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A realistic, mutually advantageous foreign trade policy

We propose a foreign trade program which we believe would permit industries such as ours to continue to compete against foreign competition in domestic markets and to operate productive facilities at levels sufficient to meet our wartime or emergency responsibilities.

First, we suggest that the surrender to Common Market demands implicit in H.R. 9900 is not warranted, unless and until the future trading pattern becomes clearer and the effects of the recently concluded 20 percent reductions in tariff duties upon our exports and imports be ascertained. Certainly, if the supporters of H.R. 9900 are correct in their conclusions that tariff reductions are the key to increased exports, then there should be a moderate increase of such exports, under the impetus furnished in the recent GATT agreements. If that hope is not realized within the period of the next 2 years, during which time reductions in U.S. duties will take effect, then it is submitted that duty reductions are not the answer to increasing exports, or lessening the gap in international balance of payments, or welding free world nations to our standard in the struggle with international communism.

Second, for industries as complex as ours, where the product mix involves hundreds, if not thousands of items, it is imperative that trade agreement negotiations be conducted in a product-by-product basis. "Basket clauses" in the Tariff Act, or the far broader SIC commodity groupings are inequitable bases for negotiations. In March 1962, the Tariff Commission described SIC groups as follows:

"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."

Third, trade agreement legislation should require the President to negotiate trade agreements on products. He should find as a fact such products are not being imported under existing duty levels, or there are unwarranted restrictions upon their importation, or there is a need for such imports to supplement domestic production, promote domestic efficiency, or be a stimulus to competition in domestic markets.

This factfinding function of the President is contained in existing law and should be maintained in H.R. 9900. Section 201 of the bill should be so modified. We suggest that the President's authority to reduce duties by 50 percent below July 1, 1962, levels should not be authorized until the 2-year waiting period mentioned in point I has elapsed.

Fourth, the 80-percent "dominant supplier" role, which is the basis for the special authority requested in section 211 in negotiations with the Common Market, as that trading bloc is constituted at time of negotiations, would include almost all of the products of their industry, as well as many products manufactured by customers. Complete elimination of duties under section 211 will cause this industry to disappear in the United States and its know-how, facilities, and capital will be established in foreign countries, and the products there produced will be shipped into "duty-free" United States.

At a minimum, negotiations with the Common Market bloc should be conducted on a product-by-product and item-by-item basis, regardless of the practices of the Common Market in dealing with countries comprising the trading unit or with other countries.

Section 221 would substitute general advice of the Tariff Commission for existing peril point provisions and existing requirements for public hearings would be eliminated.

In appearances before the Tariff Commission in 1960, the value of the Commission's peril point findings was demonstrated insofar as products of this industry were concerned. A broad class of organic pigments was included for negotiations under the "basket clause" designation of "all full-strength toners." We were happy to note that this all-inclusive category was not made the subject of concessions in the recent GATT negotiations, and attribute this to the careful and considered judgment of the Commission in its peril point deliberations.

We suggest that section 221 be amended to maintain existing rights to be heard, and these provisions be strengthened by requiring the Commission to determine,

as a permanent function, a constant review of the impact of imports upon like or directly competitive domestic products. Armed with this data when future trade agreement negotiations are considered, the Commission would be in a position to advise the President whether it is a fact that existing rates of duties are a bar to imports. Time pressures on the Tariff Commission would be lessened, should the Commission be vested with the authority and responsibility of continually reviewing and studying the flow of imports, their selling prices in the U.S. market, and comparing them with the selling prices of like or directly competitive domestic products.

We have previously mentioned the "national security" provisions in section 222, and suggest that the standards contained in section 232 of the bill be incorporated into section 222 as standards by which the President makes his determination that articles or products should be reserved for "national security" purposes.

Prior to any future trade agreement negotiations, the Tariff Commission, or other authorized agency, should prepare a list of industries or of products which are likely to be required for future national defense or security needs, and acquaint the President and the Congress with findings and the legislation should require that the President not include products of any such "key industry" or products thereof in future trade agreement negotiations.

Fifth, the retention of the "most favored nation" principle in section 241 is, in our opinion, not desirable. Any trade agreement should be subject to cancellation or modification whenever the country with which an agreement has been negotiated ceases to be the "dominant supplier," and the benefits of all agreements should be extended to other countries on a strict basis of mutual reciprocity.

Sixth, we question the wisdom of amending existing law whereby the Congress clearly suspends trade agreement benefits to imports from the Soviet Union or from any other nation or area dominated or controlled by a government controlling the world Communist movement. Under the language of section 231, specific references to imports from the Soviet Union are deleted as well as the references to establishing an embargo of importation of specific products of the Soviet Union or Communist China. There is substituted a Presidential discretion to withhold benefits under H.R. 9900 from products of countries "dominated or controlled by international communism." The policy to be followed should be spelled out very clearly.

