ed average U.S. tariff on all dutiable imports in 1967. "Statistical Abstract of the United States," 1971, p. 781. duty reduction by the United States was 35 percent.

Jan. 1, 1968, the normal German border tax was 4 percent of the duty paid landed value, with a higher rate *for some products. Effective Jan. 1, 1968, the German border tax was raised to 10 percent of the duty paid landed da 11 percent rate became effective July 1, 1968. This rate is scheduled to rise by 1 percent on Jan. 1, 1974. No ent has been made in the border taxes to reflect the fact that they are based upon the duty paid landed value han the c.i.f. value. In each case it would result in a border tax about I percent higher than shown on this table. plus border tax equals total barrier.

ace the conclusion of the Kennedy Round negotiations, the number of counwhich have adopted or are considering adopting the VAT is increasing. In cases, turnover taxes are being switched to a VAT resulting in further ises in border taxes and export rebates. As this development continues and e three additional countries which have joined the Common Market adopt value added tax, the U.S. competitive disadvantage will be further atuated.

The Time has Come to Take Some Action

was apparent during the Kennedy Round that the theory on which the FT interpretation was based was outmoded and our negotiators were conied about the coming VAT increases which would exacerbate the border taxort rebate problems. All we did, however, was to file a note reserving the ht to initiate action if changes in taxes nullified the Kennedy Round cuts. Section 121 (a) (5) of the bill directs the President to seek "the revision of TT articles with respect to the treatment of border adjustments for internal ves to redress the disadvantage to countries relying primarily on direct rather an indirect taxes for revenue needs." There are several courses of action which "ould be explored.

(1) GATT could be amended to permit countries which primarily rely upon rect taxes to adjust for such taxes in the same manner as countries which imarily rely upon indirect taxes are now permitted to do.

(2) GATT could be amended to permit all countries to adjust for both direct nd indirect taxes at the border. (Both of these two alternatives would involve he use of complicated formulae to determine the appropriate adjustments for ach country.)

(3) The simplest solution would be for the GATT to be neutral on indirect axes as it now is on direct taxes. Thus, neither direct nor indirect taxes would be assessed at the border or rebated on exports. If value is added to the U.S. import after it enters the European market, the VAT will be paid on the value added within the country-not on the price at the border. In countries such as the U.S. which do not have a VAT, but do have sales taxes, some adjustment in the form of exemption or rebate would have to be made if strict neutrality is to be obtained.

While the present bill takes a step in the right direction we do not believe that it will overcome the combination of inertia and foreign resistance that have so far stalled all progress on this issue. However, if our negotiators and their foreign counterparts know that future trade agreements depend on this problem being resolved we are convinced that it will be. We therefore urge that the bill require all trade agreements to be conditioned upon a revision of GATT along the lines we have suggested within the five year period for trade negotiation provided in the bill. Alternatively, we should receive direct compensation from our trading partners through lower tariffs, import rebates and a freeze on border taxes.

The border tax problem is urgent and the bill should require the Administration to do something about it. The VAT is becoming more and more widespread. Unless something is done, its harmful effect on our trade will grow and future concessions will be cancelled or offset by increases in VAT and increased use of VAT.

1 CCH Common Market Reporter, par. 9227 (April 1968), from data released by the EEC. Before Jan. 1, 1968, the normal German border tax was 4 percent of the duty paid landed value, with a higher rate permitted for some products. Effective Jan. 1, 1968, the German border tax was raised to 10 percent of the duty paid landed value and a 11 percent rate became effective July 1, 1968. This rate is scheduled to rise by 1 percent on Jan. 1, 1974. No adjustment has been made in the vorder taxes to reflect the fact that they are based upon the duty paid landed value rather than the c.i.f. value. In each case if would result in a border tax about 1 percent higher than shown on this table.

Tariff plus border tax equals total barrier.

During the 1970's, the EEC countries plan to harmonize their turnover taxes, bordev taxes and export rebates at approximately 15 percent. This harmonization, originally scheduled for Jan. 1, 1972, has been postpohed because of United Kingdom and delay by Italy in enacting the value-added tax. When the harmonization system and rates are adopted, there will be a 15 percent border tax-export rebate for all countries.

1 Weighted average U.S. chemical tariff on dutiable imports before Kennedy round reductions were estimated by the Government to be "almost 16 percent" (Government statement, Hearings on Tariff and Trade Proposal, House Ways and Means Committee, 90th Cong., 2d sess., pt. 2, p. 510). The U.S. tariff after full Kennedy round reduction was obtained by reducing 15.9 percent rate by 43 percent, the average U.S. reduction in chemical tariffs in the Kennedy round (Hearings at p. 502).

Before Jan. 1, 1968, the German export rebate (or tax exoneration) was 4 percent of the price in Germany, with a higher rate permitted for some products. The German rebate rose to 10 percent on Jan.1, 1968, to 11 percent on July 1, 1968, and is scheduled to rise to 12 percent on Jan. 1, 1974.

U.S. tariff minus German export rebate equals effective U.S. tariffs.

During the 1970's, the EEC countries plan to harmonize their turnover taxes, border taxes and export rebates at approxmately 15 percent. Originally scheduled for Jan. 1, 1972, the harmonization has been postponed.

1 CCH Common Market Reporter, par. 9227 (April 1968), from data released by the EEC. 2 Before Jan. 1, 1968, the normal German border tax was 4 percent of the duty paid landed value, with a higher rate permitted for some products. Effective Jan. 1, 1968, the German border tax was raised to 10 percent of the duty paid landed value and a 11 percent rate became effective July 1, 1968. This rate is scheduled to rise by 1 percent on Jan. 1, 1974. No adjustment has been made in the border taxes to reflect the fact that they are based upon the duty paid landed value rather than the c.i.f. value. In each case it would result in a border tax about 1 percent higher than shown on this table. 3 Tariff plus border tax equals total barrier.

