INCREASED EXPORTS TO CUBA BENEFIT EVERY SECTION OF THE UNITED STATES

United States exports to Cuba cover a wide range of farm and factory products, one or more of which is produced in every section of this country. Products purchased by Cubans in large volume, and the increase in these purchases between 1934 and 1957 include:

Number of times United States exports to Cuba multiplied, 1934 to 1956

In 1957, Cubans purchased about $40 million worth of United States rice, which amounted to approximately 15 percent of this country's production and 26 percent of its total rice exports. More than half of the rice produced in the United States in 1957 was exported.

The Cuban market for rice is, therefore, of great importance to farmers in Louisiana, Texas, Arkansas, Mississippi, and California, where nearly all United States rice is grown. The farm value of rice in Louisiana exceeds that of sugar

cane.

United States exports of machinery and vehicles to Cuba were valued at $190 million in 1957. Automobiles, trucks, and tractors were among the items in this group which the Cubans purchased in large quantities.

The sale of synthetic textile products to Cuba has also become of increasing importance to producers in this country. Cuban purchases of $14 million worth of these products in 1957 were larger than those of any other country, except Canada. In addition, Cubans purchased $30 million worth of United States cotton and cotton textiles in 1957.

CUBAN SUGAR ESSENTIAL TO UNITED STATES CONSUMERS

The value of United States imports from Cuba increased from about $79 million in 1934 to $478 million in 1957. Sugar has accounted for the largest share of this increase, rising in value from $55 million in 1934 to $336 million in 1957. The quantity of sugar received from Cuba was 68 percent larger in 1957 than in 1934. Even so, the quantity imported from Cuba in 1957 was about onehalf million tons smaller than the average annual receipts of sugar from Cuba during the 1920's, prior to imposition of the high rate of duty established by the Tariff Act of 1930. Imports were greatly reduced under the Tariff Act of 1930 and under the sugar quota system established in 1934 have not regained the volume of the 1920's in spite of greatly increased sugar consumption in the United States in the last 25 years.

The increase in the price of sugar to United States consumers from 1934 to 1956 was substantially less than the average increase in prices of all foods in the United States. The increased quantity of sugar imported into the United States, although limited by quotas except during World War II, has been of great value to consumers here, assuring them of an adequate supply at reasonable prices. During World War II, and for a year or more following the outbreak of war in Korea, it was indispensable, and saved this country from real sugar famines.

CONCESSIONS MADE BY BOTH NATIONS IN THE INTEREST OF INCREASED TRADE

Many important concessions by Cuba to the United States, as well as by the United States to Cuba, are included in the General Agreement on Tariffs and Trade, of which the United States-Cuban agreement is a part. The concessions which Cuba made in this agreement covered commodities which accounted for about 95 percent of the total value of Cuba's imports from the United States in 1939. The major item on which the United States has granted a concession to

Cuba is sugar, which accounts for approximately three-fourths of all United States imports from Cuba. The effect of the reduction in the tariff on sugar from Cuba has been limited by the imposition of quantitative quotas. However, the lower tariff has increased the returns to Cubans from the sale of the limited quantity of sugar they have been permitted to send here and this in turn has increased Cuban purchasing power for United States products.

Cuba is currently engaged in revising its tariff laws and will shortly be negotiating with the the United States concerning proposed changes applicable to United States products. It is important that the United States remain in a position to negotiate effectively, as provided for in the Reciprocal Trade Agreements Act, so as to facilitate further increases in trade between the two countries.

A further expansion of trade between the United States and Cuba would provide an outlet for increased quantities of the many farm and factory products sold to Cuba, and further safeguard future supplies of sugar for United States consumers. Larger sales to Cuba would benefit agriculture, industry, and labor in all sections of the United States.

CONCLUSIONS

1. The trade agreement with Cuba is a good example of the value of the Reciprocal Trade Agreements Act. This has been amply demonstrated by the increase in the volume of trade between the two countries since 1934.

2. The agreement with Cuba is also a good example of increased trade resulting from concessions made by both nations. The agreement has not been a one-way street.

3. Increased exports to Cuba, and to other nations, since 1934 have benefited the producers of one or more products in every section of the United States.

