Business
Chemical firms assess proposed tariff cuts Agreements call for average tariff cuts for chemicals of 36%; benzenoid chemicals lose ASP protection, their tariff rate falls to 10.3% U.S. chemical companies are working feverishly to determine how much they stand to gain or lose from the tariff-cutting exercise at the Tokyo round of Multilateral Trade Negotiations (MTN) in Geneva. It is not an easy task. Tariff negotiations still are incomplete. Changes, although they probably will be minor, still can occur. In the U.S., results of the tariff bargaining are officially confidential to all but a handful of industry experts on government advisory committees. These results will remain confidential at least until the end of the month. Nevertheless, some details of what lies ahead for chemical tariffs are starting to emerge. Several Congressional committees have completed their work on the legislation necessary to implement the trade package negotiated in Geneva. For the most part, this legislation, which probably will become known as the Trade Agreements Act of 1979 if it becomes law, focuses on the heralded nontariff barrier codes that have come out of the trade talks. Tariff cuts don't need implementing legislation. The President already has authority to cut tariffs up to 60% for those amounting to more than 5% of an import's value and to eliminate tariffs that now are 5% or less of an import's value. Yet, many Congressmen find it inconceivable to consider the nontariff barrier codes without looking at the entire trade package, including tariffs. For the U.S. chemical industry, tariffs are the very heart of the trade talks. Negotiators themselves are calling the nontariff barrier codes, which cover such things as subsidies and countervailing duties, customs valuation, product standards, and government procurement, the out-
standing achievement of the Tokyo round. But not for the chemical industry. "For us," says one chemical trade expert, "at least 90% of the impact of the Tokyo round will come from what happens to tariffs." The industry's position from the beginning has been that it has very little to gain from nontariff barrier codes. For that matter, it believes that it has very little to gain from lower tariffs abroad. For most chemical companies, the primary concern was how much they might lose from deep cuts in U.S. tariffs on chemical imports. As a result, chemical industry trade advisers have been urging negotiators in the Office of the Special Trade Representative to ask for and to offer very little. Now, chemical company representatives are trying to assess what information has filtered through the veil of secrecy to see how they have done. Two of their best opportunities came at a workshop conducted last month by the Synthetic Organic Chemical Manufacturers Association in Absecon, N.J., and at a trade seminar sponsored by the Office of the Chemical Industry Trade Adviser (OCITA) in Washington, D.C. What they learned was that, on average, the chemical industry fared much better than it originally had expected. The problem is that the "on average" masks some serious losses of tariff protection for individual chemical companies and products. William S. Sneath, chairman of
Union Carbide and head of OCITA, calls the results of the trade negotiations "a mixed bag, but one that we can and should support" (C&EN, May 14, page 6). Compared to the initial tariff cuts that U.S. negotiators tabled early in the Tokyo round, Sneath's analysis of the final result probably is valid for most, if not all, of the chemical industry. In 1977, the industry's trade advisers were seeking moderate U.S. chemical tariff cuts, perhaps half the 60% allowed by law. They prepared a long list of products that they wanted excluded from any tariff cuts. Richard M. Brennan, Carbide's director of international affairs and chairman of the Industrial Sector Advisory Committee for chemicals, called these efforts "a dialogue of the deaf." An initial trade offer on chemicals, an ambitious one designed to stimulate reciprocity from other nations, would have cut U.S. chemical tariffs an average of 55%, with very few products excluded. Starting last year, however, U.S. negotiators began withdrawing some chemical tariff offers in an effort to get a balanced package. As a result, the final agreement calls for the U.S. to cut chemical tariffs an average of 36%. That's close to the industry's original recommendation. For most chemicals, tariff reductions will be made in eight stages, starting in January 1980. The U.S. will defer staging cuts on chemicals covered by American Selling Price (ASP) until the new customs valua-
U.S. tariff offers: what they could have been, what they are
Product
Present duty a
Formula reduction13 New Depth duty c of cut
All chemicals ASP chemicals' Non-ASP chemicals Benzenoid intermediates Dyes Plastics resins9 Rubberh
10.6% 17.3 6.1 16.5 23.4 10.7 6.1
6.0% 7.7 4.2 7.6 9.6 5.9 4.2
43% 56 31 53 59 44 31
Latest U.S. offer d Depth New duty c of cut
6.8% 10.3 4.2 11.3 14.6 8.3 4.8
36% 41 31 31 38 22 21
Amount of reduction salvaged Percentage Per cent points e salvaged
0.8 2.6 0 3.7 5.0 2.4 0.6
17.4% 27.1 0 41.6 36.2 50.0 31.6
a Ad valorem equivalent based on 1976 trade-weighted data, b Based on "Swiss formula" generally applicable to MTN tariff cuts, c Final duty after all cuts are phased in. d Still subject to minor changes, e Difference between what the new duty would have been under a formula cut and what it will be under the U.S.'s latest offer, f Chemicals subject to American Selling Price valuation system, g Does not include plastics products, h Includes elastomers and rubber products. Source: Office of the Special Trade Representative
June 11, 1979 C&EN
13
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C&EN June 11, 1979
-Op-
tion code is in effect. This means that the first cut on ASP chemicals probably will come in January 1981. After the eighth reduction stage, U.S. chemical tariff reductions will be fully implemented. The average tariff on U.S. chemical imports will be 6.8%, compared to 10.6% now (on a 1976 trade-weighted basis). The European Economic Community (EEC) has hinted that it may stop reducing tariffs after the fifth stage. If it does, it's almost certain that the U.S. will follow suit. The average 36% tariff cut refers to the most-favored-nation rate that applies to all countries. In the Tokyo round, however, tariff negotiations were not conducted multilaterally. They were done bilaterally with each of the U.S.'s major trading partners. For instance, the U.S. offered EEC an average 35% reduction in chemical tariffs in return for a similar tariff cut on U.S.-produced chemicals imported into EEC countries. With Japan, the U.S. offer was an average 31% cut in return for Japanese cuts averaging 41%. The U.S. would reduce chemical tariffs an average 43% for Canada, in return for a 48% reduction by the Canadians. The U.S. chemical industry will lose its long-cherished ASP protection for benzenoid chemicals. Although some chemical companies disagree, many believe that they came out of the ASP negotiations as well as they could have hoped. ASP-based benzenoids that now have an average converted tariff rate of 17.3% (after conversion of tariff rates based on ASP to rates based on normal valuation) will have a 10.3% level of tariff protection when the trade results are phased in. The new average could have been as low as 7.9%. With only one exception (benzyl acetate), U.S. benzenoids will have a 20% ceiling or "cap" on their tariff rates. Some producers think that this isn't high enough. But negotiators were able to obtain it only over strong EEC objections. No EEC chemical tariff is as high. In many cases, U.S. negotiators made no tariff cuts or less than formula cuts on benzenoids. The benzenoid tariff schedule will have a new category as a result of the Tokyo round. The "futures" basket has been added to handle new products that were not imported into the U.S. before January 1978 or produced in the U.S. before May 1978. For dyes and pigments in the futures basket, tariffs will start at 20% and be phased down to 15% over five years. All other products in this basket will get an immediate 13.5% tariff rate, with no further staged cuts. Earl Anderson, C&EN New York
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