interest to us specifically-but the point is that they are proposing to do something that has already been done. The language of that portion of section 22, as written, is entirely redundant. In other words, the taxes on those five oilseeds are already collected at the port of entry, the same as its expected to be accomplished by changing the processing tax on cocoanut oil, palm kernel oil, and palm oil into import taxes.

Now, mind you, there is a further consideration which shows that these are actually considered by the State Department to be import taxes at the present time, for the simple reason

Senator KERR. Is there a different situation with reference to this second group of oil-bearing seed that you have referred to?

Mr. GORDON. Yes, sir. The situation is this: That has not any business in the bill at all and never should have been put in there. Senator KERR. I am trying to get the information.

Mr. GORDON. Yes, sir.

Senator KERR. Now, on the copra and the palm kernel and the palm oil, there is at this time no import tax of any kind?

Mr. GORDON. Well, there is on the oils. It is not on the oilseeds that

Senator KERR. I am talking about the seed.

Mr. GORDON. The palm kernels and the copra, there is no import duty.

Senator KERR. Now, then, with reference to this other group that you were talking about, sesame seed, rapeseed, hempseed, kapok seed, and perilla seed, is there presently a tax on those seed imports?

Mr. GORDON. Yes, sir. It is an import tax, and they propose to change it into an import tax when it is already an import tax. Further, there is this fact: that the statutory rates of tax on every one of those oilseeds have been lowered, which proves that they are regarded as import taxes and not as processing taxes. Therefore, this language is absolutely redundant. It does not belong in the bill.

It is easy to concede, therefore, that since this portion of the bill proposes to accomplish something that has already been done, that that should be stricken out, and we earnestly hope when you do, strike that section out, that you will strike that section which proposes to change processing taxes into import taxes, and that will dispose of section 22 in its entirety.

Senator KERR. In other words, when we start striking out that which is redundant, you just think we ought to

Mr. GORDON. Yes, sir.

The CHAIRMAN. Strike out all of it.

Mr. GORDON. Strike it all out, yes, sir.

Now, the statutory rates of duty on those oilseeds are all on page 5 of my brief. Only one of them still stands at the statutory ratethat is the one on perilla seed-which is 1.38 cents a pound, but that also had been reduced 50 percent under section 350 of the Tariff Act of 1930 in the Chinese Trade Agreement. But the Chinese denounced their trade agreement, and therefore it reverted to the original rate, that is, the statutory rate of 1.38 cents per pound. Senator KERR. What is perilla seed?

with

Mr. GORDON. It is a seed from which you obtain a drying oil, a very high absorptive power for oxygen, which is used in the manu

facture of paint and high-gloss varnishes. It is produced mainly in the Orient.

The CHAIRMAN. The same as tung oil. It serves the same purpose. Mr. GORDON. Somewhat; yes, sir.

The CHAIRMAN. Somewhat the same function?

Mr. GORDON. Yes, sir.

The CHAIRMAN. Your recommendation, Mr. Gordon, is that this Section 22 be taken out of this bill?

Mr. GORDON. Yes, sir.

The CHAIRMAN. As adding nothing to customs simplification, and it necessarily brings about some complications in converting the tax over to an import duty.

Mr. GORDON. Yes, sir. And that it would bring a very grave burden upon the copra-crushing industry. You understand that these men in that business have had a long seige of no profit, and I am afraid if they were confronted with this responsibility of raising additional working capital it would put some of them out of business.

The CHAIRMAN. Would there be any likelihood, or put it the other way around, would there be any temptation to crush all these, say, copra into oil and ship it into this country as oil? Would there be some danger of that happening?

Mr. GORDON. If converted into an import tax?

The CHAIRMAN. If you converted it into an import tax.

Mr. GORDON. Well, of course, the oil would bear a three cents per pound tariff duty.

The CHAIRMAN. Yes, that is true.

Mr. GORDON. That would not benefit. I cannot see that anybody would benefit, Senator, although such a trend as you mention might be started if the inequities against copra proved too great.

The CHAIRMAN. You cannot see anyone benefited?

Mr. GORDON. No, sir; not a soul.

Senator KERR. You say this is where everybody could be hurt and nobody helped.

Mr. GORDON. Yes, sir; and seriously, sir.

The CHAIRMAN. Thank you very much, Mr. Gordon. Your whole brief will appear in the record.

(The brief of John B. Gordon is as follows:)

BRIEF SUBMITTED BY JOHN B. GORDON, SECRETARY, THE BUREAU OF RAW MATERIALS FOR AMERICAN VEGETABLE OILS AND FATS INDUSTRIES, URGING THE SENATE FINANCE COMMITTEE TO STRIKE SECTION 22 FROM THE PROVISIONS OF H. R. 5505 (THE CUSTOMS SIMPLIFICATION ACT OF 1951)

Since section 22 of H. R. 5505 is the only section which is of specific interest to the members of the Bureau of Raw Materials for American Vegetable Oils and Fats Industries, it is discussed in detail. Section 22 is of particular interest to crushers of copra, refiners of coconut oil and producers of fatty acids, when the basic material is either crude coconut oil or palm-kernel oil. Section 22 proposes to convert the processing taxes levied on coconut, palm, and palm-kernel oils in the Revenue Act of 1934 to import taxes. Collection of the import taxes would be made by the Commissioner of Customs rather than by the Commissioner of Internal Revenue as is presently required by law in the case of the processing taxes.

