diminished by the elimination of foreign value as a primary valuation base.

Senator KERR. Are you in position to tell me whether or not the main structure of our tariff rates is in terms of ad valorem rates or in terms of cents per pound or per unit or import?

Mr. HANSEN. Well, over 50 percent are duty free.

Of the remaining 50

Senator KERR. I am talking about the

Mr. HANSEN. Of the remaining 50 percent, the approximately 50 percent that are dutiable, nearly three-quarters, over 70 percent are subject to specific duties.

Part of those will be compound rates, where they are subject both to specific and ad valorem duties; then the rest of the list would be ad valorem, and I do not know that there is any way to calculate precisely the percentage reduction on these. The National Industrial Conference Board is responsible for the calculation that over 70 percent are subject to specific duties, in a study they made just a few months ago for our industry.

Senator KERR. Well, of course, the reduction brought about by inflation is greater with reference to those subject to specific duties. Mr. HANSEN. Yes, sir.

Senator KERR. Than with those subject to ad valorem duties.
Mr. HANSEN. Yes, correct.

Senator KERR. But the gist of your testimony is that nearly 80 percent of whatever import duties existed in 1934 have been eliminated by negotiation.

Mr. HANSEN. Correct.

Senator KERR. And with reference to the structure now remaining, its effectiveness has been further reduced by reason of the fact that approximately 70 percent of it is specific duty and thereby further reduced through inflation.

Mr. HANSEN. Yes, sir, that is true.

Senator KERR. Yes. All right. That is very helpful to me.

Mr. HANSEN. As a result of all the foregoing factors-reductions in rates, inflation, change in valuation base-our tariffs are now at the lowest level in United States history. That they are low and do not prevent the importation of foreign goods is shown by the fact that in 1956, dutiable imports exceeded duty-free imports for the first time since 1910, and in 1957 amounted to 53 percent of total imports, the highest since 1908.

Moreover, the effect upon the national economy of the last round of duty reductions-negotiated at Geneva in 1956 pursuant to the 1955 Trade Agreements Extension Act-cannot yet be evaluated as the final cut just goes into effect today.

Senator KERR. Will you tell the committee how much authority to cut further still exists under the existing law or has that now been exhausted?

Mr. HANSEN. Mr. Dulles gave some testimony on that subject before the House Ways and Means Committee and we have been unable to get any elaboration or clarification of it, and I am frank to say I cannot make sense out of it.

I don't know, there are conflicting figures.

27629-58-pt. 2- 23

Senator KERR. You encourage me when you say you cannot make sense out of it because I so often have found myself in that situation and now as one who is the expert that you are publicly and without shame admits that degree of ignorance I see no reason why I should further continue to hide mine.

Proceed.

Mr. HANSEN. The purpose of all the rate reductions was, of course, to bring about a reciprocal lowering of restrictions on United States exports to other countries. There is considerable reason to believe they have not done so.

Senator KERR. Let me stop you just one more time.

Mr. HANSEN. Yes, sir.

Senator KERR. The fact is that as of July 1, and that is today, additional reductions are going into effect which will augment or which will do further damage, accepting the assumption that those which have gone into effect heretofore have done damage.

Mr. HANSEN. That is correct.

Senator KERR. All right.

Mr. HANSEN. Certain statistics were given to the House Ways and Means Committee by the Secretary of Commerce purporting to show that, for the whole period of the trade-agreements program, concessions granted by the United States were matched, or more than matched, by concessions received from other countries.

The source or makeup of these statistics was not disclosed. Quite different were the results depicted by the State Department in 1956 in summarizing the Geneva negotiations just concluded.

Based on 1954 trade data, it reported that the United States granted concessions on imports into the United States aggregating $753 million and obtained concessions on its exports amounting to $398 million. Senator KERR. Is that in terms of tariff revenue or

Mr. HANSEN. Value of articles.

Senator KERR. Value of articles?

Mr. HANSEN. Value of articles.

