adopted for the purpose of indirectly paying or bestowing such a bounty or grant and in the hope that by use of the subterfuge the application of the section would be avoided. While it can be validly argued that even in such cases we should no longer impose countervailing duties, since such practices, far from being frowned on as a type of international unfair competition, have been adopted by us in our agricultural parity program, we shall pass over that point. On May 6, 1953, the Secretary of the Treasury, by T. D. 53257 imposed an 18 percent countervailing duty on Uruguayan wool top and this step marked an expansion of the field within which section 303 might operate. His action was based on the conclusion that the foreign exchange control system of Uruguay resulted in an indirect payment or bestowal of a bounty or grant on the manufacture and export of top from that country and marked the first time that an entire financial system had been so attacked by this Government. Uruguay has what is known as a multiple exchange rate system, which requires exporters to sell to the central bank, at exchange rates which vary depending upon the commodity exported, the foreign exchange received by them for their exports. At present Uruguay purchases foreign exchange from exporters at effective rates of U$1.519 for raw wool and U$2.06 for wool top. The Secretary apparently felt compelled under those circumstances to impose countervailing duties irrespective of the adverse implications that such action might have on our foreign relations; irrespective of the fact that the history of the Uruguayan exchange control system clearly indicated that it was primarily a device for taxation and against inflation rather than a subterfuge for concealing grants and bounties, and irrespective of whether the operation of the Uruguayan system actually injured industry or agriculturists in this country. Further, the action was taken without any prior consultation with the government of Uruguay and was therefore subject to the charge of being in violation of article XII of the Reciprocal Trade Agreement with Uruguay which became effective January 1, 1943. Multiple exchange rate systems identical with or similar to that of Uruguay exist in many other South American countries and elsewhere throughout the world. In Uruguay, and elsewhere as well, the system applies with similar effect not only to wool and its manufactures, but to other raw materials and their manufactures as well. Unless the Treasury action is to be discriminatory in that it is to be taken with respect only to this 1 commodity from this 1 country, in which event it would be violative of the most-favored-nation clause in the Reciprocal Trade Agreement with Uruguay, it is of necessity only a precursor of a number of similar orders that will apply to hundreds of items being imported from many countries. The result of this avalanche of countervailing duties cannot help but seriously diminish 2-way trade possibilities between our country and other friendly countries of the world. Since 2-way trade is essential to the soundness of the economy of all countries, including our own, and 1 of the cornerstones of any mutual defense program, the effect of the Treasury's decision is to force all of the multiple exchange rate countries to modify their exchange control systems on penalty of cutting off their esports to us, except for raw materials. If they fail to do so they will, in effect, be reduced to a colonial status restricted to exporting to us raw materials, a result hardly consistent with our protestations of a desire to help them establish sound economies. Multiple exchange rate countries cannot easily modify their systems. The Uruguayan system as applied to wool and top for example, in effect captures for the Government of Uruguay all of the foreign exchange realized by exporters from their operations, at prices which result in the producer retaining in pesos no more than he would have received had he sold the item for internal consumption. He retains certainly less than he would have had had he been permitted to sell the exchange in the free market (there exists an open market for the purchase and sale of foreign exchange in Uruguay) at the current rate of U$2.95 per US$1. In other words, the Uruguayan Government takes for itself something approaching the profit in the export transaction attributable to the difference between the price in the world market and the price in the domestic market. The value and the foreign exchange thus obtained by them is used to subsidize essential imports into that country by providing foreign exchange therefor at low prices and to penalize luxury imports, for which it supplies foreign exchange only at high prices. In such manner does Uruguay support its own economy and reduce inflationary tendencies. This combination of a multiple exchange rate system and a qualitative selection system of import controls is widely used throughout the world and an alternative that will conveniently accomplish the same results and yet comply with the orthodox view expressed by section 303 of the Tariff Act as interpreted by the Treasury Department, is not readily found. Further, no self-respecting nation will take kindly to searching for and developing one on compulsion from us, especially if that compulsion is gratiutous and not required to protect our own economy from injury. In order to give you a clearer picture of the situation we shall attempt to analyze in more detail the problem with particular reference to wool top from Uruguay. In the first place we might point out that wool and the top made from it falls into two categories, carpet wool and apparel wool. Since little or no carpet wool is grown in Uruguay, we shall restrict our analysis and statistics to apparel wool, even though by so doing we will be giving Uruguayan wool and top