This percentage has steadily declined year by year until in 1951 the percentage was down to 50 percent, and is getting worse monthly. This is, therefore, no time to place additional handicaps on a distressed industry. We also believe that this section 22, imposing an import tax on copra, is in direct contravention of the Philippine Trade Act of 1946. Copra has been traditionally duty-free the world around, and is so bound in the trade agreements with Great Britain, and which automatically include all most favored nations. Placing an import tax on copra now would be flatly against the spirit of these agreements even under the subterfuge of calling it an import tax instead of a tariff which, in fact, it would be. We submit that section 22 actually calls for additional work to be done by the United States customs, which heretofore has been done by the Internal Revenue Department and, therefore, could not be regarded as customs simplification. At the time this bill was in the House, largely through ineptitude, no protest was made by us against this section. The points I have raised, therefore, were not considered by the House, and your honorable committee need not feel that by eliminating this section they would be overriding the House on something which they might otherwise have had a definite interest in. To sum up, therefore, it will be seen that this Section 22 has been prepared without a full knowledge of the actual results, and is an injustice to our industry. There is no resulting advantage to anyone, and definitely it imposes a new tax on an industry which is already depressed and losing ground. It contemplates a tax on copra which is historically duty-free, thus abrogating existing international agreements. It is also definitely not germane to a custom simplification bill. We, therefore, pray for the elimination of section 22, and thus leave this tax situation unchanged. Senator KERR. Who do you think was responsible for putting this provision in the bill ? Mr. ARMSTRONG. It was done as an aftermath of the GATT agreement. You see, we had our fellows at this GATT understanding, and they said, "Well, yes, we will do what we can to make everything honest and make them all duties," and they came back, and I think it was probably the State Department may have started it in an attempt to show the other countries that we were willing to do even more than we had promised to do under the GATT, and I think it came through the State Department. Just on thinking about it, they said, "Well, after all, this tax is being paid here, and if we just fix it up and make an import tax out of it, it will be substantially the same thing," but they did not think it through. They did not realize that they would be collecting it 4 or 5 months earlier than they are at present, and collecting from a totally different industry, and from just a few people. There are less than 20 of us that would pay this whole tax that is now paid by a couple of thousand people, probably. Senator KERR. In what general classification? Mr. ARMSTRONG. Oil refiners and soap makers are the people who pay it at present. Senator KERR. In what form? Mr. ARMSTRONG. In the form of the processing tax of 3 cents a pound. Senator KERR. What this would do would repeal that. Does it repeal that? Mr. ARMSTRONG. No. At present the copra comes in free. Senator KERR. Yes. Mr. ARMSTRONG. We crush it and we make crude oil. Mr. ARMSTRONG. We do not pay a nickel, but the man who buys the crude oil from us has to show that in his records, at at the end of each month, 30 days, after he has processed it, he has to pay his 3 cents a pound processing tax to the internal revenue; that is when it is paid. Senator KERR. Does this bill say anything about that processing tax? Mr. ARMSTRONG. This bill says precisely that you have to take that 3 cents and step back and- Senator KERR. In other words, what it does then is to repeal the processing tax and enact an import tax. Mr. ARMSTRONG. Which is presumed to be an equivalent. The Tariff Commission has to work out an equivalent. The CHAIRMAN. Converts it into an import tariff. The CHAIRMAN. Thank you very much. If there are no other questions, thank you very much, Mr. Armstrong. Mr. ARMSTRONG. Thank you, sir. (The letter previously referred to is as follows:) Oil content of Philippine copra. Mr. IN ARMSTRONG, El Dorado Oil Works, CURTIS & TOMPKINS, LTD., San Francisco, April 25, 1952. 