But we are advocating recognition of the necessity of moving toward the goal of liberal trade. To the extent that that goal is not reached, there are inevitable costs to the consumer, to the economy, to all of us. To the extent that these costs are necessary, they should be borne. But as with any costs, they should be minimized.

The bill reported out by this committee and passed by the Senate will in large measure determine whether the United States is to sustain its world economic position and insure a better standard of living for all its citizens. This means that international trade must be increased, not reduced. Nobody has to lose by this policy. All Americans will lose, however, if we resign ourselves to protecting our weaknesses at the cost of abandoning our strengths.

Thank you very much.

The CHAIRMAN. Thank you very much, sir; for a very good state

ment.

[The prepared statement of Mr. Katz follows. Hearing continues on p. 1238.]

PREPARED STATEMENT OF SIMON KATZ, PRESIDENT, AMERICAN IMPORTERS ASSOCIATION

I. The "Safeguard” provision

SUMMARY

A. The "causal link" to part concessions should be changed from "major" to "in whole or in part," the pre-1962 language.

B. Increased imports should be the "major" cause of injury, not merely a "substantial" cause, in order for an industry to be eligible for relief.

C. Before import restrictions are resorted to, an "industry," and not just a portion of it should be found to be suffering serious injury.

D. The existing economic test for actual and threatened injury should be retained.

E. The segmentation provision should be stricken.

F. Congress should not delegate to the President authority to increase tariffs more than 150 percent above Column 2 rates.

G. Tariff rate quotas should be subject to the same standards as other quotas.

H. The adjustment assistance provisions should be improved and extended to employees of importers.

II. Countervailing Duty Act

A. 1. The time limit provision should be stricken.

2. Judicial review of the Secretary of the Treasury's determination of the amount of a bounty or grant should be available to both domestic producers and importers; neither domestic producers nor importers should have judicial review of the Secretary's determination of the existence of a bounty or grant.

B. The Act should be extended to nondutiable items, but the injury test should cover dutiable as well as nondutiable items.

III. Section 337

This anachronism should be repealed, or amended substantially.

IV. Other Provisions

A. Presidential authority to raise duties as part of a trade agreement should be limited to the Column 2 rate.

B. Section 606 is not germane to trade and should be deleted.

V. Trade Relations with Countries Not Enjoying Most-Favored-Nation Tariff Treatment

Whatever resolution is made regarding Soviet trade, MFN treatment should be extended to those countries that are not involved in the emigration problem, on a negotiated basis as originally requested by the Administration.

Statement

Mr. Chairman and Members of the Committee:

My name is Simon Katz, Executive Vice President of New York Merchandise Co. of New York City and Los Angeles. My company is an importer of variety store merchandise. I appear here in my capacity as President of the American Importers Association (AIA), 420 Lexington Avenue, New York City. I am accompanied by Gerald O'Brien, Executive Vice President of AIA and N. David Palmeter of the law firm of Daniels & Houlihan, Washington, D.C.

The American Importers Association is a non-profit organization formed in 1921 to foster and protect the importing business of the United States. As the only association of national scope representing American companies engaged in the import trade, AIA is the recognized spokesman for importers throughout the nation. At present, AIA is composed of nearly 1,000 American firms directly or indirectly involved with the importation and distribution of goods produced outside the United States. Its membership includes importers, exporters, import agents, brokers, retailers, domestic manufacturers, customs brokers, attorneys. banks, steamship lines, airlines, insurance companies, and others connected with foreign trade.

We welcome this opportunity to present our views on the Trade Reform Act of 1973.

Introduction

We address ourselves to the Trade Reform Act because we understand that this is the Committee's main concern. Other bills calling for import quotas have been referred to this Committee. AIA is opposed to all of them because quotas are a drastic remedy, to be imposed only in extreme circumstances. Legislated quotas confer unmerited windfalls on those industries which obtain them, with no requirement that they meet the standards and criteria for protection that apply to all other sectors of our economy. Those industries that are the subject of special quota bills should be governed by the standards of the general legisla. tion this Committee and Congress enacts for everyone else.

