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quotas, reluctantly agreed to by the European and Japanese steel industries under the threat of legislative quotas, and in effect now for more than 5 years. The initial excuse for these quotas was the U.S. steel industry's claim of a large world oversupply of steel. Soon after the domestic industry secured its quota protection, this oversupply vanished, to be replaced by a severe domestic and world-wide shortage. We do not question the bona fides of the domestic industry's forecasts. But the industry badly failed to foresee the imminent change from steel surplus to steel scarcity, a characteristic of the new economic era in which the Trade Reform Act is to be effective.

Mr. Alex Greten, the President of the Institute, recently authored an article in the American Metal Market, an important and respected trade daily, entitled "The Shrinking World of Steel-Or, A Lesson In Retrospect" which well analyzes the current steel market and the prospects for a continuing shortage for the rest of this decade. Because it is germane to this Committee's deliberations, a copy is submitted herewith for the record.

As Mr. Greten notes, the energy crisis, far from reducing the present high demand for steel, is likely to further aggravate the world and domestic shortage. In these circumstances, it is apparent that steel imports are a needed supplement to inadequate_domestic production, rather than competitive with the domestic industry. As Business Week observed in its March 16, 1974 issue, because of an expected further decline in imports of 3 million tons and increased exports exceeding 5 million tons, coupled with lower mill inventories, there is likely to be "10 million tons less steel than was available last year". The article, which we also provide herewith for the Committee's assistance, approvingly quotes Mr. Greten:

It may sound pessimistic, but the time of unlimited steel availability, like unlimited fuels, is over.

Yet the domestic industry, suffering from "future shock", still chases a bugaboo of "cheap" imports and, not satisfied with the "voluntary" quotas it has secured, continues publicly to demand legislative quotas. Its spokesmen's rationale now is that continued protection from foreign competion is necessary to make needed capital investments in new and expanded facilities attractive. We submit that imports have nothing whatsoever to do with the domestic industry's ability to attract equity capital. Indeed, steel stocks are currently in vogue because of the extremely good earnings reports for 1973, and the prospect of more of the same for this year.

Steel quotas should be terminated

On the other hand, a continuation of steel quotas, be they "voluntary" or legislative, will only compound the error previously made. Steel imports are currently running as much as 25% below the "restraint levels" provided for in the Voluntary Restraint Agreement ("VRA"). This short-fall of imports, of course, can be explained in part by the extremely tight supply situation throughout the world and the higher price which steel often commands in other markets. However, a very significant element in the current shortage is the fact that Europeans and Japanese producers, since 1969 when the original Voluntary Export Restraint Program ("VERP") went into effect, have had to plan future expansion with these limitations on this major market in mind.

Thus, our trade policies discouraged foreign producers from building new, and expanding existing facilities. In view of the lead time between the decision to make new capital investments and the placing on stream of additional capacity-a period of three to five years-the current shortage of steel, which became evidence during the last quarter of 1972, bears a direct correlation to the imposition of quotas on steel.

As this Committee knows, the legality of the VRA is currently before the courts. The Institute neither was consulted nor was a party to the VRA. It has consistently opposed it in principle but our members nevertheless have had to live with VRA's strictures. Since the issue of presidential authority to conclude the agreement is sub judice, we respectfully refrain from commenting as to the likely outcome. However, without regard to what the decision may be, we strongly urge this Committee to embody in the trade legislation under consideration a requirement that steel quotas be terminated by no later than VRA's current expiration date, December 31, 1974.

Import duties on steel should be suspended during the current shortage

Indeed, following the precedent established with regard to other scarce commodities, this Committee should embody in the trade legislation before it, a sus

pension of import duties on steel imports at least for the period of the current shortage. Such action would have an anti-inflationary effect on steel prices, which have been increasing at an accelerating rate even under the current price control program.

As this Committee has been informed a number of times by representatives of the Independent Wire Drawers Association, an organization of United States nonintegrated wire and wire products producers, the current supply of their essential raw material-steel wire rods-is inadequate to the demand. For many years, starting in the early 1960s, these independent wire products producers have found imports to be essential to their industries' very survival. These producers are scattered throughout the United States, but many of them are concentrated in coastal areas in the southeast and in the Great Lakes because of their dependence upon imports. The integrated steel producers of the domestic industry simply have been unable or unwilling to provide adequate supplies to these independent producers. It probably is no coincidence that the independent U.S. producers manufacture products which are competitive with those produced by various of the integrated companies in the domestic steel industry.

