SECTION 9-AMENDMENTS AFFECTING SECTION 336 OF THE TARIFF ACT OF 1930

Subsection (a) of section 9 of H. R. 4294 would repeal section 2 (a) of the act approved June 12, 1934, as amended. The act of June 12, 1934, as amended, is the Trade Agreements Act. The second sentence of section 2 (a) of that act, as amended, provides as follows:

"The provisions of section 336 of the Tariff Act of 1930 shall not apply to any article with respect to the importation of which into the United States a foreign trade agreement has been concluded pursuant to this act or to any provision of any such agreement."

Section 336 of the Tariff Act of 1930 is the so-called flexible tariff provision and provides for increases or decreases in statutory rates of duty, within specified limitations, by Presidential proclamation after an investigation by the Tariff Commission to determine whether an increase or decrease in the duty is necessary in order to equa ize differences in the cost of production of a domestic article and the like or similar foreign article produced in the principal competing foreign country. When the trade-agreements legislation was being drafted in 1934, the question was raised as to whether it would be appropriate to permit section 336 to be applied in the case of articles on which concessions were granted in trade agreements. It was realized that if an international obligation was undertaken under the trade-agreements procedure with respect to the tariff treatment of a product, that to permit the application of section 336 to that product might result in an increase in the duty which would be inconsistent with the obligation. It was for this reason that section 336 was made inapplicable to articles included in trade agreements.

The repeal of the second sentence of section 2 (a) of the Trade Agreements Act would make that section operative with respect to articles on which tariff concessions were granted, with the possible result sought to be avoided originally. Under the existing law the President has discretion in the matter of putting into effect increased duties determined under the cost-equalization formula, and in the President's discretion were retained he could avoid putting into effect a rate of duty which would be inconsistent with a tariff concession granted in the trade agreement by declining to take action under section 336. It may be assumed that the President, having granted the obligation in the name of the United States, would refrain from exercising a discretionary power which would violate the obligation. However this may be, the amendments which would be made to section 336 by H. R. 4294 would allow the President no discretion in the matter of establishing rates of duty determined under the cost-equalization formula by the Tariff Commission, and, if the Commission found and reported to the President that rates of duty higher than existing trade-agreement rates were necessary, any proclamation issued by the President under the law would necessarily be inconsistent with international obligations of the United States.

Subsection (b) of section 9 of H. R. 4294 would amend subsection (c) of section 336 of the Tariff Act of 1930 so as to eliminate the discretion granted the President by existing law as to whether to put into effect rates of duty determined by the Tariff Commission under the cost-equalization formula. This has been discussed above.

Separate statements of Commissioners Ryder and Edminster

Commissioners Ryder and Edminster, while agreeing with the foregoing comments on sections 1 to 9 of H. R. 4294, feel that these comments should be supplemented by the brief statement of what would clearly be the effects of such legislation on the trade-agreement program of the United States, on the level of its tariff rates, and on its foreign trade. Determination of policy regarding these matters lies, of course, with the Congress.

It would seem clear that even under the least trade-restrictive interpretation of its language, this bill would, if enacted, have the effect of greatly increasing tariff rates or other restrictions on imports into the United States and thus of seriously constricting United States foreign trade, both import and export. In fact, it could be interpreted literally to call for the eventual exclusion from the United States market of virtually all imports which are directly or indirectly competitive with products produced in the United States, if only the trade agree ments to which the United States is a party were to remain in effect long enough for these extreme results to occur. The procedures under the greatly broadened escape from trade-agreement obligations (sec. 6 of the bill) would, however, call for such an upscaling of duties or other restrictions on competitive imports

with respect to which trade-agreement concessions have been made as to lead, in all probability at an early stage, to the disruption of virtually all of the agreements made under the Trade Agreements Act. In any event the result would be a marked increase in the height and restrictiveness of United States duties and a complete reversal of the policy which has been pursued since the initiation of the trade-agreements program in 1934.

SECTION 10-PROPOSED AMENDMENT TO SECTION 337 OF THE TARIFF ACT OF 1930

Section 10 of H. R. 4294 proposes certain amendments to section 337 of the Tariff Act of 1930. Section 337 deals with 'unfair methods of competition and unfair acts" in the importation of articles into the United States "the effect or tendency of which is to destroy or substantially injure an industry, efficiently and economically operated, in the United States, or to prevent the establishment of such an industry, or to restrain or monopolize trade and commerce in the United States," and declares such methods of competition or acts to be unlawful.

