Section 102(c).

Section 102 (c) deals with the issue of sectorial and cross-Sectorial approaches to the trade negotiations. We welcome the clarification concerning this Section that was provided in the Testimony for the Record by Ambassador William D. Eberle.' It is inevitable that the forthcoming negotiations will be tougher than ever before. In order to achieve the overall goals of the Trade Reform Act, the U.S. negotiators will need a measure of flexibility that is equal to that possessed by their foreign counterparts. Our trading partners are equipped with the authority to use both the sectorial and cross-sectorial negotiating techniques to achieve their goals. The U.S. negotiators must be able to have the same flexibility if we are not to come out second best. A strictly sectorial approach cannot help the U.S. paper industry in solving a lack of parity in Europe and improving its access to markets elsewhere. In terms of both tariff and nontariff barriers, the paper sector has relatively little to offer as a concession because the U.S. tariffs on paper are very low and non-tariff barriers, if they exist, are insignificant. Furthermore, EEC countries do not export paper to the United States. The paper industry has a great export potential but the availability of crosssectorial negotiating techniques will be essential for solving our trade problem. We urge the Committee that Ambassador Eberle's clarification on Section 102 (c) be adopted as a part of legislative history.

Section 135

We strongly believe that the success of the forthcoming trade negotiations can be greatly enhanced by fruitful cooperation between the Government, industry, agriculture and labor. Other countries in the past have had an advantage over the U.S. by being able to negotiate in closest cooperation with their industry representatives, while the U.S.'s industry-government liaison has been grossly inadequate. We believe that the Trade Reform Act as it has emerged from the House is a major step forward in this respect. We also believe, however, that a few points need further clarification.

In his testimony before this Committee Ambassador Eberle stated that "the purpose of the sector advisory committee is to provide policy (emphasis ours) and technical advice and information with respect to particular domestic and foreign products, and advice to the Executive Branch on other issues relevant to U.S. positions prior to and during trade negotiations". The reference to the "policy advice" is most significant and welcome, because the present language of the Act is ambiguous as to whether sectorial committees have this responsibility. We recommend that this interpretation be adopted by your committee. We further support the clarifying amendment concerning Section 135 (c) submitted by Ambassador Eberle in his testimony before this committee giving the overall industry, agriculture and labor committees as contrasted with sectorial committees—a firm statutory basis and exemptions from Section 10 (a and b) and Section 11 of the Federal Advisory Committee Act. Without this exemption, foreign countries would be privy to all the recommendations made by the Advisory Committees.2

It has been obvious for some time that the rules of GATT require extensive revisions to accommodate changes in world conditions. The oil crisis created a sense of urgency in establishing international rules dealing with access to supplies, but there are several other issues also requiring adjustments and changes. Some of these changes may be agreed to outside of GATT through special protocals. We believe that the national interests will best be served if the U.S. negotiators are given a measure of flexibility in dealing with reform of the international trading system. Because of this belief we support the amendment proposed by Ambassador Eberle in his testimony before this committee.

Title II: Relief from Injury Caused by Import Competition

Imports will always be a problem for certain segments of U.S. industry, even under equitable competition. But industries and workers obviously need assist

1 Testimony for the Record by Ambassador William D. Eberle, U. S Special Representative for Trade Negotiations. United States Senate Committee on Finance. Hearings on Trade Reform Act of 1973. Pages 37-43.

2 Testimony for the Record by Ambassador Eberle, Attachment A, Pages 19-20. 3 Testimony for the Record. Attachment A, Pages 8-10.

ance in adjusting to changes in competitive situations. If we insist, however, that other nations remove their barriers to allow the U.S. to export-and we should expect to find many fields for export where we have a competitive advantage-we cannot expect to impede permanently the flow of competitive imports into the United States. We believe that the provisions of Title II as passed by the House offer substantial improvements over the previous legislation and we, therefore, support this Title.

Title III: Relief from Unfair Trade Practices

With regard to Title III, "Relief from Unfair Trade Practices", API supports in general the provisions of this title since they would give the President more adequate power to act against unfair trade practices of other nations.

Under Section 331(b) of Title III, the countervailing duties would now apply to duty-free products-such as pulp and newsprint. We support the clarifying amendments offered by Ambassador Eberle in the belief that this will prevent incorrect application of the provision that might in turn trigger retaliation by foreign countries.

Title IV

Because of our belief that expansion of trade with all nations is in the U.S. national interest and, therefore, in the interests of the American paper industry, we supported, during the hearings before the Ways & Means Committee, the Administration's original request for granting a most-favored-nation status to the non-market economies including the U.S.S.R. Since then, however, Title IV of the Bill has been substantially changed by the modifications and amendments adopted by the House. We hope that the very commendable objectives of the House in seeking to further human rights in the U.S.S.R. can be obtained without jeopardizing the normalization of our trade relations with that country.

