only test ought to be the Secretary's
satisfaction that foreign producers intend to abide by a commitment on future
pricing which will eliminate Sales at Less Than Fair Value. Such a commitment,
coupled with reasonably thorough monitoring of those prices by Customs, should
accomplish the statutory objectives without requiring the assignment of hundreds of
Customs officers to keep the assessment process current and resorting to the re-
quirement that estimated duties be deposited. Regulatory and statutory authority
already exists to enforce assurances through the threat of a retroactive withholding
of appraisement in response to any violation. A flexible price assurance policy
would also greatly reduce the pressure on the Secretary to discontinue cases because
of "special circumstancess," although that option should still be available to him in
those rare instances where conditions change radically following the initiation of an
investigation, making its continuation inappropriate. The reasonableness of that
determination is, of course, subject to judicial scrutiny.
~4-998 - 79 - L~9
PAGENO="0758"
750
COST OF PRODUCTION
To further rationalize the statute, Congress should repeal Section 205(b) of the
Act. Cost comparisons as opposed to price comparisons are not originally a dumping
concept. This provision was added to the law by the Trade Act of 1974. The Congress
provided little guidance in that statute and in the legislative history as to how "cost
of production" (COP) is to be calculated. As a result there has been confusion and
uncertainty in administering the provision and a significantly expanded burden on
the limited resources of the Customs Service in conducting these extremely complex
inquiries in foreign countries. All petitioners seek to turn antidumping investiga-
tions to cost of production calculations simply as a means of obtaining information
on their competitors' operations. Foreign producers have been reluctant to turn over
their most closely held industrial secrets to U.S. authorities who are subject to the
Freedom of Information Act and the discovery procedures of the U.S. Courts. No
producer wants to give up this kind of data. Recently, U.S. petitioners have refused
to give their COP to Treasury upon request to aid in determining what foreign COP
might be! This reluctance can be expected to increase considerably if the previously
discussed proposal concerning the release of confidential data under protective
orders is adopted.
Rather than amend the provision to provide more precision to its terms it would
make more sense to delete it from the Act altogether, returning the law to its pre-
Trade Act form which defined Sales at Less Than Fair Value only in terms of price.
This is a complicated enough calculation, but one with which U.S. authorities have
some experience, and a concept which has been internationally sanctioned. We note
that the March 15, 1979, Report to the Congress by the Comptroller General, on
U.S. Administration of the Antidumping Act of 1921, recommends deletion of Sec-
tion 205(b), concluding that problems involving below-cost sales "could be better
handled under other U.S. trade legislation."
JUDICIAL REVIEW
Section 516 of the Tariff Act of 1930 should be amended to provide the same right
of immediate judicial review of antidumping determinations for importers and
foreign exporters as domestic manufacturers enjoy under present law. Currently
importers must wait until an entry of the product in question has been liquidated
and assess additional duties before protesting, under Section 514 of the Tariff Act.
This often is several years after the Treasury or USITC determination. Domestic
manufacturers on the other hand may immediately appeal an antidumping determi-
nation to the Customs Courts under Section 516. In the interests of equity this
disparity should be removed. The Senate Finance Committee recommended this
modification in the law.
SECTION 337
The Senate Finance Committee has also proposed that Section 337 of the Tariff
Act of 1930 (19 U.S.C. 1337 as amended) be amended to clarify the relationship of
the statute to the Antidumping Act and the countervailing duty law (19 U.S.C. 1303,
as amended). The amendment would make clear that Section 337 does not cover
actions clearly within the purview of the other two statutes. This proposal would
prevent a continuation of the confusing situation which has existed in recent years
and which led to duplicative investigations and unseemly bureaucratic wrangling
between agencies of the U.S. Government. We strongly support this recommenda-
tion.
AGENCY RESPONSIBILITY
It has been suggested that responsibility for the administration of the Antidump-
ing Act be shifted from the Treasury Department. The fact that the issue is raised
at all is illustrative of the dissatisfaction being voiced in some quarters with current
Treasury administration of the law. While our experience with Treasury and Cus-
toms, like those of other practitioners in this field, has had its ups and downs, we
believe that many of the criticisms result from indequate resources having been
devoted by the U.S. Government to the administrative effort. This is a problem
which will not be resolved by moving functions around the government. Further-
more, it is our belief that reorganization of the government for the purposes of
conducting trade policy and administering the trade laws is far too important to be
dealt with as a secondary issue in the context of MTN implementation. It is a
separate and separable issue which deserves the full focus of the Congress' attention
at a more appropriate time.
PETER 0. SUCHMAN.
GAIL T. CUMINS.
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751
STATEMENT OF NORMAN C. SCHWARTZ, ON BEHALF OF SIEGEL, MANDELL &
DAVIDSON, P.C.
I am pleased to have this opportunity to submit this statement, on behalf of my
firm and myself, regarding the necessary and appropriate statutory procedures for
implementing the Multilateral Trade Negotiations. I am an attorney with the firm
of Siegel, Mandell & Davidson in New York City. Our firm consists of 10 attorneys,
all of whom are full-time practitioners of Customs law, and my statement reflects
both my own views and those of my colleagues.
