other equally important factor in duty determination—namely, the value component.

For example, if the Tariff Act provides for a duty rate of 40 percnet ad valorem on a particular product, the duty to be assessed on that product will be 40 percent of the value at which it is appraised upon importation into the United States. Assume that the product would presently be appraised at a value of $10. The application of the 40 percent ad valorem rate to the $10 valuation would yield a duty of $4. If a change in the law resulted in that same product being appraised for value at $5, the duty to be paid upon the importation of the product would drop to $2. While the rate of duty is not changed, the amount of protection available to the American industry on that product has been reduced by 50 percent merely by a change in the law requiring the valuation of the article to be made on a lower basis. The chemical industry understandably, therefore is as much concerned with a change in the law which results in importations of coal tar and other chemical products being appraised at a lower value as it is in an actual reduction in the rate schedule itself.

Not content with the 50-percent reduction in the rate schedule applicable to chemical products achieved at Torquay, the executive department is now intent upon forcing a further reduction in duties. on imported chemical products through a change in the law which will result in a downward revision of the dutiable valuation to be appraised upon chemical imports.

I will explain how this is so. Before doing so, however, I would like to point out that the proposed valuation provisions contained in section 15 of H. R. 5106 are designed to bring the valuation provisions of our tariff law into conformity with the provisions of GATT and the rejected ITO Charter. This is indicated by the Tariff Commission's memorandum to this committee when H. R. 1535 was under consideration 2 years ago (hearings, pp. 231-234).

The Habana Charter for an ITO was rejected, and the GATT has never been ratified by the Congress. An attempt to secure the piecemeal acceptance of a defunct ITO Charter and GATT in the disguise of a customs simplification bill should not be tolerated by the Congress. Foreign value: Section 15 of the bill eliminates foreign value as a basis of valuation. It creates a new concept known as comparative value as an alternative basis of valuation. It redesignates "cost of production" as constructed value. It redefines export value, United States value, the former cost of production value, and the American selling price. In addition, it defines certain terms used in those redrawn value provisions.

We object to the deletion of foreign value as one of the primary bases for valuation purposes. The present law requires that imported merchandise be valued on the basis of the foreign value or the export value, whichever is higher. It is our opinion that, in general, the use of foreign value results in a higher valuation than the use of export value. Consequently, the substitution of export value for foreign value as the primary basis of valuation will favor importers to the detriment of domestic industries. True enough, importations of coal tar products will be valued under sections 27 and 28 of the Tariff Act on the basis of American selling price where there is a competing domestic product, or on the basis of the United States value. Coal tar products, however, represent less than half in dollar

value of the production of chemical products by this industry. Nearly $2 billion worth of other than coal tar products are manufactured annually by the chemical industry. The deletion of foreign value as a primary basis of valuation will have the effect of reducing the protection accorded our industry by the present tariff statutes by reducing the second or value factor in the equation which produces duties on chemical imports. The Tariff Commission reported to this committee when H. R. 1535 was under consideration that there is a general agreement among experts that the substitution of export value for foreign value will, as a rule, be more favorable to importers (hearings, p. 230).

Bearing in mind that our foreign competition is largely cartelized, the proposed elimination of foreign value presents a further danger to our industry. The proposed primary basis of valuation, "export value", places the control of valuation for United States tariff purposes in the hands of the foreign exporters. Export value is the price at which merchandise is sold for exportation to the United States. The accompanying definition of "freely sold or offered for sale" in the bill will make it possible for a sale to one or more selected purchasers, even though the sale is accompanied by restrictions, to qualify as value for the imported merchandise. It will thus be possible for European chemical producers to establish any selling price they please for exportations to the United States, including sales to exclusive distributors. The proposed bill makes it a simple matter for our foreign competition to arrange for the entry of chemical imports into this country at a landed cost which we cannot compete with.

The Antidumping Act would, of course, be available to us as a means of checking such techniques by foreign chemical manufacturers. Its application, however, depends upon the existence and ascertainment of a foreign market value for merchandise similar to the imports in question. If the Congress eliminates the use of foreign value as a primary basis of valuation under section 402 of the Tariff Act, how can foreign market value be regarded as a usable concept in the administration of the antidumping law? Importers would no longer be required to report foreign value to the appraiser. Wholly independent investigations of foreign value would be required if the Antidumping Act were to be enforced. An ostensible simplification of the Tariff Act would thus complicate the administration of the Antidumping Act. Can this be real simplification?