1 Weighted average U.S. tariff on all dutiable imports in 1967. "Statistical Abstract of the United States," 1971, p. 781. The average duty reduction by the United States was 35 percent.

2 Before Jan. 1, 1968, the normal German border tax was 4 percent of the duty paid landed value, with a higher rate permitted for some products. Effective Jan. 1, 1968, the German border tax was raised to 10 percent of the duty paid landed value and a 11 percent rate became effective July 1, 1968. This rate is scheduled to rise by 1 percent on Jan. 1, 1974. No adjustment has been made in the border taxes to reflect the fact that they are based upon the duty paid landed value rather than the c.i.f. value. In each case it would result in a border tax about 1 percent higher than shown on this table. • Tariff plus border tax equals total barrier.

Since the conclusion of the Kennedy Round negotiations, the number of countries which have adopted or are considering adopting the VAT is increasing. In some cases, turnover taxes are being switched to a VAT resulting in further increases in border taxes and export rebates. As this development continues and as the three additional countries which have joined the Common Market adopt the value added tax, the U.S. competitive disadvantage will be further accentuated.

The Time has Come to Take Some Action

It was apparent during the Kennedy Round that the theory on which the GATT interpretation was based was outmoded and our negotiators were concerned about the coming VAT increases which would exacerbate the border taxexport rebate problems. All we did, however, was to file a note reserving the right to initiate action if changes in taxes nullified the Kennedy Round cuts. Section 121 (a) (5) of the bill directs the President to seek "the 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." There are several courses of action which should be explored.

(1) GATT could be amended to permit countries which primarily rely upon direct taxes to adjust for such taxes in the same manner as countries which primarily rely upon indirect taxes are now permitted to do.

(2) GATT could be amended to permit all countries to adjust for both direct and indirect taxes at the border. (Both of these two alternatives would involve the use of complicated formulae to determine the appropriate adjustments for each country.)

(3) The simplest solution would be for the GATT to be neutral on indirect taxes as it now is on direct taxes. Thus, neither direct nor indirect taxes would be assessed at the border or rebated on exports. If value is added to the U.S. import after it enters the European market, the VAT will be paid on the value added within the country-not on the price at the border. In countries such as the U.S. which do not have a VAT, but do have sales taxes, some adjustment in the form of exemption or rebate would have to be made if strict neutrality is to be obtained.

While the present bill takes a step in the right direction we do not believe that it will overcome the combination of inertia and foreign resistance that have so far stalled all progress on this issue. However, if our negotiators and their foreign counterparts know that future trade agreements depend on this problem being resolved we are convinced that it will be. We therefore urge that the bill require all trade agreements to be conditioned upon a revision of GATT along the lines we have suggested within the five year period for trade negotiation provided in the bill. Alternatively, we should receive direct compensation from our trading partners through lower tariffs, import rebates and a freeze on border taxes.

The border tax problem is urgent and the bill should require the Administration to do something about it. The VAT is becoming more and more widespread. Unless something is done, its harmful effect on our trade will grow and future concessions will be cancelled or offset by increases in VAT and increased use of VAT.

SOCMA MEMBERSHIP

Aceto Industrial Chemical Corporation.
Allied Chemical Corporation.

American Color & Chemical Corporation.
American Cyanamid Company.
American Hoechst Corporation.
BASF Wyandotte Corporation.
Baychem Corporation.
Benzenoid Organics, Inc.
Berncolors-Poughkeepsie, Inc.
Celanese Corporation.

Ciba-Geigy Corporation, Dyestuffs & Chemicals Division.
Cities Service Company, Levey Division.

Crompton & Knowles Corporation.

The Dow Chemical Company.

Dow Corning Corporation.

Drake Chemicals, Inc.

E. I. du Pont de Nemours & Company.
Dye Specialties, Inc.

Emery Industries, Inc.

Evans Chemetics, Inc.
Fabricolor, Inc.

Fairmount Chemical Company, Inc.

First Chemical Corporation.

FMC Corporation.

GAF Corporation.

Gane's Chemical Works, Inc.

The Harshaw Chemical Company, Div. of Kewanee Oil Company. Hatco Chemical Division, W. R. Grace & Company.

Hercules, Inc.

The Hilton-Davis Chemical Company, Div. Sterling Drug Inc. ICI America, Inc.

Synalloy Corporation, Blackman Uhler Chemical Division.
Tenneco Chemicals, Inc.

Section 14.5 of Title 19 of the Code of Federal Regulations to include the following new provisions:

(a) (1) Any manufacturer or producer of any article dutiable under Schedule 4, part 1, Tariff Schedules of the United States may at any time certify to the Bureau of Customs that it manufactures or produces such article in commercial quantities in the United States. The term "commercial quantities" shall mean normal sized industrial lots and container sizes as distinct from specialty situations such as laboratory reagent or sample quantities.

(2) The Bureau of Customs shall publish a List of Benzenoid Chemicals or Products Manufactured or Produced in the United States which shall include each article for which the Bureau has received the certification provided for in paragraph (a)(1) of this section. Thereafter, the Bureau of Customs shall each month publish a Supplement to the List of Benzenoid Chemicals or Products Manufactured or Produced in the United States, which shall :

(i) add to such List each article not previously contained therein, for which the Bureau has received the certification provided for in paragraph (a) (1) of this section; and

(ii) delete from such List any article for which no certification provided for in paragraph (a)(1) of this section has been received in the preceding 12 month period.

(3) For purposes of Headnote 5, Part 1 of Schedule 4 of the Tariff Schedules of the United States, no article manufactured or produced in the United States