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CONTENTS

LETTERS AND TELEGRAMS

Bennett, Wallace F., to Lewis L. Strauss, Secretary of Commerce.
Damore, Felix P., Textile Workers Union of America, Worcester, Mass.,
to Philip J. Phil in.

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Macomber, William B., Jr., Assistant Secretary of State, to Wallace F.

Bennett

Philbin, Philip J., a Representative in Congress from the State of Massa-
chusetts, to Chairman, and enclosures..

Rose, H. Chapman, Assistant Secretary of the Treasury, to Edwin Wilkin-
son, executive vice president, National Association of Wool Growers...
Yacubian, Levon, general manager, Barre Wool Combing Co., Barre, Mass.,
to Philip J. Philbin

60

5-6

60

ADDITIONAL INFORMATION

III

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COUNTERVAILING DUTY ON WOOL TOP FROM

URUGUAY

TUESDAY, FEBRUARY 17, 1959

UNITED STATES SENATE,
COMMITTEE ON FINANCE,
Washington, D.C.

The committee met, pursuant to notice, at 10:10 a.m., in room 2221, New Senate Office Building, Senator Clinton P. Anderson presiding. Present: Senators Anderson (presiding), Gore, Talmadge, McCarthy, Hartke, Williams, Bennett, Cotton, and Curtis.

Also present: Senator Joseph C. O'Mahoney, Senator Theodore Francis Green, Senator John O. Pastore, Senator Thomas J. Dodd, and Senator Leverett Saltonstall.

Also present: Elizabeth B. Springer, chief clerk; and Serge Benson, professional staff member.

Senator ANDERSON. The meeting will come to order.

Through the courtesy of Senator Byrd, we have been able to arrange this brief hearing which we recognize has had rather short notice. I appreciate the courtesy of the chairman of the Committee on Finance in permitting it to go ahead.

I notice that the two Senators from Rhode Island are here, Senator Green and Senator Pastore. I want you both to feel free to ask questions, or if you desire to make a statement now, or submit one for the record, we will be glad to have it.

Our first witness is Mr. Flues, the Assistant Secretary of the Treasury.

Do you have a prepared statement, Mr. Flues?

Mr. FLUES. Yes, Mr. Chairman.

Senator ANDERSON. We have been trying to get this for days.

Just for the sake of the record-because I don't know how many times you have been over here the provisions of the law that are applicable say:

Each such standing committee shall so far as practicable require all its witnesses appearing before it to file in advance a written statement of their proposed testimony and to limit their oral presentation to brief argument.

It is a little difficult to go through your testimony without having a chance to see it. We did hope that since you knew about this for quite a while we could have obtained a copy of your statement; but apparently you could not do that.

Mr. FLUES. Mr. Chairman, may I say in that regard I was out of Washington all of last week, and yesterday was my first day at the office after this hearing date was set.

Senator ANDERSON. Very well.

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I do it, Mr. Flues, just as a matter of habit. We had a hard time in the Joint Committee on Atomic Energy, but we finally got to the point where we received advanced statements so we could study them. I hope the Treasury will join the parade in time.

Mr. FLUES. Mr. Chairman, we always like to cooperate with the committee, and we tried to present the statement in accordance with your rule.

Senator ANDERSON. Thank you.

Will you proceed?

STATEMENT OF HON. A. GILMORE FLUES, ASSISTANT SECRETARY OF THE TREASURY, ACCOMPANIED BY JAMES HENDRICK, ASSISTANT TO THE SECRETARY, AND JOHN P. WEITZEL, ASSISTANT GENERAL COUNSEL, TREASURY DEPARTMENT

Mr. FLUES. Mr. Chairman and gentlemen of the Senate Committee. on Finance, I am appearing before the committee this morning at your request to discuss the countervailing duties on wool top imported into the United States from Uruguay. It will be my purpose to explain to you why the Treasury Department firmly believes that recent changes in the Uruguayan foreign exchange rates justify the removal of this countervailing duty.

