further reductions or complete eliminations of duties, upon their product lines. Counsel has consolidated the data obtained from the following segments of the industry: (1) Dyes and dye intermediates. (2) Cyclic intermediates. (3) Rubber processing chemicals. Comments concerning these segments of the industry are attached as appendixes 1 through 4. The information they contain clearly demonstrates these segments of the industry are adversely affected by low-cost, low-priced import competition under existing tariff levels and would be seriously damaged if further reductions in duties were made or duties were eliminated on their product lines. Other segments of the industry are being reviewed and after the data is consolidated, supplemental material can be made available to this committee, if time permits. In addition to the productive equality and considerably lower wages enjoyed by the foreign chemical industries, many producers in this association are faced with demands for increased wages and are saddled with obsolete depreciation provisions of our internal revenue tax laws. Foreign countries treat chemical producers, for tax purposes, as favored enterprises. Each industrialized foreign country possesses an organic chemical industry. The undeveloped areas seek to establish one, and all apply national policies to foster, or maintain, or expand the industry. Only the United States, under the trade agreements program, has chosen the opposite course. In some of these countries, tariff rates are the most insignificant obstacle to importation. Internal taxes, licensing requirements, or disclosure of confidential trade information as a requirement for importation, and other restrictions which are contrived overnight, are applied to organic chemicals and chemical products. The removal or modification of a restriction is followed shortly by the creation and imposition of another. In this manner, foreign countries render lipservice to the concept of freer trade, but in the organic chemical sector at least, immediately negate tariff concessions by indirect and ingenious means. Internal competition The industry in the United States is highly competitive in all segments. Patent protection, know-how, or an advantageous position in the purchase of raw materials is seldom enjoyed for any appreciable time. The eternally changing character of organic chemical products, the synthesis of new products, substitutes for old established chemicals, all result in rapid equipment or product obsolescence. In familiar end products like paints, the average layman knows there is any ever changing, wide selection of new and better paints; the same condition exists with regard to the medicinal and pharmaceutical fields. In the dye and dye intermediate segments of the industry, research and development permit marketing of new forms, as well as entirely different products, which furnish better results than older and more costly chemicals. Under this lash of competition, units of the organic chemical industry of the United States are compelled to be dynamic and flexible in operations. They regularly expend large sums of money in research and development to find new applications and new uses for their products. This internal competition has been intensified by importations of low-cost intermediates, dyes, and finished chemicals. Even a modest volume of such importations has a price depressant effect for beyond the magnitude of the imported quantities. Further reductions in duties, or elimination of duties, on individual organic chemicals or through across-the-board concessions, will magnify the problems of the industry in marketing and selling its products. In some instances, we assert that increases in such imports will definitely remove American producers from product lines thereby increasing the cost to produce related products and probably curtail, if not eliminate, the production of related products as well. H.R. 9900 The President, in addition to the recently proclaimed Common Market and GATT reductions on organic chemical products, seeks unrestrained and broad authority to drastically reduce existing duties by an additional 50 percent, or to completely eliminate duties. The bill contains no restraints upon the discretion of the President. He can deal with products, categories, across-the-board reductions, or even broader ill defined, classification groupings. It is submitted that H.R. 9900 contains no declaration of congressional policy nor are there any controls upon policy determinations of the President made in the undefined "national interest." Determinations so made by the President will be final and conclusive and not subject to judicial review. Presently, trade agreements negotiating procedures require that there be public hearings at which interested parties may appear and state their position. Under H.R. 9900 this right of the citizen to be heard is made discretionary. It should be mandatory. The "bold" design of H.R. 9900 would exclude the Congress completely from the field of tariff policy and be a complete surrender of its constitutional responsibilities, contained in article I, section 8 of the Constitution. Section 241 of H.R. 9900 should be deleted, since most-favored-nation treatment is contrary to the concept that concessions in duties should be reciprocal and mutually advantageous. Also the language of section 231 directing the President to withhold concessions from a country "dominated or controlled by international communism" is not as definitive as provisions of existing law in section 5 of the Trade Agreement Extension Act of 1951, as amended. Section 5 reads as follows: "As soon as practicable, the President shall take such action as is necessary to suspend, withdraw, or prevent the application of any reduction in any rate of duty, or binding of any existing customers or excise treatment, or other concession contained in any trade agreement entered into under the authority of section 350 of the Tariff Act of 1930, as amended and extended, to imports from the Union of Soviet Socialist Republics and to imports from any nation or area dominated or controlled by the foreign government or foreign organization