5. The imposition of an import tax in lieu of the processing tax would create inequities between copra from different producing areas and between individual crushers and would result in complicating customs procedure

Section 22 does not designate the amount of duty which shall be levied on copra and palm kernels but leaves the determination to the United States Tariff Commission. In the case of copra that agency would find that the oil content of copra varies in various producing regions. Some is sun dried. Some is kiln dried. The latter, if dried by native methods, is apt to be high in moisture. Hence, the Tariff Commission in endeavoring to ascertain the duty on copra which would be equivalent to the 3-cent per pound processing tax on coconut oil would be obliged to take into consideration the fact that speaking in general terms the oil content of copra varies with its moisture content. Further, the Tariff Commission would find that copra produced in an area which grows small coconuts will yield more oil than copra produced in an area where large coconuts are grown. For these reasons the application of a flat rate of import tax on copra would be apt to work so great an injustice that it had best not be attempted in the first place. On the other hand, the basing of the amount of tax on the actual oil content would be so difficult of administration that it is a foregone conclusion that the result would not be customs simplification.

The collection of the processing tax on coconut and palm-kernel oils on the first domestic processing works no discrimination among crushers. A tax on copra would, however, because those crushers who are equipped with solvent extraction facilities would obtain considerably more oil per ton of copra or palmkernels than those who are dependent upon expellers solely. Thus, the amount of tax paid per pound of oil produced would be proportionately less for mills using solvent extraction. No such inequity arises with the processing tax in that a uniform tax of 3 cents per pound must be paid upon each and every pound of coconut and palm-kernel oil processed in the United States.

6. The industries affected by section 22 already have an unemployment problem which would be immediately aggravated if section 22 remains in H. R. 5505 on final passage

A very large proportion of the copra-crushing industry on the east and west coasts of the United States is shut down at present. Those crushing mills which can operate do so only on an irregular basis. This means that they have been obliged to lay off large numbers of their employees. Much of this unemployment is due to the loss of 30 percent of the chief market for coconut oil which is in the soap industry due to the competition of synthetic detergents with soap.

Refiners of coconut oil who in pre-World War II days supplied 75 percent of the ingredients of oleomargarine now are unable to market a single pound of their product for that use. This is due to the fact that during World War II when oleomargarine manufacturers were denied the use of coconut oil, because of the need to preserve available supplies for military use, they found that a better product could be made from cottonseed and soybean oils.

If section 22 remains in H. R. 5505 upon final passage, because of the further difficulties with which it will confront copra crushers and coconut oil refiners in operating at a profit, it will make it even more difficult to provide employment for their workmen. This furnishes an additional reason for eliminating section 22 from the bill now before the Finance Committee.

7. We doubt that the authors of H. R. 5505 realized the adverse effects which section 22 would have on the copra and palm-kernel crushing industries and are of the opinion that the authors of the bill will agree to the elimination of section 22 when same are pointed out to them

The authors of section 22 while undoubtedly aware that the United States is under no obligation under any international covenant to change existing processing taxes into import duties are assuredly unaware of the injury which would result to the copra-crushing industry. These phases have been dealt with adequately in the preceding portion of this brief.

One phase which has not been touched upon is the necessity of a strong copracrushing industry in the United States to the national defense. The Munitions Board carries a 5-year supply of coconut oil which it stocks for military needs such as the manufacture of napalm bombs, rubber substitutes, insecticides and germicides, synthetic resins, etc. This is an additional reason for the elimination of section 22.

A further aspect which should be taken into consideration is that copra and palm kernels are on the free list in the Tariff Act of 1930. There is, in fact, no record of an import duty having been levied on these oil-bearing ma

terials in any tariff act-including that of 1789, which was the first tariff act enacted by the Congress. Section 22 would require the imposition of import taxes on copra and palm kernels. Both are bound on the free list in GATT. While not contributing to customs simplification, these import taxes would complicate our diplomatic relations. Not only Great Britain, at whose request copra and palm kernels were bound on the free list, but all other suppliers of copra and palm kernels to the United States will undoubtedly object to arbitrary removal by the United States of copra and palm kernels from the free list of GATT. Further, the attempt to impose a customs duty on copra which would be administered on an equitable basis would present difficulties which would complicate rather than simplify customs procedure.

