IV. General comments

This bill was written under the philosophy that U.S. corporations need extensive protection from foreign competition. AIA takes issue with this philosophy and laments the opportunity this bill has rejected to turn our concentration from attempts to prolong the life of yesterday's U.S. industrial structure to a concerted effort to move into tomorrow's high technology industries.

V. Conclusion

AIA strongly endorses certain provisions of this bill, particularly the new valuation law and the addition of a "material" injury test in antidumping and countervailing duty cases. However, we believe the erection of additional "legal barriers" in the bill will have long-range consequences for our domestic economy as well as for our international trade posture.

If retaliatory or defensive actions are taken by our trading partners, the stage will be set for a trade war, but we would hope that the responses of the U.S. will be a revealuation of the provisions of the Codes and this implementing legislation. Mr. Chairman and members of the committee, my name is Lee Greenbaum. I am president of Kemp and Beatley, Inc. of New York City. My company is an importer, exporter, and domestic manufacturer of table linens. I appear here in my capacity as First Vice President of the American Importers Association (AIA), 420 Lexington Avenue, New York City, and specifically as Chairman of its Trade Policy Committee. I am accompanied by Gerald O'Brien, Executive Vice President of AIA and Michael P. Daniels, of the law firm of Daniels, Houlihan and Palmeter.

The American Importers Association is a non-profit organization formed in 1921 to foster and protect the importing business in the United States. As the only association of national scope representing American companies engaged in the import trade, AIA is a recognized spokesman for importers throughout the nation. We welcome this opportunity to present our views on S. 1376, the Trade Agreements Act of 1979, to implement the agreements reached in the Multilateral Trade Negotiations (MTN).

On June 28, the Board of Directors of the American Importers Association met to decide what position AIA should take on the implementing legislation. This decision was a difficult one for us because the Trade Agreements Act which contains some provisions beneficial to U.S. international trade interests also proposes an array of shortsighted measures damaging to those interests and to the interests of the American consumer, to the American economy in the long run and to international peace and prosperity. The decision adopted by the Board of Directors was to support passage of the implementing legislation. This decision was reached not because we endorse most of the provisions of the bill, but because we felt that failure to pass the implementing bill could cause more serious disruption to world trade than that which will be engendered by the implementing legislation itself.

We appear before you today to point out what, in our judgment, are the major defects of the implementing legislation as well as its punitive features directed at American importers with severe consequences for U.S. exporters and consumers. At the same time, we would like to forewarn the Congress of the Adverse implications of this legislation for the post Tokyo Round era.

INTRODUCTION

In the Trade Act of 1974, the Congress gave the President an unprecedented mandate to negotiate with our trading partners for the "development of an open, non-discriminatory and fair world economic system." Congress expressed its concern that barriers to international trade were “preventing the development of open and non-discriminatory trade among nations." Accordingly, Congress authorized the President to enter into trade agreements providing for the harmonization, reduction, or elimination of these barriers and distortions.

The results of these negotiations as they will be implemented into U.S. law are now before us. In addition to those changes which would be required in U.S. law to conform to the negotiated codes, the Administration and the Congress have chosen to include drastic revisions in the present countervailing duty and antidumping law as part of the implementing package. These changes, in major part, represent a giant step backward from trade liberalization, and in our judgment, will create major problems not just for American importers but also for American exporters in the years to come. This is not an example of mature world leadership.

This testimony is not intended to cover all of the provisions of the bill that we find objectionable, but simply to highlight those which we consider most serious.

A. ANTIDUMPING

1. Shortened time limits for preliminary determinations.-S. 1376 would significantly reduce the time periods for antidumping investigations-especially at the preliminary stage. Under this bill, the time for reaching a preliminary determination of sales at less than fair value (LTFV)-when withholding of the appraisement occurs would be reduced to 140 days from the date of initiation of an investigation, with an extra 50 days allowed in complex cases. This compares to the present statute which allows approximately 7 months, or in "complicated cases" an additional three months.

These shortened time units are likely to produce an increased number of preliminary affirmative determinations-and consequently, more suspensions of liquidation-wholly apart from the merits of individual cases. This problem is compounded-as the General Accounting Office recognized in its study of the administration of the Antidumping Act-when the cost of production of each producer is an issue. Under the bill, the issues will remain complex, but Treasury will have substantially less time to resolve them.

