LEGISLATIVE PROPOSALS ON MISCELLANEOUS

TARIFF AND TRADE MATTERS

THURSDAY, APRIL 28, 1977

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON TRADE,

COMMITTEE ON WAYS AND MEANS,

Washington, D.C.

The subcommittee met at 10 a.m., pursuant to notice, in the committee hearing room, Longworth House Office Building, Hon. Charles A. Vanik (chairman of the subcommittee) presiding.

Mr. VANIK. The subcommittee will be in order.

The first bill that we have before us this morning is H.R. 5289, introduced by our colleague, a member of this committee, Mr. Sam Gibbons, for the relief of Joe Cortina, a customs broker.

Mr. Gibbons, we are of course delighted to have your statement. I want to also express my gratitude to you for taking over this long hearing yesterday.

STATEMENTS OF HON. SAM M. GIBBONS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA, AND JOE CORTINA, SR., TAMPA, FLA.

Mr. GIBBONS. Mr. Chairman, I appreciate your allowing me the opportunity to do that. It was very interesting yesterday, and I know it will be interesting today.

Let me get right down to Mr. Cortina's bill. The gentleman with me is Mr. Joe Cortina, Sr. I asked him to come today so he could answer any questions the subcommittee might have.

Let me say, Mr. Chairman, I have known Mr. Cortina for so many years I can't count them, and I have known his wife and family. He has an excellent reputation as a citizen and businessman in my community. As you stated, he is a customs broker and it is in that regard that this difficulty arose.

Let me say the agencies of the U.S. Government have been most cooperative, but I understand they have gone as far as they can administratively.

Mr. Cortina is an innocent victim of some of the problems that come up in importing and an innocent victim of some of the rigidities of some of our own laws. He was acting in his role as a broker for certain musical instruments imported through Tampa. He processed the paperwork and some years after the work was done and the importer had died, and just about everybody else involved had either died,

disappeared, or gone out of business, he was notified by Customs that instruments that he had been involved in importing were apparently of East German origin-not all of the instruments but some of them. Mr. Cortina had done everything correctly as far as he could. The customs agents in Tampa did everything correctly as far as they could. When all the paperwork was cleared and the entries were liquidated, Mr. Cortina found out there was some suspicion that some of these were East German instruments, and therefore would not be entitled to column 1 duties, but to the much higher column 2 duties. He set out to do all he could as an individual to try to rectify the situation, but you must understand that if the U.S. Government takes 3 years to make a tentative conclusion about this kind of thing, that a private individual having to deal with somebody in West Germany, one of the principals of whom was dead and the rest of whom were out of business or gone, Mr. Cortina was in an impossible position to prove or disprove anything.

Therefore, our Government had to levy a very severe tariff penalty on him. As I understand it, this penalty has been reduced by administrative actions from $180,000 to about $37,000.

Mr. Chairman, it is my contention that Mr. Cortina is the innocent victim of something he could not control. He did everything he could to rectify the situation. As I say, the Federal agencies have been most cooperative in trying to relieve him of the penalty and, as you heard in the testimony the other day, none of the agencies have any objection to the passage of this bill.

So, that completes my formal statement, Mr. Chairman. I asked Mr. Cortina to come here to answer any questions that the subcommittee might have or to add anything that might be necessary in order to get approval of this bill.

Mr. VANIK. Mr. Gibbons, I gather that if East Germany had MFN, this would not have been a problem; is that correct?

Mr. GIBBONS. That is correct. As I say, it was a completely innocent thing. The musical instruments were billed as being West German, they were marked, apparently, West German.

Mr. VANIK. Are the West German exporters available?

Mr. GIBBONS. As I recall, the West German exporter is dead.

Mr. VANIK. In a sense, he is being held for the liability and the error of his so-called customs client.

Mr. GIBBONS. That is correct.

Mr. VANIK. What kind of instruments are these? It is a matter of personal interest because I have a little musical involvement.

Mr. CORTINA. Practically all kinds, but flutes, guitars, violins, even accordions.

Mr. VANIK. I would suppose some of the best accordion makers and musical instruments are probably in East Germany. Many of them historically were made in that part of the world. I was just curious because whenever I travel I sometimes try to look at, and sometimes I buy small musical instruments that are of interest to me.