Our concern is primarily procedural. If we correctly understand the various press
releases issued by this Subcommittee, it appears that certain legislation concerning
matters which are only remotely or distantly related to the actual "implementa-
tion" of the Tokyo Round trade agreements is bein~ included for introduction as
part of the legislative package under the "fast-track' procedures of § 102 and § 151
of the Trade Act of 1974 (19 U.S.C. § 2112, § 2191).
The implementing bill contemplated by the Trade Act of 1974, and which is
subject to the "fast-track" procedures, is limited, under the explicit terms of § 151,
to `only" a bill which includes:
(A) a provision approving such trade agreement or agreements;
(B) a provision approving the statment of administrative action (if any) proposed
to implement such trade agreement or agreements, and
(C) if changes in existing laws or new statutory authority is required to imple-
ment such trade agreement or agreements, provisions, necessary or appropriate to
implement such trade agreement or agreements, either repealing or amending
existing laws or providing new statutory authority.
Our concern is with certain legislative changes proposed pursuant to subpara-
graph (C). Apparently, the "fast-track" legislative package now being drafted will
include provisions making substantial changes in the following areas (among
others):
1. The scope of. review, and the standing of parties, in civil actions before the
Customs Court challenging "positive" or "negative" countervailing duty determina-
tions.
2. The type of hearing required in countervailing duty cases before the Treasury
Department and the International Trade Commission, and whether such hearing is
subject to the Administrative Procedure Act.
3. Substantive and procedural changes in § 301 of the Trade Act of 1974 pertain-
ing to unfair trade practices, and § 201-203 of the Trade Act of 1974 pertaining to
import relief actions.
We believe the intention of the 93rd Congress in drafting § 151 is clearly ex-
pressed in Senate Report No. 93-1298, 93rd Congress, 2d session, on H.R. 10710. At
page 107 of its report, the Senate Finance Committee concluded that non-tariff
barrier agreements entered into by the executive should be approved by the Con-
gress, because "virtually all non-tariff barriers in the United States are matters of
law", and Congress should not abrogate its legislative responsibilities. However, the
Finance Committee also recognized that our trading partners require "reasonable
assurances that the negotiated agreements would be voted up-or-down on their
merits". Hence, the Finance Committee drafted, and the Congress enacted into law,
the unusual "fast-track" procedures contained in § 151.
It is quite clear that § 151 contemplates a relatively restricted legislative package,
as is evidenced by the word "only" appearing in the definition of the term "imple-
menting bill" contained in § 151(b)(1) of the Trade Act of 1974 (19 USC 2191(b)(1)).
We submit that any "fast-track" legislation which is "necessary or appropriate" to
implement a trade agreement should cover only those matters directly related to
the provisions contained in the trade agreement, per se. Otherwise, the legislative
process is seriously compromised, and bills will be introduced and, presumably,
enacted without the normal safeguards, and, arguably, in the absence of due process
of law.
We therefore urge this Subcommittee, as well as the Executive branch, to careful-
ly segregate those matters which are directly covered by the trade agreements in
question from those matters which are not, and to limit the scope of the "fast-track"
package bill to the former. We express no opinion here on the merits of any
proposed legislation being considered by the Subcommittee. Certain changes in law
may be necessary or desirable within the framework of our international trade
PAGENO="0760"
752
relationships. But such changes, which do not bear a reasonably direct relationship
to that which has been negotiated and signed under the Tokyo Round, should be
introduced, debated, and enacted pursuant to the normal legislative process.
I thank the Subcommittee for this opportunity to testify.
THE SOCIETY OF THE PlAsTIcs INDUSTRY, INC.,
New York, NY, April 23, 1979.
Mr. JOHN M. MARTIN, Jr.,
Chief Counsel, House Committee on Ways and Means, Longworth House Office
Building, Washington, D.C.
DEAR SIR: This statement is being submitted by the International Committee of
The Society of the Plastics Industry, Inc. (SPI) in response to the opportunity
extended by the Subcommittee on Trade, House Committee on Ways and Means.
SPI, by this statement, wishes to address issues regarding implementation of the
Multilateral Trade Negotiations, believes that its position is consistent with those of
ISAC #5-Chemicals-and ISAC #8-Plastics and Rubber.
By way of introduction, The Society of the Plastics Industry, Inc. is composed of
over 1,400 companies who supply raw materials, process or manufacture plastics
and plastics products, engineer or construct molds or accessory equipment for the
plastics industry, and engage in the manufacture of plastics machinery. The Society
is the major national trade association of the plastics industry, its membership
being responsible for more than three fourths of the total dollar volume of industry
sales in the United States. The International Committee of SPI is comprised of over
70 U.S. companies engaged in international trade in plastics markets, including
resins, basic fabricated products, and processing machinery.
In reviewing the current information on levels of proposed tariff reductions and
descriptions of non-tariff codes, we feel that the OSTR with the assistance of the
Advisory Committee has done an excellent job of seeking out the problems and
working with the negotiators to draft appropriate provisions in the codes which
cover the importantareas.
There is, of course, a broad gap betwen reaching general agreement on a subject
and delineating the mechanisms by which the adoption of such codes can be imple-
mented by the members of the GATT. Because these will have to be delineated and
implemented before we really know the effects on U.S. plastics producers, it is
important that this be done carefully to protect the rights of U.S. producers and
traders.
