IMPORTANCE OF THE EUROPEAN MARKET TO U.S. EXPORTERS OF PULP, PAPER AND PAPERBOARD

In 1960, the U.S. paper industry's exports to the six EEC countries plus the U.K. represented 28 percent of the total value of the U.S. paper industry's exports. In 1970, this proportion rose to 39 percent for the total, and 45 percent and 44 percent respectively for pulp and paperboard. Table 4 below shows the importance of the European market to the U.S. paper industry.

TABLE 4. THE U.S. PAPER INDUSTRY'S EXPORTS TO THE EUROPEAN COMMUNITY COMPARED
TO TOTAL EXPORTS, 1970

The U.S. paper industry's largest single export item among the dutiable paper products is kraft linerboard. Kraft linerboard, defined as a paperboard used as the facing material in both corrugated and solid fibre shipping containers, is a key product in the manufacturing of economic paperboard packaging. The increase in the industrial activity of the Community of Six was reflected in the growth of its packaging needs and extensive studies indicate that the demand for kraft linerboard will, throughout the 1970's, show the largest volume of growth of any paper and paperboard packaging material.

The U.S. paper industry is highly efficient and competitive. In the ten-year period of 1960-70, competing on equal tariff terms with other major suppliers such as Sweden, Finland and Canada, the U.S. exports of kraft linerboard to the six EEC countries increased sixfold and in 1970 accounted for 37 percent of the worldwide U.S. kraft linerboard exports. In 1970 the exports to the enlarged Community accounted for 54 percent of the total U.S. kraft linerboard exports, or $123,000,000.

TABLE 5.-U.S. EXPORTS OF KRAFT LINERBOARD TO THE 6 EEC COUNTRIES AND THE UNITED KINGDOM

TABLE 6.-1970 EXPORTS OF KRAFT LINERBOARD BY THE 5 MAJOR SUPPLIERS

Source: Exports of Kraft linerboard and corrugating materials to world markets-American Paper Institute, 1971 edition.

As Table 6 indicates, the U.S. is the dominant supplier of kraft linerboard to both the six original members of the EEC and the enlarged Community. In 1970, the U.S. exports of kraft linerboard to Europe amounted to nearly 10 percent of the domestic U.S. production, a percentage significantly important for the effective utilization of productive capacity, margin of profits and employment. As the demand for linerboard rose in Europe, the U.S. increased its exports to serve this market. The U.S. capacity has been increased partly to serve the European market, and certain of our mills have been built with this as their primary purpose on the assumption that they would continue to have equal access to the EEC.

The loss of exports by American companies that have patiently built up substantial European business over a long period would cause serious injury to those firms. It is neither relevant nor valid to compare, as some, do, the exports with the domestic sales of the U.S. paper industry and then to suggest that the U.S. industry is so large that it can easily absorb any loss of exports. While it is true that some U.S. firms never export and that a few do so only occasionally when there is a temporary oversupply at home and foreign demand is strong, those firms that do export on a regular basis are among the largest in the industry and contribute substantially and favorably to the U.S. balance of trade and payments.

The majority of the U.S. exporting companies are long-term suppliers to the European market, some dating back to the 1930's. They have served the needs of their European customers both responsibly and efficiently, even during such periods of intense shortage as the Korean War. Moreover, many of them also have affiliations with European containerboard mills and corrugated box plants. We estimate that in 1970 over 15 percent of the European corrugated capacity was affiliated with U.S. firms. These relationships imply a long-term obligation to provide the affiliated companies with U.S. linerboard when these firms need it. Thus linerboard exports have become an integral part of the U.S. paper industry.

Independent consultants have estimated that the new import requirements for kraft linerboard of the enlarged Community will rise from nearly 1,600.000 metric tons in 1970 to over 2,800.000 metric tons in 1980. Thus there is no doubt that the European Community will need American kraft linerboard.

The U.S. paper industry wants to participate in the growth of the European market. Such participation would require additional capacity and the U.S. companies' planning for future capacity is conditioned by their estimates of both foreign and domestic demand and the opportunity of obtaining a reasonable and steady return on their investments whether in the U.S. or abroad. In such commodity grades as kraft linerboard, competition centers on price since quality for the most part is standardized. In deciding on the allocation of production between exports and domestic sales, the key managerial decision centers on return on investment which in turn is based on mill profits. Unless our exporting mills can count on a profit level that would not be less than that which they obtain domestically, they will not allocate production to export sales.

