The Canadian Government has agreed to phase out its Groundfish Temporary Assistance Program which provides a 2¢ per pound payment to fishermen and a 6¢ per pound payment to processors. These payments are expected to be completely phased out by October 1, 1978. At first glance, this offer appears generous, but a closer look reveals something quite different. First, the Canadians are only phasing out direct subsidies, not the numerous indirect subsidies ranging from the large vessel construction grants to insurance programs to possible price supports. The Treasury Department claims that these indirect subsidies account for only one percent of the value of the Canadian catch, however, I know that this hearing will bring out significant differences in the computation of the impact of indirect Canadian subsidies. Jake Dykstra and Dick Schroud of the National Federation of Fshermen will testify later in this regard.

The Canadian offer also appears less generous when one recalls that our statutory authority to grant waivers is due to expire in January of 1979. It is clear to me that Canada has only bought more time with their latest offer.

I am further convinced that the imposition of countervailing duties on these products will not have any significant adverse effect on the Multilateral Trade Negotiations. In fact, our refusal to impose duties is inconsistent with the strong U.S. position in favor of a strict international code which discourages government subsidies. I recently returned from Geneva where I had an opportunity to review the progress of the trade negotiations. The subsidies code is central to these trade talks, and, indeed, the Canadian Government has been one of our strongest allies on this issue.

I have not received, however, any hard information that would lead me to believe that by imposing duties on fish products we would encourage the Canadians to be less supportive of a strong subsidy code. To the contrary, refusal to grant a waiver is only consistent with the position of both governments against the use of subsidies. I am convinced, therefore, that the conditions for granting a waiver outlined in the Trade Act have not been met, and that the Senate should move quickly to disapprove the action of the Administration.

An equally important reason for imposing duties is reflected in the mood of the fishermen of New England. Over the years, they have become increasingly frustrated by the lack of support they receive from their own government. The Defense and State Departments vigorously opposed their attempts to secure the 200-Mile Zone. They are dubious, to say the least, about the current boundary negotiations with Canada. They see a government insensitive to their needs when strict quotas are placed on groundfish off New England. They see truck loads of frozen fish from Canada dumped on their docks thereby depressing prices. Now they see a government ready to ignore a subsidized Canadian fishing industry and unfair competition.

They have had enough of this type of insensitive government. And they have a right to be fighting mad about it. We simply cannot write off our New England fishing industry for some nebulous negotiating advantage in Geneva.

Mr. Chairman, Senate action to disapprove the decision to waive countervailing duties in this case would be a signal to our fishermen that their government is ready to provide support. It would be a signal to the international community that we are serious in our attempts to promote a free and fair system of world trade. It would be consistent with both the provisions of the Trade Act and with our negotiating position in Geneva.

For all of these reasons, I strongly support the passage of this resolution. Senator HATHAWAY. Is Congressman Studds here?

Our next witness is the Honorable Robert Mundheim, General Counsel, U.S. Department of the Treasury.

Mr. Mundheim, glad to see you.

Mr. MUNDHEIM. Thank you, sir.

I would like, if I may, to just introduce Richard Self, the Director of Tariffs at the Treasury.

STATEMENT OF HON. ROBERT MUNDHEIM, GENERAL COUNSEL, U.S. DEPARTMENT OF THE TREASURY, ACCOMPANIED BY RICHARD SELF, DIRECTOR OF THE OFFICE OF TARIFF AFFAIRS, U.S. DEPARTMENT OF THE TREASURY

Mr. MUNDHEIM. Mr. Chairman, I very much appreciate the opportunity to appear before your committee today to explain Treasury's countervailing duty determination on imported Canadian groundfish and on our decision to waive countervailing duties.

The decision to exercise the temporary waiver authority provided in the act is always extremely difficult. On the one hand, we must, and are, mindful of the potential harm to a U.S. industry which has been forced to compete against subsidized imports.

On the other hand, Congress has also indicated the great desirability of seeking internationally agreed-upon rules and procedures governing the use of subsidies. Thus, we must weigh the effect of imposing countervailing duties in a specific case against the prospect of arriving at such arrangements.

In this case, the discussions we had with a number of Members of Congress, their staffs, and industry representatives, made us acutely aware of some of the severe economic problems faced by the U.S. fishing industry. That industry has apparently had substantial capital shortages, is restricted in its production by quotas within U.S. fishing boundaries for the next few years in order that depleted stocks can be restored, and has had to compete against subsidized Canadian fish.

