October/December quarter. Shipments to the U.S. market in February and March, which will be reflected in March/April imports, are expected to average no more than 25,000 tons a month of 56 million pounds, about half the rate of shipments we experienced during the last half of 1975.

Gentlemen, I submit to you that the market is working, and that price regulates markets better than any Government action.

Increasingly, our competition with the growing supply of palm oil is going to be evidenced in markets outside the United States. In Japan, the European Common Market, Southeast Asia, and in Latin America, palm oil is competing with soybean oil on both a quality and price basis. We cannot avoid this competition or ameliorate it in any way by domestic policy actions.

Partly because of this, and partly because of rapidly growing competition from Brazil, our soybean oil exports so far this crop year have been running far below normal.

The point is that any reduction in our imports of palm oil will still further depress our export potential and world market prices. Further, as palm oil production increases and bulk oil movement becomes dominant, freight economies increase and shipments become more regular. Palm oil shipping rates to the United States have been below those to Europe, but with the reopening of the Suez Canal and the closing of the London Palm Oil Pool, these rates may equalize and the United States may no longer be as attractive a destination for palm oil.

We would make a third point. Intervention by the Government in the market place can have unforeseen effects which can be very damaging.

Producers of agricultural products should have access to markets on a worldwide basis and have the opportunity to compete fairly on the basis of price and price alone-assuming similar quality.

The fact is that palm oil is a low cost vegetable oil obtained from oil palm trees which will produce continuously for 35 to 40 years with minimum maintenance and proper rainfall and will yield over 3,000 pounds of palm oil per year per acre as compared to the average acre of U.S. soybeans which produces about 360 pounds of oil.

If soybeans can't compete in the world marketplace because of the increasing production of palm oil, then all the domestic government regulation restricting importation is not going to change that world supply one iota.

We are not alone in this view of nonintervention in the marketplace. The Bank of America's senior vice president in charge of the bank's worldwide agribusiness activities recently states in an open forum:

As long as palm oil can be produced at a low cost in Southeast Asia, Africa, and Latin America, it should be allowed free access to the world marketplace.

Looking back a few years, there have been some real boners pulled that were discriminatory and should have never been proposed-let alone adopted. Price controls were a disaster.

It was a serious error to embargo grain sales after the first big Russian grain sale.

The so-called voluntary moratorium on grain shipments to Russia and Poland cost our farmers income, probably affected future production patterns, and may have inflated consumer prices.

In the classical economic sense, it is doubtful whether by restricting exports or imports any government has in the long run actually benefited its consumers, producers, and taxpayers.

Measures taken by our Government now to react to the growth of palm oil imports by imposing trade restrictions could very well have similar long-range detrimental consequences for the very people proposing such restrictions.

Of equal importance is that our trade representatives have for years been laboring long and hard to reduce trade barriers imposed by foreign countries to the detriment of our agricultural exports.

Our negotiators have argued correctly that world trade is beneficial to exporter and importer alike, and that the importing country of our agricultural goods benefits much more than it is damaged by allowing us free access to the market.

Presently, our negotiators are in Geneva deeply involved in the Tokyo round of GATT trade talks. We are informed that one of the principal points upon which the United States is insisting that agricultural products and industrial products should be dealt with concurrently.

The reason the United States representatives are taking this position is that if agricultural questions are left on their own, it will be much more difficult for us to overcome the resistance of importing countries to open up their markets to our agricultural goods. We could grant some concessions on the industrial side, but we would want some concession on agriculture such as the elimination of hidden subsidies and open access to the markets.

There is nothing we could do which would weaken our position more now than to take the position that restrictions on the importation of agricultural products is justified by the need to protect our domestic agricultural producers from foreign competition.

There is a fourth point. The United States has for decades been at the forefront of those countries trying to assist the developing countries of the world to improve their lot.

It is now generally agreed that it is far better to help these countries by giving them access to our markets than by giving them handouts of one sort or another. "Trade not aid" is more than a motto -it is a generally accepted principal.

The countries that produce palm oil are, in order of importance: Malaysia, Indonesia, Zaire, and Nigeria. All of these countries are in the category of developing countries-a category which encompasses a need for further economic development.

Are we to say to these people that the one product which they can produce more efficiently than we is to be restricted or excluded from our market?

Let's put the palm oil situation into perspective. The United States in 1975 had a net export surplus of $12 billion of agricultural commodities, making it the largest agricultural exporter in the world.

The total value of the 960 million pounds of palm oil imported is: estimated to be about $200 million, less than 2 percent of our export surplus of agricultural goods, and less than 6 percent of the value of our exports of soybeans and edible oils.

In 1976 with soybean exports rising and palm oil imports falling, the impact on our economy and on your edible oil market will be even smaller.

