Senator GORE. Where is there equity or precedent in the lowering of a duty exclusively for the automobile concerns to the disadvantage of the customers or the consumer in the United States who wants to repair his automobile?

Mr. MIDDLETON. Frankly, I can't see the equity, Senator. Perhaps someone else thought there was no equity in it either, which may be the reason for this provision under which similar privileges may be invoked for replacement parts, I don't know. If it were then Western Auto Supply and the other people who are in that sort of business, and if we are correct in our interpretation of what this language says, they then, if the President chose to act, would be put in the same position.

Senator GORE. Well, from the profit and loss sheet of the big three in the automobile business, one would hardly think that they are particularly deserving of a bill for relief, and yet this bill would relieve them from paying duty on automobile parts imported from Canada. But would not relieve the ordinary American citizen or the small supply store owner from paying such a tax.

Mr. MIDDLETON. That would be my interpretation of the bill as it is now written, and without further action.

Senator GORE. Thank you, Mr. Chairman.

Senator RIBICOFF. In other words, you feel that this bill would cause a very large shift of manufacturing of automobiles and various parts to Canada away from the United States.

Mr. MIDDLETON. It would appear to me, Senator Ribicoff, that it would, and although I don't claim to be an expert, as expert as previous witnesses on the legislation as a whole, from all I can understand of it, that is the intent.

Senator RIBICOFF. Well, are you for this agreement or against the agreement as a whole?

Mr. MIDDLETON. I frankly cannot see any reason for singling out a particular industry and a particular country for this kind of a reciprocal arrangement.

Senator RIBICOFF. So while you ask here for an amendment which, by the way, won't carry out what you are trying to do because under section 201 (b) the President can then make the determination of what are common duty treatment, so you would have to have a different type of amendment-your preference then is to strike the whole thing out, strike the whole bill.

Mr. MIDDLETON. I had hoped to confine myself to our particular interest. Other people have more adequately dealt with the generalities of the bill, but if I had to take a position on it, and if it were of interest to anyone, I would, yes, oppose the entire thing.

Senator RIBICOFF. Now, the Japanese now are opening up branch plants in other sections of the world, are they not, outside of Japan? Mr. MIDDLETON. They are forming, primarily, I believe, Senator, sales outlets rather than manufacturing plants so far. The reason being that the cost of production in Japan is so low that they could scarcely find a place outside of Japan where they could make bearings at as low a cost. So, even with duties and with transportation, and transportation, in particular, so far they have not found it necessary from our observations to do so.

However, were they or other countries, as Canada, in a position to avoid some part of the duty into this country, naturally it would only be prudent for them to look into the possibility of locating, let's say assembly operations outside of Japan.

Senator RIBICOFF. On the same quality and type of bearing, what is the differential in production cost between New Britain, Conn., and Canada?

Mr. MIDDLETON. I couldn't really answer that, because we do not have access to their figures. All I can say is this: that our best estimate of their labor rates is that they are somewhere in the neighborhood of one-third to one-fourth less than ours. They have the same American equipment, their plants are new. How efficient they are in their management, I am sure I am in no position to continue. However, their reputation is not that they are particularly inefficient.

Senator RIBICOFF. What percentage of the cost of a bearing is repre

sented by labor?

Mr. MIDDLETON. About a half.

Senator RIBICOFF. About a half. If they have this advantage and if there was a problem of efficiency, and if American concerns opened up Canadian subsidiaries they could remedy the question of production efficiency, could they not?

Mr. MIDDLETON. You mean the American concerns? I am not sure I understand you, sir.

Senator RIBICOFF. In Canada. You talk about they may not be as efficient, but if you had American manufacturers running Canadian subsidiaries, they could bring that efficiency to Canadian manufacture, couldn't they?

Mr. MIDDLETON. Well, frankly, Senator, I don't think the Canadian bearing manufacturers are less efficient as distinguished from what has been said about some other types of products. I don't know anything about a lot of the parts of an automobile, but as far as bearings are concerned, the equipment is universally available. The Canadians have industrious workers, they have good management people, and as some previous witness testified the only thing that they haven't had that we have really is as large a market which also applies to the Japanese as far as that is concerned. If the market, if the size of the market were enlarged, a particular segment of it were enlarged, for example, the automotive bearings, there is absolutely no reason why they should not be as efficient as we and at a lower cost. Senator RIBICOFF. What percentage of the bearing production of America goes to the automobile industry?

