by 10 percent, and we think it is a retaliation by the French Government and the French glove industry to give this multiple-exchange rate to glove manufacturers as a means of really thwarting the good work that we did previously. That is No. 1. No. 2 is that gloves are a very low-cost item in Europe, and with all the talk there has been about allowing merchandise to come into the country duty free up to $10, we are quite concerned with that, because I think, as you know, in this country there is a great tendency now to merchandising directly to the consumers that is away from the retail level. It is being done in this country by a very large scale by a halfdozen concerns. I am not speaking of concerns like Sears who merchandise items by direct mail, but I am speaking of concerns like John Main & Co., Meyers of New York, who take standard commodities and merchandise them without a retail outlet, but directly from a warehouse to you or to me; and we are afraid the same situation could easily develop in European countries, whereby they would merchandise, say, gloves or any other commodity directly from a warehouse there to you or to me, eliminating any possible retail tie-up, and permitting gloves to come in directly, which would be very harmful to our industry. Those are the two points that we are stressing. The CHAIRMAN. What does this bill provide? I have been unable to study it very much. I was not here last week. Mr. CASEY. Well, you see, if they permit The CHAIRMAN. As it now provides, it would eliminate the $1 limitation and put on a $10 limitation. Mr. CASEY. That is right. The CHAIRMAN. On the basis of foreign value or domestic? The CHAIRMAN. Foreign value. Mr. CASEY. That is right. It is quite a concern to us; also it is a big concern to the retailers, more so than it is to the manufacturers, but certainly a very big concern to the retailers, too, because this distributing directly from warehouse to consumer has become quite a practice in the United States, and it is done on a very large scale, and it wouldn't take very long to establish the same situation in the European countries. The CHAIRMAN. I suppose the Treasury contention or the contention of the Customs people is that it is Mr. CASEY. Cumbersome. The CHAIRMAN. And it costs more? Mr. CASEY. That is right. The CHAIRMAN. But a $10 foreign value will certainly permit a large influx of merchandise into this country, I would think. Mr. CASEY. I could think of many items, many small items, like hosiery, gloves, ties, handkerchiefs, fountain pens. You could, perhaps, go on ad infinitum with items that could come in. The actual declared value of gloves for 1951 is a little over $2 a pair, and it would not be very hard for a person to bring in four pair at a time, and saving the duty, and buying directly from European countries. That is, Senator, what we had in mind, other than what has already been covered in the bill, but those are two things that have struck us that have very keenly involved our industry, and that is what I wanted to call your attention to. The CHAIRMAN. Thank you very much, Mr. Casey. Mr. CASEY. Thank you, sir. The CHAIRMAN. Senator O'Mahoney, we have been expecting other members of the committee to be here. Senator O'MAHONEY. I know your difficulty. I am confronted with that myself. The CHAIRMAN. You can keep your seat up here. Senator O'MAHONEY. Well, I will go down there and look you right in the eye. The CHAIRMAN. All right. We will be very glad to hear you on this bill. H. R. 5505, the so-called simplification bill. STATEMENT OF HON. JOSEPH C. O'MAHONEY, A UNITED STATES SENATOR FROM THE STATE OF WYOMING Senator O'MAHONEY. That is right; that is what I wanted to speak about, Mr. Chairman. The CHAIRMAN. Senator Mundt wrote a letter to the committee on the same point on which you intend to speak. Senator O'MAHONEY. I am sure he did. The CHAIRMAN. He expressed an interest in it and he said he could not be here this morning and would like to have his letter go into the record. All right, Senator. Senator O'MAHONEY. My difficulty arises from the fact that I have to open a meeting of the Committee on Interior and Insular Affairs at 10:30. The CHAIRMAN. Yes. Senator O'MAHONEY. I was delayed in coming here by telephone calls from the Interior Department and from the White House, so the chairman will understand the difficulties under which we operate. Now, the problem before us arises from what appears to be the failure of the Department of the Treasury to construe the clear and explicit language of section 303 of the Tariff Act of 1930 which imposes countervailing duties whenever any bonus or bounty or grant is bestowed by an exporting country on the exportation from that country of commodities into the United States. The CHAIRMAN. It is a countervailing-duty provision, I suppose, that we put in in the 1930 act, Senator. You say it is section 303? Senator O'MAHONEY. That is right. The CHAIRMAN. Yes. Senator O'MAHONEY. That is right. Now, it appears that in recent years the practice has been adopted in some foreign countries of using multiple rates of exchange. The representative of the Treasury appeared here before this committee, Mr. Southard, and Assistant Secretary Graham, also, and argued that it is impossible to tell whether multiple rates of exchange are bounties or grants, and as a consequence of that, although requests have been filed with the Department of the Treasury for the imposition of countervailing duties on the importation of wool tops, the Treasury has failed to act. Early