We generally support the Trade Reform Act as passed by the House of Representatives. We believe the bill is far superior to the original Administration bill, particularly in the area of establishing standards and criteria to guide, and limit, Presidential action. However, there are serious defects in the bill, and we will therefore propose changes during the course of this testimony.

The past three years have been difficult years for the American economy, and for the international trading system. We have witnessed two devaluations of the dollar, the first balance of trade deficits of this century, unprecedented inflation, and the first peacetime wage and price controls in our history.

The Arab oil boycott has heightened our awareness of the economic interdependence of nations in the modern world. Shortages of oil supplies are leading some nations to look out for themselves in complete disregard of the impact of their actions on other nations. Moreover, there are indications that countries controlling a number of other essential products are considering attempts to copy the Arab technique in order to force higher prices. There is disagreement as to whether cartels in other products would work, absent the special considerations present in the Middle East. Nonetheless, the mere fact that nations are seriously considering such action is an ominous reminder of the beggar-thyneighbor policies and atmosphere that contributed so significantly to the Great Depression of the 1930's.

The Smoot-Hawley Tariff Act of 1930 began the process of protective action and reaction among nations that led to disaster. We hope that history will not record that it was the unilateral imposition of export controls on vital agricultural products by the United States that began the downhill slide in the 1970's. Certainly this precipitant action-some would say panic-stricken action-does not help any efforts to persuade other nations to abide by the rules, and to consider the international consequences of unilateral policies.

The acute shortages and inflation that have plagued the world in the past few years demand wise, calm, rational policies if they are to be overcome, and if a slide into another world-wide depression is to be avoided.

First among these policies, we submit, is a recognition of the fact that much of the world is economically interdependent, and that selfish, unilateral measures, provoking as they must, selfish, unilateral counter measures, mean disaster for everyone. Second among these policies is recognition of the wisdom of the

30-229-74-pt. 4—13

classic case for liberal trade. The problems of shortages and inflation are in great part caused by misallocation of resources. Protectionism in any form is a misallocation of resources, a misallocation that unnecessarily consumes precious resources, and adds to overall inflation.

The classic case for a liberal trade policy is based upon the doctrine of comparative advantage, the fact that more goods and services are produced if each nation concentrates on doing what it does best, and trades with others for what it needs. This is, of course, an ideal, and in our imperfect world its attainment is for the future, if at all. Considerations of national security and other interests on the part of all countries often quite properly interfere with the attainment of the ideal.

Nonetheless, we believe that the events of the past few years have dramatized the wisdom of forty years of United States trade policy in striving for that ideal. To the degree that the ideal of the doctrine of comparative advantage is not reached, there is a cost to the economy-to the taxpayers and consumers— of the United States. Some of these costs may be legitimate and necessary, but that does not change their nature as costs.

Traditionally, the rhetoric of foreign trade mistakenly has reversed the elementary economic principle of the doctrine of comparative advantage. This traditional rhetoric has viewed imports as an evil that must be tolerated in order to enable, or induce, foreigners to buy American exports. Recent events have demonstrated that the reverse is true: we do not import in order to export; rather, we export in order to pay for the imports we need and want.

The fact that exports are the price we, as a nation, pay for imports does not mean that export growth should be discouraged. On the contrary, increased exports from the many strong and efficient sectors of the American economy provide not only the wherewithal to pay for the imports Americans increasingly need and want, but also, by increasing employment and investment opportunities, assist in the transitions and adjustments necessary within the total economy.

In short, expanded trade on both the export and import sides-yielding the maximum benefit to all of our citizens should be the goal of any new trade legislation. Only by approaching as nearly as possible the ideal of maximum efficiency in the allocation of resources can we hope to produce more from these finite resources, for the benefit of all of us.