Mr. MIDDLETON. Our estimate is 18 to 20 percent. This includes all types of bearings, you understand. I am not now referring only to ball bearings. I am referring also to roller bearings, which are also represented by our association.

Senator RIBICOFF. Thank you, Mr. Middleton.

Senator LONG. You indicated that the Canadian wage rate was 50 percent below the U.S. wage rate, I believe.

Mr. MIDDLETON. No, sir. I said, if I said that I made an error. think a previous witness who said 15 percent was approximately correct, and I interpret this to be somewhere in the neighborhood of 50 cents an hour.

Senator LONG. That is what I had in mind. That 50 cents an hour lower wage rate would mean approximately 15 percent wage rate advantage, is that correct?

Mr. MIDDLETON. Yes, sir.

Senator LONG. Yet they are not producing them there at the present time.

Mr. MIDDLETON. They are producing bearings there.

Senator LONG. They are?

Mr. MIDDLETON. Yes; they are. There are three plants in operation in Canada that I know of and perhaps I believe that is all. Senator LONG. As I understand it.

Mr. MIDDLETON. I beg your pardon?

Senator LONG. As I understand this agreement, let's say if a bearing produced in Japan were put into an automobile in Canada, and it came in that way, then that would be an automobile part because it is a part of an automobile when you ship in the finished product. Mr. MIDDLETON. Yes, sir.

Senator LONG. Now, my understanding is if they undertook to take a Japanese bearing and shipped that into this country just as a box of bearings then that would be dutiable as Japanese bearings. Is that how you understand it?

Mr. MIDDLETON. That is correct.

Senator LONG. I just wanted to get that straight.

Mr. MIDDLETON. But you see what the operation would be, I am sorry, I don't have a bearing here to show you, but

Senator LONG. I think I know what a bearing is.

Mr. MIDDLETON. There are four or five parts to it.
Senator LONG. Here is one.

Mr. MIDDLETON. Yes; that is one of the things I referred to a moment ago as a water pump bearing, that contains an inner ring normally, not a shaft such as you have in your hand, in which a groove is ground, an outer ring in which a groove is ground, several balls and a retainer which keeps the balls in position, and in addition to which there are seals and shields.

Now, you don't have to-you can make the rings alone, the outer and inner rings, ship them from one place to another, perform subsequent operations on them in that subsequent place, you can make balls and send them in there from some other place.

It is susceptible of being made in part in one place and finished in another with the result that it would be not too difficult to comply with the 50 and 60 percent value requirements that are in this bill even though the entire bearing were not made in Canada.

Senator LONG. Let me ask you this

Senator GORE. Could I ask a question here?

Do I correctly understand you to say that bearings made in Japan, the ball bearing-could I have this just a moment-that a-is this a bearing, that I hold in my hand?

Mr. MIDDLETON. It is a very unusual-looking type of bearing, but it performs the function of lessening friction between a shaft and a housing which is what a bearing is for.

Senator GORE. Are you saying that, are you advising the committee that, under this agreement the ball bearings contained as a part of this bearing could be made in Japan or in any other country, and brought

into Canada, and become a part of the bearing which I hold, and that the total assembly then could be imported in the United States by an American manufacturer duty free if it added-if the content added in Canada, the value of the content added in Canada was as much as 60 percent?

Mr. MIDDLETON. Yes, sir; 60 percent, I believe at the beginning, and 50 percent later on.

Senator RIBICOFF. Will the Senator yield right there?

What would you estimate the value of the ball bearing in relation to the entire item that Senator Gore now holds in his hand?

Mr. MIDDLETON. Well, now, that is a difficult one because, first of all, we don't make that particular thing. That is made in large volume for automotive companies, and we have never been able to compete. The shaft and I would be unable to be intelligent at all on the one that you happen to have in your hand.

If it were an ordinary ball bearing, with an outer ring and an inner ring and no shaft, and balls and retainer, the black rings, as we call it, means rings outer machined and heat treated by themselves, would constitute, oh, maybe 15 percent.