The foregoing conversion of processing taxes to import taxes is proposed to be carried into effect because of the provisions of part I of article II of the General Agreement on Tariffs and Trade and part II, article III, as entered into at Geneva in 1947, as quoted below:

"PART I, ARTICLE II-SCHEDULES OF CONCESSIONS

"1. (a) Each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement.

"(b) The products described in Part I of the Schedule relating to any contracting party, which are the products of territories of other contracting parties, shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided for therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date.

"(c) The products described in Part II of the Schedule relating to any contracting party, which are the products of territories entitled under Article I to receive preferential treatment upon importation into the territory to which the Schedule relates, shall, on their importation into such territory, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided for in Part II of that Schedule. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date. Nothing in this Article shall prevent any contracting party from maintaining its requirements existing on the date of this Agreement as to the eligibility of goods for entry at preferential rates of duty."

"PART II, ARTICLE III-NATIONAL TREATMENT ON INTERNAL TAXATION AND REGULATION

"1. The products of the territory of any contracting party imported into the territory of any other contracting party shall be exempt from internal taxes and other internal charges of any kind in excess of those applied directly or indirectly to like products of national origin. Moreover, in cases in which there is no substantial domestic production of like products of national origin, no contracting party shall apply new or increased internal taxes on the products of the territories of other contracting parties for the purpose of affording protection to the production of directly competitive or substitutable products which are not similarly taxed; and existing internal taxes of this kind shall be subject to negotiation for their reduction or elimination."

1. The United States is under no obligation under the terms of GATT (or any other instrument) to convert the processing taxes on coconut, palm-kernel and palm oils into import taxes

Attention is called to the fact that the concluding sentence of paragraph 1 (b) of part I, article II, of GATT reads as follows:

"Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date."

It will also be noted that similar phraseology appears in paragraph 1 (c) of part I, article II, of GATT. It is also pointed out that paragraph 1 of part II, article III, contains somewhat similar language, which reads "no contracting party shall apply new or increased internal taxes."

Attention is called to the foregoing language to show that there is no obligation incumbent upon the United States to change the processing taxes on coconut, palm, and palm-kernel oils into import taxes, in view of the fact that these taxes were instituted prior to the entry of the United States into GATT in 1947, having been in effect since May 1934, and, having been in effect since that date, they are not "new" taxes.

Attention is also called to the fact that part II, article III, as quoted above, contains the following language: "and existing internal taxes of this kind shall be subject to negotiation for their reduction or elimination." It is obvious that this provision was expressly ignored in the drafting of section 22, as may be seen from the inclusion of a specific provision on page 41, lines 18 to 23, inclusive, which forbids modification of the processing taxes after conversion into import duties under section 350 of the Tariff Act of 1930, as amended.

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The ignoring of the provision that “existing internal taxes of this kind shall be subject to negotiation for their reduction or elimination" furnishes additional proof that the United States is under no obligation whatsoever to make any of the changes proposed in section 22 of H. R. 5505. In other words, if the authors of H. R. 5505 were seeking to perform an obligation of the United States under GATT, it would appear that they would do so in toto by making the processing taxes when converted to import taxes subject to reduction, rather than to specifically prohibit such reduction.

2. The proposal to convert the taxes on hempseed, perilla seed, kapok seed, rape-seed, and sesame seed into import taxes as contained in section 22 is redundant, as these taxes are already collected at the port of entry and have the status of import taxes

H. R. 5505 also proposes to convert the taxes on hempseed, perilla seed, kapok seed, rapeseed, and sesame seed into import taxes. The taxes on these oilseeds likewise originated in the Revenue Act of 1934. They are, however, already being collected at the port of entry at the time of importation by the collectors of customs. They are already regarded as import taxes, and not as internal taxes, as evidenced by the fact that the statutory rates of tax as given on page39, lines 24 and 25, and line 1 of page 40 of H. R. 5505, have been reduced under the provisions of section 350 of the Tariff Act of 1930, as amended. We give herewith the statutory rates of duty on these five oilseeds, with the existing rates of import tax.

1 Lowered by GATT to 0.69 cent per pound, but restored to statutory rate when China withdrew from GATT.

We point out that none of the above reductions in amount of tax could have been made if the taxes borne by the five oilseeds had the status of internal taxes as internal taxes have been ruled by the Department of State to be immune from negotiation for reduction. The portion of section 22 which relates to the taxes on the five oilseeds above listed may, therefore, be considered as redundant by the Senate Finance Committee in that they propose to do something which was accomplished at the time of the original enactment of these five taxes. The Finance Committee should, therefore, of necessity eliminate these provisions of section 22. If the Finance Committee does this and accepts our initial recommendation that it eliminate the portions of section 22 dealing with the changing of processing taxes into import duties, this will dispose of section 22 in its entirety.