In sum, the effect of import restraints on the steel sector of the U.S. economy is indeed "A Lesson In Retrospect" of the severe distortions which are brought about by unneeded and improvident trade restrictive actions. It should serve as a guide to the type of trade policy the U.S. must pursue in the new era of worldwide economic scarcity-a policy dedicated to expansion of international commerce. Changes needed in the Trade Reform Act to meet the challenge of the new economic era of the 1970s

As previously observed, negotiation and not confrontation should be the keystone of U.S. international trade policy for the 1970s. Thus, the Institute would much prefer that this Committee streamline H.R. 10710 and focus on the two titles providing for negotiating authority, Title I on tariff and nontariff barriers and Title IV on East-West trade.

Titles II and III are not only extremely protectionist oriented but, more important still, they embody a basically wrong conception. Amendment of legislation to deal with "fair" and "unfair" import competition should await, not precede international negotiations, particularly where such amendments are at variance with GATT and other U.S. international commitments. In effect, such approach presents our trading partners with a "take it or leave it" position. As Secretary of State Kissinger so lucidly explained in his March 7 testimony, this is not an approach calculated to secure the good will necessary to reach international agreements on complex and sensitive economic matters.

Title I-Negotiating Authority

In its testimony before the House Ways and Means Committee, the Institute noted the virtually unbounded and unprecedented negotiating authority requested by the Administration, and the lack of an effective mechanism for Congressional oversight and control. The Trade Reform Act as it passed the House is an improvement. However, a further improvement is required both to provide U.S. negotiators with necessary flexibility and to protect Congress' constitutional and traditional control over tariffs and trade.

The emphasis in the bill on a sector approach to negotiation is stultifying insofar as tariffs are concerned and totally unrealistic for NTBS. If the current oil crisis has taught us nothing else, it has dramatically shown the fallacy of treating U.S. industry on other than a basis of overall national interest. In view of the fact that members of Congress will be accredited delegates as "official advisors" to the trade negotiations and that, for the first time, representatives of U.S. business, agriculture, labor, the consumer and the general public will have an official status with the American delegation, there seems to be no reason to suppose that unjustified concessions will be made of a harmful nature to one industry in return for excessive benefits to another. On the contrary, American negotiators will not only have the benefit of careful economic studies by the Tariff Commission in advance of negotiations, but also first-hand assistance from the Congress and C.S. business interests during them. In such circumstances, there is no reason to provide rigid guidelines in the enabling legislation and they should be eliminated.

On the other hand, the comments of this Committee's staff on the projected joint Congressional Committee to oversee the negotiations and on the veto procedure provided for Congress to disapprove of agreements reached, are well taken.

The Senate delegation to the trade negotiations should not be appointed by the Vice President as President of the Senate but rather by the Senate Majority and Minority leadership and should be answerable only to the Senate. The provision for a 90-day period to veto NTB agreements is unrealistic and illusory. It would not give sufficient time for mature consideration by the Congressional Committees to which the agreements were referred, let alone to the full Congress.

A better approach would be for periodic reports by the "official advisors" to each House of the Congress on progress of NTB negotiations, with eventual referral of agreements which require Congressional approval to the Senate in the form of treaties. This would be particularly important with respect to negotiations of changes in the GATT structure and in the Agreement provisions themselves since, unlike Congress' traditional practice of providing tariff reduction guidelines in advance of negotiations, negotiations on changes in the basic structure of the international system to regulate trade and in the GATT Code (and interpretative accords such as the International Antidumping Code) should receive the constitutionally required approval for treaty-making by the Executive. As regards the Executive's authority to reduce and increase tariffs, the phasing requirements for reductions are too long and the authority to increase is too broad. The five step phasing authority granted under the Trade Expansion Act worked well in allowing for adjustments in the domestic economy resulting from the Kennedy Round. The 15 year phasing requirement of the Trade Reform Act should be reduced to 5 years. On the other hand, there seems no reason why the President should be authorized to raise tariffs above those provided in the Tariff Act of 1930, the last Congressional enactment of tariff ceilings. Certainly there seems to be no reason for an authority to exceed these historically high rates by 50% or to permit the President to remove articles from the Free List and impose up to a 20% duty, a power traditionally reserved to the Congress.

