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i quote from the Summary of Tariff Information, volume No. 3, issued by the United States Tariff Commission :
"Competition from imports is limited. Production of holders and blades is well adapted to mass-production methods in which United States' manufacturers excel; the method of distribution employed by manufacturers favors the home producer; and imported blades are required to be diesunk with the name of the foreign manufacturer, a requirement that is difficult
to meet without injury to thin blades." As stated, there are 40,000 items in 4,000 classifications. Less than 100 have filed application for relief in 10 years, less than 10 have received relief, and in most of those cases, political factors were considered. The fact that there are so few requests for relief is not that tariffs are fair, but that there is a general opinion that it is a waste of time and money to present a case. Even if the Commission decides in favor of an industry, the State Department acting in the name of the President will cancel it. That is the pity of this whole thing. No one has any faith in getting a fair decision from his own Government.
Section 303 of the Tariff Act of 1930 states :
“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 an 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 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 act, an additional duty equal to the net amount of such bounty or grant, however, the
same be paid or bestowed." Subsidies are being paid by the French Government as reported by the Tariff Commission as follows:
"French measures to provide further aid to domestic exporters, which were inaugurated in July 1954, and took the form either of reimbursement of social security and payroll taxes or of a flat-rate rebate, or both, were extended to exports of some products previously excluded from any form of export aid. Later in the year, the flat-rate rebates of 8.72 and 5.45 percent ad valorem on the various types of exported products were reduced to 7.50 and 4.20 percent, respectively. Fixed rebates to exporters of meat and wine, which differ from those applicable to the exports entitled to the
rates of 7.50 and 4.20 percent, also were reduced.” This matter has been called to the attention of the Treasury Department by me for at least 3 years. Each time, I have received an answer that the matter is under consideration and no decision has been reached. I quote from the last letter of February 20, 1956 :
“While we have not yet found that the French practice constitutes a subsidy, we have not closed the door to the possibility of a determination that it does. As you know, we have corresponded from time to time with Mr. Hastedt on the subject, and I may say that we have recently been giving the question a very intensive study, conclusions from which have not yet
been finally reached.” As you know, I would be helpless to change any decision that the Treasury would make. However, it seems strange that after having this matter under consideration for all these years that there is still no decision.
RESTRICTED TRADE PRACTICES ENGAGED IN BY FOREIGN COUNTRIES
As stated above, the American tariff on woodwinds has been reduced from 40 to 15 percent, which is far below the tariff of a similar item of foreign governments. As reported by the Tariff Commission on May 3, the Commerce Department states:
“The current rates of duty on clarinets imported into Germany is 15 percent; into the United Kingdom, 25 percent; into Italy, about 27 percent; and into France, 20 percent plus a 15 percent temporary 'compensatory'
tax." You will note that a temporary compensatory tax has been added by France. However, these rates do not tell the entire story. Exchange restrictions and quotas set up in various countries prevent the importation of musical instruments. For instance, the owner of the largest musical instrument factory in England is a member of the British Board of Trade, and is passing on license applications to import into the United Kingdom musical instruments manufactured in the United States. It is not surprising to find that musical instruments from the United States are not allowed in the United Kingdom, other than for samples for copying. This is one example of the bilateral operation of the Geneva agreement.
In conclusion, I hope this committee really investigates this entire matter. I hope also that this situation is brought out in the open, and not swept under the rug as in the past. A real investigation will show that the selection of commodities for cuts has been determined by foreign countries and not American interests. This has aggravated a bad situation. I believe the solution to the present mess would be one tariff rate for all commodities from a particular country, and no special gimmicks to hold out all imports as in the case of razor blades. Surely such a system would be more fair than the present mess caused by favoritism to certain domestic and foreign producers.
