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Senator TALMADGE. Any further questions?

Senator Byrd?

Senator BYRD. Thank you, Mr. Chairman. I am glad to see Mr. Hannigan

Mr. HANNIGAN. Thank you, sir.

Senator BYRD-[continuing]. For a number of reasons. One reason, I have been buying newsprint from the International Paper Co. for 39 years, come July 1.

Mr. HANNIGAN. We are delighted, Senator Byrd.

Senator TALMADGE. I hope it is being made in Georgia.

[General laughter.]

Senator BYRD. Mr. Olsson said that 65 percent of the newsprint consumed by the U.S. newspapers comes from Canada-I believe that was the figure.

Mr. OLSSON. Yes, sir; that is correct.

Senator BYRD. How does that compare with 20 years ago?

Mr. HANNIGAN. 20 years ago about 80 percent of the newsprint consumed in the United States was imported from Canada. In 1973 the U.S. consumed about 4.7 million tons more newsprint than in 1953; roughly half of this tonnage increase came from additional imports while the other half of the increase came from expanded U.S. production.

Mr. OLSSON. Senator, I believe-unless my memory is hazy on this about 20 years ago the Canadians represented roughly 82 percent of our supply of newsprint. And this has been worked down to the present 65 percent by this growth in the United States.

Senator BYRD. Since that time, the Crusha River Plant has been started and others.

Mr. OLSSON. Yes, sir; a number of plants through the South.

Mr. HANNIGAN. We have had two in the South; we have built one in Mobile and one in Pine Bluff, Ark.

Mr. OLSSON. Southland Paper Co. has one in Pasadena, Tex. It is very substantial.

Senator BYRD. The British are great newspaper readers. Is much newsprint manufactured in England?

Mr. HANNIGAN. Yes, a lot of newsprint is manufactured in England; from primarily Scandanavian pulp and/or wastepaper. The United Kingdom industry is rather substantial.

Senator BYRD. Is England dependent for a pretty high percentage of her newsprint on Canada?

Mr. OLSSON. Yes sir.

Senator BYRD. What percent would you say?

Mr. HANNIGAN. Senator, this figure would be about 30 percent. Senator BYRD. How about Australia and New Zealand? Where do they get newsprint?

Mr. HANNIGAN. They make their own, and they get a little bit from Canada. But they both have their own newsprint industries.

Senator BYRD. Newsprint last September, as I recall, was $163 a ton. It is now what-$213?

Mr. HANNIGAN. It is $200 for 32 pound weight and $213 for 30 pound weight, yes sir.

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Senator BYRD. How do you see the newsprint price from here on out?

Mr. HANNIGAN. I think it has to go up, Senator; it has to increase. Again, if we are going to make the newsprint business profitableand the same thing applies to the paper industry as a whole-if we are going to make it the kind of viable industry that will attract investment, we have to price our products to offset these escalating capital costs and operating costs. Our fuel costs tripled in the last year, and our wood costs are up, depending on the part of the country, anywhere from 25 to 50 percent; our chemical costs are on the same order of magnitude. And we simply have to price our product to get the kind of materials that are going to generate investment. Senator BYRD. Of course as a consumer, it seems to me that the price has been very substantially escalating.

Mr. HANNIGAN. Well, sir, it has escalated, but not enough yet. Senator BYRD. How does the demand now compare with the supply? Mr. HANNIGAN. Actually, demand in the first two months of 1974 is off about 4 percent; linage is off a little bit, and some of the consumers, during the shortness of the supply last year, learned how to be a little bit more efficient, so that actually demand is off.

Senator BYRD. Do you find that newspapers generally are tightening up a bit on their use of newsprint?

Mr. HANNIGAN. Yes, they are, absolutely.

Senator BYRD. At one point-I guess that was last fall, or last summer was there not a worldwide shortage of newsprint?

Mr. HANNIGAN. Very much so. We had three big contributing factors to that. One was demand, which was at peak levels. The economy was up. There were also substantial labor strikes in Canada. Our company alone lost 400,000 tons of newsprint in a strike last year. And there were other strikes in Canada. And of course, other factors which affected supply quite a bit were wood shortage, weather and transportation problems that existed in the South last year. Senator BYRD. Is there still a shortage, or has it broken up?

Mr. HANNIGAN. Newsprint is pretty near in balance right now. There may be some isolated areas where inventories have not been built up the way they eventually want to build them up; but newsprint is coming into rather close balance.

Senator BYRD. Thank you.

Thank you, Mr. Chairman.

Senator TALMADGE. Thank you very much. We appreciate your contribution to the committee's deliberations.

[The prepared statement of Messrs. Olsson and Hannigan with attachment follows. Hearing continues on p. 1544.]

PREPARED STATEMENT OF STURE G. OLSSON, CHAIRMAN OF THE BOARD, THE CHESAPEAKE CORP. OF VIRGINIA, AND JUDSON HANNIGAN, PRESIDENT, INTERNATIONAL PAPER CO. ON BEHALF OF THE AMERICAN PAPER INSTITUTE

My name is Sture G. Olsson and I am Chairman of the Board of the Chesapeake Corporation of Virginia. I'm testifying here today on behalf of the American Paper Institute (API) of which my company has long been a member. The Headquarters of my company and my home are in West Point, Virginia. I have with me Mr. Judson Hanningan, President of International Paper Company and Chairman of the Containerboard Division of the API; Mr.

