Trade, Tariffs, and Chemicals
$152.9 $140.7
$133.3
$127.5
World Exports (billions of dollars)
$115.2
$111.5
mm a»™ $93.2 $82.3
$85.8
1953 I 1954 I 1955 I 1956 I 1957 I 1958 I 1959 I 1960 I 1961 I 1962 60
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1964
1963
C&EN special report
EARL V. ANDERSON, Senior Associate Editor
Pushed by free-traders, pulled by protectionists, U.S. negotiators pre pare to join an international crew in mixing a witches' brew of trade policies at the coming Kennedy Round. Into the cauldron will go such ingredients as national needs and efficiencies, wage and freight differentials, trading blocs and cartels, tariff and nontariff barriers, agricultural and industrial needs, and American selling price. The outcome will change the character of international chemical trade This fall, the most far-reaching attempt to sweep away international trade bar riers will resume in Geneva (Switzer land) where it left off last May. Offi cially, the session is the Sixth General Conference on Tariffs and Trade, un der the auspices of GATT, the Gen eral Agreement on Tariffs and Trade. Popularly, the world knows it as the Kennedy Round, in honor of the late President who engineered through Congress the Trade Expansion Act of 1962 and made this ambitious under taking possible. Goals of the conference are nothing less than ambitious. Negotiators from GATT's 62 member nations, which ac count for more than 80% of the world's trade, will try for massive, re ciprocal cuts in tariff rates. The reductions—50 7r is the Kennedy Round's working hypothesis—will be linear, or across-the-board, on a vast number of products, with minimum exceptions. How to erase restrictions on agricultural trade will be one of the GATT conference's most complex problems. But agriculture won't be the only headache. Negotiators will also at tempt to eliminate a kaleidoscopic ar ray of nontariff barriers, which man ν international businessmen consider more restrictive to trade than tariffs. Another difficult task will be to settle the issue of disparities; that is, situa tions where the difference in the tar iffs of two countries on a given prod uct is unusually—and significantlygreat.
One way to measure the scope of the Kennedy Round is to compare it with the previous GATT conference known as the Dillon Round. In the Dillon Round the U.S. granted tariff concessions averaging 20% on about 20% of its dutiable imports (or about 4.5% average reductions on all duti able items). In the Kennedy Round, the goal is 50% reductions on all duti able items, with a minimum of excep tions. Representatives to GATT have been laying the groundwork for the Kennedy Round since early 1963. The session's official opening took place in May 1964, but little more was accomplished than the delivery of ceremonial speeches and a declaration of the conference's program and goals. The declaration included the 50% fig ure as a working hypothesis for linear tariff cuts and confirmed that nontar iff barriers, agriculture, and excep tions lists would be considered. It also bound the conference to an at tempt at reducing barriers to trade from less-developed nations. The Kennedy Round then recessed until September 1964, at which time nations were to submit their excep tions lists—products they want to ex clude from bargaining. Now the date for submitting the lists has been pushed back to Nov. 16, and betting is heavy that it will be set even further back, perhaps to the first of next year. However, U.S. officials contend that this country's list will be ready by Nov. 16; and a spokesman for the
European Economic Community (EEC) says that its list is "fairly well in hand." Meanwhile, the summer recess has not meant a complete lull in the dis cussions. Several subcommittees of GATT's trade negotiations committee have been trying to come up with workable means of handling the prob lems of disparities, nontariff barriers, and agricultural trade. Seemingly, little headway is being made. How long will the Kennedy Round last? No one has the answer, only opinions. Jean Rev, EEC Commis sioner for External Relations, thinks that preparatory work will continue throughout the rest of the year. Then, he adds, negotiators will do well to complete their work by the end of 1965. Others are less optimistic. Many believe that actual bargaining could last 18 months. Recalling that the last GATT conference, the Dillon Round, lasted two years and that the Kennedy Round really began in 1963, Monsanto's Myron Foveaux feels that efforts to solve international trade problems may become a perpetual af fair. Rather than work on a confer ence basis, negotiators will hammer away at various trade problems con tinuously. This idea has been dis cussed, in fact, among trade officials. If the Kennedy Round lasts beyond 1966, two new critical factors will have to be contended with. First, EEC converts from a one-nation veto system to a majority vote on external AUG. 2 4, 1964 C & E N
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commercial policy at the beginning of 1966. This new voting system could make EEC's bargaining task easier, because decisions of the EEC council will not require unanimous approval. Secondly, U.S. negotiating authority, under the Trade Expansion Act, ends in June 1967. Both factors could be important because—rightly or wrongly—the Kennedy Round has been openly discussed as a trade battle between the U.S. and EEC, the two largest participating trade blocs. Officials of both blocs decry this concept of belligerent attitudes. Rather than look upon each other as adversaries, they see themselves as partners confronted with a common problem. The Free Trade Program Birth certificate for the Kennedy Round is U.S. Public Law 87-794, the Trade Expansion Act of 1962, a product of President Kennedy's free-trade philosophy. When he made his program public in 1961, he set in motion a storm of praise and protest from U.S. industry that, although it has subsided, hasn't yet completely blown away.
Free trade advocates praise the farsightedness of the policy, and predict U.S. exports will score significant gains as foreign trade barriers vanish. Staunch protectionists cringe at the thought of "losing our shirts in a freetrade war," as Rep. John H. Dent (D.-Pa.) expressed it. At Congressional hearings before the bill was passed, and later at hearings before other government agencies, scores of industry representatives came to bemoan their expected fate or to offer their support. William H. Rodd, II, chairman of the Trade Information Committee ( T I C ) , maintains that U.S. trade policy isn't new, that it has "been around since 1934." Tariff negotiations aren't unique in U.S. history, he says, as he points to the five previous sessions under GATT alone. Eugene L. Stewart, Washington attorney whose eloquent presentations at the U.S. Tariff Commission and TIC hearings on behalf of chemical and other industrial groups have won him admiration from all quarters, emphatically disagrees. He points out that the Trade Expansion Act of 1962 eliminates peril point and obfuscates escape clause proceedings. And he
adds that rapidly declining U.S. tariffs and use of administrative discretion to nullify the effectiveness of countervailing duty and antidumping laws have destroyed orderly rule for fair trade in foreign commerce. An outspoken critic of the Administration's free trade program, Mr. Stewart sums up his feelings by saying, "It is a paradox that legislators who provide for orderly fair trade in domestic commerce have provided for chaos in international commerce." No one, however, debates the fact that the act gives the President unprecedented powers. He has the authority to offer across-the-board tariff cuts on some imports of up to 50% over a five-year period. On other imports, such as forest and tropical products, and commodities on which the duty is 5% or less, he is empowered to remove tariffs completely. He can also eliminate tariffs on products if the U.S. and E E C account for at least 80% of the world's exports of a product. (This provision, once considered to be essential, now is insignificant since Great Britain failed to gain entry into EEC. ) The President can also bargain for elimination of nontariff barriers.
Initials Simplify the Language of International Trade Talks Discussions on international trade are as saturated with initials as any conversation in official Washington. There are dozens of international trade and economic organizations that are more familiar by their initials than by their proper name. Here are the more important ones: EEC—The European Economic Community, European Common Market, Common Market, or just ECM. EEC was created in 1957 when six member countries (France, Italy, West Germany, Belgium, the Netherlands, and Luxembourg) signed the Treaty of Rome. Beginning in January 1958, EEC undertook a step-bystep process to transform itself into a customs u n i o n — an area which has tariff-free, unrestricted trade within it and a common external tariff around it. EEC is also striving for free movement of capital, services, and labor. And it may eventually become a political union via the economic route. Each member state has one member of its national cabinet on the EEC council of ministers, which formulates EEC policy and has prime executive responsibility. The EEC commission makes policy recommendations to the council of ministers, then puts approved policy to work. EFTA—The European Free Trade Association, or the Outer Seven—Great Britain, Austria, Denmark, Norway, Sweden, Switzerland, and Portugal. The Stockholm Convention (signed in 1959) established EFTA, but it actually began to function in 1960. EFTA plans to eliminate gradually tariffs and quotas among member countries, but will stop short of becoming a customs union such as EEC because it plans no common external tariff. Nor does it seek the economic integration EEC does. Because member countries will retain their national tariffs, they will negotiate separately at GATT conferences. 62
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GATT—The General Agreement on Tariffs and Trade. In 1948 GATT came into effect and now provides the world with its foremost forum for discussing tariff and trade matters. GATT is what its name implies: a general agreement, a multilateral agreement on a set of rules and principles for conducting free-world international trade. Its basic principle is the most-favored-nation principle, under which each country agrees to set the same tariff rates on imports from all countries that it sets on imports from other GATT countries. Some exceptions to this rule can be made, however. The U.S., for instance, has withdrawn most-favored-nation treatment from Cuba. Other GATT principles: trade liberalization, consultation, and tariff negotiation. There are 61 contracting parties (or nations) to GATT. In addition, five have acceded to GATT provisionally; two other nations participate under special arrangements; and eight new nations, which are not yet members, make de facto application of the agreement. GATT has a secretariat of more than 100 people, headed by Executive Secretary Eric Wyndham White. Most of the secretariat is located at GATT headquarters in Geneva. A member country contributes to GATT's budget in proportion to its share of world trade. The GATT code of rules now applies to about 8 0 % of international commerce. LAFTA—Latin American Free Trade Association. It was established by the treaty of Montevideo (signed in February 1960) and came into force on June 1, 1961. The seven signatory countries are Argentina, Brazil, Chile, Mexico, Paraguay, Peru, and Uruguay. CACU—Central American Customs Union. Guatemala, El Salvador, Nicaragua, and Honduras are now seeking to develop such a union.
