and conditions, including the principle of majority participation by Mexican capital. The National Commission on Foreign Investment was set up to coordinate the activities of the various departments of the Executive branch of the Mexican Government in this field. This was misunderstood in some circles as indicating that Mexico would turn its back on foreign investment, which is far from true.

In Mexico fears have arisen from various actions taken within the United States in recent years, directed at importations from Mexico of tomatoes, strawberries, and other fresh fruits and vegetables, of steel mill products, and sulfur. One of the objectives of the United States-Mexico Chamber of Commerce is to help see that such issues are resolved with due regard for the interests of both countries, and with better understanding on each side of the problems of the other.

Another recent action, United States limitations on exports of ferrous scrap, have caused serious problems for the steel industry of Mexico. Because Mexico is a developing country, articles made of steel such as automobiles are used much longer, and Mexico's rate of scrap generation is much lower than that of the United States. Expansion of steel production for the needs of the Mexican economy is peculiarly dependent on U.S. scrap, from which it has historically been obtained. There will be an acute problem for the Mexican industry if it is not possible to increase the allocations above those of the first two quarters of 1974.

Perhaps the most interesting development in United States-Mexico economic relations in recent years is the Border Industrialization Program, which results from the unique geographic and economic situation in which the two countries find themselves. Components are exported from the United States and assembled in Mexico for return to the United States and for competitive export to third countries. It is estimated that the value of output from the border plants in Mexico in 1973 was $600 million, of which $350 million represented parts imports from the United States. The value added by manufactures was thus equivalent to about 17 percent to total Mexican exports. This program has greatly stimulated economic activity on both sides of the border. Such a program follows the economic law of comparative advantage, just as does the location of plants within the United States.

The economic logic is not strictly dependent on the use of Items 806.30 or 807.00 of the Tariff Schedules of the United States, providing for duty-free treatment of the American goods returned, nevertheless, these are without doubt of siderable importance. Duty is exacted on the value added abroad. The only portion on which there is no duty collected are those components which are made in the United States themselves. This is in accordance with the principle of "effective duties" which is applied by a number of industrialized countries, and which is not unique to the United States. These provisions of course are not limited to Mexico, but the common frontier makes it possible to integrate production on both sides, and thus it is a natural thing for both countries. The program has been a boon to employment on both sides of the border. The United States Tariff Commission found in its 1970 report that repeal of Items 806.30 and 807.00 would not benefit employment in the United States.

For these reasons, the United States-Mexico Chamber of Commerce strongly favors the retention of Items 806.30 and 807.00 in the U.S. law. We call attention to the able discussion of this subject in the testimony on March 21, 1974 before the Committee by the Chamber of Commerce of the United States, as follows:

"By facilitating the sequential process, whereby parts manufactured in the United States and sent abroad for assembly or further processing, items 806.30 and 807.00 allow American industry to reduce production costs and therefore the final price of its products sold. The Tariff Commission has concluded that suspension of these items 'would not markedly reduce the volume of imports of the articles that now enter the United States under these provisions.' Rather, they would continue to be 'supplied from abroad by the same concerns but in many cases with fewer or no U.S. components.'

"It has been charged that these tariff items provide an incentive for U.S. industry to export labor intensive jobs. However, without the ability to reduce costs through duty-free importation of components, the U.S. industries involved would be even less competitive, both domestically and internationally. The Tariff

Commission study found that, in 1969, foreign assembly operations utilizing these operations employed approximately 121,000 workers. In the United States 37,000 jobs were directly dependent on these operations.

"The Commission study concluded that in the event of the items' suspension, 'there is little basis to presume that there would be a significant increase in U.S. production,' and thus 'only a small portion of the foreign employment would be returned to the United States.' The employment effect, therefore, would be negative since the larger loss in American jobs directly dependent on these operations would more than offset any gain on returned employment."

