might be temporarily inadequate. They are as knowledgeable as we and have high technical competence.

Since we cannot export commodity chemicals, we can only export our specialties. When a market has been developed to the point that a manufacturing plant can be justified, somebody, including perhaps American companies, will build plants to serve those markets. They will do this to take advantage of the lower cost of production abroad, and because of freedom from import quotas, currency restrictions, import duties, embargoes, and the like.

This has already happened, as witness Du Pont building neoprene and nylon plants abroad.

Hercules has built plants for fortified sizing for paper; Monsanto has built a plant for acrylic fiber and Dow has built polystyrene plants. These plants were built to serve the foreign market.

If the tariff bars are let down and it is a question of survival, companies with foreign plants can ship products here, utilize their established marketing organizations in this country, and serve the American buyer from foreign plants instead of U.S. plants. If our trade policy forces them into this, it will mean in effect the export of American jobs and the location of vital industries much closer to the Iron Curtain countries than we are in the United States.

In addition, the organic chemical industry is so complex and interrelated that the loss of one product along the line may eliminate a number of products made from it and jeopardize the profitability of several other lines of related products. These charts show the size complexity and interdependence of the industry.

(The four large tree of products charts accompanying Mr. Gerstacker's statement were too large to be legibly reduced for printing; therefore they were made a part of the committee files.)

Mr. GERSTACKER. The members of SOCMA believe that there is an obvious need for careful study of competitive conditions before a drastic trade policy bill is passed. In spite of the attention given this issue, there are few studies by qualified and respected experts which will serve as factual bases for a good trade policy for the United States.

We are asked to believe without evidence that exports will increase more than imports. In the light of this paucity of information, we oppose passage of H.R. 11970 as being an unrealistic solution to the trade problems the United States now has.

If the Trade Expansion Act is passed without significant change, we can expect our exports to decrease, with a resultant aggravation of the balance-of-payments problem.

Without tariffs, we face immediate erosion of chemical prices due to low-cost imports. This would result in a serious loss in industry earnings and a corresponding loss in Government tax revenues. We also face a potential $2.6 billion growth in import volume of chemicals alone. This must result in domestic unemployment and the deterioration of industries essential to the national defense.

We, therefore, suggest most strongly that the following minimum safeguards are essential to preserve the vitality of the U.S. organic chemical industry:

(1) Safe tariff limits should be established by the Tariff Commission after the necessary hearings, and any action of the President

in trade negotiations deviating from the recommendations of the Commission should be explained to the Congress.

(2) Any tariff adjustments should be made on a product or article basis and not on broad category groupings.

(3) Items essential to the national security should be listed by the Defense Department after the appropriate hearings and reserved from tariff negotiations.

(4) Concessions negotiated with one country or group of countries should not be extended automatically to other countries.

(5) The escape clause provisions of the existing law should be retained and the adjustment assistance provisions of the Trade Expan-sion Act eliminated.

After careful consideration we are impelled to urge these safeguards in the best interests of all industry and of the total economy. We reach this conclusion in full recognition that trade among nations is essential and that under the proper conditions, sound economic trade in the free world will grow.

What we are urging are minimum safeguards that will give the American producer a fighting chance to compete in his own market with foreign competitors. We are asking for the protection of American jobs and continued health for an industry that is vital to the welfare of the country in peace and in time of national peril. Thank you.

The CHAIRMAN. Thank you, Mr. Gerstacker.

Any questions?

Senator CURTIS. I have one question.

Are you familiar with this study made by Arthur D. Little?
Mr. GERSTACKER. Yes, Senator.

Senator CURTIS. On the very same subject?

Mr. GERSTACKER. Yes, Senator.

Senator CURTIS. Do you concur in the finding?

Mr. GERSTACKER. Yes, sir, Senator.

Senator CURTIS. Mr. Chairman, I ask unanimous consent that this portion of the record, study to which you refer, may be printed in the record.

The CHAIRMAN. Without objection.

(The Chair subsequently ruled that the study referred to was too voluminous for reporting in the record of this hearing, and therefore the study will be made a part of the committee files.)

Senator CARLSON. Mr. Chairman, just one thought.

As I understand your testimony, Mr. Gerstacker, it is that you oppose enactment of H.R. 11970 but if we should approve it you have certain suggested amendments which you think would be helpful? Mr. GERSTACKER. That is right, Senator.

Senator CARLSON. You have a great industry, and you have a very important segment of it out in Kansas in Spencer Chemical Co. and other plants that they have. I appreciate your testimony. Mr. GERSTACKER. Thank you, sir.

Senator WILLIAMS. Have your suggested amendments-were they included in as part of your statement?

Mr. GERSTACKER. Yes, sir; they were. Thank you.

Senator WILLIAMS. That is all.

The CHAIRMAN. Thank you, Mr. Gerstacker.

Mr. GERSTACKER. Thank you, Mr. Chairman.

(The appendix to Mr. Gerstacker's statement follows.)