The May session of the Kennedy Round of tariff negotiations under the General Agreement on Tariffs and Trade (GATT) was attended by representatives from 66 nations. The U.S. was represented by Gov. Christian A. Herter, Special Representative for Trade Negotiations (front row, center ) and ( left to right from him ) Deputy Representatives W. Michael Rlumenthal and William M. Roth, and U.S. Ambassador to EEC John W. Tuthill. Across the aisle from Gov. Herter is Rritish Minister of Trade Edward Heath
The act contains an adjustment assistance section under which entire industries, companies, or individual workers may seek federal assistance if they prove injury from imports. It also sets up a new office, the Special Representative for Trade Negotiations, to be appointed by the President, and instructs the President to seek the advice of industry, agriculture, labor, and federal agencies on tariff matters. The act also has its equivalent of an escape clause—the tariff adjustment section. This section allows the President to redress a tariff injury to a domestic industry by raising tariffs or by imposing other trade restrictions. Many industrialists are afraid, though, that it may be a difficult task to prove injury from import competition and that, by the time they do prove injury, it may be too late. Escape clause provisions now protect eight industries, the most important of which are sheet glass, lead and zinc, watches, and carpeting. What the act doesn't provide is a peril point procedure, an omission which has raised strong objections, particularly from the chemical industry. Under earlier peril point provisions, the Tariff Commission determined the tariff rate below which imports could harm a domestic industry. But injury was difficult to judge; more often than not it was determined by feel rather than by well-defined yardsticks. Nevertheless, industry felt safer with peril point in the statutes. Mr. Stewart says emphatically, "If I had to recommend changes in the new law, I'd first put back the peril point." Better
Informed
Two aspects of the upcoming GATT session encourage most U.S. industrialists. One is that the negotiating team will be from the Office of Special
Kennedy Round Takes Up Where Previous GATT Sessions Left Off Value of Imports Value of Exports Covered by Covered by Concessions Concessions Obtained by the U.S. Granted by the U.S. (millions of dollars) 1st Session (1947)—Geneva 2nd Session (1949)—Annecy 3rd Session (1951)—Torquay 4th Session (1956)—Geneva 5th Session (1960-2)—Geneva»
Organizing session
143 478 478 1,225
S 537 1,058 400 1,575
$1,246
Net Excess of Conce ssions Obtained" a
Dillon Round. b Includes bindings of existing rates as well as reductions. Source: U.S. Dept. of Commerce
Representative for Trade Negotiations. The other is that the negotiators will likely be better informed about U.S. industrial problems than were the previous teams. The Office of Special Representative for Trade Negotiations is directly responsible to the President. Previously, bargaining was conducted by the Department of State. Consequently, many industry leaders felt that their interests took second place to foreign policy, which is the State Department's prime responsibility. Under the new system, this stepchild treatment is not likely to occur, they feel. The Special Representative for Trade Negotiations is Governor Christian Herter. His chief assistants are Deputy Representatives W. Michael Blumenthal, chief on-the-spot negotiator with a reputation for hardnosed bargaining, and William M. Roth, chief administrative assistant.
Both these men hold ambassadorial ranks. Most industrialists cheerfully acknowledge that U.S. negotiators will be more informed about U.S. industries than any other negotiating team before them. Much of the credit goes to Mr. Rodd, tireless TIC chairman, whose committee, along with the Tariff Commission, listened to hour after hour of testimony from industry experts who admit "they felt welcome." He has also held many private sessions with industry, collected reams of data from other government agencies, and has made over 40 speeches before industrial groups within the past year. The 17 file cabinets which Mr. Rodd has crammed with industry data are already a legend. One of the chemical industry's strongest pleas, stressed particularly by the Manufacturing Chemists' Association (MCA) and the Synthetic Organic Chemicals Manufacturers AUG.
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Association (SOCMA), is that Gov. Herter's office seek the advice and knowledge of industry experts. Gov. Herter's group has done this in several ways. It has created a Public Advisory Committee (PAC), made up of 45 representatives from industry, agriculture, and labor. PAC is concerned primarily with policy matters. Twelve of its members will be selected to go to Geneva as part of the negotiating team. Robert B. Semple, president of Wyandotte Chemicals, is a PAC member. Recently, designates were announced to the Roster of Industry Advisors. Roster members are some of the industry's technical experts, capable of calculating the effect on their industry of any concession we may offer or receive. These are the nuts-andbolts advisers which both MCA and SOCMA wanted so badly to counterbalance the European negotiators' practice of having industry advisers close at hand when they sit down at the bargaining table. Six designates represent the chemical industry on the roster: Myron Foveaux of Monsanto and William Christopher of Hooker (recommended by MCA); Dr. Crayton Black of Du Pont and Dr. Ernest May of Otto B. May (recommended by SOCMA); Eric Blackstead of Sun Chemical (recommended by Dry Colors Manufacturers Association); and Mr. Stewart, who will represent nitrogen chemical producers. So far, about 100 names are on the roster. Eventually, there may be as many as 200, possibly even 300. It still isn't certain, however, whether any of the technical advisers will accompany the negotiators to Geneva.
Washington Attorney Eugene Stewart
"Legislators who provide for orderly fair trade in domestic commerce have provided for chaos in international commerce"
EEC—Inward Grace, president of W. R. Grace, is hopeful "that we will see a genuine loosening of tariff barriers between the U.S. and Europe." Throughout the TIC and Tariff Committee hearings, dozens of industry spokesmen related reasons why tariffs should or should not be cut on virtually every type of chemical, including inorganics, organics, plastics,
Opinions Vary Because of the diversification of the chemical industry, it's not surprising that opinions of the free trade program vary widely among chemical executives. On one hand, Du Pont president Lammot du Pont Copeland says, "U.S. and foreign tariff reductions will result in increased chemical imports that greatly exceed any increase in U.S. chemical exports. We are as anxious to increase exports for our own reasons as the Government is of having us increase them for balance of payments reasons. But it does not appear this will be brought about by the tariff reduction program now contemplated." On the other hand, J. Peter 64
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fertilizer—even potato starch and citrus oil. The principal spokesmen for domestic industry were MCA and protectionist-minded SOCMA. Both associations generally support the objectives of the free trade program, but neither one thinks the program can achieve them. They would rather see item-by-item, rather than across-theboard negotiations, for instance. Ultimately, most of the arguments, both pro and con, fall into patterns. Protectionists say that reducing tariffs won't increase U.S. exports; free-traders contend that it will. Protectionists think that imports will increase so much that it will harm the domestic industry; free-traders deny it. The booming economies of Europe and Japan are translated into broad new markets on the one hand; the growing foreign industries are seen as strong new competition on the other. Both the U.S. and Europe accuse each other of being the more protectionist.
TIC'S William H. Rodd, II
"if [the Kennedy Round] has to succeed . . . there's too much at stake"
or Outward?
Wolfgang Schoellkopf, European economic specialist with Chase Manhattan Bank, says that U.S. chemical executives are developing a "more realistic attitude" because they are now aware of, as he puts it, "EEC tariff discrimination against outsiders and the added difficulties U.S. exporters are having to maintain their share of the European market." Indicative of these difficulties is the declining growth rate of U.S. chemical exports to EEC. Mr. Schoellkopf says that U.S. chemical exports to EEC countries have increased 17% annually since 1952. In the five years since EEC was formed, however, the growth rate has fallen to 8.3% annually. The increasing importance of EEC as a customer for U.S. products stems from EEC's phenomenal economic growth rate, which has been roughly twice that of the U.S. But Mr. Schoellkopf and many other economists foresee a decline in EEC's economic pace. If it does taper off, and if EEC becomes more inward-looking as member countries eliminate tariffs among themselves, the demand for U.S. products in E E C countries will shrink. Many chemical companies agree with this prognosis. Carl Oldach, assistant general manager of Du Pont's organic chemicals department, adds
that most of our chemical exports to day are specialty products on which we have either a patent position or a technology edge. Some of our stand ard chemical items have already lost ground in the international market, he says. And he goes on to say that "We stand to lose exports of more complex products" as Europe and Japan catch up to us in production efficiency, capacity, and product qual ity. Robert Marjolin, vice president of the EEC Commission, doesn't think EEC is either inward-looking or pro tectionist. He says that EEC is the world's largest single importer, with imports from nonmember countries hitting $24.6 billion last year. That's a 52Vr increase since EEC's first year of operation (1958) and surpasses the 34 Γ Λ increase in U.S. imports during the same period. Yet, trade among EEC countries has been rising, too, and has actually been increasing its hold on the over all EEC market at the expense of im ports from other nations. If EEC takes credit for more rapidly in creasing imports, it must also claim more rapidly increasing exports. In the past five years, shipments to nonmember countries have risen by 35% while U.S. exports have only grown 29%. EEC's growing trade deficit is be coming a serious problem. In five years it has grown from an insignifi cant $300 million to a sizable $3 bil lion last year. Mr. Marjolin says that if other foreign receipts and expendi tures are considered, EEC's balance on its current account has deteriorated from a surplus of $3.5 billion in 1959 to a small deficit in 1963. Moreover, he anticipates a larger over-all deficit this year. There's no denying that EEC has had an unfavorable trade balance with the U.S. Our exports to EEC, which have been growing 10% annually, ex ceeded our imports by $1.4 billion in 1963. In chemicals, we export almost three times as much as we import from EEC and enjoy a chemical trade bal ance which has exceeded $260 mil lion in each of the past four years. U.S. Less
Competitive?
Despite such glowing comparisons, U.S. businessmen are becoming more concerned that we are losing out in the world market. Total world trade has grown faster than U.S. exports
Trade Negotiators Have a Specialized Vocabulary Ad valorem duties—customs duties set as a percentage of the imported item's value.
sion finds that increased imports cause or threaten to cause serious injury to a domestic industry.
Balance of payments—a statement showing the sum of a country's foreign economic transactions for a particular time period.
f.o.b. price—price of a product de livered at a foreign port.