Seventh, title III of the bill, the so-called adjustment assistance provisions, will not, in our opinion, permit units of this industry to operate and market its products in competition with duty-free imports of competing products. While affected workers may be granted subsistence relief when they lose their jobs, assistance to firms or the entire industry becomes available only when the effects of increased imports are so injurious as to compel widespread shutdown of operations or overall losses.

Eighth, in tariff matters, we believe the most direct and effective remedy which should be utilized first when multiproduct industries are injured or threatened with injury, is the escape-clause provision contained in existing law. Such escape-clause provisions can be made more effective by requiring the Tariff Commission to make findings of injury whenever import volume increases above and beyond the level which the Commission in its annual reviews of a trade or industry, previously determines may be imported without injury or threat of injury to domestic producers of like or directly competitive products; also by adding a clear, explicit limit on the time in which the President may act on Tariff Commission findings.

Finally, the Congress should maintain its existing power to review decisions by the Tariff Commission under the escape-clause provisions, which the President refuses or fails to put into effect.

Conclusion

DCMA believes existing law should be continued, pending a study of the international trade situation and the impact of imports under existing duty levels, and the effects of further duty reductions upon industry; that H.R. 9900 should be thoroughly revised to preserve and strengthen existing peril-point and escapeclause provisions; that trade agreement negotiations should be conducted on a product-by-product basis; that concessions should be made only where there is a truly reciprocal concession obtained in return; that a failure to maintain reciprocal values is cause for cancellation of a concession, or an agreement. 81843-62-pt. 6— -5

Finally, foreign trade policy should be clearly defined by the Congress, and the President be guided and controlled in delegations of authority, by including standards and limitations in the law.

Mr. KING. Thank you very much, Mr. Egeler. The committee appreciates your paper.

Are there questions? Mr. Alger will inquire.

Mr. ALGER. Mr. Egeler, you submitted a supplemental statement. Mr. EGELER. Yes, sir.

Mr. ALGER. Mr. Chairman, is that included in the record? Did you ask that that be included?"

Mr. EGELER. Yes, I asked that that be included in the record following my presentation.

Mr. ALGER. I particularly want to commend you for your nine points that comprise what is a constructive trade policy.

I believe you call it a realistic mutually advantageous foreign trade policy.

Mr. EGELER. We firmly believe that, sir.

Mr. ALGER. I realize with the shortage of time Ican neither question you in detail nor can you indulge in it, but I do want the record to show that you have made a constructive suggestion to overcome the disapproval which you have expressed in your statement.

Now, I would like to direct just one question. On your sixth one, when you say: "We question the wisdom of amending existing law whereby the Congress clearly suspends trade agreement benefit to imports from the Soviet Union" and so on, and you mention the Communist movement. Do you see a change in our policy under this bill? Mr. EGELER. Yes, I do.

Mr. ALGER. In what way?

Mr. EGELER. As I understand it, the present law specifically mentions a number of countries by name, whereas H.R. 9900 is not as definitive.

Mr. ALGER. You feel there could be a shift into trading with Communist-controlled nations and governments as well as the Russians themselves possibly under this bill?

Mr. EGELER. Yes, either on a primary basis or on a secondary basis. Mr. ALGER. We have been concerned about this. We could not get a direct answer from Secretary Ball, and Mr. Derounian, who is not here to ask you this, was particularly concerned with their feature, that we might indeed be changing the Battle Act and Buy American Act.

I appreciate your calling it to our attention and I hope that the committee will study it in executive session.

Mr. EGELER. Thank you very much, Mr. Alger.

Mr. KING. Are there further questions?

Thank you again, sir.

Mr. EGELER. Thank you, Mr. Chairman.

Mr. KING. Mr. Morningstar.

STATEMENT OF THOMAS W. MORNINGSTAR, ON BEHALF OF TAPIOCA IMPORTERS ASSOCIATION

Mr. MORNINGSTAR. Mr. Chairman and members of the committee, I am Thomas W. Morningstar, executive vice president of Morning

star-Paisley, Inc. I am appearing today in my capacity as president of the Tapioca Importers Association; my associate is Lesley Jacobson, counsel for this association.

My purpose in testifying today is an attempt to place in proper perspective certain testimony you received on March 23, 1962, from spokesmen for the domestic producers of corn starch, potato starch and wheat starch, who recommended that the bill now under consideration, H.R. 9900, be amended so as to provide for a quota on tapioca imports.

These spokesmen for domestic starch producers have alleged that vast quantities of tapioca will be imported into the United States in the near future and that such imports have been in the past and will be in the future seriously detrimental to the domestic starch industry. I have submitted a longer statement with exhibits for inclusion in the record of these hearings and wish at this time only to make a few very brief statements.

Mr. KING. Your entire statement will be made a part of the record, Mr. Morningstar, just as though you had presented it in its entirety. Mr. MORNINGSTAR. Thank you.

The contentions of domestic producers of starch are not new. They are a rehash of contentions that have been made periodically ever since 1883, most recently in 1960 during a full-scale investigation of the starch industry by the Tariff Commission.

