I should add that the trade agreements legislation we are considering today is consistent with our domestic agricultural program. It does not prevent the use of export subsidies, provided such subsidies are not used to capture an undue share of world trade. American agriculture is fully capable of continuing to move large supplies of farm products to foreign areas. In fact, it must do so if we are to prevent large and undesirable surplus accumulations. It is a fortunate coincidence that the abundant supplies from American farms can be one of the free world's great resources in support of political stability and economic development. (As you gentlemen well know, the Communists are making a determined effort to penetrate the less-developed free countries of the world with a strong economic offensive. Two-way trade is one of the weapons they are using. I have brought along today an analysis made by our people regarding this offensive. I recommend that you read it carefully. I think it shows clearly that we must strengthen our own trade ties with these countries.) By using our farm supplies judiciously now, in pursuit of these objectives, we can build stronger commercial markets for the American farm products of tomorrow. This we hope to achieve with the help of the Trade Agreements Extension Act of 1958. I have appreciated this opportunity of expressing my sincere thoughts about this important legislation. DEPARTMENT OF THE INTERIOR, OFFICE OF THE SECRETARY, Washington, D. C., June 26, 1958. Hon. HARRY F. BYRD, Chairman, Committee on Finance, United States Senate, Washington, D. C. DEAR SENATOR BYRD: Your committee has requested a report on H. R. 12591, a bill to extend the authority of the President to enter into trade agreements under section 350 of the Tariff Act of 1930, as amended, and for other purposes. We recommend the enactment of this bill. This legislation, which has been acted upon favorably by the House of Representatives, will enable our Government to continue to pursue a course that will promote our commerce with other countries of the free world. We are in general accord with the provisions of this measure which includes the extension, for an additional 5 years, of the authority of the President to enter into foreign trade agreements under section 350 of the Tariff Act of 1930, as amended. We have been advised by the Bureau of the Budget that the enactment of H. R. 12591 would be in accord with the program of the President. Sincerely yours, Hon. HARRY F. BYRD, HATFIELD CHILSON, Under Secretary of the Interior. DEPARTMENT OF STATE, Chairman, Committee on Finance, United States Senate. DEAR SENATOR BYRD: The Department is pleased to respond to your letter of June 13, 1958, requesting a report on H. R. 12591, to extend the authority of the President to enter into trade agreements under section 350 of the Tariff Act of 1930, as amended, and for other purposes. H. R. 12591 as approved by the House has the full support of the administration. It provides that during the next 5 years the President shall have available, under existing procedures further developed by amendments, adequate authority to conclude reciprocal trade agreements in the interest of the United States. It is based on an administration proposal which the President has described as essential to our national economic interest, to our security, and to our foreign relations and as a powerful force in waging total peace. Events have moved rapidly in recent months, lending added force and urgency to the President's words. New and disturbing incidents bear witness to growing uncertainty concerning the trade outlook on the part of some of our best neighbors. The Soviet trade drive among uncommitted developing nations has continued to grow. Altogether, it is difficult to overstate the importance of approval of H. R. 12591, which more than any other single act would affirm this country's deter mination to support and lead a free-world movement to liberalize trade for some time to come, as it has done over the past 24 years. We believe that this affirmation alone would so encourage advocates of trade liberalization the world over that it would contribute materially to the further reduction of barriers which presently restrict United States exports and hamper world trade in general. It could not help but have a salutary effect upon the future trading policies and practices of our friends and allies. The safeguards of trade-agreement procedure, developed over the years and further implemented by the provisions of H. R. 12591, provide against any unforeseen adverse import developments that may threaten American interests. In the escape clause, domestic producers have access to a procedure safeguarding particular industries against serious injury from imports. In section 22 of the Agricultural Adjustment Act there is a procedure to safeguard against import interference with governmental agricultural programs. In the national-security amendment, ample scope exists to take necessary action to prevent imports from threatening to impair the national security. The national security provisions in particular are substantially amended by the new bill (sec. 8), so as to clarify the procedures to be followed and to assure a broad scope of investigation. On the procedural side, it is made explicit that ODM will investigate upon the application of any interested party; further investigation by the President after the Director of the ODM has reported his opinion that the national security is being threatened, is made optional rather than mandatory; a report on each case is to be published. Furthermore, a one-time summary report on