2 EXPORTS AND IMPORTS

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  • 2 EXPORTS AND IMPORTS

    Significant year for foreign trade

    EARL V. ANDERSON, Senior Associate Editor, New York City

    The Kennedy round with its tarriff cuts; import and export records;)

    and another fight over American Selling Price mark the year 1967

    Significant developments have a cu-rious way of coming in bunches. As far as U.S. foreign trade affairs are concerned, 1967 is a year crammed full of significant developments.

    On June 30, the last day possible under the deadline set by the Trade Expansion Act of 1962, the U.S., along with 52 of its major trading partners, signed the Kennedy-round agreement. When U.S. Ambassador William Roth and his fellow negotiators signed the formal documents, they brought to an end the longest and most sweeping tariff-cutting conference in trade his-tory.

    The Kennedy round, held in Ge-neva under the auspices of the Gen-eral Agreement on Tariffs and Trade (GATT), drastically reduced tariffs on about $40 billion worth of prod-ucts in international commerce. It also produced the world's first uni-form international antidumping code.

    In the U.S., with the major tariff--cutting provisions of the Trade Ex-pansion Act now used up, the country must pick the course of its future trade policy. Several planned stud-ies may produce this trade policy this year.

    1967 is the year, too, in which the Administration asked Congress to re-voke American Selling Price (ASP), the controversial and highly protective tariff valuation system that is cher-ished by the benzenoid chemical in-dustry. It is the year in which U.S. exports will surpass the $30 billion benohmark which it so narrowly missed in 1966. And it is the year in

    which U.S. chemical imports will ex-ceed $1 billion for the first time.

    Trade balance falters

    Unfortunately, 1967 also will be another year in which the aM-impor-tant U.S. balance of trade will decline. For some reason, optimism seems to be a perennial characteristic of trade-balance projections. During the first few months of the year, export trends were upward while imports seemed to be leveling off. Based on these trends, trade analysts had forecast an increase in the U.S. trade balance (the excess of exports over imports) for 1967.

    They forecast a similar gain last

    year and were disappointed. They may be disappointed again this year. In 1966, an impressive export per-formance was overshadowed by an even more impressive import perform-ance and the U.S. trade balance eroded substantially. The same thing may happen again this year, although on a smaller scale.

    In 1966, exports jumped 1 1 % , to $29.9 billion, an advance that ordi-narily would satisfy even the most critical trade official. However, the U.S. economy was strong throughout the entire year. Industrial output was hard-pressed to meet demand, and foreign products poured through U.S. ports to take up the slack. When the final trade figures were tallied, im-

    World trade: tapers off slightly this year

    Area World total Free World Eastern Europe Industrialized countries Less-developed countries United States European Economic Community European Free Trade

    Association Latin America Japan Canada

    a C&EN estimates. Source: United Nations

    1964

    $172 152 19

    117 35 26 43

    24 10.6 6.7 7.7

    ' Total exports Billions of dollars (f.

    1965

    $186 165 20

    130 36 27 48

    26 11.1 8.5 8.1

    1966

    $202 181 22

    142 39 30 53

    28 12.0 9.8 9.5

    .o.b.) 1967a

    $217 193 24

    153 41 32 58

    30 12.5 11.0 9.9

    1968a

    $235 209 26

    167 44 35 64

    32 13.3 12.9 10.8

    48A C&EN SEPT. 4, 1967

  • Canada, as usual, heads the list of countries that are our leading chemical customers

    ports increased an astounding 20% to reach $25.4 billion. As a result, rather than increase slightly as the trade analysts expected, the U.S. trade balance dropped sharply from $5.6 billion in 1965 to $4.5 billion in 1966, a loss of more than a billion dollars.

    This year, the U.S. economy is not as strong as it was last year and trade analysts expect the growth rate of im-ports to taper off. It will, but not as much as many expected. Some early year forecasts called for imports to advance only 5% in 1967. Instead, it appears now that they will increase about 12%, to $28.4 billion.

    With domestic demand easing up, U.S. producers normally would be ex-pected to push harder in the export

    U.S. chemical trade, 1966 Millions of dollars

    Canada

    Netherlands

    Japan

    United Kingdom

    Mexico

    West Germany

    India

    Belgium-Luxembourg

    France

    Australia

    Source: U.S. Bureau of the Census

    ^ ^ ^ ^ ^ _ ' L

    MMNRHHI

    mm

    100 200

    I Exports

    300 400

    Imports

    market. They may. But export vol-ume, as much as it depends upon U.S. industry's capacity to meet demand, depends even more upon foreign de-mand itself. And foreign economies, particularly those in the lush Euro-pean market, have been less than robust. As a result, U.S. exports probably will increase about 9% in 1967, to $32.5 billion. And, if these

