them through the Congress in the form of requests for legislated tariff increases or quotas. The contest for import relief thus has been largely political in nature. President Nixon has made proopsals to improve this situation. Specifically, he is recommending that the casual relationship between past tariff concessions and import increases be dropped as a test for granting higher tariffs or quotas in the case of injury. We agree with this and with the recommendation that the remainnig test-the relation of imports to serious injury-be changed from one whereby imports must be the "major" cause of such injury to one whereby imports are the "primary" cause. Under the present "major" test, "major" is interpreted to mean the one cause greater than all other causes combined. Under the "primary" test proposal, "primary" would mean the single largest cause. We think the substitution is sensible and hope the Congress will adopt it.

However, we have a problem with the further proposed revision of the escape clause concerning the concept and definition of market disruption. As proposed by the President, if the Tariff Commission finds an industry is experiencing serious injury while market disruption is present then market disruption would constitute prima facie proof that imports are the primary cause of the serious injury. Market disruption is defined in the statute to mean substantial and rapidly increasing imports being sold at prices below those of domestic producers. Market disruption can and does occur in our economy but we do question the President's formulation in the context of a new escape clause. It is highly likely that there will be a multitude of instances when domestic producers are in bad economic straits and market disruption under this formulation would be found to exist but where in fact there is no relationship whatsoever between the phenomena. Were import protection provided in these instances, it would be the absolutely wrong cure for the economically depressed producers and would only perpetuate an already bad condition. United States consumers would be adversely affected and United States international relations damaged for no legitimate purpose.

Also on market disruption, and the escape-clause, we are concerned that the Trade Reform Act requirement that the Tariff Commission completes its proceedings in three months (with the possibility that another two months might be provided if necessary) is questionable. The present statute requires that the Tariff Commission complete its investigation in six months. The curtailed investigatory period combined with the market disruption proposal could put the Tariff Commission under severe constraints in cases of serious injury simply to establish the statistical requirement of market disruption and issue a formal finding of serious injury primarily caused by imports. That finding if accepted by the President, would be followed by higher tariffs or quotas.

This seems to us bad public policy. We recommend, therefore, either that the market disruption proposal be eliminated or that the Congress define and treat market disruption more stringently so that the Tariff Commission will not interpret a mere coincidence of serious injury to domestic producers and the existence of market disruption as proof that imports are the primary cause of the serious injury. If the Congress should decide to retain the concept of market disruption, it should provide that market disruption must be demonstrated to be the primary cause of import injury. Otherwise, we fear that American trade policy will be overly governed by simple statistical correlations between imports and domestic production.

Other proposals concerning the escape clause would require the President, in the course of determining whether to provide import protection, to take into account the effects that higher tariffs or import quotas would have on American consumers, on the international economic interests of the United States as well as on other American industries who may have to pay the compensation bill for the higher tariffs in the form of lower tariffs on imports into our country of competitive products that they produce. We welcome this requirement along with the proposed requirement that the President take into account the social and other economic costs that would be imposed on communities and industries if import relief is not provided in cases where serious injury has been found by the Tariff Commission.

We also find worthy of support those proposals of the President authorizing him to suspend in whole or in part the application of items 806.30 or 807.00 of the Tariff Schedules of the United States where operations under these items has led to serious injury to domestic producers. We also believe the President is right in asking for authority to negotiate orderly marketing agreements in lieu of higher tariffs or import quotas.

The proposals on the suspension of items 806.30 and 807.00 when their use has led to serious injury accommodates the need to relieve serious import injury while preserving the items and operations pursuant to them that are beneficial. We recall that the only comprehensive study of operations under 806.30 and 807.00-released by the Tariff Commission in 1970-demonstrated the positive effect of these items on the U.S. balance of payments and on employment in the United States. At that time it was estimated that the U.S. balance of payments would lose $150 million to $200 million were the items to be repealed as advocated by organized labor. The Tariff Commission also stated that the provisions provided employment for about 37,000 Americans who were producing U.S. materials to be assembled or processed abroad and further processing them after they have been returned.

