NATURAL RESOURCE SUBSIDIES

TUESDAY, MAY 14, 1985

HOUSE OF REPRESENTATIVES,

COMMITTEE ON WAYS AND MEANS,

SUBCOMMITTEE ON TRADE,

Washington, DC.

The subcommittee met, pursuant to notice, at 11:15 a.m., in room 1100, Longworth House Office Building, Hon. Sam M. Gibbons (chairman of the subcommittee) presiding.

[The press release announcing the hearings follow:]

[For immediate release, Tuesday, May 7, 1985]

THE HONORABLE SAM M. GIBBONS (D., FLA.), CHAIRMAN, SUBCOMMITTEE ON TRADE, COMMITTEE ON WAYS AND MEANS, U.S. HOUSE OF REPRESENTATIVES, ANNOUNCES HEARINGS ON NATURAL RESOURCE SUBSIDIES, TUESDAY, MAY 14, AND THURSDAY, MAY 30, 1 1985

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The Honorable Sam M. Gibbons (D., Fla.), Chairman of the Subcommittee on Trade of the Committee on Ways and Means, U.S. House of Representatives, today announced public hearings to consider various legislative proposals to address the problems being faced by a number of U.S. industries resulting from foreign government regulatory controls affecting natural resources distribution. The hearings will be held on Tuesday, May 14, 1985, in the main committee hearing room, 1100 Longworth House Office Building, beginning at 11 a.m, and Thursday, May 30, 1 in room 2203 Rayburn House Office Building, beginning at 10 a.m. Testimony will be received from invited witnesses only.

The competitive position of many U.S. industries, such as the cement, ammonia, refining, lumber, and petrochemical industries, has deteriorated in recent years as a direct result of foreign governments' policies regarding natural resource subsidies. These policies generally involve a rigidly controlled high world price for the resource coupled with a domestic price that is a mere fraction of the world price. Such policies are being pursued by a number of resource-rich countries to promote their own export industries and, in the process, are causing material injury to resourcebased manufacturers in the United States.

The hearing will allow representatives of each of the affected industries an opportunity to discuss the problems they are facing and to comment upon various alternative approaches to address such problems. In this regard, all witnesses are encouraged to comment on the proposed natural resources legislation to be introduced this week by Chairman Gibbons and others (copies of the draft bill are available from the trade staff) and H.R. 2345, introduced by Mr. Moore. Interested parties concerned with the problems being faced by the lumber industry are also invited to address other legislative proposals including H.R. 1648, introduced by Mr. Bonker. Persons representing the affected industries should contact the subcommittee staff, Chela Sullivan or George Weise [telephone (202) 225-3943] to discuss the issues and express their concerns by close of business, Friday, May 10, 1985.

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE

Any interested person or organization may file a written statement for inclusion in the printed record. Persons submitting a written statement should submit at

1 Subsequently changed to June 6, 1985.

least six (6) copies by the close of business Thursday, May 30, 1985, to Joseph K. Dowley, Chief Counsel, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, DC 20515. If those filing written statements for the record of the printed hearing wish to have their statements distributed to the press and the interested public, they may submit 100 additional copies for this purpose if provided to the committee office before the hearing begins.

Chairman GIBBONS. This meeting of the Trade Subcommittee of the Ways and Means Committee will come to order.

I have, in the first part of my announcement, some changes in the schedule. And the reason why I make that announcement first is because we have had requests for so many witnesses.

Today will go on as planned, and we will have 3 days of public hearings instead of the 2 that we had announced. I wish you would please note the following change in the schedule from that announced in our press release. Because of the large number of requests we have received from prospective witnesses, an additional day of hearings was added, beginning tomorrow at 1:30 in this

room.

So those that we do not get to today that are scheduled for today, plus tomorrow's witnesses, will start at 1:30.

These hearings will conclude on May 30 in room 2203 of the Rayburn Office Building next door, at a hearing that begins at 10 a.m. As we are all aware, the problem of natural resource subsidies is not new to this subcommittee. We had an exhaustive series of hearings on this subject in the last Congress, and the House passedand I have got to stress again, the House passed-in the Trade Remedies Reform Act of 1984, a provision addressing this problem. However, this provision was dropped in conference due to administration objections, and it did not, unfortunately, become law.