Balance of trade—the surplus (positive) or deficit (negative) which results from subtracting a country's imports from its exports (of merchandise only). Brussels Tariff Nomenclature (BTN)— a standardized system of classifying commodities for customs purposes, established in 1950. The U.S. is one of the few major trad ing countries which does not use the system. c.i.f. price—import price of a prod uct, including its cost, insurance, and freight charges. Clayton Act—Section 7 of the act forbids mergers or acquisitions which tend to create a monopoly or restrain trade. Common External Tariff (CXT) — the common tariff which will sur round all EEC countries when the Common Market Treaty is fully applied, between 1967 and 1970. Disparity—difference in tariff rates of two countries, on the same prod uct. The difference must be high enough to have a significant effect on trade. Dumping—exporting goods at prices below their prices in the exporting country, causing serious injury to an industry in the import ing country (U.S. definition). Escape clause—a provision (Sec tion 35) of the Trade Expansion Act of 1962 which permits the President to increase tariffs or im pose quotas if the Tariff Commis-
and, in the past 10 years, our share of world trade has slipped from 19 to 15%. In Canada and Latin America, particularly, our exports don't com mand as large a share of the total as they did five years ago. Our imports also have been grow ing faster than our exports (this isn't true of chemicals). Dr. Henry C. Wallich, professor of economics at Yale, estimates that the U.S. must in crease its foreign sales level by $2 bil lion, then build up an additional $700 million to $1 billion worth of addi tional business annually to keep pace with the annual growth of imports. "The American exporter must run very fast just to stand still," he says. He believes our competitive posi tion has diminished partly because of
FTC Act-created the Federal Trade Commission and set up the basis for its operation. Peril point—no longer used under the Trade Expansion Act, it was the point below which the Tariff Commission believed tariffs could not be set without causing injury to a domestic industry. Robinson-Patman Act—major pro vision of the act is to prevent dis criminatory selling. It is designed to protect the small businessman with little purchasing power. Sherman Act—forbids conspiracies to restrain trade or to create mo nopolies. Standard International Trade Clas sification (SITC)—a system of classifying commodities. The United Nations developed the sys tem to report world-wide trade statistics on a uniform commodity basis. Specific rate—a tariff rate imposed at a fixed rate per unit, regardless of value. U.S. value—a constructed value upon which duty is assessed. It is based on the wholesale price in the U.S. of the imported product less most of the expenses incurred in bringing the product to the U.S. and selling it. Webb-Pomerene Act (The Export Trade Act of 1918—provides for cooperative selling associations which enable manufacturers to enter into agreements on prices and terms of sale normally prohibited in domestic practice.
our rising prices and partly because of increased and still increasing foreign capacity to produce goods. Dr. Wallich notes, too, that although many European countries are strug gling with inflation problems, they haven't pulled up the reins on exports as much as expected. He does see one bright spot for U.S. producers, however. Costs, and in some cases prices, are beginning to rise more rap idly overseas than before. But the over-all picture of the U.S. chances in world trade is bleak. Even a West German banker finds it hard to see how the U.S. can in crease its share of world trade. Com menting on the U.S. Government's hope that exports could be increased 10 to 12%, Dr. Klaus Dohrn, partner AUG. 24, 1964 C&EN
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in Berliner Handels-Gesellschaft (Frankfurt bank), says that for this hope to materialize other trade blocs would have to decrease their share, not only of their export markets, but of their own domestic markets as well. America's competitive ability looks fine to Dr. Dohrn if only the over-all trade surplus is considered. But the surplus shrinks considerably, he says, if government-financed shipments are taken out of the total. Dr. Dohrn says, "It is difficult to believe that a favorable U.S. balance of payments
can be brought about with the help of tariff and trade policy agreements alone."
deficit. Why? Because, he says, bal ance of payments includes the net of foreign trade, net of exchange of serv ices (shipping, insurance), net of tourism, net on capital flow, and net on gifts, loans, and repayments of loans. Between 1958 and 1961, our over all deficit became very large, rising to an all-time high of $3.9 billion in 1960. The deficit went down in the succeeding two years, but rose again to $2.7 billion last year. There was, however, a tremendous improvement
Balance of Payments Indeed, our balance of payments problem has been used by many Amer icans to attack free trade policies. One of the most critical is Dow Chemical's chief economist, Dr. Lewis Lloyd. Dr. Lloyd points out that, de spite our favorable trade balance, the U.S. still has a balance of payments
All EEC Countries Are Big Consumers of U.S. Chemicals U.S. Chemical Imports from EEC Countries—1963 (U.S. Chemical Exports to EEC Countries—1963) (thousands of dollars) Standard International Trade Classification
France
West Germany
Italy
Netherlands
$ 2,003 (23,896)
$ 8,277 (15,337)
$21,730 (22,572)
$ 5,629 (13,136)
$ 3,460 (45,369)
$ 41,099 (120,310)
970 (2,030)
2,136 (8,088)
2,361 (8,803)
1,951 (5,189)
613 (4,094)
8,031 (28,204)
2,930 (844)
2,241 (1,065)
10,335 (2,124)
1,032 (1,216)
1,789 (626)
18,327 (5,875)
515 Radioactive and associated materials
405 (588)
28 (169)
8 (130)
(48)
12 (53)
453 (988)
521 Mineral tar and crude chem icals from coal, petroleum and natural gas
943 (250)
753 (1,943)
1,559 (6,766)
(10,136)
1,554 (5,180)
4,809 (24,275)
9 (1,159)
344 (610)
6,276 (504)
212 (1,127)
76 (696)
6,917 (4,096)
17 (7)
913 (16)
19 (16)
460 (15)
9 (7)
1,418 (61)
82 (1,043)
222 (1,030)
787 (910)
41 (1,891)
641 (644)
1,773 (5,518)
183 (13,913)
2,679 (6,504)
5,994 (7,244)
1,597 (7,027)
4,434 (6,146)
14,887 (40,834)
551 Essential oils, perfume, and flavor materials
89 (512)
8,730 (2,613)
259 (2,453)
4,758 (835)
325 (2,352)
14,161 (8,765)
553 Perfumery and cosmetics, dentrifices, and other toilet prep arations (except soap)
(135)
5,823 (333)
478 (477)
88 (275)
28 (205)
6,417 (1,425)
554 Soaps, cleansing and polish 26 ing preparations (2,292)
111 (1,272)
464 (1,389)
57 (1,195)
27 (877)
685 (7,025)
1,759 (9)
1,175 (903)
6,025
1,922 (26)
1,919 (3,080)
12,800 (4,018)
12 (5)
104 (17)
265 (68)
427 (45)
13 (2)
821 (137)
11 (11,624)
1,244 (11,474)
4,336 (13,744)
388 (9,886)
599 Miscellaneous chemicals
1,315 (13,674)
1,949 (13,390)
2,797 (22,481)
243 (19,948)
5,213 (18,071)
11,517 (87,564)
Total Chemicals, Group 5a
10,756 (71,980)
36,731 (64,765)
63,694 (89,681)
18,806 (71,995)
20,251 (113,390)
150,232 (411,811)
512 Organic chemicals 513 Inorganics—elements, oxides, and halogenated salts 514 Other inorganics
531 Coal tar, dyestuffs, and natural indigo 532 Dying and tanning extracts, synthetic tanning materials 533 Pigments, paints, varnishes, and related materials 541 Medicinal and pharma ceutical products
561 Fertilizers (manufactured) 571 Explosives and pyrotechnics 581 Plastics materials, regener ated cellulose, and artificial resins
α Small discrepancies in totals are due to rounding. Source: U.S. Dept. of Commerce
66
Total EEC
Belgium and Luxembourg
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2 4, 196 4
138 (25,988)
6,117 (72,716)
in the latter part of the year. The deficit during the last half was only $500 million, compared with $2.2 billion during the first six months—the result, primarily, of improved capital transactions and increased merchandise trade. Many people overstate the U.S. merchandise trade balance, according to Dr. Lloyd. For instance, last year we had a favorable trade balance of $5.9 billion (exports in excess of imports). But, he argues, this includes $3.6 billion worth of military grantaid and other government financed shipments so that, actually, our balance of commercial trade was only $2.3 billion. Dr. Lloyd spotlights chemicals* role in this trade balance. Chemicals alone accounted for almost $1.4 billion, or 6076 of the commercial trade balance (a still-respectable 2 3 % of the over-all balance of trade ). This overwhelmingly favorable imbalance, he claims, gives some people a guilt complex. They feel that it's unjust for the U.S. to enjoy this lopsided excess in chemical exports. A few even propose reducing the spread to bring about a balanced trade in chemicals. He calls these proposals unrealistic because they don't consider that foreign trade is based on the scheme that one country or region has natural advantages in particular products. It's natural, Dr. Lloyd maintains, for an imbalance to exist in one sector of the economy and cautions that "We can't afford to act on the basis of theoretical commitments to free trade in a manner which would jeopardize the chemical trade balance." Stripped of embellishments, the free-trade argument is that only by dismantling tariff walls can we survive; protectionists contend that to do so will be fatal. A number of economists, however, think there are other factors to be considered. They claim that, without solving our internal fiscal, labor, and cost problems, neither free trade nor protectionism can help us. Despite the efficiencies of mass production, there is still much that industry can do to lower costs—particularly those industries which cry loudest for tariff protection. Labor can help, says Dr. Wallich, by gearing wage demands to productivity increases, which have been averaging close to 3 % annually. And he urges Government to do its share by taking "positive action" on taxes and antitrust. Tax incentive plans for
U.S. Is an Important World-Wide Customer and Supplier Imports from the U.S. as Per Cent of Total Imports (Exports to the U.S. as Per Cent of Total Exports) Trading Unit
1957
1958
1959
1960
1961
1962
1963
Canada
71% (60)
69% (59)
68% (62)
67% (57)
67% (55)
69% (59)
68% (56)
Central American Common Market
58 (53)
55 (51)
51 (46)
48 (49)
46 (50)
46 (47)
—
Latin American Free Trade Association
46 (44)
43 (42)
43 (42)
43 (40)
42 (38)
41 (37)
—
European Economic Community
15 (7)
12 (7)
11 (9)
13 (8)
13 (7)
13 (7)
13 (7)
United Kingdom
12 (8)
9 (9)
9 (11)
13 (9)
11 (8)
11 (9)
10 (9)
Japan
38 (21)
35 (24)
31 (30)
35 (27)
36 (25)
32 (29)
31 (28)
Source:
U.S. Dept.
of Com) nerce
AUG.