Section 22 of H. R. 5505 also proposes to change the processing tax on palm oil to an import tax. Since this brief deals with the problems of the copra and palm kernel crushing industry, we will not enter into a detailed discussion of palm oil and will be content to point out that palm oil is tax-exempt as respects its chief usage; i. e., in the manufacture of tin plate. Its other fields of usage have been largely interdicted by the 3-cent per pound processing tax. Belgium, the Republic of Indonesia, and Great Britain, who are the chief suppliers of palm oil, would like to regain some of this business-particularly that which they had in the textile industry. Their chances of regaining any of it will be lessened by the change-over from a processing tax to an import duty for reasons similar to those applying in the case of copra, palm kernels, coconut, and palm-kernel oils.

We have heard of no demand emanating from the countries of origin of copra, coconut oil, palm kernels, and palm oil for a change-over from processing taxes to import taxes. Two of these countries, i. e., Indonesia and Belgium, which speaks for the Belgian Congo, in fact, have submitted protests in opposition to the proposal through the intermediary of the State Department. Great Britain has also protested section 22.

In the testimony delivered on H. R. 1535 (forerunner of H. R. 5505) before the Ways and Means Committee not one witness testified in favor of the changes proposed in section 22 of the bill now before the Finance Committee. On the contrary, the testimony was unanimously against the changes proposed. In view of the definite lack of demand for the changes proposed in section 22 and in the absence of any obligation on the part of the Government of the United States to make the proposed changes, we see no reason why section 22 should not be eliminated from H. R. 5505 and most earnestly petition the Senate Finance Committee to do so,

The CHAIRMAN. Mr. A. E. Thorpe?

(No response.)

The CHAIRMAN. Is Mr. Rocca here?

Mr GORDON. Mr. Rocca is not here. I spoke for him.

The CHAIRMAN. And Mr. Thorpe is not here.

I believe that finishes the testimony, then, of the witnesses.

The hearings will be adjourned until we have an executive session of the full committee.

(The following information was supplied for the record:)

BRIEF SUBMITTED BY EDWIN WILKINSON, EXECUTIVE VICE PRESIDENT, NATIONAL ASSOCIATION OF WOOL MANUFACTURERS, CONCERNING H. R. 5505 (THE CUSTOMS SIMPLIFICATION ACT)

* *

Section 303 of the Tariff Act of 1930 provides: "Whenever any country * shall pay or bestow, directly or indirectly, any bounty or grant upon the manufacture or production or export of any article or merchandise manufactured or produced in such country * and such article

* *

*

* *

or merchandise is dutiable under the provisions of this Act, then upon the importation of any such article or merchandise into the United States there shall be levied and paid, in all such cases, in addition to the duties otherwise imposed by this Act, an additional duty equal to the net amount of such bounty or grant. however the same be paid or bestowed *

*

That is the law. That is the language. It is clear. It is specific. It is as understandable today as it was in 1930.

Mr. Frank A. Southard, Jr., special assistant to the Secretary of the Treasury, who has appeared before this committee, seems to suffer the delusion that these

words have different meaning in this modern world as he refers to it. We do not agree. It is obvious to us, and we are sure it must be to you, that when those words were written in section 303, Congress was not thinking solely in terms of "cash bounties" nor, indeed, of any single set of circumstances. The words "directly or indirectly" bear witness on this point as do "however the same be paid or bestowed."

66* * *

In his apologia, representing the Secretary of the Treasury, Mr. Southard says you will appreciate that the problem is greatly complicated for us by the growth in recent years of complex systems of multiple export or buying exchange rates," and further along he catalogs alleged underlying reasons for the maintenance of multiple rates of exchange:

66

*

(a) * countries often find it much easier to collect revenue through their central banks and exchange authorities

*

*

(b) "(They) can also be an effective means of controlling the inflationary effects of large earnings in a few export industries at a time when other export industries are not booming."

Mr. Southard does not contend that multiple rates of exchange may not be used in order to bestow bounties or grants. In fact he admits that Treasury "has always felt that it is possible." However, he contends that "the extreme complexity of the motives and economic results" makes it "extremely difficult * * * to determine that a system of multiple rates of exchange bestows a bounty or grant."

We believe the "motives" for multiple exchange rates have no place in this discussion. There is not one word in section 303 dealing with motives for bounties or grants, however achieved. Important are the economical results.

In November of 1950 we advised the Treasury Department of the economic result of the fact that Argentina and Uruguay maintained multiple rates of exchange for wool and wool top. In the Argentine the rate for wool was 5 pesos to the United States dollar and for wool top it was 71⁄2 pesos, a subsidy on the manufactured top in the magnitude of 50 percent of the value of the raw material of which the top is manufactured. There is nothing complicated about this.