Finally, for reasons cited previously, in connection with tariff increases pursuant to trade agreements, we recommend that the Congress consider legislating an upward limit on the President's ability to impose tariff increases pursuant to the escape clause-Section 203. An appropriate limit might be the one already suggested of holding increases to no higher than 50% above the 1930 statutory tariff rates.

ADJUSTMENT ASSISTANCE

ECAT has long been a supporter of the adjustment assistance concept. We welcome its continuance for workers who may be injured by imports but are disappointed that firms have been dropped from eligibility for such assistance in the President's proposals. We recommend that the Congress reinstate the eligibility of firms, but suggest that the Congress consider limiting eligibility to small business concerns, as defined by the Small Business Administration.

As with the escape clause, we think the President is right in seeking to drop the requirement of a link between tariff concessions and increased imports as a test for establishing import injury. And we agree that the eligibility test for adjustment assistance should be easier than the test for tariff relief. Accordingly, we recommend that the Congress accept the proposal that imports need only be found to contribute "substantially" to either unemployment or underemployment. This should certainly make the adjustment assistance program much more -operative than it has been in the past.

Finally, we hope that the Secretary of Labor in carrying out his responsibilities and the Secretary of Commerce, should firms be reinstated-will call on the experienced and capable Tariff Commission to assist in conducting the necessary investigations under the program.

AUTHORITIES TO DEAL WITH UNFAIR TRADE PRACTICES

We generally support the proposed revision of Section 252 of the Trade Expansion Act to simplify and extend the President's authority to retaliate against countries maintaining unreasonable or unjustifiable restrictions on United States exports. We hope that the mere existence of this authority will cause other countries to refrain from such action.

Besides streamlining the retaliatory authorities, Section 301 of the Trade Reform Act would extend the authorities to cases where a foreign country subsidizes its exports to third country markets with the result of reducing U.S. exports to those markets. While it might be desirable that the President have authority to retaliate under such circumstances, we see a risk that other countries might institute similar practices on the grounds of United States subsidies. The large question of subsidies is of increasing importance in international trade. As countries become more competitive, the temptation to subsidize domestic producers and exporters increases. Rather than escalating subsidies and retaliation against them, the United States might want to take the initiative in proposing negotiation of an international code on subsidies. This could well be done within the non-tariff negotiating authority requested by the President. Such a code might aim at developing understandings as to the permissibility and limitations of subsidies on products in international trade. A subsidy code would go a long way toward the establishment of international trade peace and would make much easier the administration of our antidumping and countervailing duty statutes.

We have a major problem with Section 301 in that it requires the President only to "consider" the international obligations of the United States prior to taking action under his retaliatory authorities. We believe that the President should act pursuant to Section 301 in consonance with our international obliga

tions and recommend that Congress so amend the statute. While our recommendation undoubtedly may limit the President in specific cases, we believe it a cost well worth paying in order to preserve existing rules of international law that have served the United States and its trading partners well over the years. In connection with Section 301, the Administration might consider seeking revisions in Article XXIII of the GATT to facilitate the imposition of higher duties or quotas on imports from countries unfairly restricting trade. Article XXIII now allows this but under time-consuming procedures.

Two other problems we have with Section 301 are (1) it provides no limits on tariff increases, and (2) it leaves to the discretion of the President whether there should be public hearings on his proposed actions. We again recommend that Congress provide a limit on tariff increases and perhaps guidelines limiting the imposition of quotas. The lower limit for quotas might be 75% of the quantity imported during a representative period.

We recommend provision for public hearings prior to Presidential actions so that the President will be in a better position to gauge the consequences on domestic producers, importers and exporters.

ANTIDUMPING AND COUNTERVAILING DUTIES

ECAT generally supports the amendments to the Antidumping and Countervailing Duty Statutes proposed in the Trade Reform Act. We understand them to be mainly procedural in nature and designed to speed up the processes through which antidumping and countervailing duty complaints are considered.