During periods of high demand in an up-swing cycle when prices are normally higher, our competitors would reap benefits by having an additional 12% advantage and thus boosting considerably their return on investment compared to that of U.S. producers. On the other hand, during the periods of low

demand in a down-swing cycle, the Scandinavian countries could offer their products at a discount equivalent to their tariff advantage, forcing down the U.S. mills' profit and thereby reducing the return on investment for the U.S. producers. For our competitors it becomes a "heads we win, tails you lose" situation.

Thus, an inequality of tariff treatment among the major suppliers provides the favored few, in this case Sweden, Finland and Norway, with a flexibility in making marketing and investment decisions not shared by their disadvantaged competitors. Correspondingly, a tariff discrimination of 12 percent would act as a strong deterrent for U.S. companies in exporting to the European market. As indicated earlier, the amounts of U.S. exports of kraft linerboard to the European Community are large ($123,000,000 for 1970), and in accessing the damage to U.S. trade, these should be projected to take into account the potential U.S. exports to 1985.

PAPERBOARD OTHER THAN LINERBOARD

The U.S. has also been competing in the EEC with paperboard exports other than linerboard. In the past ten years these particular exports to the six EEC countries have increased from 15,604 metric tons in 1960, or $2,159,000, to 33.586 metric tons in 1970, or nearly $8,000,000. In 1971, they rose to over $11,000,000.

Most of these exports were the bleached paperboard used for folding cartons, milk cartons, paper plates and cups. With a growth in prosperity in the enlarged Community and an already obvious move to supermarket distribution and to the use of disposable paper products, there is a rising demand for bleached paperboard. The twelve percent discrimination will be an effective deterrent against U.S. participation in the growth of this important market.

EXPORTS OF PAPER

The U.S. exports of paper are much smaller in tonnage than our exports of pulp and paperboard. This, however, does not diminish the importance of these paper exports and the desire and need on the part of our exporting companies to have fair and equitable treatment. In 1970, the U.S. exports of various paper grades to the enlarged EEC were slightly over 84,000 metric tons of generally high value items totalling almost $58,000,000. Of this tonnage, 39,000 metric tons were printing and writing papers (this excludes some 12,000 metric tons of newsprint).

Forecasts made by the FAO in 1971 project that the European demand for printing and writing papers will increase by some 130 percent between 1970 and 1985, with continued dependence on outside imports. The United States paper industry wants to participate in the growth of this market with those products where it is competitive.

In the European market our country faces a natural disadvantage in transportation and pollution abatement costs as compared to such major competitors as Sweden and Finland. Nevertheless, the high efficiency of the U.S. paper industry and the quality of the U.S. products permits successful competition in specialty grades, provided it faces no such artificial hindrances as inequality of tariff treatment. As Table 2 shows, between 1960 and 1970 the U.S. exports of paper products to the six EEC countries increased more than fourfold, amounting to $42,400,000. In 1971 this amount rose to $47,429,000. The corresponding figures for the enlarged Community are $57,839,000 and $63,139,000. Many U.S. firms have developed special processes to supply the European needs for specialty grades. A 12 percent tariff discrimination will preclude the U.S. companies from competing effectively in the EEC market, thus casuing damage to those U.S. firms exporting these products and at the same time damaging the U.S. balance of trade.

EFFECTS OF THE EEC-EFTA AGREEMENTS ON PULP EXPORTS

In 1970, the U.S. exported nearly 1,400,000 metric tons of paperboard stock, predominantly wood pulp, worth over $226,300,000 to the enlarged Community. This represents 43 percent of the tonnage and 45 percent of the value of the U.S.'s world wide pulp exports.

The EEC of six countries has a three percent duty on pulp, but this duty generally does not apply because of the tariff free quotas which cover the import requirements of these six countries. This duty could, however, be applied at any time at the discretion of the European Commission. The United Kingdom, until its entry into the Common Market, had no duty on pulp but will now be a party to the same arrangements as the original EEC. Sweden and Finland have publicly stated on numerous occasions that their paper industry will move toward greater integration and will then strive to export more products with value added. This will increase Sweden and Finland's competition with the mills and converters in the EEC and may result in a decrease of European production, or at best it may diminish the growth of the local European paper industry. This, in turn, might bring about a decrease in the consumption of North American pulp.

For 1970, the figure of dutiable paper products subject to tariff discrimination in the enlarged EEC amounts to $210,000,000 ($236,000,000 for 1971). This figure can be projected forward on the basis of forecasts for future consumption and import requirements, thus determining the potential damage. It is much more difficult to project a figure for the potential loss of pulp sales, but it can be considerable.

