Examples of the practices covered by this authority include unjustifiable or unreasonable import restrictions and export subsidies which have the effect of substantially reducing sales of competitive U.S. products in foreign markets.

In such cases the complaint should be brought to the attention of the special trade representative.

Section 201 of the Trade Act of 1974, the so-called escape clause, provides a mechanism for obtaining relief when a determination is made that an article is being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat of serious injury to the domestic industry. Petitions requesting such relief are filed with the U.S. International Trade Commission.

In the case of palm oil there is a real question whether the problem could be solved by restricting access to the U.S. market.

Given ample supplies of edible oil worldwide the probable result of such action would be to divert palm oil to other markets where it would compete with U.S. sales of oilseeds and oils.

The United States does provide unrestricted market access now for palm oil in comparison to that provided by other major consuming countries.

The legal U.S. duty rate is free or zero. Duties on crude palm oil for food use in the EC and Japan are 6 and 8 percent ad valorem respectively, although the EC does provide preferential free access to Lomé Convention members, the producing nations in Africa, and Japan has a 4 percent GSP rate.

On the other hand, since U.S. soybeans currently enter both of these markets duty free the higher palm oil import duties in the EC and Japan may be actually providing a competitive advantage to the United States soybeans which are crushed in those countries. We need to carefully evaluate the facts and the implications of alternative policy options before taking action. There are substantial risks associated with consideration of restricting U.S. palm oil imports in terms of our trade policy generally, the MTN, and our exports of oilseeds and products.

Thank you, Mr. Chairman. I would be pleased to respond to any questions you may have.

Mr. MATHIS. Thank you, Mr. Starkey. We appreciate your testimony. Mr. Jones.

Mr. JONES of Tennessee. Thank you, Mr. Chairman. Due to the press of time here, I think I shall forego asking any questions. It is a good statement and I would like to commend Mr. Starkey for waiting and for giving us a statement. But, because of the press of time, I will forego questioning him.

Mr. MATHIS. Mr. Moore?

Mr. MOORE. Thank you, Mr. Chairman. Mr. Starkey I read your testimony and heard you deliver about half of it. On page 3, you make the statement that any action to increase barriers in our own market would, of course, injure the delicate trade negotiations that you are attempting to work out.

On the first page of your statement-in fact the first two pagesyou talk about loans the Federal Government has been making to countries to increase coconut and palm oil production and refining

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facilities. But, studies underway now indicate there is indeed an oversupply of edible oils.

My question is, if you look at the loans made in the year 1975 alone, it totals-I have not added it up yet-in excess of $60 or $70 million. Now, when did you come to the conclusion that it looks like we have loaned too much money already; where we are increasing world production to the point that we can not even absorb the world's edible supplies?

Mr. STARKEY. I think my statement in the testimony was that if the studies now underway under the auspices of the Council of International Economic Policy and the National Advisory Council indicate, indeed, that there is a surplus of edible oils in the world, it would not make sense economically to continue to lend money for these kinds of products.

I do not think we really have the facts yet. I think we have some indication, as Mr. Bushnell indicated this morning, that certainly there is that possibility. But, we also have to be aware that we have been in a situation of world recession over the last year or year and a half, which has certainly cut the demand for edible oils.

I think Mr. Bell testified this morning that he felt the situation. was improving and that this U.S. market could take additional quantities of these edible oils at attractive prices over the next year

or so.

I think there is potentially a problem over the longer term that we need to look at, and I am hoping that these studies which will be available by the end of April will indicate the facts of the matter and the choices which we have available and alternative policy options.

Mr. MOORE. How much in loans are we going to make from the first of January until this study is complete in April?

Mr. STARKEY. My understanding is that there are no more loans up for consideration until sometime this summer in these international lending institutions.

Mr. MOORE. Are you going to be willing, if your study shows that, in fact, these loans are creating competition for our own oilseeds producers in this country, at that time to oppose the making of these loans in the summer of 1976?

