STATEMENT BY THE AMERICAN CYANAMID CO., WAYNE, N.J.

SUMMARY OF COMMENTS AND RECOMMENDATIONS

1. While the President should be given broad powers to negotiate on behalf of the United States, he should be required to do so within criteria set by Congress and be accountable to the Congress consistent with the constitutional obligation of the Congress to regulate foreign commerce.

2. Current laws and practices governing the taxation of foreign source income should be retained without change to avoid penalizing American business by placing it at a competitive disadvantage with respect to foreign companies in both foreign and domestic markets.

3. The authority for the President to extend most-favored-nation treatment to Eastern European nations should be granted since it offers new markets to U.S. business and represents a step toward achieving a stable and peaceful world. 4. The proposed Act should recognize that environmental control standards of the United States and other countries from which products would be imported into the United States must be a factor in determining international tariffs and trade policy between the United States and other nations. Higher capital investment and production costs resulting from required environmental controls are definite factors in competitive trade.

5. The Executive branch of government should be required to sek and use the advice of expert representatives of American business, industry, labor and agriculture in the preparation for and in the forthcoming trade and tariff negotiations. The proposed Advisory Committee for Trade Negotiations can serve as a desirable and useful mechanism in this regard. It is vital that negotiations of both tariff and non-tariff barriers be truly reciprocal in contrast to the outcome of past negotations.

STATEMENT

American Cyanamid Company (Cyanamid) is a diversified company which operates in four major segments: consumer, medical, agricultural and chemical. Cyanamid sales in 1973 were approximately $1.46 billion. While our principal market is the United States, there has been a continuing demand for Cyanamid products and technology throughout the world. As a result, some 32 percent of our sales were made in more than 125 countries abroad.

Cyanamid employs more than 39,000 persons. We operate 64 domestic plants and 64 sales offices in 29 states.

Outside the United States, we have 43 manufacturing plants in 20 countries and 51 sales offices and research laboratories in 32 countries. We manufacture and market overall some 2,500 products.

Over the past 15 years, the dollar flow to the United States as a result of Cyanamid's export sales and the dividends, royalties and interest received by Cyanamid from foreign sources was in excess of $1.2 billion. During this same period foreign operations have contributed more than $327 million to Cyanamid's net after tax earnings.

Our direct foreign investment has had a strong pulling effect on Cyanamid's exports which in 1973 were in excess of $90 million, some two-thirds of which were sent to the company's subsidiaries abroad in the form of intermediates and raw materials. Jobs for 1,200 U.S. production workers are provided by these foreign sales along with an additional 800 management positions in the United States, including jobs in research and development. Our foreign operations are staffed primarily by local personnel. In fact, Cyanamid employs only 28 U.S. citizens in its international subsidiaries.

Cyanamid's involvement in domestic and international business and the knowledge and experience gained therefrom make it clear that there is a vital need at this time for negotiations of both tariff and non-tariff barriers to be truly reciprocal if they are to benefit the United States and the other nations involved.

This can be accomplished only if both side come to the negotiating table with a willingness to recognize the realities of doing business and a readiness to participate in hard and mutually fruitful bargaining.

The United States must be ready to make concessions, but only in return for equal benefits to this nation and its people. Past experience has demonstrated that our national policy of free trade has not led to fair trade for the United

States, and, in some respects, may have been detrimental to U.S. businesses, individual citizens and labor.

Cyanamid endorses in principle the proposed Trade Reform Act. This is especially so with respect to those provisions that seek to maintain and not impair the competitive position of American industry in the world market place. It is in that spirit and to that effect that Cyanamid offers some comments and recommendations on particular aspects of the proposed Trade Reform Act and suggested related legislation.

NEGOTIATIONS-THE PRESIDENT AND CONGRESS

Cyanamid believes in the importance of and supports international discussions aimed at improving our trading system. While the President should be given broad discretionary powers to negotiate trade arrangements on behalf of the United States, he should do so within the criteria established by Congress and be accountable to the Congress. The constitutional authority to regulate foreign commerce is vested within the Legislative Branch. Accordingly, the proposed Congressional participation as official advisors to the U.S. negotiators is consistent both with the Constitution and the President's invitation to Congress to "set up whatever mechanisms it deems best for closer consultation and cooperation to ensure that its views are properly represented as trade negotiations go forward."

We also wish to emphasize the valuable experience and knowledge acquired by U.S. business in its international role. For that reason, we are pleased to note provisions for the transmittal of advice from selected industry groups concerning national negotiating objectives and bargaining positions in specific product sectors prior to entering into a trade agreement. Cyanamid supports, therefore, the proposed Advisory Committee for Trade Negotiations, with representatives from industry, labor and agriculture.

To demonstrate Cyanamid's interest in serving in an advisory capacity, we can note the active participation of our personnel with the Trade Advisory Task Forces of the Office of the Chemical Industry. Mr. John Ludden, President of Cyanamid's Pigments Division, is a member of the group's Policy Committee, and other Cyanamid experts are serving on task forces for medicinals, dyes, rubber process chemicals and pigments.