administration of the amendment is to be submitted to the Congress by February 1, 1959. As to the scope and character of the investigation and the basis for decision, the law would retain all of its essential flexibility, but it would make clear that not only the quantity but also the circumstances under which imports are entering, including their character and use, are to be studied. In arriving at determinations whether imports are threatening to impair the national security, the Director of ODM and the President are to include in their consideration domestic production needs, capacity of domestic industries to meet these requirements, existing and anticipated availabilities of human resources, products, raw materials and other supplies and services essential to defense, the growth requirements of such industries and supplies and services, including the investment, exploration and development necessary to assure such growth. A consideration of imports in terms of quantities, availability, character, and use is also explicitly required. The purpose and anticipated effect of the amendments is to strengthen the Executive in taking necessary action to avoid a threat to our national security through imports. Although special attention has been given, in the debates, to the position of extractive industries, it is also plain that the provision is not limited to any particular class or kind of product but may apply to any product. Finally, the President is not limited to a specific kind of action affecting imports, which may not be workable, in dealing with a threat of this kind, once he has determined that a threat exists. Thus, maximum procedural safeguards are coupled with maximum flexibility in action. This Department strongly supports the President's position in favor of renewal of the Trade Agreements Act with the full authority contained in the House bill. American economic interest and American foreign policy objectives alike make it of utmost importance that the United States not only provide reassurance of the continuance of a trade policy appropriate to the times, but also that the legislation enable the President to prepare at once for a new general tariff negotiation with the countries which are in process of establishing a Common Market in Europe, to bring the new common tariff down to the lowest possible level so that American exports may compete with minimum difficulty with goods produced within the area. In order to succeed in this effort, it is essential that the President's authority be extended for the full 5 years as provided in H. R. 12591. The Bureau of the Budget has advised that there is no objection to the presentation of this report and that enactment of H. R. 12591 is in accordance with the program of the President. Sincerely yours, WILLIAM B. MACOMBER, Jr., UNITED STATES TARIFF COMMISSION MEMORANDUM ON H. R. 12591, 85TH CONGRESS, A BILL TO EXTEND THE AUTHORITY OF THE PRESIDENT TO ENTER INTO TRADE AGREEMENTS UNDER SECTION 350 of the Tariff Act of 1930, AS AMENDED, and for Other PURPOSES SHORT TITLE Section 1 of the bill states the short title of the legislation as "Trade Agreements Extension Act of 1958." EXTENSION OF PRESIDENT'S AUTHORITY TO ENTER INTO TRADE AGREEMENTS Section 2 of the bill provides for the extension of the President's authority to enter into foreign-trade agreements under section 350 of the Tariff Act of 1930, as amended, from the close of June 30, 1958 (when his present authority expires), to the close of June 30, 1963. The Trade Agreements Act of June 12, 1934, originally authorized the President to enter into foreign-trade agreements for 3 years. This authority has been extended since then 10 times, for periods ranging from 1 to 3 years. This extension of authority is necessary only to permit the negotiation of new trade agreements; it is not necessary for the purpose of continuing existing trade agreements. Existing trade agreements, and duty rates proclaimed to carry them out, will continue in force regardless of whether the President's authority to enter into trade agreements is extended beyond the close of June 30, 1958. NEW RATE-CHANGING AUTHORITY Rate increasing authority.-Section 350 (a) (2) (A) of the Tariff Act of 1930 limits the President's trade-agreement rate-increasing authority to 50 percent above the rates existing on January 1, 1945. Section 3 (a) (1) of the bill would change the base date from January 1, 1945, to July 1, 1934. This would mean that, with the few exceptions where changes in duties were made between June 18, 1930, and June 30, 1934, the base rates for the purposes of the 50-percent limitation on the rate-increasing authority would be the rates originally established in the Tariff Act of 1930. Between July 1, 1934, and January 1, 1945, a great many tariff reductions were made pursuant to the trade-agreements authority, many of them maximum reductions (50 percent below the original tariff-act rates). Thus the change in the base date proposed in the bill for the rate-increasing limitation would permit greater rate increases on a large number of commodities-in many instances much greater increases than are permissible under the existing law. On the other hand, because of rate increases that occurred under the "flexible tariff" provision (sec. 336 of the Tariff Act of 1930) between July 1, 1934, and January 1, 1945, the proposed amendment would in a few instances result in a lessening of the amount of permissible increase. Under the Trade Agreements Act the rate-increasing authority is to be utilized when "required or appropriate" to carry out a foreign trade agreement. This authority has rarely been utilized