Edwin A. Locke, Jr., President of API, and Dr. Irene W. Meister, Director of International Business for API.

We appreciate the opportunity to testify before you today and would like to divide our testimony between myself and Mr. Hannigan. Our group will then be prepared to answer the Committee's questions.

We are here to support, in principle, the Trade Reform Act of 1973 (H.R. 10710) which is designed to expand world trade by reducing tariff and nontariff barriers, to strengthen our ability to deal with unfair competitive practices and to reform certain rules of GATT to meet changed international conditions.

The American paper industry has a big stake in the success of forthcoming trade negotiations as well as in the establishment of equitable rules for future economic relations among nations.

We believe that our country and our industry have benefited significantly from the trade expansion of the past decade thanks to the wise policies adopted by this Committee and passed by Congress in 1962. However, many things have changed since 1962. The U.S. went through several years of substantial balance of payments deficits and our foreign competitors grew immeasurably stronger than they were in the early sixties. The emergence of trade blocs and free trade zones has to a considerable degree supplanted the basic principle of the most-favored-nation (MFN) treatment on which world trade has been based. Furthermore, the recent oil crisis has demonstrated the dangers to Western unity stemming from each country's desire to better its own energy position at the expense, or at least without consideration, of its close allies and trading partners. We need new GATT rules to adjust world trade to the changed framework of international economic relations, and the U.S. must provide leadership in developing these rules. Without them, the world risks a return to unilateralism and the danger of "beggar they neighbor policy". We believe that the proposed Trade Bill provides the appropriate authority for U.S. participation in this all important endeavor.

WHAT IS THE AMERICAN PAPER INSTITUTE AND WHOM DO WE REPRESENT?

The American Paper Institute is comprised of manufacturers who produce more than 90 percent of the nation's pulp, paper and paperboard. Their products indlude wood plup, tissue, newsprint, containers, wrapping materials, printing and writing papers, and many other papers. In 1973, this industry produced 62 million tons of paper and paperboard and the net sales of the paper and allied products companies amounted to $26 billion. The U.S. paper industry operates in all but one state of the Union. It employs over 700,000 people. In the South it is among the largest employers. It pays nearly $8 billion in wages, salaries and benefits and nearly $1.8 billion in federal, state and local taxes. It is a basic industry and among the 10 largest in the country. We are also a world-wide industry. Over 50% of our members have exports and 35% have imports. In 1973, the paper industry's exports amounted to $1.4 billion, thus contributing importantly to the U.S. balance of payments, and over the long term, to the stability of our domestic production. Imports amounted to $2.2 billion, predominately pulp and newsprint from Canada. Furthermore, our domestic production and hence our domestic employment are substantially dependent on domestic sales that are tied to other industries' exports. Packaging materials for products shipped overseas, and paper for exported printed matter, such as books, magazines, etc., are examples of such indirect exports. We estimate that in 1973 more than $2 billion worth of the domestic sales of our industry went into indirect exports. Thus, continued export growth by U.S. industries other thatn our own is also of major importance to us.

IS TRADE EXPANSION NEEDED?

Some observers ask in this period of general economic uncertainty whether export expansion is beneficial to the U.S. economy. It has even been suggested that in order to conserve all our resources, the country should level off or even decrease its exports. In this way, they argue, the U.S. can also decrease its imports and conserve its resources. The two don't go together, however and we believe that such a program will be detrimental to the interests of the United States.

The 1973 International Economic Report to the President brings vividly into focus the interdependence between the U.S. and the rest of the world. To name just a few vital import items besides oil-we depend on imports for 100% of chromium, 92% of our cobalt, 95% of our manganese, 100% of our tin and so on the list is quite long. Furthermore, a certain level of consumer type imports, if traded fairly, deters the growth of inflationary pressures and keeps us on our toes competivitely.

The paper industry, which I know best, is in itself an example of interna tional interdependence. 65% of the U.S. demand for newsprint is served by Canada. Certain grades of Canadian pulp are needed to supplement domestic pulp production in the manufacturing of paper and board. Imports of fuel oil are of crucial importance especially to the paper mills on the East Coast. We also depend on imports of a number of important minerals and chemicals. How many industries can be fully independent of foreign materials and maintain their competitiveness and high domestic levels of employment? Few if any.

How then can the U.S. pay for its imports?

It is not realistic to assume that this can be accomplished at the expense of diminishing exports, but rather through an increase in those exports where we are strongly competitive. The American businessman must know that his government is behind him in this objective.

Agriculture and forest-based industries use renewable resources, and their output, together with the output of high-technology industries, represents products which are strongly competitive in world markets and hence high on the order of desirable exports.