In a typical case, four or five foreign exporters must furnish responses containing a complex accounting of their business for a six month period; the responses must be delivered to Treasury in the United States; the responses must be verified by Treasury officials visiting each of the responding exporters; and, finally, Treasury must analyze the responses. A single "class or kind" of merchandise which is the subject of investigation may often include numerous different products of different sizes, shapes, qualities, and other features for each of which data must be collected and analyzed. The usual foreign submission normally deals with a number of additional complex issues such as price adjustments or differences in the home and foreign market. Finally, all of these problems are compounded when cost of production is an issue. The net result under the bill is likely to be the inability of Treasury to perform adequately these functions thus increasing the probability that artificial barriers to trade—suspension of liquidation—will be imposed.

2. Overlapping consideration of injury and final determination of LTFV margins. As proposed in the bill, the ITC would begin its consideration of injury immediately upon an affirmative preliminary determination by Treasury. The ITC injury determination would then be due within 120 days after the preliminary affirmative determination or 45 days after an affirmative final determination. This could mean that the final determination of margins would not be known by the ITC and the interested parties until very late in the injury investigation. The amount of the margins is crucial to any examination of the causal relationship between those margins and "material" injury-whether material injury is "by reason of" the LTFV margins. The consideration of causation is an essential element of the injury investigation which the bill may preclude from meaningful considerations.

3. Retroactive suspension of liquidation.—While the current Antidumping Act provides for retroactive withholding of appraisement (suspension of liquidation), such action has never been taken. This provision is acknowledged to be an extraordinary procedure for extraordinary circumstances. The proposed Bill defines guidelines for retroactive suspension of liquidation under certain "critical circumstances." The commercial result is likely to be that U.S. importers who rarely are aware whether dumping is occurring will be reluctant to import immediately after initiation of an antidumping investigation because of the uncertainty concerning both the limits of the contingent dumping liability (which is never known for certain, but is absolutely unknown at the time of the initiation of an investigation) and the point at which this liability will be imposed even though there may be no dumping taking place.

4. Material injury standard.-The proposed new law defines "material" injury to be "a harm which is not inconsequential, immaterial, or unimportant." In our judgment, this more closely reflects the requirements of the Code than present law. We urge this committee to reject any attempts to compromise this definition in the language of the Committee Report.

5. Deposit of estimated dumping duties.-Possibly the most significant substantive change in the antidumping law proposed in S. 1376 is a requirement that estimated dumping duties be deposited once a final dumping finding is in effect. Under present law, dumping duties are not paid until a final assessment of each entry has been made and the actual amount of any dumping duties owing, if any, has been determined. This new requirement for advance deposit of estimated dumping duties, in our judgment, is a backlash from dumping investigations involving television receivers from Japan and the current backlog in assessing dumping duties at the Customs Service. Customs is roughly five years behind in assessing dumping duties on goods subject to antidumping findings.

In virtually all cases, however, dumping ceases after the imposition of a dumping finding because the choice is a simple one between eliminating the margin by, for instance, raising the price (thereby putting the money in the exporter's pocket) or not eliminating the dumping margin (thereby putting the money into Treasury's pocket). The purpose of the Antidumping Act has always been remedial, not punitive, and existing law and practice has been designed, up to now, to encourage an exporter to adjust prices to eliminate any margins. If this is done, no dumping duties need be assessed because the statutory purpose has been accomplisheddumping has been eliminated.

The proposed bill will provide for a grace period of three months following the final determination of injury by the USITC during which the bonding permitted under the suspension of liquidation will be permitted to continue.

This brief period may alleviate, at least in part, some of the punitive aspects of the initial proposal which required the deposit of estimated dumping duties immediately following a final determination. Unfortunately, this is the only provision for time limits in the bill which is permissive and not mandatory and whether, indeed, it can operate to remove the punitive aspects of the bill will depend, in large part, on the administration's willingness to exercise this discretion.

6. Expansion of constructed value.-Another important substantive change made by the bill which could adversely affect importers relates to the use of constructed value. Under current law, if price comparisions cannot be made with the home market, Treasury can use constructed value only if price comparisons with products sold in third country markets cannot be made. Under this bill, Treasury is permitted to use either third country or constructed value, at its discretion. Because constructed value requires an addition to the production of 10% for general expenses and 8% for profit-figures which have been recognized by the GAO to be highly arbitrary—constructed value is recognized to be the most arbitrary method of making fair value comparisons for purposes of establishing dumping.

7. Expanded discretion to compute foreign market value.—In a further effort to streamline the antidumping procedures, the proposed legislation provides authority for Treasury (or the administering agency) to use averaging or sampling techniques when computing foreign market value. Treasury may "decline to take into account adjustments which are insignificant in relation to the price or volume of the merchandise." As presently structured, the provisions provide absolutely no guidance to the use of discretion by Treasury regarding its ability to disallow adjust

ments.