We agree with the statement made by Secretary Kissinger before this Committee when he said:

"I do not oppose the objective of those who wish to use trade policy to affect the evolution of Soviet society; it does seem to me, however, that they have chosen the wrong vehicle and the wrong context. We cannot accept the principle that our entire foreign policy-or even an essential component of that policy such as a normalization of our trade relations-should be made dependent on the transformation of the Soviet domestic structure."

We hope that appropriate language can be found to express Congressional sentiments concerning human rights in the U.S.S.R. without jeopardizing an improvement in economic relations with the non-Market economies. If this does not prove to be possible, we strongly urge the removal of Title IV from the Trade Bill altogether. Because the Trade Reform Act is of such major importance to the country it would be most unfortunate if its passage were jeopardized over one particular issue which is rooted in political rather than economic considerations.

Title V Generalized System of Preferences

Because we believe that U.S. prosperity depends on the growing prosperity of other nations, we support Title V which authorizes the establishment of a generalized system of preferences for developing nations. Several other developed nations already extend such preferences to the less developed nations. Some of the European countries, however, receive reverse preferences for their trade. This distorts the principle of preferences for developing nations. We strongly support a provision of this title under which the developing countries will no longer receive generalized preferences after January 1, 1976 unless they have eliminated "reverse" preferences to other developed nations. With the recommendations that we have submitted to you in this testimony, we strongly urge this Committee to report favorably the Trade Reform Act of 1973.

Testimony for the Record. Attachment A. Page 31.

TESTIMONY ON THE EFFECTS OF THE EEC-EFTA TRADE AGREEMENTS ON THE AMERICAN PAPER INDUSTRY, BY DR. IRENE W. MEISTER, DIRECTOR, INTERNATIONAL BUSINESS AND SPECIAL PROJECTS

This brief is submitted on behalf of the American Paper Institute, an association which represents over 90 percent of the United States' manufacturing capacity of pulp, paper and paperboard. In 1972 the American paper industry produced 59 million tons of paper and paperboard, employed nearly 700,000 people, and operated in 49 states.

Two of the paper industry's bulk products, pulp and kraft paperboard, are basic commodities traded in all parts of the world. It also exports a variety of specialty grades of paper competing on the basis of quality and fair price. The U.S. paper industry's business is worldwide, and about 10 percent of the total U.S. production is exported. This represents a significant percentage for an industry for which the fullest utilization of capacity is essential because of its extremely high capital intensiveness.

We are submitting this testimony in order to inform the U.S. Government that the agreements concluded between the EEC and EFTA countries in June 1972 will cause serious injury to the exports of the U.S. paper industry. This in turn will have an adverse effect on the U.S. balance of trade and payments.

EEC-EFTA AGREEMENTS

The formation of the enlarged EEC has divided the European Free Trade Association (EFTA) into two categories of countries: those joining the original European Community of Six, namely the United Kingdom, Denmark and Ireland, and the rest of the EFTA countries, commonly referred to as the "Non-Applicant EFTA Countries." This latter group of countries includes such major exporters of pulp, paper and board as Sweden, Finland and Norway, and such lesser exporters as Austria and Portugal.

In July 1972, the "non-applicant" members of EFTA signed agreements with the enlarged European Community forming a free trade zone. By 1971 standards, the 16 nations' free trade zone would account for nearly 40 percent of world trade. The purpose of the free trade zone is the elimination of tariffs on trade in all industrial goods. Under the agreements between the enlarged EEC and the non-applicant EFTA members, the tariffs and quantitative restrictions on most products will be eliminated by 1977. The transitional period for the paper industry is, however, longer, and zero tariff will not be reached until 1984. The reduction of tariffs on paper and board resulting in discrimination against all outside suppliers not party to the agreement, such as the U.S. and Canada, starts in April 1973. The level of discrimination accelerates after 1976. (See Table 1.)

TARIFF REDUCTIONS BY THE SIX ORIGINAL MEMBERS OF THE EEC

The current list of the present EEC tariffs on paper products is quite long, but it can be divided into two broad categories. The first category comprises those paper and paperboard products on which the current applicable rate of

Tariff Nomenclature) numbers: 48.01C II; 48.01E; 48.07B; 48.13 and 48.15B. 5 duty is uniformly 12 percent. This group includes the following BTN (Brussels Under the terms of the agreement with the non-applicant EFTA countries, a specified and declining tariff on all these products has been set for each year between 1973 and 1984, when it will reach zero. For those remaining paper and board products which at present carry other than a 12 percent duty, a specified percentage reduction will apply for each year between 1973 and 1984. (Tissue and parchment paper, for example, have a duty of 13 percent; corrugated board and miscellaneous converted articles have a 14 percent duty.)

