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of manufacture or other means shall be dutiable only on the cost of materials added and labor performed in the foreign country."
Paragraph 1726 of the Act provides for free entry of:
"Sound recordings transcribed or recorded abroad for radio or television news broadcasts in the United States, or suitable for use in reproducing sound in connection with moving-picture news reels undeveloped negative moving-picture film of American manufacture exposed abroad for silent or sound news reel."
The above provisions ovbiously are discriminatory in favor of the industries benefited by them. It is difficult to comprehend why a book of domestic manufacture which has been exported for further processing, should be dutiable upon return to the United States, on the basis of the cost of materials added and labor performed in the foreign country; whereas, an ingot of domestic steel, which was exported to Canada to be made into a slab, upon return in the latter form, should be dutiable not only on the value of the foreign slabbing operation but also upon the value of the ingot originally exported. Such tariff treatment is not only inconsistent, but is unfair and discriminatory. There is no logical or economic justification for it.
As a general rule when it is necessary to export materials for the purpose of having an operation performed, the cost of that operation is many times greater than the cost would be if the operation were performed domestically. When manufacturers employ this expedient they do so for one purpose only, to continue their industry and keep their labor in employment. When a manufacturer encumbers himself with this additional expense, and then is confronted with the prospect of paying full duty on reimportation of his material and not a duty based solely on the work done in the foreign country, he becomes justly incensed with the operation of the law. When a manufacturer avoids importation of materials processed to a point where he can handle them and instead originates the material and only relies on foreign aid for those processes which he cannot perform or have done in the United States, he is most certainly entitled to protection under the Tariff and relief from paying duty on American material and American labor.
During the last war certain Detroit war plants were unable to have certain operations done in American plants and therefore availed themselves of Canadian facilities for the necessary operation. The returned articles were assessed duty on their full value and not on the cost of the Canadian operation only. As the manufacturers were engaged in defense work on a cost-plus basis, it can be readily seen that the American taxpayer was additionally burdened by this unrealistic tariff treatment. Unless the present law is changed, this will be repeated again in the present emergency when plants are again busy along the Canadian border working on defense work.
The proposed amendment also benefits United States industry because it broadens the field in which the industry may operate. For instance, jobbing out or subcontracting is a common practice in industry today. Manufacturers are reluctant or find it inexpedient and unprofitable to manufacture every item required for their finished product or to perform all of the operations on the parts going into such finished product. Certain Canadian plants have capacities that are useful to American manufacturers. Recourse to them is made at the present by American manufacturers chiefly because of inability to obtain the same facilities on this side of the border. American labor is benefited because stoppages that occur because of emergencies, can be overcome by having the necessary operation performed in nearby Canadian plants.
The proposed amendment is extremely narrow in its scope and has been drafted in such a way that it cannot be misinterpreted. It does not inject new wordage into the Tariff Act. It is not the intention of the amendment to reduce or abolish tariff protection now had by certain domestic industries, such as textiles, gem cutting, fur garment manufacturing, automobile assembling, etc. As the amendment confines its benefits to articles which would be classified in the same paragraph as the exported article, it can readily be seen that it would have very limited application.
Any fears that the proposed amendment will prompt American manufacturers to ship most of their products to Canadian plants for intermediate processing can be quickly dispelled by the knowledge that the cost of transportation to Canadian plants and back to the United States, plus the comparable wage scales of Canadian plants and duty on the Canadian operation confines recourse to this expedient only to cases of dire necessity.
The purpose of the proposed amendment to paragraph 1615 (g) is to correct an unfair, unrealistic, and discriminatory tariff treatment of American products, which, because of necessity, are exported for some simple intermediate processing.
Its enactment will result in savings to taxpayers and consumers, and create good will with our good Canadian neighbor. The Detroit Board of Commerce respectfully urges the early enactment of the proposed amendment.
Mr. JENKINS. Are there questions? If not, we thank you very much.
Mr. RAY. Thank you, sir.
Mr. JENKINS. The next witness is Dr. Robert F. Martin. Dr. Martin, you have a prepared statement, have you not?
Mr. MARTIN. Yes, sir.
Mr. JENKINS. Very well, you may proceed.
STATEMENT OF ROBERT F. MARTIN, EXECUTIVE SECRETARY OF THE VITRIFIED CHINA ASSOCIATION, INC., WASHINGTON, D. C.
Mr. MARTIN. Mr. Chairman, I am Dr. Robert F. Martin, executive secretary of the Vitrified China Association, Inc., 517 Wyatt Building, Washington 5, D. C.
The increases in the American tourist tariff exemptions in 1948 and 1949 gave great impetus to a semiblackmarket trade in the import of English chinaware by American tourists and travelers returning from Canada.
A similar situation once existed in the case of cigars from Cuba. The unfair nature of this tariff-avoiding traffic was recognized by the Congress and a reasonable limit placed thereon. It is included in section 8 of the bill we are considering, H. R. 5106.