311 California Street, San Francisco, Calif. DEAR MR. ARMSTRONG: In reply to your question regarding the range of oil content found in copra, we can advise that we have found this to be from 61.8 to 67.7 percent. This covers our experience in Philippine copra, which was the basis of your inquiry. Trusting the above will provide you with the information desired, we are CURTIS & TOMPKINS, LTD., The CHAIRMAN. Mr. Acer? All right, you may be seated and identify yourself for the record, please, sir. STATEMENT OF VICTOR A. ACER, VICE PRESIDENT, SPENCER KELLOGG & SONS, INC. Mr. ACER. I am Victor A. Acer, vice president of Spencer Kellogg & Sons, Inc., of Buffalo, N. Y. The CHAIRMAN. What business is that, Mr. Acer? Mr. ACER. Cur company are crushers of oilseeds and refiners of various vegetable oils. The CHAIRMAN. Yes, sir. All right. Mr. ACER. I have no prepared statement. I wanted to appear here in opposition to the proposal in section 22 of this bill to change this cocoanut-oil tax from a processing tax to an import duty. I am on the same side as is Mr. Armstrong, and I understand that the only point we can make on that subject is to approve the proposal or disapprove the proposal. It seems to me that the proposal, whoever put that in, and called it customs simplification, perhaps had a sense of humor, because I do not see that it is customs simplification at all. It seems to me Senator KERR. I must say that I agree with your conclusion but not the premise. I would say that they must have had a sense of humor. Mr. ACER. Perhaps so, Senator Kerr. To me it seems that it will complicate things very greatly to try to collect the money now being collected through a 3-cent-per-pound processing tax on oil, to collect that equivalent through an import tax on copra, the oil content of which is a variable quantity, and varies from year to year, varies from season to season, and varies from point of origin by a very great amount. Therefore, I feel it is going to be extremely difficult and impossible to do it fairly, because there is a varying quantity of oil in the copra, and when the oil is taken out of the copra varying oil yields are obtained, depending on the method of extraction. It would be simple if it were imported as oil, but of the total importations of oil and copra only about 10 or 15 percent of those importations come in as oil, and all the rest come in as copra. Another point I would like to make is that it would require crushers like ourselves to obtain, in one way or the other, a great deal more working capital to pay this out as an import duty. The burden would be on us where now it is on the user of the oil, to pay the processing tax. It has been estimated, and I believe the figure is right, that something over $18,000,000 would have to be paid out by the copra-crushing industry in the form of import duties and, therefore, we would need that much additional working capital, which is rather hard to obtain now under the present tax burdens and under higher bank rates. The other point I would like to make before I conclude is that in the copra-crushing industry now, as well as in the oilseed-crushing business generally, there is currently some unemployment. I feel that the fixing of this 3-cent-per-pound tax into an import duty would increase that unemployment, which we do not want to see happen. That concludes my statement, and I thank you for the opportunity to appear. The CHAIRMAN. Well, thank you very much for your appearance. Mr. ACER. Thank you, sir. The CHAIRMAN. Mr. Gordon? STATEMENT OF JOHN B. GORDON, SECRETARY, BUREAU OF RAW MATERIALS FOR AMERICAN VEGETABLE OILS AND FATS INDUSTRIES Mr. GORDON. Mr. Chairman, my name is John B. Gordon. Mr. GORDON. I am secretary of the Bureau of Raw Materials for American Vegetable Oils and Fats Industries, the address of which is 1243 National Press Building, Washington, D. C. I have a brief which I desire to file for the record. The CHAIRMAN. Yes, sir; you may do so. Mr. GORDON. And which I would like briefly to touch upon. The CHAIRMAN. Your brief will be inserted in the record in its entirety, and then you may proceed as you wish. Mr. GORDON. Mr. Chairman, the Treasury Department analysis of the Customs Simplification Act of 1951 states on pages 41 and 42 the reason why it is proposed to change the processing tax to an import tax. Briefly, the Treasury Department analysis states that it is because of the requirement of article III of GÄTT, which is the General Agreement on Tarif's and Trade. Senator KERR. They state what now? Mr. GORDON. They state that it is due to a requirement of article III of GATT, which is the General Agreement on Tariffs and Trade. Senator KERR. That would take it out of the category of customs simplification projects, then; would it not? Mr. GORDON. I think it would; yes, sir. I think that very definitely would be the case. In their analysis there is no suggestion that this would contribute to customs simplification. I might briefly read that section of the Treasury Department analysis: As a matter of principle, it is