controlling the world Communist movement." In section 5 products of the Soviet Union are explicitly excluded from favorednation treatment, and we suggest the Congress itself determine which other nations of the Communist bloc should be similarly treated. Poland, Cuba, Yugoslavia, Red China, and East Germany are among the countries or areas which should be so specified. The powers sought in H.R. 9900 are clearly in conflict with the carefully considered views of the Congress in enacting the original trade agreements law and subsequent tariff and trade agreement legislation. The Senate Finance Committee in 1934 noted with approval the majority report of this committee which stated: "The proposed bill nevertheless does not remove from Congress its control of policy which must underlie every tariff adjustment. Although the exigencies of present-day conditions require that more and more of the details be left to presidential determination, the Congress must and always will declare the policy to which the Executive gives effect.” 1 [Italic added.] Further, the Senate Finance Committee which amended the original trade agreements bill stated in its report the amendment was "to make clear that Congress under the proposed bill is establishing a policy and directing the Executive to act in accordance with the congressional policy only when he finds as a fact that existing duties or other import restrictions are unduly burdening and restricting the foreign trade of the United States." [Italic added.] H.R. 9900, on the other hand, does not require the President to find as a fact that existing U.S. duties are unduly burdening and restricting upon foreign trade or require that the United States obtain reciprocal concessions for granting duty reductions. Granted that conditions in world trade have changed and are changinggranted also that the Executive may need to act swiftly-nevertheless swift decisions, made under conditions of stress or without a look to the future effects. should not be permanent and unchanging. Despite the provisions in H.R. 9900 providing for termination of agreements, this authority is not, on the basis of past experience, likely to be invoked and agreements will, for all practical purposes, become permanent. 1S. Rept. 871. 73d Cong., 2d seзs., Apr. 26, 1934, p. 17. 2 Ibid., pp. 1, 2. International trading conditions and principal suppliers do not remain permanent and fixed; a concession eliminating duties on a extremely broad category of products in negotiations with the Common Market, may well result in Japan or other countries outside the ambit of that market becoming the principal beneficiary. There is no requirement in H.R. 9900 that the President review concessions granted in order to determine whether market conditions have changed, or different principal suppliers have emerged, or that 80 percent of world trade value has shifted to others than the United States and the Common Market. We recommend that H.R. 9900 be modified and amended by this committee to prevent the Executive from proposing across-the-board concessions in tariff duties. Insofar as this industry is concerned, reductions of this character would be disastrous in actual and potential effects. Even broader authority is sought to grant concessions in terms of the three-digit numbering system of SIC, which would indiscriminately reduce duties on organic chemicals (SIC 512) as a class-despite the variety of product mix, cost of production, sales prices, competitive conditions, the impact of existing import competition, and the ever-changing kinds and qualities of products comprehended by the threedigit term "organic chemicals." Another three-digit designation (SIC 531) would operate upon all synthetic organic dyestuffs; another (SIC 541) would cover all medicinals and pharmaceuticals; another (SIC 581) all plastic materials and artificial resins; another (SIC 599) all chemical materials and products not otherwise identified or specified. Under Secretary of State, George Ball, in his testimony before the Ways and Means Committee on H.R. 9900, referred to a study made by the Tariff Commission calculating 1960 ad valorem equivalents of U.S. rates of duty in terms of SIC groupings. The validity of these ad valorem equivalents under such broad standard industrial classification groupings is questioned by the Tariff Commission in its introduction to this report. The Commission comments as follows: "Especially if they are to be used for intercountry comparisons, the type of broad commodity-class headings used for SITC categories give the impression that for each of the respective countries virtually identical components make up the imports in such categories, whereas, in reality, the classes often include articles in one country's trade quite unlike those of the country for which a comparison might be sought. Moreover, the component articles of a country's imports under a designated SITC category would not likely bear close resemblance to its exports under the category bearing the same heading. Even in the detailed classifications used in schedule A for U.S. import items, an analysis of imports reveals that the majority of classes include a variety of imported articles a substantial portion of which are neither like, nor similar to, one another, and that an average ad valorem equivalent for the class as a whole might actually be representative of few of the articles being imported. In broad groups, such as a three-digit SITC category, the average ad valorem equivalent would not likely be representative of the rate applicable to many of the component articles. "U.S. imported articles within a three-digit category are subject to widely different types of customs treatment. For example, some of such imports are limited by quota. On articles subject to a specific rate of duty, the duty might exclude those of low value with the result that a computed average ad valorem equivalent would take account of only such foreign articles as entered over the tariff. An average ad valorem equivalent either for individual import classes or broad categories, therefore, is at best an inadequate measure of the restrictiveness of the duty on imports, or the degree of protection afforded domestic producers of like or directly competitive articles. "Another limitation of the ad valorem equivalent concept is that it does not take account of the changing composition of a country's imports. A calculation based on the composition of imports in 1960 of the average ad valorem equivalent of the duties that were in effect in 1930 or that will be in effect pursuant to the negotiations just concluded at Geneva does not take into account changes in the composition of imports that the tariff concessions themselves are intended to, and in fact do, bring about." There is set forth below standard industrial classification groupings of chemicals with the 1960 ad valorem equivalents in three columns. Column 1 are the ad valorem equivalents of 1930 Tariff Act rates; column 2 present reduced rates; and column 3 further reduced rates under recently concluded GATT negotiations. 