We feel that implementing legislation should be worded in a manner to make the
broad language of the codes more precise and the authority more specific in its
impact. This is particularly true because of the tendency for government and
industry in the U.S. to have an adversary position, whereas abroad the relationship
tends to be more cooperative. Thus, industry in the U.S. needs to have the areas of
uncertainty more clearly defined to avoid the adverse effect of vague measures, but
at the same time not restrict U.S. industry to a greater extent than our trading
partners.
We favor the use of Industry Advisory Committees comprised of people familiar
with foreign trade and the terms used in the negotiations to provide guidance so
that these more precise wordings do not have counterproductive impacts.
The American plastics industry and the machinery industry supplying processing
equipment have long been successful in the export market, but, while many of these
sales continue to rise in dollar value, the rising prices conceal a leveling out in
volumes and a sharp decrease in the percentage of tOtal world export markets
supplied.
It is for these reasons that we are concerned that provision be made for a
supportive element in the U.S. government which can be understanding of the
problems of exporters and be active in assistance to them. The legislation being
designed to implement the trade agreement, should be more facilitative than restric-
tive for U.S. plastics producers.
Experience in trading in plastics, fabricated products, and equipment has given
many in the industry a deep comprehension of the importance of tariffs and non-
tariff measures of U.S. practices, such as DISC, export-licenses, and other U.S.
provisions, and the relative value of the non-tariff measure codes, which have been
achieved at the MTN. The following comments concerning some of the codes most
important to the plastics industry are based on this experience:
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SUBSIDIES AND COUNTERVAILING DUTIES
The tariff changes negotiated will have more impact than the non-tariff barriers
in our trade with some countries. In other countries both the conventional non-tariff
restrictions and very subtle forms of producer-trader financing organizations and
government "manipulation" have made exports from the U.S. to such countries
difficult. Because of such circumstances "de facto" barriers to trade not specifically
seen as direct subsidies should be considered in the implementing legislation as
cause for complaint.
Another serious problem is that of the trend in world plastics industries toward
government ownership of producing and marketing facilities. These industries di-
verge from the principles by which free enterprise operates, and eventually are
subsidized by the governments owning them. In other cases, where governments
own the supplies of basic feedstocks such as petroleum or natural gas, artificially
low prices for these can result in unfair competition. Because of these factors, we
feel that a strong Subsidy-Countervailing Duty Code is essential.
Our government must also take a serious and concerned approach to the adminis-
tration of its trade laws and the behavior of our trading partners under the
Agreement. Actions on subsidized imports should be taken without delay-and ap-
plied in a firm and equitable manner against all named countries.
We believe the following provisions should be included in the code:
1. Flat prohibition against export subsidies.
2. Tightened rules on settlement of disputes.
3. Recognition of harmful effects of domestic subsidies.
4. Improved visibility of subsidy practices.
5. The requirement of proof of injury appears unnecessary and should be made
minimal.
6. Imports from nonsignatory countries and less developed countries should re-
ceive comprehensive treatment and include sufficient specificity.
We therefore recommend:
1. The imposition by the U.S. of countervailing duty should, where damaging
subsidies can be shown to exist, be mandatory rather than voluntary.
2. The injury test criteria for both antidumping and escape clause actions should
be based on injury that is greater than immaterial or inconsequential.
3. Cases involving injurious exports from state owned, state controlled, or state
aided industries should be based on comparable cost data from constructed value
determinations of the most similar country with private enterprise.
4. The criteria for determining a country's degree of development should be based
on a sector rather than the country's entire economy.
5. The definition of U.S. domestic industry should be such as to permit one or
more products or locations to qualify as a separate industry if they have specific
features that clearly identify them as separate from others.
VALUATION CODE
One of the principal features of the proposed valuation code is the elimination.of
the American Selling Price (ASP). We do not feel (without knowing the quid pro quo
for giving up ASP) we can endorse its acceptance until we know:
(1) The tariff levels,
(2) The benefits which have been obtained in exchange, and
(3) A proper conversion of rates to their post ASP equivalents.
If the problems with ASP can be settled satisfactorily, it will be important to
eliminate undesirable wording or add footnotes to prevent the "up-lift of valuation"
by countries to which plastics exports are shipped. If this is done, the plastics
industry will support the implementation of the code.
SAFEGUARDS
Disruption of U.S. plastics markets by foreign government-owned plants and other
sources which have not been found to provide cause for action under antidumping
or countervailing duty laws, should be covered under this code.
We feel that in wording the implementing legislation, the definition of domestic
industry should be worded in such a way that a single product or area can qualify
as the U.S. industry in question if factors do in fact result in it being so affected. It
should also cover products "like or directly competitive with" products affected.
SUMMARY
The SPI International Committee, having reviewed publicly available information
on the tariff reductions and non-tariff codes, endorses both aspects of the MTN
treaty. Assuming no radical changes in the final negotiations, we believe that our
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sector will gain substantially equivalent competitive opportunity by passage of the
treaty with appropriate implementing legislation by the Congress.
Respectfully submitted.
DAVID S. WElL,
Chairman, International Committee.
STATEMENT OF THE SPECIAL COMMITrEE FOR U.S. EXPORTS
The Special Committee is a participating group of more than 1,200 business
concerns and 80 supporting business associations whose operations and concerns are
directed to the export of U.S. products. The Special Committee's major concerns are
with the effect of the U.S. tax system on exports by U.S. businesses and the ability
of those businesses to compete in foreign trade in view of the many tax advantages
and incentives and direct and indirect subsidies provided to foreign competitors by
their governments.
