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DAIRY IMPORT PROTECTION IN FOREIGN COUNTRIES

The Atlantic Council Report thesis is that U.S. dairy import restrictions on ry products should be reduced as a way of providing leverage for U.S. negofors in getting reductions on foreign import barriers so we could move other icultural products. This thesis would be valid if U.S. import restrictions on icultural products were as severe as those of countries from which the Atitic Council Report recommends we buy dairy products from, by reducing our port restrictions, as a way of getting them to reduce theirs.

Jnfortunately, this is not the case. The United States is among the most eral in the world in its agricultural import policies, and U.S. farmers have Tert less protection from competitive imports than do farmers from practically nother countries (Table 13).

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BLE 13.-PROPORTION OF DOMESTIC AGRICULTURAL PRODUCTION PROTECTED FROM OUTSIDE COMPETITION BY NONTARIFF IMPORT CONTROLS, 19621

*Source: "Agricultural Protection By Nontariff Trade Barriers," USDA, ERS-FAS, September 1963.

87

91

93

94

94

97

100

100

Although the data in Table 13 is for the year 1962, the relative position of J.S. versus other country import restrictions has not improved in U.S. favor in the ast decade, and the disparity that existed a decade ago still exists today.

The Atlantic Council Report argues for importing more dairy products from such countries as "New Zealand, Australia, Denmark and Ireland" by making 5 our import restrictions less severe. Yet data in Table 13 indicates the United States protected only 26 percent of its domestic agricultural production from outside competition, whereas Australia protected 41 percent, Denmark 87 percent, and New Zealand 100 percent.

It is inconsistent to argue the United States should reduce its import restrictions as a way of getting other countries to reduce theirs, when ours are already far less severe. Since our agricultural import restrictions are already less restrictive than theirs, the U.S. manufactured dairy product industry is naturally appalled that it should be partially sacrificed as a way of getting other countries to cut their agricultural import restrictions.

SUMMARY

The Atlantic Council Report argues for reduced farm prices on manufacturing milk as a way of cutting production, permitting an increase of dairy imports, on the basis of the following:

(a) Lower dairy production efficiency in the U.S.

(b) Inadequate provisions for maintaining reserves in the public welfare in U.S. dairy policy.

(c) Too "high" price supports for manufacturing milk in the U.S.

(d) Shifting emphasis from supporting manufacturing milk to supporting fluid milk in the U.S.

(e) Natural adjustments occurring in the U.S. dairy industry will permit lower manufacturing milk prices without an adverse effect on the U.S. dairy industry.

(f) The U.S. should reduce its dairy import restrictions as a way of getting other countries to reduce their agricultural import restrictions.

Errors in fact, and consistency, for each of these propositions has been demonstrated in this analysis. The Atlantic Council Report seems to have been

looking for some U.S. agricultural industry to "trade off" as a way of selling more grains and oil seeds abroad, and selected the U.S. manufacturing milk industry, without particular regard to the specific facts.

STATEMENT OF ATALANTA CORP. CONCERNING TITLE IV OF H.R. 10710 and the ADVISABILITY OF ENACTING A WORKABLE PROVISION TO ENABLE THE GRANTING OF MOST-FAVORED-NATION (MFN) STATUS TO THE SOCIALIST COUNTRIES

Atalanta Corporation appreciates this opportunity to submit to the Committee its views on Title IV of the Trade Reform Act of 1973 (H.R. 10710). Favorable Congressional action on the Most-Favored-Nation (MFN) question is considered by Atalanta to be vital and in the best interest of this country.

Testimony by Atalanta was presented to the Committee on Ways and Means in support of the language of Title V of H.R. 6767, which language is considered by Atalanta to be far preferable to the language of Title IV of H.R. 10710 which this Committee is now considering. It is our position that the granting of MFN status and the granting of credits should not be tied to the emigration policies of a country and, therefore, it is the hope of Atalanta that a compromise can be found between the original language of H.R. 6767 and Section 402 of H.R. 10710, commonly referred to as the Jackson-Vanik Amendment. Romanian President Nicolae Ceausescu placed this problem in its proper context while visiting the United States in December of last year when he asked: “How would you regard the possibility of other countries introducing legislation which would condition their economic relations on the way in which internal problems are being solved in the United States?"