The Act also proposes that the Tariff Commission be given final responsibility on complaints that certain imports into the United States constitute patent infringement. When the Tariff Commission finds patent infringement it could direct the issuance of exclusion orders. We do not find this proposal objectionable. On the proposed amendments of the Antidumping Act we do not believe that the Secretary of the Treasury should be absolutely required to make his determinations with respect to fair value in twelve months. Instead, he should have the discretion to set his own deadline in especially difficult cases. Similarly, in the case of the proposed amendments to the Countervailing Duty statute we feel the Secretary of the Treasury should have more than twelve months to determine whether or not there is a bounty or a grant provided by foreign governments on products imported into the United States.

We welcome the amendment to the Countervailing Duty statute that would make it applicable to products imported into the United States under duty free status. We also agree with the proposal of the President that as a condition for imposing a countervailing duty, such products be subjected to an injury test to determine whether they have caused injury to domestic producers.

BALANCE-OF-PAYMENTS AUTHORITY

This proposed authority would authorize the President to impose either import surcharges or import quotas on products from either all countries or from selected countries in order to preserve the United States payments position. Specifically, the authority would become operative when the United States balance of payments has been in serious deficit for four consecutive quarters, and it is projected that the payments deficit will continue for some indefinite time into the future. The President is proposing that a palliative to this situation would be the surcharge or quota imposition in order to cut back on imports and conserve foreign exchange. This proposed balance of payments authority was signalled by Secretary of the Treasury George Shultz in his September, 1972, speech to the International Monetary Fund. ECAT supports this proposal but again with a qualification that the President utilize it in consonance with our international commitments and obligations. As presented to the Congress, the President is required only to "consider" the international obligations of the United States prior to imposing restrictions on imports. For the same reasons given above in connection with Section 301 authorities, we believe that "consider" is too weak a test and that the United States should accept the requirement to act in accord with our international commitments and obligations.

Whether the definitions proposed in the Trade Reform Act are the right ones in respect of defining balance of payments deficits is a question not easily answered. We suggest, however, that the Congress very carefully consider the proposed definitions in order to ensure that the United States will impose surcharges or quotas only when circumstances warrant them. We think the President is right

in informing the Congress that the balance of payments authority is not intended under any circumstances to be utilized as a protectionist device.

One final problem that we have with the balance of payments authority is that it does not provide for the expression of public views on Presidential actions. We understand why the President could not hold public hearings on proposed actions under this balance of payments section. We feel, nevertheless, that after he has taken such action, many hardship cases could arise. It would, therefore, seem appropriate to require public hearings after Presidential actions in order that these cases may be heard and necessary corrective measures taken. When the import surcharge was imposed in 1971 as part of the President's emergency balance of payments program, there were subsequent hardships. Many of these were accommodated, but on an ad hoc basis. It would, therefore, seem desirable for the Congress to write into the balance of payments authority provision for public hearings so that hardships can be systematically handled. The related proposal for Presidential authority to reduce or eliminate American tariffs when the United States balance of payments is in persistent surplus is certainly in order. We also favor the authority requested by the President to reduce import restrictions to combat domestic inflation.

ECAT supports the authorities requested by the President in Sections 403 and 404, Section 403 would give the President permanent authority to negotiate and implement supplemental trade agreements with foreign governments of a limited scope. This supplemental authority would continue beyond the five year period during which the President has requested major tariff cutting authority. The authority requested in Section 404 to provide compensation to our trading partners for any restrictive actions that the President might take pursuant to other provisions of the bill also appears desirable.

EAST-WEST TRADE

We believe that one of the most promising areas for American foreign trade is with the countries of Eastern Europe. These are countries with rapidly growing economies. They are countries with demands for the kinds of products that the United States is able to supply. Rising levels of trade could also lead to improved relationships among the American peoples and those of Eastern Europe. What is needed, however, for this to take place is a normalization of our commercial relations with these countries.

The President has made rapid strides in normalizing our commercial relations with the Soviet Union and other countries of Eastern Europe. What is needed to give full effect to arrangements negotiated with these countries is the authority for the President to provide most-favored-nation tariff treatment to products imported from them. We believe that the proposals before the Congress concerning trade relations with countries of Eastern Europe provide necessary safeguards so that imports from these countries will not be allowed to create serious injury for American manufacturers and workers. We further believe that the request that these agreements have a life of three years is sound. This three year period is long enough for us to ascertain the likely benefits of such trade to the American economy. We further believe that if the agreements during that period work out to our mutual interest the Congress should allow renewals for additional periods, each not to exceed three years, as requested by the President.