Importation under Items 806.30 and 807.00 has recently encountered major problems with U.S. Customs. After years in which the U.S. Customs Service did not specify with exactness the administrative requirements with respect to these importations, Customs became extremely severe. There can be no quarrel with the correct enforcement of the law, but it is widely believed that some of the claims which have been made for forfeiture values on the basis of incorrect customs entries are unjustified, and that importers are being made to suffer for lack of clarification of the requirements on the part of the Customs Service itself.

Position of the United States-Mexico Chamber of Commerce on H.R. 10710

In general, the Chamber endorses the bill which is pending before this Committee as desirable in the interest of international trade, including the trade with Mexico. It would be a great mistake if the United States were to falter in its course of seeking to establish more and more rule of law in international economic affairs. The serious problems of 1973 and 1974 of shortage of materials and high prices indicate not that trade negotiations are undesirable, but that they are more important than ever. Mexico is participating in the international negotiations, which have already begun.

With respect to Title II of the bill, providing for relief against imports, we understand the sentiment of the Congress that the Trade Expansion Act of 1962 did not give sufficiently effective relief, at least in the earlier years, but we caution against an undue swing of the pendulum in the other direction. There are provisions of H.R. 10710 which could easily be interpreted to go too far. We trust that this Committee will make clear, if it approves the language of H.R. 10710, that serious injury is nevertheless still intended to mean something very significant, and not a trifling matter.

Special comment is called for on the provisions of Title III, Chapter 3, of the bill relating to countervailing duties. Exporters from Mexico have had experience of the provisions of Section 303 of the Tariff Act with respect to countervailing duties in several vexatious proceedings, which fortunately have not led to the imposition of countervailing duties. Although the legislative provision is extremely general, the United States Treasury Department historically has exercised judiciousness in applying the law principally in those cases where the international trading community recognizes that the incentives to the exports are excessive. The United States-Mexico Chamber of Commerce submits that the law as written in 1897 is primitive, and unless elaborated administratively, could be a major and unfair impediment to trade. This is highlighted by the fact that there is no test of injury whatsoever. The Chamber considers this to be outlandish, since it would be injurious to the United States economy and to American consumers to impose higher duties on a product the exportation of which was assisted by a foreign government, unless some group in the United States was suffering a substantial injury, the test of which is provided in the General Agreement on Tariffs and Trade. We think that H.R. 10710 is seriously deficient in not providing an injury test for dutiable articles as its does for nondutiable articles.

It is important to recognize that incentives to exports are widely practiced by all trading countries, including the United States, and that there are a number of measures used by the United States which could come under the terms of "bounty or grant" in their widest application. Moreover, incentives to export are essential to the development programs of the developing countries, such as Mexico. We do not believe that any of these Mexican incentives are subject to the Countervailing Duty Law as applied within the terms of the GATT. Furthermore, we submit that when the United States sits down with other trading nations to elaborate a set of rules, as is contemplated, to govern subsidies and incentives it should consider the possibility that acts are appropriate on the

part of the developing nations which may not be allowed in the case of the highly industrialized nations.

Since such negotiations may not be quickly concluded, it is vital that the Secretary of the Treasury or the President have discretion to countervail only in those cases where serious injury is caused to some American interest by a measure which is clearly out of harmony with internationally accepted standards, and where the harm to the United States economy is found to outweigh the interests of the exporting country.

Finally, with respect to Title V of the bill, we welcome the provision for a generalized system of preferences for the developing nations. The United States Government has formally supported this principle since 1968. Other industrialized nations have already put such preferences into effect. It is important that the United States proceed to do so.

We hope that the elaborate procedures and safeguards which are provided in Title V will not be allowed to defeat the main objectives of this provision. For instance, if textiles and footwear are excluded, as may well be the case under the present provisions, this will seriously limit the value of the generalized preferences to many developing countries. We urge that the United States select styles of footwear and textiles that need not be excluded from the preferences. It is also important that the word "article" be interpreted in a manner which is neither too broad nor too narrow, as regards the safeguards of Section 504 of the bill. If, as a general proposition, exports are to be excluded which have reached the value of $25 million and the word "article" is interpreted broadly, then this provision may too easily defeat the preferences. On the other hand, if the test that the article not have attained 50% of total U.S. imports from a particular country in any calendar year is applied too narrowly, then again the effect may negate the value of the preferences for a particular article which one country is proficient in making.