Mr. GIBBONS. I can assure you, Mr. Chairman, if Mr. Cortina had known or had any warning at all that these were of East German origin, from his moral character and his personal reputation and his skill as a customs broker, he would have put a halt to this right then.

Mr. VANIK. It is really a truly discriminatory treatment that we give. There are only a few countries against whom we still discriminate-East Germany, Czechoslovakia, Bulgaria, and the Soviet Union. I am hoping sometime in the future that discrimination will be eliminated.

Mr. Steiger?

Mr. STEIGER. No questions.

Mr. VANIK. Mr. Pike?

Mr. PIKE. I have no further questions.

Mr. VANIK. I have no further questions. Mr. Gibbons has made us very familiar with this case, Mr. Cortina, and we understand the difficult problems that can develop. Fortunately we are just doing a survey, a field study of customs problems and the problem that you have directed to our attention occurs in other situations in other parts of the country. It is our role to make these laws work better and to prevent the type of thing that has happened to you.

I am very favorably impressed by what Mr. Gibbons has told us and what you have given as your chronology in the events that have developed in this case. I am certainly hopeful our committee will give it favorable consideration. You could not have a better affiant.

Mr. CORTINA. I thank you very much for your consideration.

Mr. GIBBONS. You are most generous, Mr. Chairman, and I will yield so the rest of the witnesses can come on.

Mr. VANIK. The next bill is H.R. 1856; Mr. Robert Rowley, of PVO International, in San Francisco. This is a palm oil increase bill. Please take the chair, Mr. Rowley.

This bill would amend the tariff schedules with respect to the rates of duty for palm oil. Mr. Rowley, we will be very happy to hear you at this point.

STATEMENT OF ROBERT L. ROWLEY, MANAGER, COMMODITY PURCHASING, PVO INTERNATIONAL, SAN FRANCISCO, CALIF.

Mr. ROWLEY. Mr. Chairman, and other distinguished members of the subcommittee, my name is Robert L. Rowley, and I am manager of Commodity Purchasing for PVO International of San Francisco, Calif. I am pleased to have the opportunity to appear before this committee to state the company's view on H.R. 1856 and H.R. 3674.

PVO International is a diversified, vertically integrated, world-wide leader for developing, processing, and marketing bulk vegetable oils, oil seeds, and vegetable seed-based products, including foods, specialty items, and industrial coatings. The import of palm oil is a very small facet of our business; however, as an importer and exporter of many vegetable oil-based products, we feel the legislation being proposed against palm oil will have a profound adverse effect on the U.S. agri

business in the future.

I have submitted to each of you the text of a testimony that was given March 18, 1976 before the U.S. House of Representative's Subcommittee on Agriculture by our president, Mr. James W. Shannon. This testimony was in regard to a very similar bill, H.R. 12952. Today, I would like to embellish on PVO's views that Mr. Shannon stated at that time which with 1 year's passage of time have proven to be correct.

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In 1975, just under 1 billion pounds of palm oil was imported into the United States, principally from West Malaysia. The soybean growers, processors, and others claimed that palm oil was going to pour into the United States and ruin our domestic vegetable oil industry. We said then this was not true and that if no duty or barriers were erected against palm oil, its importation would diminish because the market was working. In 1976, the import of oil to the United States was 775 million pounds, or almost 20 percent less than 1975, while world palm oil exports had risen by 12 percent. At the same time the domestic price of soybean oil has nearly doubled in the last 12 months. This, gentlemen, clearly states that palm oil is no threat to the U.S. vegetable oil industry and that the best policy to pursue is maintenance of free and unrestricted markets.

It has been stated recently in some circles that palm oil is bad for your health because it is higher in saturated fats than other vegetable oils. This is only partly true. Palm oil has some unique characteristics that are not present in our domestic vegetable oils, the main one being that it contains palmitic acid. Palm oil is solid at room temperature and cannot be used as a salad oil; however, it is very stable as a cooking oil and is preferred by many deep fryer processors to our domestic oils. Cottonseed and soybean oil are lower in saturated fats in their natural state when they are used as liquid salad oil; however, to compete with palm oil in cooking and frying uses, they must be hydrogenated or hardened. Therefore, soybean oil and cottonseed oil are very similar to palm oil in solid fat and polyunsaturated makeup when used in cooking or frying. They are nutritionally equal in these uses. Mr. VANIK. I was looking at a box of soda crackers yesterday that said among the ingredients would be soybean oil, cottonseed oil, and palm oil. I think the description said either oil. Do they use palm oil as a mixing oil or do they use one in lieu of the other?

