STATEMENT BY TYRE TAYLOR, GENERAL COUNSEL, SOUTHERN STATES The Southern States Industrial Council is a regional organization representing all lines of industry in the 16 Southern States, including Maryland, West Virginia, Missouri, Oklahoma, and Texas. Its headquarters are in the Stahlman Building in Nashville, Tenn. My own office is at 917 15th Street NW., here in Washington. My telephone is Metropolitan 8-3547. I shall direct my testimony to a single aspect of the problem before you. This is the inadequacy-and even futility-of existing administrative remedies for the situation that exists when an industry finds itself in serious trouble as a result of actions taken under the trade-agreements program. In doing this I shall draw upon the actual experience of the cotton textile and petroleum industries, both of which are predominantly southern. The story of the cotton-textile industry's effort to secure relief from low-rawmaterial and low-wage-cost Japanese competition is a long and tortuous one, and I shall attempt to hit only the high spots. But before I do this I want to mention briefly the factors which gave rise to these efforts to obtain administrative relief and the background against which such efforts were carried on, indeed, are still being carried on. The largest single element of cost in the production of cotton fabrics is, of course, the cost of the raw material itself. In July of this year, according to the Department of Agriculture, this amounted to 54 percent of the total cost (the industry now estimates this figure at 60 percent). By reason of the export program for raw cotton approved at the last session of Congress, foreign manufactures, including the Japanese, can buy United States-grown cotton for approximately 25 percent less than the domestic mills must pay. The next largest component of the total cost of production is the cost of labor. On this the Japanese enjoy an even greater advantage than they do on the cost of cotton. In Japan textile workers are paid about 13 cents an hour, as compared with the United States average of $1.60%1⁄2 an hour in july (the latest month for which figures are available), and this does not reflect the recent wage increase in the southern mills. In other words, on the cost of his labor-which accounts for 27 to 30 percent of total costs-the Japanese manufacturer enjoys a better than 12-to-1 advantage over his United States competitor. But this is not all. Within recent years the Japanese textile industry has been largely rebuilt with the use of American funds. It is in every sense modern, more modern, in fact, than many of our own mills. Nor is that all. In 1955 United States tariff rates were reduced under GATT by an average of 25 to 30 percent (some rates were reduced as much as 50 percent). Thus, the stage was set for exactly what has happened: Ruinous competition which has already driven more than a dozen mills out of business entirely, forced hundreds of others to curtail operations, and caused large temporary or permanent unemployment. For example, in 1955 the Japanese sold 36 million blouses here, more than a third of the market. They took 70 percent of the United States market for velveteen. Imports supply 30 percent of the domestic market for gingham. And here we come to the various appeals for administrative relief and what came of them. Section 22 of the Agricultural Adjustment Act provides that import quotas may be imposed where necessary to prevent excessive imports of price-supported agricultural commodities, of which cotton is one. It also provides that such import limitation shall be used to prevent excessive imports of the raw commodity in manufactured form. So when the Department of Agriculture reported that the cotton content of cotton products being imported into the United States were several times the allowable raw cotton imports, the industry, on December 29, 1955, petitioned the Secretary of Agriculture to impose quotas under section 22 of the act. This petition and a subsequent one to the same effect were denied. And why? One of the reasons might be that the United States is subject to GATT penalties if it uses quotas under section 22. But what about the Tariff Commission? Is it not its function to determine whether a particular industry has been injured or is threatened with injury by a particular trade agreement concession? And why was relief not sought under the so-called escape clause? Although the Senate passed a resolution (S. Res. 236) urging the Tariff Commission to make an escape-clause investigation of the textile industry, the Commission's reply was that such an investigation for the industry as a whole was totally beyond its capabilities-in other words, it did not have the budget or staff which such an investigation would require. Anyway, that door was closed, or rather it was never open. And yet because of the wide range of products that can be made on modern cotton mill machinery and the possibilities for concentrating on first one line and then another-the United States industry believes that nothing less than an overall investigation would be meaningful. There are currently pending before the Commission escape-clause actions on particular cotton textile products-velveteen, print cloth pillowcases, and gingham. But there is no telling what the findings will be or, if they are favorable to the industry, whether they will not be overriden by the President. The truth is that the entire executive branch has been opposed to any relief for the textile industry. Said one prominent Southern millowner, Col. Elliott Springs, of South Carolina : "We have always been able to meet competition without tears. But