desirable that taxes for protective purposes should be levied at the customs frontier, and that once imported merchandise has passed the customs barrier it should not be discriminated against as compared with merchandise of domestic production. This general rule of nondiscriminatory internal taxation for imports (national treatment) has been included in our commercial treaties and agreements for many years. The same rule in somewhat broader terms is contained in article III of the general agreement. Under this provision the processing taxes imposed by section 2470 of the Internal Revenue Code should be either done away with or converted into import taxes because they discriminate in fact against imports. They do not propose to do away with them. It must be borne in mind that they simply propose to convert them into import taxes. While they mention article III specifically of the General Agreement on Tariffs and Trade, actually this matter of internal taxes, the desirability of their removal or subjecting them to negotiation and what not, is specifically mentioned in other sections of the General Agreement on Tariffs and Trade specifically named in part I, article II (b) and (c), and part II, article III (1). Now, there is not, however, under the General Agreement on Tariffs and Trade any obligation whatsoever on the part of the United States to make these changes from processing taxes to tariff duties because each and every one of these articles, specifically the one which the Treasury Department refers to, contains this provision: 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 in other words the United States Senator KERR. Where are you reading from? Mr. GORDON. I am reading from part I, article II, Schedules of Concessions of the General Agreement on Tariffs and Trade, and this is paragraph (c) thereof, and it is quoted on page 3 of my brief, which, I think, you have before you. Senator KERR. Part I, article II, paragraph what? Mr. GORDON. Paragraph (c). The section I am reading is down in the middle of (c). It starts with 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 and so forth. Now, the same language appears in (b) of part I, article II, and that is underlined in my brief. Now, somewhat identical language appears at the end of part II, article III. It says: no contracting party shall apply new or increased internal taxes on the products of the territories of other contracting parties— and so forth. Now that, Mr. Chairman, is why I say that the United States is under no obligation, and I believe it is recognized by the authors of section 22, that we are under no obligation to convert processing taxes to import taxes. They apparently are going beyond what they know are their recognized obligations in making this recommendation as respects the Customs Simplification Act of 1951. We remind you that these processing taxes were levied in 1934. They were in existence in 1947 when the General Agreement on Tariffs and Trade was arrived at. They are not new. Therefore, this country has a perfect right under the General Agreement on Tariffs and Trade to keep them in their present form, which is that of a processing tax. Senator KERR. Who would benefit by this proposed change? Mr. GORDON. Senator, we have looked over the entire field, and we cannot find anyone that has asked for it. It does not originate with the countries of origin of these products which they propose to change; that is, countries like Indonesia, they have made a protest to the State Department which has referred the protest to this committee. It does not originate with the Belgian Congo because the Government of Belgium has made a protest to the Department of State against this change. The British Government, in whose colonies originate a good many of these products, has made a protest, so it is difficult for us to find out where there is any demand for it. Senator KERR. If you can answer my question then I would answer your inquiry. Mr. GORDON. Yes, sir. Senator KERR. Who would profit by it? Mr. GORDON. I am afraid, sir, there is not anybody that would profit by it. You may take this as further evidence: In the testimony which was delivered before the Ways and Means Committee at the time this section was up for consideration there was not one single witness who spoke in favor of this change as proposed in section 22 in the bill. Senator KERR. Or in justification of it? Mr. GORDON. I mean-wait a minute, I had better say this, in favor of the change-over from processing tax to import tax. On the other hand, the testimony was on the other side. It was unanimous against it. Now, I include in that statement even the Treasury and the State Department, and I understand that the bill was written in the Treas |