81843 —-62-pt. 536 It is submitted that a grant of authority as broad and as sweeping as the threedigit standard industrial classification numbers could never become the subject of adequate Tariff Commission consideration under the weakened H.R. 9900 peril point provisions. The use of this three-digit system renders useless the provisions of H.R. 9900, which direct the President to "seek advice" of the Tariff Commission on competitive conditions for peril point purposes. Future tariff concessions should be granted by the United States only after careful analysis of domestic and foreign markets and trade in specific products and articles. Different political as well as economic problems require that the United States enter into trade agreement negotiations on a country-by-country, item-by-item basis. This policy restriction is essential not only for the treatment of imports into the United States but is equally important for our exports. The industry is well aware of the manifold and diverse restraints upon exports of organic chemicals which vary from country to country, and from month to month. Accordingly, authority vested in the President should be coupled with standards and requirements that specific restraints upon our exports other than tariff rates, be modified or eliminated before the United States grants any further tariff concessions. H.R. 9900 should also be amended to require that the President in reserving articles or categories under section 222 of the bill from negotiations shall apply the criteria and standards in existing law in the national defense provisions of the Trade Agreements Extension Act of 1958 which is carried forward into section 232. As presented to the Congress, there are no standards or criteria in H.R. 9900 to guide the President in determining which products may be reserved from negotiations in the interest of national security in section 222. Turning to title III of H.R. 9900, it is clear that the Congress is being asked to repudiate the policy contained in section 6 of the Trade Agreements Extension Act of 1951 as amended. In section 6, congressional policy is expressed as follows: "No reduction in any rate of duty *** shall be permitted to continue in effect when the product on which the concession has been granted is *** being imported * * * in such increased quantities *** as to cause or threaten serious injury to the domestic industry producing like or directly competitive products." H.R. 9900 is a clear repudiation of this policy since title III contains built-in recognition of the fact that increased imports will cause injury to domestic workers, firms, and industries. An industry such as ours, producing thousands of products, would not be eligible for assistance until all operations of the entire industry were affected by import competition, and the entire industry was prone and helpless. In H.R. 9900, escape clause relief is relegated to last recourse, and characterized "extraordinary relief." Standards and criteria for measuring injury contained in existing law are removed and substitutes are so phrased as to make the granting of escape clause relief rare or impossible. From remarks of administration spokesmen, it appears that escape clause relief has been emasculated on complaints of European and other governments. It is stated such governments are reluctant to enter into trade agrements with the United States, so long as concessions could be modified or withdrawn when the President and Tariff Commission have determined that imports of a product cause or threaten serious injury to domestic manufacturers of like or directly competitive products. These complaints and alleged reluctance to participate in future trade agreement negotiations are difficult to understand in view of the adherence of these countries to GATT. Article XIX of the GATT agreement constitutes the "Escape Clause" by which contracting parties may modify or terminate concessions. Article XIX permits escape clause action to be taken when imports of a product are being imported in such increased quantities as to "cause or threaten serious injury to domestic producers *** of like or directly competitive products." This portion of article XIX is substantially the same as the provisions of section 7 of existing law. Under article XIX Common Market countries as well as other GATT members invoke these provisions as the first and primary relief against the effects of increased imports; however, under H.R. 9900 this relief is eliminated and adjustment assistance and so-called extraordinary relief escape provisions are substituted. We have not noticed any disposition by GATT countries or other foreign nations to repeal article XIX or to substitute adjustment assistance provisions for the escape clause contained in article XIX, or any disposition to modify article XII (restrictions to safeguard balance of payments), article XIII (quantitative restrictions) or other articles of GATT which permit members to impose restraints upon imports by other means than imposition of tariffs. We urge that H.R. 9900 be amended so as to restore the existing peril point provisions and likewise maintain and strengthen the existing escape clause as the first relief procedures against injury from increased imports. |