in February of this year I called a meeting of Members of the House and Members of the Senate from States which are concerned 98600-52-17 in the wool industry. There was a very full discussion at that time of the problem which confronts the industry. It is in a seriously depressed state. Prices are low, raw wool is not moving-domestic raw wool in the United States is not moving-and, at the same time, the textile industry is not moving its products. Some of the mills have been closing; the manufacturers of wool tops have had their difficulties, and wool tops, which, you know, are the combed wool, have been coming in from Argentina and Uruguay. Now, there is no doubt about the fact that a rate of exchange of seven and a half pesos per dollar is permitted by the Government of Argentina on wool tops, and a rate of exchange of only 5 pesos on raw wool. The obvious effect of that is to encourage the processing of raw wool in Argentina into the form of wool tops for exportation into the United States, and a very marked increase of importation has taken place. Now, in the present distressed state of the world, fiscally as well as otherwise, every country wants American dollars, and so they are using every means at their hand to obtain American dollars for the purposes of their own country, sometimes, as the Treasury said, perhaps, to build up revenue; sometimes to promote the exportation of particular products and particular goods; but we know very well that the world now depends upon the soundness of the American dollar. The producers of wool in the United States and the manufacturers of wool textiles are among those who bear the heavy burden of taxation which this country has imposed upon itself in order to enable it to lead the world. I have a very deep feeling that we cannot safely allow any segment of our economy to be injured while we are carrying this heavy burden of taxation to serve the world if we expect to attain that objective, and certainly we cannot permit any executive department of Government to exercise discretionary power as to whether or not a specific law of Congress should be carried out, and that is the issue which is presented to us in the enforcement of section 303. Under date of February 21, as a result of this conference, I wrote a letter to Secretary Graham in which I attempted to analyze the meaning of section 303. Let me read two paragraphs, two or three paragraphs, from this letter: The obligation of the Secretary of the Treasury to impose a countervailing duty clearly arises I am quoting now from the statute— "whenever any country shall pay or bestow, directly or indirectly, any bounty or grant, etc." The use of the words "pay or bestow" in the alternative and the words "directly or indirectly" to modify the words "any bounty or grant" could be designed only to show that Congress wanted to prevent any country from avoiding any tariff rate imposed by our law by any device or method. That it was not the intention of Congress to allow the Secretary discretionary power to determine whether or not a device which has the effect of granting a preferential position to any exporter from any other country is a "bounty or grant" not only by the fact that section 303 provides for a mandatory countervailing duty but by the fact that in the clause imposing the additional duty, the section describes it as being "equal to the net amount of such bounty or grant, however the same may be paid or bestowed." If it is paid or bestowed through the device of a preferential rate of exchange, it comes clearly within the mandatory provision of that statute. The attempt was made in the House to compel the Treasury to follow the plain meaning of that language by writing in section 2 (c) of the bill before you, Mr. Chairman. This provides for an amendment of section 303 by inserting after the words "corporation shall" in the first sentence the words "through multiple official rates of its exchange in terms of United States dollars or otherwise." The reason for that was that it was attempted to make clear in the law that a multiple rate of exchange could be a bounty or grant. The Treasury has avoided the issue, as it seems to me, by the argument that sometimes a rate of exchange, a multiple rate of exchange, is used for the purpose of raising revenue where it is used as a penalty. But the important facts, so far as we are concerned, I think, were confessed to this committee in the testimony of Mr. Southard. I am reading the following sentences from his testimony. After having described some of the methods, the purposes for which a multiple rate might be used, he said (reading): This is not to say that multiple rates of exchange may not be used in order to bestow bounties or grants. As I have indicated earlier, the Treasury has always felt that it is possible for a foreign country to utilize a multiple exchange rate system in order to bestow such bounties or grants. There is the nub of this whole argument. I submit that the facts before us demonstrate beyond peradventure of doubt that the 72-peso rate has been used as a bounty or grant to stimulate the exportation to the United States of wool tops. I want to file for the record a letter which I received from the United States Tariff Commission. At the same time that I wrote to the Treasury Department I wrote to the Tariff Commission requesting the Tariff Commission to report the facts with respect to the effect of the multiple rates of exchange. I should be glad to file this with the reporter for the record. The