TABLE 1.-SCHEDULE OF TARIFF REDUCTIONS BY 6 EEC COUNTRIES ON PAPER IMPORTS FROM EFTA NON

Source: "Accord entre la Communauté Economique Européenne et le Royaume de Suéde et documents annexes," Protocol No. 1.

HISTORIC PERSPECTIVE OF U.S. EXPORTS TO THE EEC

The U.S. has been a steadily growing supplier of pulp, paper and paperboard to the six original EEC countries as well as to the United Kingdom. The European Community is a fibre deficit area dependent on imports of pulp, paperboard and a number of paper products. Since the conclusion of the Kennedy Round in 1967, the applicable EEC common external tariff on most of the imported paper and paperboard has been 12 percent.

TABLE 2.-U.S. EXPORTS OF PULP, PAPER AND BOARD 1960-70

1 In addition to wood pulp, paper stocks include waste paper and cotton and other pulps. Source: U.S. Department of Commerce, Bureau of the Census FT 410 for appropriate years and API compilations.

5 BTN (Brussels Tariff Nomenclature)

48.01C II-Kraft liner, kraft sack, other kraft paper and board.

48.01E-Uncoated woodfree printing and writing, uncoated mechanical printing and writing, semi-chemical fluting, sulfite wrapping paper, all other uncoated paper and board.

48.07B-All coated printing and writing paper, all other coated, impregnated, etc. paper and board.

48.13-Stencils and carbon paper.

48.15B-Paper and board cut to size (excluding strips coated with rubber adhesive).

Prior to the EEC-EFTA agreements of 1972, the U.S. competed with the EFTA nations in the six EEC countries on equal terms. In the U.K., however, the U.S. has for some time been at a disadvantage because the Scandinavian countries entered their paper products duty free as members of EFTA, while Canada enjoyed duty free treatment in the U.K. as a member of the Commonwealth. As a result of the EEC-EFTA agreements, the U.S. will now suffer tariff discrimination in all countries of the enlarged Community. This discrimination will eventually reach 12 percent in favor of our two major competitors, Finland and Sweden. In addition, by July 1977 the U.K. in the process of tariff harmonization will have raised its duty on such major U.S. exports as kraft linerboard from 10 percent to 12 percent. Furthermore, U.S. producers selling in the European Community will also face stiffer competition in certain non-bulk paper grades due to an anticipated increase in the intra-European trade resulting from the removal of tariffs between the old and new members of the Community. For example, prior to the enlargement of the Community, the U.K. exporters of paper to France or Germany competed there on equal tariff terms with the U.S., Canada and the Scandinavian countries. Now, however, the U.S. and Canada are put at a disadvantage, while the U.K. exporters and the Scandinavian countries acquire a privileged status-the U.K. because of its full membership in the Community and the Scandinavians because of the EEC-EFTA agreements.

EFFECTS OF PAST DISCRIMINATION ON U.S. EXPORTS TO THE UNITED KINGDOM

Prior to the formation of the EFTA in 1960, Canada enjoyed long standing tariff free treatment in the U.K. and was a dominant supplier of paper and paperboard to that market exporting more than Sweden and Finland combined. TABLE 3.-IMPORTS OF PAPER AND PAPERBOARD INTO THE UNITED KINGDOM

Source: Reference tables 1970. The British Paper and Board Makers' Association.

As Table 3 above illustrates, the growth of paper and paperboard exports from Finland, Sweden and Norway to the U.K. market exceeded the growth in all other countries after 1960 when these EFTA countries first received a tariff advantage. The magnitude of growth depends, of course, on an absolute increase in demand within the market as well as on the relative share of the market. The U.S. share of the U.K. market for paper and paperboard between 1959 (preEFTA) and 1970 decreased from 13.4 percent to 10.8 percent, while the market share of Finland increased from 15.4 percent to 26.2 percent, and that of Sweden from 15.1 percent to 22.5 percent. The United States' major export to the U.K. is kraft linerboard. Between 1963 (the first year for which comparative data is available) and 1970, the U.S. share of the U.K. market decreased from 51.5 percent to 46.5 percent. Some U.S. companies, in fact, withdrew from the U.K. market altogether following the effective date of the EFTA agreements early in the 1960's, but others for whom this market had for a long time been particularly important remained in the hope that the U.K.'s entry into the Community would end the tariff disadvantage for U.S. exporters. At the same time, the United States' share of the market in the six EEC countries, where the U.S. traded on equal tariff terms, rose from 25.6 percent in 1963 to 60.5 percent in 1970. We believe, therefore, that the damages to the U.S. paper industry resulting from the EEC-EFTA agreements should be viewed in relationship to the total market of the enlarged European Community rather than to the market of the six original members.