Download - 2 EXPORTS AND IMPORTS
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 curious 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 history.
The Kennedy round, held in Geneva under the auspices of the General Agreement on Tariffs and Trade (GATT), drastically reduced tariffs on about $40 billion worth of products in international commerce. It also produced the world's first uniform international antidumping code.
In the U.S., with the major tariff-cutting provisions of the Trade Expansion Act now used up, the country must pick the course of its future trade policy. Several planned studies may produce this trade policy this year.
1967 is the year, too, in which the Administration asked Congress to revoke American Selling Price (ASP), the controversial and highly protective tariff valuation system that is cherished by the benzenoid chemical industry. 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 exceed $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 performance was overshadowed by an even more impressive import performance 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 ordinarily 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 imports 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 expected 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 volume, as much as it depends upon U.S. industry's capacity to meet demand, depends even more upon foreign demand itself. And foreign economies, particularly those in the lush European 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 military grant-aid) and imports for consumption. 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 government-financed shipments, such as foreign aid and PL-480 (Food for Peace) shipments, which they do not consider to be truly commercial exports.
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 payments 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 exports. Since 1960, for instance, imports have maintained an average annual growth rate of almost 14%. The average growth rate of exports, however, 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 increase 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 important. 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 uncomfortable 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 Commerce estimates that this country's share of world chemical exports (which BIC defines as the exports from the 15 major industrial countries) 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. businessmen which advises the Government 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 submitted more than 100 recommendations for boosting exports, many of which would make exporting more attractive 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 things—it 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 involving export tax incentives. Now, however, several government agencies involved in trade affairs are studying the problems involved in a tax incentive 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 incentive. However, GATT does allow rebates on indirect taxes, such as turnover 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. exporters, 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 exporters. 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 International Tariff Classification 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 0—Food and live animals 1—Beverages and tobacco 2—Crude materials, inedible, except fuels 3—Mineral fuels, lubricants, and related materials 4—Oils and fats, animal and vegetable 5—Chemicals 6—Manufactured goods classified chiefly by material 7—Machinery and transport equipment 8—Miscellaneous manufactured articles, n.e.c. 9—Commodities 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 possibility that other countries will retaliate against U.S. trade if this country initiates tax incentives for exports. One way those countries could retaliate is to impose countervailing duties on U.S. goods; another is to initiate antidumping action.
European border taxes
Even if the U.S. doesn't adopt an indirect tax system such as the TVA tax, TVA will become an increasingly popular 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 effect—an adverse effect—on U.S. shipments to EEC countries. As the tariff cuts negotiated at the Kennedy round come into effect, these TVA taxes will become an increasingly significant barrier to U.S. trade.
France's TVA tax rate is 20%; that is, a 20% tax is assessed on the increment of value added each time a product's value is increased through manufacture or transfer. Other EEC countries use a cascade tax system, by which the tax is assessed on the total value of the product after each manufacturing step or transfer. The cascade 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. However, under both systems, the rates apply to imports as they cross the country'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. exports will increase substantially in all EEC countries except France. West Germany, where the border tax is now 4% under the cascade system, plans to start using the TVA system next year. To maintain the same dollar value in its tax receipts, West Germany plans to adopt a 10% rate in its TVA system. Thus, the border tax on U.S. exports to Germany will increase from 4 to 10% next year, if the planned changes materialize.
U.S. exports will be exposed to similar tax increases in other EEC countries as each of them changes over. The uniform rate hasn't been set yet, but trade officials are predicting that it will be about 15%. U.S. chemical exporters, apparently, are justified in complaining that these increased taxes will more than offset the tariff cuts which the EEC granted in the Kennedy round.
Kennedy round cuts
As the tariff cuts agreed upon in the Kennedy round become effective over a five-year period, tariffs will become less and less of a barrier to world trade. Many U.S. chemical exporters, in fact, believe that tariffs aren't the significant barriers to U.S. foreign
Western Europe accounts for 35% of U.S. chemical exports and 44% of U.S. chemical imports
Geographic area 20 Latin America
republics
Other Western Hemisphere Countries*
Western Europe
European Economic Community^
European Free Trade Associations
Eastern Europe
Asiad
Oceania
U.S. chemical trade, 1966 Millions of dollars
Afr ica
^ ^ ^ i L_
.^'.^.•yi'f^^^^^^^i^m
L:J
':%
250 500 750 1000
aExcluding Canada. * ^ " ExP<>rts I l iE i f f l Imports
bEEC includes Belgium, France, Italy, Luxembourg, Netherlands, and West Germany. cEFTA includes Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and United Kingdom. ^Excluding Communist countries and Japan. Source: U.S. Bureau of the Census
shipments anyway. They point to the host of nontariff barriers which exist, including border taxes, as the real culprits.
Nevertheless, the chemical industry will be busy for many months assessing the significance of the Kennedy-round tariff cuts. U.S. negotiators at Geneva agreed to a two-part chemical package. In the first package (the Kennedy-round package), EEC and other major trading nations agreed to cut chemical tariffs 20%. In return, the U.S. agreed to cut its chemical tariffs 50%, the limit which the Trade Expansion Act allows. However, if Congress repeals ASP, which has been the outstanding target of foreign complaints, other countries will make an additional 30% cut in their chemical tariffs.