AIA believes that importers should have at least the same rights with regard to the amount of duties they must pay as taxpayers have. Each taxpayer has a right to have his taxes assessed on the merits of his individual case, and each importer should have the same rights with regard to the amount of duties he must pay. As in the case with most changes made by this bill to "streamline" antidumping and countervailing duty procedures, the "streamlining" has taken place at the expense of importers.

8. Disclosure of confidential information.-The rules for protecting confidential information in both countervailing duty and antidumping proceedings are changed by the bill. At the Treasury Department, material which has been granted confidential treatment now will be disclosed to the representatives of the domestic industry under an administrative protective order. What this means is that all cost data, sales data and any other competitively sensitive information submitted by the exporter will be fully disclosed by Treasury to attorneys or other representatives of the domestic industry. While this order will forbid these representatives from disclosing the information to the domestic industry, we doubt whether Treasury truly will be able to insure the absolute confidentiality of information released under a protective order. This could inhibit cooperation from foreign suppliers and could impede probative investigation based upon the facts.

B. COUNTERVAILING DUTIES

1. Shortened time limits.-Under the present statute, Treasury has six months from the date a petition is filed to issue a preliminary determination concerning the existence of a county or grant, and one year to make a final determination. In the case of duty-free products, the International trade Commission has an additional three months from the final determination to make a determination of injury. Under the proposed bill, time limits would be shortened significantly while, at the same time, the administrative burden on Treasury will be increased during the preliminary stage by the requirement that all foreign responses be verified. Treasury (or a new administering agency) will have only 70 days following the initiation of the investigation to issue a preliminary determination. During this time, a questionnaire, must be presented in a foreign capital by our embassy; a response

must be prepared by the foreign exporters or government which usually entails a detailed accounting and analysis; the response must be delivered to Treasury; the response must be verified by Treasury officials visiting the foreign country; and last, but not least, Treasury must analyze the response, often with follow-up questions requiring additional answers from a foreign government. The danger is that Treasury will not have adequate time to consider all the information before rendering a preliminary determination in the normal case. Although there is an exception for complex cases, it is feared that the protectionist political climate will deter Treasury from extending the time for a preliminary investigation in situations where this might be necessary.

2. Suspension of liquidation.-Unlike present law, the bill requires a suspension of liquidation (withholding of appraisement) on entries made after an affirmative preliminary determination and Treasury will require the posting of bond or other measures to secure the payment of any countervailing duties on these entries. The combination of the shortened time limits, the increased burden on Treasury, and the withholding of appraisement will result in a much more restrictive proceeding which is more likely to yield an increasing percentage of affirmative determinations at the preliminary stage with the resulting barrier to trade in the form of suspensions of liquidation. Suspension of liquidation is a serious barrier to trade and carries a serious commercial impact because, in practical effect, importers cannot ascertain the amount of duty they will be required to pay. In the face of what amounts to an open-ended contingent liability, importers tend to avoid doing business with any exporter whose goods are subject to an order. The effect of this provision is to reduce competition for domestic interests even before any statutory liability has been established.

3. Overlapping of final determination of subsidy and injury determination.—As in the case of the proposed new antidumping provisions, there will be overlapping consideration of the final determination of a bounty or grant and injury determination if the preliminary determination is in the affirmative. While the 120 day period for the ITC investigation is longer than the current three months for an injury determination under the Antidumping Act, the commission will have only 45 days following the final Treasury determination. This could cause the same problem which was discussed previously on antidumping cases, namely, that there might not be adequate time or evidence for the ITC to consider adequately the question of causation.

4. Material injury standard.-We strongly endorse the concept of a "material" injury finding in countervailing duty cases, and consider this to be a major improvement over present law. Agains, as in the case of the proposed new antidumping provisions, we urge that of this committee conform United States law to the Ĉode and reject any attempt to modify the definition of injury in the Report.

5. Calculation of net subsidy.-The proposed legislation expands the concept of a subsidy by limiting the adjustments that may be made to the gross subsidy in order to calculate the net benefit or net subsidy. In general, the bill will restrict the ability of Treasury to determine the true net benefit of a subsidy will result in an overstatement of the amount of subsidy received. One change in practice that will occur because of this provision involves Treasury's treatment of regional aid. Under current Treasury practice, which the Ways and Means Committee attempted to codify, a regional subsidy given in return for proven cost dislocations is not considered a bounty or grant-it does not give advantage but merely equalizes competition.