4. Further increases in trade with Cuba, and with other countries, would be of obvious and lasting benefit to the United States by increasing both the supply of needed imports, and the ability of people in other countries to purchase our exports, thus helping to improve standards of living and combat communism throughout the free world.

In view of these facts, the council strongly urges the extension, with the exception of section 3 (a) (1), of the Reciprocal Trade Agreements Act, as recommended by the President and provided in H. R. 12591. Respectfully submitted.

UNITED STATES CUBAN SUGAR COUNCIL, By LAURENCE A. CROSBY, Chairman.

Members of the council: Central Altagracia Sugar Co., Cuban Atlantic Sugar Co., Manati Sugar Co., Miranda Sugar Co., Punta Alegre Sugar Corp., the American Sugar Refining Co., the Cuban-American Sugar Co., the Francisco Sugar Co., the New Tuinucu Sugar Co., United Fruit Co., Vertientes-Camaguey Sugar Co.

AMERICAN WATCH ASSOCIATION, INC.,
Washington, D. C., July 2, 1958.

Hon. HARRY FLOOD BYRD,
Chairman, Senate Finance Committee,

United States Senate, Washington, D. C.

DEAR MR. CHAIRMAN: In connection with the hearings being held by the Senate Finance Committee on H. R. 12591, I should like to file this statement for the record on behalf of the American Watch Association, Inc. Our association is composed of more than 50 leading American importers and assemblers of watches and watch movements.

The American Watch Association is, indeed, pleased to lend its support to those who are fighting for legislation which will pave the way for an expansion of trade between the United States and other nations of the free world. In our opinion, a revitalized trade-agreements program-a program which places emphasis on the encouragement of international trade rather than the protection of domestic industries from foreign competition-is an absolute necessity if America is to face up to its obligations of world leadership.

While the watch industry is relatively small, compared with many of America's basic industries, we feel that we can speak with a certain degree of authority on the subject of international trade. In fact, the watch industry represents a

unique case history of varying experiences under the reciprocal trade-agreements program.

Our industry was one of the first to receive lower duties when the United StatesSwiss trade agreement was signed in 1936; it was also one of the first to have higher tariffs reinstated under an escape-clause proceeding in 1954. Further, the domestic watch-manufacturing industry was the first to be singled out by the Office of Defense Mobilization as allegedly essential to national defense; it was also the first to have such a stamp of essentiality removed when ODM reviewed its earlier ruling and reversed itself in February of this year. And, finally, as an indication of our rather complete history in these matters, the importing segment of our industry has been subjected to some rather unique types of administrative rulings which have threatened to pervert the tariff statutes into instruments of protection far beyond the obvious intent of the Congress.

So we feel that we possess a background of both varied an significant experiences under the trade-agreements program, and that the results of our experiences may prove of genuine value to the Congress in helping to determine the future course of America's foreign economic policy.

We want to make it clear, however, that our purpose in reviewing some of the recent history of our industry is not to seek special benefits for watch-importing firms or to continue the longstanding disputes over watch tariffs and customs regulations. Our fervent hope, in fact, is that such disputes within our industry are at an end. Rather, we would like to review some of the recent experiences of our industry because we believe they provide a practical guide to the Congress concerning the type of foreign-trade legislation required at the present time.

We think it is fair to say that the watch industry represents an outstanding illustration of the mutual benefits that accrue to the people of the United States and to those overseas when barriers to international commerce are lowered--and, also, of the hardships that ensue when tariffs are raised.

Since the signing of the United States-Swiss trade agreement in 1936, there has been a steady increase in the flow of two-way trade between these countries. The United States has been the prime beneficiary of this stimulated commerce, since an unfavorable balance of trade during the thirties has been converted into a sizable surplus of United States exports over imports.

During the postwar period, the cumulative total of goods exchanged between the United States and Switzerland has been in excess of $3 billion, with a trade balance in favor of the United States of more than $360 million. And it must be remembered that Switzerland has paid for these goods in hard cash, without the aid of any grants or loan by our Government. Indeed, Switzerland has become America's best cash cutomer in Europe, and the commerce between the two countries is a prime example of true trade reciprocity.

