A Steering Committee was appointed by the then Under Secretary A. L. M. Wiggins, consisting of men selected from the Department, the Bureau, and the field, to direct the study. The report was then divided into 15 functional areas, and a "task force" leader was assigned to each area. Qualified people were then chosen from both the headquarters and field offices to assist the leader.

On page 4, Mr. Chairman, the second full paragraph deals with the 36 legislative proposals, and that is to say, it is a box score. You will observe that this bill, H. R. 5505 incorporates 21 of the McKinsey recommendations.

The next item, entitled "Became Effective Due to Passage of Other Legislation After the McKinsey Report," two in number.

There is an item entitled, "Covered by Pending Legislation Other Than H. R. 5505," which picked up five of the items, and the "existing laws permit accomplishment" covers two of the items. Three are still under study, and we rejected three. Those are the 36, "Legislative Recommendations."

After the task forces had completed their work we had a legislative committee which was headed up by Mr. Phil Nichols, Jr., who is sitting here on my left, and who at that time was Assistant General Counsel of the Treasury Department. Mr. Nichols was ably assisted by the gentleman who is sitting on his left, Mr. W. R. Johnson, assistant to the Commissioner of Customs.

Subsequent to the House hearings on this bill, Mr. Chairman, Mr. Nichols has become General Counsel of the Renegotiation Board. However, we have asked him to come here to be present, and he is, in effect, on loan to us and to your committee during the time of these hearings.

With respect to the perhaps most important item in this bill, you will please turn to page 5, Mr. Chairman, and there we deal with section 13, which is value, if I may be permitted to read that page and to the middle of the next page, I think it will give some outline of the reasons why we think this is very important.

Section 13 is undoubtedly the most important single provision of this bill. It amends section 402 of the tariff act which tells the customs appraiser how to find the value of imported merchandise. As I already have explained, many duties are stated as a percentage of the value, so that the value has to be known before the duty can be assessed. The appraiser, in determining value under the present statutory alternatives, must first ascertain both the "foreign value" and the "export value" and then appraise the merchandise according to whichever is higher. It will be observed that this valuation is made with reference to prices in both the home market and the export trade, of the particular country from which the merchandise is shipped to the United States. Generally speaking, the value of the bulk of all dutiable imported merchandise is determined in this manner rather than by value in the United States.

Often there are various technical restrictions involving either the "foreign value" or "export value" determinations, and, if the appraiser cannot ascertain such values, he must then appraise according to "United States value". In essence, this value is based on offers of the imported product in the United States. If this method does not produce the determination of value, then the appraiser must resort to what the present statute terms "cost of production". We are

suggesting a change of name to "constructed value" as more descriptive of the process of determining this type of value in the foreign country.

It will be noted that the appraiser must know a great deal about offers to sell or sales of the same or like merchandise in the homemarkets of the country from which the merchandise is shipped, in order to determine "foreign value". In order to secure this information, there is often involved a large expenditure of time and effort on the part of the importer in finding out about transactions in a foreign country which he may know nothing about. Likewise, thereis an obvious and inherent difficulty in requiring an American customs official, or an importer, to obtain detailed information as to business. operations in a foreign country.

Furthermore, the "foreign value" standard sometimes produces the inequitable result that exports from a small country have a higher valuation for customs purposes than the same exports from larger countries. This happens because the home market in small countries is not large and the usual wholesale prices in that country may not reflect the discounts available for large-quantity sales to importers: in the United States. Another difficulty is that the prices in the home market are frequently enhanced by internal taxes. which do not apply to the merchandise when exported, and recent court decisions: do not completely remove the doubt as to when these taxes have to be added in order to arrive at the dutiable value.

The bill proposes to meet these problems by making the so-called export value the method which the appraisers must employ whenever they are able to do so. Failing in this, they are to use the "United. States value." We propose to eliminate the "foreign value" as a method of appraisement entirely. This change was strongly recom-mended by McKinsey & Co. The advantage of this will be that the information necessary to make an appraisement will usually be available to the appraiser in the United States. Either the very merchandise he is appraising will have been freely offered, so that the sale will be a satisfactory basis for appraisal, or he will have knowledge of the prices paid for similar merchandise imported by other parties.