Under section 337 it is the function of the Tariff Commission "to assist the President in making any decisions under this section" by investigating any alleged violation of section 337 on complaint under oath or upon its initiative. The statute provides for hearings in such investigations and for findings and recommendations by the Commission. It makes a finding showing a violation of the section subject to review by the United States Court of Customs and Patent Appeals, on questions of law only, and provides that the final findings of the Commission should be transmitted to the President. If the existence of an unfair method of competition or unfair act is established "to the satisfaction of the President" the statute provides that he shall direct that the articles concerned shall be excluded from entry into the United States.

The proposed amendment would eliminate the discretionary power granted to the President under section 337; that is, it provides that the President shall direct exclusion if the Commission determines that an unfair method of competition or unfair act in the importation of the article in question exists. This change in the law would follow the pattern which H. R. 4294 sets for other provisions of law where the Commission now acts in an advisory capacity and the President is vested with final discretion.

Section 10 (b) of H. R. 4294 would amend section 337 (b) to provide that the Commission "shall investigate any alleged violation of this section on complaint under oath." Under this mandatory language, the Commission would be required to institute an investigation whenever a complaint under oath was filed. At the present time, section 337 (b) provides that the Commission "is hereby authorized to investigate" such alleged violations. This language, which has remained unchanged since its original enactment as part of section 316 (b) of the Tariff Act of 1922, has been construed by the Commission to permit it, upon receipt of a complaint, to make a preliminary inquiry to determine whether the institution of an investigation for the purpose of section 337 is warranted. This construction of the statute has been reflected in the Commission's procedures since 1922. The law of unfair competition is complex, and often complaints are based upon situations which, although considered "unfair" by the complainants, are clearly not within the purview of section 337. The preliminary inquiry is designed to enable the Commission to make a sufficient study of the charges made in the complaint to enable it to determine whether a prima facie case under section 237 exists. It is believed that this is a desirable method of procedure and should be retained in the interests of orderliness, economy, and avoidance of unwarranted subjection of business interests to loss of time and money.

Section 10 (d) of H. R. 4294 would insert a new provision in the law requiring the Commission to make public its final findings to the President within 30 days after the date on which its report is transmitted to the President. At present reports to the President are not made public by the Commission until the President has taken action thereon.

Section 10 (e) of H. R. 4294 would amend section 337 (e) to provide that "whenever the existence of any such unfair method or act shall be established to the satisfaction of the Commission and reported to the President, he shall direct" the exclusion of the articles concerned. However, under the proposed amendment of section 337 (e), the Secretary of the Treasury would be required to refuse entry of the offending articles "upon information of such action by the Commission." This would mean that the Commission would be responsible for

advising the Secretary of the Treasury that the President has directed the exclusion of the offending article from entry. Under existing law, the President's order is directed to the Secretary of the Treasury, who takes action accordingly, and it is supposed that if the law is amended as proposed this would still be the case. If so, there would be no point in having the Tariff Commission advise the Secretary of the Treasury that the President had directed the Secretary to exclude the article in question from entry.

Section 337 (e) of the Tariff Act, if amended as proposed, would retain the last sentence thereof reading "The decision of the President shall be conclusive." If section 337 is amended as proposed, the President would make no "decision." He would simply perform the ministerial task of directing the Secretary of the Treasury to exclude the offending article in question from entry. It would seem that if the relationship between the Commission and the President is altered as proposed, the last sentence of section 337 (e) should be deleted.

Section 337 (f) now provides that the President may request the Secretary temporarily to exclude an article from entry pending complete investigation, whenever the President has reason to believe that the article is offered or sought to be offered for entry in violation of section 337 but does not have sufficient information to satisfy him thereof. These directives are referred to as "temporary exclusion orders" and articles covered by a temporary exclusion order may under the statute be permitted entry under bond pending the outcome of the investigation. Section 10 (f) of H. R. 4294 would amend section 337 (f) to permit the Commission to order the Secretary of the Treasury to exclude an article from entry pending the conclusion of the investigation. Thus, while section 337 (e) as proposed to be amended would provide for exclusion of articles on the direction of the President, section 337 (f) as proposed to he amended would provide for temporary exclusion on direction of the Tariff Commission. The question is raised as to whether it would be appropriate for the Tariff Commission to issue instructions to the head of an executive department.

Section 337 (g) provides:

"Any refusal of entry under this section shall continue in effect until the President shall find and instruct the Secretary of the Treasury that the conditions which led to such refusal of entry no longer exist."

