RESOLUTION TO DISAPPROVE WAIVER OF COUNTERVAILING DUTIES ON FISH FROM CANADA

THURSDAY, JULY 13, 1978

U.S. SENATE,

SUBCOMMITTEE ON INTERNATIONAL TRADE
OF THE COMMITTEE ON FINANCE,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10 a.m. in room 2221, Dirksen Senate Office Building, Hon. William D. Hathaway presiding.

Present: Senators Hathaway and Hansen.

[The committee press release announcing this hearing, and the resolution, Senate Resolution 483, follow:]

[Press Release, July 6, 1978]

FINANCE SUBCOMMITTEE ON INTERNATIONAL TRADE TO HOLD HEARINGS ON RESOLUTION TO DISAPPROVE WAIVER OF COUNTERVAILING DUTIES ON FISH FROM CANADA (S. RES. 483)

The Honorable Abraham Ribicoff (D., Conn.), Chairman of the Subcommittee on International Trade of the Committee on Finance, today announced that the Subcommittee will hold public hearings on the resolution to disapprove the waiver by the Secretary of the Treasury of countervailing duties on fish from Canada. Chairman Ribicoff stated that the hearings are being held at the request of Senator William D. Hathaway (D., Me.). The hearings will be held at 10 A.M., Thursday, July 13, 1978, in Room 2221 of the Dirksen Senate Office Building. Under section 303 of the Tariff Act of 1930, if a foreign government pays a bounty or grant upon the exportation of a product which is imported into the United States, then the Secretary of the Treasury must impose a countervailing duty on the imported product equal to the amount of the subsidy. Under section 303 (d), the Secretary may waive imposition of a countervailing duty until January 4, 1979, if certain conditions are satisfied. Section 303 (e) permits either House of Congress to disapprove a waiver and requires the imposition of countervailing duties upon adoption under the procedures in section 152 of the Trade Act of 1974 of a simple resolution of disapproval by a majority vote.

On June 13, 1978, the Treasury found that the Canadian Government was subsidizing the manufacture, production, or exportation on certain fish imported into the United States (T. D. 78-181). On that day, Treasury waived imposition of countervailing duties on those fish until January 4, 1979 (T. D. 78-182). Senate Resolution 483, which would disapprove the waiver, was introduced on June 13, 1978.

Senator Hathaway stated that, "While the direct economic impact of waiver may not be great, its symbolic impact for our domestic fishermen is of great importance. We tell our fishermen they cannot fish because we need to conserve the species; we then tell them we will not impose a duty on the Canadian fish which come into our country even though that industry has been Government subsidized for many years. Then we tell them as a matter of trade policy we would prefer not to grant subsidies to our own domestic fishing industry. This is the underlying irony of the situation. As a matter of policy we stand for free trade, for an end to foreign and domestic governmental subsidies to industry. (1)

In the long run, I would agree that this is the ideal. But in the short run we have an industry in this country running up against a conflicting national policy-to 'conserve' and manage the resource from which that industry obtains its lifeblood."

"We must rationalize these policies. It is the fishermen who are the victims of this conflict in national policies. I hope that at this hearing we can open a dialog on how to conserve, not only our national fishery resource, but also our fishermen."

Witnesses.-The Subcommittee will hear testimony from the following

witnesses:

Hon. Edward M. Kennedy, U.S. Senator from Massachusetts.

Hon. Robert Mundheim, General Counsel, U.S. Treasury Department.

A Panel Consisting of: Richard N. Sharood, Counsel for the National Federation of Fishermen; Jacob Dykstra, President, Point Judith Fisherman's Cooperative, Inc.; Murry P. Berger, President, American Seafood Distributors Association; Norman H. Olsen, Jr., Executive Director, Maine Fisherman's Cooperative Association, Inc.; and Dieter W. Schnauck, Comptroller, Stinson Canning Co.

Written statements.-Persons who desire to submit their written testimony to the Subcommittee for inclusion in the printed record of the hearings must submit their statements to Michael Stern, Staff Director, Senate Committee on Finance, Room 2227, Dirksen Senate Office Building, not later than Thursday, July 27, 1978.

[S. Res. 483; 95th Cong., 2d sess.]

RESOLUTION To disapprove the waiver of the countervailing duty on certain items of Government-subsidized fish imported from Canada

Resolved, That the Senate does not approve the determination of the Secretary of the Treasury under section 303 (d) of the Tariff Act of 1930, transmitted to the Congress on June 13, 1978.

Senator HATHAWAY. The subcommittee will come to order.

The purpose of this hearing is to take testimony from fishermen, fish processors, and other parties interested in the Treasury Department's decision on June 13 to waive countervailing duties on imported Canadian fish. This comes at a time when the U.S. fisherman finds himself caught between very stiff Canadian competition on one side and new and difficult conservation and management policies on the other.