APPENDIX A

POINT I. ESTABLISHMENT OF SAFE TARIFF LIMITS BY THE TARIFF COMMISSION AFTËS THE NECESSARY HEARINGS, AND ANY ACTION OF THE PRESIDENT IN TRADE NEGOTIATIONS DEVIATING FROM THE RECOMMENDATIONS OF THE TARIFF COMMISSION MUST BE EXPLAINED TO CONGRESS: AMEND THE BILL TO INCLUDE A MEANINGFUL PERIL POINT

Section 221 of H.R. 11970 is a substitute for the peril point provisions of existing law (sec. 3 of the Trade Agreement Expansion Act of 1951, as amended, 19 U.S.C. 1360–1361).

The peril point provisions of existing law are claimed to be cumbersome of administration and time consuming. It is also claimed that the net effect of the peril point remedy in existing law seriously and needlessly eroded the bargaining power of the United States in negotiations (testimony, Secretary of Commerce Hodges on H.R. 9900, Ways and Means Committee, pt. I, pp. 86-87). We submit that present law establishes minimum safeguards and suggestions for repeal and substitution of section 211 are without merit.

Under existing law, the Commission determines for each article listed for negotiation a point below which duties may not be reduced without causing or threatening serious injury to a domestic industry producing a like or directly competitive article. It seems to us that the broad authority vested in the President by H.R. 11970 to reduce existing duties by 50 percent, or in special agreements with the European Economic Community (Common Market) to eliminate duties entirely, requires that the President receive data and competent findings from the Tariff Commission in accordance with the criteria and safeguards contained in existing law.

Under section 221 of H.R. 11970, the fact-finding function of the Commission is drastically revised and that agency is downgraded to an ineffective role of furnishing the President with general advice as to probable economic effects of modifications in existing duties upon domestic industries. This general role prevents, the Commission from using its unique facilities and personnel to be truly informative and useful to the President. Under the concept of H.R. 11970, the function of the Commission is to furnish general advice on broad questions and not particularize effects of duty modifications upon the domestic production and sale of specific products. We suggest that section 221 purports to retain the name, but destroys the substance of the peril point safeguard. Our concern is intensified by the additional repeal of provisions in existing law requiring the President to inform the Congress of his reasons for breaching peril points. Clearly this requirement is not onerous or the report cumbersome. Accordingly, we urge that the provisions of section 3 of the Trade Agreement Extension Act of 1951, as amended, be reenacted in H.R. 11970 and section 21 be deleted.

POINT II. ANY TARIFF ADJUSTMENTS SHOULD BE MADE ON A PRODUCT OR ARTICLE BASIS AND NOT ON BROAD CATEGORY GROUPINGS

Under sections 211, 221, 223, and 224 the President may, in special negotiations with the EEC (Common Market), utilize broad product groupings as a basis for negotiation or select articles from such groupings as items for negotiation. The interdependence of thousands of organic chemicals in their manufacture, and where marketed for end use make these provisions of H.R. 11970 a potential threat to the very existence of this industry in the United States.

Accordingly, it is urged that section 211 (b)(1), (b)(2), (c), and (d) be amended to provide that products of this complex, multiproduct industry not be listed for negotiation under an unspecified broad grouping based upon an international system of classification. To that end it is suggested that HR 11970 be amended to require that the Tariff Commission advise the President of a congressionally approved system of classification to deal with articles or products of this industry. The essential minimum identification is provided by the terms of Public Law 87-456, the Tariff Classification Act of 1962. Under Public Law 87-456, revised tariff schedules of the United States are established in accordance with a five-digit system of decimal numbering, which provides a separate and distinct item number for each rate of duty in a specific schedule.

Schedule 4 of the new tariff schedules of the United States covers the products of this industry in a manner which would permit domestic industry to be informed of the type and kinds of products listed for consideration in negotiation of trade agreements. Lists of products in terms less exact, or by applying international terminology, would constitute inadequate notice, or no notice, to domestic producers hat modifications of duty are contemplated on products like or directly competitive with their own.

POINT III. ITEMS ESSENTIAL TO "NATIONAL SECURITY" SHOULD BE LISTED BY THE DEFENSE DEPARTMENT AFTER APPROPRIATE HEARINGS AND RESERVED FROM TARIFF NEGOTIATIONS

Section 232 of H.R. 11970 is substantially identical to and continues in effect provisions of section 2 of the Trade Agreements Act of July 1, 1954, as amended, by section 8 of the Trade Agreements Extension Act of 1958 (the national security safeguard).

Section 232 (a) provides that no action shall be taken to modify or eliminate duties on any article if the President determines reduction or elimination would threaten to impair the national security. The vital importance of organic chemicals to national defense and national security is well known to this committee; also the Department of Defense is aware of classified uses of products of this industry. In view of the extremely broad powers vested in the President to reduce or eliminate duties on broad groupings of articles, it is essential that the legislation contain standards to guide the President in making his determination whether national security would be affected by reductions or eliminations of duties on organic chemicals.