While supporting the granting of MFN status to the socialist countries as a whole, our statement will primarily focus on the importance of granting MFN treatment to Hungary and Romania. In regard to Romania, Atalanta was pleased to see the introduction of S. 1085 by Senator Mondale (D., Minn.) and Senator Brooke (R., Mass.) and S. 2783 by Senator Hartke (D., Ind.) which would authorize the President to grant MFN to Romania.

Before discussing the merits of Atalanta's position, we would like to provide the Committee with some background information regarding Atalanta, which indicates the company's wide experience in East-West trade and which explains our interest in presenting this testimony to you today. It should be pointed out that the chairman of Atalanta's Board of Directors and immediate past president, Mr. Leon Rubin, was on April 4 of 1973 presented a Certificate of Appreciation from the City of New York for his "efforts on behalf of East-West trade," which span over a period of time exceeding twenty-five years to the benefit of our United States economy.

Atalanta is a marketing organization for high quality food items that are imported into the United States from 44 countries. Its home office is in New York with sales outlets in Atlanta, Boston, Chicago, Dallas, Indianapolis, Los Angeles, Miami, Milwaukee, Raleigh, and San Francisco.

During 1972, Atalanta enjoyed sales of its products totaling $149.6 million and approximately $200 million in 1973. The percentage of these sales for each food product sold by Atalanta in 1972 was as follows: canned ham and other canned pork products (57.6%), seafood products (21%), cheese products (7.1%), frozen beef (11.1%), and miscellaneous canned foods and exports (3.2%).

For almost twenty-five years Atalanta has been the exclusive sales outlet of canned hams and other pork products from Poland, a country already enjoying "MFN" status. Atalanta's import of Polish hams amounts to over 50% of Poland's total exports to the United States. Since 1969 and 1970, Atalanta has had a similar relationship with Hungary and Romania, and is the major importer of these 'countries' food products. Atalanta, therefore, maintains a leading role in doing business with these Eastern European countries.

Doing business with the Eastern European countries has been profitable for Atalanta and, in turn, our economy in general. Likewise, it has been profitable for the East, with dollar earnings being utilized for the purchase from the United States of manufactured goods and agricultural products.

We have been particularly pleased with the warming of relations with Eastern European countries and feel that the granting of MFN is essential to a future increase of trade with this part of the world.

It is of importance to note that England and Denmark's entry into the Common Market has had a negative effect on traditional markets previously enjoyed by Romania and Hungary. During the GATT negotiations, Hungary, Romania, the United States and various other countries objected to the Common Market's protective tariff system in favor of its members. Because of this protective tariff system, United States business interests are now in a position to gain new markets from Hungary and Romania previously enjoyed by certain Common Market

countries.

The conditions and factors which led to the enactment of Section 5 of the Trade Agreements Extension Act of 1951 denying MFN to "the Union of Soviet Socialist Republics and the imports from any nation or area dominated or controlled by the foreign government or foreign organization controlling the world communist movement," have changed greatly over the last twenty years. The changes in the last three years have been dramatic.

