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By sensible trade arrangements, which will not interrupt our home product, re shall extend the outlets for pur increasing surplus. A system which provides L mutual exchange of commodities is manifestly essential to the continued and W-ilthful growth of our export trade. We must not repose in fancied security that

• •^ can forever sell everything and buy little or nothing. If such a thing were xwibte, it would not be best for us or for those with whom we deal. We should ^ke from our customers such of their products as we can use without harm to our ndurtries and labor. Reciprocity is the natural outgrowth of our wonderful industrial development under the domestic policy now firmly established * * *.

The period of exclusiveness is past. The expansion of our trade and commerce e the pressing problem. Commercial wars are unprofitable. A policy of good

• ill and friendly trade relations will prevent reprisals. Reciprocity treaties are r. harmony with the spirit of the times; measures of retaliation are not.

If perchance some of our tariffs are no longer needed for revenue or to encourage md protect our industries at home, why should they not be employed to extend ltd promote our markets abroad?

Senator Maloxe. As a matter of fact, McKinley was a protectionist, ins he not?

Secretary Weeks. Generally speaking I guess he was.

Senator Maloxe. You do not need to guess. I think you know b« was, do you not?

Secretary Weeks. I think he was, yes.

Senator Maloxe. Will you just answer that "yes" or "no"? I think it can be done.

Secretary Weeks. To the best of my knowledge and belief, yes.

Senator Malone. That is a little better. It will save time in this committee and I do not want to subject you to a long grilling here, but ihe record we are about to make is important.

Xow as a matter of fact, do you know what the 1930 Tariff Act, passed by the Congress and signed by the President in 1930 under Republican guidance really was? Do you know what the 1930 Tariff Act provided?

Secretary Weeks. I know in a general way of course.

Senator Malone. Don't you know a little better than in a general

Secretary Weeks. I cannot recite every rate that was cited in the •"inoot-Hawley bill.

Senator Maloxe. I did not ask for specific rates. Do you know what the general policy was?

Secretary Weeks. Yes, sir.

Senator Malone. What was it?

Secretary Weeks. It was a protectionist policy.

Senator Malone. It protected American workingmen's jobs and invpstors investments with a flexible tariff adjusted to represent the iifference in such costs. What did it say in general, not the specific liniru&ge, but can you tell me the policy laid down by the act?

Secretary Weeks. Not without referring to the

Senator "malone. Would you mind if I tell you just to refresh your memory.

Secretary Weeks. No, sir.

Senator "malone. It was a protective policy, section 336 of the 1930 Tariff Act, called Equalization of Costs of Production, excerpts section 336, Tariff Act 1930, Public Law 3621. I will quote parts of the section and ask that it be put in the record. Anderson. That will be done.

(The excerpts from section 336 and the letters from the Tar Commission are as follows:)

The Tariff Act Of 1930, Public Law 361
(Excerpts from sec. 336.)

Sbc. 336. Equalization Of Costs Of Production.

(a) Change Of Classification Or Duties.—In order to put into fore* i effect the policy of Congress by this Act intended, the commission (1) upon requ of the President, or (2) upon'resolution of either or both Houses of Congress, (3) upon its own motion, or (4) when in the judgment of the commission then good and sufficient reason therefor, upon application of any interested party, ft] investigate the differences in the costs of production of any domestic article a of any like or similar foreign article. In the course of the investigation the ro mission shall hold hearings and give reasonable public notice thereof, and sli afford reasonable opportunity for parties interested to be present, to prod; evidence, and to be heard at such hearings. The commission is authorized adopt such reasonable procedure and rules and regulations as it deems neccs.^ to execute its functions under this section. The commission shall report to I President the results of the investigation and its findings with respect to su differences in costs of production. If the commission finds it shown by the invt-? gation that the duties expressly fixed by statute do not equalize the difference* the costs of production of the domestic article and the like or similar forei article when produced in the principal competing country, the commission ?h specify in its report such increases or decreases in rates of duty expressly (u by statute (including any necessary change in classification) as it finds shown the investigation to be necessary to equalize such differences. In no case *b the total increase or decrease of such rates of duty exceed 50 per centum of t rates expressly fixed by statute.