in connection with normal trade-agreement negotiations. Its use has been significant only in connection with the escapeclause procedure, where the authority has been utilized to increase duties to reflect modifications of trade-agreement concessions pursuant to the escape-clause procedure. It is in this latter area that the rate-increasing authority would have significance in the future, and it is understood that it is in connection with the administration of the escape-clause procedure that the proposal for change in the base date is being made. Experience under the escape-clause procedure indicates that on occasion, particularly where specific rates are involved, the maximum permissible increase in duties under existing law may not provide an adequate remedy for the serious injury that is found to exist in a particular case. Whenever this should be the case, it is necessary to report to the quota authority. Authority to make greater increases in duties in connection with escape-clause action than is now permitted by law would in some cases reduce the need for resort to quotas. In the case of products whose duty-free status has been bound in a trade agreement, there is no authority for imposing a duty under the escape clause procedure by reason of the prohibition in section 350 against the transfer of any article between the duiable and the free list. Thus, where a case for escape action is made with respect to a duty-free commodity, the only remedial action the President has authority to take is to impose a quota. There is increasing concern regarding import competition from certain articles on the free list. This is recognized in section 5 (c) of the bill, which amends section 7 of the Trade 'Agreements Extension Act of 1951 (the escape clause procedure) so as to permit the imposition of a duty of not more than 50 percent ad valorem on duty-free items under the escape clause procedure. Rate-reducing authority. The President's new rate-reducing authority is set -forth in section 3 (a) (4) and (8) of the bill. The details of the new authority are set forth in the proposed new paragraph 4 of subsection (a) of section 350 (beginning on line 11, p. 3, of the bill). The additional rate-reducing authority is expressed by way of prohibition against rate reductions below the lowest rates resulting from any of three alternatives. Subparagraph (i) of proposed new paragraph 4 of section 350 (a) limits reductions to 25 percent below the rates existing on July 1, 1958. Subparagraph B (i) provides that the 25 percent reduction may be made in not more than five annual stages, but that the amount of reduction in each stage shall not exceed 10 percent of the rate existing on July 1, 1958. In other words, the 25 percent reduction may be made over a period as short as 3 years (e. g., 10-10-5) up to a period of 5 years, regardless of the amount of reduction in each stage, so long as in no stage does the the amount of reduction exceed 10 percent of the July 1, 1958 rate. The last part of subparagraph B (i) reading "or in any case in which the rate has been increased since that date," etc., appears to deal with the possibility that after July 1, 1958, and before the conclusion of a new trade agreement a rate may be increased. Such an increase might occur, for example, where the present rate is a reduced rate under a bilateral trade agreement, and before entering into the new trade agreement under the new authority, such bilateral trade agreement is terminated, resulting in the restoration of a higher statutory rate on the product in question. This portion of this subparagraph apparently means that in such a case the staging shall be by annual reductions, each not exceeding 10 percent of the July 1, 1958, rate, or one-third of the "total amount of decrease under the new trade agreement," whichever is the greater. For example, if the July 1, 1958, rate was 20 percent and increased to 40 percent in October 1958, and the new trade agreement provided for a decrease in the rate to 15 percent (25 percent of 20 percent), an annual-stage reduction of 10 percent of the July 1, 1958, rate (20 percent) would be 2 percentage points. One-third of the total amount of the reduction (25 percentage points)-40 percent less 15 percent-would be 8% percentage points. Thus the stating of the total reduction would require a limit of not more than the reduction by 8% percentage points in any stage (one-third of the amount of decrease under the trade agreement-25 percentage points). This alternate-staging rule may cause difficulty in application. For example, what is meant by the "total amount of the decrease under the foreign trade agreement"? Assume that at the time negotiations are initiated, a statutory rate of 40 percent ad valorem had been reduced in a bilateral trade agreement to 20 percent, and the 20-percent rate was in effect when the negotiations were initiated. Would the "total amount of the decrease under the foreign trade agreement" be from 20 percent to 15 percent, or from 40 percent to 15 percent? If it should be held that the "total amount of the decrease under the foreign trade agreement" is to be determined as of the date of the signature of the agreement, then suppose that the 20-percent rate was still in effect on the date of the signature of the agreement, but the bilateral agreement pursuant to which the 20-percent rate was in force was terminated prior to the proclamation of the new trade agreement. The staging provided for in the new trade agreement would be, let us say, 18 percent, 16 percent, and 15 percent under the basic-staging rule. If, by reason of the termination of the bilateral trade agreement