NORTH QUINCY, Mass., October 13, 1956. Hon. Hale Bogos,
Chairman, Tariff Subcommittee, Committee on Ways and Means, House
Office Building, Washington, D.C. HONORABLE SIR: We wish to corroborate and draw again to your attention the statement of Mr. Arthur E. Hastedt, vice president, of the Cundy-Bettoney Co., Hyde Park, Mass. Although we in the cymbal business have not been quite so severely penalized by the tariff reduction systems we do feel that we are also in a position that is detrimental to fair exchanging and reductions of tariffs between nations. The tariff on cymbals now is 10 percent, and was formerly 40 percent. We do a good deal of export business but feel that we could more than double our business if the European countries and our major Asian countries would reciprocate on the reduction of their import tariffs on our instruments. Unfortunately in the past cymbals have been used for concessions to other countries, i. e., Germany, Italy, and England. While our tariff walls have dropped from 40 precent to 10 percent most of the European and Japanese tariff walls have gone from 10 percent or 15 percent up to as high as 60 percent.
In addition to this we have been completely cut out from the market of Great Britain and her great commonwealth of nations.
Please give due consideration to the clarinet industry and the cymbal industry
AVEDIS ZILDJIAN Co.,
CATERPILLAR TRACTOR Co.,
Peoria, Ill., October 8, 1956. CLERK OF THE COMMITTEE ON WAYS AND MEANS,
New House Office Building, Washington, D. C. DEAR SIR: When public hearing were being held in January 1955 on the pending reciprocal trade bill, testimony was presented on behalf of our company by Mr. A. T. Brown, executive vice president. Now, it is our understanding that hearings on similar and related matters are to be held by the special Subcommittee on Customs, Tariffs, and Reciprocal Trade Agreements set up by the House Committee on Ways and Means before the adjournment of the Sith Congress.
For the possible use of this subcommittee, we would like to submit herewith copies of the testimony presented on our behalf in January 1955. Since that time, nothing has occurred to change our thinking. Our volume of business has grown and, with it, the number in our employment. The proportion of sales being exported remains, however, about the same. Accordingly, on the basis of present employment, we would estimate that more than 12,000 of our employees are dependent upon exports for their jobs.
As stated in our testimony, our export business could be even larger if so many of our foreign customers were not handicapped by exchange controls which curtail their opportunity to buy for dollars. It is not, however, our belief that foreign countries should be given United States aid merely for the purpose of making dollar purchases. On the contrary, it is our opinion that any such aid should be given only as a last resort. Foreign countries should, however, be given every reasonable opportunity to earn the wherewithal for purchases of American products; and the greatest avenue available for this purpose is, of course, the sale of their commodities and products in the United States.
Three copies of the pamphlet containing our testimony are enclosed. Should you wish to have more copies, we would be pleased to furnish them upon hearing from you. Yours very truly,
W. BLACKIE. RECIPROCAL TRADE (Caterpillar Tractor Co. is so importantly engaged in foreign trade that when the Ways and Means Committee of the United States House of Representatives was holding hearings on the reciprocal trade bill, it seemed only fitting that the opinions developed from company experience be offered in testimony. This was done in January 1955 with Mr. A. T. Brown, executive vice president, making the presentation on behalf of Caterpillar. We were witness for the policies advocated by President Eisenhower, and here is our testimony.)
Caterpillar Tractor Co. was formed in 1925 as a merger of two small pioneer crawler-tractor manufacturers. Its principal products are diesel crawler tractors, heavy duty off-highway wheel tractors, diesel engines, motor graders, earthmoving equipment, and replacement parts for these prime products. The principal markets into which Caterpillar machines are sold are, without using any particular order, agriculture, construction, governmental, logging, and mining.
Our machines are bought for only one basic purpose_to accomplish a job of work better, quicker, and cheaper than it can be done by any other available means. Our products achieve cost reduction through labor saving, resulting in capital conservation and the creation of wealth through profitable use of the machines.
The only exception to the general basic purpose of acquiring Caterpillar products—and it may not really be an exception-occurs in time of war. With only a change of paint from Caterpillar distinctive highway yellow to olive drab, our machines become standard war department vehicles; and Caterpillar has always been the major supplier of crawler tractors to the allied forces.
In its year of formation nearly 30 years ago, Caterpillar Tractor Co. had 2 small plants and employed 2,500 people. Today it employs 28,000 and has 6 plants located at Peoria, Joliet, and Decatur, Ill. ; Milwaukee, Wis.; San Leandro, Calif.; and York, Pa. Foreign subsidiaries operate in Australia, Brazil, and England. The small but good original distribution system has grown into a worldwide organization consisting of 355 independent dealers which, with branches, operate at more than 800 places of business. Almost half the number of dealers operate outside the United States in every country outside the Iron Curtain.