Mr. STARKEY. I may say that the Office of the Special Trade Representative does not sit on the National Advisory Council, which instructs our representatives to these international lending institutions.

But, I think, as I said in my testimony, our office would feel that there would be a little economic benefit to continuing loans if that is indeed the situation, and that would certainly be our position within the Office of the Special Trade Representative.

Mr. MOORE. It appears to me that the testimony I have heard so far indicates that we are getting into a situation that would increase competition with oilseeds, particularly soybeans throughout the world.

We are going to see more soybean oil on the international market than ever before. The prices in this country reflect that. At the same time, here we are encouraging the production of additional oils by other countries by making loans to them, this indirectly supporting competition with our own farmers.

This to me is sheer madness. If it makes sense, I wish that somebody would get their studies complete, and draw this madness to a close.

Otherwise, I am going to support legislation necessary to draw it to a close. Thank you, Mr. Chairman.

Mr. MATHIS. Mr. Bowen ?

Mr. BowEN. Mr. Starkey, in the summation of your testimony you say, and I quote, "There is substantial risk associated with consideration of restricting U.S. palm oil imports in terms of our trade policy generally, the MTN and our exports of oilseeds." I wonder if you can be a little more specific in pointing out what the substantial risks might be, specifically to Malaysia and Indonesia importing any kind of oilseeds to us.

Mr. STARKEY. In the first place, I do not believe, Mr. Chairman, that the risk would necessary be primarily in Indonesia and Malaysia.

I think any time the United States takes a restrictive trade action, given our position of leadership in the world trade field over the last two decades, this is taken as a signal of the U.S. attitude toward international trade, and I think we can look around the world and see other countries which have very difficult problems in the agricultural area that would be just looking for an indication that the United States was attempting to deal with its own problems through restrictive action to consider taking the same type of action.

I think we have got a problem of this type right now in the European Community, where as you know they have announced April 1 a new mixing regulation that will require the use of nonfat dry milk in mixed feed.

This is going to displace some of our exports of soybeans and soybean cake and meal to the European community, and I think there are other countries around the world which has similar concerns. And they are just looking for an indication that the U.S. is backsliding to take the easy way out in handling those kinds of

concerns.

Mr. BOWEN. Well, I am still not at all sure that I got the answer that I was looking for. Do you think these substantial risks would involve the European Economic Community?

Mr. STARKEY. I think there certainly would be risks there. I think there would be risks in many other countries. I think we also have to assume that there would be risks in the context of the multilateral trade negotiations, as I pointed out in my testimony. We can hardly ask countries, including Malaysia and Indonesia, to take increasing quantities of U.S. products, including agricultural products, if we are at the same time closing off our market to the things that they can produce and ship competitively to our market.

It is an old cliché but trade is a two-way street. And, if we bang the door on one side, I think we have to suffer the consequences on the other.

Mr. MATHIS. Are there any kind of import restrictions or duties on anything that we ship now from this country to Malaysia and Indonesia?

Mr. STARKEY. There certainly are a number of import restrictions that we intend to try and deal with on products of interest to our trade in the multilateral trade negotations.

Their licensing requirements, their high duties. We hope through the trade negotiations to be able to increase access for a number of our products.

Mr. MATHIS. If I understand it correctly, the two nations where we are importing most of the palm oil from-that is, Indonesia and Malaysia do have restrictions on our exports into their country? Mr. STARKEY. That is right.

Mr. MATHIS. Yet, your commission feels it would be unfair for us to talk in terms of placing any kind of restrictions on their products coming into our country? Is that a fair statement?

Mr. STARKEY. I would hope, Mr. Chairman, that the positive approach to the problem would be to negotiate down the barriers into their market and not to impose particular barriers on our side.

Mr. MATHIS. Well, have we had much success in that area?

