national consensus of what kinds of incentives on the part of industrial nations might be appropriate. Because they exercised their power, if not their statutory discretion, to put cases in the drawer and to keep the drawer closed, they probably denied relief sometimes because there was no showing of injury, no real American interest to be served by giving relief, and perhaps they weighed such interests against the foreign policy interests of the problems that would be raised with the countries concerned. Because, let me point out, the Countervailing Duty Act is aimed essentially at the policies of foreign governments, not foreign industries, not foreign exporters, but foreign governments.

Now, the problem is squarely before the Congress, because amendments have been proposed, and I understand in some quarters the Treasury has been taxed with not adequately enforcing the law. And we have amendments which are really quite inadequate and unsatisfactory.

My submission is that you should go back to the bill that was proposed by the administration which would have given the Secretary of the Treasury discretion whether or not to countervail, for the very reason that this is a foreign policy tool in its basic nature. The power to countervail is very like the power to retaliate under section 301, because you are saying to a foreign government, we do not approve of one of your practices, and we are going to do something.

Now, this is something that belongs in the diplomatic arena, and the President or the Secretary should not be narrowly confined in their choices. It is also obvious that the bill should have an injury test. It makes no sense whatever to take action against importations advantageous to the American consumers unless there is some American interest which is being adversely affected.

The reason that the injury test has not been proposed by the administration for dutiable products, although they have proposed it for nondutiable products, I believe, is that they feel that it might be better to use this as a negotiating counter, and that they expect to bring back something with an injury test in it after they have negotiated on what are and are not acceptable international subsidies.

Senator NELSON. Let me ask you a question. You have heard the testimony of Mr. Glass.

Would you consider that the example he gave of the embargo on the importation of finished leather products from the United States would meet any reasonable injury test for retaliation with countervailing duties?

Mr. HEMMENDINGER. This is an injury of a different character from those that would be involved under the Countervailing Duty Law. I think this is something that the U.S. Government has very sound grounds to complain about, and that the question of what action should be taken on it does belong in the area of foreign trade diplomacy.

I happen to have known a little bit about this because I have represented Japanese footwear interests, but not leather footwear interests. I represented Japanese rubber, which is now no longer much interested in the American market, and Japanese vinyl, which is no longer much intersted in the American market, because Japan has risen and fallen in these areas. These trades have moved elsewhere.

But I have asked that question because it is an obvious irritant to U.S. trade relations, and it does arise, as Mr. Glass said, out of a fear or an apprehension which is very hard for Americans to grasp, over the attitudes of the underprivileged group known as the Eta, who are leatherworkers in Japan and who can best be understood in terms of the Indian caste system. This is a group which is to me or you undistinguishable from other Japanese, but which does not intermingle freely and is denied many privileges, not legally but just merely socially. And they have for many hundreds of years been largely confined to the leather trades.

I cannot quite grasp the attitude of Japanese officials on this. But when you consider that they have yielded on many other areas of protectionism, it is necessary to understand that this is a true reason, whether or not we like it. Now, when you come to the position of Secretary of State or Ambassador Eberle and how hard he pushes on this when he is dealing with a social phenomenon of this sort, and he is doing a lot of other things that are important with Japan, I cannot give you the answer. Maybe we should retaliate. I do not

know.

Senator NELSON. Well, if there is any test of injury that would have any rationale to it, it would seem to me this would be a clearcut case. Here you have the tanning industry saying, we do not want any barriers at all. We are not asking for any advantage whatsoever. The leather is being bought, the hides are being bought here. They bar entrance of our finished leather into the marketplace, and then export a substantial amount into our marketplace of finished shoes. If that is not an example, then I doubt whether there are any. Mr. HEMMENDINGER. My argument, Senator, is not whether or not something should be done here, but against any concept of automaticity when we talk about injury. I have been talking about the import side. That is the context which is most common now.

Whether or not we would be able to sell the leather in Japan competitively with Japanese leather is something I do not know. The extent of the losses to our leathermakers I have no information.

Senator PACKWOOD. How do we make it clear in legislation if we want to achieve the end that the two previous witnesses have talked about?

We want equal access to markets, and that is all we are asking. If the executive will not move in that direction, how does Congress pass a law that says to foreign countries, we are going to move in that direction and we are going to do it compulsorily by statute if the executive will not do it by the delegated authority they have?

