TABLE 3.-U.S. EMPLOYMENT, OUTPUT, AND FOREIGN TRADE IN PIGMENTS (LAKES AND TONERS) (SIC 28153)

1 Employment data derived at the ratio of production (pounds) per employee for industry SIC 28153 in 1967 to the production data for each year.

2 Estimate based on industry sales statistics of the quantity of dyes sold in 1972 versus 1971.

3 Estimate based on industry sales statistics of the value of dye sales in 1972 versus 1971.

4 Domestic market equals sales plus imports minus exports.

Sources: Employment: U.S. Department of Commerce, Bureau of the Census, "1967 Census of Manufactures." Produc tion and sales: US. Tariff Commission, "Synthetic Organic Chemicals, United States Production and Sales," 1967-71, and industry data. Imports: U.S. Department of Commerce, Bureau of the Census, FT 246 (1967-72), IM 146 (1972). TSUS Nos. 406.7000 and 409.0000. Exports: U.S. Department of Commerce, Bureau of the Census. FT 410 (1967-72). Sch. B. No. 531.0200.

As in the case of dyes. it is evident from the data that the ASP system of import duties has permitted a very strong rate of growth for imports of lakes and toners, which increased threefold in the 5-year period, 1967-1972. Notwithstanding the exceptionally rapid increase in imports, at a rate six times that of domestic production and sales, domestic production increased modestly, and this served to boost employment moderately during the period.

The highlights of the data shown in Table 3 are that the ratio of imports to the total supply for domestic use increased from 6% in 1967 to nearly 15% in 1972.

The ratio of imports to domestic consumption of dyes and pigments is greater than that applicable to textiles by a wide margin, as shown by the following table.

1 Fiber equivalent of imports of textile articles of cotton, wool, and man-made fiber to domestic consumption of such textile fibers, per Department of Agriculture, "Supplement for 1972 to Statistical Bulletin No. 417; Cotton Situation." April 1973; "Wool Situation," May 1973.

Mr. Chairman, the data in the preceding tables establish conclusively that the Kennedy Round tariff cuts on dyes and pigments have strongly stimulated the importation of these products into the United States.

Should there be any weakening of demand for dyes in the future, and we must face that now as a probability, rising import penetration of this magnitude will obviously cause serious disruption of the domestic market and corresponding hardship to domestic producers and their employees. The domestic producers will have their hands full in meeting this continuing and accelerating competitive challenge from the foreign producers. To repeal ASP in the face of these facts would clearly make a bad situation very much worse.

No one can honestly say that the access which is afforded to foreign-produced dyes and pigments under the existing system of duties and the increased access which the Kennedy Round 50% tariff cuts is conferring on foreign producers, is unfair or significantly restrictive of the interests of foreign producers. The situation has already developed to a point where it is plain from the data that the U.S. producers and their employees face diminished market opportunities in the United States with the consequent loss of future opportunity for expansion of production and the domestic work force. It would be harsh and unfair for this Committee to give tacit approval to the repeal of ASP as it applies to synthetic organic dyes and pigments in the light of this evidence. For this reason, we urge you not to approve Section 102(b) of the bill, as now written. We recommend that the provision be amended in the manner proposed at the conclusion to this statement.

IV. THE ASP DOES NOT IN FACT INHIBIT ACCESS TO IMPORTS OF COMPETITIVE DYES THEY HAVE INCREASED MORE RAPIDILY THAN NONCOMPETITIVE DYES AT CONVENTIONAL CUSTOMS VALUES

When you cut through all of the rhetoric and rationalizations which are used by the opponents of the ASP, it amount to this: The ASP value basis is claimed to inhibit imports of competitive benzenoid chemicals and thus retard reasonable access to the American market for such foreign-produced chemicals. Tariff Commission data concerning the competitive-noncompetitive status of imported dyes disprove that contention. These data are summarized in the following table. TABLE 5.-COMPARATIVE ACCESS FOR U.S. IMPORTS OF COMPETITIVE VERSUS NONCOMPETITIVE DYES, 1958-72

Source: U.S. Tariff Commission, "Imports of Coal-Tar Products," 1958-63; "Imports of Benzenoid Chemicals and Products," 1964-72. U.S. Department of Agriculture, "Supplement for 1972 to Statistical Bulletin No. 417; Cotton Situation,' November 1973; "Wool Situation," August 1973.

"

The table establishes that:

1. Imports of dyes classified as competitive on the ASP basis have increased about as rapidly as those classified as noncompetitive. This is the direct opposite from what you would expect if the Administration's contentions were true.

2. Imports of competitive dyes made a mighty surge forward during the years 1968-1970 when the domestic textile market was in a stage of relative stagnation. This proves that the foreign producers can increase their penetration by boosting their exports of competitive dyes to the United States whenever they choose to do so and are not dependent upon a corresponding rise in the consump tion of dyes by the domestic textile industry.

3. Roughly half of the imports of dyes are classed by Customs as noncompetitive, so that large share of the imports does not undergo customs valuation at the American Selling Price.