The Trade Reform Act, we believe is a step in the proper direction: it authorizes the United States participation in international trade negotiations, aimed both at reducing tariffs and the trade distorting effects of nontariff barriers; it makes explicit a preference for adjustment assistance as the preferred form of import relief; it requires that consumer interests be considered in the decision-making process regarding import restrictions, and that the effect of imports on domestic competition be taken into account; limits are imposed on the President's authority to restrict imports for balance of payments purposes, and exemptions are provided from such restrictions for a variety of reasons, including articles already subject to import restrictions, goods in transit, or goods under binding contract; it further provides for the temporary suspension of import restrictions in order to insure sufficient supply at reasonable prices. (We note and endorse the Administration's proposed amendment to include temporary suspension of antidumping and countervailing duties where appropriate, and to extend the maximum period of suspension for all restraints from 150 days to one year.)

Despite these generally salutory provisions, the bill is far from perfect. We believe that changes are needed in several areas, particularly in the "safeguard" and countervailing duty provisions.

I. THE "SAFEGUARD" PROVISION

The Trade Reform Act would make important changes in import relief provisions of the Trade Expansion Act of 1962, the "Escape Clause." We agree that the statutory criteria of the 1962 law have proved to be too rigid. One consequence of this rigidity has been to make the Escape Clause a non-viable alternative to other forms of protectionism in many cases. Another consequence has been to tempt some members of the Tariff Commission, in a well-meaning but ill-conceived attempt to make the statute more workable, to adopt the so-called "but for" test, a distortion of the statute in no way justifiable either by its language or its legislative history.

AIA believes that a fair, workable mechanism to provide time for seriously injured industries to adjust to import competition is a vital part of a sound trade policy. We also agree that changes are needed in existing law, but the changes that would be made by the Trade Reform Act are, in our view, far too drastic. They represent a swing from one extreme to the other. What is needed is neither extreme-neither the rigid, essentially unworkable provision of existing law, nor the over reaction embodied in the changes that would be made by the Trade Reform Act. What is needed is a moderate, fair, reasonable provision that meets the needs of United States industry, but, at the same time, avoids the granting of windfalls, at the expense of consumers, importers and exporters, to many industries that neither need nor deserve them.

Under present law, in order to qualify for relief from import competition an industry must show that:

1. Imports are increasing;

2. The major cause of the increased imports is past tariff concessions;

3. The industry is suffering actual, or threatened, serious injury;

4. The major cause of the serious injury, or threat thereof, is the increased imports that in turn have been caused in major part by past concessions.

The stumbling block to relief for possibly otherwise eligible U.S. industries under existing law has been the second item listed above-the need to show that the major cause of the increased imports is past tariff concessions. This is often referred to as the "causal link" or "link to concessions." While the complexity of some of the cases makes precise calculation impossible, it can fairly be said that in at least 18 of the 25 escape clause cases decided since 1962 under the Trade Expansion Act, negative votes were cast by members of the Tariff Commission based on this principle.

The Trade Reform Act passed by the House responds to this difficulty in a drastic way. It not only eliminates the requirement of a causal link to past concessions, but reduces unnecessarily the causal link between imports and serious injury.

In order to qualify for relief from import competition under the proposed legislation, an industry need only show that:

1. Imports are increasing;

2. It is suffering actual, or threatened, serious injury;

3. The increased imports are a substantial cause of the actual or threatened injury.

A. The causal link to past concessions

The rationale for the causal connection between increased imports and tariff concessions has been the view that the last legislated tariff, the Smoot-Hawley Tariff of 1930, provides enough protection for any industry. Based upon the premise that the 1930 rates constituted the Government's tariff protection "ground rules", any industry that suffered, or was threatened with, serious injury as a result of a Government change in these "ground rules"-i.e., duty reductions-was entitled to relief. In other words, an industry was allowed to "escape" from reductions in duties that caused or threatened serious injury.

American importers have no quarrel with the sound principle that if Government alters the ground rules under which an industry operates, and inadvertently causes serious injury, the industry is entitled to a temporary restoration of the status quo to allow adjustment. But the Trade Reform Act would abandon this principle entirely. The result is that it need not be Government action that causes or threatens serious injury, but merely the inability of an industry to compete in a normal market. At a time when the consumer's need for imports has been so dramatically shown in the marketplace, we believe that the abandonment of any need to show that increased imports have been caused by tariff concessions is a violation of the spirit (and probably the letter) of Article XIX of the GATT, and is an unfair burden to place on the American consumer who must pay for it all.

