Mr. JENKINS. In that connection, Mr. Secretary, would it be your idea to insert in the record at this time the report of the Department of State. The report has come in. I think it would be well to have it inserted at this time. Mr. Rose. I think that would be very helpful, sir. Mr. JENKINS. If there is no objection, it will be so ordered. (The report is as follows:) Hon. DANIEL A. REED, Chairman, Committee on Ways and Means, House of Representatives. MAY 26, 1953. MY DEAR MR. REED: The Department would like to take this opportunity of submitting its views on H. R. 5106, the customs simplification bill. The Department strongly recommends enactment of this legislation. Simplification of United States customs procedures and regulations will facilitate the healthy development of a mutually profitable trade which not only could assist other countries to earn their own way, but also could lessen, to some extent, the extraordinary demands on American taxpayers for foreign aid. It is difficult to emphasize sufficiently the importance which other countries place on United States action to simplify customs procedure. Foreign countries have strongly urged that we simplify our customs procedures. Canada has already taken some steps to simplify its procedures and is now waiting for us to do likewise. Our ability to get other countries to modernize their procedures and to reduce their customs barriers against American goods will depend greatly on what the United States is itself prepared to do. American traders have long complained about what they term the unnecessary red tape of customs regulations. Many of the leading business organizations in the United States are urging the simplification of our customs procedures along the lines proposed by H. R. 5106. H. R. 5106 will contribute toward meeting the needs of this Nation for a simpler, more efficient, and more equitable customs administration. For these reasons the Department strongly recommends its passage. Sincerely yours, THRUSTON B. MORTON, Assistant Secretary (For the Acting Secretary of State). Mr. JENKINS. I understand it is very favorable to the position of your Department. Mr. Ros. Yes, sir. The provisions which are contained in the bill have been specifically cleared with the State Department, and represent their views also. Mr. JENKINS. Any questions? Mr. Simpson will inquire. Mr. SIMPSON. Mr. Rose, with respect to section 15, if an exporter chooses to export to this country, from, for example, France, on what value would the duty be levied? Mr. ROSE. Under the law as it is now? Mr. SIMPSON. Yes. Mr. ROSE. The general system of valuation is the higher of the socalled foreign value or the so-called export value. The foreign value is technically defined, and the gentlemen with me can correct me if I misstate it in trying to generalize, but in general it is the wholesale value for the French wholesale market, or the value at which goods are sold in usual wholesale quantities for home consumption. That is foreign value. The export value is the value at which goods are sold in the foreign market in usual wholesale quantities for export to the United Statesfreely offered is the technical term-and the higher of the two is the basis. Mr. SIMPSON. So under the law as it is today, a foreign country which sold the article domestically for a price higher than it was willing to sell it into the United States would have a duty levied on the price at which it sold the goods to its own citizens. Mr. ROSE. That is correct. Mr. SIMPSON. What change is made in section 15? Mr. ROSE. Of course, we have stated only a part of the present formula. Mr. SIMPSON. Will you tell me the circumstances under which that part would be applicable? Mr. ROSE. If foreign value or export value can be determined, then they are applicable under the law as it now stands. Mr. SIMPSON. You mean readily determinable. We determine them today one way or another? Mr. ROSE. The circumstances in which they are not determinable requires a little more analysis, and I think is one of the objectionable features of the present method of determining value. For instance, the term "freely offered" is in both these definitions. Freely offered is defined by court decisions as offered without any restriction at all. If, for instance, an exporter in France has a system of distribution whereby he sells only to one distributor in a particular city, then his offers are not governing because the legal construction is that he has not freely offered, and therefore you abandon his offers of determining value. Mr. SIMPSON. What do we do then? Mr. ROSE. We go to the next method of determining value, which is United States value, which broadly speaking is the value at which goods are freely offered in usual wholesale quantities in the United States. This value is then figured back to the value in the foreign country by subtraction of commission, for instance, and cost of transportation and duty. Then if you cannot determine that value for any one of the same kind of reasons, it is determined on the cost of production. That is the present system. To go back to your question, which is what change