The problem has not gone away, however. The competitive position of many U.S. industries, such as the cement, ammonia, refining, lumber, and petrochemical industries has deteriorated in recent months. And at the same time, there has been no sensible response by the United States to these foreign government trade policies regarding natural resource subsidies.

It is for this reason that I, along with a number of cosponsoring members, have introduced last Thursday a new version of this legislation which is numbered H.R. 2451, to provide redress from these subsidy practices.

It is the purpose of these hearings to discuss this problem that is being faced by these industries and a growing number of industries in the United States.

Alternatives to my bill, including H.R. 2345, introduced by Mr. Moore, will all be discussed. I want to say that I certainly do not look upon this, and I do not think anybody should look upon this as the final act of the Trade Subcommittee on trade matters this year. Our agenda is far too full, and there is far too much to be done. But I must admit, in my own view, there is a limited amount of change to be made in America's competitive position through trade laws.

Our principal problem, as I see it, is not our laws, even though our laws do need to be corrected and strengthened. Our principal problem is our domestic economic policy that in effect causes us to borrow too much money and to kick up interest rates and to kick

up artificially the value of the dollar. It is almost inconsistent to say the value of the dollar is artificial. It is not artificial, but the forces that hold it at the very high level are artificial, and these artificial forces are essentially the very real forces that are causing us to borrow so many dollars.

I wonder if other of my colleagues would like to make staements before we hear from our first witness.

Mr. Crane, or Mr. Schulze?

Mr. CRANE. I simply want to congratulate you, Mr. Chairman, for holding these hearings. I think the subject matter is one that we discussed rather considerably last year. As you noted in your "Dear Colleague," it did not become law; it got lost in conference. But the problem certainly is one that is ongoing, and it touches many industries, including one that is in my own district and will be represented very ably in the hearings this morning.

So I congratulate you on resurrecting what is still an ongoing potential piece of legislation that could, I think, very effectively redress many of the imbalances in our trade picture.

Chairman GIBBONS. Thank you, Mr. Crane.

Mr. Schulze?

Mr. SCHULZE. Thank you, Mr. Chairman.

I, too, would like to congratulate you for holding these hearings and for introducing the bill. It is one small portion of the fabric of international trade, and it is one that indicates that the mood of the country is turning in a protectionist direction. That is viewed by other nations with a great deal of interest, and everywhere I go, I am asked by ambassadors and trade ministers how protectionist is American going to get. And it seems to me that the message that they had better understand is that what we are doing is reacting to external influences. Our markets are going to be as free as other people will allow them to be, and I hope in the testimony that is taken during this hearing that we can bring out the fact that we would certainly like to have free markets and if other countries would deal with us on that same basis, we are prepared to deal with them in a free and open way. I congratulate you on holding these hearings, Mr. Chairman.

Chairman GIBBONS. Well, thank you.

Let me sort of back off and philosophize a little before we start, here. As I see it, the reason why we are here today and the reason why we have this problem is because over the years, some very clear and very definitive laws that America had against subsidies have been distorted through the interpretive process.

When we started in this about 100 years ago, the law clearly said any bounty or grant was countervailable-any bounty or grant was countervailable.

Through the legislative process, we have restricted it to any bounty or grant that injures us.

Mr. Moore, we are glad to have you as our first witness.

STATEMENT OF HON. W. HENSON MOORE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA

Mr. MOORE. Thank you, Mr. Chairman.

I want to thank you again for expeditiously getting into this matter just as you did last year. I was privileged to be able to work closely with you last year on legislation that cleared the full committee last year and the House. I can understand the objections of the administration. I think we could have worked them out. I would have rather seen that done than being dropped from conference, but that is the way it was.

Now we come back this year-I have come back with a bill, H.R. 2345, very similar to what we did last year, but taking out the objectionable features that wound up being in the House bill. I think this legislation is GATT-defensible and is not protectionist.

As the chairman fully knows, our deficit in trade is getting larger, historically high last year, and larger this year. I quite agree with the chairman that we cannot correct that by trade legislation. But, by former Ambassador Brock's own opinion, 30 percent of our trade problem was unfair trade, trade laws that had to be changed. That is what we are trying to address here, is part of that concession we made to the international arrangement a few years ago.