Furthermore, the type of investigation required by the Secretary of the Treasury in administering the antidumping law is time consuming and the results are quite uncertain. The act presently requires a finding not only that the imported merchandise is being sold below its fair value in this country, but also that the domestic industry is being or likely will be injured. It is greatly to be hoped that this committee will recommend the amendment of the antidumping law contained in Congressman Simpson's bill, H. R. 4294, for extension of the Trade Agreements Act which would eliminate the injury test from the Antidumping Act. Even so, however, the time required for the administration of that act would permit a predatory practice to continue for a period of time during which the members of our association affected could be seriously harmed.

Foreign value has been the primary basis for the assessment of ad valorem duties practically throughout the history of our tariff

laws. The excellence of the present basis of valuation, which rests upon the higher of the foreign or export values, is that it tends to be an automatic safeguard against dumping. If the foreign exporter offers merchandise for sale at a greatly reduced price in order to gain entry into the United States market, the appraiser is required to assess dutiable value on the basis of the price at which such merchandise is freely offered for sale to all purchasers for home consumption in the foreign market. This results in the ad valorem duty being applied on a higher base than that which would otherwise be the case if the depressed price for such or similar goods for export to the United States were used. It may also happen that despite the determination of duties on the higher base, the landed cost of the merchandise is still so low that the Antidumping Act relief is required and appropriate. Nevertheless, the present method of valuation tends to reduce the frequency of occasions upon which the Antidumping Act needs to be invoked.

The proposed elimination of foreign value from section 402 of the Tariff Act, therefore, removes protection now available for the domestic industry. In addition, it fails to serve the interests of customs simplification because it increases greatly the investigative work required by customs officers under the Antidumping Act, while multiplying the occasions when the Antidumping Act must be invoked. Comparative value: Under the proposed bill, where neither the export value nor the United States value can be ascertained, then a new value known as comparative value is to be used. The definition of comparative value is so vague and indefinite that its use would. serve to breed litigation rather than to simplify customs procedures. The definition fails to provide any standards to guide the appraiser in its application. Consider, for example, this term:

* * *

the equivalent of the export value as nearly as such equivalent may be ascertained or estimated on the basis of the export or United States value" of other merchandise "comparable in construction and use * * * with appropriate adjustments for differences in size, etc.

What does it mean? It is so broad in its connotation that rarely could it be anticipated that the appraiser and the importer would agree as to its application. The latitude of "equivalent," "as nearly as such equivalent may be ascertained," "comparable in construction, etc." and "appropriate adjustments" is so great that no test seems available to limit the discretion of the appraiser or to guide an appropriate court in reviewing the correctness of the appraiser's decisions. Indeed, the nature of the appraiser's action in making the determinations required under comparative value would seem to be discretionary because of the amorphous concepts to be applied. There may be some question of the reviewability of those determinations. I am informed that courts will not review a decision of a Government official involving the exercise of discretion absent a showing that it is fraudulent or so gross and arbitrary as to amount to an abuse of discretion.

In short, the proposed comparative value basis appears to be such a confusing and dangerous concept that we strongly oppose its use.

United States value: The proposed definition of United States value deletes a requirement of the present law that a commission not to exceed 6 percent on goods secured other than by purchase, or profits not to exceed 8 percent and a reasonable allowance for general ex

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penses not to exceed 8 percent on purchased goods be allowed in computing the value of imported merchandise. That deletion removes an advantage which the courts have held was intended by Congress to favor the American importer who purchases goods outright and maintains an expensive establishment in the United States over the foreign consignor who sells in this country through an agent on the commission basis. The proposed change is opposed by our industry because our members import large quantities of chemicals not produced by any domestic manufacturer which are assessed duty under paragraph 28 at the United States selling price. The effect of the present law is to make it possible for us to import intermediates for use in our manufacturing operations on a more favorable duty basis than the agents of our foreign competitors who bring similar products into this country for sale on a commission basis. This is an aid to our domestic manufacturing operations.