does this proposal make in the first bracket of the present method of determining value, the foreign or export value, whichever is higher: The proposal is to eliminate foreign value as a criterion and to make export value the preferred method of determining value wherever it can be ascertained. In addition the proposal defines certain of the terms in the definition of export value to permit the use of what would be, I think, regarded as a normal commercial value. To explain that a little more I think that commercially speaking, people do not regard a price as unrealistic, or as a price which ought to be abandoned as a method of determining value, because of some of these usual commercial restrictions. For instance, if a man does follow a system of distribution of distributing to only one retailer per town, and that is his normal method of doing business, there is not any reason why that fact ought to eliminate his going price as the basis for determining value. There are various changes of that kind which are made in the method of determining export value. Mr. SIMPSON. He might, for example, want an exclusive outlet here. Mr. ROSE. Exactly. Mr. SIMPSON. Getting back to the purport of my question, then, the foreign government might still have a two-price system, one for domestic consumers and the other for export to market, and our duty, assuming the export price were ascertainable, our duty would would be levied against the export price which might be less than the going price to the citizen? Mr. ROSE. That is correct. Mr. SIMPSON. Is that desirable? Mr. ROSE. Let me say this, sir. If it were an artificially low price based on sales below a certain amount, this act does not affect the antidumping duty applicable to sales at less than fair value in the law. Mr. SIMPSON. Is there a protective provision there that if the export price were so low, under this bill we would check into that? Mr. ROSE. This bill does not purport in any way to affect the antidumping provisions of the existing law. Mr. SIMPSON. You mean we could accept the price they put on it for export? Mr. ROSE. No, sir. What I mean is that the antidumping provision is a provision in the present law which provides for the imposition of antidumping duties in the event of sales at less than fair value of goods in this country. That procedure would not be affected. Mr. SIMPSON. I understand that. Is there anything in this bill that would immediately stop that, in the event it was ascertained that the price was less than the cost of production? Mr. ROSE. If the price were less than the cost of production? Mr. ROSE. The price for export were less than the price in the domestic market? Mr. SIMPSON. Take the extreme case where it was deliberately away down, just to get rid of their product. Is there nothing in this bill which would restrict the fact that the Government here would have to take the export price as they state it as the basis for our duty? Mr. ROSE. There is nothing in this bill. I do want to reemphasize that nothing in this bill affects the two protective provisions against that situation which are contained in the existing law. Mr. SIMPSON. I understand that. But after all, that is a rather cumbersome relief that they would have to request, I think. It certainly has not functioned very effectively. Maybe there has not been any occasion for it. Mr. ROSE. It has functioned more frequently lately. Mr. SIMPSON. A foreign country, I have been told, in cases in the past, had different prices between the domestic price and the export price. It could sell the article at home at one price, and have one at a great deal lower price under this bill for export without recourse on our part. Mr. ROSE. I want to analyze that a little more. Mr. SIMPSON. I want you to. Mr. ROSE. The definition on page 31 is, "sold or offered to all purchasers at wholesale or one or more selected purchasers at wholesale at a price not less than at which it would be sold to all purchasers at wholesale without restrictions as to disposition and use, except normal restrictions in effect." If I understand the case you are putting, you are assuming something other than a free market price. Mr. SIMPSON. I am willing to assume a free market price, but a price at which they will sell to anybody in the world that will buy it, which is a price a great deal less than they are selling to their citizens. I realize the antidumping provisions could be brought in. Mr. ROSE. Yes. Mr. SIMPSON. But as far as this bill is concerned, our duties would be levied on that price, no matter what it is or how low it is. Mr. ROSE. No, the antidumping provision has its own definition of what price is applicable, which would not be affected by this bill. Mr. SIMPSON. Without respect to the antidumping provisions, if any country had a price for export, regardless of how much less it was than the domestic price, your administration levying the duty would apply to whatever price they said was for export. Mr. ROSE. The amount of the antidumping duty is the difference between the price at which it is actually sold for export and fair market value as determined under the Anti-Dumping