I had no special kind of letters, but I think this committee should have this complete background of what occurred. Here are private companies that are subsidiaries of American companies, privately negotiating with a foreign government. There must have been some material that we should all know about, and for some reason it has been kept a great secret. Senator DOUGLAS. You know, these secret agreements are very mysterious. Maybe the Department of State is technically correct in saying that letters from the Canadian Government to Ford and others were not written, but certainly conditions were stated. Mr. HALFPENNY. That is correct. Senator DOUGLAS. And I think this is, again, an illustration of the technical defense which obscures the real facts. Mr. HALFPENNY. Right. I think this committee should have all the facts and all the background, who was present, what was said, and what was done. The CHAIRMAN. Any further questions? Mr. Halfpenny, your written statement will appear in the record at this point. The insertions you request will be made. (The document referred to follows:) STATEMENT OF HAROLD T. HALFPENNY, COUNSEL FOR THE AUTOMOTIVE SERVICE INDUSTRY ASSOCIATION My name is Harold T. Halfpenny. I am an attorney at law with offices at 111 West Washington Street, Chicago. I am appearing on behalf of the Automotive Service Industry Association, the members of which are vitally concerned with this proposed treaty. The Automotive Service Industry Association is a national association with a membership of over 500 manufacturers and 5,000 wholesalers of automotive parts, accessories, supplies, and equipment. In our opinion, the legislation which you are now considering, for reasons which will appear later in my statement, threatens the very existence of hundreds of small automotive parts manufacturers located throughout the country. The trade agreement which this legislation would implement was considered by the House Committee on Ways and Means last spring; I made a statement before that committee on April 28, 1965. At that time, I had spent many months considering and analyzing both this treaty and its predecessors, and the statement which I made was the result of careful thought. I am therefore presenting that statement herewith for your convenience, and shall merely summarize it here. (References to "H.S." are to the House statement.) The present plan is that Canada will allow vehicles and parts for original equipment to be imported free of duty by a vehicle manufacturer, provided that the manufacturer (1) increases or maintains his Canadian production as compared to a "base year"; and (2) maintains or increases the "Canadian added value" of the vehicles. On the other hand, the United States will allow the duty-free importation of motor vehicles and parts for original equipment, with no other restrictions (H.S., p. 4). The dangers inherent in this plan to independent manufacturers result from several basic facts (H.S., p. 2): First, though the phrase "Canadian automotive manufacturers" is used as though these were a special category, they are actually subsidiaries of the U.S. motor vehicle manufacturers. Second, U.S. vehicle manufacturers are to some extent customers of independent parts manufacturers for original equipment parts. Third, U.S. vehicle manufacturers are, particularly in recent years, extremely active in the replacement market, and are accordingly growing competitors of the independent parts manufacturers. Fourth, the major vehicle maunfacturers have agreed with the Canadian Government that they will increase the Canadian value added by $241 million within the next 3 years (H.S., p. 12). The effect of this combination of factors seems plain (H.S., p. 14). It seems likely that the Canadian subsidiaries of the U.S. manufacturers will import duty free from the United States the "captive" parts produced by their parent companies. At the same time, in order to maintain the Canadian added value of the vehicle, and fulfill their commitments to the Canadian Government, they will increase their purchases of Canadian-manufactured parts, which are now purchased from only independent manufacturers. We submit that this bill is contrary to the spirit of the antitrust laws of this country in that it tends to create a monopoly, requires the continuing cooperation of the major vehicle manufacturers with one another, and is aimed at achieving a planned economy rather than one governed by competition (H.S., pp. 9-11). It should be carefully examined from those standpoints by this committee. Beyond that, Congress and the public should be thoroughly acquainted with the contents of the agreement between the Canadian Government and the vehicle manufacturers, who appear to have been engaged in a kind of private treatymaking activity. Since treaties are the special province of the Senate, it is to be hoped that this committee will give that aspect of the matter careful attention, even though the agreement is not a formal "treaty." On April 28, when the attached statement was made to the House Committee on Ways and Means, documents which had been called letters of undertaking on the part of the vehicle manufacturers, setting out their promises to Canada, had not been made public. Later, these letters were submitted to the House committee. Although the letters thus tardily made public revealed in part the commitments made by the manufacturers to Canada. However, they contained references to earlier communications between themselves and the Canadian Government which it seemed to me were essential to a complete understanding of the transaction. Accordingly, I wrote to the chairman of the House committee as follows: "Hon. WILBUR D. MILLS, "Chairman, Committee on Ways and Means, "House of Representatives, "Washington, D.C. "LAW OFFICES, "HALFPENNY, HAHN & RYAN, DEAR MR. CHAIRMAN: On Tuesday, April 27, you