(b) Change To American Selling Price.—If the commission finds upon & such investigation that such differences cannot be equalized by proceeding hereinbefore provided, it shall so state in its report to the President and sh specify therein such ad valorem rates of duty based upon the American selli price (as defined in section 402 (g)) of the domestic article, as it finds shown the investigation to be necessary to equalize such differences. In no case *1» the total decrease of such rates of duty exceed 50 per centum of the rates expwa fixed by statute, and no such rate shall be increased.

(c) Proclamation By The President.— The President shall by proclamati approve the rates of duty and changes in classification and in basis of the val specified in any report of the commission under this section, if in his judgnr such rates of duty and changes are shown by such investigation of the commit to be necessary to equalize such differences in costs of production.

(d) Effective Date Of Rates And Chances.—Commencing thirty drnyd af the date of any presidential proclamation of approval the increased or deceaj rates of duty and changes in classification or in basis of value specified in I report of the commission shall take effect.

(e) Ascertainment Of Differences In Costs Of Production'.—In ascerti ing under this section the differences in costs of production, the commission sh take into consideration, in so far as it finds it practicable:

(1) In The Case Of A Domestic Article. — (A) The cost of production hereinafter in this section defined; (B) transportation costs and other coi incident to delivery to the principfll market or markets of the United Stal for the article; and (C) other relevant factors that constitute an advanta or disadvantage in competition.

(2) In The Case Of A Foreign ARTici.F..— (A) The cost of production hereinafter in this section defined, or, if the commission finds that such (•< is not readily ascertainable, the commission may accept as evidence then" or as supplemental thereto, the weighted average of the invoice prici*? values for a representative period and/or the average wholesale selling pri for a representative period (which price shall be that at which the article freely offered for sale to all purchasers in tho principal market or market* the principal competing country or countries in the ordinary course of trst and in the usual wholesale quantities in such market or markets); (B) trai portation costs and other costs incident to delivery to the principal murk or markets of the United States for the article; (C) other relevant facto that constitute an advantage or disadvantage in competition, including a vantages granted to the foreign producers by a government, person, partnl ship, corporation, or association in a foreign country. * * *

United States Tariff Commission

Hon. George W. Malone,
United States Senate.

Dear Senator Malone: Reference is made to your telephone request to Mr. McCauley of our legal staff, on January 28, 1958, for a statement of the provisions of the several trade agreements to which the United States is a contracting party governing termination of such agreements. You are particularly interested in the procedures available for terminating our outstanding trade agreement concessions on petroleum and petroleum products so as to accomplish the reinstatement of the statutory rates of duty on such articles.

Subsection (b) of section 2 of the Trade Agreement Act of 1934, as amended, provides:

"Every foreign trade agreement concluded pursuant to this Act shall be subject to termination, upon due notice to the foreign government concerned, at the end of not more than three years from the date on which the agreement comes into force, and, if not then terminated, shall be subject to termination thereafter upon not more than six months' notice."

All existing bilateral trade agreements to which the United States is a contracting party are now subject, in accordance with the terms thereof, to termination upon the expiration of 6 months after either the United States or the respective foreign country gives notice to the other party of its intention to terminate the agreement.

Any contracting party to the General Agreement on Tariffs and Trade (OATT) (including the United States), in accordance with the terms of the protocol of provisional application of the General Agreement on Tariffs and Trade, is free to withdraw from the agreement upon the expiration of 60 days after notice of such withdrawal is received by the Secretary General of the United Nations.

The United States could, under the above-mentioned procedures, eliminate all trade agreement obligations. In these circumstances, the statutory rates of duty (or in certain instances, the rates established pursuant to sec. 336 of the Tariff Act of 1930) for the articles currently covered by trade agreement concessions would become effective. With respect to those articles covered in the GATT and not previously or presently covered in a bilateral agreement, the reinstatement of the effectiveness of the statutory rates of duty thereon could be accomplished solely by withdrawal from the GATT. With respect to those articles covered in the CfATT, which are also covered in a bilateral agreement between the United States and a foreign country that is now a contracting party to the GATT, and the bilateral agreement has not been terminated, termination of the bilateral agreement in question, in addition to withdrawal from GATT, would be necessary to bring about the effectiveness of the statutory rates. Finally, with respect to those articles covered only in a currently effective bilateral agreement, termination of the said agreement would be necessary for the reinstatement of the statutory rates of duty.

