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INDUSTRY LIAISON From its experience in past trade negotiations, the Society strongly advocates and supports the chemical industry position on industry liaison. Within the framework of the Office of the Chemical Industry Trade Advisor we have orgadized twelve specialized plastics materials and plastics products task forces to develop data and intelligence on the plastics sector, and to provide an industry interpretation of issues and of proposals as these may arise. The Society has also nominated industry experts for consideration for membership on the plastics Industry Technical Advisory Committee being organized by the Department of Commerce and STR.
PREFERENCE FOR LESS DEVELOPED COUNTRIES The Bill proposes to vest in the Executive virtually unilimited authority not only to eliminate tariffs for developing countries but to designate those countries which would qualify. While we do not object to the principle of preferential treatment for developing countries, we fear that such preferences could easily be abused and we do not believe that the Bill provides adequate safeguards for U.S. domestic industry.
An example of how the developing country could be exploited can be presented in the case of plastic buttons. The U.S. plastic button industry, much like the domestic industry for many of the finished or fabricated plastics products, is extremely sensitive to imports because a substantial portion of its costs are attributable to labor. With much cheaper labor available in developing countries plus the added benefit of a special tariff preference, undue advantage could be taken of the domestic industry. This could be done with a relatively modest investment or, for that matter, no investment at all, as there are producers of button-making machinery in Europe and other parts of the industrialized world who would be willing to assist prospective operators in setting up production facilities in developing countries. The net result would be facilities dominated de facto by interests located in industrialized countries making convenient use of the developing country's cheaper labor and special tariff preferences. It can hardly be argued that this would prove of any long-term economic value to the developing country but it would certainly constitute a grave peril for an industry such as the domestic button industry.
The $25,000,000 or the 50% of total imports criteria specified in Sec. 504 can not be expected to provide an adequate safeguard mechanism for many plastics products. Instead, criteria in terms of market disruption will be required.
For the foregoing reasons, we do not believe that Congress should relinquish the authority to approve any and all agreements which propose to grant preferences to developing countries. Rather, we submit that Congress should indicate its willingness to consider any specific agreements the Executive Branch might propose, hold hearings on such proposed agreements, and only then adopt appropriate implementing legislation.
PERSPECTIVE All of our experience and all of our data are from the past. But H.R. 10710 and the negotiations this act will authorize are for a future trading world. What we must understand and provide for in this trade bill are the appropriate authorities and the appropriate directions to deal with the trends and the changes in trends affecting the trading world of the future. These trends for the plastics industry include:
(1) The internationalization of technology and know-how so that no one industrialized country will have or can attain a comparative technical advantage.
(2) Other-than-tariff barriers to trade, especially differences in legal and taxation systems, economic policy, and political systems are now and will remain the major constraints distorting trade among nations.
(3) The U.S. share of world trade in the products of the plastics industry has been declining rapidly, and without appropriate changes in the economic and trading system will continue to decline.
(4) In recent years a substantial opportunity for expanding plastics exports to third country markets has been frustrated by the discriminatory actions and
policies of others. This unrealized potential will continue unless these discriminations can be successfully dealt with.
(5) Past trends in capital investment and in productivity improvements have proved inadequate to meet present or future requirements. Everything is related to everything else. Not only must we deal with trade matters specifically, we must also deal with the significant environmental and economic system constraints. The success of H.R. 10710 will require also both government and industry actions to encourage capital formation and to improve productivity.
(6) The world is moving more and more from a competitive world of abundance to a cooperative world of scarcity. More and more we see the production of products in insufficient quantity or the availability of resources in insufficient quantity as the problem. Where there is to be competition it must become fair. But in the future trading world there will also be a need to obtain availability. In food products, in energy, in an increasing number of raw materials, and in our efforts to minimize the pollution of our physical environment, we will have to find new ways of cooperation at the same time that we are finding fair ways of competition.
(7) Oil producing countries with their rapidly accumulating reserves will invest overseas and will increasingly become partners in multinational enter. prise. They will also increasingly upgrade their petroleum exports to include petrochemicals, and perhaps plastics materials as well.
(8) The EEC now has free trade agreements with EFTA and other nations and has special trade agreements with a large number of additional countries. By 1980, we may begin to see the rationalization or optimization of plastics production and trade within this larger network of nations.
(9) By 1980, Japan may be developing regionally in collaboration with other nations similar to what we not see being done by the EEC.
(10) The state-managed economics may begin to become significant in plastics trade.
CONCLUSION We appreciate the opportunity to participate in this chemical industry testimony on H.R. 10710. We trust that our support of this testimony, and our additional views and comments will be of value to this Committee in its deliberations and that you will consider our comments helpful and constructive. We have kept our statement brief. But it summarizes a lot of work, over several years. If you have any questions on the contents of this statement, or if you would like substantiating data, please call on us.
PREPARED STATEMENT OF THE SYNTHETIC ORGANIC CHEMICAL MANUFACTURERS
ASSOCIATION AND THE DRY COLOR MANUFACTURERS ASSOCIATION This statement expands on some of the points covered in the testimony given by the chemical industry panel and addresses certain additional matters which are of great importance to the members of the Synthetic Organic Chemical Manufacturers Association (SOCMA) and the Dry Color Manufacturers Association (DCMA), Our major points are:
(1) It is essential that Congress retain the right to review and approve any trade agreement changing methods of customs valuation, including, but not limited to, the American Selling Price (ASP) method.
(2) The broad tariff cutting authority in the bill is inconsistent with what our negotiating objectives should be.
(3) The discriminatory multiple reduction in import protection which the bill authorizes with respect to benzenoid chemicals manufactured by our members is completely unwarranted.