In the case of Romania, the signing of an agreement providing for partial restitution of United States property claims in 1960 marked the beginning of an era of increased contacts and friendly relations. The United States revised its export licensing procedures for Romania in 1964; legations in both countries in 1964 were elevated to embassies: exchange of cultural and economic delegations become commonplace in the mid-1960's; in 1969, President Nixon visited Romania and became the first President since the Second World War to visit an Eastern European country; in 1970 when Romania was hard hilt with a series of floods, the United States Government and private individuals responded with generous aid; in 1970 President Nicolae Ceausescu visited the United States and met with President Nixon; in 1970, 1971, and 1972 Romania received numerous government officials at the very highest levels of their government; and in 1972 William P. Rogers became the first United States Secretary of State ever to pay an official visit to Romania and negotiated and signed a Consular Convention to facilitate the protection of United States citizens and property in Romania. Again in 1973 President Nicolae Ceausescu visited the United States and during his visit a civil air trannsport pact, a fisheries agreement, and a tax convention were signed as well as a 13-point guideline for promoting bilateral economic relations.

While these events were taking place, Romania joined GATT; obtained membership in the International Monetary Fund and the World Bank; negotiated agreements for Export-Import Bank credits; and the facilities of the Overseas Private Investment Corporation (OPIC) were made available for investments in Romania.

With respect to Hungary, it is important to note that on March 7, 1973, the United States and Hungary signed an agreement resolving past war debts. The agreement is viewed as a first and important step to normalization of relations and the eventual granting by both Hungary and the United States of MFN treatment to each other.

There are a number of other events which have taken place that have resulted in improved relations between the United States, Hungary, and Romania. Hungary and Romania now permit United States investment up to 49% in joint venture enterprises. There has been an increased number of visits by high ranking government officials and Members of Congress in both countries as well as an increase in educational, scientific and cultural exchanges with the United States. Hungary became a member of GATT on September 9, 1973. The United States and Hungary have recently signed a Consular Convention and both have embassies within each country.

Taking these facts into consideration, it becomes apparent that the 1951 reasons for withdrawing MFN are no longer valid. If national security were still the predominant issue, then the retention of rigid export controls, rather than the relaxation that took place in 1969 and 1971, would have been the appropriate action.

The denial of MFN to these countries in no way contributes to our national security. Therefore, it is understandable why the denial of MFN is viewed in Eastern Europe as a discriminatory trade practice towards the East. This economic fact results not only in hindering the effectiveness of United States foreign policy, particularly since virtually every major Western trading country has established MFN relations with these countries, but also causes damage to our economy since these countries must be able to sell to the United States if they are to buy more from the United States.

Atalanta believes that there have been sufficient changes in our relations with Eastern Europe and the Soviet Union to justify a change in United States policy to reflect the economic, rather than solely the political, aspects of trade with these countries. The economic factors clearly indicate that it is in our best interest not to discriminate against these countries with respect to trade, but to place them on an equal footing with our other trading partners by the granting of MFN.

A a time when we are concerned about balancing our trade, the broadening of trade with countries, with whom we have traditionally experienced a favorable balance, is to our advantage. The figures on our balance of trade with these countries are as follows:

U.S. TRADE WITH THE U.S.S.R. AND EASTERN EUROPEAN COUNTRIES 1966-73 (NOVEMBER)

With regard to the trade statistics incorporated in this statement, which are entirely derived from our Department of Commerce, it should be noted that United States exports to the socialist countries are actually greater than shown. For example, we know that significant United States exports of soybeans to Switzerland were sold by the United States company's Swiss subsidiary to Hungary. In the case of the socialist conutries, sales to intermediate third countries, and often to United States subsidiaries therein, are not uncommon. However. in the example just mentioned our Department of Commerce statistical reporting service would show an export of soybeans to Switzerland, not Hungary.

Nevertheless, when the Department of Commerce reported trade figures regarding Romania and Hungary are considered, the balance in favor of the United States, over the years, is impressive. In fact, since 1920, the United States has had a favorable trade balance with Romania in every year but five, and four of these years were from 1952-1955 inclusive. Therefore, during the last 53 years, there has been a favorable trade balance for the United States in 48 of those years. The balance in most years has also been in our favor in regard to trading with Hungary. Figures furnished by the Department of Commerce indicate that prior to 1951, and with the exception of the war years when there was very little or no trade at all between the countries, the United States had a favorable trade balance with Hungry. Since 1963 the balance in favor of the United States has been overwhelmingly in our favor.