2 4,
196 4 C & E N
67
Chemicals Account for About 25% of the Favorable U.S. World Trade Balance
A l l P r o d u c t s " ' •..·,.·;.·./».χ ..,· ./»/.·.»* 25,000
$5,900
20,000-
$5β0(| 15,000 -\
$5.000
$6,0001
$5,200
$2,4001
Trade Balance 10,000Exports Imports
Source: U.S. Dept. of Commerce
5,000H
1958
1959
1960
1961
1962
1963
^Exports of U.S. merchandise, including military grant-aid and other government-financed shipments. ^Imports for consumption.
exports would help, he suggests. And antitrust laws designed to allow U.S. companies to share the cost of doing business abroad (over and above the Webb-Pomerene Act) will make them more competitive in international mar kets. Still others believe that an ex change rate designed to overvalue the dollar on the world market is a prime source of difficulty. The Wall Street Journal sums up all of these sentiments: "We are not go ing to solve our balance of payments problem merely by tinkering with tar iffs." Tariff
Comparisons
Meanwhile, the U.S. will continue to tinker with tariffs at Geneva and the prospect has made popular sport out of comparing national tariffs. Because the U.S. and EEC are the two largest trade blocs, quite natur ally their tariffs attract the most at tention. Unfortunately, most com ments on the relative tariff levels of the two trade blocs are based on hastily constructed, over-all averages. There are pitfalls in using tariff av erages: They present an incomplete, and often a distorted, comparison. Not to use them, though, means not to compare tariffs at all. The 20,000 in dividual items grouped into 6000 cat egories of the U.S. Tariff Schedule 68
C&EN
A U G . 24, 1 9 6 4
and the 3300 items included in EEC's Common External Tariff (CXT) make it necessary to fall back to averages in tariff studies. Europeans delight in pointing out that U.S. tariffs are higher than theirs. Americans concede the point, but stress that U.S. tariffs have been drop ping rapidly. And, they add, EEC is actually becoming more protectionist as it switches to its CXT and elimi nates its internal tariffs. U.S. tariffs, in fact, have been de creasing since World War II. Just before the war, average ad valorem duties were about 50%. Today, they are variously estimated to be any where from 10 to 20%. Most of the reductions have been negotiated at previous GATT conferences. Some Europeans think that when the U.S. reclassified its tariff system in 1961-63, it was done deliberately to raise tariffs. Other Europeans find these charges groundless. A few rates were increased by the changes and a few others were lowered. The changes were made, of course, to simplify the tariff schedule, to make it more usable. Some products were removed from "basket," or catch-all, categories and may have moved up to higher rates. Too, some Internal Rev enue Code (IRC) taxes were con verted to tariffs which raised their rates a few per cent. But these were
limited to a few fats, oils, perfumes, flavors, and detergent products. Dr. Victor Umbricht, managing director of CIBA, Ltd. (Basel, Switzerland), and former president of CIBA Corp. (U.S.), sums up the impact of these changes on most Europeans in one word: uncertainty. Much more certain is the feeling among American exporters that their share of the EEC market will diminish as EEC eliminates internal tariffs. EEC's initial goal was to eliminate tariffs among member countries by 1970. EEC is now ahead of the pace it set for itself and these tariffs may be completely removed by Jan. 1, 1967. As of July 1963, EEC had reduced its internal tariffs by 60%, two and a half years ahead of schedule. Another 10% cut is scheduled for this coming January; latest projections indicate that the remaining 30% will disappear by January 1967. Inevitably, these cuts will stimulate trade among EEC countries, probably at the expense of outsiders. Indica tions are that they already have. In 1958, when it first began to function, EEC intracountry imports accounted for only 30% of total imports. Last year, EEC increased its share to al most 40%. Intracountry imports of chemicals were 52% of total EEC chemical imports last year, compared with 44% in 1958.
Chemicals0 (millions of dollars)
EEC Pushes CXT
2,500
2,000
1,500
$1,384 1,000 H
$1,083
$1,3351 $1,37^
$1,1471 $1,331
500-
1958
1959
1960
1961
1962
1963
*1963 data are based on the SITC system; 1958—62 data are based on Section 8 data (Schedule A for imports, Schedule Β for exports.) For comparison, in 1962 chemical exports were $1,865 million and chemical imports were $512 million under the SITC system.
Another problem is EEC's CXT code, which looms as a higher tariff barrier to many U.S. companies, among them chemical companies. When complete, CXT will be the arithmetic average of the six national tariffs. But U.S. observers believe that EEC "is averaging on the high side/' They claim, for instance, that many Benelux tariffs, including some on chemicals, had been zero, but that they were assigned artificial rates of 12% to determine CXT. E E C count ers this charge by claiming that if straight arithmetic averages were used for other products—for example, cheese—the rates would be higher than they actually are now.
As the national tariffs are blended into CXT, some rates will naturally increase, others will decline. Ger many and the Benelux nations are the low-tariff countries within EEC; they are also among the best chemical cus tomers of the U.S. Hence, chemical exporters believe that their share of these markets will decline. The Brookings Institution has estimated that EEC would have to lower tariffs by 49% for inorganics, 50% for organics, and 6 3 % for miscellaneous chemicals for it to maintain the de gree of protection which the dominant supplying country granted to its pro ducers in 1960—indicative of the added protection which CXT affords.
U.S. Foreign Trade Reaches All Parts of the World (millions of dollars—1963) Imports Total Chemicals North America $5,330 South America 2,460 Europe 4,779 Asia 3,169 Australia and Oceania 498 Africa 772 Unidentified 6 Countries Totals" 17,014
Total
Exports Chemicals
Trade Balance Total Chemicals
$199 35 245 40 6 33 -
$ 5,694 1,825 6,969 4,742 522 987 2,183
$ 541 204 667 384 59 66 20
$ 364 -635 2,190 1,573 24 215 2,177
$ 342 169 422 344 53 33 20
558
22,922
1,943
5,908
1,385
'' Small discrepancies in totals are due to rounding. Source: U.S. Dept. of Commerce
E E C is also two and a half years ahead of schedule in adjusting to CXT. The conversion was 60% com plete on July 1, 1963, and the remain ing 40% adjustment is tentatively set for July 1, 1967, rather than some time in 1970 as originally planned. Before the Dillon Round began in 1960, EEC provisionally cut its antici pated CXT by 20%, expecting to re ceive reciprocal concessions from other nations. According to Mr. Marjolin, results of the Dillon Round weren't as good as EEC had hoped for; but EEC has maintained the tariff reductions anyway. In May, EEC decided that the pro visional 20% reduction will be re scinded Dec. 31, 1965, unless it re ceives reciprocal concessions from nonmember countries during the Ken nedy Round. As it stands now, E E C is 60% on the way to a CXT target which is 20% lower than originally in tended. However, the Committee for Economic Development (CED) notes that if E E C reverts to its original CXT goal the restrictions which Americans now feel CXT places upon their ex ports will be felt even more. CED has compiled an exhaustive comparison of U.S. and E E C tariffs. It concludes that differences between the two tariffs aren't large enough to have any serious effect on trade, as suming no drastic changes in present supply and demand conditions. CED has evaluated U.S. and E E C tariffs on the basis of unweighted av erages (simple averages of the tariff schedule) and weighted averages (ad justed for import volume at the tariff rate). The two methods yield differ ent results: • U.S. unweighted average tariffs (15.5%) are higher than those of E E C (12.8%) for manufactured and semimanufactured products. • On a weighted average basis for these same products, U.S. tariffs (7.8%) are still higher than E E C tar iffs ( 5 . 6 % ) . • For chemical and allied products, EEC's weighted average tariff (12.8%) is considerably higher than the U.S. tariffs ( 7 . 7 % ) . However, a study of U.S. un weighted chemical tariffs shows that they are slightly higher than similar E E C tariffs. The study, Atlantic Tar iffs and Trade, was made by Political and Economic Planning (PEP), a AUG.
24,
1964
C&EN
69
Plastics, Medicinals, and Organics Top Chemical Exports (millions of dollars—1963) e
SITC 512 513 514 515 521 531 532 533 541 551 553 554 561 571 581 599 n b
U.S. Trade Exports Imports Balance
Product Group Organic chemicals Inorganics—elements, oxides, and halogenated salts Other inorganics Radioactive and associated materials Mineral tar and crude chemicals from coal, petroleum, and natural gas Coal tar, dyestuffs, and natural indigo Dying and tanning extracts, synthetic tanning materials Pigments, paints, varnishes, and related materials Medicinal and pharmaceutical products Essential oils, perfume, and flavor materials Perfumery and cosmetics, dentrifices, and other toilet preparations (except soap) Soaps, cleansing and polishing preparations Fertilizers (manufactured) Explosives and pyrotechnics Plastics materials, regenerated cellulose, and artificial resins Miscellaneous chemicals Totals6
299 119
$ 95 70
204 49
61 3 65
54 45 35
7 -42 30
30 3
18 8
12 -5 42
47 269 52
48 35
221 17
18
10
56
54
98 14 309
78 11 14
20 3 295
499 1,942
32 558
467 1,384
Standard International Trade Classification. Small discrepancies in totals due to rounding. Source: U.S. Dept. of Commerce
U.S. Chemical Exports to Japan Exceed Imports U.S. Chemical Imports from Japan (U.S. Chemical Exports to Japan) U.S. Trade Balance
551
323 (4,507)
4,184
9,760 (34,821)
$25,061
553
129 (1.163)
1,034
513
8,221 (6,535)
-1,686
554
28 (3,248)
3,220
514
3,233 (4,305)
1,072
561
975 (10,947)
9,972
515
1 (207)
206
571
930 (26)
-904
521
340 (10,481)
10,141
581
2,696 (20,735)
18,039
531
16 (2,408)
2,392
599
265 (43,748)
43,483
532
1 (78)
77
124,610
393 (2,860)
2,467
32,648 (157,258)
541
5,339 (11,188)
5,849
C&EN
AUG.