Mr. Wellman, one of our directors and the president of Nichols & Co., top manufacturers, has recorded the economic results here in the United States. From nothing in 1947, top imports from Argentina and Uruguay alone have reached a volume of 7,564,000 pounds in 1951. Wool top from the Argentine has been offered for $1.41 per pound on the same day that suitable wool from the same source, to make a like grade of top, was quoted at $1.42 per pound clean basis. And it costs about 48 cents a pound to convert that wool to top. There is nothing complex about this, yet Treasury says this difference in exchange rates does not constitute a grant or bounty in the "usual sense of the term" (letter: Commissioner of Customs, December 14, 1950). Nor was this an offhand opinion, for this view was reaffirmed one month and a half later.

Now Treasury, which apparently can't recognize a bounty or grant when it sees one, stands before you as sponsor, and asks your support of a provision that would make implementation of section 303 dependent upon a finding by the Secretary that an American industry is injured or retarded in consequence of the bestowal of a bounty or grant. Based on the futile experience we have had in attempting to persuade the Treasury Department to administer the existing law as we believe it is written, we attest that in our judgment such an amendment would be most hazardous and against the interests of our industry and its workers and, in the final analysis, the national welfare.

There is much more at stake in the principle involved here than the relative volume of top produced in this country and that imported from abroad. Mr. Southard has said before this committee: "* * * the American processor has an active interest in obtaining his imports at the lowest cost possible." How wrong he is if he infers that they favor continuation of the flaunting of our national policy by foreign interests by such sophisticated subsidy schemes. Mr. Arthur O. Wellman, appearing before this committee on April 28, 1952, testified that he was probably one of the largest importers of these subsidized tops and that it had attractive profit possibilities. Yet he pleaded for you to take measures that would put an end to the practice in the interest of the wool industry and its workers in the United States. We, too, make the same plea and our organization represents the processors of wool in all stages up to yarn piece goods and blankets. Our mutual desire to stop this circumvention of our tariff policies springs from the belief that a strong, vigorous, and prosperous wool-textile industry within our own borders is in the national interest.

The Treasury-sponsored amendment would, for all practical purposes, repeal and abrogate and serve notice to the world, which already gives evidence of catching on, that our tariff rates are without meaning and can be readily circumvented through the simple device of currency manipulation.

We believe the tariff policy of the United States should be and must remain the prerogative and responsibility of the Congress of the United States. It cannot remain so if the laws it writes in definition thereof are to be flaunted by such simple schemes as currency juggling, or hobbled in their enforcement by dialectics such as we have witnessed in the case of South American wool tops. Specifically, we urge that section 303 of the Tariff Act of 1930 be amended as follows:

1. In the first sentence of section 303 after the word “indirectly", delete comma and add "through multiple official rates of its exchange in terms of United States dollars, or otherwise," (same as lines 11-15, p. 2, H. R. 5505).

2. After word "estimated" in next to last sentence change period to comma and add "Provided, however, That where such bounty or grant is achieved through multiple official rates of a foreign exchange in terms of the United States dollar, then the Secretary shall determine the net amount of such bounty or grant on the basis of the export exchange rate yielding the smallest number of foreign currency units per United States dollar to the exporter."

And, finally, to correct what would be an inherent fault in section 13 of H. R. 5505, if passed in its present form respecting the assessment of ad valorem duties in cases where countervailing duties would be levied, we respectfully urge amend section 13 (H. R. 5505), amending section 402, Tariff Act of 1930, so paragraph (b) would read:

"(b) EXPORT VALUE.-The export value of imported merchandise under appraisement shall be determined as of the time of its exportation to the United States and shall be

"(1) The market value or the price at which such or similar merchandise was freely sold or offered for sale in the usual wholesale quantities and in the ordinary course of trade, for exportation to the United States; or

"(2) In the case of merchandise subject to a countervailing duty levied in accordance with section 303 the sum of (1) above plus the amount of said countervailing; and

"(3) Plus, if not included in (1) or (2) above, the cost of all containers and coverings of whatever nature and all other charges and xpenses incidental to placing the merchandise in condition, packed ready for shipment to the United States."

Should paragraph (e) survive, it would need to be amended by adding a new (3) and changing present (3) to (4). New (3) to read:

“(3) Countervailing duty, if any, levied under section 303; and.”

The Honorable WALTER F. GEORGE,

Chairman, Senate Finance Committee.

DEPARTMENT OF STATE. Washington, April 24, 1952.

MY DEAR SENATOR GEORGE: The Department has received a note from the Indonesian Embassy setting forth the views of the Indonesian Government on H. R. 5505, an act to amend certain administrative provisions of the Tariff Act of 1930 and related laws, and for other purposes.