Thus, the American fishermen see themselves as a group who are supposed to survive, unsubsidized, in a world where other nations provide official support to their fishermen, often at quite generous levels.

Our Government's role in the lives of fishermen has, until recently, been one of neglect. Recently, the concern of the Government has frequently been seen as more involved in the welfare of the fish than of the fishermen.

The question before us this morning is whether or not the Treasury Department correctly and properly waived countervailing duties which our laws provide for foreign products which benefit from the subsidy or bounty. We have a number of witnesses on each side of this issue and without further ado, we shall proceed.

Our first witness is my distinguished colleague, Senator Edward Kennedy of Massachusetts.

Senator Kennedy, I know that you have another commitment, and you may proceed.

STATEMENT OF HON. EDWARD M. KENNEDY, A U.S. SENATOR FROM THE STATE OF MASSACHUSETTS

Senator KENNEDY. Thank you very much, Mr. Chairman. I first of all want to commend you for the leadership that you are providing for

all fishermen in New England and the rest of this country by being the strong point man in the U.S. Senate in leading the fight for this disapproval resolution.

I just want to express the appreciation of all the fishermen of the State of Massachusetts as well as, I think, the people of my State and other New England areas for your leadership in this area, for commencing this hearing, and for ventilating this subject matter. All of us are very much in your debt for what you have done.

Mr. Chairman, I think it is appropriate to examine where we are in terms of the fishing industry. As you quite correctly pointed out, with the successful passage of the Fishery Conservation and Management Act, it was the clear intention to try and insure the prosperity and strength of the fishing industry in this country. We recognize that some 25 percent of all fishery products that are available in the world are attendant to the coastal areas of the United States and that we have an important responsibility in serving and developing this resource for the people of the United States, as well as the people of the world. It was really in that spirit that we saw the passage of this act. This was an act that was stimulated by the fishermen themselves who understood this problem and that, I think, was a very important national effort to bring about the restoration of the fish stocks and to revitalize the U.S. fishing industry. And it served all the interests—at least, that is what we hoped.

But what we have seen, Mr. Chairman, is that the factor of the countervailing duties is very basic to the issue and the question of the revitalization of the fishing industry of the United States. Between 80 and 90 percent of the Canadian catch is exported, most of it to the United States. The value of the Canadian groundfish is $200 million and even though that represents only a percentage of the amount which is actually imported, it has a substantial impact on our domestic market, and results in depressed prices.

And so, it has this exponential effect in terms of the value of the fish itself. And what we have seen is that the Canadian Government's subsidy on fish exported range anywhere from 14 to 20 percent. These high levels of subsidized imports are obstacles to the U.S. industry to gain a large share of the domestic market.

In fact, we have seen the trade deficit on fish actually grow over the period since the passage of the 200-mile limit.

And so this is the dilemma that we are faced with. In examining the materials that have been developed by both the fisherman and the Treasury Department, we know that there are some 16 different types of subsidies, both direct and indirect. The direct subsidies, as is well understood by you, Mr. Chairman, is some 2 cents a pound to the fishermen, and 6 cents per pound to the processors. The Canadians have agreed to phase out these subsidies by October.

But the indirect subsidies, which will not be phased out, account for between 1 and 7 percent of the value. I know you are going to hear excellent testimony from Jake Dykstra and Mr. Sharood later in the hearing on the differences in determining the value of these subsidies, which provide a very illuminating evaluation of how those indirect subsidies work. I know that they have spent a good deal of time and make a very persuasive case.

These indirect subsidies are provided for vessel construction, grants through the provinces, through insurance programs, and through pos

sible price supports. Even though there has been action on the direct subsidies the Canadian action to phase out the direct subsidies are useful and important-the fact remains that the indirect subsidies are not being phased out, and they have long-lasting impact in terms of the competitiveness of our domestic industry.

As you know, Mr. Chairman, there are two conditions in terms of granting the waiver under the Trade Act. The first is that the waiver can only be granted when the foreign government acts to eliminate or reduce the effects of the subsidy.

As we pointed out, and as you will hear during the course of the hearings, the effect of that subsidy is longstanding and continuing, particularly the indirect one. And there has not been action by the Canadian Government in reducing the indirect subsidy.

The second requirement is that the waiver can only be granted if imposing the duty were to harm the MTN-the multilateral trade negotiations in Geneva. I had the opportunity to participate in the MTN discussions in Geneva with members of the Finance Committee 3 weeks ago, and the issue of countervailing duties did arise. From my own direct conversations with the American negotiators, I see no reason to believe that Canada would reverse their position on the subsidy code because of the fish duty.