SITC° 512
533
70
(thousands of dollars—1963)
$
2 4,
1964
Total Chemicals, Group 5 6
a Standard International Trade Classification. h Small discrepancies in totals are due to round in ii. Source: U.S. Dept. of Commerce
nonprofit organization in Great Britain. It indicates that virtually all unweighted chemical tariffs are lower in EEC than in the U.S. Exceptions are pharmaceuticals, fertilizers, and mineral tar crudes. CED says that in its study EEC tariffs may be understated. Most U.S. tariff assessments are based on foreign, or f.o.b. value (free on board). EEC assesses its duties on landed, or c.i.f. value (cost, insurance, and freight), which increases their effective rates by an estimated 10%. Other factors related to the base year of the study also make EEC's resulting tariff averages appear lower than they actually are. The Disparities
Issue
One thing that tariff averages don't reveal is the spread of tariff rates. And it is this difference in the spread or profile of EEC and U.S. tariff rates that presents Kennedy Round negotiators with their disparities problem. Although the average tariffs may be similar, CED's study shows that, compared with EEC, a larger proportion of U.S. tariffs are low (under 5%) and a larger proportion are high (more than 25%). CED also contends that when both rates are high, they are higher in the U.S.; and when both rates are low, they are lower here, too. Dr. Umbricht believes that one fourth of all U.S. tariffs are above 2 5 % - C E D says only 14.7% are-and that 40% of them exceed 20%. But to arrive at what he believes is the 15 to 16% average level, he admits that there must be many very low U.S. tariffs as well. EEC Commissioner Marjolin sizes up the disparities situation in a different manner. He claims that the U.S. Tariff Schedule has 524 rates between 25 and 30%, 386 rates between 30 and 35%, and 427 rates above 35% with some as high as 50%. On the other hand, Mr. Marjolin describes EEC rates as either low or moderately high with only 23 rates above 25% and only six above 30%. Most widely quoted figures indicate that the majority of EEC tariff rates lie between 10 and 20%. Both sides agree that special tariffcutting rules should apply in the Kennedy Round when sharp differences (disparities) in tariff rates exist. There is no agreement on these rules or, for that matter, on what constitutes a disparity. EEC suggests that a dis-
parity exists if the high rate is at least twice the low rate and there are at least 10 percentage points dividing them. This is the so-called 2-10 rule. Under these circumstances EEC believes that the high rate should be cut twice as much as the low rate. With this plan, if the U.S. cuts tariffs by 50 9r— the maximum allowable under the Trade Expansion Act—on disparity items, EEC would reduce its tariff by only 25% on the same item. The U.S. insists that simple mathematical computation isn't enough to define a disparity. Equally important is whether trade is actually restricted. It feels that the high rate may still allow significant imports while the low rate may actually restrict them. In these cases, a disparity shouldn't be claimed. The U.S. also would disallow a disparity claim if the low-tariff country produces little of the product or if a third-party country is the principal supplier. In the latter case, a disparity claim would help neither EEC nor the U.S., but would hurt the third country. Dr. Umbricht concurs. He, too, thinks that in the majority of likely disparity cases, special tariff treatment would benefit neither EEC nor the U.S. because the principal suppliers are third countries. Best guesses are that the disparities issue won't be settled until after the exceptions lists are exchanged at Geneva, probably on Nov. 16. EEC officials believe that the U.S. will place disparity items on its exceptions list,
Hooker Chemical's William Christopher
"Tariffs and quantitative restrictions, however, are only the most obvious means whereby governments may nowadays restrict trade, distort competition, and in particular protect home markets and industries'*
Otto B. May's Dr. Ernest May
"Tariff concessions by others will not increase our exports of dyes'*
and they feel that the issue can be more readily settled after the lists are presented. Although disparities are no easy problem for the bargainers, most observers believe that a compromise is possible. Costs and Wages Preparing for a round of international tariff cuts usually triggers a flood of comparative cost studies. The Kennedy Round is no exception. The only meaningful figures are prod-
Chemical Exports Helped the U.S. Maintain Its Favorable Trade Balance Last Year
SITC 0 1 2 3 4 5 6 7 8 9
a b
Product Food and live animals Beverages and tobacco Crude materials, inedible (except fuels) Mineral fuels, lubricants, and related materials Animal and vegetable oils and fats Chemicals Manufactured goods classfied chiefly by material Machinery and transport equipment Miscellaneous manufactured articles Commodities and transactions not classified according to kind Totals0
Standard International Trade Classification. Small discrepancies in totals are due to rounding. Source: U.S. Dept. of Commerce
(millions of dollars) U.S. Trade Exports Imports Balance
$ 3,570 531 2,472
uct-by-product comparisons of total production costs. But these are difficult to obtain—often impossible— without revealing proprietary information. Consequently, these studies more often than not compare national averages or industry averages at best. Their drawback, of course, is that averages often conceal more than they show. Differences in range, differences in labor skill, differences in types of industries and technology lie buried beneath the surface of the study. Although they have shortcomings, such comparative studies are often all that is available and are used enthusiastically by protectionists and freetraders alike to prove their respective points. Out of the volumes and variety of statistics compiled, several points emerge:
$ 3,399 440 2,820
$ 171 91 -348
946
1,883
-937
320 1,943 2,714
103 558 4,095
217 1,385 -1,381
8,179 1,633 615
1,788 1,379 549
6,391 254 66
• Foreign manufacturing costs are generally lower than those in the U.S. But for some products, they are higher.
22,922
17,014
5,909
• The U.S. technological advantage still exists, but is gradually becoming slimmer.
• Foreign Europe and than those in started from they are still in the U.S.
AUG.
wages, particularly in Japan, are rising faster the U.S. But they have a much lower base and much lower than those
24, 1 9 6 4
C&EN
71
At the State Department (Washington, D.C.) in March of this year preparations for the first session of the Kennedy Round of tariff negotiations held in May at Geneva (Switzerland) were made by (left to right) Robert Marjolin, vice president of the
In its study, "Costs and Competition," the National Industrial Conference Board (NICB) finds that manufacturing costs in the chemical industry world-wide are lower than in the U.S. in 50% of the cases. However, 36% of the time foreign costs are higher than U.S. costs, primarily because of higher raw material costs. Although it doesn't have equivalent statistics for the chemical industry, NICB finds that on an all-industry basis E E C costs are higher than U.S. costs 27% of the time; the reverse is tine in 64% of the cases studied. Again, the reason for the higher EEC costs is more expensive raw materials. When E E C costs are lower, it's usually because of the labor element.
EEC Commission, Gov. Christian A. Herter, U.S. Special Representative for Trade Negotiations, Jean Rey, EEC Commissioner for External Relations, Dean Rusk, U.S. Secretary of State, and Sicco Mansholt, vice president of the EEC Commission
Critics of the NICB study say that it included in its foreign averages the many uneconomical, shoestring plants. If the study were weighted for modern plants, where output competes with U.S. products on the international market, U.S. and foreign production costs would be similar, these critics claim. Of all the cost comparisons presented, argued, debated, and rebutted, labor costs—wages and salaries—stand out. This is because statistics on labor costs are usually more readily available than data on other costs, and are more precise and less ambiguous than other data. But they are not perfect. They, too, suffer the shortcomings of averages, and they lead to different
U.S. Dye Exports Shrink as World Markets Grow (millions of dollars) U.S. Dye World Dye U.S. Dye Exports Exports Sales
$ 148.0 190.8
1947 1950 1955 1960 1961
$77.5 39.2 18.9 17.9 19.9
$ 119.3 166.0 203.5
1962
20.9
311.1
227.2
1962e
17.8
311.1
227.2
293.6 309.6
183.6 192.1 213.0
« Without AID. Sources: SOCMA; U.S. Dept. of Commerce; U.S. Tariff
72
C&EN
AUG.
2 4, 196 4
U.S. Dye Exports as Per Cent of World Dye U.S. Dye Sales Exports
65.0% 23.6 9.3 6.1 6.4 6.7 5.7 Commission
52.4% 20.5 10.3 9.3 9.3 9.2 7.8
conclusions, depending upon the source. Protectionist elements within the chemical industry have relied heavily on the argument that foreign wages are lower than U.S. wages. And to arguments that foreign wages are rising faster, they reply that it will probably take at least 30 years before they become equivalent. The principle of gradualism, they contend, doesn't help the high-cost producer during the transition period. Europeans argue that when U.S. protectionists make cost comparisons they overevaluate wages as a cost factor and usually overlook many of the fringe benefits that European companies have to pay. Such fringe or social costs often run from 30 to 50% of total wages in E E C countries. In a highly capitalized industry such as chemicals, say the Europeans, production rate and not wage rate is the more important. To prove its point, Verband der Chemischen Industrie, e.V. (roughly the West German equivalent of MCA) says that dollar sales per employee range from $20,000 to $27,000 for six leading U.S. chemical companies. The equivalent figures for three German chemical giants are only $12,000 to $14,000. U.S. chemical leaders concede the accuracy of the figures, but argue that they don't prove
anything. The important relationship between sales and employees, they say, is compensation per sales dollar. As compiled by Du Pont's treasury division, this amounts to an average of 29 cents for three leading U.S. companies and 24 cents for two major West German companies. NICB findings lend support to the European view that wages are overemphasized. It says that labor represents 12% of total unit cost in EEC versus 18% in the U.S. on an all-industry average. But, Dow's Dr. Lloyd says that this approach only considers direct labor costs. If the labor costs involved in plant design, plant construction, and purchased equipment are taken into account, then labor is easily recognized as a critical cost element, he says. In the benzenoid chemical industry, SOCMA believes that manpower costs represent a large percentage of total production costs. Here are SOCMA's figures: 39% (all benzenoids), 4 1 % (batch-processed intermediates), 22% ( continuous-processed intermediates ), 37% (rubber processing chemicals), 47% (all dyes), and 48% (vat dyes). The arguments and rebuttals are endless. Most of them are little more than generalities.
can cynic, a discriminatory act that hurts one industry, but benefits another one even more, will be judged allowable. American companies feel that foreign cartels put them at a disadvantage. The Nitrex cartel, formed two years ago by ammonia producers of several European countries, has blocked U.S. companies from its markets, say American producers. These national or international cartels make it possible to cut production costs by rationalizing production. And even our Webb-Pomerene Act, which permits an industry to export its product through a single agent—such as the four U.S. Frasch sulfur producers do through Sulphur Export Corp.— doesn't compensate for this foreign advantage. However, Europeans emphasize that they are working hard to eliminate restrictive business practices. E E C has established an office to reg-
Wages and Salaries: They are still low overseas, but are growing faster than in the U.S.... All Manufacturing Average Hourly Earnings of Males and Females (U.S. dollars)» Per Cent 1957 1963 Increase
Cartels Hinder US. Trade Few protectionists fail to include antitrust in their arguments. They point out that there are many basic differences between our Federal Government and foreign governments in their attitudes toward monopolies, industry concentration and structure, public ownership, subsidies, and acceptable business practice. Most of these differences, they contend, are detrimental to the American businessman in international trade competition. Our Sherman Act, Clayton Act, Federal Trade Commission Act, and Robinson-Patman Act spell out antitrust quite differently than does EEC's Rome Treaty. U.S. laws prohibit certain trade practices per se; the Rome Treaty prohibits them unless they benefit commerce. To be forbidden under Article 85 of the Rome Treaty, a transaction must hurt trade between E E C member countries, or prevent, distort, or restrict competition within EEC. The treaty's Article 86 adds the limitation that an act must be an abuse of a dominant position. In other words, according to one Ameri-
ister cartels, price arrangements, area arrangements, and other restrictive practices. So far 35,000 such arrangements have been registered. But one critic wonders what this office, with only 75 people to man it, can do about these 35,000 cases other than simply record their existence. Too, most of these 35,000 cases involve licensing rights. EEC recently scored its first success in the antitrust field. It broke up an arrangement between 30 ceramic tile manufacturers and 900 retailers to control the market for bathroom tile in Belgium. Switzerland, a member of the European Free Trade Association ( E F T A ) , just passed a restrictive practices law. Swiss industry is one of the most cartelized in the world. But the new law doesn't prohibit cartels; it is merely directed at their abuses. However, cartels don't even have to be registered under the new law.
United States France Italy West Germany Netherlands United Kingdom Japan Switzerland
$ 2.05 0.33 0.33 0.52 0.41 0.76 53.25* 95c
$ 2.46 0.54 0.53 0.87 0.64 1.03 83.50" 12lM
20% 64 61 67 56 37 57 27
Chemical Industry Average Hourly Earnings of Males (U.S. dollars)0 Per Cent 1957 1962 Increase $ 2.20 0.46° 0.36e 0.59 0.51 0.84 63.28* 0.73 /
$ 2.65 0.69e 0.49e 0.91 0.73 0.98 94.05* 0.97 /
Note: The above figures normally exclude social insurance contributions family allowances, and other social security benefits.