IN SUMMARY

Exports are an integral part of the U.S. paper industry. Because of its efficiency, high level of productivity, managerial skills and sufficient raw material resources, the U.S. paper industry's exports between 1960 and 1970 grew at an annual rate of 10%. For a basic industry this is an impressive rate of growth during a period when the exports of many other industries have declined.

In the postwar period, the American paper industry has a clear and consistent record of supporting freer trade. As a large, basic industry, it has consistently advocated and maintained an anti-protectionist position. Furthermore, the U.S. paper industry has developed its international business without curtailing imports into the United States. U.S. duty applies to only some seven percent of paper industry imports and the weighted average tariff on duti able products in the primary sector of the paper industry averages less than five percent.

The U.S. paper industry has supported the American Government's participation in GATT. It has testified before Congress in favor of the legislation that made the Kennedy Round possible and it will testify again on the currently proposed Trade Reform Act. Now we are seeking a fair deal in Europe. We are not looking for favors. We ask no advantages. Our goal is simply one of being in a position to compete in the enlarged EEC on a fair and equitable basis with our competitors outside the Community.

Senator TALMADGE. The next witness is Mr. Edward M. Rhodes, president of the American Chain Association; accompanied by Wyatt Dawson, chairman of the board of directors.

Mr. Rhodes, your entire statement will be inserted in the record. and you may summarize it.

STATEMENT OF EDWARD M. RHODES, PRESIDENT, AMERICAN CHAIN ASSOCIATION, ACCOMPANIED BY: WYATT DAWSON, CHAIRMAN OF THE BOARD; AND JOHN HOCH, COUNSEL

Mr. RHODES. Thank you very much.

My name is Edward M. Rhodes. I am president of the American Chain Association, which is a voluntary, nonprofit trade association, comprised of 11 United States companies engaged in the manufacture of sprocket chains for the mechanical transmission of power and for conveying and elevating.

I am accompanied by not only Mr. Dawson, but our Counsel, John Koch.

The 11 member companies listed in appendix A account for substantially all of the domestic production of sprocket chain. Our Association is not concerned with anchor chain or tire chains. But our chains run over sprockets like this, and they transmit power from one shaft to other shafts or they convey or elevate materials. Our total shipments last year were $240 million.

Our problems, we believe, are very typical of those of other medium-sized manufacturing industries. It is not secret that many industries of our size have encountered and, despite devaluation, will continue to encounter serious troubles and disruptions caused by imports.

Four years ago, of the total pounds of roller chain used in the United States, imported chain grew to 25 percent, and we were concerned about further growth. Two years ago, imported roller chain amounted to 35 percent of the pounds of roller chain used in the United States. And last year, in 1973, it was still at that level.

We are not, though, urging any return to protectionist legislation. What we are asking for is legislation that will help insure fair international trade. In general, the American Chain Association supports the provisions of the Trade Reform bill, but we urge that certain portions be strengthened along the lines of S. 323, introduced by Senator Schweiker.

In March, a year ago, the Tariff Commission, by a 5 to 0 vote, found injury under the Antidumping Act of 1921, as a result of unfair pricing on the part of Japanese roller chain manufacturers. Because of this firsthand experience with the Antidumping Act, we think we are in a position to make some suggestions on how this 50-year-old legislation can be improved.

We are particularly concerned about the length of time required for a dumping case. Appendix B in our statement outlines the dates of the various steps in our dumping investigations and the work of Treasury and the Tariff Commission. We began our studies in February, 1970. The formal findings of Treasury and the Tariff Commission were published in April, 1973, three years later. And in these 3 years of escalating imports, another 10 percent of our workers lost their jobs to imports.

In retrospect, we of course wish we had moved sooner and more quickly. But there are inherent difficulties, practical and legal, in any group of U.S. companies quickly and efficiently organizing themselves to collect the information necessary to file an antidumping complaint. But what about Treasury? We do not suggest that Treasury dragged its feet. However, we do suggest that it would be perfectly feasible for Treasury to make a tentative dumping determination within 6 months of a complaint's being filed if directed by the Congress to do

So.

The Trade Reform Act passed by the House provides that a withholding of appraisement order would normally be issued by Treasury within 6 months from the date of publication in the Federal Register of a notice that a complaint has been received. There is no limitation on the time that Treasury may take to publish such a notice after receiving the complaint. We urge you to consider the concept of