Act. Mr. SIMPSON. You do not recognize that administratively. has to be a request for relief there, does there not? There Mr. ROSE. The Secretary of the Treasury can make investigations on his own or he makes them on request of an interested party. Mr. SIMPSON. But he is not required to do it under this bill with respect to every item unless he has reason to believe that some harm is being done, is that not right? Mr. ROSE. This bill does not affect the antidumping provisions of the law. Mr. SIMPSON. Then I hope I make my point clear. For example, the export value could be ridiculously low with respect to what the domestic price for that article was, if they wanted to do it, and our duty would be levied against that low price. Mr. ROSE. May I put it this way. If you were assuming a fictitious price, in other words, a price that is not a normal commercial priceMr. SIMPSON. I am assuming that, and it is available to everybody in the world, and it is their export price. Mr. ROSE. It is their export price. I have difficulty imagining a case where the antidumping provision would not be available under those circumstances. Mr. SIMPSON. I am willing to agree with you on that. I wonder whether our duty would be levied against that ridiculously low price, and thereafter by way of relief you might say it was wrong, and then use the antidumping thereafter, but not at that time. You would not have time to do it? Mr. ROSE. Actually the way in which that works-and these gentlemen here can correct me if I am wrong when suspicion of dumping arises in the mind of the appraising officer at a port, he does not appraise the merchandise that is coming in, so that the amount of duty is not finally determined until the question whether there is dumping or not has been determined. The usual effect of that, because of the uncertainty of it, is to prevent any further importation until that determination has been made. Mr. SIMPSON. Are you telling me, then, that there is a limitation under existing law and within this bill and the export price is not the final determination as to whether those goods come into the country? Mr. ROSE. If the case is one of dumping, yes, that is correct. May I continue with that point a little bit further? Mr. SIMPSON. Surely. Mr. ROSE. I think your assumption has been that there was something fictitious in the lower export price in a foreign country. Mr. SIMPSON. It could be. Mr. ROSE. I would like to point out the kinds of circumstance in which there may be a lower export price and a higher domestic wholesale price. That frequently happens when the export is from a small country where the domestic market for purchases in the domestic market are typically in small quantities, whereas sales for export are in typically larger quantities; where under normal commercial procedures you would expect some price differentials. As things now are, the goods from a small country whose domestic market is small, and the price higher, those goods have to come to us at a higher duty than identical goods from a larger country that is exporting to us. That is one of the anomalies that results from the present law. Mr. SIMPSON. Of course, one of the other circumstances is where they are deliberately endeavoring to take the market here, and cut the prices to do that, knowing that the duty would be applicable at that cut price. Mr. ROSE. Yes. Mr. SIMPSON. I think I understand that this liberalizes the possibility of imports at a price which is not realistic when compared with the domestic price for that article. Mr. ROSE. Subject to safeguards. Mr. SIMPSON. Subject to antidumping relief. Mr. ROSE. And countervailing duty relief if there is any subsidy in the foreign price. Mr. SIMPSON. Thank you very much. Mr. ROSE. I would like to emphasize before we leave that point the technical argument from the standpoint of the administration of the customs service for this elimination of foreign value. Over one-third of the 120,000, unfortunately, invoices that we have that are over 90 days old, are held up on account of the necessity of foreign investigation, of which the considerable bulk is the determination of the foreign wholesale price, if we may call it that. That investigation is quite a difficult and burdensome thing. From the standpoint of the technical administration of customs the elimination of it would be of considerable value. Mr. JENKINS. Mr. Forand will inquire. Mr. FORAND. I am not quite clear on the statement you made, Mr. Secretary, relative to the other departments submitting statements. Am I to understand that each department is speaking for itself, but rather than each making a personal presentation here, you are just having their statements introduced in the record? Mr. ROSE. Yes, sir. The provisions which are in the Jenkins bill were cleared by the Bureau of the Budget with all interested departments. But in view of the fact that the change in the date of the hearings shortened the period of the hearings to 3 days, as I understand it, and in view of the fact that the committee had been over the bill which was very closely similar to this at the last Congress, we felt that |