directed that the 'letters of undertaking' from four vehicle manufacturers to the Canadian Government be printed and made available to interested parties. This directive has shed additional light on the whole United States-Canadian automotive trade agreement, for which we are grateful. "However, Mr. Chairman, we note an amazing, almost word-for-word similarity among the letters. We also note that the letter from General Motors of Canada, Ltd., states 'This letter is in response to your request for a statement.' Further we note that the Ford Motor Co. of Canada, Ltd., letter of January 14, 1965, states, 'You will recall that our company and its parent, Ford Motor Co., have made commitments to spend in excess of $50 million to increase production of a limited range of automotive engines in Canada for use in our Canadian plants and for export to the United States.' "We believe, Mr. Chairman, that the letters of undertaking can be evaluated soundly, only in the light of the request from the Canadian Government. As it now stands, we know the answer, without knowing the question. "Please note also that the word 'undertaking' is equivocal, and ordinarily means something more than a mere 'statement of intention.' Thus, Webster's International defines it as a 'Promise or pledge; a guarantee.' Ballentine's Law Dictionary agrees, defining it as 'A promise to perform some act; a bond; a recognizance.' It is used technically in the law to mean a promise in writing given as security for the performance of some particular act required in a judicial proceeding (90 C.J.S. 1032). 66 ‘Accordingly, we request that the letters from the Canadian Government to the motor vehicle manufacturers be made part of the record and available to all interested parties. In addition, we request the letter of commitment from the parent Ford Motor Co. be made part of the record and available to all interested parties. "Sincerely yours, "HAROLD T. HALFPENNY." The response to this letter appears at page 303 of the printed record of the House hearings: "STATEMENT BY THE DEPARTMENT OF STATE "The committee, through its staff, has asked the Department to provide the committee with 'the letters from the Canadian Government to the motor vehicle manufacturers' to which Mr. Harold T. Halfpenny refers in the last paragraph of his letter to the committee of May 5, 1965. The Department understands that there were no letters of the kind to which Mr. Halfpenny refers." In my opinion, this is a far from satisfactory answer to my inquiry, and urge this committee to obtain all the background facts and information, not merely just what the interested parties want to reveal. In summary, we urge that the Senate reject this legislation as a plan aimed at "rationalized production," contrary to the spirit of our antitrust laws and to the concept of free competition which has always been the cornerstone of our economic philosophy. Under this plan, the distribution of parts will depend upon which parts the vehicle manufacturer has decided to purchase in one country as opposed to the other in his effort to maintain his duty-free status in Canada and use it to the best advantage. (H.S., p. 14.) The legislation here, presented as a simple tariff matter, is actually a drastic departure not only from the antitrust laws, but from previous tariff policies (H.S., p. 7). It also involves a private agreement between a foreign government and private corporations. For all of these reasons, it should be rejected. Mr. HALFPENNY. Thank you, Mr. Chairman. Thank you very much. We appreciate this opportunity. The CHAIRMAN. The next witness is Mr. Keith T. Middleton, Antifriction Bearing Manufacturers Association. I Mr. Middleton, unfortunately I have to go to another meeting and I will not be able to listen to your testimony which I will read. would like to announce the schedule for Monday. The committee will recess until Monday morning, September 20, at 10 o'clock, at which time the Secretary of Labor Wirtz will be available for further questioning. The committee also will hear testimony from the U.S. Tariff Commission. An official spokesman of the Treasury will be available to answer questions regarding the U.S. balance of payments. Senator RIBICOFF. Mr. Chairman, before you proceed, may I welcome Mr. Middleton, one of the leading citizens of the State of Connecticut who I have known for many years and who I respect, and I am pleased to see him before the committee today. STATEMENT OF KEITH T. MIDDLETON, VICE CHAIRMAN, ANTIFRICTION BEARING MANUFACTURERS ASSOCIATION Mr. MIDDLETON. We will have a very short statement. We think we have a somewhat different position to present here than has been presented by a number of your other witnesses. Senator DOUGLAS. Mr. Middleton, will you continue? Mr. MIDDLETON. Thank you, sir. My name is Keith T. Middleton. I am appearing here officially as vice chairman of the Antifriction Bearing Manufacturers Association, a group of manufacturers who make ball and roller bearings. Unofficially, I am appearing here as the president of the Fafnir Bearing Co. I guess the largest independent ball-bearing manufacturer in this country, and perhaps the world. We have 5,000 employees here in this country; we have about 2,000 abroad. We wish to preserve the jobs of the 5,000 here and do not wish to add to the jobs of the 2,000 abroad. The bearing industry is one which produces approximately $1 billion worth of product here in this country. It employs roughly 50,000 people; it is vital to national defense, as you will recall, during World War II, when we lost many, many hundreds of planes and many thousands of personnel attempting to eliminate this industry in Germany. Could I express first our appreciation for the opportunity to state our views on this trade legislation. We feel strongly that the inclusion of bearings in H.R. 9042 will have a serious