potential exports whereas it should be part of the $25 million of each country adding up to 75 percent. Senator FANNIN. It was done for a certain purpose. Mr. GEYELIN. It may not be the intent. I think it could easily be clarified. Senator FANNIN. Thank you very much, Mr. Geyelin. We certainly appreciate you being here this afternoon. We appreciate your patience, and I hope that the members will-I know a great many of them will read your testimony and will benefit by it. Mr. GEYELIN. We very much appreciate the opportunity. [Mr. Geyelin's prepared statement follows:] STATEMENT BY HENRY R. GEYELIN, EXECUTIVE VICE PRESIDENT, COUNCIL OF THE AMERICAS ON A GENERALIZED SYSTEM OF PREFERENCES OF THE PROPOSED TRADE REFORM ACT OF 1973 Mr.Chairman and members of this distinguished committee, I appreciate this opportunity to appear before this Committee to discuss the proposed Trade Reform Act of 1973. The structure of the U.S. trade policies, particularly as they pertain to Latin America, is of considerable concern to the Council of the Americas, an association of approximately 200 corporations which account for some 90 per cent of all U.S. private investment in Latin America. We consider it important that the trade between the United States and Latin America be as large as possible. The net direct benefits of such trade are important to both the United States and Latin America. In addition, such trade helps promote sound social, cultural, and political relations, as well as sound economic relations, between the United States and Latin America. The Council therefore endorses the purposes and, in general, the implemental provisions of the proposed Trade Reform Act. In particular, we encourage the Congress to grant the Adminstration authority to establish the proposed system of generalized trade preferences. In 1968, the Executive Committee of the Inter-American Council for Commerce and Production (CICYP), the principal business association of the western hemisphere, recommended that the United States and the other industrial countries adopt a system of generalized trade preferences for products of the developing countries, including Latin America. The Council of the Americas, which represents the U.S. private sector in CICYP, joined in the sponsor. ship and approval of that recommendation, and has reiterated its support of that position on many subsequent occasions. For the past several years, especially since early in the sixties, the economic policies of Latin America have been giving high priority to the promotion of exports. The governments and the people of that region recognize that their economic progress requires external resources, including external capital, technological, and managerial resources. However, they recognize that their economic progress depends above all on their own efforts, including their ability to obtain the export earnings needed to pay for the large amounts of external resources-the petroleum and other materials, the intermediate products, some of the capital goods, some of the durable and non-durable consumer goods, and certain services-that they need and can not expect to obtain through foreign investment and foreign loans. Latin American exports have increased. That increase amounts to almost exactly 100 per cent between 1958 and 1972. However, during that same period, exports by the rest of the world increased 313 per cent, while exports by the industrial countries alone increased 324 per cent. So, whereas Latin America had accounted for 10.4 per cent of the world's exports in 1958, it accounted for only 5.3 per cent in 1972. It is manufactured goods that have accounted for most of the expansion of world exports. Most of the developing countries, including those of this Hemisphere, have had great difficulty in breaking into the established markets for manufactured goods. The proposed extension of generalized trade preferences to those countries would give them an opportu nity they need to increase their foreign exchange earnings; could stimulate their industrialization; would encourage diversification of their economies; and could accordingly accelerate their economic development. The United States has been relying on Latin America to help meet our energy and other import requirements. Moreover, Latin America has been an important export market. In general, our balance of payments position vis-a-vis that region has been an important element of strength in our worldwide position. Some of the important facts in that regard, including certain facts that are not generally known, are summarized below: (a) The U.S. balance of merchandise trade with Latin America has been improving while it has been deteriorating with regard to the rest of the world. During 1960-1964, the United States had an average annual deficit of about $25 million in its merchandise trade with Latin America. During 1970-1972, that had changed to an average annual surplus of about $330 million. In 1972, the Latin American countries accounted for 15 per cent of all U.S. exports and 13 per cent of our imports. (b) Trade with Latin America in manufactured products alone has been