Section 10 (g) of H. R. 4294 would change the word "President" to "Commission" and such change would mean that exclusion orders of the President would be terminated by Tariff Commission instructions to the Secretary of the Treasury.

SECTION 11-PROPOSED AMENDMENTS TO SECTION 303 OF THE TARIFF ACT OF 1930

Section 303 of the Tariff Act of 1930 provides for the imposition of special duties on articles dutiable under the Tariff Act of 1930 to countervail "any bounty or grant upon the manufacture or production or export of any article or merchandise manufactured or produced” in the country of origin. The statute does not define a "bounty or grant," and the determination of whether a "bounty or grant" actually exists in a particular case is made in the first instance by the Secretary of the Treasury (who administers the countervailing-duty provision). The question of whether the payment or bestowal of any benefit to manufacturing, production, or export in a particular case constitutes a "bounty or grant" is subject to ultimate determination by the courts.

The amendments to section 303 of the tariff act which are proposed by section 11 of H. R. 4294 wolud make explicit what now is implicit, i. e., that the additional countervailing duties shall apply whether a "bounty or grant" occurs “by special or multiple rates of exchange in terms of the United States dollar, by any other exchange control, or by any other means.”

While the Tariff Commission does not administer section 303, and has not made any study of its administration by the Treasury Department, it is known that the Treasury has been confronted, particularly recently, with the question of the application of section 303 where particular imports from certain countries have benefited from multiple-exchange practices of those countries. As pointed out above, the proposed amendment to section 303 would make it explicit that section 303 applies where multiple-exchange practice results in the payment or bestowal of a "bounty or grant." Whether any actual change in practice would result from the proposed amendment to section 303, the Commission is not in a

position to say. The Commission merely notes that, even with the adoption of the proposed amendments, there would still remain the question in each case whether a "bounty or grant" has been paid or bestowed within the meaning of section 303. For example, at present there may be circumstances under which the incidence of multiple rates of exchange in a particular situation might be the basis of a determination by the Secretary of the Treasury that a "bounty or grant" is being paid or bestowed within the meaning of section 303. The present statute does not exclude any method by which a ‘bounty or grant” may be paid or bestowed.

SECTION 12-PROPOSED AMENDMENTS TO THE ANTIDUMPING ACT OF 1921

Section 12 of H. R. 4294 would amend section 201 (a) of the Antidumping Act of 1921. The principal effect of the amendment would be to eliminate the provision in the Antidumping Act which makes the imposition of dumping duties contingent upon a finding that “an industry in the United States is being or is likely to be injured, or is prevented from being established" by reason of the importation of the merchandise in question.

The Antidumping Act of 1921 at present is aimed at only such dumping which is injurious to a domestic industry or which prevents the establishment of a domestic industry. The proposed amendment would eliminate this concept and condemn dumping per se. The inclusion in the present law of the language referred to above was intended to confine the antidumping measures provided for therein to those instances where the dumping was injurious to the industrial economy of the United States and to tolerate "dumping" when it had no such effect. Whether consuming interests in the United States should be deprived of "bargain" foreign merchandise when no harm results to the domestic industrial economy is a question of policy for the Congress to decide.

The Commission has no information regarding the experience of the Treasury Department in administering the "injury" provision of the Antidumping Act, but it knows from its own experience that the question of determining injury to the domestic industry by reason of imports is not always an easy one. It is assumed that the committee in charge of the proposed legislation will obtain the Treasury Department's views on the proposed amendment.

The attention of the committee is called to the provisions of article VI of the General Agreement on Tariffs and Trade. Paragraph 1 reads in part as follows: "The contracting parties recognize that dumping, by which products of one country are introduced into the commerce of another country at less than the normal value of such products, is to be condemned if it causes or threatens material injury to an established industry in the territory of a contracting party or materially retards the establishment of a domestic industry." Paragraph 6 of article VI reads as follows:

"No contracting party shall levy any antidumping or countervailing duty on the importation of any product of the territory of another contracting party unless it determines that the effect of the dumping or subsidization, as the case may be, is such as to cause or threaten material injury to an established domestic industry, or is such as to retard materially the establishment of a domestic industry. The contracting parties may waive the requirements of this paragraph so as to permit a contracting party to levy an antidumping or countervailing duty on the importation of any product for the purpose of offsetting dumping or subsidization which causes or threatens material injury to an industry in the territory of another contracting party exporting the product concerned to the territory of the importing contracting party."