(4) The Act should make sector-by-sector reciprocity the principal objective in any trade negotiations, not just in negotiations on non-tariff barriers.
(5) There is a need for safeguards in connection with the proposed underdeveloped country preferences.
(6) The Act should require future trade agreements to be conditioned upon a revision of the GATT rules which sanction the use of border taxes and export rebates by many of our trading partners.
SOCMA AND DOMA The 77 member companies of SOCMA produce more than 5,000 chemical products: finished products and intermediate chemicals which are used to make finished products. The finished products include dyes, organic pigments, medicinal chemicals, flavor and perfume materials, plastics and resins, rubber processing chemicals, elastomers, plasticizers, surface active agents, pesticides and various other chemicals. The 33 companies comprising the membership of DCMA manufacture color pigments used in printing ink, textiles, plastics, rubber, linoleum, paints, and other products. The members of these two associations manufacture over 80% of the benzenoid chemicals produced in the United States. A list of the members of each association, which includes both large and small companies, is attached.
Total sales of synthetic organic chemicals in 1973 are estimated to exceed $15 billion, including exports of over $1.5 billion. The industry employed more than 300,000 people in the production and sale of these chemicals. Benzenoid chemical sales alone exceeded $6 billion and created jobs for 130,000.
The Chemical Industry and International Trade The chemical industry is vitally interested in international trade and its future is deeply tied up in the proposed Trade Bill and any forthcoming negotiations. The chemical industry's favorable balance of trade in 1972 was $2.2 billion (of which benzenoid chemicals account for over $500 million) at a time when our overall trade was $6.4 billion in deficit. As the following charts illustrate, while the benzenoid chemical industry has maintained a favorable balance of trade, the chemical industry's overall competitive position in world trade is declining markedly. In 1960, the U.S. share of world chemical trade was 29.6%. In 1968, when the Kennedy Round cuts began, it had dropped to 24%. In 1972, it fell to 18.2% and was as low as 17.0% in the second quarter.
The impact of the present feedstock shortage, the greatly increased prices for raw materials, and the upward climb of the dollar abroad is not yet clear. However, it is safe to predict that in any negotiations our trading partners will be seeking to obtain access to our raw materials and markets in order to produce and sell enough goods to earn the vastly increased reserves required by them to purchase oil. The stakes will be high in such talks, and the possibility of a major disruption of our economy will be great unless we obtain a fair, reciprocal agreement.
While we have a vital stake in all aspects of the Trade Bill, we are confining our remarks to the specific subjects in which our members have a special interest and where, we believe, we have something to contribute to the Committee's deliberations.
NEGOTIATING AUTHORITY Section 102(b) of the bill grants the President authority to negotiate on nontariff barriers to trade, including methods of customs valuation. While the American Selling Price (ASP) system is the only valuation method specifically defined as a "barrier" for purposes of this section, the United States has nine different methods of customs valuation. It could even be said that our f.o.b. basis of valuation is a "method” of valuation as compared to the c.i.f. basis of valuation used by many of our trading partners. While we will confine our remarks to ASP, which applies to the benzenoid products manufactured by our members, many of the points we shall make would be equally applicable if other broad shifts in valuation were to be negotiated under this section.
The bill originally introduced in the House on behalf of the Administration (H.R. No. 6767) granted the President advance authority to change methods of customs valuation embodied in the statutory law of the United States. The Ways and Means Committee wisely declined to grant the Executive such sweeping powers. However, the bill it reported out does not provide for meaningful Congressional review of any agreement made on ASP, it subjects benzenoid and rubber soled footwear manufacturers to the potental loss of more import protection than all other industries, and it makes essential pre-negotiation procedures optional rather than mandatory.
What is ASP? To place our objections to the present bill into focus it is helpful to recall how the American Selling Price actually works. Under ASP valuation the duty paid is based on the wholesale price of a comparable domestic product, rather than the price of the imported product as is the case with foreign export (f.o.b.) valuation more commonly used by the United States or the c.i.f. valuation used by many of our trading partners. If there is no comparable domestic product, ASP valuation does not apply. The principal difference between ASP and these other methods is that the duty is tied to prices (and hence costs) in this country rather than those abroad.
I will not debate the merits of ASP, but there are several points worth making:
(1) The basic reasons ASP was originally selected for benzenoid products are still valid. Benzenoid products are manufactured in the EEC and Japan by a few relatively large companies which are rationalized (whether or not under government supervision) and which "discipline" an industry among other things, by dumping. The U.S. antidumping laws do not provide an effective remedy for an industry in which reliable foreign price data is rarely obtainable. ASP provides an automatic partial protection against dumping since the dumper does not receive the benefit of reduced duties when he offers at dumping prices.
(2) Because reliable foreign benzenoid price information is difficult, if not impossible, to obtain, it is completely appropriate as a matter of cusoms valuation procedure to refer to the selling price of a like product in this country,
(3) Because ASP based duty rates apply to U.S. rather than foreign values, the tariff protection increases as U.S. prices increase. ASP thus performs one of the traditional functions of a tariff: it helps to reduce the differential between foreign and U.S. costs of production. In point of fact, 1971 foreign invoice prices for benzenoid chemicals were up to 56% lower than the U.S. prices for equivalent products, in large part because European chemical workers were paid approximately 40% less than in the U.S. and Japanese workers were paid approximately 60% less. Unlike an inflexible tariff, however, the ASP system results in a constant updating of the level of protection. For example, because of current shortages foreign invoice prices for some products are now higher than their American selling price resulting in lower import duties on those products than would be the case under a foreign value system.
1 See chart on p. 18, infra.