A survey was recently published under the auspices of the American Society for Friendship with Switzerland, entitled "All 48 States Participated in the Record United States Sales to Switzerland in 1956." We should like to submit for the record the results of this survey at this point (printed in the hearings by the House Ways and Means Committee, pp. 1906-12) because they dramatically demonstrate how the sale of Swiss watches, watch movements and other products in this country has made possible tremendous United States exports of machinery, transportation equipment, chemicals, oil and coal, agricultural commodities, and a host of other items from every State in the Nation.

From the standpoint of the watch industry and its customers, the United States-Swiss trade agreement also brought enormous benefits. It resulted in the introduction into the United States market of a wide variety of products and styles, pioneered by the Swiss, such as self-winding movements, alarm watches, calendar watches, chronographs, etc. And it also resulted in a greater degree of competition for watches of all types and qualities, to the enormous benefit of the American consumer. As a result, demand for watches and clocks has increased greatly through the years.

The sale of jeweled-lever watches in this country, for example, increased by nearly 700 percent during the 20-year period following the signing of the trade agreement with Switzerland. A large proportion of this increase was absorbed by imported movements, particularly those movements which contained special features not produced in this country; but the domestic jeweled watch manufacturers also shared in the increase. Their production in 1956, for example, was more than 21⁄2 times as large as the annual output during the 5-year period preceding the trade agreement and 23 percent above the average of the years 1936-40.

This expansion in the market for jeweled-lever watches has been abruptly halted by the President's action in 1954, raising duties by 50 percent, and by other administrative moves aimed at increasing the barriers to watch imports. In this regard, it is highly significant that in the 2 calendar years following the tariff increase (1955-56) the sales of jeweled-lever watches containing imported movements dropped by 29 percent compared with the 2 years preceding the President's action (1952-53). Interestingly, the sale of domestically manufactured jeweled-lever watches also dropped following the tariff increase by 16 percent during this same period. To us, this indicates clearly that efforts to help a domestic industry by methods which are intended merely to injure its import competition cannot be effective. Far from stimulating the domestic firms, it will encourage them to sit back and rely on the Government to bail them out of their difficulties.

It goes without saying, of course, that we believe quite firmly that the administration has made a serious mistake in judgment in trying to curtail watch imports and that these errors should be promptly corrected-particularly in view of the recent ODM acknowledgment that the domestic watch manufacturers are not essential to the national security.

We have related the experiences of the watch industry, however, not for the purpose of continuing our public dispute with the domestic watch manufacturers, but to illustrate some basic convictions which we possess concerning the Trade Agreements Act and the administration's proposals for its extension. We feel quite strongly that the trade-agreements program is in serious danger of being converted from a method by which tariff barriers are to be lowered into a device for protecting American industry from all successful import competition.

In our opinion, although the House-approved bill has some excellent features, such as its 5-year extension of the program and its permissive tariff-reduction provisions, it also contains new amendments to the act which could prove to be major steps in the direction of perverting the true purposes of reciprocal trade. Of course, these current amendments cannot be viewed in isolation from recent history but must be considered in the light of other weakening amendments which have been introduced during the past 10 years, as well as administrative actions which have been taken during this period.

To illustrate why we are deeply concerned over the possibility that new protectionist devices will be added to those already in effect, we should like to review the two experiences of the watch importer-assembler industry, in 1952 and 1954, under the escape clause. In 1952, the Tariff Commission first recommended such relief for the domestic watch manufacturers. This was the third case in which the Commission had ever recommended escape-clause relief for any domestic industry, and it was the first major instance. President Truman rejected that recommendation. In 1954 relief was again recommended by the Commission, and this time President Eisenhower invoked the escape clause, proclaiming an increase of duties on imported watches of 50 percent.

Our comments about the escape clause are addressed not to the question of whether there should be an escape clause in our trade legislation but rather to the question of what are appropriate criteria for deciding escape clause cases. The escape clause as first introduced in 1947 by Executive order and the legislative escape clause contained in the Trade Agreements Extension Act of 1951 both set down certain criteria. They called for evidence: (1) that there has been an increase in imports; (2) that the increase in imports bears some causal connection to the tariff concession granted on the imported product; (3) that the increase in imports bears a causal connection to the serious injury which the domestic industry is experiencing or with which it is threatened; and (4) that the domestic industry is producing a product which is like or directly competitive with the imports that have increased.