But our administrative agencies and the courts have so distorted what is a bounty or a grant that we no longer find the laws effective.

Simply trying to go back-not for old time's sake, but for real practical sake-to what was essentially the definition to begin with-any bounty or grant, no matter how cleverly disguised, how indirectly administered, is the kind of subsidy that we fight against even if it injures us.

I do not think that any American business or any American labor should be asked to compete against an injuriously subsidized product, nor do I think any business or any labor anyplace on Earth should be asked to compete against injuriously subsidized products. That, I thought, was what we had agreed to in the General Agreement on Tariffs and Trade. That is what I believed we were agreeing to. And it is my firm determination to make that at least American law and let the chips fall where they may.

And Mr. Chairman, for those who may be listening and not aware of this, essentially, the way our trade law works is we all know that under GATT, it is clearly illegal for someone to subsidize an export. Yet the raw material which goes into that export, that can be subsidized by a foreign country, and by interpretation of our own Department of Commerce, if it is generally available to anybody down in that country, even though it is subsidized, that is all right. That to me is an absolutely ridiculous position to put our working people and business people in. In other words, you cannot subsidize the final product, the Government cannot, but it can subsidize the raw material that makes up the substantial value of that final product, and that is OK.

We are seeing today three examples that we have uncovered and are looking at, and I do not have the final knowledge whether all three of these would be in violation of the bill we have introduced, but certainly they would be first targets to be looked at.

One is the old problem of Canadian stumpage and timber, where it is believed by many that the Canadian Government owns that natural resource and sells it to lumber mills in Canada so that

lumber can be made and shipped into the United States cheaper than American lumber companies can buy American timber on the open market. That would be the kind of thing that would be looked at. And if, in fact, it was found that the Canadian Government was selling stumpage at less than the market rate, then a countervailing duty under this legislation would be placed upon the finished lumber coming into the United States in the value of the subsidy, and what percent, of course, that subsidy made up of the finished product.

The same thing is true with Mexico and now Kuwait, with natural gas going into chemical production. The same thing, we believe, is true now, since last year when we got into this, with oil going into Venezuelan refineries and coming into the United States as finished refined products such as gasoline.

The point is that foreign countries have now learned and are taking advantage of this, it appears, in increasing numbers. Meanwhile, American businessmen are simply told that it is generally available to everybody in that country, and therefore, we cannot do anything to be of help to you.

Mr. Chairman, those of us who support free trade-and certainly, you are the leader of the free trade movement in the House of Representatives-cannot turn a deaf ear to things of this nature. If we cannot address problems of unfair trade that make no sense, surely, the Congress will run over the both of us and anybody else who stands in their way and come out with outright protectionist legislation. I do not believe that the Congress is going to let oil refineries, lumber mills, chemical companies, and many others just simply go out of business because somebody is subsidizing the raw material that goes into the finished product.

This is something we ought to address and do it in the right way, that is not protectionist, and something that we are willing to live under if our trading partners pass the same kind of legislation in their countries. There ought not be any subsidy anywhere along the line in one of these products.

So I urge favorable consideration of this legislation. I know the chairman is very serious about it, and will move very expeditiously, as he did last year. I think we can produce a bill that corrects the problem, that is GATT-defensible, that is not protectionist, and can be passed into law.

Thank you.

[The prepared statement follows:]

STATEMENT OF HON. W. HENSON MOORE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF Louisiana

Mr. Chairman, I applaud your efforts for holding these hearings in such a timely fashion. I know we share a common interest in this issue and I appreciate your willingness to focus the attention of the subcommittee on this unfair trade practice that is undercutting the market for U.S. natural resources and their by-products. Last year, this committee and the House of Representatives passed a natural resource provision as a part of the trade remedies bill. Unfortunately, it was dropped in conference with the Senate.

This legislation is important to our Nation and to States like mine that are heavily dependent on industries utilizing large amounts of natural resources, like crude oil, natural gas, minerals and timber. It provides the needed protection from unfair foreign competition, while it works within the framework of the free trade system.