In a regular plant closing such as the Phillipsburg, Kansas Co-Op Refinery closing, the employees received their just benefits and monetary compensations, as outlined in the Union contract and the company policy procedure. However, in a plant closing such as the refinery in Cyril, Oklahoma where the refinery was shut down under Chapter 11, the Union contract means nothing. The effected employees cannot receive their accrued vacation and severance pay, their pensions or any other benefits until the court rules on these matters. This has a devastating impact on the employees inasmuch as they stand a chance of losing everything they have worked for, and in some cases for 30 to 35 years. Some people are able to find menial jobs for $4 or $5 an hour. Some people must leave their home state to find any work at all, and some just give up. Most of the younger employees are deeply in debt for homes, cars, college, and other things, and find themselves in a position of losing everything they have worked for all of their lives. This is not uncommon at all. Now the so-called trickled-down effect becomes a burden for all the citizens of this country from the local communities to the Federal deficit. In many instances, small local businesses have to close, such as machine shops and small contractors that depend on the refineries to provide work for their employes. Automobile mechanics, restaurants, clothing stores, and, yes, even grocery stores suffer dramatically because the people just don't have any money to spend. The Federal Government, the State, the County, and the City suffer simply because, as a general rule, unemployed people don't pay any taxes. I sometimes think this is overlooked by our government. Sure the Federal deficit is out of control. Why, one of the reasons is that many of the people that pay the taxes to support their country are out of work, they are drawing unemployment, if eligible, on welfare, or in some cases, walking the highways of this country looking for work. They were at one time the taxpayers of this country. The human effect on these unemployed people is also overlooked by many. The divorce rates are high, emotional problems are overwhelming, strokes, heart attacks and nervous breakdowns are not uncommon. As a general rule, these people lost their hospitalization coverage and cannot pay for medical treatment, which is out of control in this country. In closing, I personnally feel, and this is strictly my own personal opinion, that many people in government or on the company board of directors really don't give a damn. The only people that really care are the unemployed workers, their families, and the Union representatives that have to face them on a daily basis. This is sad, but I believe it to be true. That is the way I feel about it. Sincerely, THOMAS L. RICE, International Representative. Chairman GIBBONS. I want to thank all of you for coming. Let me just ask one question: I realize there had been a substantial savings in energy. I did not realize that the OPEC nations had dropped from 31 million barrels down to 16 million barrels. What happened? Mr. McCOWAN. Consumption went down. That, of course, is the big factor, and other production came on and they got a smaller piece of the pie in the way it developed. There has been a tremendous, dramatic change in the entire industry. But most people really have not focused on the fact that that has changed. For those people with those commitments with refineries over there, probably like when our computer people were sitting here a while ago making all these projections how demand was going straight up for energy, and people made commitments for large refineries, for large capital expenditures in those countries. So, they are looking for ways to get-not just OPEC countries, but any producing country is looking for ways to get revenues to offset the fact that they have lost so much, both on production and on the price. Mr. TELL. Mr. Chairman, one thing that I think is significant, in response to the higher prices that OPEC set following those disruptions, we had a drop in demand in the United States of almost 20 percent total energy within a period of a year or two. That, of course, is what created the excess refining capacity that has been now rationalizing down with the smaller, inefficient plants coming down. Now, energy demand is pretty flat today. There will be some modest increase in the future, but nothing like the rates we had in the sixties and seventies. But I think the thing that is significant is we worked our way out of the problems that we found ourselves in in the seventies not by increasing our energy supply, but by significantly reducing our demands. And we did that through conservation, more efficient automobiles, more efficient homes, industry, putting in more efficient units. There was a real elasticity of demand and we also achieved some fuel switching. But many of those savings were one-time opportunities. There was fat in the system that had been generated by low-cost energy historically. We have pretty much taken the benefits of that fat, and if we get ourselves into another difficult supply-demand situation and you look at the fundamentals today and we are just barreling into that situation. We are not going to have the same demand reduction opportunity that we had before. It is going to be much more difficult and much more protracted and much more painful. And with the lead times that are involved operationally, it is just sad to see the general public complacency about energy. You do not even see it on the list of concerns today. And yet when you get below the surface and get down to the specific facts and what is happening, it is not just our refineries; the drilling rates in the upstream are down. We are looking at tax proposals that could be very, very counterproductive. And in the face of that, to have to take this important industry and deal with the kind of massive foreign subsidies by governments-not private firms-governments that have other agendas beyond commercial benefits and dollars. I just want to say again how much we appreciate the opportunity to have a forum. Our industry was criticized at various times in the seventies for not having spoken out sooner, not having warned the American people that there were problems. And we are speaking out and we are expressing concern. And I think your bill can make an important