The membership of the Special Committee has various interests in the MTN
Agreements. However, the Committee's specific interest is with the treatment of
export tax subsidies under the Agreements.
Regarding export tax subsidies, the Agreements contain an Illustrative List of
Export Subsidies which includes certain tax practices. The development of more
specific rules regarding tax subsidies for exports is consistent with the intent of
Congress when the Trade Act of 1974 was enacted.
However, of the many issues addressed in the Agreements, some are vague and
will require later clarification and interpretation. Tax subsidies are clearly one such
issue.
The U.S. tax system has been modified a number of times in recent years to
restrict potential U.S. tax benefits from export activities. In 1962 and 1964 Subpart
F was added to the Internal Revenue Code which imposes U.S. taxes for the year
earned on the income of certain foreign subsidiaries controlled by U.S. persons. The
U.S. has also promulgated and vigorously enforced rules and regulations requiring
transactions by a U.S. company with a foreign entity to be reported on an arms
length basis under Section 482 of the Internal Revenue Code. The regulations
governing the source of income and deductions under Section 861 of the Internal
Revenue Code have been revised to insure proper reporting. Moreover, after various
changes by Congress and new interpretations by the Internal Revenue Service
regarding the foreign tax credit over the last several years, consideration is present-
ly being given by the U.S. Treasury Department to comprehensive new regulations
in that area.
All of these actions have been carried out unilaterally by the U.S. to insure that
there are no tax advantages from export sales. Other nations have failed to adopt
similar provisions in their tax systems and in many cases have used the so-called
"loopholes" which have been closed in the U.S. systems as a mechanism to encour-
age exports.
The one significant U.S. export tax incentive is DISC, which was enacted in 1971.
Congress' purpose in enacting DISC was to a large extent to offset the many foriegn
tax incentives including rebate of value added taxes, the territoriality system under
which foreign earnings are not taxed, the lack of arms length standards, etc.
DISC along with various tax practices of other nations was considered by GATT
panels for several years and GATT documents L/4422, L/4423, L/4424 and L/4425
were published on November 2, 1976 questioning the appropriateness of the tax
practices. The new Multilateral Trade Agreements do not address these issues
directly but they imply that such practices will be subject to further evaluation
under the new code.
The Special Committee's view is that tax practices under the new Agreements
should not be considered on a piecemeal basis. An international conference among
the signatories would be a better way to proceed. At such a conference, tax practices
and their subsidy affect on exports could be considered jointly and in detail.
The Special Committee urges that the Subcommittee on International Trade
include in the implementing legislation an expression of the consensus of the U.S.
Congress that an international conference to consider tax subsidies be held after the
ratification of the Multilateral Trade Agreements by the various signatories.
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STATEMENT OF TEXAS CITRUS MUTUAL AND THE TEXAS CITRUS EXCHANGE
SUMMARY
The Texas citrus industry supports passage of the proposed trade package result-
ing from the multilateral trade negotiations. At the same time, we urge our negotia-
tors to continue to seek concessions from the European Economic Community (EEC)
for fresh and processed citrus. Also, we believe Section 301 of the 1974 Trade Act
must be strengthened and that the Western citrus industry's 301 complaint against
the EEC must be resolved within a reasonable time.
INTRODUCTION
This statement is made on behalf of Texas Citrus Mutual and the Texas Citrus
Exchange.
Texas Citrus Mutual is a voluntary, nonprofit trade association composed of
growers of citrus fruits in the Rio Grande Valley of Texas. The more than 2,500
growers in the organization produce oranges, grapefruit and tangerines. Mutual
represents its grower-members on matters of general interest and importance,
which include problems of international trade.
The Texas Citrus Exchange is a federated marketing cooperative which handles
approximately 40 to 45 percent of the citrus production in the State of Texas.
Exchange members include four cooperative packing associations owned by about
1,500 grower-members. In addition, the Texas Citrus Exchange owns and operates
two citrus processing plants. The Exchange markets fresh oranges and grapefruit,
bulk citrus concentrate, single-strength juice and cattle feed made from citrus peel.
The Tokyo Round of trade negotiations has been followed with keen interest by
citrus growers in Texas. The Texas citrus industry is entering a period of increased
production and the development of world markets is critical to our future success.
The development of a progressive export program has been made difficult by trade
impediments directed against the United States cirtrus industry by Japan and the
European Economic Community, our two largest potential markets.
THE TOKYO ROUND: A GENERAL ASSESSMENT
Our interest in developing export trade caused us to carefully follow the efforts of
Ambassador Strauss and our trade negotiators during the Tokyo Round. Regardless
of the specific provisions which may emerge for the trade package, we are certain of
one thing. The agricultural sector for the first time in a major trade negotiation has
received the emphasis and priority it so richly deserves. It is only through day-to-
day observations of the negotiating process that one can truly recognize the monu-
mental task that faced our negotiators. In the area of agricultural trade barriers,
Ambassador Strauss faced long-standing and deeply imbeded agricultural trade
barriers. Two such barriers that we have been deeply affected by are the Japanese
system of import quotas on fresh oranges and citrus juices and the EEC's system of
preferential duties for fresh oranges, fresh lemons and citrus juices.