Mr. STARKEY. I think over the years we have had some success in that area. This is the first time that an effort of the magnitude that we are now engaged in, in the Tokyo round of negotiations, has been undertaken. We hope, in these negotiations, for example, to deal with larly true in the agricultural area, the nontariff barriers.

a number of the hardcore aspects of protection, as this is particuAnd these are the barriers which have tended to be the most important in developing countries, Malaysia and Indonesia, in keeping our trade out.

Mr. MATHIS. Now, you say we have had some success in prior negotiations in dealing specifically with these two countries. I wonder if you might share with us what these successes have been?

Mr. STARKEY. Mr. Chairman, I do not think I have said in these two countries.

Mr. MATHIS. Well, I would like to know specifically about these two countries? We have had negotiations, you said, involving these two countries?

Mr. STARKEY. We have had negotiations. I am not aware that these two countries have participated in past negotiations as they are participating in this negotiation.

Mr. MATHIS. In Geneva, have we made any effort-we, meaning you-to try and bring the barriers down in the European Economic Community toward palm oil? They have an ad valorem tax there and Japan. Are we trying to get Japan and the European Economic Community to back off on their ad valorem tax that they impose on palm oil?

Mr. STARKEY. Mr. Chairman, our negotiations are just getting underway in Geneva, and we have not yet reached the negotiating stage.

I would question, however, whether we want to go to these countries and request concessions that would directly benefit other countries, because they are going to charge us. They are going to ask for reciprocal concessions from the United States if we go to them and ask them to reduce palm oil duties.

I think the Indonesians and Malaysians may well do this. I think there is a second aspect to the problem and that is the point I made at the end of my statement that there is certainly a very real possibility that higher import duties on palm oil in the European

Community and Japan are providing a competitive margin for our soybean, in the sense that it is more competitive for these countries to import our soybeans, crush the beans there and market the oil in those countries than it would be if palm oil had freerer access into these markets.

I think these are some very real considerations that we want to be very sure of before we embark on a course of action.

Mr. MATHIS. As we enter into these negotiations and I certainly do not want to prolong the dialog because it is obvious that your office and my philosophy are about 180 degrees apart-would it only be to our advantage to going in and dealing from a position of being tough? That we might have some restrictions of our own. That we have some thing we can do?

Do we always approach them on the basis of letting them, meaning the other nations we are dealing with, set exactly what the criteria is going to be and what the terms are going to be?

Here they are, as you say, with restrictions on us and we have none on them. What do we have to negotiate with? What do we use for leverage? It would seem to me that if we would impose a pretty stiff tariff or duty on this stuff coming in right now we might be in a better position to negotiate when we went to Tokyo when this round of talks is going on. And that is a simplistic, red-neck view, and I know that.

Mr. STARKEY. Mr. Chairman, I think the only product in which we do not have import duties coming from Malaysia and Indonesia is probably palm oil. I am certain that there are other products that they would like to sell in this market that are protected by import barriers, by duties or by other types of restrictions.

And these are the types of things we have to negotiate with those countries.

Mr. MATHIS. Mr. Johnson?

Mr. JOHNSON. Mr. Starkey, I am sorry I was not able to get here before your statement. Are you saying with respect to the European Common Market and the Japanese Market that should the United States impose some kind of barrier or tariff on palm oil imported into this country, this would have an affect or change in the policies of these other countries with respect to palm oil duties and the U.S. soybean duties?

Mr. STARKEY. Mr. Johnson, I do not believe I said it would affect their palm oil duties. What I intended to convey was that any time the United States takes a restrictive action it signals to the international trading community that if world's leader for free trade is handling its problems through restrictions that this method is certainly available to the other countries in the world, and I think there are a number of sensitive, problem areas with respect to these countries.

We are aware of the nonfat dry mixing regulation right now in the European Community, and I think anytime we contemplate restrictive action, we may face the prospect of similar action in those countries.

Mr. JOHNSON. Well, you said we have a competitive advantage with soybeans in Europe and Japan. That would not be diminished or changed in any way, would it, by our imposing a duty on palm oil coming into this country?