an increase in the rate to 40 percent results, the rule of maximum decreases in any one stage by not more than one-third of the "total amount of the decrease under the foreign trade agreement" would require the 3 stages to be 31% percent, 23% percent, and 15 percent. In other words, the first two stages would both exceed the rate which was the basis of the negotiations, and the proclamation of these rates would be inconsistent with the rates specified in the trade-agreement schedule. This additional staging requirement would be likely to cause some difficulty. The second alternative limitation on rate reduction is set forth in subparagraph (ii) of proposed new paragraph 4 of subsection (a) of section 350. This 1 Changes in United States rates of duty under the Trade Agreements Act are only effective when proclaimed. rate-reducing-authority limitation means that a rate could be reduced by 2 percentage points below the rate existing on July 1, 1958. This alternative limitation would be effective with respect to rates which on July 1, 1958, are less than 8 percent ad valorem or equivalent, and would thus be effective only with respect to low-duty commodities. This limitation is subject to subparagraph 2 (B) of subsection (a) of section 350, which prohibits transfers between the dutiable and the free list, and would thus preclude elimination of a duty by the exercise of this second alternative. Decreases under the 2-percent authority may be made effective in not more than 5 annual stages, with no decrease in any stage exceeding 1 percent, but subject to the rule referred to above in the case of articles on which the rate has increased after July 1, 1958 (that the reduction will be staged in a manner which will limit each annual-stage reduction to not more than one-third of the "total amount of the decrease under the foreign-trade agreement"). The third alternative limitation on rate reduction is set forth in subparagraph (iii) of proposed new paragraph 4 of subsection (a) of section 350. This permits a reduction to the rate of 50 percent ad valorem or equivalent in the case of articles which are subject to a duty at a higher ad valorem or equivalent rate. Total decrease under this alternative may be made in not more than five annual stages, but with no single-stage reduction exceeding one-third of the total amount of decrease under the foreign trade agreements. STAGING OF REDUCTIONS The principle of staging of rate reductions was introduced in the Trade Agreements Extension Act of 1955. There may be a question as to whether any benefits that might be gained from gradualism in the reduction of duties are worthwhile in view of the complications that result from the incorporation of this principle in the rate-reducing authority. In connection with the 1955 act authority, the Commission did not consider it to be feasible to make peril-point determinations on the basis of the staging principle. This was recognized by Congress, as is indicated in the committee reports on the 1955 extension bill wherein it was stated: "In connection with the Tariff Commission's determination of peril points where the gradual reductions required by the bill are involved, the bill contemplates that the Commission will determine the peril point for an article on the basis of the total permissible reduction rather than on the basis of the application of the total permissible reduction on a gradual basis." (House Rept. No. 50, 84th Cong., 1st sess., p. 15.) The staging principle in the 1955 act required myriad computations and the introduction of three rate columns in the trade-agreement schedules, with often ludicrously small gradations in rates without significant benefit to anyone. Presumably the purpose of gradualism in rate reduction is to enable domestic industries affected to adjust themselves to the reductions. If this be the purpose, then is the Commission to assume that domestic industries are to be expected to adjust themselves to the reductions by increasing their efficiency or diversifying production? If industries are expected to adjust to the reductions, then it would seem that in applying for escape-clause relief with respect to a product on which the rate reductions were gradualized an industry should be expected to show that it was not possible or practicable to transfer its operations to other commodities or to otherwise attempt to avoid the adverse effect of the rate decreases. The Commission has not heretofore adopted this principle in administering the escape clause, but the continuance of the staging principle in the new extension act raises the question as to whether it is the intent of Congress that efforts of an industry to turn to the production of other commodities or to otherwise adapt to the rate reductions should be considered by the Commission in determining whether escape-clause relief is justified. Legislative expression of intent with regard to this would be helpful. "PERIL POINT" PROCEDURE AMENDMENTS Section 4 (a) of the bill would extend the time within which the Tariff Commission should report to the President its peril-point determinations from 120 days to 6 months. Section 4 (b) of the bill proposes the amendment of the perilpoint provisions to provide that whenever, on the basis of a peril-point investigation, the Tariff Commission finds, with respect to an article on which a tariff concession has previously been granted in a trade agreement, that increased import restrictions are required to avoid serious injury to the domestic industry concerned, the Commission shall promptly institute an escape-clause investigation with respect to the commodity. 27629-58-pt. 1-16 |