The undue concentration of returning travelers from Canada on sets of English china, presumed in the present law to be a tourist souvenir of a fishing trip or visit to the Canadian Rockies, has led to a genuine situation of wholesale tariff avoidance and left American importers and retailers with only half of the English china sales to American consumers, as well as leaving American producers without even the protection left to them under the trade agreements rates.
Shipments of chinaware by returning American travelers by common carrier alone, excluding the volume brought back in cars, have run at about $2 million per year, which with the amount brought back in cars is close to the volume shipped directly by the English manufacturers to American importers. Canada fosters this traffic by allowing duty-free entry into Canada of English china but prevents American producers from competing for this tourist market by maintaining a 30 percent duty on American china.
We propose to leave an ample exemption for the duty-free entry of china tableware items that might be considered a genuine souvenir of a tourist trip abroad, but curtail the commercialized bypassing of American importers and retailers and the tariff, by inclusion in this bill of a reasonable limitation similar to that on liquors and cigars.
We propose: After the word "cigars" in line 6 page 12, of H. R. 5106, section 8, paragraph 1798 (c) (2) line 3, insert the following: and including not over 6 pieces of $25 in value of china or earthenware tableware. Mr. JENKINS. Doctor, I take it then, as your statement indicates, you would like to have an amendment as set forth in your last paragraph. Mr. MARTIN. Yes, sir. We have some reservations on this valuation matter, but they have been covered by other witnesses.
In addition to my statement I should like to read for the record the following news item from Retailing, published at Montreal under date of September 29, 1952.
NEW MONTREAL STORE ATTRACTS UNITED STATES TOURISTS
Substantial sales of 56-piece tableware sets of over $200 value have been made to United States tourists the past few weeks by Maurice Pollack, Ltd., Quebec City department store, by the simple expedient of asking the customer to make a small deposit of $5 or so, the balance to be paid only after the visitors have returned home.
This newly built store only added chinaware in July but quickly found out that American tourists would buy much more if they were not asked to part with a large chunk of available cash when visiting in Canada.
So the store posted notices inviting American tourists to take their choice of the store's selection of English chinaware and make a small deposit. Invoices showing the deposit paid against the total cash amount due are made out for customers to present to United States customs at the border in the regular way. Payments have to be completed within 6 months, to comply with United States customs regulations on this point. Goods are shippped direct to customers when the full amount has been received.
Mr. JENKINS. Are there any questions?
If not, we thank you very much.
Mr. EBERHARTER. Mr. Chairman, before we recess, may I ask permission to include in the record a statement by Mr. John J. Hosey, president, Energetic Worsted Corp. Bridgeport, Pa.
Mr. JENKINS. Without objection the statement may be included in the record at this point.
(Mr. Hosey's prepared statement is as follows:)
STATEMENT SUBMITTED ON BEHALF OF ENERGETIC WORSTED Corp., Bridgeport, PA., BY JOHN J. HOSEY, PRESIDENT, ON H. R. 5106
We are a Delaware corporation, owned by native-born citizens, and are engaged in the business of spinning knitting yarns from wool top.
We desire to suggest to the committee the advisability of adding to the Custom's Simplification Act of 1953, H. R. 5106, a provision amending section 303 of the Tariff Act of 1930, by adding at the end of it a proviso reading as follows: "Provided, however, That in the case of bounties or grants indirectly paid or bestowed, such countervailing duties shall be levied only after the President, after having sought information and advice from the United States Tariff Commission, the Departments of State, Agriculture and Commerce, and from such other sources as he may deem appropriate, has determined that an industry or group of agriculturists in the United States is being substantially injured by reason of the importation into the United States of articles or merchandise upon the manufacture, production or export of which such a bounty or grant is paid or bestowed."
Section 303 of the Tariff Act requires the imposition on imports of countervailing duties equivalent in amount to the amount of any bounty or grant, directly or indirectly paid or bestowed in the country of origin, by the government of that country or any of its political subdivisions or by any private persons or agencies, upon the manufacture or export of the article or merchandise imported here. The amount of the countervailing duty is determined by the Secretary of the Treasury. The imposition of such countervailing duties is mandatory, irrespective of whether or not the payment or bestowal of the bounty or grant has any adverse effect on our economy or any of our nationals, and whether or not the action will have any adverse diplomatic implications. We believe that this mandatory feature is inimical both to our economy and to our foreign relations, and hence propose amendment of the provision so that the countervailing duties shall be imposed only if, after consideration of all relevant factors, by all interested departments of our Government, it appears that the imposition thereof would be warranted by its significant beneficial effect upon our economy.
No occasion for such an amendment existed until recently, since section 303 had been applied only in cases where a direct bounty or grant was paid or bestowed abroad, or where it was plainly apparent that a subterfuge had been deliberately
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 I 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
229, 000, 000
195, 000, 000
198, 000, 000
It is thus apparent that top imported from Uruguay never exceeded 71⁄2 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