TARIFF PREFERENCES FOR IMPORTS FROM LESS-DEVELOPED COUNTRIES

The President is requesting authority to provide duty-free treatment for certain imports from less-developed countries. The list of imports to be given dutyfree treatment would be developed from a series of hearings designed to determine products that are "import sensitive". For such products, tariff preferences would not be provided. Nor would preferences be provided for products that might be detrimental to the national security if imported in too large quantities. Neither would tariff preferences be provided to the products of less-developed countries who in turn provide tariff preferences of their own to imports from industrial countries other than the United States. This is the problem of so-called "reverse preferences". ECAT believes that this request of the President should be supported by the Congress. We do recommend, however, that Section 605 be amended to require public hearings prior to the President's modifying or withdrawing a duty-free preference.

Mr. Chairman, this completes our comments and recommendations on the President's proposed Trade Reform Act of 1973. There are other major matters

before this distinguished Committee that I would like to briefly discuss. These are the provisions concerning changes in the present methods of taxing income earned abroad by American corporations and other legislative proposals that would severely restrict the ability of American companies to do business abroad.

TAXATION OF FOREIGN SOURCE INCOME

ECAT recently testified before this Committee on the taxation of foreign source income. Our testimony then, as now, is strongly in support of the present provisions. I request that a copy of our April 3 testimony be made an appendix to our testimony today.

CONTROLS ON CAPITAL AND TECHNOLOGY

There are serious legislative proposals before the Congress that would impose restrictions on the outflow of American capital from the United States and that would also attempt to restrict the outflow of American technology. These proposals, like those concerning the taxation of foreign source income, apparently are based on the premise that direct investment abroad by American companies is harmful to the American economy and to its workers. Every major study on the matter, however, has indicated quite the opposite. They show that American investments abroad have been accompanied by increases in employment in the United States and that they contribute heavily to the balance of payments position of the United States.

I would at this point like to summarize the results of a detailed survey done by the Emergency Committee for American Trade of domestic and foreign operations of 74 large multinational corporations.

The data from the 74 multinational corporations covered in this survey reveals that in the years between 1960 and 1970 when these companies were increasing their overseas operations, they also:

Increased the number of their domestic employees by nearly 900 thousand from 2.5 million to 3.4 million.

Increased the book value of their fixed assets in U.S. manufacturing facilities from $15.3 billion to $34.1 billion, a gain of $18.8 billion.

Increased their sales from American facilities from $58.0 billion to $113.2 billion, a gain of $55.2 billion.

Increased their exports from the United States to the rest of the world from $4.3 billion to $12.2 billion, a gain of $7.9 billion.

Increased their net surplus of exports over imports from $3.2 billion to $6.6 billion, a gain of $3.4 billion.

Increased the balance of payments inflows attributable to their foreign investment-dividends, earnings, interest, royalties and fees-from $0.5 billion to $2.4 billion, a gain of $1.9 billion.

Increased their annual net balance of payments inflows from $2.9 billion to $7.3 billion, a gain of $4.4 billion.

The survey further documents:

That the industries which account for a large and growing share of foreign direct investments (e.g., non-electrical machinery, chemicals, and instruments and related products) account for the preponderant part of U.S. exports of manufactured products.

That these same industries have been among the most rapidly growing manufacturing industries in the United States.

That the international investment activities of the respondents played an important role in their rapid export growth and consequently made a major positive contribution to their domestic sales, investment, and employment growth.

Contrary to the popular misconception that foreign subsidiaries of American firms have been created for the purpose of serving the U.S. market, the survey reveals :

That foreign investments are made primarily to meet market demands that cannot be served by exports from the United States.

That exports from non-Canadian foreign affiliates to the United States amounted to only about 2 percent of their total sales during the 1960's. That a substantial proportion of that 2 percent consisted of unprocessed raw materials.