The figures for United States trade with Romania and Hungary are as follows: [In thousands of dollars; November 1966-73]

All economic factors indicate that our sales to Romania and Hungary will show further significant increases for the last quarter of 1973 and for 1974. Boeing has announced the sale of three 707-320C jets to Romania. With spare parts and related equipment tuis purchase amounts to approximately $20 million. The joint venture agreement between Control Data Corporation and General Tire International involving equipment and services from the United States in excess of $35 million should also insure rather significant increases in our trade with Romania. The General Electric Co. recently announced a memorandum of understanding with Romania that would lead to G.E.'s entry into a number of electrical products fields in the country. Other United States business interests such as Atalanta have also recently entered into new trade with Romania as well as Hungary. Other United States corporations actively involved in dealing in Hungary are John Deere, International Harvester, FMC, Cargill, Cessna Aircraft, and Central Soya, to name but a few.

This is not to suggest that trade with Romania and Hungary, or with the Eastern European countries as a whole, will, from a percentage standpoint, necessarily be a significant part of United States trade. Prior to 1951 and the denial of MFN, our trade with these countries represented less than 3 percent of our total exports or imports. After 1951 it fell to approximately one percent and has, in recent years, begun to rise again.

A report prepared by the staff of the United States Tariff Commission in 1972 entitled, "United States East European Trade", analyzed the prospects for expanded East-West trade. At pages 3 and 4, we find the following comments: "Expanding trade with Eastern Europe is, therefore, increasingly viewed as a means of improving, at least on a modest scale, our balance-of-payments position."

"Past experience, the level of economic activity in the United States, the development in Eastern Europe suggest that a considerable potential for trade expansion exists. Merely to have achieved the same degree of importance that existed prior to World War II, for example, U.S. trade with Eastern Europe in 1970 would have had to amount to about $1.3 billion in exports and $1.0 billion in imports, or about 5 times the volume actually realized."

As indicated earlier, most economists and trade experts believe that our export potential is far greater than Eastern Europe's import potential. It would, therefore, appear that an increase of East-West trade, at least to the levels of preWorld War II, would be highly desirable to the United States economy and specifically to our balance of trade position.

However, it is not reasonable nor fair to expect the Eastern European countries to continue to increase their trade with the United States if discrimination in the form of the denial of MFN continues. In the Tariff Commission report, mentioned earlier, it is estimated that in 1970 more than 40 percent of Eastern Europe's imports "were subject to substantial discrimination". Because of the nature of their United States imports, the denial of MFN has resulted in varying degrees of discrimination. The Tariff Commission report indicated that Hungary and Romania experienced over 40 percent substantial trade discrimination concerning their exports to the United States. Thus, it is obvious why the denial of MFN is viewed as being punitive, and much more than a psychological trade barrier, especially with respect to Hungary and Romania.

Romania, with a population in excess of 20 million people, is the third most populous country in Eastern Europe. It is approximately the size of Oregon, and, next to Poland, is geographically the largest country in Eastern Europe. Hungry, about the size of Indiana, has a population in excess of 10 million people. In a report issued in March of 1973, the Department of Commerce reported that during 1971 Romania's total imports amounted to $2.04 billion. Ünited States products composed only 2.2 percent of this market, while West Germany's share was 17 percent, Japan's 16 percent, Italy's 12 percent, while the major socialist suppliers accounted for over 30 percent of this market. Romania's principal imports in 1971 were fuels, raw materials, and semifinished products (50%); machinery and equipment (40%); foodstuffs (5%); and consumer goods (5%). During this time, Romania's total imports from the United States (2.2% of her total imports) were as follows: wheat (37.1%); cotton (15.3%) · cattlehides (8.3%); rolling mills and parts for metal working (7.4%); chemical woodpulp (5.8%); electron and proton accelerators (3.3%); and air and gas compressors (3.1%).