Senator KERR. And in the absence of information as to the figure to be applied to that value, we would not know what the result was in terms of rate, would we?

Mr. HANSEN. That is true. There would be a wide variety of reductions on different things.

Senator KERR. Yes.

Mr. HANSEN. The concessions granted by the United States, it stated, "consisted almost entirely" of actual duty reductions, while concessions obtained by the United States consisted to an undisclosed degree of "bindings," i. e., agreements not to impose new dtuies or increase existing duties (Department of State Publication 6348, Commercial Policy Series 158, June 1956, pp. 5, 150-152).

A mere "binding" is a dubious equivalent of an actual reduction. As a forecast of what might now be expected from future negotiations, we submit that the record of the last important negotiating session in 1956-is far more illuminating than what is now claimed to be the result of negotiations held, for the most part, a number of years ago when nations with which these negotiations were conducted were the recipients of generous outlays of American aid.

LIMITATIONS OF FURTHER REDUCTIONS

It should be apparent that with each lowering of the effective level of duties it becomes increasingly necessary to limit the amount and pace of further reductions.

In 1955, the administration itself laid down the principle that to avoid untoward effects, further reductions should be gradual and moderate, which it defined as meaning not more than 5 percent per year for 3 years.

Clearly under present circumstances, an aggregate reduction of 25 percent, with as much as 10 percent to take effect in a single year, oversteps the bounds of gradualness or moderation.

Senator KERR. Even as they themselves had defined it?

Mr. HANSEN. Yes, sir. We have been unable to find any explanation as to why the 15 percent authorization requested and granted in 1955 has now supposedly become so inadequate in amount that it should be increased 66 percent, or why the 5 percent annual reduction should be increased 100 percent.

The argument that this degree of bargaining power is needed to meet the situation which will arise when the European Common Market fixes the amount of its common external tariffs in 1962 would seem to relate to the time of exercise, not the amount of the President's authority.

Senator KERR. Has it occurred to you that the approach we are taking to this matter amounts to an invitation on our part to this European Common Market group, to start in with an announced very high tariff structure so that they would be in the position to give substantial reductions from the announced structure they were to have in return for further concessions from this country on the basis of what the reality is and thereby arrive at a situation where we would give away a lot more without our getting anything in return?

Mr. HANSEN. Yes, sir; just as we have in the past.

Senator KERR. Would not that seem to you to just be screaming to the high heavens, "All you have got to do over there, boys, is just to announce you are going to have a certain rate structure unrelated to reality but then you can come into the negotiations and give away a lot of that which you never had and did not expect to implement in return for which we reduced still further from the present realistic situation that does exist"?

Mr. HANSEN. In fairness to the European Common Market, I think it should be said that the rules are roughly laid out which will determine the amount of tariffs which they will have, because they are to end up with a common tariff which is the average of all of their present tariffs. So some will go up and some will go down.

But I think your point is very well taken, that to advertise for a period of 4 years that we have this much bait would result in them requesting a great deal from us, and I think that prior experience indicates that our negotiators would give up a lot of it.

Senator KERR. You would not expect those fellows over there to be satisfied with much less than we had, as you say, been advertising for 4 years that we had available for them?

Mr. HANSEN. That is correct.

Senator KERR. All right.

Mr. HANSEN. Whether the negotiations with the Common Market countries take place in 1959 or 1962 would seem to have no bearing on the amount of authority to be granted.

The Common Market problem in fact, would seem to militate against, rather than for, any present grant of authority to reduce tariffs by a substantial amount. Under the Common Market agreement the member nations will not begin to bring their respective external tariffs to a common level until the year 1962; and in that year only the first installment of the total necessary adjustment will take effect.

Not until 1962, at the earliest, will these nations be able to put into effect any concessions which could possibly constitute a quid pro quo for concessions by the United States.