    World chemical trade: a $15 billion business

    Area World total Free World Eastern Europe Industrialized countries Less-developed countries United States European Economic Community European Free Trade

    Association Latin America Japan Canada

    1964

    $10,900 9,940

    910 9,480

    460 2,370 4,110

    2,120 160 385 250

    Chemical exports Millions of dollars

    1965

    $12,210 11,130 1,020

    10,620 510

    2,400 4,740

    2,310 160 550 290

    1966a

    $13,825 12,670 1,100

    12,100 580

    2,676 5,440

    2,590 190 670 325

    1967a

    $15,650 14,390 1,200

    13,700 660

    2,875 6,260

    2,880 220 860 370

    1968a

    $17,700 16,300 1,300

    15,600 750

    3,280 7,200

    3,200 250

    1,090 420

    a C&EN estimates, except U.S. data for 1966, which are from the U.S. Bureau of the Census. Source: United Nations

    estimates are correct, the net result will be another unwanted decline in the U.S. trade balance, to about $4 billion.

    This $4 billion trade balance is calculated on the basis of exports of domestic merchandise (including mil-itary grant-aid) and imports for con-sumption. Another popular basis for figuring trade balance is to compare exports of domestic and foreign merchandise (excluding military grant-aid) and general imports (which includes materials entered into bonded warehouses). Using this method, last year's trade balance was only $3.8 billion, down from $5.3 billion in 1965.

    Critics of the Government's foreign trade statistics say that, actually, the 1966 trade balance was only a very slim $729 million. They arrive at this amount by disregarding all gov-ernment-financed shipments, such as foreign aid and PL-480 (Food for Peace) shipments, which they do not consider to be truly commercial ex-ports.

    No matter how it is calculated, the U.S. balance of trade will decline this year, just as it did last year and the year before that. This is a trend

    SEPT. 4, 1967 C&EN 49A

  • Most U.S. foreign trade moves by vessel'

    U.S. total trade, 1966 Billions of dollars

    Exports $29.9

    Imports $25.4

    aMuch of the heavy U.S.-Canadian traffic moves by surface transportation. Source: U.S. Bureau of the Census

    which the country can ill afford, faced as it is with a critical balance of pay-ments problem.

    Chemical trade balance grows

    One bright spot in the U.S. trade picture is the chemical trade balance. It keeps getting bigger, even though chemical imports continue to grow much more rapidly than chemical ex-ports. Since 1960, for instance, im-ports have maintained an average an-nual growth rate of almost 14%. The average growth rate of exports, how-ever, has been only 8% over the same period.

    But because exports start from a much larger base than do imports, the chemical trade balance has become increasingly favorable in recent years. Chemical imports advanced by 20% last year, to $942 million, and should increase another 17%, to $1.1 billion, in 1967. Exports, paced by organics, medicinals, and plastics, gained 11% last year, to $2.7 billion, and will in-crease about 7.5% this year, to $2.9 billion. Despite these inequitable growth rates, the favorable balance in U.S. chemical trade increased last year and it will do so again this year. More important, as the overall U.S. trade balance declines, the chemical trade balance becomes ever more im-portant. Chemicals will account for 44% of this year's total trade balance, up from 39% in 1966 and from only 29% the year before.

    As appealing as these chemical trade figures may seem, the U.S. chemical industry is far from being smugly satisfied. It feels uncomforta-ble knowing that imports continue to

    increase much faster than exports. And it finds little consolation in the fact that the U.S. share of the world chemical export market is declining. The Bureau of International Com-merce estimates that this country's share of world chemical exports (which BIC defines as the exports from the 15 major industrial coun-tries) was only 24.6% last year, after a steady decline from almost 30% in 1960.

    United Nations statistics, which compare average annual growth rates of chemical exports since 1960, are another indicator. The U.S. average is 7%. Others: Free World, 11%; European Economic Community (EEC), 12%; European Free Trade Association (EFTA), 9%; Japan, 26%; and Canada, 9%.

    Export tax incentives

    Aware as it is that the U.S. share of world trade is dwindling, the National Export Expansion Council (NEEC) surprised no one earlier this year when it renewed its plea for tax incentives to encourage increased U.S. exports. The council is a group of U.S. busi-nessmen which advises the Govern-ment on ways to stimulate exports. A few of its suggestions have taken root; most others have been conveniently disregarded. This spring, through its five study committees, the council sub-mitted more than 100 recommenda-tions for boosting exports, many of which would make exporting more at-tractive by making it more profitable.

    According to Dow Chemical's Carl A. Gerstacker, NEEC chairman, this is the best way to get more businessmen

    interested in exporting; that is, make exporting more profitable for him. As things stand now, he says, exporting is not as profitable as selling in the domestic market. Tax incentives, an idea which Mr. Gerstacker endorses, would do one of two thingsit would either reduce present export losses or make export profits a little more hefty, especially for small businessmen.