Based on our experiences, we are convinced that the Tariff Commission has not devoted sufficient attention in its escape clause considerations to several of these criteria, including, for example, the second mentioned above; i. e., whether there is, in fact, a casual connection between the granting of a tariff concession and subsequent increases in imports. Clearly, it is not enough to show that imports have increased, even relative to domestic production, after the granting of a tariff concession in a trade agreement.

We believe, for example, that the increase in imports of watch movements since 1936 must, in substantial degree, be ascribed to factors other than the reduction in duties provided in the United States-Swiss Trade Agreement. The rise in consumer demand for watches containing imported movements has been

caused essentially by the fact that (a) considerable numbers of new models and styles of watches have been developed by the Swiss and are produced only by them; (b) Swiss manufacturers and American importer-assemblers have been more sensitive to design and styling trends preferred by United States customers; and (c) American importer-assemblers have engaged in sales promotion work of an outstanding nature.

The net effect of all this effort, as well as the population growth and the unprecedented prosperity following World War II, has been the enlargement of the entire watch market in the United States. As previously mentioned, the domestic manufacturers have benefited by this enlargement of the market, even though it is apparent that their participation has been smaller than would have been the case if they had keyed their production and merchandising techniques to the recognized preferences of their customers, and if they had offered styles and models comparable to those placed on the market by their Swiss competitors. Because the Tariff Commission failed to recognize that it was these factors, rather than the 1936 tariff reduction, which created an increase in watch imports, the Commission also misjudged the effect of an escape-clause action rescinding the concession.

The Tariff Commission has also been unable to deal successfully with the problem of determining what constitutes serious injury, which is a key phase of the third criterion listed above. In the first watch escape-clause case, three of the Commissioners evolved the "share of the market" doctrine as the test of serious injury. This was a unque departure, and it was rejected by President Truman. The following quotation from the President's statement is appropriate: "Because of the dangerous precedent which would be involved in accepting this share doctrine as the determinant of serious injury, I should like to emphasize its far-reaching implications. Serious injury, by any definition, means a loss to someone. Declining production, lower employment, lower wages, lower rates or losses of capital investment-any of these things might indicate some degree of injury. But the share doctrine goes much further. In fact, it finds that serious injury exists when the domestic industry fails to gain something it never had, even though the industry may be prospering by all the customary standards of levels of production, profits, wages, and employment."

In its 1954 decision the Commission introduced still another basis for determining serious injury, namely, a segmentation of the watch industry which resulted in separating out for consideration only the watch-manufacturing activities of the domestic industry. The total performance of the industry was not taken into consideration. Had the Commission concerned itself with the condition of the industry as a whole, the judgment of serious injury could not have been supported since, in 1953, the domestic watch manufacturers enjoyed a peak level of sales and earnings.

In its 1954 findings, the Tariff Commission also failed to establish whether, in fact, a causal connection actually existed between increased imports and the injury that was judged to exist. Increasing imports were assumed, ipso facto, to be a prime cause of injury despite the fact that other developments were taking place in the domestic industry which were far more significant than the rise in imports. One can, for example, point to such developments as the domestic manufacturers' diversification programs, which required a concentration of their financial and managerial resources in nonwatch fields and thereby tended to increase their technological lag in horological design and production; their efforts to engage in defense production, again to the neglect of their watchmaking operations; and the increase in imports of watch movements by the domestic manufacturers.

Thus, our industry's experience with the administration of the escape clause reflects important changes in escape-clause criteria incident to its administration over the years. Two of the changes, discussed above, are of particular importance because the 1955 amendment to the escape clause has given them legislative recognition. The first is that of segmenting an industry for purposes of determining injury, and the second is the diminution in the causal role that increased imports must play in respect to the injury that has been judged to exist.

The concept of segmentation is a particularly serious innovation since it multiplies the number of potential escape clause actions which are brought before the Tariff Commission and thus paves the way for a broad undermining of the objectives of the reciprocal trade program. In today's dynamic industrial economy, there is a growing trend toward diversification of companies into many fields. By adopting the segmentation concept, the Government has, in effect, agreed to