20% 50 36 54 43 17 49 33
paid by
employers,
a
Converted from national currency. Monthly earnuigs; average. Wage index (1958 = 100). d 1962 figure. e Average for male and female workers. f Skilled labor. h
c
.however, Europeans say that wages are actually higher than U.S. businessmen think because of social charges Chemical Industry Average Hourly Labor Costs in EEC Countries—1962 (U.S. dollars) Direct Wages Social Charges Totals France Italy West Germany Netherlands Belgium Note:
$0.68 0.44 0.86 0.73 0.67
$0.55 0.44 0.52 0.37 0.32
$1.23 0.88 1.38 1.10 0.99
Based on 1961 data and adjusted by estimated annual increases for each
Sources: Studies
International Labour Office; French National Institute
AUG.
country.
of Statistics and
24,
1964
Economic
C&EN
73
All Products > .·;.·„ Over-All U.S. Trade Balance with 5,000 EEC Grows More 4,000 Favorable, Chemicals Hold Steady 3,000-
'N /;'"
SIS Trade Balance
2,000-
ilnHcrS^
SU98H $1,32811 $1,18T|
$1,433
s7(>7
Exports Imports
Source; U.S. Dept. of Commerce
Dyemakers
1958
Fight Hard
Among U.S. chemical companies, producers of dyes and dye intermediates make as strong a use of the cartel argument as anyone. The dye industry, in Tariff Commission and TIC hearings, argued vehemently that it requires and deserves tariff protection. In fact, some executives believe it may have injured itself by overstating its case. Others feel that as a result of the arguments, dyes stand a good chance of making the exceptions list. Many dye producers testified individually. But outstanding spokesman for the dye industry as a group was Dr. Ernest M. May, chairman of SOCMA's dyes taskforce subcommittee and president of Otto B. May, Inc., dye-making subsidiary of Cone Mills. He pictures the U.S. dye industry as a low-profit industry, with profits averaging 4 to 5%> of sales after taxes. These figures are based on results of a confidential survey, but some dye importers doubt that profits within the domestic dye industry are anywhere near that low. Fighting the possibility of the maximum 50c/c tariff reduction, Dr. May contends that a 10% cut in tariffs on dyes would place domestic producers at the break-even point. Larger reductions would put some of them out of business. 74
C&EN
AUG.
24,
1,000-J
1964
1959
1960
But SOCMA says that the structure of the U.S. dye industry is vastly different from that of European and Japanese dye industries. Basically, the difference lies in foreign cartels. In the U.S., there are 45 dye producers, according to SOCMA. Five of them include their dye units as part of chemical complexes; eight others are large chemical companies whose dye units aren't integrated into a chemical complex. The rest are small dye companies. In addition, SOCMA includes in its list the U.S. subsidiaries of six of the world's largest dye producers: Farbwerke Hoechst, Badische Anilin- & Soda-Fabrik, Imperial Chemical Industries, Geigy, Sandoz, and CIBA. These subsidiaries enable the parent company to ship intermediates, dutiable at 2 5 % , into the U.S. where they are converted into finished products which, if imported, would be dutiable at an average rate of 4 0 % . Cartels, says SOCMA, make it possible for foreign dye makers to rationalize production—concentrating it in a few companies with little or no duplication of product lines. Dr. May estimates that four producers have 9 5 % of the dye business in West Germany. In France, one producer controls 90%; in Switzerland, three producers control 9 2 % ; in the U.K., one producer controls 70%; in Japan, five
1961
1962
1963
producers control 80%; and in Italy, one producer controls 70%. Nine European companies, according to SOCMA, produce about $400 million worth of dyes annually. Foreign-owned subsidiaries in the U.S. add another $50 million. By contrast, the 41 U.S.-owned dye companies produce an estimated $175 million. Rationalization of the dye industry gives foreign producers the advantage of volume production. Dr. May believes that if U.S. producers operated under the same circumstances they could cut costs by 2 5 % . And because the total cost of U.S. production includes a high labor content (estimated at up to 5 0 % ) , low foreign wage rates increase the competitive edge of the foreign dye makers. Japanese dye makers operate within a legalized cartel. Toshio Kojima, secretary of the Fair Trade Commission, said, "A restrictive cartel governing synthetic dyestuffs was approved on Aug. 1 of this year [1961]. This cartel will carry out the establishment of agreements in production areas and the coordination of production standards simultaneously." But Carl W. Kuhl, II, president of Carbic-Hoechst (U.S. subsidiary of Farbwerke Hoechst), says that the European dye industry, particularly in West Germany, is much more competitive than Americans make it out to
Chemicals
stresses that most of the exports were specialty products on which the U.S. holds a patent position or technological lead; but Mr. Kuhl says this is true of imports, too. SOCMA's figures also indicate that although U.S. dye sales and the world market have increased, our actual dye exports and their share of the world market have declined substantially. According to SOCMA, we exported $77.5 million worth of dyes, or 65% of the world's exports in 1947. In 1962, this volume had shrunk to $17.8 million, accounting for only 5.7 % of world-wide exports.
.militons of dollars'*-
4
3
$268
$27( 2
$263 I
$262 I
$174
ASF—The Big Issue
1
1959
1960
1961
be. And it is becoming more competitive, especially in fiber-reactive dyes. Mr. Kuhl says, "As EEC progresses, it will become more and more like the U.S. in degree of competitiveness." Foreign producers point to the favorable balance of trade (exports exceeded imports by $1.4 billion last year) which U.S. chemicals enjoy; and they say this is evidence of American competitive ability. Even in the dyes group, exports surpass imports.
1962
1963
Exports of SITC group 531 (synthetic organic dyestuffs, natural indigo, and color lakes) amounted to $30 million in 1963. Imports within the same group were $18 million, giving the U.S. a $12 million favorable trade balance in dyes alone. SOCMA data tell a different story. They show that 1962 imports of dyes and intermediates were $40 million (based on American selling price) while exports were only $22 million (also on an ASP basis). SOCMA
EEC's Exports and Imports Are Greater than Those of the U.S. Imports—millions s—millions of dollars (Exports—millions s—millions of dollars) EEC Countries All Products Chemicals
1958
$ 6,800 6,800 (6,900) 8,100 (8,200) 10,200 (10,200) 11,700 (11,900) 13,400 (13,600) 15,700 (15,900)
1959 1960 1961 1962 1963 Source*
EEC
$ 486 (468) 585 (574) 746 (708) 840 (807) 947 (914) 1,131 (1,101)
Other Countries All Products Chemicals Products Chemicals $ 16,200 (15,900) 16,200 (17,100) 19,400 (19,500) 20,500 (20,400) 22,300 (20,600) 24,600 (21,600)
$
614 (1,574) 680 (1,786) 907 (1,998) 909 (2,157) 947 (2,201) 1,070 (2,422)
!
Totals Totals All Products Products Chemical Chemicals $23,000 (22,800) 24,300 (25,300) 29,600 (29,700) 32,200 (32,300) 35,700 (34,200) 40,300 (37,500)
$ 1,100 (2,042) 1,265 (2,360) 1,653 (2,706) 1,749 (2,964) 1,894 (3,115) 2,201 (3,523)
The dye industry is also in the middle of the controversy over American selling price. No other aspect of tariffs has received more attention from the chemical industry than has ASP; nor has any other U.S. restrictive practice been under more attack by the Europeans, particularly the West Germans. In Tariff Commission and TIC hearings early this year, in subsequent fact-finding meetings with other government agencies, in public speeches, and in continuing propaganda campaigns, ASP has been depicted as the virtual saviour of the chemical industry on the one hand and as a most unfair and restrictive handicap for importers on the other. Despite all that has been said about ASP, relatively few people in or out of the chemical industry really understand it. In their attempts to support their own positions, both opponents and proponents of ASP omit as many significant facts as they include. ASP has been attacked and defended on the basis of economics, on the basis of legality, and on the basis of simple practicality as a customs procedure. The battle will be decided—temporarily, at least—by the President (or the office of his Special Representative for Trade Negotiations). The final decision, however, may eventually be made by the Supreme Court or Congress. Just what is ASP? Simply, ASP is a system in which the duty on a foreign import is calculated on the selling price of a similar American product rather than on the value of the imported product. The Customs Simplifications Act of 1956 defines ASP as the price at which comparable and competitive products manufactured in the U.S. are ". . . freely sold, or, in the AUG. 24, 1964 C & E N
75
Du Pont's Dr. Crayton Black
"There is no alternative to American selling price which would give us the same type of protection"
Monsanto's Myron Foveaux
"We can show that U.S. tariff reductions have afforded new opportunities for the foreign chemical industry to share in U.S. markets"
76
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absence of sales, oilered for sale for domestic consumption in the principal market of the United States ASP is not new. It has been around since 1922 and was applied originally to coal tar chemicals. Under the Tariff Classification Act of 1962, coal tar chemicals have been rechristened as the benzenoid segment of the synthetic organic chemicals industry. Now, imports of a few other products, such as rubber footwear, inexpensive gloves, and canned clams, are also assessed under ASP. Joseph F. Donohue, attorney for the National Council of American Importers (NCAI), says that ASFs only statute purpose is to protect the U.S. chemicals and dyes industries. He claims, "Any other use is extraordinary, unusual, and virtually an emergency." The birth of ASP is an important part of American chemical history. Before World War I, the U.S. depended entirely on Europe—particularly Germany—for its supplies of dyes, pharmaceuticals, and other organics. The Allied blockade choked off these supplies. Realizing that the U.S. needed its own organic chemicals industry and that such an infant industry would require tariff protection, President Woodrow Wilson urged Congress to give the chemical industry special consideration. The House Ways and Means Committee responded by placing ASP in the Tariff Act of 1922. Europeans argue that today the chemical industry is no longer an infant, that it is a $35 billion giant and the most efficient in the world. It no longer requires the protection of ASP. U.S. chemical executives concede that, indeed, many segments of the chemical industry have matured. But, they add, these segments are characterized by automation, and large-volume, lowcost products with low labor content. However, there are other segments of the chemical industry still using batch processes; these segments have high labor costs and require ASP protection. This is particularly true of the dyes and intermediates producers, whose outspoken champion is SOCMA. Without careful analysis, both arguments easily lead to false impressions. One false impression is that all chemical imports are subject to ASP. Another is that ASP applies only to batch-produced chemicals. In 1963, $43.6 million worth of chemical imports that are subject to