overwhelmingly favorable to the United States, and increasingly so. In 1966, the United States had a surplus of more than $2.6 billion in such trade and that surplus increased to more than $3.6 billion in 1971. (These surpluses were offset by deficits of $2.7 billion and $3.3 billion in 1966 and 1971, respectively, through trade in other products, including, for example, coffee and petroleum.) In 1971, the last year for which comprehensive data are available concerning trade in manufactured products alone, Latin America accounted for 16 per cent of our exports of manufactured products, while it accounted for only 6 per cent of our imports of such products. (c) Between 1958 and 1970, Latin America's total imports from the United States increased by $2,548 million, or 62 per cent, even though its exports to the United States increased between those years by only $1,777 million $27 per cent). In the same period, Latin America's imports from the rest of the world increased by $3,959 million, 57 per cent, even though its exports to the rest of the world had increased by $5,376 million (96 per cent). That is, the percentage increase of Latin America's imports from the United States was actually somewhat larger than the percentage increase of its imports from the rest of the world despite the fact that the increase of its exports to the United States was very much smaller than the increase of its exports to the rest of the world. (d) During the full 13-year period, 1958-1970, Latin America incurred a total trade deficit of $4,502 million with the rest of the world. In fact, during each year of the eight year period, 1963-1970, Latin America actually obtained a trade surplus with the rest of the world while it was almost always incurring a very large trade deficit vis-a-vis the United States. The aggregate trade surplus Latin America had with the rest of the world during 1963-1970 amounted to $5,374 million, and provided more than enough foreign exchange earnings to enable Latin America to cover its trade deficit of $3,759 million with the United States during those years. (e) However, there was a sharp change in the regional distribution of Latin America's trading relationships during 1971 and 1972-a change that corresponded closely to the basic change that took place in the United States' worldwide trading relationships in those years and that was probably influenced by some of the same factors, including particularly the increasingly inappropriate foreign exchange values of the U.S. dollar and the Latin Ameri'can currencies that were in practice tied to the dollar. For while Latin America incurred a trade deficit aggregating $1,892 million vis-a-vis the United States during 1971 and 1972, it incurred a much larger trade deficit, aggregating $3,696 million vis-a-vis the rest of the world. It will be recalled that in 1970 the U.S. had a small trade surplus ($462 million) with the other developed countries of the world, but that it had then experienced a trade deficit with those countries of $3.611 million in 1971 and $6,517 million in 1972. Latin America's trading position with those same countries deteriorated in much the same way from a small surplus in 1970 ($32 million) to a deficit of $1,262 million in 1971 and $2,032 million in 1972. It is accordingly evident that the United States has been very fortunate in its trading relations with Latin America since 1958. However, some concern must be expressed over the deterioration of those relations from the Latin American point of view. For the percentage of Latin America's total exports that has been purchased in the United States has been steadily declining, having amounted to only 34 per cent during 1969-1972, as compared with 44 per cent in 1958. To be sure, this does not reflect any decline in the dollar value of Latin America's exports to the United States. On the contrary, those exports were 32 per cent higher during 1969-1972 than in 1958. Nevertheless, it is significant that Latin American exports to the rest of the world increased by 99 per cent over that period. Moreover, part of the increased dollar value of the region's exports was offset by the 19 per cent increase of U.S. wholesale prices during those years. In terms of purchasing power, Latin American exports to the United States had increased by 11 per cent while the increase to the rest ofthe world was 67 per cent.1 Of course, Latin America's well-being, including its economic development, was promoted by the expansion of its exports to all foreign markets. On the other hand, the fact that the expansion took place predominantly in countries other than the United States may have contributed to the weakening of the economic, psychological, and political relations between that region and the United States. Moreover, that weakening has unquestionably been enhanced by the fact that since mid-1971 the European Economic Community and Japan have been extending import preferences to the manufactured products of the Latin American and other developing countries, while the United States has not done so despite the official endorsement it has given to such measures