A surprising but nonetheless undeniable result of the Common Market is that it should result in concessions by some member nations without the necessity of any further concessions to these nations on our part, because those nations which will be obliged under the Common Market agreement to raise their national tariffs to the average for the group are required under GATT to offer compensatory reduc tions to other GATT members.

Even the GATT would require no reciprocal concessions on our part. The Common Market would seem, therefore, to provide, if anything, a reason against rather than for further concessions by this country in the near future.

In any event, the Common Market affords no grounds whatever for reductions on the scale or in the time sequence provided for in the House bill. If Congress now grants the authority proposed, it is possible that this authority may be frittered away before the supposed need for it arises.

The drive for continued lowering of United States tariffs places its principal reliance on the oft-repeated theme that imports must be increased at any cost in order to maintain our export volume the familiar argument of the dollar gap.

The Department of Commerce, however, emphatically negatives any notion that the world in general is handicapped in the purchase of our goods by any lack of dollars.

Just last week, the Office of Business Economics reported that in the first quarter of 1958 "foreign countries and international organizations as a whole" had an excess of dollar receipts over expenditures of approximately $550 million, much the greater part of which was invested in gold, the balance in dollar credits.

For the preceding quarter the excess approximated $114 million. These balances represented the net of a multitude of different items, such as exports, imports, private investment, Government shipments, et cetera, too detailed to enumerate here.

Foreign holdings of gold and dollars at the end of March 1958 were $200 million greater than in September 1956, the time of the Suez crisis.

The New York Times-clearly not a protectionist paper-reported these developments in its issue of June 24, 1958, under the headline "Dollar Gap Ended in 1958."

Some proponents of sweeping tariff reductions have pointed to the substantial excess of the United States chemical exports over chemi

cal imports as demonstrating that the domestic chemical industry stands in no need of tariff protection. They have said that this country's ability to export considerably more chemicals than it imports proves a competitive superiority over other countries that renders tariff protection unnecessary.

The contention is based in part upon characterizing as chemicals the thousand of different commodities included in the statistical classification of "chemicals and related products" which embraces fertilizer materials such as dried blood, and phosphate rock, pharmaceutical preparations, herbs, leaves, roots, pigments, paints, varnishes, soap, toilet preparations, turpentine, gums, and other naval stores.

It also disregards the state of development of the industry or the economy of the countries to which exports go and from which imports come, et cetera.

Such an argument obviously does violence to the principle of selectivity, which has been recognized by the administration itself as fundamental to sound tariff policy.

A few well-known facts cast grave doubts upon the basic hypothesis that our ability to export some chemicals demonstrates a competitive cost advantage over foreign industry with respect to all chemicals.

As demonstrated in appendix A attached to this statement, our laws create floors under domestic costs, and otherwise discriminate against domestic industry by permitting access to the American market of foreign-made goods produced under conditions we do not tolerate.

The committee members may also be aware that the chemical industries in several foreign countries have been expanding at a rate which substantially exceeds our own.

In West Germany, Japan, England, and Italy, for example, this expansion has been planned to provide a substantial export surplus. The three largest German chemical companies currently export 30 percent or more of their output, a ratio many times that of the major American chemical companies.

American chemical companies have, themselves, been locating substantial plants in foreign countries, in order to supply foreign markets from foreign production, for the perfectly obvious reason that foreign plants had demonstrable advantages over American plants in supplying foreign markets.

The danger is that such plants will also become important suppliers for the American market, if our tariffs are materially lowered, thus adding to the growing volume of chemical imports, particularly of coal-tar products.

In any event, they will certainly reduce the present American excess of exports over imports, absolutely or relatively.

Senator MARTIN. Mr. Chairman, might I ask a question there? The CHAIRMAN. Senator Martin.

Senator MARTIN. Have any plants been established in Russia by the Soviet Government?

Mr. HANSEN. We have very little information. We may have more next week because a team of American chemists, 5 or 6, just returned on the weekend, from a tour of the plastics industries in Russia, and I think we will have a good picture of what they are doing.