In the future, palm oil imports are going to be limited by the quantities which can be sold in the U.S. market, for purposes which rely upon palm oil's specific quality advantages.

At present, we estimate these markets to be in the order of magnitude of about 50 to 60 million pounds per month, or say, 700 million pounds per year.

Of course, if soybean oil prices once again skyrocket as they did in 1974-75, it is likely that palm oil imports would increase rapidly to fill the vacuum, as they did last year.

The assumption of the reduced rate of imports of palm oil is based on the observed reduction in shipments to have United States from Malaysia and Indonesia as palm oil prices have moved up to approximately soybean oil levels.

Palm oil has certain different qualities and purposes which give it a unique value for certain uses. Consumers who prefer palm oil for these qualities should have unrestricted access to it.

Although there is a large measure of substitution of palm oil for domestically produced edible oils, there are certain uses for which palm oil is better just as there are certain uses for which soybean oil is better. The principal fatty acid in palm oil is palmitic, and to this extent it more closely approximates cottonseed oil than soybean oil. It is solid at room temperatures and, therefore, cannot be used as a salad oil.

On the other hand, it is more stable as a cooking oil and is used primarily in shortenings and for deep frying. It also has certain technical uses such as tinplating in the steel industry where no domestic oil can complete.

Clearly then, the importation of palm oil in exchange for domestically produced oils is a trade which is advantageous to importer and exporter and will only be made if it is mutually beneficial. If duties, quotas, or any other restrictions are placed on the importation of palm oil, some consumers are going to be penalized either by having to pay a higher price or having to use a less satisfactory product than they should like to use.

There is no doubt that palm oil production is going to increase substantially in the years ahead, and nothing that we do is going to change that. The trees have been planted and the fruit will be harvested.

It is estimated that by 1979, Malaysian palm oil output will be as much as 2.37 million long tons-up from 1.19 million tons in 1975. This is an increase of about 300,000 tons a year. Other origins such as Indonesia are also increasing production and U.S. soybean and soybean oil producers will be faced with the competition.

However, this competition will be felt more in the world market than in the U.S. market, since, generally speaking, world market prices for edible oils are based on U.S. prices, plus freight and transportation charges. In the world market, Brazilian soybeans as well as Malaysian palm oil and Philippine coconut oil are competing with U.S. soybeans and soybean oil.

It is interesting to note that Brazil has fiscal and financial incentives available to its exporters to improve the competitive position of its exporters.

By contrast, the palm oil producing countries have no such program. In fact, the Malaysian government, which is supplying the

major portion of palm oil moving in the world market, has been assessing an export tax on palm oil. This tax has been at times as high as 10 cents per pound-when prices of palm oil were very highand is presently equivalent to about 3.4 cents per pound. Thus, the Malaysian government is ready giving some measure of protection to the producers of competing oils.

To bring the increase in world production mentioned above into perspective, it should be remembered that the worldwide increase in edible oils needs is over 1 million tons per year. By 1980, these needs could be increasing at a rate of 1.2 million tons per year.

Thus, the increased palm oil supply will satisfy about 25 percent of the world's growing needs. The balance of these needs will be supplied by other producers-the largest of which are likely to be the United States and Brazil.

Until recently, the United States was supplying by far the major share of these growing world requirements which have been very beneficial to our agricultural producers and to consumers the world over. We now must share this growing market with others, and we should be prepared to do so on a competitive basis, without fear or favor.

For the very reason that we believe it's wrong to interfere with the marketplace, we would join those who argue that we should not be subsidizing the production of foreign competitive crops.

However, I think it should be noted in the record that neither Malaysia nor Indonesia is now receiving any subsidy. The loans which they have received from the World Bank are interest-bearing loans and are being paid back on schedule.

It is conceivable that if an import duty were to be imposed by our government, the Malaysia government could reduce its export taxes correspondingly, the consequence would be no change in the landed cost of palm oil, but simply a transfer of revenues from the Malaysian government to the American government.

Whether this makes any kind of sense in a situation where our government has been trying to aid developing countries, I think only the Congress can decide.

In summary, we believe that Congress should resolutely refuse to impose any kind of trade restriction on the importation of palm oil. In the first place, it would be self-defeating because we must compete in the world market as well as in the United States market. Second, to do so would be a step backward with adverse effects in our international trade negotiations.

Third, it would be detrimental to consuming interests who would either have to pay higher prices or use less desirable products.

Finally, it would be a sharp rebuke to several important developing countries that need our help to help themselves.

Mr. Chairman, that concludes my formal statement. I would like the three accompanying graphs in my statement to also be a part of the record.

Mr. MATHIS. Without objection, they will become part of the record.

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