Finally, the Balance-of-Payments Authority and Inflation Restraint Authority are misplaced. Initially, it should be noted that the Balance-of-Payments Authority conflicts with current provisions of the GATT. If trade restraints, as well as the lifting of trade restrictions, are to be made a tool for dealing with domestic economic problems, this should be a subject first of international negotiation, with any necessary Congressional action to follow. The President has already asserted a power under present legislation to act quickly in emergency situations. Whether this power was properly exercised in the case of the 1971 10% import surcharge is a question presently pending in the courts. However, there seems to be little dispute that adequate statutory authority already exists in appropriate situations.

In any event, this is a subject which not only needs study on an international level, but careful Congressional scrutiny as well. It should be reserved by Congress as a separate matter from the currently pressing requirement for Executive trade negotiation authority. Indeed, the current fluctuating parity system which allows for adjustment in currencies depending upon trade and capital flows already has removed any urgency for Congressional action. A permanent system should be worked out within the framework of a new international monetary accord.

Title II-Relief From Injury Caused By Import Competition

(a) The "Escape Clause".-The changes from present law contained in the Trade Reform Act are among the most objectionable sections in the Act. Not only are they far too potentially trade restrictive, they also are in contravention of the GATT.

The "escape clause" was initially enacted, and reenacted in the Trade Expansion Act, to implement the U.S. right to withdraw in whole or in part from tariff concessions, negotiated under the Reciprocal Trade Agreements Program, which caused unforeseen serious injury to a U.S. industry. Its purpose was to permit such action, consonant with our GATT commitments to compensate our trading partners for the withdrawal or limitation of the concession granted in international tariff negotiations.

The sponsors of the Trade Reform Act would instead convert the provision into a general provision to "safeguard” U.S. industry from foreign competition by totally eliminating the requirement that a nexus be shown between increased imports and an internationally negotiated and Congressionally sanctioned tariff reduction. Thus the purpose and international treaty sanction for such provision would be abandoned, and along with it, Congress' (as distinguished from the Executive's) traditional role as the arbiter of the larger question of whether an industry requires, or indeed is entitled, to special relief from import competition.

There is little question but that the history of "escape clause" proceedings under the Trade Expansion Act provision demonstrates a need for a less stringent test than the present requirement that increased imports be due in "major part" to a negotiated tariff concession. The Institute supports a return to the more realistic pre-1962 in "whole or in part" test.

The Institute submits, however, that with the foregoing change, present law is more than adequate to protect U.S. industries seriously injured or threatened with serious injury by an unforeseen increase in imports. The proposed change from "major" to "substantial" as the test of causality between such increased imports and serious injury is unwarranted. Since the purpose of the "escape clause" is to protect industries from injury caused by imports, imports should be the predominant cause (i.e. greater than all other causes, such as changes in consumer preferences, labor difficulties or the myriad of other problems which are usually the real reasons for a decline in production and/or employment in a domestic industry) rather than merely one of such causes. Where the other causes predominate, relief from import competition is at most a palliative rather than a remedy for the industry's problem. Certainly, in this new era of economic scarcity, when the United States will be increasingly dependent upon the normalizing of foreign sources of supply to maintain and expand its industrial plant, the trade disruptions and recriminations which often result from emergency tariff restrictions should be kept to a minimum.

The Institute also opposes the changes proposed in the Trade Reform Act which would direct the Tariff Commission to "segment" an industry or limit its study of the economic facts in an escape clause proceeding by rigid, artificial definitions and standards. We particularly point the Committee to what appears to be a technical oversight in the House version of the Trade Reform Act, which literally would make the finding of a "threat" of serious injury much more probable than that of the primary test, serious injury itself. The Tariff Commission, with its long history of assistance to the legislative branch and with the expertise developed over these years by its professional staff of economists and attorneys, can be trusted by the Congress to continue to administer the present escape clause provision with the degree of economic wisdom it has more often than not evidenced in the past.

(b) Adjustment Assistance.-The Institute supported a liberalization of the adjustment assistance provisions contained in the original Administration proposal in its testimony before the House Ways and Means Committee last year. H.R. 10710 is a distinct improvement. However, as in the case of other provisions of the bill which do not directly relate to negotiating authority, the Institute believes that, rather than including a hurriedly reviewed provision on this very important subject in an omnibus bill, it would be better if the Congress would address itself to fundamental reform in separately, carefully considered legislation. In this regard, similar proposals have been introduced by Representative Charles W. Whalen (R. Ohio) (H.R. 4917), and by Senator Charles H. Percy (R. I.) (S. 1156), which merit serious considerations by the Congress. These proposals go to the fundamental problem with the present adjustment assistance provisions and are similar to the Institute proposal to the House Ways and Means Committee for adjustment assistance programs which are not merely "hand outs." What is needed are governmentally financed and assisted, industrywide technological modernization programs in the case of industries, and meaningful relocation and retraining programs in the case of workers, unemployed or under-employed, due to any irreversible industry decline.