ASP were brought into the U.S. This is only 7.8% of the $558 million of chemical imports that year. Further, the $43.6 million chemical imports represent all those chemicals which could have been evaluated under ASP. However, not all of them were. Actually, only $21.2 million worth of chemical imports were considered to be competitive with similar American products and were thus assessed under ASP. The remaining products, worth $22.4 million, were assessed on the basis of foreign value, export value, U.S. value, or some other basis. Thus, of total chemical imports in 1963, only 3.8% of them were dutiable under ASP. ASP doesn't confine itself to lowvolume, high-cost chemicals as its proponents suggest. Also subject to ASP are such products of automated plants as phenol, phthalic anhydride, styrene, and ethylbenzene. Tariff on phthalic anhydride is a specific (fixed) rate of 2.4 cents per pound plus 14% of ASP. Based on a U.S. list price of 12 cents per pound for bagged phthalic anhydride, the duty is 4.1 cents, equivalent to a rate of 34% of American list price. Similar calculations for styrene yield a tariff rate of 47%. Presumably, though, imported prices would be lower than U.S. list prices, in which case the resulting effective rate of duty would be even higher. Most benzenoid chemical imports carry a specific duty plus an ad valorem rate dutiable under ASP. For most intermediates, the ad valorem rate is 2 5 % ; for dyes and other finished products, it runs about 4 0 % . The net result, say the Europeans, is that the selling price of imports in the U.S. is often two or three times the foreign invoice value. U.S. benzenoid chemical producers, outlining their continued need for ASP protection, rely heavily on such arguments as the labor-cost differential between U.S. and foreign countrieslabor costs for organic chemicals in the U.S. are three to six times what they are overseas, they claim. And they make frequent reference to the cartelization or rationalization of dyes and intermediates production abroad (U.S. antitrust laws prevent rationalization of U.S. output, which would result in an estimated 2 5 % cost saving, according to Dr. May). Not unlike other U.S. industries, the benzenoid chemical industry lays claim to being a vital part of the de-
fense effort and, more recently, the space effort. However, in other ways, it believes it's unique. Although benzenoid sales account for only 10% of total U.S. chemical sales, their producers maintain that they are a vital part of an endless list of other products. Plastics, rubber chemicals, fibers, paints, dyes, and synthetic detergents are only a handful of such products which depend on benzenoids. The benzenoid industry, say its members, is the fountainhead of much chemical research. SOCMA calls it "the seedbed of new inventions." Dr. May describes a dye plant as little more than a "pilot plant for introducing new benzenoid products." The basic picture which the dye chemical industry paints of itself is one of "perpetual infancy." Today, as well as in post-World War I days, it argues that the industry requires and deserves the protection of ASP. If imports first capture a larger share of the domestic benzenoid market, these imports will then be able to capture a larger share of the domestic market for all chemicals. Benzenoids , "product interdependence makes many products vulnerable to an attack upon a few," says SOCMA. The Europeans, of course, don't buy this picture, and press their attack upon ASP. Verband der Chemischen Industrie, e.V., which prepared a pamphlet, "Trade Expansion Act, Yes—American Selling Price, No," and the organic chemicals group of the National Council of American Importers (NCAI), a U.S. organization that lists among its members several U.S. subsidiaries of European companies, are the most outspoken critics of ASP. In Europe, although several countries are massing to fight ASP, it's evident that West Germany is leading the struggle. Critics discredit the thought that without ASP the U.S. benzenoid industry will be hurt. Carbic-Hoechst's Mr. Kuhl, whose company both imports and produces dyes and intermediates in this country, concedes that his company would like to import more products which are competitive with American products. ASP prevents this. ASP opponents also claim that the system denies them the right to import many new products which aren't now available to the American market. As soon as an importer develops a U.S. market for a new foreign product,
Less Than 10% of All Chemical Imports Can be Assessed by American Selling Price Total Foreign Invoice Value of Imported Coal Tar Chemicals (thousands of dollars) Coal tar intermediates Finished coal tar products Dyes Pigments Medicinal and pharmaceutical Flavor and perfume Miscellaneous Totals (finished) Totals (finished and intermediates) Total Chemical Imports 0
1960
1961
1962
1963
$11,500
$12,300
$14,100
$16,685
7,600 600 10,400 1,200 2,500 22,300 33,800 353,000
11,100 800 10,900 1,300 1,900 26,000 38,300 390,000
11,000 1,100 8,800 2,200 1,800 24,900 39,000 417,000
11,208 615 10,150 2,863 2,087 26,923 43,608 558,000
" 1.963 data are based on the Standard International Trade Classification system; 1960-62 data are based on Section 8 data (Schedule A). For comparison, in 1962 chemical imports were $512 million under the S1TC system. Source:
U.S. Tariff
Commission
U.S. producers can grab the market by setting the price of a similar product so high that the ASP-based duty on the import will price the new item out of the market. NCAI's organic chemicals group says that domestic production has increased substantially and that imports have dropped off for many benzenoid products. It has compiled a long list to support its case. Often, says the group, imports' share of the domestic market is so low (ranging from fractions of 1% to 3 to 4% that there exists an "unhealthy situation." SOCMA, of course, has equally long lists of products which indicate that imports represent a dangerously high share of the domestic market (up to 85% for gamma acid, for example). Importers claim, too, that U.S. chemical companies' fear of an im-
pending price war is unfounded. It's not the importers' intent to lower prices, they say. Rather, without ASP, their present low profit margins would be improved and this would enable them to engage in sorely needed market development and technical service. Two other circumstances limit the growth of imports even if ASP were abolished, claim its opponents. One is that customers seldom rely on imports as their sole source of supply— or even as their major source. (U.S. companies say they can cite many items, among them indigo dyes, of which imports are the lone source of supply.) What's more, many foreign companies have reached their practical export limit. For some, exports account for 30 to 50% of total sales already. These companies would rather
Not All Chemical Imports Are Assessed by the American Selling Price In 1963 only $43.6 million worth of imports could have been assessed by ASP; only $21.2 million worth were so assessed, however Foreign Invoice Value of Imported Coal Tar Chemicals (thousands of dollars—1963) Competitive; Based on
Coal tar intermediates Finished coal tar products Dyes Pigments Medicinal and pharmaceutical Flavor and perfume Miscellaneous Totals (finished) Totals (finished and intermediates) Source:
U.S. Tariff
Noncompetitive; Based on Competitive Foreign or Status Export Not Determined Values
ASP
Noncompetitive; Based on U.S. Value
$10,799
$ 2,133
$3,639
$114
$16,685
2,926 240 3,469 2,840 972 10,447 21,246
8,143 369 850 2 678 10,042 12,175
18 6 5,813 20 432 6,289 9,928
121 nil 18 1 5 145 259
11,208 615 10,150 2,863 2,087 26,923 43,608
Totals
Commission
AUG.
2 4, 196 4 C & E N
77
U.S. and EEC Chemical Tariffs—what they are depends upon how you look at them Weighted and unweighted averages lead to different conclusions Weighted Tariffs» Brussels Tariff Nomenclature
Section VI Chapter 28 Chapter 29 Chapter 30 Chapter 31 Chapter 32 Chapter 33 Chapter 34 Chapter 35
Unweighted Tariffs Average Weighted Tariff6 (Per Cent) U.S. EEC
Product
Chemical and allied products Inorganic chemicals Organic chemicals Pharmaceutical products Fertilizers Tanning and dyeing extracts, tannins Essential oils and resinoids, perfumery Soap, organic surfactants, waxes Albuminoidal substances,
glues Chapter 36 Explosives, pyrotechnics Chapter 37 Photographic and cinematographic materials Chapter 38 Miscellaneous chemical products Section VII Resin and plastic materials Chapter 39 Artificial resins and plastic materials Chapter 40 Rubber, synthetic rubber
7.7% 4.6 16.7 14.8 0 18.8
12.8% 8.0 14.6 19.2 2.6 15.6
8.2
8.9
13.0
16.2
5.4
8.9
24.5 8.8
16.2 16.0
10.6
11.2
2.4 23.3
5.9 19.6
1.5
1.7
Standard International Trade Classification
Product
Inorganic chemicals Organic chemicals Medicinal and pharmaceutical products Fertilizers (manufacture) 561 Dyeing and tanning extracts, 532 synthetic tanning materials Essential oils, perfumes, and 551 flavor materials 591 Explosives Miscellaneous chemicals 599 599.01 Synthetic plastic materials in primary form 521 Minéral tar and crude chemicals from coal, petroleum, and natural gas 531 Coal tar, dyestuffs, and natural indigo Pigments, paints, varnishes, 533 and related materials Perfumery, cosmetics, soaps 552 511 512 541
Note: Standard International Trade Classification is listed to correspond as closely as possible with the Brussels Tariff a Tariffs weighted by own imports by the Committee for Economic Development. b U.S. averages are weighted by 1960 imports; EEC averages are weighted by 1959 imports. c Amounts of imports in each category aren't considered. Sources: Committee for Economic Development; Chase Manhattan Bank; Political and Economic Planning (U.K.)
not see exports' share become higher. But these exercises in comparing the relative economic aspects of the domestic industry and imports amount to little more than supporting evidence in the ASP fight. The two important points of contention involve the application of ASP as it is now practiced and the question of whether Gov. Herter's team has the legal authority to negotiate ASP at Geneva. Basically, U.S. benzenoid producers say that ASP works. All too often, they add, European pricing practices make it difficult or impossible to obtain true foreign value on which to assess duty. An ASP for similar domestic products is the only alternative. Mr. Kuhl claims, though, that the point holds true for any product in the Tariff Schedule. Europeans claim that ASP doesn't work. It's too difficult to determine in advance the competitive status of a product. Imports slated for one specific purpose can be—and often a r e declared competitive with a domestic product intended for an entirely different use, or with a domestic product of an entirely different chemical composition. Frequently, when what is thought to be a noncompetitive prod78
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1964
uct is placed aboard ship in Europe, a competitive U.S. product is found for it by the time the ship arrives in port. Anticipated profit margins disappear when the product is switched from noncompetitive to competitive status. Imported products are also at a disadvantage because the competitive ASP is usually the list price of the American product. Not considered, say the Europeans, are volume discounts or other below-list selling which prevail in the domestic market. The U.S. Customs Bureau is caught in the middle of the controversy. It is sniped at from both sides and is, as one importer sympathetically describes it, "in an impossible situation." SOCMA, acknowledging that there may well be justifiable complaints against administrative procedures, has offered to cooperate with Customs and has made several recommendations. One is that U.S. producers should file quarterly with Customs the prices at which they transacted business or lose the benefit of ASP protection. This proposed requirement could prevent duty assessment on higher than actual selling prices. Another SOCMA suggestion is that
Average Unweighted Tariff 0 (Per Cent U.K. U.S. EEC
14% 33 12
11% 15 15
14% 27 17
2 33
4 7
16 7.5
27
10
15
17 19 25
15 13 16
17.5 11 15
3
4
10
81
15
21
26
16
16
20
18
12
Nomenclature.