While we would like to report that success was achieved with respect to both of
these barriers, this unfortunately is not the case. However, substantial gains were
accomplished and the Texas citrus industry will be in a better competitive position
upon adoption of this package than it was prior to the commencement of this
Round.
It is on this basis that we endorse and support the trade package that has been
presented to this Committee. We commend Ambassador Strauss and our trade
negotiators for the arduous task they have performed so effectively and urge that
the United States continue to work toward a free and fair system of world trade.
JAPAN
One of the most frustrating trade barriers subject to this negotiation was the
Japanese quota on fresh oranges and citrus juices. This quota operated so as to
effectively foreclose the tremendous Japanese market from U.S citrus producers. We
understand that through periodic intervals the orange quota will be increased to
approximately 80,000 metric tons by 1983. Substantial increases in the quota have
also been achieved on a similar basis for grapefruit juice and orange juice. More
importantly, it is also understood that the trade agreement with Japan includes
provisions whereby the parties agree to commence further negotiations in late 1982
for the purpose of achieving further increases in the quota, with the ultimate
objective being complete elimination of it.
While we would have preferred to completely eliminate the quota, our negotiators
have definitely achieved a healthy precedent by the increases that have been
obtained. The dollar impact on exports cannot be assessed until the precise provi-
PAGENO="0764"
756
sions of the actual trade package with Japan have, been disclosed. However, we
would conservatively project that the value of, increased trade for the fresh orange
and citrus juice concessions in Japan alone will be in excess of $40 million.
OTHER CONCESSIONS
While no official data exists with respect to specific trade concessions received for
our products from other countries, initial indications are that the citrus industry
received other benefits. Based on currently available information, we anticipate that
import duties will be reduced for citrus and citrus products in 11 countries. While
the trade impact will not be as dramatic as will be experienced in Japan, the
aggregate effect of these reductions, if confirmed, will create definite advantages to
the U.S. citrus industry. It has been said that the difference between a surplus and
shortage is often times only 10 percent of the total crop. It is our expericence that
this generality is more or less accurate, and in any given year trade concessions
which at first glance appear insignificant can have an important effect in market-
ing an agricultural crop.
More fundamentally, the concessions reportedly achieved in 11 other countries
substantiate to us that Ambassador Strauss has kept his word to not have American
agriculture deserted during the Tokyo Round.
EEC
Our one major disappointment is the apparent failure to reduce or eliminate the
discriminatory import duty preferences granted by the European Economic Commu-
nity for fresh and processed citrus to 12 countries in the Mediterranean basin.
This system operates so as to grant tariff discounts to various nonmembers of the
European Community, to the disadvantage of the United States and other exporters.
The preferences violate the Most Favored Nation provision of the General Agree-
ment on Tariffs and Trade and are in contravention of basic principles of free trade.
The preferences have a pronounced effect on the Texas citrus industry since the
discrimination is most severe during the winter months, the very period when Texas
orange producers are in heaviest production. In fact, direct participation by Texas in
the EEC fresh orange market is almost foreclosed by the extremely high margins of
preference which occur during the October-April period. During this time the duty
on Texas oranges is 20 percent, while the duty for the recipients of the preference is
as low as 4 percent.
Similar preferences exist for citrus juicies, which also greatly impede the exporta-
tion of these products from Texas to the EEC.
The ability of our industry to continue its development is being seriously impeded
by the effective foreclosure from a market of 256 million consumers.
Texas citrus growers hope that this Committee will urge our negotiators to
continue their efforts to seek elimiation of this unlawful tariff scheme. Also, as will
be discussed in further detail below, something must be done to improve Section 310
proceedings which have been initiated to correct abuses such as the European
preference system.
THE PENDING SE~1'ION 301 CASE ON EEC TARIFF PREFERENCES
On January 18, 1977, the Texas citrus industry joined with the California and
Arizona citrus industries and filed a complaint pursuant to Section 301 of the 1974
Trade Act covering the EEC's system of preferential tariffs on fresh and processed
citrus. The import restrictions have been described above and have had the desired
effect of increasingly foreclosing U.S. citrus growers from the Common market. The
system of tariff preferences violates one of the most basic provisions of GATT, the
Most Favored Nation provision of Article I. This provision essentially provides that
any contracting party shall receive the same advantages and privileges granted by
any other contracting party to any product originating in any other country. Assess-
ing the United States a 20 percent duty while assessing Algeria and Morocco a four
percent duty for the same product at the same time cannot by any stretch of the
imagination meet the requirements of this provision.
We understand that the Committee will review possible revision of Section 301 in
connection with its review of the trade package. If our 301 case is a good example,
and we think it is, Section 301 must be modified to insure that the pending cases
are prosecuted and resolved within a reasonable time, probably not to exceed one
year. We believe that if our negotiators cannot achieve elimination of the preference
system within a reasonable time after adoption of the trade package, retaliation as
contemplated by Section 301 must be initiated.
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NONTARIFF CODES
In terms of long-range considerations, the most noteworthy accomplishment of
this negotiation will probably be the initial development of nontariff codes to govern
rules of the game in international trade. These codes, covering such matters as
licensing, government procurement, standards, subsidies and countervailing duties
will, if effectively enforced, have a dramatic influence in world trade.