The Indonesian Government is particularly concerned with section 22 of the bill, which provides for the conversion of processing taxes to import taxes. With reference to this section the Indonesian Government expresses its opposition to the conversion of the processing taxes imposed under 2470 (a) to equivalent import taxes and expresses the hope that the Congress will repeal the processing taxes applicable to coconut oil, palm oil, and palm-kernel oil. A copy of this note setting forth these views is transmitted herewith at the request of the Indonesian Embassy.

In replying to this note the Department has pointed out that the objective of section 22 is to transfer the present processing taxes collected under 2470 (a) (1) and (2) to that part of the Internal Revenue Code (secs. 2490-2493) which relates to other import taxes on fats and oils without any change in the rates of the present taxes and, therefore, the modifications proposed by the Indonesian Government are not in accord with this purpose. The Department has also pointed out that section 22, contrary to the assumption of the Indonesian Em

bassy, would make no change in the taxes presently applicable to kapok and kapok-seed oil.

The committee will note that the Indonesian Embassy refers to the difference between the tax treatment applicable to coconut oil and babassu oil. In this connection the Department has pointed out to the Embassy it does not consider that the processing taxes violate any commitment to Indonesia.

The Indonesian note under reference also refers to H. R. 6292, a bill which would remove the 3 cents per pound processing tax on coconut oil. A second note of the same date relating solely to H. R. 6292, and setting forth substantially the views on this matter contained in the note under reference, has already been forwarded to the chairman of the Ways and Means Committee of the House of Representatives for consideration in connection with that bill. A copy of the letter transmitting a copy of this note to Mr. Doughton is also enclosed.

Sincerely yours,

JACK K. MCFALL, Assistant Secretary (For the Secretary of State).

(Enclosures: (1) Copy of note from Indonesian Embassy, dated February 25, 1952; (2) copy of letter to Mr. R. L. Doughton, chairman, Committee on Ways and Means, House of Representatives, dated March 28, 1952.)

Hon. R. L. DOUGHTON,

MARCH 28, 1952.

Chairman, Committee on Ways and Means,

House of Representatives.

MY DEAR MR. DOUGHTON: The Department refers to Mr. Davis' letter of January 31, 1952, transmitting for its comment H. R. 6292, a bill to amend certain sections of chapter 21 of the Internal Revenue Code.

This bill would have the effect of removing the 3 cents per pound processing tax on coconut oil imposed under paragraph (a) (1) of section 2470 of the Internal Revenue Code, and applicable to the first domestic processing in the United States of oil derived from copra of any origin (whether imported as oil or pressed from imported copra). The bill would not have the effect of removing the 2 cents per pound processing tax imposed under paragraph (a) (2) of section 2470 of the Internal Revenue Code, and applicable to coconut oil which is not wholly the production of any possession of the United States or the Philippines, or oil which is not expressed from copra wholly grown in any possession of the United States or the Philippines. This bill would, therefore, continue in effect the 2 cents per pound tax preference for Philippine coconut oil (whether the production of the Philippines or pressed in the United States from Philippine copra) which was provided in the Philippine Trade Act (Public Law 371, 79th Cong.).

The major copra-producing area of the world stretches from the Trust Territory of the Pacific Islands through the Philippines and into Ceylon and India. In this area millions of people are dependent on the coconut industry for their livelihood. The price at which coconut products are disposed of in the United States and other world markets is reflected in the economic well-being of these people and the balance-of-payments position of their countries. The interest which this bill has engendered among the coconut-producing countries of the world is a measure of the importance which they attach to the removal of this tax. Two far-eastern countries (the Republics of the Philippines and Indonesia) in particular are greatly interested in the removal of the tax. According to information from the American Embassy in Manila H. R. 6292 has received much attention in the Philippine press and in congressional circles. For example, on February 27, 1952, the foreign affairs committee of the Philippine House of Representatives reported out a proposed concurrent resolution favoring the note from the Philippine Embassy in which it was stated that President Quirino had instructed the Embassy to make known to this Government his personal interest in the question of the elimination of the 3 cents per pound processing tax on coconut oil, pointing out his concern over the danger which confronts a wide segment of the Philippine population who are dependent upon the coconut industry, and whose livelihood is threatened by recent typhoons, inability to eradicate the "cadang-cadang" pest in coconut plantations, and the burden of this tax. A copy of this note is transmitted, herewith, together with an earlier note of February 5, 1952, which sets forth in considerably more detail the arguments of the Philippine Government for the removal of this tax. In summation of the Philippine Government's position in favor of the removal of the tax, as set forth in the February 5 note, the following arguments are noted: