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Some foreign countries are currently cheating the United States by subsidizing natural resources such as oil, natural gas, and timber, that are later used in finished products and imported to the United States. Venezuela is subsidizing the refining costs of oil. That subsidization is translated into cheaper gasoline that undercuts the U.S. gasoline refiners. Mexico and Kuwait are subsidizing natural gas which translates into a disadvantage for United States and Louisiana petrochemical products such as ammonia. Finally, Canada is subsidizing timber, making it difficult for the U.S. timber industry to compete.

Louisiana now has the second highest level of unemployment in the country, second only to West Virginia. Unemployment in both of these States can be directly correlated to our economic dependence on natural resources. In Louisiana, we have lost during the past 5 years, more than 19 percent of our manufacturing jobs largely due to the decline in the domestic petrochemical industry. Action by this committee is necessary to send a signal that the United States will no loose additional jobs as a result of unfair foreign competition.

Currently, there are some governments which are, through regulation, setting an artificially low price for a natural resource used as a raw material in the production of an exported chemical or by-product. That price is not available to purchasers outside their country, and as a result, these foreign manufacturers are granted an unfair competitive advantage when they later export the finished product to the United States at, in effect, a subsidized price because of their access to artificially inexpensive natural resources.

My bill, H.R. 2345, will correct this unfair trade practice by determining the level of subsidy by taking the difference between the regulated price in the home market and the fair market value of the natural resource that would occur without Government regulation. The fair market value is determined by several criteria, including the world price of the natural resource or by-product, the average price generally available to U.S. producers, the cost of production, the condition of the market and the existence of dual pricing.

This bill embodies the principles of free trade, while it simultaneously provides an internationally defensible benchmark price against which any regulated price can be compared

Historically, we have seen foreign governments such as Mexico, and Kuwait, setting the price of natural gas used in the production of exported chemicals and derivative products, at preferential rates. As a result, these foreign manufacturers are granted an unfair competitive advantage when they later export the finished product to the United States at, in effect, a subsidized price competing directly with U.S. chemicals and finished products.

Now we are also beginning to see foreign governments such as Venezuela subsidize refining costs of crude oil and blending components used in the manufacture of gasoline. Cost absorption of $2-$3 per barrel by government-owned export refiners appears to be occurring in resource rich nations. My bill would define that cost absorption as a subsidy and result in an appropriate countervailing duty to put the U.S. producer on equal footing with the foreign subsidized product.

A similar situation is occurring in the timber industry as well. In Canada, the government owns all timber lands and sets the stumpage fee at an artificially low level in return for certain performance requirements such as employing a minimum number of persons. Such a practice would, under my bill, be indicative of a subsidy and subject to a countervailing duty.

If the United States is to remain competitive in the world market for natural resources and their by-products, the unfair advantage of foreign government subsidization must be offset with a reasonable countervailing duty which reflects the real subsidization. There is a delicate balance which must be achieved in determining the level of subsidization. I believe my fair market value approach can overcome the threat for retaliation which would occur absent a fair computation for the subsidy. This approach is GATT defensible and simultaneously protects U.S. producers.

Mr. Chairman, this legislation is important to our Nation's economic future and well being. It is important to my State of Louisiana and to our Nation as a whole because of our heavy dependance on natural resources. I urge its prompt consideration and enactment to ensure U.S. competitiveness in the world natural resource market.

Chairman GIBBONS. Thank you, Mr. Moore. I appreciate your very forthright statement, and I appreciate not only the industrious work that you contributed to our consideration last year, but the very scholarly and very objective consideration and skill that you contributed to it.

I, like you, do not classify free trade as being subsidized trade. Subsidized trade is just not free trade, and those who worship at the altar of free trade as being some great panacea or solution to the world's problems have got to recognize that a subsidy violates the principle of free trade.

I do not know why people have that much trouble, except I think they sometimes let their own selfish interests get in the way of their good judgment. But we cannot tolerate that kind of malicious distortion of pricing to continue. And, frankly, I do not want to sound mean or bombastic or overly enthusiastic about my own words, but I think we ought to not only impose offsetting duties, but if they persistently try to circumvent our laws and require our people to go to exhorbitant expenses to pay for the prosecution of these cases in our administrative agencies, that there ought to be some offsetting penalty duties, too, in addition to just the offsetting duties.

And while that is not a part of this legislation, it is certainly one of the things I have in the back of my mind.

Do Mr. Crane or any of the rest of you have questions of this fine witness?

Mr. CRANE. I would just like to ask you, Henson, could you quickly recapitulate what the administration's objections were to the chairman's initiatives of last year and how your legislation addresses them.

Mr. MOORE. Last year we got into somewhat of a compromise in the Trade Subcommittee, and part of that compromise probably tilted the bill a little too closely toward protectionism. The main issue, as I understood it, last year with the administration is they felt that that language which cleared the subcommittee and the full committee and the House last year did not give proper recognition to natural competitive advantage of a foreign country.

For instance, we had debate in the committee-and I was a part of that debate-that Saudi Arabia, for instance, has a tremendous natural competitive advantage in natural gas over the United States, and we cannot pass legislation that calls that a subsidy. And I fully agree.

We have changed this legislation and taken back out of it the compromise language that was in last year's bill and come out with something that says what you are trying to get at is the fair market value of that raw material. And if, in fact, the fair market value is above what the Government is selling that resource to a refinery or a plant or a manufacturer, then you have a case of subsidy.

Mr. CRANE. I thank you. Thank you, Mr. Chairman.

Chairman GIBBONS. Mr. Schulze.

Mr. SCHULZE. Thank you, Mr. Chairman. I would like to thank our colleague for his presentation. Henson, I understand that the chairman's legislation has an injury test and yours does not. Is that for any reason?

Mr. MOORE. Yes. The chairman and I have worked together on these matters and then he chose to go the way he did, and his bill may well be better than the one that I have introduced. I am a little worried about injury tests, quite frankly; that is an extra burden that a businessman has to prove. And if you look at the

burden before a businessman now in going before the International Trade Commission, it is almost prohibitive, in my humble opinion. Since you and I have served on this committee, this Congress has shortened the timeframe dramatically in which the ITC must act, and that was an improvement. But it seems to me that the businessman now has got to, first of all, prove injury; he has to prove that there is a subsidy or some kind of dumping going on, and he has to prove his loss.

Well, I just think that that is a pretty tough burden to prove, and it seems to me that if you can prove there is a subsidy going on and you can prove it is taking part of your market, why go any further. What is the necessity of going through an injury test? It is obvious there is some injury at that point, and the additional burden is just what I think, in my humble opinion, is just more than they ought to be required to undertake.

Mr. SCHULZE. Well, I guess the answer to the question you pose is that gives those opponents of the legislation an opportunity to say this is blatantly protectionist legislation, that it does not make any difference whether the subsidy causes harm or disrupts a market or makes any difference or makes any impact; that it will be countervailed against in any case.

On the other hand, if there is an injury test, it says that it must have some impact before you are going to react.

Mr. MOORE. The staff has corrected me. For GATT signatories under our bill there is an injury test, and for non-GATT signatories there is not. I have always felt like we ought to be nudging these people to sign on to GATT and wondering why they have not. Mexico is a good example.

Mr. SCHULZE. So your legislation says that if you are not a signatory to GATT, then there is no injury test.

Mr. MOORE. Correct.

Mr. SCHULZE. That is probably a very good way to put it. I thank the gentleman.

Mr. MOORE. Thank you.

Chairman GIBBONS. Let me explain why the injury test was added to H.R. 2451. Obviously, H.R. 2451 follows Mr. Moore's bill, Mr. Moore's bill having been introduced some time prior to H.R. 2451. And in substance there is not a whole lot of difference between H.R. 2451 and Mr. Moore's bill, and we will be able to work out the differences.

I frankly put the injury test in there because I was trying to get some support, and I got at least a feeling from responsible people in the administration that they would support this legislation if there was an injury test in there.

Now, I do not want to quote them, but I want to let everybody know I am working with them and I expect a little reciprocity on this. I have put in an injury test because they said they wanted an injury test, and I hope that that will encourage them to come around.

I have no hope of passing a bill like this over the President's veto. I think it would pass the House as it did last year in the present state without an injury test in it, but I am hoping that we can get at least some consent from the administration that they will seriously consider this and not go off as they did last year and

publicly say that this was a piece of protectionist legislation. It is not protectionist.

It insults my integrity when they call it protectionist, and I was trying to lean over backwards to be cooperative. Now, if that does not help bring them around, maybe I will just take the injury test out, and we will pass it without any injury test. I think we could do that. We have no more chance of overriding that veto than we have the other one, but I think we can pass this through the House and the Senate without an injury test. I am just trying to be helpful.