Caterpillar sales have ranged from a low of $13 million in 1932 to $477 million in 1952, and were $400 million in 1954. More significant to the purpose of this statement, however, is the fact that approximately one-third of our sales go to foreign countries. This, we believe, makes us one of the largest exporters of heavy machinery from the United States. And the amount of our business going to export markets is not truly indicative of what export sales could have been under more favorable international trade conditions. Export business has been achieved despite exchange controls, import restrictions and tariff barriers imposed to some degree by practically every country into which machines have been sold. Without such limitations and iu a climate more favorable to international trade, the volume of our exports would certainly have been substantially higher in amount and larger in proportion to our total business than in 1954.
Now what does this mean to Caterpillar and to those who are related to it as employees, customers, suppliers, and stockholders?
It is obvious that the more customers we have the more people we can employ. Without its export business, Caterpillar would not need the valuable services of about a third, or almost 10,000, of its people employed in the United States. Its United States payroll in 1954 would have been about $45 million less than it was. (The greater part of the shrinkage would have occurred in Peoria,
Ill., a community of about 135,000 population.) The jobs of thousands of our people and of many employed in local services are protected, therefore, not by United States tariffs designed to obstruct imports but by our ability to export.
The people we employ directly are, of course, only a part of the employment created by our needs for goods and services. Much more employment is supplied by others with whom we spent in 1954 almost $200 million. A very high percentage of that amount represents the cost of labor performed by the employees of our suppliers. In the last 9 years, we have also spent over $170 million for land, buildings, machinery, and equipment to expand our manufacturing facilities in the United States. Traced back to origin, nearly all of these expenditures represent wages paid for labor.
Some of our suppliers may not themselves be exporters, but we, in effect, are either directly or indirectly exporters for them. And so it is with everything we consume in the processes of production or in providing the facilities for production. Were it not for our export business, we would not have required approximately a third of all we bought from others. And our suppliers would not have spent many millions of dollars to increase their productive capacity to take care of our requirements for export sales.
All this points to the fact that many who are not themselves direct exporters of goods or services are nevertheless dependent upon exports by others like ourselves for an important part of their business. This should always be kept in mind when so-called protective tariffs are discussed.
As to customers—they are the major beneficiaries of the great advantages which result when volume reaches levels justifying mass production techniques. These techniques require heavy capital investment which can only be justified when the volume is large enough to permit it to be amortized over a reasonable period to produce lower costs per unit of output. It is such capital investment which has given the United States its superiority in productivity over other nations-superiority sufficient to overcome lower foreign wage costs which may be as low as a third of our own. Modern productivity is determined more by the capacity of the machine than by the physical effort of the operator; foreign work people often work far harder in terms of physical effort than the factory worker in the United States because the foreign worker often has to work with inferior tools and equipment. The desirable trend is toward employing men's brainpower to a greater extent than their physical strength or skill; and the extent to which this country has moved in that direction is illustrated by its much higher capital investment and horsepower behind each producer than exists in other countries.
Mass production for mass sales has achieved lower costs and prices, and made possible better working conditions which enable the worker to produce more output for less personal physical input. This higher productivity has made possible not only the higher wage level of the American workmen but has also permitted their wages to have more real purchasing power-even in the face of inflationary forces operating to depreciate the value of our money.
Just as every domestic order increases production requirements, so also does every foreign order. In the processes of investment and production, there is no distinction between the two. The more orders, the better. As our volume of business has grown, so also has our opportunity to justify capital investment for more and better ways of cutting costs and keeping prices down. There is nearly always a higher level which marks a point of higher investment justification, and to the extent that its attainment is accelerated by added foreign business so are the benefits accelerated to all concerned.