    Until recently, the Government has paid little attention to suggestions in-volving export tax incentives. Now, however, several government agencies involved in trade affairs are studying the problems involved in a tax incen-tive program. Although there is no official confirmation, shop talk has it that the Administration may introduce a tax incentive proposal next year.

    There are several obstacles to a tax incentive program for exporters. One is that a rebate on direct taxes, such as U.S. income taxes, is prohibited by GATT rules of trade as an export in-centive. However, GATT does allow rebates on indirect taxes, such as turn-over or border taxes which are popular in most European countries. Because taxes are an important factor in total exporting costs, the foreign exporter has a distinct advantage over U.S. ex-porters, particularly in third-country markets.

    It is doubtful that the U.S. would revise its entire tax structure (that is, replace direct taxes with indirect taxes) merely to accommodate export-ers. Nor is it likely that the U.S. would institute a tax system such as, for instance, a tax on value added (TVA) for exported products alone. Hence, another obstacle to export tax incentives is the technical difficulty

    50A C&EN SEPT. 4, 1967

  • U.S. chemical trade, 1966 Millions of dollars

    Exports $2676

    Imports $942

    U.S. exports grow, but the trade balance continues to decline Standard Inter-national Tariff Classi-fication Numbera

    0

    1

    2

    3

    4

    5

    6

    7

    8

    9

    TOTAL0

    Export or

    import E 1 E 1 E 1 E 1 E 1 E 1 E 1 E 1 E 1 E 1 E 1

    1964

    $ 3,983 3,489

    554 494

    2,951 2,841

    911 1,996

    434 114

    2,375 707

    3,201 4,524 9,350 2,206 1,715 1,639

    611 591

    26,086 18,600

    U.S. trade, Millions of dollars

    1965 1966

    $ 4,003 3,459

    517 559

    2,856 3,051

    947 2,181

    471 118

    2,402 778

    3,258 5,512

    10,016 2,935 1,582 1,955

    952 733

    27,003 21,282

    $ 4,566 3,937

    624 601

    3,072 3,195

    978 2,239

    356 136

    2,676 942

    3,434 6,384

    11,161 4,800 1,845 2,261 1,187

    870

    29,899 25,367

    1967b

    $ 4,830 3,975

    615 675

    3,300 3,320

    980 2,430

    430 145

    2,875 110

    3,760 7,065

    12,350 6,100 1,835 2,590 1,475 1,000

    32,450 28,400

    1968b

    $ 5,200 4,150

    640 750

    3,500 3,480

    990 2,590

    450 160

    3,280 1,300 4,040 8,100

    13,650 7,600 1,890 3,200 1,860 1,170

    35,500 32,500

    a Number 0Food and live animals 1Beverages and tobacco 2Crude materials, inedible, except fuels 3Mineral fuels, lubricants, and related materials 4Oils and fats, animal and vegetable 5Chemicals 6Manufactured goods classified chiefly by material 7Machinery and transport equipment 8Miscellaneous manufactured articles, n.e.c. 9Commodities and transactions not classified according to kind

    bC&EN estimates. c Subtotals may not add up to grand totals because of rounding. Source: U.S. Bureau of the Census

    of devising a tax program, especially one that measurably increases the growth rate of exports.

    Still another obstacle is the possibil-ity that other countries will retaliate against U.S. trade if this country initi-ates tax incentives for exports. One way those countries could retaliate is to impose countervailing duties on U.S. goods; another is to initiate anti-dumping action.

    European border taxes

    Even if the U.S. doesn't adopt an in-direct tax system such as the TVA tax, TVA will become an increasingly pop-ular term in U.S. trade circles. The reason is that countries within the European Economic Community plan to change their tax structures so that all of them have one uniform system. The system which the six EEC nations will adopt is France's TVA tax. This proposed change is important because it will have an effectan adverse ef-fecton U.S. shipments to EEC coun-tries. As the tariff cuts negotiated at the Kennedy round come into effect, these TVA taxes will become an in-creasingly significant barrier to U.S. trade.

    France's TVA tax rate is 20%; that is, a 20% tax is assessed on the incre-ment of value added each time a prod-uct's value is increased through manu-facture or transfer. Other EEC coun-tries use a cascade tax system, by which the tax is assessed on the total value of the product after each manu-facturing step or transfer. The cas-cade tax system, of course, employs a much lower tax rate. Compared to France's 20% TVA tax, the rate in

    SEPT. 4, 1967 C&EN 51A

  • other EEC countries is about 4% or 5% under the cascade system. How-ever, under both systems, the rates ap-ply to imports as they cross the coun-try's border and are, in effect, border taxes.

    If all EEC countries adopt the TVA system, as they are expected to do by 1970, the border tax facing U.S. ex-ports will increase substantially in all EEC countries except France. West Germany, where the border tax is now 4% unde...