a status with respect to American usage higher percentagewise than if we had treated the whole wool picture, including both carpet wool and apparel wool, as the unit which it really is. Statistics are readily available only with respect to calendar years and we are therefore using calendar statistics although the clip year (October 1 to September 30 following) is a much more meaningful period with respect to the wool industry. Prior to 1950 there was practically no Uruguayan top in the American market. In that year a joint mission of the International Bank for Reconstruction and Development and of the Food and Agriculture Organization of the United Nations visited Uruguay and surveyed its economy. They strongly recommended in their report the processing of wool in Uruguay to the economic limit before export, with the aim of achieving the largest possible export of scoured sorted wool and tops as opposed to grease wool. This program was undertaken and was materially aided by the outbreak of hostilities in Korea and by the entry of the Russians into the Australian wool market, which drove the price of wool up about 150 percent. As a result, the manufacture of tops in Uruguay was pushed to the limit and exports to this country rose from 1,544,000 pounds in 1950 to 6,871,000 in 1951 and to a peak of 15,592,000 in 1952. From a comparatively unimportant position in the total export picture of Uruguay, the export of tops to the United States rose in 1951 to some 15 percent of the total dollar volume of Uruguay's exports to the United States and 6 percent of its dollar total volume of exports. For the first 7 months of 1952, the latest period for which Uruguayan figures are available to us, export of Uruguayan tops to this country represented 40 percent of the total dollar volume of exports to this country and 11 percent of the total dollar volume of exports. Since July of last year, however, imports into this country of Uruguayan wool and top have substantially decreased. During the first half of the current clip year, October 1, 1952 to March 31, 1953, only 4,400,000 pounds of Uruguayan top has been imported into this country, and projecting this figure for the entire clip year would have resulted in total import of only 8,800,000 pounds, a total which will, of course, be substantially reduced by reason of the imposition of countervailing duties. This decrease in the importation of wool top during the first half of the clip year, October 1, 1952 to March 31, 1953, was occasioned solely by the unwillingness or inability of the American market to meet the world price of wool. Proof of this conclusion is readily available by noting the fact that in the Australian auctions this year American buyers were outbid for substantial quantities of wool. The fact that Uruguayan tops is being sold in other countries rather than here is certainly clear evidence that the Uruguayan exchange system does not produce dumping of the commodity in this country. Consumption of apparel tops in this country for recent years has been as follows: 1950. 1951 Pounds 229, 000, 000 195, 000, 000 198, 000, 000 It is thus apparent that top imported from Uruguay never exceeded 721⁄2 percent of the top consumed here. Reviewing all of these figures, it is hard to conceive how imports of top from Uruguay could have had any appreciable effect on the American top making industry or on local top prices. This is especially true since about 15 percent of the Uruguayan top imported into this country during the last 2 years was imported by us for our own use and never entered the local market as top. We might state that the top imported by us is a product of a combing plant in Uruguay erected and opened by our stockholders after consultation with the State Department as a means of furthering the proposals of the joint missions of the International Bank and the Food and Agriculture Organization. Our stockholders made that investment without any Government aid or guaranties and the imposition of countervailing duties on their product may deprive the stockholders not only of all fruits of their investment but perhaps even of their capital, too. Such an experience would hardly serve as an inducement to any other entrepreneurs to invest capital abroad which type of investment it is our understanding that our Government is presently trying to stimulate. Further, in this duscussion we cannot overlook the fact that during the postWorld War II years Uruguay has imported from us more than she has exported to us. In 1951, the year when the greatest amount of Uruguayan tops entered this country, the total dollar volume of Uruguayan exports to this country was only $102 million, whereas she imported from us a dollar volume of $140 million. Such an unfavorable trade balance cannot in the nature of things long continue to exist, and depriving Uruguay of access to our top market must certainly hasten the cutting off of imports from us. It should also be noted that most of Uruguayan exports to us are in raw materials or semimanufactures, the labor value in which probably does not exceed 25 percent. Uruguay imports from us, however, consist of highly manufactured articles, where the ratio of labor value to material value is probably reversed, approximating 75 percent. We realize that the wool industry and the top making branch of it has suffered recently. We submit that the difficulty is attributable to reduced consumption of wool products in this country rather than the entry of Uruguayan top. The consumption of apparel top in this country between 1943 and 1948 averaged 235 million pounds per year and was never less than 222 million in any year. From 1949 to 1952 the average was 198 million pounds and in 1 year the consumption was as low as 168 million pounds. The reduced use of top here is in no small part attributable to wool products being priced out