It may well be that the requirement that increased imports be caused in major part by concessions is too onerous, but it does not follow that the principle should be abandoned entirely. The problem did not exist until the 1962 Act. Accordingly, we recommended that the operative statutory language in use prior to 1962 be substituted for this part of the Escape Clause. Under this standard, an applicant for relief would meet the casual link requirement if it could show that increase imports were caused "in whole or in part" by tariff concessions.

Use of the test of "in whole or in part" would preserve the basic rationale of the Escape Clause-that it is Government action in reducing duties that is the

foundation of the need for relief. At the same time, it would provide a more relaxed standard of measuring the degree to which that Government action is responsible for the increased imports. Moreover, maintenance of a causal link that existed pre-1962 clearly would comply with GATT, whereas total elimination of the requirement would be at best of dubious legality under GATT standards.

In an era in which international economic cooperation is so vitally necessary, we submit that it ill behooves the United States to flout GATT standards for any reason-particularly when, as in the matter of the causal link between tariff concessions and increased imports, the domestic problem is capable of solution in conformity with GATT.

B. "Major" cause and "substantial" cause

There is a second "major cause" test in present law and this one we believe should be retained. It is the requirement that the imports involved be the "major cause" of actual or threatened injury. The Trade Reform Act would require that the increased imports be only a "substantial cause" of actual or threatened serious injury.

We are unaware of any sound reasons advanced in justification of this change in statutory standards. Unlike the "major" test linking imports to concessions, this "major" test linking imports and injury is, in our view, eminently reasonable and sound. We submit that it is only common sense that before import restrictions are imposed, it first should be determined that increased imports are the major cause of actual or threatened injury.

Clearly, if the concession linkage has been the main hurdle facing industries petitioning for relief then its removal, or reduction, from "major" to "in whole or in part" eliminates any justification for any further changes in the statute. The weakening of this criterion, when combined with the removal of the link to tariff concessions, would in fact open the gates to import restrictions even in cases where it could be demonstrated that such restrictions would be of little or no help to the complaining industry. If increased imports have not been the major cause of injury, then what good would import restrictions be for an industry that is suffering injury due far more to other causes, such as mismanagement, or labor difficulties, than to import competition? Such relief should at least have the virtue of being as directly related as possible to the needs of the industry, since American exporters may suffer retaliation, American importers may lose their businesses, and American consumers must pay the bill.

This Committee, and all of us concerned with trade, know that there is a strong propensity on the part of industries in every country of the world to put an undue emphasis on the difficulties they face from import competition. If the industry believes that it is being injured, and there are imports in the market for whatever reason, there is a strong tendency to blame the imports without further ado. American exporters suffer from this prejudice in many markets of the world. We do not believe that the trade legislation of the United States should further the growth of this prejudice by making it the policy of the greatest trading nation in the world.

To summarize these two points, therefore, the American Importers Association submits that the so-called "major-major" test be modified, but not eliminated. Specifically, in order to obtain relief under the Act, we believe that an industry should be required to show that:

1. Imports are increasing;

2. The cause, in whole or in part, of the increase is tariff concessions;

3. The industry is suffering actual, or threatened, serious injury;

4. The major cause of the serious injury, or threat thereof, is the increased imports that in turn have been caused in whole or in part by past concessions. C. Effective import relief

That import-restricting relief be directly related to the needs of the industry seems to us a reasonable proposition. Yet the Trade Reform Act, Section 201 (b) (2) (A) moves in the opposite direction. This provision requires the Tariff Commission, in making its determination regarding serious injury or threat thereof, to consider, among other elements, "the inability of a significant number of firms to operate at a reasonable level of profit." This provision would divert the Tariff Commission's inquiry from the effect of imports on an entire industry to only a portion of an industry. It is a rare industry which does not include some