we can't lick the State Department, the Secretary of Agriculture, the General Agreement on Tariffs and Trade, the OTC, and the $64 billion giveaway program while Congress twists our arm." I am aware of the recent (September 27) seeming commitment of a high administration official that an agreement will be worked out whereby Japan will undertake voluntarily to impose a ceiling on exports of cotton cloth, cotton apparel, and other cotton manufactures not to exceed the level of trade in 1955 (approximately 200 million yards). If this is done, and Japan observes it, well and good. However, it is interesting to note that the seeming commitment came in the midst of the election campaign when many promises are made only later to be forgotten. In a recent address, Gov. Luther Hodges, of North Carolina, bluntly characterized the commitment as politics. The next experience I wish briefly to recount is that of the petroleum industry, which has seen imports rise from less than 5 percent of total domestic production in the period 1935-39 to more than 20 percent in 1956. These imports displaced available domestic production and the domestic industry now has more than 20 percent of its capacity shut in for lack of a market. At the same time, United States exports of petroleum have declined. The first effort of the industry was to invoke the Buy American Act. The pertinent part of this law as it applies to petroleum is that preference is to be given by the Government to products made from domestic oil if crude oil is produced "in the United States in sufficient and reasonably available commercial quantities of a satisfactory quality." The General Services Administration, which administers the Buy American Act, first found that there was a scarcity of oil in the United States and thence Government purchases were exempt from the requirements of the law. When it was shown that there was no shortage from domestic sources but, on the contrary, a surplus existed, the GSA finally admitted the fallacy of its finding and issued a new directive, which exempted only the east coast. The purpose of this becomes evident when it is considered that more than half the crude oil refined on the east coast is foreign. Indeed, the purpose of the GSA to circumvent the act is made crystal clear from an announcement contained in its own directive: "In addition, imports serve to maintain a flow of foreign crude into this country. If this flow ceases, a marketing pattern for foreign crude would develop which would make it difficult or unduly expensive for this country to acquire supplemental crude when needed." Comments Mr. L. Dan Jones, Assistant General Counsel of the Independent Petroleum Association of America in his testimony before this committee: "Although Congress passed the Buy American Act so as to encourage American industry, the GSA is now administering that law to encourage foreign oil development and more oil imports." It is the industry's experience under the Trade Agreements Act, however, that is most discouraging. Back in 1932, Congress passed a law levying excise taxes on petroleum imports. These ranged in amount from one-half cent a gallon on crude to 4 cents a gallon on lubricating oil, and their purpose was to restrict imports. Then, in 1934, Congress passed the Trade Agreements Act, but with the repeatedly and plainly expressed intent that it should not apply to the items on which excise taxes had been imposed in 1932 (the other items, in addition to oil, were coal, lumber, and copper. Thus, the Ways and Means Committee report on the trade-agreements bill stated: "In order that the necessary reprocity may be accorded, the President is empowered to promise that existing excise duties which affect imported goods will not be increased during the term of any particular agreement. It should be carefully noted, however, that the President is given no right to reduce or increase any excise duty. His power of reduction is limited to those which are in fact customs duties." This clearly stated intent of Congress to the contrary notwithstanding, the Trade Agreements Act was applied to petroleum in 1939 in the Venezuela trade agreement. The story from that time on during sucessive extensions of the act is one of repeated assurances from the Secretary of State and others that domestic industries would be afforded protection whenever circumstances made it necessary or advisable to do so. It is also a story of the progressive whittling away of these excise taxes as additional trade agreements were negotiated. The industry tried to obtain relief from the Tariff Commission under the escape clause and failed. It tried again when the so-called peril-point procedure was incorporated into the act (in 1951) and failed again. After a long hearing, the Commissioners divided equally as to the peril point. However, the President ignored the findings of both groups of Commissioners and determined the peril point be lower than either group of Commissioners had found. "This experience under the peril-point procedure is a further and outstanding example of the extent to which congressional intent has not been carried out and what may happen when delegated authority is not clearly defined," Mr. Jones told this committee. When Congress extended the act in 1955, it added the so-called national security amendment. This is a procedure for limiting the imports of commodities when it is found that continued unrestricted imports would threaten the national security. Then in February 1955, which was the time the Trade Agreements Extension Act was before Congress, the President's Cabinet Committee recommended that petroleum imports should be