In developing the guidelines for trade negotiations through passage of enabling legislation, the Congress should be mindful that while nations may become trading partners, the individual trading units of those nations, i.e., the business corporations, are severe competitors. Even as the negotiating nations seek an increase in overall trade through elimination of barriers through common agreement, the negotiators must obtain a hard and reciprocal agreement based on the hard facts of existing and anticipated competition.

TAXATION OF FOREIGN INCOME

Although we recognize that the subject is not yet an integral part of the proposed legislation, we anticipate that the Finance Committee will be asked to consider tax revisions on U.S. foreign investment, and therefore, we would like to comment on this matter.

American foreign investment has produced beneficial results for the United States. It has improved the U.S. balance of trade and overall balance of payments at a time of heightened foreign competition, generated additional and enhanced job opportunities for American workers and generally strengthened the U.S. economy. Moreover, the benefits of U.S. overseas investment transcend this nation; they have been positive contributors to developed and developing countries all over the world.

In Cyanamid's case, foreign operations have contributed more than $327 million to net after tax earnings over the last 15 years. More than half of our subsidiaries' earnings have been returned to the United States as dividends, and, importantly, both U.S. and foreign income taxes have been paid on these dividends. Our subsidiaries retain a portion of their earnings as working capital and for additional plant facilities to permit their business activities to grow and to ensure a strong competitive position for Cyanamid's products in foreign markets.

Cyanamid and other U.S. enterprises operating overseas currently pay heavy income taxes to their host countries. We have had to invest abroad in order to remain competitive with foreign companies. The competition we face is such that if we are restricted in our ability to make foreign investments, we foresee our competitors exploiting this situation to our very real detriment.

For example, our studies indicate that if the U.S. tax laws were changed to impose tax currently on the entire unremitted earnings of foreign subsidiaries, Cyanamid's additional tax payments would approximate $4 million annually. Of this amount, it is estimated that approximately $2 million would be paid to foreign governments as withholding taxes and only $2 million would be paid as additional U.S. taxes.

This is because sound business practice for Cyanamid (and presumably for other companies similarly situated) would undoubtedly dictate that the entire earnings of foreign subsidies actually be distributed as dividends in order to satisfy in full the ultimate liability for both foreign an U.S. taxes on such earnings rather than pay penalty taxes to the United States on unremitted earnings.

Payment of the dividends and the increased foreign and United States taxes on those distributed earnings would necessitate additional methods of financing foreign operations or, alternatively,the financial condition of foreign subsidiaries would deteriorate to the extent that they would lose their ability to maintain or expand market positions.

As a result, we disagree with the Treasury proposal to add a new section 951 (a) (1) (c) to the Internal Revenue Code so as to tax currently the U.S. shareholders of so-called “Foreign Tax Haven Manufacturing Companies." While this would be a limited exception to the tax principle that unremitted earnings of foreign subsidiaries are not taxed currently, it does involve an unwarranted tax penalty. It impinges on the determinations by foreign governments of the appropriate level and method of taxation within their geographical boundaries and could well induce them to raise the income and withholding taxes paid by U.S. interests.

The proposal also would include as tax incentives foreign countries' provisions for accelerated depreciation and investment allowances as well as grants for plant construction. These are widely accepted provisions in the tax laws of many countries to modify the burdensome corporate tax rates otherwise applicable generally in the foreign jurisdiction and not to attract plant investment without regard to the business purpose and necessity for such project.

Application of such a provision to foreign tax incentive operations will constitute a penalty on U.S. companies with foreign-owned subsidiaries which will benefit from such tax incentives. Other countries recognize the basic international taxation principle that the country where income is earned has the primary right to levy the appropriate tax on income earned within its borders. We submit that it is unreasonable for the United States to place a tax penalty on U.S. companies operating in tax incentive countries. To the extent that such a provision discourages foreign subsidiaries from using foreign tax incentives, there will be both short-term and long-term reductions in United States tax revenues from distribution of dividends from subsidiaries. There would be a weakening in the competitive posture of American firms vis-a-vis others operating in tax incentive countries, with a secondary negative impact on U.S. trade and domestic employment.

The United States system for taxing foreign source income has been developed over a period of some 50 years in an attempt to achieve equity, consistency with principles of international taxation and to serve as a sound base for a pattern of double taxation conventions with other countries. We are concerned that the current proposal to extend taxation on unremitted earnings would introduce an inequity into our system of taxing foreign income and impair the tax relationship with other countries.

The President's statement of April 10, 1973, in submitting the Trade Reform Proposal should be given the fullest emphasis in connection with any consideration of changing the United States system for taxing foreign income:

"Our existing system permits American-controlled businesses in foreign countries to operate under the same tax burdens which apply to its foreign competitors in that country. I believe that system is fundamentally sound. We should not