3. The change-over from processing taxes to import taxes would require copra and palm-kernel crushers and coconut oil processors to obtain $18.6 million additional working capital

The collections from the processing tax on coconut oil in the fiscal year ending June 30, 1951, totaled $18,572,838.15. The conversion of the processing tax on coconut oil into an import tax would oblige the crushers of copra, the refiners of coconut oil and the manufacturers of fatty acids and higher alcohols from crude coconut oil to pay out this amount of money at the time of importation (granted that consumption would be as large in the current fiscal year). The present system whereby the processing tax is collected on the first domestic processing does not require the payment of the processing tax until some 3 or 4 months after the entry of the coconut oil, and in the case of copra crushers who produce crude coconut oil solely the tax is not paid by them at any time.

The collection of the processing tax on the first domestic processing results in. the factory consumer having to pay the processing tax. This means responsibility for the payment of the tax to the Treasury is diffused over a wide area; i. e., the many factory consumers pay the tax, whereas the collection of the tax at the port of entry would throw the burden upon the baker's dozen or so of copra crushers, coconut-oil refiners, and distillers of fatty acids from crude coco

nut oil. Conversion of the processing tax to an import tax would, therefore, make it mandatory for this handful of processors to procure additional working capital in the amount of $18.6 million over and above their current requirements. The procuring of additional working capital is exceedingly difficult insofar as the procuring of such capital from the accumulation of savings by corporate entities is concerned. It can only be obtained by bank loans, which would add materially to operating expenses, or by the issuance of bonds or stock issues, the salability of which is doubtful as profit in the case of crushers of copra in practically nonexistent due to the severe competition between European, Philippine, and United States buyers for the Philippine copra supply. (It should be understood that the purchases of copra by United States buyers are confined to the Philippines by virtue of the 2 cents per pound differential in the processing tax in favor of the Philippines-a preference which is continued by the Philippine Trade Act of 1946 (Public Law 371, 79th Cong.) until July 4, 1974.) This condition of no profit has prevailed for so long a period of time that some of the crushers of copra are very near the end of their rope. The necessity of raising additional working capital could very well mean the forcing out of business of some of these firms. Parenthetically, the crushing of palm-kernels in the United States is carried on by the crushers of copra. A more correct designation for this industry would be the copra and palm-kernel crushing industry.

In prewar days approximately 90 percent of Philippine copra and coconut oil was shipped to the United States; 71 percent was shipped to the United States in 1948; 69.5 percent in 1949; 67.3 percent in 1950; and 50.2 percent for 1951.

Despite the Munitions Board stockpiling program during 1951, only 50.2 percent of the Philippine copra and coconut-oil exports were shipped to the United States in that period. Since the Munitions Board has expended practically all of its funds which it had available for the purchase of coconut oil for the current fiscal year, it means that the calendar year 1952 will see an even further decrease in the proportion of the Philippine copra and coconut-oil supply which the United States receives. This is a bleak prospect for the copra-crushing mills, as they have largely been dependent upon the stockpiling program to keep them in operation over a period of many months.

4. Conversion of the processing tax on coconut oil to an import tax would have serious repercussions on commerce between the United States and the Philippines

The Philippines in the year 1950 stood twelfth in importance in the volume of exports from the United States and in the ranking among the suppliers of products imported by the United States they stood tenth. In the calendar year 1951, the United States exported $350,000,000 worth of merchandise to the Philippines (35 percent more than in 1950). Of this sum, $92,500,000 worth were agricultural products. The Philippines can buy from the United States only to the extent that they are able to sell their products to this country. The presen diversion of the flow of Philippine copra from the United States to Europe means that the Philippines will buy proportionately less from the United States.

To transport a cargo of copra from the Philippine Islands to the west coast of the United States where most of the copra crushing mills are located requires 3 weeks. To transport copra to New Orleans from the Philippine Islands and up the Mississippi River to reach interior copra-crushing mills requires 7 weeks. To transport copra and coconut oil from the Philippine Islands to the copracrushing mills on the Atlantic seaboard requires 5 to 6 weeks. A month or more may elapse before a steamer is booked by the Philippine Islands dealer. The elapsed time between the date of purchase in the islands and delivery in the United States may, therefore, range from 2 to 3 months.

The long period of time required to lay Philippine copra and coconut oil down in the United States makes it desirable that crushers and refiners carry stocks on hand against which no commitments have been made. To not do this would seriously diminish the volume of business done. Somewhat the same factors exist in the crushing of palm kernels which come from the west coast of Africa and from Indonesia.

Should the processing taxes on coconut and palm-kernel oils be converted to import taxes crushers of copra and palm-kernels and refiners of coconut oil will only rarely be willing to make the heavy investment in the import taxes to the extent required in the carrying of adequate unsold stocks. This will simultaneously make their business even less profitable than at present while reducing the flow of commerce between the United States and the Philippines.