Although, on the one hand, the U.S. fishing industry receives virtually no assistance from our Government, the Canadian Federal and Provincial Governments had made substantial subsidies which, in our calculations, amount to roughly 17 percent on an ad valorem basis to their fishing industry.

We certainly agree that it is not fair for our fishermen and our fish processors to compete in those circumstances, and indeed, we take the view that no U.S. industry should be forced to compete against subsidized imports.

And it is precisely removing that form of unfair competition that is a primary objective of our efforts in Geneva.

As you know, and as this morning's newspapers indicate, serious negotiations are underway to establish an international code of conduct governing the use of subsidies. And while I am not aware that an agreement has yet been concluded, and some problems still remain to be resolved, I do think that substantial progress has been made as a consequence of the give-and-take in those sessions.

Our decision to waive was motivated by a desire to see the successful completion of those negotiations and by a judgment that countervailing in the circumstances of this case would have seriously jeopardized those negotiations because of Canada's important role in them.

But I hasten to add that we couple that desire to maintain a hospitable atmosphere for negotiations with an insistence that subsidies be substantially eliminated within a very short period of time.

If I may, Mr. Chairman, I would just like to review the case, set out the subsidies we have found, and then indicate-this case began with a petition filed by the Fisherman's Marketing Association in Seattle, Wash., covering a wide variety of groundfish imports from Canada. The imports covered by the Seattle petition amounted to roughly $172 million worth in 1977.

Now, we found the following categories of subsidies: First, payments to processors and fishermen under the groundfish temporary assistance program would be, for the processors 6 cents a pound, and for the fishermen, a maximum of 2 cents per pound.

Now, the combination of those payments could result in a subsidy of roughly 16 percent ad valorem. Now, you get to that by figuring roughly that it takes 3 pounds of fish to create a pound of fillet; thus, you have to multiply that 2 cents to the fisherman by 3 and you come to a subsidy of roughly 12 cents per pound, and then you take that as the numerator of a fraction in which 75 cents a pound is the average cost of the fish as it enters the United States. That comes out to roughly 16 percent ad valorem.

The second type of subsidy is vessel construction, which includes payments from the Federal Government of up to 35 percent of the approved capital costs of vessels of a certain length and versatility.

Those subsidies are, of course—and because the life of those vessels is not of a 1-year duration, we have to spread those subsidies, and what we do is we take the average appropriation over the last 12 years and divide it by the total catch in the most recent year available.

Senator HATHAWAY. Mr. Mundheim, excuse me for interrupting you, but Congressman Studds must testify now because he has to get back to the floor of the House. Thank you very much. We appreciate it.

It is a pleasure to have Congressman Studds of Massachusetts who has been a leader with respect to this matter, as well as other fishing matters.

Representative STUDDS. I appreciate your kindness, Senator, and I apologize to Mr. Mundheim and Mr. Self. Given the nature of the business in the House this morning and the need of the Department of the Treasury to go to somewhat lengthy pains to justify their position, it might be wiser to attempt to proceed.

If I am a bit breathless, it is not only the speed with which I tried to get over here, but the Senator will be amused to know that our first vote in the House this morning was on the impeachment of Ambassador Young. The motion was losing when I left.

STATEMENT OF HON. GERRY E. STUDDS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MASSACHUSETTS

Representative STUDDS. Mr. Chairman, I assume that Senator Kennedy, who, I gather, began the hearing, shared with you the appropriate substance, and the appropriate emotion with which that substance ought to be expressed on this subject, and I know the Senator from Maine is as well aware as anyone of the nature of the problem that we face.

Obviously, I am here to urge this committee and the Senate to act promptly and favorably on Senate Resolution 483 to disapprove the Treasury's almost annual decision to waive the countervailing duties on Canadian fish, once they have found that they are in order under the law.

I would ask unanimous consent that my statement appear in the record in full, and I will attempt to summarize it as briefly as I can. Senator HATHAWAY. Yes; your entire statement will appear in the record.

Representative STUDDS. May I also say that, institutional pride aside, although I have introduced a similar measure in the House and am urging action in the House Ways and Means Committee, even a Member of the House is prepared to concede the possibility that, on occasion, the Senate might act more promptly. I would urge this committee and this body to proceed as fast as possible, regardless of our success or speed in the House.