STATEMENT OF THE INTERNATIONAL SINO-AMERICAN TRADE ASSOCIATION (ISATA)

This statement is submitted by the International Sino-American Trade Association on behalf of its members in connection with the consideration by the Committee on Finance of the U.S. Senate of the Trade Reform Act (H.R. 10710). The International Sino-American Trade Association (ISATA), 1701 Pennsylvania Avenue, N.W., Washington, D.C. 20006, is a trade association whose membership comprises firms and individuals interested in the development of trade and investment between the United States and the Republic of China (Taiwan). A list of the current membership of ISATA is appended to this statement. Because the Board of Foreign Trade, which is an agency of the Ministry of Economic Affairs of the Republic of China, contributes substantial initial funds for the establishment and operation of ISATA, the Association is registered with the Department of Justice under the Foreign Agents Registration Act. A copy of ISATA's current foreign agent registration is appended.1

Also appended is a summary of the points contained in this submission.

We have analyzed the Trade Reform Act in terms of potential impact on trade and investment between the United States and the Republic of China, and our comments are accordingly limited to those sections which have such potential direct impact.

GENERAL AUTHORITIES

The general authority which would be granted to the President to enter into trade agreements during a period of five years, to modify duties within certain limitations, and to negotiate the elimination or reduction of non-tariff barriers is desirable, since the implementation of such agreements on a reciprocal basis would undoubtedly stimulate the economic growth of the United States and other countries to the mutual benefit of all. It is, we suggest, desirable to broaden the limits of the President's authority to modify duties in this section of the bill, since specific procedures and limitations contained elsewhere in the bill provide adequate guidelines and limitations on the use by the President of the basic authority.

1 This was made a part of the official files of the committee.

PRENEGOTIATION PROCEDURES

It is suggested that the procedures intended to safeguard the interests of American industry prior to the negotiation of tariff concessions are deficient in one major respect-they fail to provide objective criteria for either the inclusion of specific articles in, or the exclusion of such articles from, the lists of articles to be offered for negotiation.

Section 131(a) provides that the President shall furnish lists of articles to the Tariff Commission for consideration by the Commission. No criterion is provided to guide the President in establishing the list of articles in the first instance. Unless an article is included in the lists provided to the Tariff Commission, the Commission would not be authorized to consider and render its advice with respect to such article. It is suggested that it would be desirable to add a sentence to the language of subsection (a) to the effect that, generally, such lists will include without limitation all articles of present or potential interest to the foreign trade of the United States.

The remainder of this section is marked by the absence of any express criteria for reservation of articles once listed. It provides only for an investigation by the Tariff Commission and report to the President on the "probable economic effect" of modifications of duties on the domestic industry producing like or directly competitively articles and specifies the various economic indicators which the Commission is to examine.

Section 132 would authorize the President to seek information and advice from various departments of the Government, or other unspecified sources, and from "selected industry, labor and agriculture groups". Section 133 would provide for the holding of public hearings by an interagency committee to hear any interested party with regard to proposed negotiations. Finally, section 134 would restrain the President from negotiating a tariff concession on any article with respect to which he had not received a report of the Tariff Commission or the 6-month period for reporting had not expired.

The significant thing here is that none of these sections provides a specific criterion to guide the President in determining whether particular articles shall be reserved from negotiation. It is true that subsequent section 128 provides that the President shall not reduce the duty or other import restrictions on any article when he determines such reduction would threaten to impair the national security and that articles subject to restriction under the present Escape Clause, the present National Security Amendment, or the tariff relief provision of this proposed act would mandatorily be reserved. However, the only criterion of general applicability is that the President shall reserve any article "which he determines to be appropriate" for reservation.

It is recommended that a more specific criterion than what the President "determines to be appropriate" be provided for the reservation of articles from negotiating lists. Such express criteria are highly desirable in order to assure the equitable treatment of all articles of all industries in the true public interest.