Petroleum, crude, fuel, or refined, and all distillates obtained from petroleum, including kerosene, benzine, naphtha, gasoline, paraffin, and paraffin oil, not specially provided for, are free of duty under paragraph 1733 of the Tariff Act of 1930. However, under the Internal Revenue Code of 1932, as amended, the following import taxes (duties) were provided for: Crude petroleum, one-half-cent per gallon; fuel oil derived from petroleum, gas oil derived from petroleum, and all liquid derivatives of crude petroleum, except lubricating oil and gasoline and other motor fuel, one-half-cent per gallon; gasoline or other motor fuel 2% cents per gallon; lubricating oil, 4 cents per gallon; paraffin and other petroleum wax products, 1 cent per pound. These taxes were continued in the Internal Revenue Code of 1939.

In 1939, pursuant to concessions granted by the United States in the bilateral trade agreement with Venezuela, the rate of tax on crude petroleum and fuel oil derived from petroleum was reduced to one-fourth cent p >r gallon, applicable to imports of such products which were not in excess of 5 percent of the total quantity of crude petroleum processed in continental United States refineries during the preceding calendar year. All imports in excess of this amount remained subject to the one-half-cent-per-gallon tax.

In 1943, in a bilateral trade agreement with Mexico, the 5-percent-tariff-rate quota was superseded by a concession tax rate of one-fourth cent per gallon on an unlimited quantity of imports of such articles. In addition, the tax on kerosene and liquid petroleum asphaltum, including cutbacks, and road oil was reduced to one-fourth cent per gallon pursuant to the Mexican agreement.

In the GATT (Geneva 1947), a concession was made as follows:

"Topped crude petroleum, fuel oil derived from petroleum including fuel oil known as gas oil, and all-liquid derivatives of crude petroleum (except lubricating oil and such derivatives specified hereinafter in any item 3422 [of the Internal Revenue Code]), one-fourth cent per gallon."

This GATT concession contains a proviso to the effect that in no event shall the import tax applicable to topped crude petroleum be less than the rate of tax applicable to crude petroleum.

The following rates of duty are also provided for in GATT: Mineral oil of medicinal grade, derived from petroleum, one-half cent per gallon; gasoline and other motor fuel, 1% cents per gallon; lubricating oil, 2 cents per gallon; and paraffin and other petroleum wax products, one-half cent per pound.

Effective January 1, 1951, the bilateral trade agreement with Mexico was terminated. This resulted in (a) the reinstatement of the concessions granted in the bilateral trade agreement with Venezuela, with particular emphasis on the reestablishment of the 5 percent of domestic refinery output tariff-rate quota, supra, and (b) the tariff-rate quota becoming applicable to topped crude petroleum, in accordance with the proviso to the GATT concession, supra. This joint Venezuela-GATT arrangement remained in effect until late 1952.

In 1952 the President entered into a trade agreement supplementary to the 1939 agreement with Venezuela. Pursuant to this agreement (effective October 1952), the tariff-rate quota on crude petroleum, fuel oil, gas oil, and topped crude petroleum was removed. In addition, the tax on these products testing under 25 degrees (American Petroleum Institute) was further reduced to one-eighth cent per gallon. Also, the following GATT rates were granted to Venezuela: Gasoline or other motor fuel, 1% cents per gallon; lubricating oil, 2 cents per gallon; and paraffin and other petroleum wax products, one-half cent per pound.

The Internal Revenue Code of 1954 reenacted the taxes originally established by the 1932 code, as amended, and continued in ths 1939 code, but such reenactment specifically preserved existing trade agreement rates.