contribution. Mr. McCOWAN. I agree with that in that our company, we are real competitors here together and our company was criticized. Why did you not have more refining capacity? And that is one of the reasons we are coming forward now. We think there is a problem out here. What we have seen over the years-and I have spent a good deal of time in the Middle East, as I am sure Bill has and suffered with all this. But the world back during the crisis was consuming about 53 million barrels a day, and the world was producing about 53 million. And all you had to do was just cut that production a little bit and you had a crisis. It is a very delicate thing. It is down now to about 45 million barrels a day that the world is consuming, and if you start producing 44 million, you have a crisis again. So if we get hooked on products in this country and our refineries are down, then whoever has the power to sway that delicate balance can just play us like a yo-yo. We have to have gasoline in this country. We cannot go without it and the other products that come out of a barrel of crude. Chairman GIBBONS. On that serious and somber note, this concludes our hearings on the natural resource subsidy. The record will remain open until the close of business on June 13. I want to express my appreciation to all of those who have come and who have participated so patiently and so effectively in all of this. Thank you very much. [Whereupon, at 5:23 p.m., the hearing was adjourned.] [Submissions for the record follow:] Hon. SAM M. GIBBONS, AD HOC COMMITTEE OF DOMESTIC NITROGEN PRODUCERS, Chairman, International Trade Subcommittee, Committee on Ways and Means, U.S. House of Representatives, Washington, DC. DEAR MR. CHAIRMAN: Ambassador Michael Smith stated the position of the Administration in opposition to H.R. 2451 was based on their belief that this proposed amendment would violate GATT Subsidies Code obligations. You mentioned testimony by Richard R. Rivers, P.C. of Akin, Gump, Strauss, Hauer & Feld, given on October 20, 1983, on similar legislation stating that the provision did not violate the GATT. Mr. Rivers is co-counsel for the Ad Hoc Committee of Domestic Nitrogen Producers, but is unfortunately out of the country until June 17. He will be pleased to reconfirm his opinion in writing to the Committee on that date, and we ask that it be included in the record. Enclosed is an analysis by Charles Owen Verrill, Jr., Esq. of Wiley & Rein, who is also co-counsel for the Ad Hoc Committee and an expert in international trade law and the GATT. He reaches the same conclusion that H.R. 2451 does not violate the GATT. We ask that Mr. Verrill's memorandum on behalf of the Ad Hoc Committee of Domestic Nitrogen Producers be included in the record. Sincerely, Enclosure. MEMORANDUM PHILIP H. POTTER. To: Ad Hoc Nitrogen Committee. From: Charles Owen Verrill, Jr., and Robert C. Weissler. Re: H.R. 2451 would not violate the GATT obligations of the United States. A. THE SUBSIDIES CODE DOES NOT DEFINE DOMESTIC SUBSIDIES BY A SPECIFICITY 1 Ambassador Smith and others 1 have argued that GATT Article VI and the Subsidies Code require Congress to mark "the dividing line between permissible and im 1 See, for example, Judith Bello and Alan Holmer, "Subsidies and Natural Resources: Congress Rejects a Lateral Attack on the Specificity Test," 18 Geo. Wash. J. Int'l. L. & Econ. 297, 305 (1984), where the authors argue that the Subsidies Code mandates a limit on countervailable domestic subsidies to those provided "to specific regions or sectors, not those made more widely available." permissible government subsidies" by reference to the "generally available" test. (Testimony at 5-6.) And, he argues, the Code reflects an "international consensus" on those subsidies that "are properly the subject of countervailing duties. . . ." This argument is premised on Code Article 11:32 which Ambassador Smith-like other proponents of the specificity test-quotes to demonstrate a "universal international acceptance" 3 of the notion (mistaken in our opinion) that the only properly actionable subsidies are those granted "regionally or by sector." (Testimony at 5-6.) Objective analysis of the Code, however, conclusively demonstrates that it does not in any way limit the authority of Congress to define as countervailable subsidies the domestic programs of foreign governments that increase exports to the United States and injure U.S. industries. In the first place, the Code does not define countervailable domestic subsidies. Instead, the Code acknowledges that domestic subsidies are used by governments to achieve national objectives including, among others, "generally to sustain employment and to encourage re-training and change in employment," "to encourage research and development," "to promote the economic and social development of developing countries," and "to avoid congestion and environmental problems." (Art. 11:1) These objectives would obviously involve, and the Code so acknowledges, broadbased subsidies not necessarily limited to any particular sector or group of enterprises or regions.* Having acknowledged the prerogative of governments to adopt domestic subsidy programs, the Code (without reference to regions or sectors) establishes the obligation of signatories to avoid causing (or threatening) injury to a domestic industry in another country through the use of such subsidies. (Article 11:2) This obligation, we emphasize, applies to all domestic programs without any qualification based on availability. Further, in discussing the requirements for countervailability, the Code nowhere mentions any such qualification. (See Articles 2, 4.) This demonstrates therefore, that the Code—instead of reflecting a specificity requirement-in fact explicitly rejects any such limitation. Otherwise, the obligation to avoid extraterritorial injury would be meaningless with respect to programs that are “generally available." As a consequence of the Code obligations, the United States is obligated to avoid domestic subsidies that may cause injury to other trading nations and has the right-without being limited by notions of specificity-to define domestic subsidies, for purposes of the U.S. countervailing duty law, as those foreign practices that injure domestic industries and which the granting government has an obligationunder the Code-to avoid. International trade effects, therefore, are