And, as I say, I have no apology to anybody on Earth about opposing subsidies as being counter to a free and open trading system. It is not the kind of poison we can live with.

Mr. MOORE. Mr. Chairman, I think that is a good reason to put an injury test in. In fact, if we can get the administration to support the bill, I will certainly go along with what the subcommittee comes up with. They bave indicated to me that they find far less objection and might even be supportive as long as we retain the language we have in this year's bill about determining the fair market value and arm's-length transaction and have corrected the problems we had in last year's bill.

So I agree with you; I think we ought to have them on board and we ought to certainly determine that and get them on board because I cannot imagine why they would oppose it now.

Chairman GIBBONS. I hope there is somebody around here listen

ing.

Mr. SCHULZE. Mr. Chairman, may I ask one more question.
Chairman GIBBONS. Yes, sir.

Mr. SCHULZE. Henson, do you know of any other nation which currently enforces the natural resource law?

Mr. MOORE. No, I do not.

Mr. SCHULZE. There is not. Thank you.

Chairman GIBBONS. Thank you, Mr. Moore. We appreciate your fine help.

Next we have a series of witnesses forming a panel: The Ad Hoc Committee of Domestic Nitrogen Producers; the American Cement Trade Alliance; the Cabot Corp.; Valley Builders Supply and the National Concrete Masonry Association; the Tile Council of America; and, Can-Am Corp.

I think if you all just sit down we will try to sort you out there. Those who are representing those various associations, if you would move forward to the table; since you are such a diverse group, I do not know whether you have had an opportunity to sit down and decide who comes first. Have you had an opportunity to decide who comes first, or would you rather we just go down the list here as I call them out?

All right. The Ad Hoc Committee of Domestic Nitrogen Producers, we will have you first.

STATEMENT OF ROBERT C. LIUZZI, PRESIDENT AND CHIEF EXECUTIVE OFFICER, CF INDUSTRIES, INC., ON BEHALF OF AD HOC COMMITTEE OF DOMESTIC NITROGEN PRODUCERS

Mr. Liuzzi. Thank you, Mr. Chairman. Mr. Chairman and members of the subcommittee, my name is Robert Liuzzi, and I am president and chief executive officer of CF Industries. We are a major producer of nitrogen fertilizer here in the United States. We are a farmer cooperative, owned by farmer cooperatives, and we serve over 1 million farmers in 46 of the United States and two Canadian provinces. I am testifying on behalf of the Ad Hoc Committee of Domestic Nitrogen Producers, which is a coalition of domestic nitrogen producers.

We have a prepared statement that I would request be entered into the full record.

Chairman GIBBONS. Yes, sir. Your statement and the statements of all witnesses during this hearing will be entered in the record in full following any other remarks that they may have.

Mr. Liuzzi. Thank you, Mr. Chairman. The ad hoc committee is extremely concerned with both the cause and effect of increasing imports of subsidized ammonia and derivatives from Government controlled producers and the resulting decline of the U.S. ammonia industry.

We support the various natural resource subsidy bills that have been introduced. While there are some differences in the bills, all recognize the discriminatory, below market energy pricing by governments as an unfair, upstream subsidy that distorts trade and disrupts the U.S. marketplace.

It has caused shutdowns and severe curtailment of productive capacity of more efficient and competitive energy intensive industries here in the United States.

As a nitrogen fertilizer producer, I would like to make a few remarks about the nature of the nitrogen fertilizer business and how injury can occur in that business.

Ammonia, which is the primary nitrogen fertilizer, is a commodity, a commodity chemical, and it is traded in the primary market, the U.S. gulf coast, like a commodity. It is sold on a bid-and-ask basis. Prices and price quotes in the market always move to the lowest bid in that market, and they move very quickly.

Small volumes of subsidized imports can have an extremely large effect on price because the incremental or marginal ton offered will set the price for the rest of the market. In the past the International Trade Commission [ITC] has either been unable or unwilling to recognize this peculiar nature of the ammonia marketplace, the commodity nature. It has tried to find a general formula or general rule that imports might be capturing a certain percentage of the marketplace, say, from 2.5 to 5 percent.

We submit that this is inapplicable and irrelevant in respect to the ammonia business. As we mentioned, it is a commodity. Prices move very quickly, and due to subsidized imports move quickly in a downward fashion. And that is a cause of injury in this industry. Second, in a few cases the ITC has attempted an investigation into who was the original price cutter. We also submit that this is irrelevant with respect to the ammonia business.

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