In order to accomplish the reinstatement of the statutory rates of duty on these petroleum products by the termination process (as distinguished from elimination of the particular concession by such negotiating procedures as may be available), it would be necessary for the United States to withdraw from the GATT and to terminate the bilateral agreement with Venezuela. It should be noted that the termination of trade agreements would not, in all instances, result in higher duties. The higher-than-statutory rates of duty which have been established pursuant to the trade agreements legislation (including those established under the escape-clause procedure), would be superseded by the lower statutory rates.

Sincerely yours,

Edgar B. Brossard, Chairman.

United States Tariff Commission,

Washington, D. C, March 4, 1958. Hon. George W. Malone,

United States Senate.

Dear Senator Malone: This is in response to your request this morning for an explanation of how the protocol of provisional application of the General Agreement on Tariffs and Trade permits the United States to withdraw from that agreement upon 60 days' notice.

The basic general agreement was signed at Geneva on October 30, 1947. Article XXXI of the general agreement provided that any contracting party may withdraw from the agreement on or after January 1, 1951, upon 6 months' notice. Article XXVI of the agreement provides for the definitive entry into force thereof under specified conditions. The agreement, however, has never entered definitively into force. However, it has been applied by the United States since January 1, 1948, pursuant to the protocol of provisional application of the General Agreement on Tariffs and Trade signed at Geneva, Switzerland, on October 30, 1947, the same date on which the general agreement itself was signed.

Paragraph 5 of the protocol of provisional application provides that "Any government applying this protocol shall be free to withdraw such application, and such withdrawal shall take effect upon expiration of 60 days from the day on which written notice of such withdrawal is received by the Secretary General of the United Nations." Since the United States is one of the governments applying the protocol of provisional application, and since the general agreement is being applied by the United States in pursuance of the protocol, if follows that the I nited States, under paragraph 5 of the protocol, may withdraw the provisional application of the agreement upon the expiration of GO days from the day on which written notice of such withdrawal is received by the Secretary General of the United Nations. If the United States should withdraw the provisional application of the agreement pursuant to the protocol, it would automatically cease to apply the provisions of the general agreement because the agreement will not have entered into force pursuant to article XXXI of the general agreement. Sincerely yours,

Edgar B. Brossard, Chairman.

Senator Malone. Section 3.36—Equalization of Costs of Production, subsection A:

Change Of Classification Or Duties.—In order to put into force and effect the policy of Congress by this Act intended, the Commission (1), upon the request of the President or (2) upon resolution of either or both Houses of Congress or (3) upon its own motion or (4) when in the judgment of the Commission there is good and sufficient reason therefor, upon application of any interested party, shall investigate the differences in the costs of production of any domestic article and of any like or similar foreign article.

In other words, when they have reason to believe that the cost-ofproduction relation between this Nation and the chief competing; country has changed on any product, then they can reexamine that article and determine what that change is and recommend it as the tariff.

That is what it says: It is specific that they can reexamine that difference in cost of production for practically any reason. This committee, for example, can pass a resolution requesting them to investigate any particular commodity; then they do it under this act.

Now you understand, or do you, that the Tariff Commission is an agent of Congress?

Secretary Weeks. Yes, sir; I do.

Senator Malone. All right, then. What does the Commission do when it takes up a product upon such a request or upon their own motion?

You do not need to guess, I will read what it does for the record:

If the Commission finds it shown by the investigation that the duties expressly fixed by statute do not equalize the differences in the costs of production of the domestic article and the like or similar foreign article when produced in the principal competing country, the Commission shall specify in its report such increases or decreases in rates of duty expressly fixed by statute (including any necessary change in classification) as it finds shown by the investigation to be necessary to equalize such differences.

It sets down in words of one syllable what they shall do and how they shall do it. They shall determine the cost of production differences if the cost differences are found to have varied from the last investigation or from the existing duty. Then they make an investigation to determine what the cost here is at the time of the investigation, not the high cost nor the low cost but the reasonable cost, and then what the cost of production is in the chief competing country of that product or a like product, not the high cost nor the low cost, but the reasonable cost.

And, Mr. Secretary, they recommend the difference to be the tariff. Now what does that policy mean? It has been followed in general although awkwardly at times since the first Tariff Act in 1789.

It means that the duty or tariff is designed to take the profit out of sweatshop wages at the water's edge.

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