Tapioca has been imported into the United States free of duty since 1883. Ever since that time, the domestic starch producers have been endeavoring to persuade the executive branch and the Congress to take discriminatory action against tapioca imports based on vague and unsupportable allegations that these imports are in some way injurious to the starch industry.

Major efforts along these lines were made in 1908, 1913, 1922, 1929, 1933, 1935, 1946, and most recently in 1960. In every one of these instances their efforts came to naught because it could not be demonstrated that tapioca was competitive with domestic starch to any significant extent.

The various types of starch have different technical characteristics and each type is used in particular industrial applications because the users prefer or require that particular starch for the particular application. Now, where tapioca is used by American industry, the use is based upon the definite preferences for its technical characteristics in the application involved.

I do not desire, Mr. Chairman, to take the time of this committee in responding to all the allegations made by the domestic producers. Instead I would refer the committee to the March 1960 report of the Tariff Commission on the starch industry, which report was prepared following a comprehensive investigation and hearings undertaken by the Commission pursuant to a resolution by the Senate Finance Committee under section 332 of the Tariff Act of 1930.

The report contains all relevant data with respect to this matter and unequivocally establishes that the contentions of the domestic starch producers are without foundation.

That completes my statement, Mr. Chairman.

I shall be pleased to respond to any questions and furnish any other information the committee may desire.

(The complete statement referred to follows:)

STATEMENT OF THOMAS W. MORNINGSTAR ON BEHALF OF TAPIOCA IMPORTERS ASSOCIATION IN CONNECTION WITH H.R. 9900

Mr. Chairman and members of the committee, my name is Thomas W. Morningstar. I am executive vice president of Morningstar-Paisley, Inc., and am appearing before this committee today in my capacity as president of the Tapioca Importers Association.

The Tapioca Importers Association is in agreement with the objectives of H.R. 9900 and urges its enactment.

We are appearing before this committee today because certain spurious issues have been injected into consideration of this legislation by the domestic pro ducers of cornstarch, potato starch, and wheat starch. These are not new issues. They are nothing more than a rehash of contentions advanced before and fully considered by the Tariff Commission in 1960, and before then at periodic intervals ever since 1883. Spokesmen for these domestic producers appeared before the committee on March 23 and expressed concern about the fact that substantial quantities of tapioca starch are being imported into the United States, which imports, they allege, are seriously detrimental to the interests of the domestic starch manufacturers. They recommended in their testimony that H.R. 9900 be amended so as to include the substance of two other bills now pending before the committee, H.R. 10823 and H.R. 10833, which would establish quotas with respect to tapioca imports. It is our desire to bring to the attention of this committee certain facts which will place the contentions of the domestic producers in proper perspective.

Tapioca flour has been imported into the United States free of duty since 1883. Since that time, American manufacturers of corn starch, and more recently manufacturers of potato starch, have made numerous efforts to persuade the Government that imports of tapioca are detrimental to the domestic starch industry, and therefore should be subject to discriminatory action.

In 1908, 1913, 1922 and 1929, the corn starch industry attempted unsuccessfully to persuade Congress to impose a tariff on tapioca. In 1933, they attempted to induce the Secretary of Agriculture to fix a compensatory tax on the first domestic processing of tapioca. In 1935, they filed a compaint under section 3(e) of the National Recovery Act, and in addition sought to remove tapioca from the free list in relation to the Netherlands. In 1946, they laid their case before the Committee for Reciprocity in Foreign Trade.

In each of the cases, the efforts of the domestic starch producers were based on vague and unsupportable allegations that tapioca imports were in some way injurious to the domestic starch industry. But all of these efforts came to naught because the domestic producers could not demonstrate that imported tapioca was, in fact, competitive with domestic starches to any significant extent.

Again, in 1960, the corn starch and potato starch producers were instrumental in bringing about a full-fledged investigation of the starch industry-squarely aimed at tapioca-by the Tariff Commission, pursuant to a resolution of the Senate Finance Committee under section 332 of the Tariff Act of 1930. The Tariff Commission conducted an extensive investigation and comprehensive hearings in the course of which the corn starch and potato starch producers made a full presentation of their case. Following the investigation and hearing, the Tariff Commission in March 1960, published a comprehensive report on the starch industry. This report once more clearly established that tapioca imports are in no way detrimental to the domestic starch industry.

It will be noted, Mr. Chairman, that when Mr. Greenwall and Mr. Scheiter appeared before this committee on March 23, they studiously avoided any refer ence to the Tariff Commission's report, except for a few oblique references out of context. The reason for this is obvious: the report contains all data relevant to their contentions, and simply does not support their position. We believe this committee will find the Tariff Commission's report to be a more accurate source of information than the testimony of Mr. Greenwall and Mr. Scheiter.

The cornerstone of the domestic producers' case is their contention that tapioca starch is interchangeable with domestic starches in most industrial applications so that tapioca imports automatically displace domestic starches in these applications.

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