Title III-Relief From Unfair Trade Practices

There are a number of objections we could make to the proposed amendments to the Antidumping Act, countervailing duty statute and the unfair trade practices provision of the Tariff Act of 1930. It would be pointless to catalogue them here. It bears emphasizing again that each of these subjects is technical and complex and has no place in a bill whose focus should be on trade negotiation authority.

It should be noted, for example, that most of the proposed changes in the Antidumping Act, which relate to procedural matters and time limits, are already contained in the presently effective regulations of the Treasury Department. There is no reason to embody these provisions in statutory form now, when the thrust of U.S. policy should be to negotiate with our trading partners further refinements and improvements in GATT Article VI and the International Antidumping Code.

Similarly, the proposed amendments to the countervailing duty statute are both protectionist and counterproductive to international agreement in this area. It should be noted that this is a most sensitive area of trade regulation, because actions by foreign governments rather than private firms and persons are involved. As such, it has been recognized by senior officials of the Treasury Department that fundamental reforms can only come in government-to-government negotiations.

As this Committee is aware, the United States is also vulnerable to changes of subsidization. A Congressional grant of authority to our negotiators will be recognized by the Common Market nations and others as a gesture towards international harmonization. The enactment now of severely restrictive statutory provisions by the United States-particularly the conversion of the statute into a private remedy by providing a right of appeal to private industries from the essentially political judgment of the Secretary of the Treasury whether to retaliate against the actions of a trading partner-can only be viewed abroad as an invitation to take simlar action.

The Institute leaves to others better qualified on the subjects a discussion of Titles IV and V of the Trade Reform Act. Each of these Titles involves political problems and decisions which may profoundly affect U.S. foreign policy in the years to come. We are sure that this Committee will give these problems the most careful consideration and that, in cooperation with the Executive Branch, it will make the decisions which will best serve our national interest.

In conclusion, the Institute wishes to thank this Committee for the opportunity granted to express its views on the pending trade legislation. We are hopeful that the result of this Committee's work will be a clear mandate and charter to the Executive Branch to negotiate international agreements which will lead to the expansion of mutually beneficial trade with this nation's allies abroad and with other nations desiring peace and prosperity through international accord.

[From the American Metal Market]

THE SHRINKING WORLD OF STEEL-OR, A LESSON IN RETROSPECT

(By Alex Greten)

NEW YORK.-A most significant event in 1973 was the emergence of serious shortages of materials on a worldwide scale. This came as a surprise even to many experts. As late as the Fall of 1972, some of them still believed that there were margins of idle plant capacity and pools of unemployed workers which would prevent prices from rising significantly.

Unfortunately, or fortunately, they were wrong. These unused resources proved to be an illusion, even though most of the industries producing items currently in scarce supply complained of burdensome excess capacity as late as early 1972. The United States steel industry has not experienced such a shortage of supply against unexpected demand since the Korea War some 20 years ago. Delays in delivery are chronic and there are many complaints about the inability of consumers to obtain reasonably priced steel. These phenomena are present despite the fact that the U.S. steelmakers have been working at capacity.

The problem is aggravated by the Voluntary Restraint Agreement (VRA) which limits steel imports into the United States. Because of the VRA, the foreign mills had scheduled their exports to this country on a tight basis. An even more important reason for the reduced quantity of steel imports this past year has been the world economic boom, which has raised international steel prices far aboce those presently prevailing in the United States.

Foreign mills have tried to maintain their good commercial relationships with their established customers here, and they have alleviated somewhat the unmet demands for steel. Had it not been for VRA, a greater amount of steel might well have been available for shipment to the United States in 1973.

While working overtime to meet domestic demands, the domestic steel mills have been able to increase their profits somewhat by exporting steel at prices considerably higher than they are permitted to charge in the United States. The price limitations for steel imposed by the Cost of Living Council actually provided a great inducement to the domestic producers to sell abroad. Thus, artificial government restraints have served in two ways to aggravate the domestic steel shortage.

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