Mr. ROWLEY. Palm oil has similar characteristics as soybean oil and they can be interchanged readily in the majority of consumer uses. Mr. VANIK. So the label on the package would be just to accommodate whichever type of oil they were using?

Mr. ROWLEY. Yes. It is very interesting you should mention that, Mr. Vanik, because heretofore most people have been afraid to put palm oil on their labels. This is a fairly new oil coming into the United States. As the American consumers learn of it and become more familiar, I think they are more comfortable with palm oil.

Mr. VANIK. What was the price of soybean oil 5 or 6 years ago? Mr. ROWLEY. In 1972 the price of soybean oil was 10 cents a pound. Mr. VANIK. What is it now?

Mr. ROWLEY. It is now 31 cents per pound for crude soybean oil. Mr. VANIK. Has it just about maintained that price?

Mr. ROWLEY. It has risen in the past 12 months from 15 to 31 cents. The reason for this is that last year the soybean farmers decided to plant a much smaller crop.

Mr. VANIK. By their option?

Mr. ROWLEY. By their option, yes.

Mr. VANIK. We will have more soybeans, because I don't think we will need all of the sugar beet land we need under cultivation.

Mr. ROWLEY. The price of soybeans has risen to over $10 a bushel, and the farmer getting ready to plant now will definitely increase his soybean acreage, taking it away from corn.

Mr. VANIK. And the competitor would be the corn?

Mr. ROWLEY. Yes; and the fight for land. Yes, sir.

Mr. VANIK. I am sorry for interrupting.

Mr. ROWLEY. Also, due to technological advances, palm oil is being fractionated-split into a solid and liquid form-in Malaysia and the extremely low saturated oil, which is liquid Olein, is being shipped to the United States for use in margarine and liquid oil-based products.

Mr. VANIK. What country does palm oil come from?

Mr. ROWLEY. Basically West Malaysia, but the oil palm is also grown in Zaire, Indonesia, and Nigeria.

If you prevent palm oil from entering the United States, you will be depriving the consumer of his choice of using palm oil instead of our domestic vegetable oils whether the price is cheaper or he prefers palm oil because of its unique characteristics.

During the testimony given before the U.S. House of Representatives Subcommittee on Agriculture last year, the proponents of the bill to block the imports of palm oil stated that "this country would be awash with palm oil unless this legislation was passed." This prediction has not come to pass. If we ban or restrict palm oil from entering the United States it will take our soybean and cottonseed oil export markets away in other countries. The United States has always been an exponent of free trade. An example is our participation in GATT.

The United States has always maintained an image of helping underprivileged nations. The four principal countries who produce and export palm oil are all underprivileged or developing nations. If the United States implements a barrier against these countries, because at 3 cents per pound that is exactly what we are talking about, it is possible that other countries who we depend on for our major agricultural exports may retaliate against such action with trade barriers of their own. Furthermore, the Malaysian Government responded to the U.S. request to restrain from saturating the U.S. market by implementing export duties of their own. This levy is on a sliding scale and is predicated on the moving export market price for crude palm oil in Malaysia.

The main reason that palm oil did not force its way into the United States in 1976 nor did it try to in the first quarter of 1977, is that there is an increasing worldwide demand for edible fats and oils that is growing at a yearly rate of 2.3 billion pounds which is nearly double the yearly export of soybean oil from the United States. The World Food Conference forecasts an international food shortage in the years to come. Accordingly, our domestic vegetable oils, as well as palm oil, the highest yielding oil seed plant in the world, will be needed to fill this future demand. If we prohibit palm oil from entering the United States and it captures U.S. export markets in other countries, the U.S. soybean industry will eventually ask to he subsidized to help meet world competition in edible oil marketing. I contend that instead of paying a subsidy to export our vegetable oils, we should use such