Section 303, Tariff Act of 1930, is known as the countervailing duty law. It imposes upon the Secretary of the Treasury the duty of determining when merchandise coming into the United States from abroad is benefiting from a bounty or a grant. The law requires the Secretary in such instances to determine or estimate the amount. of the bounty or grant and then to impose on such goods an additional duty-above and beyond the regular duty-in the amount of the bounty or grant-which in my statement I will refer to, for convenience, as a subsidy. For the record, the exact text of the law is as follows:

Whenever any country, dependency, colony, province, or other political subdivision of government, person, partnership, association, cartel, or corporation 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, dependency, colony, province, or other political subdivision of government, and such article or merchandise is dutiable under the provision of this chapter, then upon the importation of any such article or merchandise into the United States, whether the same shall be imported directly from the country of production or otherwise, and whether such article or merchandise is imported in the same condition as when exported from the country of production or has been changed in condition by remanufacture or otherwise, there shall be levied and paid, in all such cases, in addition to the duties otherwise imposed by this chapter, an additional duty equal to the net amount of such bounty or grant, however the same be paid or bestowed. The Secretary of the Treasury shall from time to time ascertain and determine, or estimate, the net amount of each such bounty or grant, and shall declare the net amount so determined or estimated. The Secretary of the Treasury shall make all regulations he may deem necessary for the identification of such articles and merchandise and for the assessment and collection of such additional duties.

The law provides for this additional duty to countervail, or to compensate for, subsidies on exports to the United States without regard to whether or not the protection is needed. There is no injury pro

vision in the law. By the same token the Secretary of the Treasury cannot impose a countervailing duty where no subsidy exists even though imports of the commodity in question are injuring a domestic industry. As you know, there are other laws on the books which are designed to prevent such injury.

Senator ANDERSON. Do you want to finish your statement before you have questions?

Mr. FLUES. Please, if I may.

Just as the countervailing duty law does not take into account injury to domestic industry, the law does not take into account international relations aspects.

The classic example of a subsidy is a cash payment-so many cents per unit on an exported commodity. Such payments have not been made by Uruguay. Uruguay has, however, had for some years what is called a multiple-exchange system. This means that exporters of different commodities convert their foreign exchange proceeds into pesos at different rates of exchange established by the Government. Imports are also given differing exchange rates.

In 1953 wool top was coming into the United States in rapidly increasing quantities. There were clear indications of a governmental policy to promote sales of wool top. U.S. imports had risen from $1 million in 1950 to $22 million in 1952. Other factors were present, leading to concern as to whether the rate for wool top amounted to a subsidy.

The U.S. wool industry urged in 1953 that a subsidy existed by virtue of the fact that the rate for wool top was more favorable than the rate for raw wool. The difference between the rates was approximately 40 percent, and the industry asked for a countervailing duty in that amount.

The Treasury considered most carefully the domestic industry's arguments but came to the conclusion that the formula urged by the industry was not justifiable.

The problem the Secretary of the Treasury was faced with was that of determining whether exporters of wool top in Uruguay were receiving more for their product-in Uruguayan pesos-than appeared justified by the situation in which other elements of the Uruguayan economy were placed by the then existing multiple-exchange rates; in other words, were they receiving more than the true value of the peso in the external trade of Uruguay?

The U.S. importers of wool top, the foreign exporters and the Uruguayan Government argued that the proper benchmark would be the worth of the peso demonstrated by what it would bring on the free market at that time in 1953. The free market rate was more favorable than the wool top rate so that adoption of this approach would have resulted in a determination that no bounty or grant existed and that, consequently, there were no grounds for imposition of a countervailing duty.

The Treasury Department rejected this proposal as it had rejected the formula advanced by the domestic industry. The final conclusion reached by the Secretary of the Treasury, in carrying out his duty under the law, was that there was a subsidy, and that the appropriate benchmark for determining its amount was the weighted average of

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