If the ASP basis of valuation were in fact a barrier which inhibits imports over and above the incidence of the duty itself, the roughly equivalent rates of growth of competitive and noncompetitive dyes would not have taken place. Perhaps the most striking fact which emerges from the above table is that imports of both competitive and noncompetitive dyes increased more than six times the rate of increase in textile consumption in the United States, the principal basis for demand of dyes. Obviously, the ASP system has permitted foreign-produced dyes to enter the United States market at a rate many times greater than the increase in demand for dyes. These facts refute conclusively any notion that the ASP system is unfair in its operation on dye imports.

V. FOREIGN DYE PRODUCERS HAVE A DECISIVE COMPETITIVE ADVANTAGE AGAINST U.S.PRODUCED DYES AND PIGMENTS AS SHOWN BY THE STEADILY INCREASING DEFICIT IN THE U.S. BALANCE OF TRADE IN DYES AND PIGMENTS

The reason for the existence of the ASP system of customs valuation is the dominant competitive power of the European producers and of Japan in trade in batch-processed, labor-intensive synthetic organic chemicals, epitomized by dyes and pigments. The United States competes with European and Japanese dyes and pigments in its home market and in world export markets. A study of the trends of U.S. imports, exports, and balance of trade will demonstrate the dominance of the foreign producers.

For example, there has been a continuous and growing deficit in the U.S. balance of trade in synthetic organic dyes and pigments throughout the past decade. In recent years, the value of U.S. imports of synthetic organic dyes and pigments has been more than twice the value of U.S. exports of these products. Our trade deficit in these products is now in the range of $60 million per annum. This is shown by the data in the following table.

TABLE 6.-ORIGIN AND DESTINATION OF FOREIGN TRADE OF U.S. MANUFACTURING INDUSTRIES, 1970, 1971 AND 1972-28152B-SYNTHETIC ORGANIC DYES, PIGMENTS, LAKES, AND TONERS (INCLUDES 28153)

Total**

77, 536 43, 165 -34, 370 108, 413 44, 347 -64, 065 112, 524 53, 171

-59, 353

Source: Trade Relations Council of the United States, Inc., "Employment, Output, and Foreign Trade of U.S. Manufacturing Industries" (6th edition), 1974.

The steady increase in the balance of trade deficit of the United States in synthetic organic dyes and pigments, and the reduction which is occurring in our very small share of the world export market should indicate to the Committee that there are no compelling reasons for accommodating the insistent demand of the foreign producers for repeal of ASP. It is not a case where the foreigners are being shut out of our market; indeed, it is abundantly evident that they have succeeded with a dominant competitive power of virtually shutting us out of the world export market, while they enjoy a large and growing position in our market.

VI. THE REPEAL OF ASP AND THE SUBSTITUTION OF THE CONVERTED RATES BASED UPON THE FOREIGN SELLING PRICE WOULD GIVE THE CARTEL-LIKE EUROPEAN INDUSTRY THE MEANS FOR MAKING FURTHER REDUCTIONS IN THE ACTUAL DUTIES COLLECTED THROUGH CONCERTED PRICING ACTIONS

The European industry operates through a cartel-like arrangement. On July 24, 1969, the Commission of the European Economic Community conducted an investigation and entered its decree finding 10 European producers of dyes guilty of violating the antitrust provisions of the Treaty of Rome by repeatedly fixing prices for dyes sold in the Common Market through concerted action. The European producers are relatively free from competition from American producers in the European market. Where they have virtually complete domination of a market, it is their tendency to raise prices in concert to the detriment of the consumers served by that market.

The antitrust article of the Treaty of Rome, Article 85, applies only to praetices which affect trade within the Common Market, and specifically exempts practices which affect the export trade of EEC producers. Consequently, the companies which have been found guilty of anticompetitive concerted action within the EEC are free to carry out such activities in their exports to the United States without fear of any prohibition by the EEC Commission.

If the independent dye producers in the United States are driven out of business by the tactics of the European industry, which the ASP has been an effective shield to prevent, you may expect anticompetitive activities in the American market similar to those which have been found by the Commission to be carried out in Europe.

The principal way in which the ASP serves as a shield against such possibilities is that the foreign producers who have the means and disposition to agree on prices are unable to affect the determination of U.S. import duties since they are based on the selling price of the U.S.-produced product rather than the selling price of the foreign-produced product. The repeal of ASP would base import duties on the selling price of the foreign product, which, of course, is under control of the foreign producer, and which he is in a position to set by way of concerted action with the other members of the European cartel. Through their U.S. affiliates, the European producers (Hoechst, Bayer, Badische, and Casella of Germany; Ciba-Geigy and Sandoz of Switzerland; and I.C.I. of England) are in a position quickly to dominate the American market through the U.S. production and distribution activities of their affiliates and their own foreign production for the American market-if they gain this type of leverage over the determination of U.S. duties applicable to their exports to the United States.

According to the Tariff Commission, through the combination of their U.S. affiliates and their export to the United States from Europe, the foreign producers had captured fully one-third of the American market by 1965.5 According to our trade estimates, the European producers have now increased this market share to more than 40%.

CONCLUSION

The foreign chemical industry and other advocates of ASP repeal base their case on the allegation that American producers can cut off imports by arbitrarily raising the duty on a product by raising the price. This argument conveniently ignores the reality of the market place where a price increase of $1 per pound would be required to raise the duty by 20¢ and would itself make the U.S. product noncompetitive, if it were not already so.

U.S. Tariff Commission, Report to the Special Representative for Trade Negotiations, July 25, 1966, p. 19.