Customs should set in advance (30, 60, or 90 days) the competitive status of products to prevent that status from being changed after the importer has made a firm contract. Finally, SOCMA proposes the establishment of an impartial arbitration board of experts to determine the competitive nature of imports. Mr. Donohue calls these administrative problems real but secondary. "The principal objection to ASP," he says, "is that on average, it doubles the rate of duty on the products to which it applies and when it [ASP] does work, it frequently creates an embargo." The Legal Battle The most difficult question about ASP is a legal one. The position of U.S. benzenoid producers is that ASP is a statute placed into the law by Congress and that the President or his representatives has no authority to negotiate it. Representative William T. Cahill (R.-N.J.) summed up SOCMA's attitude in a speech before the House of Representatives when he said, "American selling price is not up for grabs and any thought of its aboli-
tion should be a matter of serious consideration." Like SOCMA, NCAI's organic chemicals group has presented to Gov. Herter a brief outlining its legal opinion of ASP. Contrary to what some ASP supporters believe, the brief does not seek to eliminate ASP as a statute. It does, however, contend that the President has the power to modify ASP; and it suggests that one way to modify ASP is to suspend the statute. Actually, attorney Donohue and his clients believe that ASP is a "bad law" and should be eliminated eventually as a statute. But they don't think that now is the time. NCAI's legal contention is that duty has two parts—an assessment rate and a base on which that rate is assessed. The Trade Expansion Act limits the power of the President to decrease duty rate by no more than 50% of the rate existing on July 1, 1962. It also gives him authority to modify duty, but not rate of duty, as he deems reasonable. The President's authority to suspend ASP is incident to his power to modify it, claims NCAI. Since he can modify existing duty for purposes expressed in the act by any reasonable method, such a method could well be the suspension of an existing value standard, which is essentially what ASP is by definition. In addition, Europeans claim that ASP is a violation of Article VII, section 2 (a) of GATT. The section reads: "The value for customs purposes of imported merchandise should be based on the actual value of the imported merchandise on which the duty is assessed, and should not be based on the value of merchandise of national origin or on arbitrary or fictitious values." ASP opponents say that as a contract ing party to GATT, the U.S. should
Range of U.S. and EEC Tariff Rates The U.S. has more lower tariffs and more higher tariffs than does EEC Imports Range of Tariff Rates
Oto 5% 5 to 25% Over 25% Source:
Committee
Per Cent of All Rates Lying Within Range U.S. EEC
26.6% 58.7 14.7 for Economic
...but there are many ways to figure them
How Computed » Weighted by own imports Unweighted by imports Weighted by reverse imports Weighted by combined imports a
16.2% 80.2 3.6
Average Tariff* (per cent) U.S. 7.7% 11.6 14.9 10.5
Brussels Tariff Nomenclature Chapters 28 to 38 (chemicals), * Weighted by 1960 U.S. imports; 1959 EEC imports. Source: Committee for Economic Development
EEC 12.8% 12.8 9.7 11.5
57.4% 36.3 6.3
46.3% 50.1 3.6
Development
comply with this article. Other legal experts counter that under the Protocol of Provisional Application, ASP doesn't violate the GATT article because ASP predates GATT. Whether ASP will be negotiated hasn't been decided yet—at least not publicly. One side claims that "it has it on good authority" that ASP will be negotiated; the other side has it on equally good authority that ASP won't be negotiated. No one will know officially, except government officials, until the bargaining begins in Geneva. Perhaps not until after it ends. "Like any good poker player," says one government official, "we don't intend to tip our hand." Only two things appear certain. First, Europeans will insist that ASP be included in the negotiations. Says one German chemical leader, "The idea of walking out [of GATT if ASP isn't negotiated] is not dead." At an EEC meeting on June 16, it was unanimously agreed to push for removal of ASP. An EEC official, instructing his negotiators to make a strong fight against ASP, declared: "We think the American chemical industry can stand a little competition. We don't think it's necessary for the nation with the biggest and most advanced chemical industry in the world to hide behind a Chinese wall."
U.S. and EEC Tariffs on Chemicals Can Be Compared . . .
1
of Commodities Subject to Tariffs as Per Cent of All Imports U.S. EEC
The second certainty is that if ASP is placed on the bargaining table, lawsuits will follow automatically. SOCMA's board of directors has already indicated the possibility of litigation. Many Other Barriers However, ASP is only one practice which Geneva negotiators may lump into one bargaining category called nontariff barriers. A nontariff barrier is actually a catch-all term for a multitude of trade-restrictive practices that aren't actually tariffs. There are many foreign nontariff barriers which Americans object to; there are several U.S. tactics which Europeans dislike. Eliminating nontariff barriers will be just as difficult and just as important a task for GATT bargainers as reducing tariffs. Perhaps more so. Many American businessmen, chemical executives included, believe that tariff cuts are academic. Compared with nontariff barriers, tariffs offer only slight restrictions to international trade. They feel that nontariff barriers provide countries with the real means of regulating imports. EEC president Walter Hallstein apparently agrees. He says, "Tariff. . . restrictions, however, are only the most obvious of the means whereby governments may nowadays restrict trade, distort competition, and, in particular, protect home markets and industries. [Various nontariff barriers] have the same effect." Nontariff barriers take many forms and many names. Quotas, for instance, are one way of limiting imports. But William Christopher, director of marketing for Hooker Chemical, says that although a few examples still remain, quantitative restrictions no longer threaten U.S. exports to Europe. Typical of those which do hamper chemical exports, however, AUG.
24 f
1964
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are quotas which Italy imposes upon tetraethyllead and other antiknock compounds. It's not overlooked by other nations that the U.S. has quota restrictions, too. We have quotas on crude petro leum, lead, and zinc, for example. Foreign taxes and border tax ad justments particularly irk U.S. export ers. These taxes, which may be as high as 2 5 % , usually have a cascad ing effect on the fees which exporters must pay to gain entry to a country. Here's how cascading works: Tariffs or duties are paid on the c.i.f. value of the product. Then taxes are assessed on the duty-added value of the prod uct. Such taxes have a variety of names—transactions tax, sales or turn over tax, stamp tax, equalization tax, import tax, compensation tax, admin istration tax, or, merely, trading tax. According to Mr. Christopher, the net result of these taxes, whatever their names, is to push the final retail price of many products shipped over seas to two and a half to three times that of the U.S. price. Equally im portant, nations can increase these tax barriers with immunity from require ments for tariff negotiation or reci procity. Overseas, many so-called sole im porters of American products are targets of discriminatory taxes. The sole importers are usually wholly owned subsidiaries of U.S. compa nies, exclusive agents, or distributors. These taxes have been dubbed the uplift tax or penalty duty. At issue is the definition of value. Disputes are settled, item by item, in the courts and by the customs authorities of each
nation. Americans hold that settle ment of disputes favor home industry. American exporters even consider freight rates to be a discriminatory, nontariff barrier. Typically, rates are lower on products shipped from Eur ope to the U.S. than rates on similar products shipped from the U.S. to Europe. They are often twice as high, sometimes three times as high, for many chemical commodities. The same discriminatory situation exists in the freight rates between the U.S., individual European countries, and third countries. These discrimina tory rates are set by the 100 foreign shipping conferences which handle U.S. trade. The conferences make up their membership from 24 American flag lines and 270 foreign flag lines. Europeans are equally disturbed about a number of nontariff barriers which they find in the U.S. Quota restrictions are only one. In June, when E E C ministers gave the commis sion authority to discuss nontariff bar riers at Geneva, they put top priority on those U.S. nontariff barriers that particularly irk European business men. Our practice of national prefer ential purchasing—the Buy American Policy—probably antagonizes them more than anything except ASP. Under the Buy American Act, gov ernment agencies must purchase only domestic materials, except under these conditions: • • • •
Products are used outside the U.S. Product quality isn't good enough. Not enough product is available. The purchase is contrary to pub lic interests.
Bulk of EFTA's Trade Is Still with Nonmember Countries Imports—millions of dollars (Exports—millions of dollars) EFTA Countries All Products
Chemicals
1960
$ 4,300 (4,100)
$299 (284)
1961
4,700 (4,400)
323 (304)
1962
5,000 (4,700)
355 (335)
1963
5,600 (5,300)
168« (158)«
a
Six-month data. Sources: OECD;
80
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EFTA
AUG.
24,
1964
I
Other Countries
Totals
All Products
Chemicals
Products
Chemicals
$19,800 (15,000) 20,000 (15,700) 20,800 (16,400) 22,000 (18,000)
$ 1,137 (1,257) 1,149 (1,298) 1,190 (1,363) 599* (747)«
$24,100 (19,100)
$ 1,436 (1,541)
24,700 (20,100)
1,472 (1,602)
25,800 (21,100)
1,545 (1,698)
All
27,600 (23,300)
767» (905)«
Over-All U.S.
Trade Balance with EFTA Declines,
but Rises for Chemicals Trade Salaria
waammm Έ^Μ^ΜΜ
Source: U.S. Dept. of Commerce
• The cost is unreasonable. Europeans say that there are too many inconsistencies in determining what is a reasonable cost and what is unreasonable. Attempting to over come these objections, Executive Order 10582 (issued in 1954) pre scribes that a price is unreasonable if it is more than 6% above a foreignoffered price, duty paid and delivered. As an alternative, the domestic price is unreasonable if it is 10% above the foreign-offered price exclusive of du ties and costs incurred after the prod uct lands in the U.S. But the same executive order also provides the following exceptions: • Special reasons of national inter est. • Procurement from small business. • Protection of national security. • Procurement from areas of high unemployment. If any of these four exceptions are pertinent, the differential is 12%, rather than 6%. Despite such attempts to obtain definite and uniform procedures, Eu ropeans still claim they are at a disad vantage. They claim the 6% rule is often disregarded, particularly by the Defense Department and the feder ally aided highway program. And
All Products ......7;:-..^,.,·-.ζ../,·.-,..·..
C h e m i c a l s -millions ,ν ΜΙ^.