the litmus of a Code acceptable countervailing duty law-not the defined class of subsidy recipients. The Code does provide "[e]xamples of possible forms" of domestic subsidies, such as "government financing of commercial enterprises, including grants, loans or guarantees; government provisions or government financed provision of utility, supply distribution and other operational or support services or facilities; government financing of research and development programmes; fiscal incentives; and government subscription to, or provision of, equity capital." (Article 11:3.) And, the Code states that these forms of subsidies "are normally granted either regionally or by sector." (Emphasis added.) But the Code has no prohibition on countervailing subsidies that are not regional or sectoral and emphasizes that the list is "illustrative and non-exhaustive." No objective reading of the Code can elevate these "nonexhaustive" illustrations of possible "forms of subsidy" into an obligation that limits Congress in the definition of a countervailable subsidy.5 In fact, the Code recognizes that the illustrative list of domestic subsidy practices should be "reviewed periodically." (Article 11:3.) This is entirely consistent with the authority of Congress to revise the U.S. law to take account of the dynamics of world trade and evolving subsidy programs in other countries. The Code's description of possible forms of domestic subsidies that were apparent in 1979 and the observation that those "forms" are "normally granted either regionally or by sector" does not set limits on the authority of Congress to evolve concepts of countervailable 2 The relevant Code provisions are reproduced in Annex A. 3 Since the Code has only been ratified by a small fraction of the countries in the world, it is obviously not "universally" accepted. 4 The Subsidies Code recognizes that such objectives may involve broad-based programs, stating that these objectives "may be achieved, inter alia, by means of subsidies granted with the aim of giving an advantage to certain enterprises." (Article 11:3.) 5 Bello and Holmer base their case for a specificity requirement on the illustrative list by transforming "examples of possible forms" of subsidy into a substantive requirement which they are clearly not. See 18 Geo. Wash. J. Int'l. & Econ. at 304-05 & n. 45. subsidies. Instead, the only Code mandated limitation is that newly minted domestic subsidies can only be countervailed if they have adverse extraterritorial effects on industries in other countries. In summary, the Code does not “mandate” a specificity requirement. Instead, the Code describes "possible" forms of subsidy that were generally in use in 1979, but categorically states that the illustrations are non-exhaustive. Therefore, Congress and the legislatures of other signatories have authority, that is not limited by any specificity benchmark, to define countervailable subsidies to take into account domestic programs in other countries that cause extraterritorial injury. B. ENACTMENT OF H.R. 2451 WOULD NOT OPEN A PANDORA'S BOX Another argument is that the "generally available" test provides a "safe harbor" where exports of U.S. industries are secure from countervailing duties. Absent this test-so the argument goes-other countries would have an "open season" on U.S. exports that benefit from a wide variety of federal programs that are designed to foster economic growth (citing tax breaks, defense and scientific research, etc.). This, of course, is a practical consideration-not a GATT or Code argument-that counsels caution in devising new definitions but does not forever "freeze" the examples of subsidy in the Code as the limits of countervailing duty law. The natural resources bill now before the Subcommittee would not open a Pandora's box because it is not an attack on general government intervention (such as public schools) but rather a carefully crafted effort to address a form of offshore domestic subsidy that is not available to U.S. producers but which has injurious effects in the U.S. markets. This is the type of subsidy that has the potential for injurious effects on world trade because only a limited class (producers in the resource country) have access to the subsidy benefit. Neither the Code nor the 1979 Trade Agreements Act forecloses Congress from addressing such forms of subsidy. The possibility that our trading partners may do likewise is entirely consistent with Code Article 11:3 which makes very clear that "[t]he enumeration of forms of subsidies set out above is illustrative and non-exhaustive, and reflects those currently granted by a number of signatories to this Agreement." And, the code clearly contemplates that the U.S. Congress and other signatories will revise their laws—within Code principles-to reflect changing conditions. C. H.R. 2451 DOES NOT PENALIZE COMPARATIVE ADVANTAGE Nobody disputes the fact that comparative advantage is a tenant of world trade. Ambassador Smith is wrong, however, in his claim that H.R. 2541 would "strike at the heart of comparative advantage," since the resource subsidy definition would only apply where U.S. producers are denied equivalent opportunity to exploit such advantage. In other words, only those countries that deny national treatment in their allocation or distribution of resources would be potentially subject to application of H.R. 2451. CONCLUSION Congress obviously has authority to amend the countervailing duty law to address an international trade problem that Ambassador Smith has acknowledged. Such amendments should adhere to the Code's procedural requirements and mirror the domestic subsidy obligations. These obligations do not include a delimiting specificity requirement. Instead, wnere a domestic program in a foreign country violates the obligation to avoid adverse effects in the United States (or any other signatory), then Congress is entitled to amend the law to provide a countervailing remedy. Such evolution of countervailable subsidy concepts is, in fact, anticipated by the Code which emphasizes that the description of subsidies available in 1979 was illustrative and, more important, non-exhaustive. Indeed, inducing vertical integration of natural resource production and manufacture may well distort comparative advantage if the facilities are excessive to world needs and/or justifiable only because of the natural resource distortion. |