Excise Tax returns filed with the Tax Division showed that the following taxes were paid on cigarettes brought into the Territory:

Mr. Chairman, this measure would have no discernible affect on either the general economy of the United States or the revenues of the United States derived from cigarettes, but as you can see, has a marked affect on what must be called the very fragile tourist oriented economy of the Virgin Islands. This measure, if passed by the Congress, would be one more step in the direction of making us more self sufficient. I urge its favorable consideration.

Thank you, and I will be most happy to respond to any questions which you may have at this time.

Mr. VANIK. Thank you very much.

The next statement will be by Mr. Francis.

STATEMENT OF AMADEO I. D. FRANCIS, COMMISSIONER OF COMMERCE, GOVERNMENT OF THE U.S. VIRGIN ISLANDS Mr. FRANCIS. My name is Amadeo Francis, and I am commissioner of commerce of the U.S. Virgin Islands. As part of my responsibilities, I am responsible for the tourism activities in the Virgin Islands, which, of course, as you are undoubtedly aware, Mr. Chairman, is the base of the Virgin Islands economy.

Mr. VANIK. You are going to get hit hard with these high airplane rates.

Mr. FRANCIS. That is why this is important.

Mr. VANIK. People are probably going to spend their holidays in Baltimore.

Mr. FRANCIS. Unfortunately, you are going to be joined by so many others.

The Government of the Virgin Islands wholeheartedly supports H.R. 7709, which partially restores the privilege the territories enjoyed prior to 1978 by increasing the number of cigarettes acquired in the insular possessions which are accorded duty-free treatment when brought into the United States by returning residents.

I firmly believe the proposed duty-free allowance of 1,000 cigarettes, that is to say, five standard cartons, is a much more reasonable limit than the current 200-cigarette limit level, and quite possibly fairer to all concerned than the limited number of cigarettes that could formerly be imported duty free from the insular possessions.

The duty-free quota of one carton which was put into effect in 1978, Mr. Chairman, was basically intended to eliminate the abuses being experienced at the Canadian border and not-I repeat notin the U.S. possessions. The distance between the U.S.* mainland and the territories would obviously not encourage any such abuses. Over the past 12 years, the Virgin Islands has suffered a significant reduction in imports of cigarettes. There has been a drastic decrease in sales, retail sales of cigarettes, and there has been a loss of territorial tax revenues.

The reduction of the duty-free cigarette allowance has further reduced the incentives that the U.S. resident has in traveling to the Virgin Islands. Coupled with the other advantages Congress

has afforded to U.S. residents visiting the U.S. territories, such as a duty-free allowance of $600 and a 1 gallon duty-free import of alcoholic beverages, the proposed five-carton limit would contribute to enhancing the choice of a vacation in the U.S. Virgin Islands of visitors of the Caribbean and/or foreign destinations.

On the other hand, I can assure you nobody is going to travel to the Virgin Islands merely to purchase five cartons of cigarettes, irrespective of the cost savings that may be realized as compared to what he would pay on the U.S. mainland. But psychological benefits are derived from the advertising and promotional value which far outweigh the monetary gains to any single party, whether that be the individual visitor, the local business concerns, or the territorial government first.

But for a small, fragile tourist-dependent economy, these advantages are of particular importance and are even more critically important at this point when we are experiencing a substantial decline in the number of visitors to the territories, Mr. Chairman, for, among other reasons, the increasing air fares.

This year it is costing the average couple who wants to travel to the Virgin Islands $400 more to get to the Virgin Islands than it did 1 year ago, and the impact has really been seen. There was a decline of over 15 percent in the number of air arrivals in the Virgin Islands during the first 6 months of this year. And we are very concerned about what is going to happen.

Unfortunately, we have no alternative. It is therefore of the utmost importance that we do everything and you help us to maintain our posture in an increasingly more competitive effort to attract our share of the flow of U.S. business to the Caribbean.

It is for this and other reasons that are in my statement that I urge swift approval of H.R. 7709. Thank you very much. I stand ready to answer any questions you might deem appropriate. [The prepared statement follows:]

STATEMENT OF AMADEO I. D. FRANCIS, U.S. VIRGIN ISLAND

On behalf of the Government of the Virgin Islands, I wholeheartedly support H.R. 7709 which is designed to increase the quantity of cigarettes that would be accorded duty-free treatment. The current law unduly and adversely affects government and business concerns in the Territory. I firmly believe that a duty free cigarette allowance of not more than 1,000 cigarettes, five standard cartons, is a much more realistic and reasonable limit to set than the current 200 cigarette level.

As you are aware, the duty-free quota of one carton was only put into effect in 1978 and basically was intented to eliminate the abuse at the Canadian border, not in United States possessions. However, as a result, the Virgin Islands suffered a significant reduction in imports, a drastic decrease in retail cigarette sales and an erosion of tax contributions to the Territory's treasury. I cannot overemphasize the relatively large effect that such changes whether they be positive or negative have on our small fragile tourist dependent economy as compared to that of the U.S. One million dollars is nearly an imperceptible portion of the United States tax budget, but in the Virgin Islands, such an amount may serve to ensure a competitive number of firms engaged in import activities, a profit life-line for a group of retail business and/or a noticeable impact on our earnest attempts to balance the local budget. As you can see the outsiders we may not be asking for much yet, to us, it is an important issue of additional livelihood and means.

The Virgin Islands Government would not support a request for an increased allowance unless it was shown to have sizeable and positive impacts on considerations such as the potential earnings of Virgin Islands businesses and other direct, as well as indirect benefits, throughout the entire economy. The research and analysis undertaken by my staff unequivocally indicates the costs of past legislation and the benefits the proposed changes before us would have. Therefore, I strongly endorse swift passage of H.R. 7709 as presented this day.