IMPORT RELIEF

Chapter 1 of Title II of the bill provides a mechanism for "import relief", which is in effect a substantially revised Escape Clause. We consider it desirable that there be a realistic and workable escape mechanism for those American industries which should in fact suffer economic detriment from increased imports, at least for a reasonable period during which readjustment to changed conditions of competition can be made. It is suggested, however, that the escape mechanism proposed by the bill would operate almost automatically to interpose increased duties, quantitative restrictions, or other limitations negating the benefits of reciprocal tariff reductions.

Section 201 (b) would eliminate the present causal requirement between trade agreement concessions and increased imports and would substitute "substantial cause" for the present "major part" criterion. This change we consider to he desirable, since the existing Escape Clause has proven to be both unrealistic and virtually unworkable in this respect.

However, it is suggested that the removal of the long-standing criterion of causal connection between a past trade agreement concession and increased imports virtually negates the selective relationship of the principal criteria to

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actual conditions in the trade and substitutes an artificial criterion which significantly broadens the number of imported articles which could be restricted under this authority.

It is recommended that a causal relation between a past concession and increased imports be retained.

PRESIDENTIAL ACTION AFTER INVESTIGATION

Section 202 provides for the first time in Escape Clause history specific criteria for presidential decision upon affirmative recommendations for import relief from the Tariff Commission. We suggest that such criteria are highly desirable since they interject more certainty into the ultimate decision-making process.

FORM OF IMPORT RELIEF

Section 203 (a) would permit the President, in addition to increasing duties, imposing quotas, or a combination of both, inter alia to negotiate orderly marketing agreements with foreign countries. This, we submit, is a desirable alternative to unilateral restraints. There is, however, a potential ambiguity in the non-signer language appertaining to such orderly marketing agreements contained in section 203 (h) (2). It is not clear whether the phrase "among countries accounting for a significant part of United States imports" contained in that subsection contemplates an agreement between the United States and one other country only or whether there must be an agreement between the United States and two or more other countries. It is suggested that it would be desirable to clarify this language to bring it in line with the non-signer provision presently contained in section 204 of the Agricultural Act of 1956 by expressly making it the United States and two or more other countries.

ADJUSTMENT ASSISTANCE FOR WORKERS

Chapter 2 of Title II provides for the granting of adjustment assistance to workers following a determination on the basis of criteria which are substantially less difficult than the present criteria for worker and firm readjustment assistance and less difficult to meet even than the criteria for import relief provided in Chapter 1 of this title.

The worker assistance provisions are highly desirable, as an alternative to import restraints.

COUNTERVAILING DUTIES

Chapter 3 of Title III would substantially amend the countervailing duty statute.

This amendment, if the present legislative history is allowed to stand, could have a very severe negative impact on a substantial volume of exports from Taiwan to the United States. In the Ways and Means Committee's explanation of the Administration's proposed Trade Reform Act, the Committee stated that:

"The Treasury Department considers rebates or remissions of taxes not directly related to an exported product or its components as being grants or bounties within the meaning of the countervailing duty law." (Committee Print, p. 76)

This statement refers to the Treasury's determination in the Canadian Michelin Tire case, and probably includes within the scope of the Treasury view the various tax incentives provided by the Republic of China for the encouragement of new investment, and similar laws in many other developing countries as well.

In its report accompanying H.R. 10710, the Ways and Means Committee stated in this regard: “your committee, in recommending this amendment, does not express approval or disapproval of the standard employed by the Treasury Department in administering the countervailing duty law with regard to the treatment under that law of rebates or remissions of direct and indirect taxes." (House Report No. 93-571, p. 69)

The amendment would also require the Secretary of the Treasury to act within one year, which in effect deprives the Secretary of "no-action" discretion in applying the Michelin Tire precedent in inequitable situations.

Against the legislative history thus created, if this provision were applied rigorously against exports from Taiwan manufactured with benefit of the