limited to the relationship they bear to domestic crude oil production during 1954. Thereafter, the Director of the Office of Defense Mobilization made an earnest effort to bring about a limitation to the 1954 level through voluntary action on the part of the oil importers. This, too, failed and now the industry is petitioning him to take formal governmental action to restrict imports under the authority of the national security amendment. A hearing on this has been scheduled for October 22. So, that is part of the story of two industries in their efforts to obtain relief through executive or administartive action. Essentially the same story might be told of coal and the efforts to obtain relief from the ever-increasing influx of residual fuel oil into the eastern part of the United States from Venezuela. According to Mr. Joseph E. Moody, president of the Southern Coal Producers Association, more than 50 million tons of domestic coal was displaced by imported residual oil and residual oil made from imported crude in 1955. Had this coal been mined, it would have provided 20,000 additional jobs for coal workers and $167,741,000 in increased revenues for the railroads. These aborted efforts to obtain relief through administrative action have been going on for a long time and have provided work for a lot of lawyers. They have been the basis of many false hopes and bitter disappointments. Their net results are virtually nil-which raises the question: What can Congress do to improve the processes of administrative procedure in this field and make it more responsive to the facts and to the intent of Congress once these have been conclusively established? Of course, many people feel that tariffmaking is, under the Constitution, a function which should be exercised solely by Congress and that Congress should not attempt to delegate this authority. But passing over that, what can Congress do to help the situation which is rapidly becoming intolerable? One thing it might do is provide for additional personnel for the Tariff Commission. That, however, will not reach the root of the trouble. Most of the trouble, in my opinion, arises from the carelessness of Congress itself in delegating power without spelling out its intent with sufficient definiteness. If Congress meant-as I am sure it did-that the Trade Agreements Act should not apply to imports upon which it had imposed an excise tax, it should have said so plainly and explicitly in the body of the act. I sometimes think that it would be a good investment if Congress would employ some smart lawyers who, in advance of the enactment of any important 83979-56-pt. 3-20 For one thing is certain: legislation, would go over it with a fine-tooth comb looking for provisions which are susceptible of bureaucratic misinterpretation. If any such loophole exists, they will find and exploit it. I thank you. SUBCOMMITTEE ON CUSTOMS, TARIFFS AND House Ways and Means Committee, CORDAGE INSTITUTE, New York, October 15, 1956. New House Office Building, Washington, D. C. GENTLEMEN: Cordage Institute is the trade association of most of the private manufacturers of hard fiber cordage and twine in the United States. In accordance with the prospectus which was sent out by your committee we are expressing our views on the trade-agreements program. Congress has attempted to provide safeguards in the matter of trade-agreement reductions. These safeguards are not being properly administered. Industry and labor appear at the scheduled hearings on items to be negotiated and peril points-but there it ends. No provision is made for review of the findings of the Tariff Commission on peril points (in fact, industry rarely knows what they are), nor is any provision made for the credence to be given testimony of industry and labor before embarkation is made on trade-agreement negotiations. There is no provision made for any participation with foreign governments in a negotiation for the reduction of duties, nor is there any way for American industry to learn the intent of our negotiators in reducing duties, until after the negotiations are completed and the reductions consummated. On past experience, we feel that too much emphasis is placed upon the political effect of international trade and world economy, and not sufficient consideration is given to the economy of the industries affected and the labor employed. DUMPING AND COUNTERVAILING DUTIES We feel that our existing laws and the regulations written thereunder with regard to dumping and countervailing duties are effective and workable, if properly administered. What we have said above with respect to trade agreements applies with equal force to the administration of the dumping and countervailing statutes. Their terms should be more clearly defined by regulations and more uniformly administered with judicial review provided in our customs courts, where questions of law are involved. As it now stands, industry is not informed as to the evidence on which adverse decisions are made. RESTRICTIVE TRADE PRACTICES ENGAGED IN BY FOREIGN COUNTRIES Although Congress has not ratified our participation in GATT, our Government is more rigidly applying the proposed rules and aims of the GATT organization than any of its other members, so far as we have been able to ascertain. Although quotas, embargoes, and other restrictive measures are frowned upon by GATT and our Government, we read in the daily press and learn from contact with our United States industries that export to foreign countries that, when necessary to protect its industry or labor, these rules and aims of GATT are frequently disregarded and necessary measures are taken. Our view