Administration officials say that exceptions to these general tariff-cutting rules make the agreement better, from the U.S. point of view, than it seems on the surface. They estimate that, on average, U.S. chemical cuts will be about 4 3 % and concessions received by the U.S. will be 26% in the Kennedy-round package. In the ASP package, the depth of the tariff reductions will be about the same, around 48 or 49%, according to Administration officials. And, they add, because the U.S. exports almost three times as much as its imports, this country actually comes out ahead in the chemicals sector of the Kennedy round.
For the chemical industry, particularly the benzenoid chemical industry, the next big trade battle takes place on Capitol Hill, when the Administration has introduced legislation to repeal ASP. The ASP legislation is one part of a three-part package. The other part calls for more liberal provisions for trade adjustment assistance than is embodied in the present Trade Expansion Act.
Present trade adjustment provisions (that is, relief to workers or industries hurt or threatened with injury from imports) have been damned by industry as too restrictive. Not one case of relief has been approved by the Tariff Commission under the Trade Expansion Act. The new legislation, trade officials say, models its trade adjust-
52A C&EN SEPT. 4, 1967
U.S. chemical trade balance becomes larger, despite strong gains in chemical imports Standard International Tariff Classification Numbera
512
513
514
515
521
531
532
533
541
551
553
554
561
571
581
599
TOTAL, chemicals
a Numbers: 512—Organic chemicals
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
E
1
E
1
E
1
E
1
E
1
E
1
1964
$ 425
127
139
104
77
37
3
113
80
9
33
22
3
10
54
5
291
41
63
37
20
11
61
4
146
105
17
10
390
31
572
42
2375
707
U.S. chemical trade Millions of dollars
1965»> 1966 1967c
$ 669
161
157
115
101
43
43
61
25
9
31
27
2
11
60
5
256
57
38
45
24
12
60
5
153
124
21
9
425
40
337
53
2402
778
$ 691
220
172
151
110
52
58
44
27
11
35
35
3
12
68
5
269
73
43
46
26
12
66
6
221
131
22
21
473
59
393
65
2676
942
$ 745
255
205
210
105
60
90
55
30
8
40
30
3
10
80
5
305
80
45
35
26
11
50
7
210
170
20
30
495
65
426
69
2875
1100
1968c
$ 850
305
210
210
135
85
70
60
33
15
43
45
7
14
85
7
330
100
53
65
30
16
80
8
270
185
27
26
580
70
480
86
3280
1300
513—Inorganic chemical elements, oxides, including hydroxides and peroxides, and halogen salts
514—Inorganic chemicals, except elements, oxides, hydroxides, peroxides, and halogen salts 515—Radioactive and stable isotopes, their compounds and mixtures and radioactive elements
except uranium and thorium ore and concentrates 521—Mineral tar, tar oils, and crude chemicals from coal, petroleum, and natural gas 531—Synthetic organic dyes, natural indigo, color lakes, and toners 532—Dyeing and tanning extracts, including synthetic and artificial bates 533—Pigments, paints, varnishes, and related materials 541—Medicinal and pharmaceutical products 551—Essential oils, perfume and flavor materials
553—Perfumery and cosmetics, dentifrices, and other toilet preparations, except soaps
554—Soaps, cleansing, polishing, and finishing preparations
561—Fertilizers, manufactured
571—Explosives and pyrotechnic products (including hunting and sporting ammunition)
581—Synthetic resins, regenerated cellulose, and plastic materials
599—Chemical products and materials, n.e.c. b In 1965, the Census Bureau changed its reporting system. Data prior to 1965 are not directly comparable, except for the total.
o C&EN estimates. d Subtotals may not add up to grand totals because of rounding.
Source: U.S. Bureau of the Census
ment assistance section after the U.S.Canadian automotive agreement. The third part of the trade bill asks for a two- or three-year extension of the unused tariff-cutting authority in the Trade Expansion Act.
Antidumping furor
ASP repeal will face tough opposition in Congress. The benzenoid chemical industry already has marshaled a strong force, particularly in the House of Representatives, which agrees that ASP should continue to be maintained.
But ASP isn't the only aspect of the Kennedy-round agreement which faces the wrath of Congress. There is strong resentment, this time in the Senate, to the international antidumping code which came out of the Geneva trade conference. U.S. negotiators, who maintain that they had authority to do so without Congressional sanction, worked hard to formulate the antidumping code even though the Senate asked them not to negotiate on the international antidumping code or American Selling Price more than a year ago.
Now several lobbies, especially steel and cement, are trying to sell Congress on legislation which would cancel U.S. adherence to the international antidumping code. Most Congressional pulsetakers give such legislation little chance of passing, but it is certain that the Administration's action on the code will do little to gain Congressional sympathy for future trade policy proposals.
Many legislators, including the influential Senators Everett Dirksen (R.-111.), Russell Long (D.-La.), and Rep. Hale Boggs (D.-La.), have called for hearings and broad reassessments of the entire structure of U.S. foreign trade policy. In addition, President Johnson has asked the Special Trade Office, which handled the U.S. negotiations in Geneva, to make a thorough study of U.S. trade policy and future policy requirements.
Out of these studies should come the shape of U.S. foreign trade policy for the post-Kennedy-round era.
SEPT. 4, 1967 C&EN 53A