For agriculture in general and the citrus industry in particular, the proposed code
on subsidies is the most significant. Aside from the tariff preference system we have
already noted, the EEC also implements subsidies which impede U.S. agricultural
exports. We do not suggest the subsidies code will be a panacea and by itself
eliminate this problem. However, the establishment of a generally accepted set of
rules for subsidies is a step in the right direction.
SAFEGUARDS
We are disappointed that the proposed safeguards code was not ultimately en-
dorsed pursuant to the negotiations. Notwithstanding this failure, we believe that
implementing legislation for the multilateral trade negotiations should give the
President authority to take emergency unilateral safeguard action in order to
prevent possible serious injury to domestic producers of perishable crops. It is
understood that the United States Department of Agriculture has drafted an outline
of such legislation. Because of the short marketing life after harvest of perishable
commodities, the impact and disruption caused by imports can have disastrous
consequences.
Under current U.S. law, the President has no domestic authority to take such
emergency unilateral safeguard action rapidly enough to prevent potentially serious
injury to domestic producers of perishable crops. Article XIX of GATT permits rapid
injury investigations and the establishment of provisional measures in "critical
circumstances".
The type of legislation contemplated would give the President authority to tempo-
rarily restrict imports of perishable commodities if the International Trade Commis-
sion or other designated body determines that the particular commodity is being
imported in such increased quantities and under such conditions as to threaten
serious injury to domestic producers of like or directly competitive products. The
legislation should provide for the monitoring of perishable commodities, daily or
weekly tabulation of import statistics as necessary; and rapid injury investigations
by the International Trade Commission or the designated body upon request by
either the President or a member of the affected industry.
CONCLUSION
Texas citrus growers have followed these negotiations with great interest and
concern. We believe the only rational frame of reference for judging the success of
the negotiations is to compare tariff and nontariff barriers existing prior to the
initiation of Ambassador Strauss' effort to what will emerge if the trade package is
adopted. This being the test, we urge adoption of the trade package. We further
want to congratulate Ambassador Strauss and his staff for the perserverance, in-
sight and tenacity they have exhibited in this most difficult task.
We regret that there was no progress with the EEC in relation to the products we
produce and process. Because of the importance of this market to citrus producers
in the United States, and more importantly because of the very dangerous prece-
dent this system of preferential tariffs establishes, we urge the Committee to en-
courage our negotiators to continue efforts to seek elimination of the preferences,
either on a bilateral basis or whatever basis is appropriate.
We recommend serious consideration be given to modifying Section 301 in a
fashion that will make this remedy more meaningful and the development of
domestic safeguard legislation as previously described.
In the final analysis, Texas citrus growers believe the stage is now set for
meaningful progress toward the elimination of artifIcial, unlawful and discriminato-
ry trade practices in world commerce. The stage has been set through the effort of
Ambassador Strauss and we want to take this opportunity to again convey our
thanks and gratitude. The only alternative to acceptance of this trade package is to
return to an unstructured and unpredictable stage of world trade. Adoption of this
package does not guarantee the erradication of protectionism and selfish national
interests, but it does provide a healthy starting point for a world trading system
that will ultimately benefit every consumer and every country.
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UNITED STATES CATHOLIC CONFERENCE,
DEPARTMENT OF SOCIAL DEVELOPMENT AND WORLD PEACE,
Washington, D.C., May 3, 1979.
Hon. CHARLES A. VANIK,
Chairman, Committee on Ways and Means, House Subcommittee on Trade, Washing-
ton, D.C.
DEAR MR. CHAIRMAN: I understand the House and Senate shortly will be submit-
ting recommendations to the Administration on legislation to implement the Multi-
lateral Trade Negotiations (MTN) package. The United States Catholic Conference
(USCC) did not ask to testify before the Subcommittee on Trade because we assumed
the hearings would be of a fairly specialized and technical nature. However, we do
have some suggestions to offer on the codes relating to the interests of developing
countries which we hope you can take into account.
The Tokyo Declaration in 1973 stressed that a major objective of the MTN would
be to provide increased trade opportunities for developing countries. Many develop-
ing countries question whether this objective has been achieved and have threat-
ened not to sign the agreement.
The USCC believes the United States in support of this objective should imple-
ment the codes to accord "differential and more favorable treatment" to developing
countries as permitted by the agreed GATT "framework" language. Such preferen-
tial treatment is essential for most developing countries to enable them to compete
in the markets of industrialized countries. It is also essential to go beyond the
general language of the codes and define as precisely as possible in U.S. implement-
ing legislation the nature and scope of such special treatment. Otherwise the codes
may be used as legal cover to further restrict developing countries' imports as many
of them fear. In our view concessions made by the United States to enlist the
support of protectionist interest for the MTN already have imposed too heavy a
price on developing countries. Further restraint will seriously impair their future
development prospects.
We believe preferential treatment for developing counties is especially important
in the case of the Subsidies and Countervailing Duties Code and the Government
Procurement Code.