Senator RIBICOFF. Generally in an item such as Senator Gore holds in his hand, the ball bearing is a smaller part of the total cost, so therefore, if the balls came in from Japan or Germany or Sweden, and the rest of the parts were made in Canada, and the ball bearings themselves inserted, then it could come in duty free because it constituted

Mr. MIDDLETON. In a case such as you described, if nothing was imported into Canada except the balls, there would be no question that the requirement of this bill would be met.

Senator LONG. Let me ask you, does Canada have a tariff on balls and bearings?

Mr. MIDDLETON. Yes, sir.

Senator LONG. So now if Japan wanted to do that-and Japan is a low-wage country-they would have to buck that Canadian tariff to get into Canada; then they would have to let the Canadians have 60 percent of the value and the labor that goes with that in order for it to come in as a part. There is quite a bit of transshipping involved there.

Have you done enough study to show that it would be more advantageous for Japan to do that rather than just buck the American tariff directly with the low wage that Japan has all the way?

Mr. MIDDLETON. There might be some question about that. I haven't done an exercise on it. All I know is that at the moment the Japanese seem to be able to come into this country and sell, apparently at a profit at 30 to 35 percent below the American prices, and this after erosion of prices in a very large degree in the last 2 or 3 years.

Senator LONG. That is the point I have in mind.

Mr. MIDDLETON. Whether they need this additional advantage, I am sure I don't know. I don't mean to direct my comments toward the Japanese in particular.

Senator LONG. That is the point at which I am arriving. It would seem to me that a low-labor cost country like Japan would find it completely to their disadvantage-in fact if they can come in here 30

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to 35 percent cheaper after they pay a tariff, it seems to me that it would very much raise their costs to have to pay a Canadian tariff and then pay the high cost-relatively high cost of labor in Canada, to put the other 60 percent of value on it and then transship it on in. By the time you take the cost of handling and the relatively higher cost of Canadian labor, the Japanese would do better to buck the American tariff directly.

Mr. MIDDLETON. I am not sure they don't. What they do, they avoid in effect the 20-percent American tariff on whatever it is that comes in from Canada, which has been added in Canada.

Now, the economics, I am sure, would vary from bearing to bearing and situation to situation, I wouldn't know, and I would like to confine our comments or objections to the possibility of transfer of plants from Europe or Japan or whatnot to Canada. We are saying that this bill makes it possible in Canada alone, might make it possible for us to put a subsidiary up there or to use our plant in England for this purpose. We would prefer to have the jobs here.

Senator LONG. Yes.

Well, of course, you are familiar with the Secretary of Commerce's testimony that we sell those people 10 times as much in the way of automobiles and automobile parts as they sell us.

Mr. MIDDLETON. Not bearings.

Senator LONG. Not bearings?

Mr. MIDDLETON. Not bearings. It is the other way around.

Senator LONG. So in your particular segment, it doesn't work that way?

Mr. MIDDLETON. No, sir.

Senator LONG. Do you argue with the statement on the overall that automobiles and automobile parts that we sell them amount to 10 times as much in dollar volume as they sell us?

Mr. MIDDLETON. I really wouldn't like to answer that because I do not know the answer.

Senator GORE. Is not the important thing here the artificial division of the North American automotive market, and the possible, and possibly intended, effect upon the parts manufacturers?

Mr. MIDDLETON. Yes, sir.

Senator GORE. Thank you.

Senator LONG. Thank you very much.

Mr. MIDDLETON. Thank you.

Senator LONG. Mr. Strackbein?

STATEMENT OF 0. R. STRACKBEIN, CHAIRMAN, THE NATIONWIDE COMMITTEE ON EXPORT-IMPORT POLICY

Mr. STRACKBEIN. Mr. Chairman, my name is O. R. Strackbein, chairman of the Nationwide Committee on Import-Export Policy. I have a very brief statement here which I shall read.

I would like to say that the interest of this committee in this legislation is not direct in the sense that I represent anyone manufacturing automotive parts, but it bearing rather on the nature of the agreement, and how it came about, and what its meaning might be as a precedent. In that sense, we are quite concerned about it.