For example, the American farmer is able to buy our tractors at lower relative prices because our export business has permitted greater mass economies than would otherwise have been possible. The farmer, too, is an exporter. The lower his production costs, the better position he is in to reach into broader world markets. But the farmer's ability to export is handicapped, as others are, hy limited dollar exchange abroad. The recent decline in farm income, which has had a noticeable effect upon our domestic economy, may, we understand, be attributed in part to a shrinkage of farm exports which has had a depressing influence on farm product prices. How much better it would be if other peoples of the world who need our farm products for their subsistence could earn in international trade more dollar purchasing power with which to buy from us the large surpluses our farmers are capable of producing.
The advantages of high production volume which make possible lower commercial prices make these same or still lower prices available to the United States Government for its requirement for the military and civilian services, thus contributing to lower cost of government.
Another benefit accruing from Caterpillar export operations is, of course, our ability to earn enough to pay substantial Federal taxes. Exclusive of many excise taxes incorporated in our production costs, and including only income and excess profits taxes, we paid a total of $161 million over the 5 years 1950 to 1954, inclusive, for an annual average of $32 million. Without the extra volume created by export business, our Federal tax payments would have been far lessmuch more than a third less, because the top third of our sales volume is the most profitable. This is because the additional production volume makes possible lower manufacturing costs.
At present some of our foreign markets are encountering or are threatened with severe contraction-a few toward the point of extinction. In only rare instances is unprotected foreign competition the important factor. In some cases high-import duties, combined with long-haul transportation costs, result in landed prices which limit foreign ability to buy. However, the most important factors adversely affecting imports from the United States are restrictive exchange controls and import limitations imposed by certain foreign governments for the stated purpose of conserving scarce United States dollar exchange. This is often utilized in a way to protect local government-sponsored enterprises. The exercise of such controls produces the same effect as outright discrimination against American pro its.
In such circumstances, there are usually several courses of action open to a United States manufacturer. One is a slow drift into gradual abandonmentalthough that can hardly be called a course of action. In more positive terms, solutions are usually to be found in foreign manufacture either through direct owner-managed investment in foreign operations or through license arrangements with appropriate foreign concerns. Both methods have their proper place and both have the same effect of transferring some production from the United States to the foreign country.
Whenever, to retain foreign markets, manufacturers, such as our company, are obliged to substitute foreign manufacturing operations for those in the United States, the result is a reduction in their requirements for American labor, material, supplies, and capital equipment. The net effect of this seems disadvantageous to the United States and even to some United States industries which seek protection from foreign goods, but which indirectly enjoy the benefits of foreign business as suppliers to companies whose exports are a substantial portion of their total business.
Every time people of other countries are denied the opportunity to earn dollars, United States exporters are deprived of opportunity to export. Protection for the sake of protection is a policy or robbing Peter to pay Paul, and frequently Peter and Paul are one and the same person.
For our part, we are seeking no form of protection from competitive foreign machinery. Nor, when we undertake foreign investment, are we seeking to have any tax-supported agencies of the United States Government give us guaranties or insurance of any kind in connection with it. Where we decide to invest, we attempt as best we can to appraise the risks of the situation and then, if they are not so great as to endanger unduly the prospect for gain, we take the risksand with our own company funds. That, we understand, is one of the functions and purposes of free enterprise.
If foreign investments are to be rewarding to those who are taking the risks, they should sooner or later produce returns--and, we would hope, returns commensurate with the greater risks. But, it will be observed, our United States Government is taking no part of these risks, nor is it doing or being asked to do anything in particular to protect us from loss resulting from our making them. In the circumstances, we, therefore, believe that it would be only fitting if, as and when we may be fortunate enough to receive dividends from our foreign investments they not be subjected to any taxation at all by this country. Before those dividends reach us, any profits will have been subjected to foreign income taxation, and even when that is lower than the effective United States rates, there would seem to be no real justification for imposing any additional levy here.
In considering ways and means of promoting foreign investment, more stress should, we believe, be placed upon encouraging the governments of some of the other countries to be more cooperative in developing such investment. In particular, we believe steps might be taken to induce other countries to be more receptive to the idea of permitting imports from the United States of such basic materials or key parts of complete units as, for reasons of quality, availability, or cost, cannot be commercially obtained within the foreign country. This is particularly important where the foreign-made product is expected to be exported