CHAIRMAN. Yes, sir; we will be very glad to have you do so. (The document referred to is as follows:) UNITED STATES TARIFF COMMISSION, April 28, 1952. Hon. JOSEPH C. O'MAHONEY, United States Senate. DEAR SENATOR O'MAHONEY: Pursuant to the request in your letter of March 7, I am transmitting herewith a memorandum with respect to preferential exchange rates in Argentina and Uruguay and the effect upon the United States imports of wool tops. The memorandum does not undertake to discuss the effects of the multiple-exchange-rate practices of Argentina and Uruguay upon the combined imports of raw wool and wool tops and upon the wool-growing industry of the United States. We are preparing for you material on the multiple-exchange practices of Nazi Germany and of Spain in recent years with respect to almonds for export to the United States. As soon as this material is ready, it will be sent to you. With best wishes, I am Sincerely yours, OSCAR B. RYDER, Chairman. PREFERENTIAL EXCHANGE RATES IN ARGENTINA AND URUGUAY AND THEIR EFFECT UPON THE UNITED STATES IMPORTATION OF WOOL TOPS INTRODUCTION Large imports of wool tops from Argentina and Uruguay during 1951 and indications of even larger imports in 1952, particularly from Uruguay, at prices substantially below those of United States producers have materially contributed to the current depressed condition of the domestic top-manufacturing industry. The effect of the increased imports has been accentuated because worsted business in the United States has been poor for over a year, and signs of an upturn are not yet evident. Domestic production of wool tops in January 1952, which amounted to 14.7 million pounds, was about 11.5 million pounds less than in January 1951. Uruguayan official data on export sales indicate that approximately 10 million pounds of wool tops were sold to United States customers during the first quarter of 1952, and will probably be delivered by the end of June; in January-February 1952, imports from Uruguay were 1.7 million pounds. Imports from Argentina, nearly all of which were warehouse withdrawals, were 0.5 million pounds in January-February 1952. The South American exporters have been able to sell tops in this market at prices below those of domestic tops of comparable grades through the application of preferential exchange rates. Wool tops may be exported from Argentina at a rate of 7.50 pesos to the dollar as compared with a rate of only 5 pesos to the dollar on exports of raw wool. Uruguayan wool tops may be exported at a rate of 2.35 pesos to the dollar and raw wool exports may be effected at a rate of only 1.519 pesos to the dollar. Thus Argentine tops have had an advantage of 50 percent and Uruguayan tops have had an advantage of about 55 percent over their raw material. One result of this situation has been the offering of South American wool tops in the United States at prices approximately the same as those of South American raw wool of corresponding grades; in some instances the tops have been sold for lower prices than the wool. UNITED STATES INDUSTRY AND TRADE Wool tops, an intermediate product in making worsted yarns, are combed wool sliver from which the shorter fibers (noils) have been removed by the combing process. Tops are marketed in recognized grades, identical with the grades of wool from which they are made; they are easily transported and enter extensively into national and international commerce. In the United States about two-thirds of the wool tops are combed by integrated mills for their own use or for sale and about one-third is produced by commission combers for so-called topmakers who sell their tops to worsted yarn spinning mills. Summary of United States production and trade.-United States annual production of wool tops fluctuated appreciably in the period 1947-51, averaging a little over 300 million pounds in 1947-48, decreasing to 197 million pounds in 1949, increasing to 283 million pounds in 1950, and decreasing to 217 million pounds in 1951. The large increase in 1950 over 1949 may be attributed to the sudden upturn in business occasioned by the outbreak of hostilities in Korea, and the subsequent decrease in 1951 resulted from the fact that buyers' inventories were built up in anticipation of shortages which did not materialize. United States exports of wool tops were large during World War II and in 1946 and 1947 because many countries which normally export large quantities of tops were unable to do so during this period because of war damage, enemy occupation, and other adverse economic conditions. Since 1947 domestic exports have been negligible. During the 1930's and the 1940's, up to 1948, United States imports for consumption represented a small fraction of 1 percent of total United States production of wool tops. Prewar imports were not strictly comparable with the bulk of domestic production and were largely confined to tops of high grade and value, or tops of fiber not widely used in this country, such as camel hair and alpaca. Since 1947 imports have tended to increase substantially, and have been of grades (56's and 64's) and qualities competitive with the wool tops produced in the United States. Imports in 1951, amounting to 10.4 million pounds, were nearly 5 percent of domestic production in that year, and the ratio of imports to production, on a quantity basis, in the first quarter of 1952 was probably 10 to 15 percent. Table 1 shows United States production, exports of domestic merchandise, . and imports for consumption, specified years, 1937 to 1951. |