The general agreement is being applied by the contracting parties thereto pursuant to the “Protocol of Provisional Application of the General Agreement on Tariffs and Trade, dated October 30, 1947," under which the United States has undertaken to apply provisionally, on and after January 1, 1948, "Part II of [the general agreement] to the fullest extent not inconsistent with existing legislation." Since article VI of the general agreement is in part II of that agreement, the United States by the aforementioned protocol has undertaken to apply article VI of the general agreement to the fullest extent not inconsistent with legislation existing on October 30, 1947. Accordingly, it would appear that the elimination from the Antidumping Act of 1921 of the "injury” criterion, as proposed by H. R. 4294, might lead to the imposition of antidumping duties contrary to paragraph 6 of article VI of the General Agreement on Tariffs and Trade.

SECTION 13-PROPOSED IMPORT QUOTAS FOR CRUDE PETROLEUM AND RESIDUAL FUEL OIL

Introduction

NOTE. Reference to tables herein are to tables in appendix A

Section 13 of H. R. 4294 would amend part I of title III of the Tariff Act of 1930, as amended, by inserting after section 321 four new sections (322, 323, 324, and 325). Subsection (a) of the proposed section 322 of the tariff act would impose an overall import quota on "crude petroleum and all products derived therefrom (including residual fuel oil and oil for supplies of vessels at United States ports but excluding oil for manufacture and reexport)." The total quantity of these products (in the aggregate) which could be "imported into the United States from all countries in any calendar quarter of any year” could not "exceed 10 percent of the domestic demand for all petroleum oils in the United States (as reported by the United States Bureau of Mines) for the corresponding quarter of the previous year." However, within the overall 10 percent import limitation on these products, one of the products, viz., residual fuel oil, would be singled out for separate treatment. The total quantity of residual fuel oil which could be "imported *** in any calendar quarter" could not “exceed 5 percent of the domestic demand for residual fuel oil in the United States (as reported by the United States Bureau of Mines) for the corresponding quarter of the previous year."

Subsection (b) of section 322 would permit the President to modify or suspend either one, or both, of the quotas under certain conditions.

Crude petroleum is one of the basic raw materials of modern industry and transportation, comparable in essentiality with iron ore and coal. The most important products made from crude petroleum are gasoline, kerosene, distillate ft el oil, residual fuel oil, lubricating oil, and asphalt."

Production of crude oil in the United States is widespread, from nearly 475,000 wells in several thousand fields scattered throughout 27 States. Nearly 45 percent of total production comes from fields in Texas, more than 25 percent from other States in the midcontinent-gulf region (principally Louisiana, Oklahoma, Kansas, and New Mexico), and about 16 percent from California.

The rate of production is determined to a considerable extent by the action of regulatory authorities in Kansas, Louisiana, Oklahoma, and Texas. Each authority decides monthly the maximum allowable statewide production, and allocates the total quantity among the individual producing fields. When demand is strong, "allowables" are increased; when demand weakens, and aboveground stocks are becoming burdensome, “allowables" are decreased. However, the various authorities by no means act in concert. For example, in 1949 production in Texas was 17 percent, and in Kansas 8 percent, less than in 1948, but in Oklahoma the decrease was less than 2 percent and in Louisiana output actually increased more than 5 percent.

Statistics with respect to imports of crude petroleum and its products, by principal countries, for 1952, are shown in table 4.

Products to which proposed quota limitations would apply

The overall 10-percent quota would apply to "crude petroleum and all products derived therefrom (including residual fuel oil and oil for supplies for vessels at United States ports but excluding oil for manufacture and reexport)." The 5-percent quota within the overall 10-percent quota would apply to residual fuel oil. The key words defining the overall quota "crude petroleum and all products -derived therefrom" have no exact counterpart in existing tariff legislation and their precise scope is not easily defined. In the absence of definite information as to their intended scope, the Commission, in preparing import statistics and in commenting on the proposed quota provisions, has assumed that the products which would be subject to the quota are those presently classified for tariff purposes under paragraph 1733 of the free list of the Tariff Act of 1930 the so-called petroleum paragraph) and, in addition, petroleum asphaltum (solid

Table 1 shows statistics with respect to domestic production, exports, and imports for consumption of crude petroleum for the years 1946 through 1952. 5 Tables 2 and 3 show statistics with respect to domestic production, exports, and imports for consumption of petroleum products for the years 1939 and 1948 through 1952.

Par. 1733 provides for the free entry of "Oils, mineral: Petroleum, crude, fuel, or refined, and all distillates obtained from petroleum, including kerosene, benzine, naphtha, gasoline, paraffin, and paraffin oil, not specially provided for.'