of the market in which they compete with synthetics, like orlon, nylon, and dacron, and it seems to us elemental that anything tending to increase the price of wool products will further harm rather than benefit both the industry and the growers. We can hardly see how Uruguayan top can, at its present volume of importation, substantially adversely affect either our wool industry or our wool growers and hence how any internal exchange regulations of Uruguay applicable to that top can have any substantial effect on our local economy. We know that the imposition of these duties has resulted in diplomatic exchanges between Uruguay and our country and charges of bad faith and breach of treaty obligations are freely circulating in Uruguay. The Government, press, and people of Uruguay have all considered it a direct slap at them and in some quarters reprisals are being called for. It is to be hoped that these calls go unheeded and that relations between us and Uruguay, the bulwark of democracy in the Southern Hemisphere, can remain as friendly as they always have been. In summary, we believe that the imposition of countervailing duties on Uruguayan top has 1. Dealt a severe blow to the Uruguayan economy by seriously jeopardizing Uruguay's ability to maintain even a semblance of a balance of trade with this country; 2. Been an unwarranted interference with the operation of the Uruguayan exchange rate system as a tool for taxation and control of inflation in that country; 3. Subjected this country to the charge of being a treaty violator by one of its stanchest friends in South America; and all without any particular compensating benefit to our economy or any of our nationals. If this is true in the case of Uruguayan top, which has been selected for particular attack, how much more true will it be when, in accordance with the present mandatory provisions of the Tariff Act, countervailing duties are imposed on other products from Uruguay and from other countries with multiple exchange rate systems for no reason other than the fact that analysis shows that the exchange system operates on them in the same manner. How many other countries will be gratuitously offended and harmed? It is for this reason that we urge the addition of an "injury clause' to section 303 of the Tariff Act of 1930, in the form set forth at the opening of this statement, so that countervailing duties will only be imposed after full consideration has been given by all Government departments whose operations and policies may be affected by the imposition and that they need not be imposed unless some substantial benefit is to flow therefrom. Mr. JENKINS. Ladies and gentlemen, from all indications, that brings these hearings to a close. Thank you all for your attention and your attendance. (The following material was submitted for the record:) MUTUAL SECURITY AGENCY STATEMENT ON THE CUSTOMS SIMPLIFICATION BILL The Mutual Security Agency wishes to register strong endorsement of the proposed Customs Simplification Act of 1953, which is designed to clarify existing legislation and to expedite customs operations. Action along these lines would help to reduce complications, delays, and uncertainties, which, at the present time, constitute a substantial barrier to trade and an even greater psychological obstacle to international cooperation in economic matters. The enactment of H. R. 5106 would further the principle formulated by President Eisenhower in his inaugural address when he said that "we shall strive to foster everywhere, and to practice ourselves, policies that encourage profitable trade". Enactment of this legislation is one of the four steps contemplated in the state of the Union message, which recommended that we provide "vital help" to our friends abroad by "revising our customs regulations to remove procedural obstacles to profitable trade." At the present time, the complexity of our customs legislation, the difficulty of ascertaining the true meaning of the law and of the required mass of interpretative decisions, the considerable delays encountered in establishing final customs liabilities, especially on manufactured goods and on new lines of goods, the complications of import valuations, are all procedural obstacles to profitable trade and, at the same time, generate resentment and ill will against this country. The foreign exporter, who is confronted with an admittedly bewildering body of rules and interpretations or who meets with protracted delays, soon develops the belief that he is the target of discriminatory measures and is being deprived of a fair chance to reach the United States customer. He is not only discouraged from further efforts to sell his wares in the United States, but he may well develop resentment at being treated in what seems to be an arbitrary and unfair manner. A source of many procedural difficulties and of great resentment is to be found in our present methods for valuing imports. Valuation procedures are exceedingly complex and time comsuming. Furthermore they often appear to be unrealistic and inequitable toward some traders and, at times toward some of our allies. The amendments proposed in the legislation tend to: (a) eliminate unnecessary expense and delay in the appraisal of merchandise and (b) produce a system of valuation which is more realistic from a commercial point of view. They are inspired by our recognition of the general principle that the laws regulating trade should be administered with certainty, equity, and economy. The adoption of measures of simplification will prove of substantial advantages to foreign traders by making our laws and procedures clearer and more orderly. By so doing the proposed legislation will help us in our efforts to extend through the rest of the free world our philosophy of a free, competitive, and expanding economy. Because this legislation