The proposed definition of United States value eliminates from dutiable value Federal taxes payable on imported merchandise by reason of its importation, as well as Federal excise taxes on such merchandise. Under the present law, such taxes may not be deducted in determining United States value. Consequently, the provision in the bill for their deduction would remove to that extent part of the charges composing the base for dutiable value and result in lower duties on products assessed at United States value.

The last paragraph of the proposed definition of United States value changes the so-called prototype doctrine under which an importation may not be assessed at the United States value if a prior importation of such or similar merchandise has not previously been offered for sale for domestic consumption. The present construction of the law requires prototype importations to be assessed under the cost of production basis. The circumstances attending valuation on the cost of production basis are regarded as favoring the domestic producer of similar merchandise. These changes, therefore, contribute to the overall effect of section 15 of revising actual duty schedules downward, which we oppose.

Constructed value: The proposed definition of constructed value would change the cost of production provision of the present statute by deleting the minimum additions for general expenses and profit. At the present time cost of production is based on the cost of the materials and fabrication of the imported merchandise plus an addition for overhead and profit. The addition for overhead or general expenses must be not less than 10 percent of the cost of materials, fabrication, or other processing. The profit to be added must not be less than 8 percent of the sums of the cost of materials, fabrication, or other processing, and general expenses.

The percentages presently contained in the law conform with those generally applicable throughout American business. The present statute, through the use of minimum percentages recognizes that oftentimes precise profit and general expense data under the looser accounting systems followed in foreign countries may not be forthcoming. The statute, nevertheless, requires that in determining the cost of production of imported merchandise, similar allowances for overhead and profit be made as would obtain in any economy where industry functioned under the profit motive. The deletion of those minimum provisions will often have the effect of permitting lower

general expense and profit allowances to be considered, with the result that the ultimate dutiable value arrived at will be lower than that presently obtained through the application of the present statute.

Meaningless changes: Under the definitions of export value, cost of production, and American selling price, in the present statute, there must be included "all other costs, charges, and expenses" incident to placing the merchandise in condition packed ready for shipment to or delivery in the United States. The proposed definitions of export value, constructed value, and American selling price in H. R. 5106 delete from the term "all other costs, charges, and expenses" the words "costs" and "charges." Apparently no change in the meaning of the definitions is intended. Where no substantive change is intended, it is very undesirable to make any changes in the terminology of a statute which has received administrative and judicial interpretation over the course of many years.

Congress is presumed not to engage in meaningless changes of the law, and it is feared that the courts or the administrators will attribute some intention on the part of Congress in making the changes I have described. Our industry prefers emphatically to have the terminology of the American selling price and other valuation basis provisions retained in their present form rather than to set the course of administrative and judicial interpretation running afresh through meaningless and unnecessary changes.

Subsection (g) of section 15 requires that foreign internal taxes from which merchandise undergoing appraisement has been exempt or will be relieved by means of refund, not be included within the dutiable value of the merchandise. Such taxes are presently included in the dutiable value of imports assessed duty on the basis of foreign value. So far as foreign value is concerned, excluding such taxes from the valuation base would result in a reduction in the duties payable on the importations affected. So far as the bill itself is concerned, the deletion of foreign value as a basis for valuation would seem to make subsection (g) superfluous, for such taxes are not included within the value of merchandise appraised on the basis of export value. The presence of that provision in the bill in its present form is unnecessary and would possibly be a source of confusion in interpreting the law.

Definitions: Subsection (h) of section 15 undertakes to define terms which appear in all of the valuation bases and which have had a settled interpretation under the decisions of the customs courts. The proposed definitions would upset established interpretations of the terms, and reduce dutiable value of imports with a corresponding. reduction in duties.

For example, the definition of "freely sold or offered for sale" would change the law in an important respect. The present statute uses the term "freely offered for sale" in each of the valuation provisions. The courts have held that offers or sales of merchandise to which are attached restrictions or limitations as to use or disposition by the purchaser whether required by law or imposed by contract, are not freely offered within the meaning of the statute. Consequently, sales by foreign manufacturers to exclusive distributors under restrictive terms are not acceptable as transactions which will establish a freely offered price. Under the proposed bill, such sales would be