Section 13 contains a number of other technical provisions which. are designed to make it easier to find a value and to make the value when found more commercially realistic. One of the main objections to our present value method is that it takes so long to find the value, and we are confident that if this bill is enacted appraisements will be made much more rapidly.

I think at that point, sir, since that is in our opinion one of the most-probably the most-important one, that we would like to pause:

there.

However, there is one other point here on page 10, Mr. Chairman,. at the top of the page, which I might just invite your attention to.. That refers to the two provisions in the original bill, which was then denominated H. R. 1535, and two of the provisions in that bill caused some concern to American industry.

Briefly, those two provisions related to what is known as the American selling price method of valuation, and the basis for taxing distilled spirits. Both of those were eliminated by the House. Although such provisions had the merit of producing simplification by bringing

about uniformity in customs administration, the Treasury does not propose that they be reinstated in the bill by this committee.

Senator HOEY. The Treasury is satisfied with the House action on that subject?

Mr. GRAHAM. We do not interpose any objection, sir, on those two items.

I thought perhaps, Mr. Chairman, that there might be some questions on this very important value provision.

Senator HOEY. Are there any questions on this section 13 that Mr. Graham has been discussing? That is one of the principal changes that is embodied in the bill. If any Senators desire to ask any ques-tions about it, they may do so, and if you have any questions on any other phases of the bill, they may be asked.

As I understand, Mr. Graham, this bill is largely providing for an improvement in administration of the law.

Mr. GRAHAM. That is what we regard it as, sir. It is an improvement in the procedural aspects, primarily of how to do the job better, quicker, simpler, at the least cost to the Government. We do not regard this, sir, as any revenue-raising or losing measure.

Senator HOEY. As I understand, this does not pretend to change the duties or the values or anything like that. It is just a method by which you ascertain the value; and it simplifies, in your opinion, the process by which you arrive at that value.

Mr. GRAHAM. Well, I paraphrase your statement, sir: I think we could say it is not designed to lower or to raise the tariff protection. It is the method of doing the business that we are concerned about. No matter what the level of imports is, there is a certain amount of paper work that has to be done as well as certain physical work in the examination of the packages, and we believe that this bill will make that simpler, both for us and the importers, and that is our basic objective, Mr. Chairman.

Senator HOEY. From the over-all study of this question you feel that this measure, if adopted, would result in a sort of simplification of the whole matter of handling imports, of arriving at their value, as to getting their information, and would expedite the ascertainment of these facts, both for the benefit of the Government and of the im-porters?

Mr. GRAHAM. Yes, sir; that is our opinion.

Senator HOEY. Any questions?

Senator BUTLER. Mr. Chairman, I did not get here to listen to all of Mr. Graham's statement; in fact, I did not get to hear any of it. However, I think I know in a general way what the purpose of the bill is, and I was wondering if in the statement you touch upon the problem that we have with Argentina or with any other particular country now, or do you just generalize?

Mr. GRAHAM. We were just generalizing, Senator Butler, on the high lights of what we considered the more important procedural problems.

I might say, sir, that in the economy of time we did not read the whole 10 pages. I just read some from page 3, which showed how this came into being, and then on page 5, which was the one we are dealing with now on the question of value.

Senator HOEY. The whole statement will appear in the record, Senator.

Senator BUTLER. I realize that; but, in fact, I would like to know why the Secretary has not done what the law provides already: To have countervailing tariffs when circumstances warrant, as they certainly do in the case of wool from the Argentine, where the wool imports, the tops, are being subsidized by the Argentine Government. Mr. GRAHAM. I think you refer to the question of multiple-rate currencies and their effect upon the export of wool tops from Argentina. Senator BUTLER. That would not excuse the Secretary of the Treasury from following the wording of the law; would it?

Mr. GRAHAM. Mr. Chairman, this is a question that, I believe, Senator Butler and some other Senators from the Western States raised with the Treasury Department a little while ago in a letter, and if it meets with the approval of the chairman I would like to ask Mr. Frank Southard, who is Special Assistant to the Secretary, to discuss with you the question of multiple-rate currencies.

Senator HOEY. Is Mr. Southard present?

Mr. GRAHAM. Yes, sir; he is here.

Senator HOEY. Will you come up, Mr. Southard.

Senator BUTLER. I hope, Mr. Chairman, that someone will explain just why the Government has not imposed the countervailing duties that are provided for in the existing law.