constitutes tangible evidence of our willingness to remedy our own deficiencies and to do our part in the encouragement of profitable trade, its enactment will be viewed and appreciated throughout the free world as an expression of goodwill and leadership and will thus extend the area of mutual cooperation with our friends and allies abroad. NATIONAL CREAMERIES ASSOCIATION, Hon. DANIEL A. REED, Chairman, Ways and Means Committee, House of Representatives, Washington 25, D. C. DEAR CHAIRMAN REED: Due to the pressure of other work, it was impossible for me to appear at the hearings on H. R. 5106, recently completed by your committee. Accordingly, I desire to file this letter as a part of the record of such hearings. The National Creameries Association, of which I am Washington representative, is composed of about 950 cooperative and private dairy processing plants, located in the States of Wisconsin, Minnesota, Iowa, North and South Dakota, Kansas, Nebraska, Michigan, and Wyoming. Our members are interested primarily in the production of manufactured dairy products, and National Creameries Association is directly supported by some 300,000 dairy farmers located in the States named above. Our particular interest with regard to H. R. 5106 pertains to section 22 of that bill. As we understand the matter, the provisions of section 22 of that bill, and particularly paragraphs (c) and (d) of that section, would in effect make it practically mandatory upon this Government to recognize the practice of the establishment of multiple exchange rates by foreign governments. This we think would be improper, taking into account the frequently voiced plea that foreign trade should be conducted on a free basis, with as much relaxation as possible in the various and sundry devices that, at this time, hinder the free movement of goods between countries. We think the development of multiple rates is merely another of the devices by which countries can juggle their rules and regulations affecting foreign trade to their benefit, without there being involved any real reason due to comparative advantage in production that would ordinarily be the criterion in the development of export markets for any particular commodity from any particular country. In other words, by juggling the exchange rates, a foreign country could indulge itself in a selective depreciation of its currency in relation to ours. As we testified before your committee with regard to the bill to extend the Reciprocal Trade Act, H. R. 4294, one of the major factors that leads us in the dairy industry to desire the continuation of positive quantitative import controls, is the fact that foreign countries have so depreciated their currencies that their prices have been markedly reduced relative to ours, which places us at a very great competitive disadvantage. This disadvantage is not due to any shortcomings in the efficiency of production in this country, but one due in very large part to the arbitrary action of the exporting countries in devaluing their currencies. Now, with the device of multiple exchange rates, any foreign country, if it so desires, by juggling its exchange rates applicable to different commodities or groups of commodities, can in effect devalue its currency on a selective basis-encouraging through this device the exportation of some commodities, and discouraging others. We think this is entirely improper, and that no law should be enacted that in effect recognizes this practice in our customs procedure, thereby, at least indirectly, giving the approval of the Congress to such an arbitrary and capricious practice. We realize that this country cannot dictate the exchange rates established by foreign countries with respect to their currencies. However, we submit that it is entirely within the prerogatives of this country to refuse to recognize multiple exchange rates in developing the rate of exchange that will be applied to imports into this country, for the purpose of our own customs laws. The technique for handling this problem of multiple rates, on a basis which we believe much more sound and of benefit to American businessmen, including importers, has already been developed in H. R. 3810 (80th Cong., 1st Sess.), as described in Report No. 689, and submitted to the House by the Ways and Means Committee June 25, 1947. That bill was for the purpose of stabilizing "procedure in determining the value of foreign currencies in terms of United States dollars for custom purposes." The major provision of the bill can best be described in terms of the Ways and Means Committee's own report on the bill, as follows: "In recent years many foreign nations have set up systems of dual or multiple exchange rates for the conversion of their currencies, such systems were practically unknown at the time of the passage of the Tarif Act of 1930.” "Under the bill (H. R. 3810), when the Federal Reserve Bank of New York certifies that there are dual, or multiple exchange rates, the Secretary of the Treasury would be authorized to name a single official rate which cannot be higher than the highest nor lower than the lowest certified to him by the bank. This rate shall be as nearly representative as is practicable of the rate of exchange or the combination of such rates used most generally in effecting the transfer of payment for commodities exported from that foreign country to the United States." We think that the provisions of the Kean bill (H. R. 3810), insofar as they pertain to the matter of determination of exchange rates for custom purposes, are far superior to the provisions of the Jenkins bill, (H. R. 5106), now before your committee, and suggest that the provisions of the Kean bill, insofar as they are appropriate, be substituted for section 22 of H. R. 5106. Sincerely yours, OTIE M. REED, Washington Representative National Creameries Association. |