I think the Canadians deserve great credit for working closely with the United States in the development of a strong subsidy code. We have a strong partnership with them in this area, and I hope it can be realized in terms of this particular issue.

Finally, Mr. Chairman, I would like to relate to you and to the members of the committee, through this testimony, the climate in which we find our Massachusetts fishermen and all of our New England fishermen. They were frustrated by the reservation and opposition of the State Department and the Defense Department with regard to the 200-mile limit.

They felt that in the early days of the 200-mile limit that there was not adequate enforcement being provided and this was working to their very serious disadvantage. They have serious concerns about the progress which has been made in the Canadian boundary negotiations, and in many instances are frustrated by the shape of those negotiations.

And then, they are faced with strict quotas on groundfish off New England, which have resulted in a number of closures. They see truckloads of Canadian frozen fish dumped on their docks, thereby depressing prices. And now the United States ignores the Canadian subsidies as unfair competition.

When you add those factors together, it may very well be that this could be the straw that breaks the camel's back in regards to an industry which is absolutely essential and vital to the people, not only in our part of the country, but in all parts of the Nation. That is the reason why I believe it is essential that we support the resolution of disapproval and why all of us are grateful for your leadership in this matter.

Senator HATHAWAY. You have an extremely important point. Even though Mr. Mundheim is right, that we are eliminating 90 percent. still there are so many other factors involved, so many other depres sants on the New England fishermen, that even if he is correct and

it is only 10 percent from being a total elimination of subsidy, it is still enough to hurt the New England fishermen considerably.

I really appreciate your testimony and your leadership and your support for the resolution.

Senator KENNEDY. I know Jake Dykstra and Dick Sharood are going to present some very detailed testimony on that situation, which I think will be of great value to this committee. I find it very persuasive, and I think that they are two of the more knowledgeable people in this area.

I welcome your leadership and look forward to working very closely with you.

Senator HATHAWAY. Thank you very much, Senator Kennedy. Senator KENNEDY. May my full statement be printed in the record? Senator HATHAWAY. Yes. Without objection, your full statement will be printed in the record.

[The prepared statement of Senator Kennedy follows:]

STATEMENT OF SENATOR EDWARD M. KENNEDY

Mr. Chairman, I appreciate the opportunity to testify here this morning, and I want to commend you and this Committee for your expeditious action on this important matter.

After a decade and a half of waching foreign fleets decimate one of the world's richest fishing grounds, Congress finally enacted the Fishery Conservation and Management Act in April of 1976. For all those years, the United States remained an importer of fish while our own fishing grounds attracted nearly 1,000 foreign ships each month. In New England, our own fishing industry limped along-undersized and under-financed-as fish imports from foreign countries grew year after year.

As you well know, Mr. Chairman, this legislation establishing a 200-Mile Zone was designed to both conserve fish stocks seriously depleted by intensive foreign fishing and to revitalize our domestic industry. The issue before this Committee today-Canadian subsidies of fish products exported to the United States-directly relates to our efforts to rebuild the American fishing industry.

The reason is very simple. At present, between 80-90 percent of the Canadian catch is exported, most of which goes to the United States. Canadian groundfish exports alone are worth some $200 million. These exports are subsidized by the Canadians at anywhere from 14 to 20 percent, depending on whose estimates you believe. Clearly, high levels of heavily subsidized imports of fish to this country has been a major obstacle to our own industry's effort to gain a greater share of the domestic market.

A look at our balance of trade reveals that our deficit in fish products has actually increased since passage of the 200-Mile Zone rather than declined. In 1975, prior to passage of the Act, the deficit was $1.3 billion. It rose to $2.1 billion in 1977, and unless we both promote exports and gain a greater share of our own market, this deficit will continue to grow. Permitting the Canadian-subsidized fishing industry to unfairly compete with our own domestic industry only exacerbates this serious problem.

A close examination of the methods used by Canada to subsidize its fishing industry is necessary to understand why I am so strongly opposed to the waiver of countervailing duties. Some sixteen different types of both direct and indirect subsidies are provided including direct payments to fishermen and processors, and grants for 30% of the cost of vessel construction. I would like at this point to include for the record a detailed list of these subsidies. I might add that there is no disagreement that the subsidies exist. The Canadians openly admit it, and the Treasury Department findings have confirmed it.

At issue is whether the Treasury Department was correct in waiving countervailing duties designed to offset these subsidies. As you know, the Trade Act of 1974 clearly mandated that such duties must be imposed if it is determined that foreign government subsidies exist. Treasury may grant a waiver only if the foreign government takes steps to substantially reduce or eliminate the adverse effects of the subsidy, and if imposition of the countervailing duty would disrupt the ongoing Multilateral Trade Negotiations (MTN).