of national economy is that no merchandise should be allowed to enter into competition with domestic merchandise at less than it cost the home industry to produce it. Any measures that are necessary, such as duties, quotas, fees. etc., to equalize the cost of production in a foreign country and the cost of production in the home industry are essential to the sound economy of any nation. Further, on this point, it is the objective of the trade program to raise the standards of living in other countries of the world to prevent the spread of communism and to create markets for our products. Offshore producers are in competition for the United States market. Tariffs such as we have apply equally to all friendly countries. Those offshore producers who can lay goods down in the United States market the cheapest will prevail. Therefore, there is a definite incentive to offshore producers to pay labor as little as possible. Thus the reaching of the objective is delayed if not defeated. We respectfully request that this letter be made a part of the record. Sincerely yours, DEWITT C. SCHIECK, Secretary. STATEMENT BY THE NATIONAL ASSOCIATION OF WOOL MANUFACTURERS The National Association of Wool Manufacturers is grateful for the opportunity to present its views to this agency of the legislative branch of our Government as it was of an earlier opportunity to do so to an agency of the executive branch, the Commission on Foreign Economic Policy, in December of 1953. The report of that Commission, in our judgment, did little to resolve the confusion which besets our international trade policy. We wish you greater success and sincerely believe that, to this end, the field is wide open. NEW PRINCIPLES NEEDED Much of our current international misunderstandings arise, in our judgment, from misguided efforts to have the foreign trade policy of the United States mean all things to all people. The inevitable failure of such a course has increased foreign resentment, bred of understandable disappointment, instead of furthering the basis of understanding essential to mutual trust and confidence for the future. In addition, this self-contradictory policy has created confusion and incubated damaging uncertainty in American industries. No injury-Escape-clause fallacy For example, the trade agreements program in its early days, and for years thereafter, was propagandized by its principal proponents as a device to increase our international trade, with emphasis on the advantages expected to accrue through increased exports, to be stimulated by increased imports, without damage to domestic industries producing goods competitive to the imports. In short, it was contended we could eat our cake and have it. Step by step, with succeeding extensions of the program, this illogical contention had to be abandoned. First modification of the incongruous "no injury" allegation was made through the qualification of "injury" by the addition of the word "serious." This line of propaganda culminated in the adoption of the so-called escape clause. The escape clause, at best, has proved a snare and delusion. Simply assessed, it reveals the inherent fallacy of the program and its potential to stimulate confusion, friction, and uncertainty rather than foreign trade. Reduced to its simplest terms, the escape clause provides for the withdrawal of a concession if foreigners take advantage of that concession. Thus it creates doubt of our sincerity in making the concession in the minds of both the foreign and domestic producer of the subject item. Such doubts as are created by the "escape clause" can be resolved only by deeds, not words. If the escape clause is availed of, the foreign producer understandably charges bad faith. If "escape" application is denied, the injured domestic producer finds it of no aid and, in fact, only a means of prolonging his tortured end. This scarcely seems to be the way to "win friends" at home or abroad. If a basic reasonable criterion were proclaimed and adhered to in the making of tariff concessions, much of this confusion could be eliminated. We shall deal with that criterion later. Next we shall deal with a seemingly absurd remedy that has been proposed for industries, and employees thereof, driven out of business by unfair foreign competition. Subsidized industries or displaced persons It is the present clear admission by the more ardent proponents of free trade that certain American industries are bound to suffer under a free trade policysome to the point of extinction. This admission is implicit in their suggested remedies for those industries and their workers. The alleged remedies are to the effect that either the industry be subsidized or allowed to die and its workers trained for other work and, if necessary, moved by the Government to other areas for employment. Such glib palliatives are dangerous proposals. There is no evidence of a demand for a sustaining subsidy by industries that would be adversely affected by the removal of tariffs. By what reasoning do the proponents arrive at the conclusion these industries and workers want aid, not trade? Is not this subsidy proposal of the same doubletalk stripe as the escape clause? If an American industry loses its market to a low-wage foreign producer through a tariff concession and then has that market restored by a Government subsidy, there are many losers but who wins what? The American industry and its employees survive on Government bounty-at taxpayers' expense. The foreigner does not get the increased market the tariff cut was designed to give him. Perhaps more Government jobs would be created for administration, and some circles may consider |