The provision adopted in the bill, however, specifically ignores any reference to cost dislocations or "verifiable costs" actually assumed to qualify for or otherwise actually receive a subsidy and could prevent Treasury from considering cost dislocations when calculating the net subsidy.

Treasury's current method of analyzing regional assistance by weighing the net benefit resulting from regional assistance against the recipient's export percentage will also end as a result of the bill. Under current practice if the ad valorem benefit to exports is relatively high or the percentage of the firm's exportation is relatively high, Treasury considers the regional aid to be a bounty or grant because the preponderant effect of the program is deemed to have shifted to the export market. The economic realism of existing Treasury practice is no longer permitted; an inflexible artifical methodology taking no account of export percentage has been substituted.

C. SOME OTHER OBJECTIONABLE PROVISIONS

1. The so-called "snapback" of textile product tariff reductions should the Multifiber Arrangement not be extended only adds insult to injury. The uneven and shallow textile and apparel tariff cuts on average are meaningless, since the U.S.

will still maintain the highest level of tariff protection of any of our major trading partners.

2. While we applaud the long-overdue elimination of the American Selling Price method of valuation, we must object to the new tariffs on low priced shoes-tariffs converted to astonishing levels far above those recommended by the ITC as necessary to equalize the loss of ASP protection and tariff levels which will not be reduced in the President's rate reduction proclamation: This generous concession to one industry hurts the poor people of this country and is only another examples of our government's failure to consider the interest of consumers in low-priced imports.

3. The authorization to auction import licenses while limited in its presently proposed application is an unfortuante precedent easily expanded at a later date. Auctioning places small importers at an extraordinary disadvantage. The effect of such a scheme is further concentration of an industry once dominated by small companies and reduced competition for those products under license. Retail and wholesale costs of licensed products will increase further as parties enter the import transaction chain to broker quota licenses.

4. The American Importers Association fails to understand the pressure being exerted presumably to move the United States to a c.i.f. basis for valuation from the present f.o.b. basis. Such a change, if imposed neutrally, would serve no conceivable purpose and would not promote or restrict trade. It would only serve to increase the cost and paperwork burden for U.S. importers and would almost certainly add to inflation. Some of our major port cities, including the Port of New York would stand to lose a substantial amount of business from such a move. Since trade statistics are already being reported on a c.i.f. basis, this country would not obtain an improved statistical reading of our trade transactions.

The bill would achieve a propaganda effect by requiring the publication of trade statistics on a c.i.f. basis several days before the f.o.b. figures are released, thereby "apparently" inflating our trade deficit; such figures are already in balance of payment statistics as reported. We hope that this expensive exercise is the extent of the desires of this Congress on this subject.

5. The changes in the Generalized System of Preferences proposed in this bill are needed and will improve the program. Nevertheless section 1111 raises several curious questions. Why was no change proposed to cure the most serious administrative burden imposed by the Trade Act rules-the severely short time limit for effecting annual changes in dutiable status? Why was the effective date for section 1111 not made concurrent with the annual program change?

Each year changes in duty free eligibility for articles under GSP must be made within 60 days after the close of the calendar year, approximately March 1. The administration can barely meet that deadline and, in fact, this year did not publish those changes until four days after they were effective. Users of GSP, both American and foreign, obviously find it extremely difficult to make business decisions involving potentially affected products.

The problem is purely an administrative one and the STR twice stated publicly that they would seek a statutory extension of the deadline in this bill. We are aware of no opposition to the change and cannot conceive of any reason for opposition to a change intended only to expedite administration and business procedures. Yet the change never made it into the bill.

The amendments made to GSP in section 1111 are effective on April 1, 1980, however. For at least one amendment that date is either unintended or incomprehensible. Under this change, any product now eligible for GSP treatment that exceeds 50 percent of total U.S. imports of that product in calendar 1979 but has a total volume of less than $1 million will become dutiable on March 1, 1980, under the old law and then will become duty-free again one month later when the amendment takes effect (should the President exercise the discretion granted in the section).

We hope that these compoundings of administrative complexity instead of easing the burden on the government and business were a drafter's oversight and an unintended omission and were not intentional. We further hope that this complex bill which was drafted hurriedly and without the benefit of thorough public examination is not replete with such technical errors. We have indicated already that we believe the bill contains conceptual mistakes. Our frustration over section 1111 exemplifies our unhappy hesitation over supporting S. 1376.

GENERAL COMMENTS

Before making our final comments on the bill itself we wish to address where we believe S. 1376 wrongly focuses American thoughts about the effects of our international trade on the U.S. economy and the American citizen.