The provisions of section 232 (a) should be amended to require the President, as soon as practicable after enactment of H.R. 11970, to direct the Office of Emergency Planning to investigate and determine, in accordance with the standards of section 232 (c), the identity of articles or products which are essential to our national defense or security. OEP should also make findings and advise the President whether reduction or elimination in duties upon foreign organic chemicals, which are like or directly competitive to those produced in the United States, would be likely to impair or threaten our national defense or security. Its findings should be made public.

To the extent that OEP advises the President, articles or products shall not be included in a list of articles transmitted to the Tariff Commission by the President in accordance with the provisions of section 221. The legislation should provide that these articles shall be reserved from negotiation, until such time as OEP advises the President their listing for such negotiation and reduction or elimination of duties would not threaten to impair our national defense or security.

POINT IV. CONCESSIONS NEGOTIATED WITH ONE COUNTRY OR GROUP OF COUNTRIES SHOULD NOT BE EXTENDED AUTOMATICALLY TO OTHER COUNTRIES

Continuance of the most-favored-nation principle in section 251 of H.R. 11970 is unrealistic in view of the special authority vested in the President to negotiate elimination of duties with the EEC (Common Market). While trade agreements negotiated under H.R. 11970 are stated to be for a term of 3 years they are, for all practical purposse, permanent in tenure and are unlikely to be completely repealed or revoked. Under the 80-percent world export value concept of section 211(a), the Common Market countries may account for 78 percent and the United States for 2 percent of a product category. Changing trade patterns may eliminate the United States from world markets or cause its 2-percent share to decrease to a vanishing point. On the other hand, countries not members of the EEC may, together with the United States, become the principal or dominant supplier of articles for which a concession had previously been negotiated with EEC. Such other countries would, therefore, become principal beneficiaries of a duty-free status without furnishing the United States with equivalent concessions for our exports.

International trading conditions and principal suppliers do not remain permanent and fixed; a concession eliminating duties on an extremely broad cat egory of products in negotiations with the Common Market, may well result in Japan or other countries outside the ambit of that market becoming the principal beneficiary. There is no requirement in H.R. 11970 that the President review concessions granted in order to determine whether market conditions

have changed, or different principal suppliers have emerged, or that 80 percent of world trade value has shifted to others than the United States and the Common Market.

We therefore urge that section 251 be amended to require the President to review concessions made to the EEC at the end of each 3-year period and to withdraw or modify such concessions where different principal supplier countries account for 80 percent of world export value for an article or category of articles; also that such concession be modified or withdrawn whenever the U.S. share of world export value has decreased below the percentage existing at the time negotiations were concluded for any article or category.

POINT V. RETAIN THE ESCAPE CLAUSE PROVISIONS OF THE EXISTING LAW AND ELIMINATE THE ADJUSTMENT ASSISTANCE PROVISIONS OF THE TRADE EXPANSION ACT Section 351 of H.R. 11970 purports to recognize tariff adjustment as an "escape" from injury or threat of serious injury to an industry arising out of reduc tions or eliminations of duties upon like or directly competitive products.

Section 7 of existing law is supplanted by the provisions of section 351 in conjunction with section 301 (b), despite the fact that the "escape clause" continues to be the most important remedy available under the provisions of GATT (article XIX) and enable contracting parties to modfiy or terminate concessions. Under article XIX, Common Market countries as well as other GATT members may invoke these provisions to obtain relief from the impact of competing imports; however, under H.R. 11970, a drastically weakened escape clause is but one of several alternative remedies.

Other remedies in title III of H.R. 11970 in form of "adjustment assistance" to workers, firms or industries are of little or no use to a multiproduct industry such as producers of synthetic organic chemicals. To us, the escape clause is the only remedy which may afford some relief against the impact of low-cost imports Retention of the existing escape clause provisions would lessen any necessity for applying other forms of adjustment assistance contained in title III of H.R. 11970.

Accordingly, we urge that title III of H.R. 11970 be deleted from the bill and the existing escape clause provisions be reenacted.

The CHAIRMAN. The next witness is Mr. C. Kenneth Egeler, Dry Color Manufacturers' Association.

Take a seat, sir.

STATEMENT OF C. KENNETH EGELER, CHAIRMAN, INTERNATIONAL COMMERCIAL RELATIONS COMMITTEE OF THE DRY COLOR MANUFACTURERS' ASSOCIATION

Mr. EGELER. Chairman Byrd, Senators Williams, Carlson, and Curtis, this gentleman is James F. Donnelly, as you know, a member of the firm of Barnes, Richardson & Colburn, who are counsel also for the Dry Color Manufacturers Association.

I am C. G. Egeler, chairman of the International Commercial Relations Committee of the Dry Color Manufacturers' Association, DCMA from here on, on whose behalf I am appearing before you today.

I am a marketing executive in the Pigment, Color & Chemical Division of the Sherwin-Williams Co.

In addition to this oral presentation we are also filing a written brief which I should appreciate being made a part of the record, and request that it follow the oral presentation in the record.

Gentlemen, we realize you have a very tight schedule, and we have done our best to condense an original 15-minute presentation into about 10 minutes.

I may run over about half a minute and I hope you will bear with

me.