Since we must export, we should strive for fair treatment in foreign markets. Other countries have the right to expect the same from us. This is why reform of the international trading rules must be approached with a sense of urgency and why the passage of the Trade Reform Act is needed this year. For many countries, foreign trade is a matter of top priority. These coun tries have developed national policies that favor industries engaged in export and foreign investment. The prosperity in the European Community today is to a large degree the result of the expansion of their trade in the sixties. In 1972 the European Community accounted for 37% of the world's exports. Germany exported about 42 percent of her domestic production of goods; the United Kingdom, 46 percent; Canada, 71 percent and Japan, 32 percent.

The United States in 1972 exported about 14% percent of its domestic production of goods-an important component of national output but far below the figures of our trading partners. Last year, U.S. exports of goods and services advanced by $28% billion while the GNP increased by $134 billion. Thus, the increase in exports accounts for 21 percent of the increase in GNP, a very significant component. If U.S. foreign economic policy is to gain in importance as a means of overcoming our trade and balance of payments problems, active cooperation between the private and public sectors is essential. This is where we lag behind Europe, Japan and other countries.

WHY EXPORTS OF THE PAPER INDUSTRY ARE IMPORTANT TO THE NATION AS WELL AS TO THE INDUSTRY ITSELF

The paper industry is based on a renewable resource, the forest. We are also blessed with abundance of water-essential to the production of pulp and

paper.

Our products are basic to the economy of every country and in great demand around the world. In the last 13 years our exports increased by 225%. During that period our industry suffered from excess capacity and sharp increases in pollution and other costs. Steady growth in exports allowed us to operate at higher rates of capacity than would have been possible otherwise. Without these exports our employment during that period would have sharply decreased. Present shortages in paper are fundamentally not caused by exports. They are caused by a slow-down in capacity growth because of abnormally low return on new investments. The government's policy of price control contributed much to this unfortunate situation.

With proper incentives to invest in new capacity, this industry can and will remain competitive and productive at home and abroad.

However, unless some recently developed trade inequities in Europe are removed, we won't be able to compete effectively in that important market. Here's why:

Europe is the largest market for the paper industry's exports, with nearly 40 percent being sold to the Enlarged European Community. Our major competitors are the Scandinavian countries and Canada. Until 1973 we exported to the six Common Market countries on equal tariff terms with all our competitors. Under conditions of tariff parity the U.S. paper industry is highly competitive in spite of the fact that, compared to Sweden and Finland, we have a considerable transportation disadvantage because of distance from the European market. Between 1960 and 1972 the paper industry's exports to the six EEC countries increased by 340 percent and for such products as paperboard by 738 percent.

Starting with 1973, we no longer have parity with our Scandinavian competitors. Under agreements concluded in July 1972 between the Enlarge EEC and the "non-applicant" EFTA countries including Sweden and Finland, all tariffs on industrial goods, including paper and paperboard, will be gradually eliminated. The U.S. paper industry will then face a 12 percent tariff disadvantage.

Such discrimination poses a serious threat. The loss of exports will have an adverse effect on the U.S. balance of trade and payments. For example, in 1972, of the $396 million of the paper industry's exports to the Enlarged European Community over $230 million were dutiable items which would face tariff discrimination. The past growth record of our exports must be projected forward to get a true picture of the potential damage to our exports. (Attached is a table showing the paper industry's exports for 1972 by major product categories). We request the Committee's permission to attach for the record the API testimony on May 15, 1973 before the Trade Information Committee of the Office of the Special Trade Representative for Trade Negotiations on the adverse effects of the EEC-EFTA Trade Agreements on the American paper industry.

The U.S. paper industry must regain parity of tariff treatment with our competitors, and we are convinced that the only solution to our emerging problems in trading with Europe lies in the forthcoming trade negotiations. This is why the President's ability to negotiate effectively in the coming round of discussions is of such importance to us.

In this connection we would like to mention the continued efforts of the U.S. Government, especially the U.S. Department of State and the Office of the Special Trade Representative, to obtain compensation under GATT's Article 24.6 for the damages to various U.S. industries resulting from the enlargement of the EEC. Paper is among these industries. We feel that the Special Trade Representative in particular should be commended for his efforts to resolve this difficult issue. He has shown great willingness to cooperate with our industry in understanding its problems and seeking an equitable international solution.

Numerous non-tariff barriers such as quotas, distribution restrictions, etc., as well as very high tariffs on certain individual products also handicap us in our trade with Japan and other nations. We hope that through negotiations these barriers can be substantially reduced.

I will now ask Mr. Hannigan to comment on specific Titles of the Trade Reform Act. Most of our comments center on Title I of the Bill.

COMMENTS ON SPECIFIC TITLES OF THE TRADE REFORM ACT

Title I: Authority for New Negotiations

We vigorously support Title I as an essential and realistic means for successful trade negotiations. We believe that the authority to raise as well as lower tariffs should be granted to the President because other countries with whom the U.S. will be negotiating will have similar authority and will use it as a bargaining tool. We further support granting the President authority to negotiate the removal of nontariff barriers subject to Congressional review as provided in Section 102. We believe that Congressional oversight, as provided under Title I, will be most beneficial in further U.S. negotiations and removing uncertainities regarding the implementation of agreements that existed under the previous laws.

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