Mr. HEMMENDINGER. I do not believe that the problem that you are wrestling with is particularly going to be solved by the language of an act unless the Congress-the problem is inherent in the fact that the Congress makes policy and the President executes policy in the field of foreign affairs. That problem has existed in other areas. Senator PACKWOOD. But a major policy decision is, is Congress going to mandate as much as we can in the statutes, that we are going to try to get rid of nontariff barriers?

Now, that is a policy decision.

Mr. HEMMENDINGER. I think the only answer is along the lines of the present bill, that the members of this committee and other com

mittees should participate as actively as they can, constitutionally and so on, in the process of negotiation. You know, I listened to you this morning and I realized that there is a strong feeling in this committee of sympathy with the testimony that has been given today, and most of my experience is at the other end of town. And a lot of my experience is with import interests or foreign interests.

Gentlemen, it is a different world, and this is the real world, and it is a very important world here. But it is not the only world, and there is a lot more out there than there is here.

Senator PACK WOOD. I sense two different things. I sense, even among this committee and among the Congress a substantial protectionist sentiment. It is ironic we have had both Mr. Meany and the electrical industry testify as to the high technology industry, saying we cannot compete because the technology is going overseas. We have had many labor intensive, low technology industries saying we cannot compete. And yet, on the other hand, we have had those who say, we can compete. You have got the protectionist arguments on one hand. The rubber footwear people presented it very well today; we must be protected.

You have got the other argument, we can compete any place in this world, but we are not being treated fairly and we cannot compete under unequal conditions. Those are two different problems, and I think Congress is entitled to address itself to both of them and not simply leave it to the other end of town.

Mr. HEMMENDINGER. I really do not think that the executive needs much more exhortation to go out and beat down those foreign barriers. The question is what he runs into, what our ambassadors and our executives run into, in this process, and what the choices

are.

Now, it has always been possible to say, well, the other guys just are not going to play our way, let us retreat into a protectionist world. But so far it has been the judgment of this Congress and the Executive that we would suffer from doing that. And therefore, we just have to keep working at it. Now, there are successes in this. There have been many complaints about the Japanese. But right this year there are very few, because they have in the course of the years that I have been representing trade interests in Washington moved from the stage of a developing economy to that of an extremely highly developed economy where they have given up even many of the manufactures they used to be sending here, and they have dismantled, I think, as Ambassador Eberle told you, they have dismantled substantially the import barriers that the United States complained of over a period.

Now, I think it can be said that they should have done it faster. But when you consider the fact that we still have ASP and a few other institutionalized anachronisms, we have to understand that other countries cannot always move instantly, either.

Senator PACKWOOD. Under the GATT rules, we can impose countervailing duties, even on export subsidies that are not illegal under GATT.

Why should other countries therefore, GATT countries, complain if we do that to countervail against export subsidies?

Mr. HEMMENDINGER. The only debate I bring before this committee is one of competing American interests, not the question of whether other countries have complained.

It brings me to another point which I hope I have time to make, because I have heard practically nothing about it and it is a great issue which has got to be considered in our trade policy, just as you are now considering a proposal first approved by the executive in 1968 for tariff preferences for developing countries.

When we do negotiate on what subsidies or incentives are legitimate, in my judgment, we are going to have to consider whether developing countries may not do things that industrialized countries may not do. And we are going to have to engage in the weighing of interests here. And that is why I speak so strongly against the illusory automaticity which you find in the Countervailing Duty Act as it stands. There is no sensible way to consider whether we are going to countervail against the incentives offered by developing countries that does not involve a weighing of interests, because those incentives can be just as legitimate and as sensible for that country as a protective tariff for an infant industry.

My final point, if my time has not expired, gentlemen, has to do with a proposal which is certainly not going to be seriously weighed if you proceed in short order to a markup of this bill. But it has struck us repeatedly that the present hodge-podge of remedies against imports does not make much sense, and that if we-whenever there is time, this year or in another year-this committee ought to ask that essentially titles II and III of this bill be rewritten to provide a single form of relief, that an industry or a union that regards itself as being injured by imports should go into the Tariff Commission and make a case-not make a case-present its facts and let the Tariff Commission report to the President the economic facts as to what the effects of the imports are. And then the President should be allowed to pick flexibly among all of the powers that exist under existing statute. There may be further investigations, such as overseas investigations that are today relevant under the Antidumping Act and the Countervailing Duties Act, that would be made by Treasury. But it simply makes no sense to have these remedies by such diverse procedures and standards, and wethis is intended to be a trade-neutral proposal. Certainly it can be made so. It does not imply that it is good or bad for importers or domestic industries.