since 1967. It ishardly surprising that the public and the governments of Latin America have manifested increasing irritation over this evidence that the European community and Japan-countries whose markets for Latin American products have for several years been growing much more rapidly than the U.S. market-are disposed to increase the accessibility of those markets, while the United States has so far shown no such disposition other than through pronouncements of good intent. The extension of generalized trade preferences to Latin America is not likely to constitute a significant burden to the overall U.S. balance of payments. Three factors should be noted in this respect: First, the effectiveness of the tariff preferences will probably derive in large part through strengthening the competitiveness of Latin American products vis-a-vis the comparable products of developed countries; this would constitute a shift in the source, but not the total, of U. S. imports. Second, while all countries use part of their dollar export earnings to pay for imports from the United States, the percentage of the total earnings used in this way is much larger in Latin America than in the developed countries; therefore, total U.S. exports will be promoted insofar as Latin America replaces the developed countries as a source of U.S. imports. And, of course, third, the proposed legislation would contain necessary safeguards to prevent any excessive increase in the total of U.S. imports that might result from the tariff preferences. In this connection, it appears that the proposed legislation calls for some safeguards that are unnecessarily restrictive and we request that consideration be given to the following observations: 1. Sec. 504 (c) of the proposed Act provides that, unless the President determines the contrary to be in the national interest, he must withdraw the eligibility of any article for duty-free treatment when imports of that article from a developing country in any calendar year have exceeded $25 million or have equalled or exceeded 50 per cent of the total imports of that article into the United States. It seems at least possible that this provision, as presently worded, might very largely vitiate a principal purpose of preferences: to encourage industrial development in the developing countries and improve their access to the markets of developed countries. The national investment necessary for this purpose might be deterred unless the present wording is revised in one or all of four different respects: a. by authorizing the President to restore the eligibility of an article for duty-free treatment in subsequent years if imports of that article fall below competitive need ceilings; 1 The major sources for the statistics presented in this statement are: the Survey of Current Businesses, the United Nation's Monthly Bulletin of Statistics, the International Monetary Fund's annual Direction of Trade, and the U.S. Commerce Department's annual reports concerning detailed imports and exports (FT 210 and FT 610). b. by adding an escalator clause whereby the $25 million ceiling would be increased each year either by a percentage equal to any increase of U.S. price levels or, preferably, by some amount corresponding to that increase of prices plus any increase of U.S. real gross national product; c. by providing that eligibility would not be withdrawn, even for one year, unless importation of the article in question has exceeded both the $25 million limit and the 50 per cent limit; and/or d. by increasing the $25 million limit to a substantially larger figure. 2. Sec. 502 provides that the President may designate an "association of countries for trade purpose" as a "country" eligible for duty-free treatment under the proposed Act. This could help any country within the trading association by reducing or removing any eligibility impediment that might otherwise confront it because of the 35-50 per cent value-added requirement (Sec. 503). This is a commendable objective, However, the Latin American delegates to the Conference of the Inter-American Economic and Social Council in Quito, Ecuador in March 1974 expressed serious concern over the fact that this objective might be frustrated-that is, that membership in trading associations might actually be discouraged-because the $25 million/50 per cent limit would then become applicable to the members of the trading association collectively, under Sec. 504 (c). The Latin American concern seems well founded, and it is hoped that the present wording can be modified so as to respond to that concern. The Council of the Americas recognizes, of course, that the proposed system of generalized trade preferences will be helpful to Latin America only insofar as those countries pursue the policies that will enable them to take advantage of the preferences, including appropriate policies with respect to import substitution, exchange rates and exchange controls, fiscal and monetary measures, foreign investments, etc. . . . However, assuming the appropriate policies, the generalized trade preferences could lead not only to the national economic