impact upon this most vital domestic industry. The demands of our complex industrial society require the application of bearings in a staggering number of types, varieties and sizes. To fulfill these needs, the domestic antifriction bearing industry produces over 100,000 different bearings, ranging from microscopic specimens suitable for complex electronic gear to gargantuan bearings designed for steel and paper mills. Practically everything that moves provide application either real or potential for our products. The principal consumer of bearings, however, is the automotive industry, where original equipment needs account for about 18 to 20 percent of U.S. consumption. Ball and roller bearings are used in the following automotive applications. You will note at the end of our statement we have a diagram of an automobile which indicates the locations that I am about to mention : 1. Front and rear wheels. 2. Clutch assemblies. 3. Transmissions. 4. Differentials. 5. Drive line (universal joints). Anywhere from 30 to 60 different bearings are necessary components in the manufacture of an automobile, and abroad they use more than that, more than they do in this country due to some differences in construction. With such varied and multiple applications, it is readily apparent that any change affecting the trade in bearings for use in automobiles will have a profound reaction on the domestic industry. Imported bearings at present are accorded a concession rate of duty of 3.4 cents per pound plus 15 percent ad valorem. Under this duty rate, imports of Canadian bearings have grown from $380,000 in 1958 to $2.4 million in 1964, an increase of 650 percent, and Canada now ranks as the third largest supplier to the United States. I might say parenthetically that this increase in Canada is relatively miniscule when compared to increases from Japan. And as previous witnesses have testified this legislation lends itself to the use of Canada by foreign producers in Japan and elsewhere to avoid part of the duty on bearings and other items coming into this country. Canadian bearing manufacturers, contrary to what might be the case in other industries, have the automatic machinery and the technical know-how as good as or better than U.S. producers and can produce the same number of bearings in a given time as U.S. producers. Domestic producers are already at a competitive disadvantage even despite the existing duties because of a substantially lower labor rate in Canada than here. Labor costs are a very high factor in the production of these high precision bearings. While the cost of producing complete automobiles in Canada reportedly is 15 percent higher than in the United States, this is not the case with bearings. The elimination of the duty on Canadian bearings through the deceptively simple labelling device of calling them automotive parts would only compound an already injurious situation caused by increased imports. Many of the bearings imported from Canada are for automotive uses both as original equipment and replacement parts. To withdraw the duty absolutely would have the effect of a magnet in attracting increased imports of these types of bearings into the United States. Increased imports of bearings will intensify an already alarming trend. The high level of imports of bearings in the size ranges of automotive bearings led the domestic industry on October 16, 1964, to apply to the Office of Emergency Planning to conduct an investigation under section 232 of the Trade Expansion Act of 1962. This investigation, which is still pending, is to determine if imports of bearings are in such quantities, and the trend is such as to threaten national security. There is a book by an author Martin Caldin, called "Black Thursday" which is the story of bombing raids on Regensburg and other locations in Germany in World War II which if anyone were interested to see, I would be very glad to provide. It underscores the probable well-known importance of this industry to national defense. It is important to note that most bearings, particularly those for automotive uses, are universal or multipurpose items. Relatively few are unique to the automotive industry. In other words, the same bearing could be used in tanks, weapons carriers, portable tools, electric motors, agricultural equipment, off-highway equipment, and aircraft, to name only a few other applications. The front wheel bearing in an automobile can be used in conveyor idlers, industrial gear motors, industrial speed reducers, farm machinery, gear boxes, power takeoffs, and transmissions. Alternator bearings, which are single row deep groove bearings, have the largest use of any bearing manufactured. The fact that most all bearings possess no unique characteristics which would indicate that any of them are used primarily in connection with automobiles has been clarified by two recent actions of our Government. After extensive investigations by the Excise Tax Branch of the Internal Revenue Service, Revenue Ruling 65-42 (also released as TIR 691, dated February 10, 1965) was released clarifying the applicability of this manufacturers excise tax to ball and roller bearings. This ruling stated in part: Where ball and roller bearing have a multiplicity of uses but possess no unique characteristics of construction, design, or material which would indicate a use primarily in connection with taxable motor vehicle articles, they are not automobile "parts or accessories" within the meaning and intent of section 4061 (b) of the code (Internal Revenue Code of 1954) and the applicable regulations. Accordingly, sales by the manufacturer of such bearings are not subject to the manufacturers excise tax on automobile parts or accessories. If bearings used in an automobile are not considered by the Internal Revenue Service as taxable as parts of an automobile, then it would |