Let me just say that the multiplicity of ways in which the Canadian Government has subsidized its fishing industry is a source of great wonder. The Senator knows it has been going on since the early part of this decade. The Canadian Government has been building up its fishing industry with the express purpose of capturing export markets, particularly those in the United States. I notice that Senator Kennedy shared with you some statistics about that. Canada makes no bones about its goal. Its stated goal is to make Canada the No. 1 fishexporting country in the world, and their strategies to this end are, in the words of their own Minister of Fisheries and the Environment, "too many to number."

These strategies include governmentally encouraged industry cooperation in market research and promotion; Government grants for port development and modernization; Government grants to connect water supply lines to processing plants; Federal fishing vessel insurance at below-market rates; a Federal price support apparatus; grants of up to 50 percent of the cost of new ice-making machinery for fishing vessels and processing plants; and direct per pound payments to fishermen and processors handling groundfish, such as cod, haddock, and flounder.

As the Senator knows, the mouths of American fishermen would water at that list of varieties of Government support, and their anger, I think, would rise enormously.

I am sure the Treasury Department will tell you, if they have not done so already, that many of the items on that list are not technically countervailable under the law. That may be technically correct, but I think the magnitude of the subsidies should be borne in mind as this committee makes its determination.

The Canadians have been eminently successful in their own stated policy of capturing export markets, most particularly in the United States. As I think the committee knows, on April 14 of last year the Department made a determination, under an earlier petition filed by the same petitioner, that the Canadian groundfish temporary assistance program did, indeed, constitute a subsidy under the law; that it was, indeed, subject to countervailing duties; and the Department, of - course, waived the collection of those duties.

Only a few weeks after that 1977 determination by the Department, the same petitioner field a new petition-the one which is the subject of these hearings-covering many more tariff items. Although the Department had just taken an entire year-the entire year allowed under the statute to determine that the assistance program constituted a subsidy, the Department proceeded characteristically to take yet another full year to make precisely this same determination.

And, in what strikes me as a particular piece of irony, the Department, as I recall, in fact took 2 or 3 days beyond the year because the statutory year terminated on a weekend. They took advantage of the extra 48 hours or so, which short of rubbed it in at the last moment to our fishermen.

By delaying its decision for yet another year, the Department allowed approximately another $200 million of improperly subsidized fish exports to come into the United States from Canada. Now that the Canadians' program has succeeded in capturing substantial portions of the U.S. market for Canadian fish, the Treasury Department has, once again, come in and waived the countervailing duties called for under the law.

If this Congress allows this waiver to stand, the net effect will be to sanction the Canadian Government's successful accomplishment of the goals of its programs which include, as you know, the use of artificially low prices to capture U.S. markets from our domestic fishermen. I would like to share with the Committee a decision made by the Department of Labor about a month ago with respect to crewmembers on eight fishing vessels in the town of Provincetown on Cape Cod in Massachusetts, in my district. Lest there be any doubt about the ability of even other agencies of the Government to see what the Canadians are up to, the Department of Labor has certified the crewmembers on eight fishing vessels in my district as eligible to apply for worker adjustment assistance under the Trade Act because of the impact of fish imported from Canada.

And, if I may quote two sentences from the Department of Labor finding:

The wholesalers indicated that decreasing purchases from Provincetown were, in large measure, due to the increased purchases of fresh and frozen Canadian fish by their customers, fish markets, supermarkets and restaurants. The Department's investigation revealed that many fish distributors and wholesalers used the imports of Canadian ground and flat fish as leverage in bidding down the exvessel prices paid to domestic fishermen for the same species of ground and flatfish.

Mr. Chairman, I think that it is abundantly clear-and the Treasury Department itself has to concede this to be true-that the Government of Canada has used improper governmental subsidies to enable their fishing industry to capture a substantial proportion of the U.S. market. And, may I say finally a couple of things, Mr. Chairman? I am sure that you will hear from the Treasury Department that we have to be particularly grateful for the fact that the Government of Canada has agreed gradually to phase out their direct payment program throughout the course of this year. That is true, but I think there are a couple of things which need to be borne in mind.

Most of the multifaceted subsidy program of the Canadian Government is not technically countervailable under the law. Yet, it exists. It is a substantial subsidy.