I suggest to you that we have to look ahead, and that if we always react by a statute which is a bunch of makeshifts, dealing with compromises on present law, we will never have a statute that makes much sense.

Thank you very much.

Senator NELSON. Do you have any further questions?

Senator PACK WOOD. No, I do not think so.

Senator NELSON. Thank you very much for your testimony.

Mr. HEMMENDINGER. I appreciate very much the opportunity to

appear.

Senator NELSON. The committee will adjourn until 10 a.m. Monday, April 8, 1974.

[The prepared statement of Mr. Hemmendinger follows. Hearing continues on p. 1945.]

PREPARED TESTIMONY OF NOEL HEMMENDINGER ON BEHALF OF THE LAW FIRM OF STITT, HEMMENDINGER & KENNEDY

Mr. Chairman, members of the committee, my name is Noel Hemmendinger. I am a member of the law firm of Stitt, Hemmendinger and Kennedy, 1000 Connecticut Avenue, Washington, D.C. 20036. The other partners are Nelson A. Stitt and John A. Kennedy, Jr. We have asked to appear here today in order to bring to the Committee our experience as practitioners with respect to Sections 201, 321, 322 and 341 of H.R. 10710, and to suggest a new approach to the system of import relief.

As lawyers, we represent from time to time a number of foreign trade associations and importers, on whose behalf we have appeared in various proceedings under the escape clause, the Antidumping Act, the Countervailing Duty Act, and Section 337 of the Tariff Act of 1930. This statement, however, is not made at the request of any of our clients nor on behalf of any of our clients.1 The position that I am taking here today represents strictly the views of myself and my partners. They represent our sincere views as to the administration of the trade laws of the United States; they may be biased but are not offered here in advocacy of any particular interest.

SECTION 201 TARIFF COMMISSION ESCAPE CLAUSE INVESTIGATION

H.R. 10710, the House-passed trade bill, substantially revises the escape clause test for import relief. First, it deletes the requirement that the increased imports result from concessions granted under past trade agreements. Second, it changes the requisite causal relationship between increased imports and serious injury from "the major factor" (under the Trade Expansion Act) to "a substantial cause".

The existing escape clause was intended to provide relief for those domestic interests adversely affected by negotiated tariff concessions; the phrase "escape clause" suggests an escape from an obligation under conditions not anticipated at the time of the negotiation. A related provision is the authority to "compensate" other countries through new concessions in return for those that have been withdrawn under the escape clause. H.R. 10710 adopts a much broader approach to import relief, by authorizing it regardless of the reason for the increased imports. That broader approach requires that the causal test be framed with care.

We are concerned that changes in the statute may be misunderstood in the light of the application of existing law by the Tariff Commission. In several instances, the Commission has sent escape clause cases to the President on a divided vote, with three Commissioners adopting the view that increased imports have been "the major factor" in causing serious injury because such injury would not have occurred "but for" the increased imports. In other cases, some Commissioners have found the requisite causal connection without articulating their reasons in terms of statutory interpretation. All in all,ywe believe that the interpretation of "the major factor" on the part of the Commission in recent years has been as liberal as is intended by Section 201 of H.R. 10710. The House Report on the bill (No. 93-571) is not altogether accurate when it states without qualification that “major' has been understood to mean greater than all other factors combined."

We urge that this Committee make clear in its Report that this new language clarifies the Congressional intent but does not necessarily call for affirmative findings, with regard to the relation between increased imports and serious injury, in situations where the Tariff Commission was unable to make such findings under present law.

One other point seems to us particularly in need of correction. In Section 201 (b) (2), the test for determining "threat of serious injury" is looser than

1 We have registered under the Foreign Agents Registration Act on behalf of a number of our clients, and the registration statements are available for public inspection at the Department of Justice. Because we are not speaking for any of them, we have not submitted a copy of our latest registration statement to this Committee and we believe that it would be inappropriate to do so, as implying a responsibility for the views expressed herein on the part of our clients-a responsibility that does not exist.