Senator HOEY. All right, Mr. Southard. Have a seat, Mr. Southard. Would you give your name to the reporter, and your position.

STATEMENT OF FRANK A. SOUTHARD, JR., SPECIAL ASSISTANT TO THE SECRETARY OF THE TREASURY

Mr. SOUTHARD. My name is Frank A. Southard, Jr. I am Special Assistant to the Secretary of the Treasury.

Senator HOEY. Are you in charge of any particular division, Mr. Southard?

Mr. SOUTHARD. No; I am not, Mr. Chairman.

Senator HOEY. Senator Butler, would you like to ask any questions? Mr. SOUTHARD. I have, Mr. Chairman, a short statement on this general subject which I can read, if you wish, or I will try to answer questions.

Senator HOEY. Suppose you read the statement first and then we will see whether or not the members have any questions.

Mr. SOUTHARD. Would the chairman and members of the committee like to have copies of my statement in front of them?

Senator HOEY. Yes.

Mr. SOUTHARD. Mr. Chairman and members of the committee, the Secretary has asked me to appear on his behalf to discuss one particular aspect of the bill before the committee; that is, the aspect relating to the imposition of countervailing duties in cases where bounties or grants on exports are found to exist in foreign countries.

If a foreign country bestows a cash bounty on some commodity in order to facilitate its export to the United States, we have a clear-cut set of facts and a finding of grant or bounty can be made promptly. Perhaps, because of the existence of our law, there have, however, been relatively few circumstances in which a country has seen fit to bestow cash bounties on exports which are dutiable on entry into the United States. In these few cases the Treasury has acted. Sometimes countervailing duties have been imposed, and several of them are still on

the books. In other cases, the knowledge that the Treasury was about to levy duties caused the foreign country to withdraw its bounty or otherwise rectify the situation. I should like to point out that in the cases of cash bounties the question of whether the rate of exchange being used was an equitable or a fair rate of exchange, does not arise. Nor does it arise where there is only a single rate of exchange.

Senator BUTLER. In connection with the case in Argentina that I just mentioned, Mr. Southard, has there been anything done? Mr. SOUTHARD. No, sir; there has not.

Senator BUTLER. Why?

Mr. SOUTHARD. The Treasury Department has still under examination the particular Argentine system of exchange rates, and the examination has not been completed yet. As a matter of fact, it is our understanding that, so far as wool tops are concerned, there has been no movement of wool tops out of the Argentine to this country, so that for the time being the continued Treasury examination of the facts of the Argentine system of exchange rates has not meant. that in the meantime there are additional movements to this market of that commodity.

Senator BUTLER. Well, is it not true, Mr. Southard, due to the subsidy the Argentine Government is giving its producers in the sale of tops, that the market for wool tops in this country, domestic, has been seriously hampered?

Mr. SOUTHARD. I do not know, Senator, to my own knowledge. Senator BUTLER. The woolmen are practically out of business. Mr. SOUTHARD. You are speaking of the wool-tops producers? Senator BUTLER. Yes.

Mr. SOUTHARD. Insofar as I am aware-but I would want to check the facts if it is desired to have them in the record the movement of Argentine wool tops in recent months has been either completely halted or exceedingly small. I believe that it is the former, so that it would not appear to me that imports of wool tops could be a present problem in the wool-tops industry; but I am not fully familiar with what is actually going on in the domestic wool market. Beyond that, the important problem that the Treasury has been endeavoring to examine in the Argentine case, as it does in all cases involving multiple export rates, is to determine whether the effect of multiple export rates has been to give a bounty or a grant to certain products reaching this market or whether, on the contrary, it reflects disorder in the exchange market, the lack of an adequate rate of exchange in the country concerned, partial devaluation, or even, as it happens in many countries, an effort to impose a tax on certain more profitable industries in the country or to deal with inflation by soaking up the income of the more profitable export industries. In other words, what we would like to see is a single export rate of exchange in all countries. But the fact is that a number of countries, having rather embryonic or poor tax systems, resort to multiple export rates to realize revenues or to combat inflation.

Senator BUTLER. Well, I would like to kind of get back to my original question now. It is my understanding that the existing law provides for countervailing duties to be imposed by the Secretary of the Treasury whenever the occasion requires.

Now, wool tops from the Argentine are certainly a case, a good illustration. I do not have the figures in mind, although I could get them,