In the case of the Subsidies and Countervailing Duties Code we favor the applica-
tion of the injury test to subsidized imports from all developing countries whether
or not they are signatories. We believe such injury should be defined as demonstra-
bly "material" as required by GATT Article VI. Subsidized imports from the least-
developing countries, even where injury can be demonstrated, should be exempt
from countervailing duties or else taxed at reduced rates. For imports from most
other developing countries a reasonable period of time should be negotiated for the
phasing out of subsidies before countervailing duties are applied except on cases of
severe injury.
In the case of the Procurement Code we favor extending most favored nation
treatment to the least-developed developing countries regardless of whether they
sign the code. We also believe the United States should not require full reciprocity
from most other developing countries and that the extent of such reciprocity should
take fully into account the development, financial and other needs of each country.
Finally we support the extension of the Administration's tariff cutting authority
under the Trade Expansion Act for another five years. In using this authority, the
United States should give particular attention to the negotiation of bilateral tariff
agreements covering products of special interest to developing countries which
received less favorable tariff concessions from the Tokyo Round than industrialized
countries.
Sincerely yours,
Rev. J. BRYAN HEHIR,
Associate Secretary.
STATEMENT OF JOSEPH CASEY, CHAIRMAN, IMPORT TASK FORCE, VALVE
MANUFACTURERS ASSOCIATION
Mr. Chairman, my name is Joseph Casey and I am chairman of the Import Task
Force for the Valve Manufacturers Association. The Valve Manufacturers Associ-
ation includes seventy-two manufacturers who account for approximately eighty
percent of the total United States industrial valve producing capacity. The domestic
valve manufacturing industry has a total annual sales of approximately $1.7 billion.
I am also President of Mark Controls Corporation, Evanston, Illinois, a major U.S.
valve producer.
PAGENO="0767"
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I am pleased to testify on behalf of the valve manufacturers on the Multilateral
Trade Negotiations. In accordance with the Committee's press release, I shall direct
my comments to two of the areas designated by the Committee for comment.
Specifically, I shall comment on the overall advantage or disadvantage of the trade
package and make additional comments on the need for adjustments to our domes-
tic trade law.
First, it is difficult to discern with any accuracy the global gains derived from any
efforts to liberalize trade. The task of determining advantages, or disadvantages, is
not made any easier when one attempts to understand with precision who gains and
who loses, as a result of trade liberalization, within a national economy. The reason
for this difficulty is simple: the gains and losses that result from liberal trade are
not evenly distributed within an economy.
For example, while consumers may, over the short run, gain from unrestrained
trade, some domestic businesses will suffer reduced production and, indeed, may be
forced to close. A business closing, of course, hurts workers and imposes welfare
costs on local governments. In short, what appears as a gain has a significant cost
attached to it.
As a practicial matter, the extent to which any gain can be quantified rests on
the details of the tariff reduction formulas and the elimination of non-tariff barriers
that will emerge in the final trade package. Without final figures on the reductions
to be affixed to specific products, it is difficult to say with precision who gains or
loses within the American economy.
Yet, something of a general nature can be said about the gains and losses that are
likely to result from adoption of the Geneva trade package.
Those industries most apt to suffer from trade liberalization are those that are
labor intensive or those that utilize simple, well-known technologies. Those of us in
the valve manufacturing industry fear, because we bear these characteristics, that
the trade agreement may result in harm to our industry and its workers.
For a particular American industry to benefit from the trade negotiations, the
tariff barriers and restrictions in foreign countries would have to be reduced. Once
this is accomplished domestic industries with sophisticated or advanced technology
will reap the benefits of greater access to foreign markets since the products of
these industries are the items in greatest demand abroad.
Since it is industries with new technologies that will gain through trade liberal-
ization, the American workers that will suffer most from freer trade are semi-
skilled workers. With these workers engaged in industrial activities located in the
urban centers of the North and East, these geographic areas will suffer from trade
liberalization. Insofar as semi-skilled workers occupy lower income positions in our
economy, the lower income workers and their families will bear the major share of
the adjustment that is sure to follow trade liberalization. It is these workers,
incidently, who are always less mobile and harder to re-train for work in other
parts of the economy.
In summation, while consumers may enjoy some short-term gains from trade
liberalization there will be significant costs paid by certain industries, certain
workers and certain sections of the country.
Those of us in the valve manufacturing industry are braced for the adjustments
that are sure to result with the institution of the Geneva trade agreement. In the
face of this, we seek careful review of the multilateral trade agreement by the
Congress in the expectation that we can avoid having to shoulder an unnecessarily
large proportion of the burden of adjustment.
The adoption of the Geneva trade package will require some important adjust-
ments to existing American trade law. Of particular interest to those of us facing
subsidized foreign competition, is the Subsidy Code contained in the Geneva trade
package. Adoption of the Subsidy Code provisions will require changes in the
current domestic countervailing duty law.
The implementing legislation that will accompany the trade package must be
very clear as to the institution of a "material injury" test in either our present
countervailing duty law or antidumping statute. Under current law, a domestic
petitioner in a countervailing duty case does not have to establish an injury unless
the merchandise in question is entering the United States duty free. The require-
ment to demonstrate injury, in the view of the valve manufacturers, should demand
no more than is currently required in our antidumping law. It seems quite reason-
able that relief from subsidization, which is a per se violation of free trade, should
not rest on a difficult burden of proving injury.