progress discussed above, but also to a strengthening of economic integration among the Latin American countries. For an increase of industrial production and productivity could enable the various countries to sell to one another at lower prices. An expansion of sales in the U.S. market would increase the readiness of the manufacturing companies now in the area to accept the competition of other manufacturing companies now in the area. In addition, the marketing experience to be gained by participating in the U.S. market could be very helpful in improving present intra-Latin American marketing practices. Finally, the internal measures that would help the Latin American countries take advantage of the U.S. preferences-including, for example, the achievement of greater monetary stability-would also be helpful in providing the general economic framework necessary for development of the Latin American common market. To summarize: The Council of the Americas believes that enactment of the proposed Trade Reform Act of 1973 which would include a generalized system of preferences, would constitute an important step toward promoting many of the objectives in which, by good fortune, there is a clear convergence of the best interests of both the United States and Latin America. Senator FANNIN. I understand we have Mr. Bart Fisher. STATEMENT OF BART FISHER, COUNSEL, INTERNATIONAL MARINE EXPOSITIONS, INC. Mr. FISHER. My name is Bart Fisher. I am with the Washington, D.C. law firm of Patton, Boggs & Blow. Mr. Thomas Boggs, who was scheduled to be here with me, had a schedule conflict, and could not attend this hearing, which he regrets. I am here speaking as counsel for International Marine Expositions, which is a corporation composed of over 600 manufacturers of recreational boats, marine engines, and marine accessories. I am here, in other words, on behalf of the U.S. recreational marine industry. I appreciate the opportunity to talk with you about the Trade Reform Act of 1973. Let me say, at the outset, that the pleasure boating industry generally supports the Trade Reform Act of 1973. We believe that it is sound legislation that can lead to a more open world economy. We believe that a good trade bill should do three things for the United States. First, a good trade bill should give to the President the powers needed to negotiate away tariff and non-tariff barriers to trade, so we can have access to foreign markets for the goods that we want to export from the United States. Secondly, a good trade bill should contain measures to ameliorate sharp dislocations caused by the importation into the United States of foreign products: and thirdly Senator FANNIN. I am sorry to interrupt, but Senator Hansen will be here. He agreed to vote and come over immediately, so he will be here very shortly, if you could just await his arrival. At the time he comes back, you can proceed. I apologize. [A brief recess was taken.] Senator HANSEN (presiding). Please proceed, sir. Mr. FISHER. I just started my statement. I am speaking to you on behalf of International Marine Exposition, which is representing the pleasure boat industry, and I was just beginning to say that I think that the Trade Reform Act of 1973 should do three things for the United States. First, it should assist the United States in obtaining access to foreign markets. Secondly, it should help to contain the sharp disruptions caused by excessive foreign imports into the United States. Thirdly, a good trade bill should help the United States to obtain access to needed foreign supplies. Our comments will be directed to these three categories. With respect to access to foreign markets, we support title I of the Trade Reform Act, which would give the President the authority for years, to enter into trade agreements with foreign countries on tariffs and non-tariff barriers to trade. We believe, based on our own experience, that the key problems United States industry will be facing in the years ahead are in the non-tariff area. We have suffered from nontariff trade barriers such as discriminatory taxes, customs entry procedures, and discriminatory standard procedures. These are barriers that are very subtle, but nonetheless terribly important for the U.S. boat industry. We have had substantial difficulties in the area of nontariff trade barriers with Japan in particular. The main problem is with the concept of national treatment. In the United States we give effective national treatment. That is to say, we treat foreigners selling into the United States the same way as we treat U.S. citizens, for purposes of applying the boat safety standards, for example. This is not the case in Japan. In Japan, we have found a myriad of obstacles that effectively blunt national treatment. We have found, for example, that U.S. manufacturers must turn over their plans and specifications for boat engines, which is really proprietary information, in order to get the product into Japan. This is a problem. We also have found that boat engines have to be uncrated at the port of entry, and tested before they can enter into Japan. This adds $50 to the cost of |