Likewise, the implementing legislation should improve on the Treasury Depart-
ment's current administration of the countervailing duty law. The implementing
legislation should prohibit the Treasury Department's practice of reducing calculat-
PAGENO="0768"
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ed subsidies. In addition, the legislation should place a prohibition on ex parte
meetings between domestic government officials and representatives of foreign
countries or firms involved in a countervailing duty dispute, unless a record is kept
of such meetings and is available to petitioners. Information submitted by foreign
parties to the Treasury Department should be available to the domestic industry
involved in the case in order to give the domestic petitioners an opportunity to
rebut the foreign parties' contentions. Curre~itly, this information is not distributed
to the domestic parties involved in a case. Legislation should require Treasury to
verify all information, including that which is obtained from a foreign government,
before it can be used in making a determination. The reasons for Treasury's deter-
minations should be published in the Federal Register and Treasury should publish
periodic reports on foreign subsidy practices in the Register.
The right to seek judicial review of Treasury determinations should be expanded
beyond its present limits to include trade unions and trade associations. Currently
only manufacturers, producers and wholesale can gain judicial review. Judicial
review ought to be expanded to include direct appeal of the amount of duty im-
posed, and of a suspended investigation.
Lastly, in the important issue of price assurances, the valve manufacturers oppose
the use of price assurances to suspend either a dumping or a countervailing duty
investigation. Price assurances would require far too much monitoring by the Treas-
ury Department in order to assure compliance. If price assurances were to be
permissible, it would be the valve manufacturers' position that these assurances
must completely eliminate the entire dumping margin or level of subsidization.
In conclusion, I wish to thank you for providing me an opportunity to testify on
behalf of the Valve Manufacturers Association.
STATEMENT OF ABRAHAM TUNICK, WASHINGTON COUNSEL, WINE & SPIRITS
WHOLESALERS OF AMERICA, INC.
This statement is submitted on behalf of Wine and Spirits Wholesalers of America
(WSWA) the national trade association of wine and spirits distributors doing busi-
ness in 40 States, the District of Columbia and Puerto Rico. WSWA's 800 members
directly import most of the alcoholic beverages entering the United States.
Inasmuch as our members are distributors for all suppliers of alcoholic bever-
ages-both imported and domestic-some of whom are sharply divided on the wine
gallon/proof gallon controversy and since this is a matter primarily of concern to
our suppliers, WSWA has determined to assume a completely neutral position on
this issue.
However, we are advised that the Distilled Spirits Council of the United States
(DISCUS) proposes to submit to your subcommittee five specific proposals for inclu-
sion in a package of implementing legislation under the Trade Act of 1974, ostensi-
bly to compensate the United States distilling industry for the proposed elimination
of the method of assessing Federal Excise Taxes and Customs Duties on imported
distilled spirits on a wine gallon basis when imported under proof and imposing the
tax and duty on a proof gallon basis.
We would like to comment on those proposals in the order in which they are to be
presented.
1. Extension of tax deferral period for distilled spirits plants
Although wholesalers are not directly affected, WSWA fully supports a liberaliza-
tion in the time of payment of the Federal Excise Tax. Such an extension would
result in tax payment at a time more nearly approximating the date of shipment
from the wholesaler to the retailer.
2. All in-bond operation for distilled spirits plants and repeal of the rectification-tax
This change has been recommended by the Comptroller General of the U.S. and
your subcommittee has tentatively agreed with these recommendations. We also
understand that the Treasury Department concurs and intends to seek implement-
ing legislation. WSWA is in complete accord.
3. Extension of all in-bond concept to wholesale level on optional basis
This is a matter of particular interest to wholesalers and WSWA fully supports it.
The proposed change would not only conform the time for tax payment of domesti-
cally produced alcoholic beverage with imports but would also be consistent with
the method of payment of State taxes on alcoholic beverages in most States.
All domestically produced alcoholic beverages must be purchased by the wholesal-
er on a tax paid basis and he bears the burden of financing the Federal Excise Tax
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from the time the products are delivered to his warehouse until after he sells to and
receives payment from the retailer-a period of 60 to 90 days.
We must assume that if the "all in-bond concept" for wholesalers is adopted, the
implementing law and regulations will allow wholesalers who elect to go "all in-
bond" free and unlimited access to his warehouse without "over the shoulder"
government supervision and tax payment would be made on the basis of audit on a
return system. We understand that this is in full accord with the Comptroller
General's recommendation for the "all in-bond concept" for distilled spirits plants.
We also assume that surety and structural requirements will be fair and reasonable.
4. Reform of the Federal Alcohol Administration Act
WSWA fully supports the recommendation to amend the FAA Act to eliminate
criminal sanctions for trade practice violations.
It is particularly significant that a violation of the Federal Trade Commission Act
which among other things is designed to regulate trade practice conduct and unfair
methods of competition for the general business community subjects the violator to
civil sanctions only. We know of no other industry subjected to criminal sanctions
for trade practice violations similar to those specified in Section 5 of the FAA Act.
WSWA respectfully urges your favorable consideration of this matter.
5. Designation of bourbon as a distinctive American product
Our government recognizes Scotch, Irish, and Canadian Whiskey and Cognac to
be distinctive products of Scotland, Ireland, Canada and the Cognac region of
France. ~
As a matter of equity and fairness, there should be a reciprocal recognition by
foreign governments that bourbon is a distinctive American product.
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