American exports. This is true for many U.S. export products, not just wine alone. Protectionist measures by addressing themselves to the wrong issue will not correct either of these situations. Any short-term benefits to American wine growers which would result from trade restraints, would become an unjustified economic burden for American consumers. CWT supports export expansion but believes that it should be accomplished through persistent negotiations with our trading partners, improved marketing methods, and correction of the economic conditions which cause the misalignment of the dollar vis-a-vis other currencies. The proposals contained in the substitute bill ignore the facts mentioned above and continue to direct themselves toward trade restrictions on wine imports. An aggressive investigation of the trading practices of our major trading partners in wine as called for in this legislation, deliberately seeking out tariff and nontariff barriers to our exports whether or not a complaint has been filed against these countries, is a massive, time-consuming, and costly undertaking which circumvents the process which has been established under section 301 of the 1974 Trade Act. We suspect that the United States would not welcome other countries carrying out a similar investigation over here. In addition, this burdensome project would result in an undue economic demand on American taxpayers as well as on the countries involved. Section 301 cases, at best, are a long and involved process costly to the petitioners, the Government, and all other parties. Is this part of the proposal not a clear indication of the domestic industry's determination to receive protection from competition through import restrictions, just as it did in the original H.R. 3795? Should this legislation be adopted, it is realistic to anticipate retaliation from our trading partners. As in many other cases of protectionist policies, the American agricultural sector is the most vulnerable. And consumers, of course, are forced to bear the economic consequences of a burgeoning trade war. What is most objectionable about both the original and substitute versions of this bill is that they require sectoral reciprocity. CWT concurs with the sentiments expressed by Ambassador Brock contained in a letter to us in February 1984. He wrote: It is our belief that a requirement for equal treatment within a single product line undermines the concept of general reciprocity and comparative advantage which is the basis for all international trade negotiations. If this were to become the guiding principle for our trade policy, trade would contract rather than expand. American consumers would be the principal victims of this legislation. At the present time, consumers are being provided a wide choice in the marketplace and competitive prices. I would like to show for the record that the word "competitive" had been inadvertently omitted from the text. This is the primary purpose of international trade and should be reflected in U.S. trade policy. CWT, therefore, urges this subcommittee to reject the substitute bill under consideration. Chairman GIBBONS. We thank you. Bill, do you have any questions? Mr. FRENZEL. No. It is a good statement in my judgment. Thank you, Madam President, for bringing it to us. The people who always get to carry the load around here are the consumers. They pay a little higher prices when folks want to lock up the market and if we lock it up well enough as we did in the early thirties we can manage to distribute the kicks in the head around to 100 percent of our population. I thank you for being the sometimes very lonely voice of the consumer in these matters and we sure need to have your point of view here. Thank you. Chairman GIBBONS. In modifying our trade laws, perhaps it would be a good idea to give the consumer an opportunity to come in and be a party to these cases, not just this law or any law. I don't think the consumers are adequately represented in most of these cases that I see here. Have you thought about that at all? Take the steel case. You know, I am already getting people from the steel industry who manufacture steel coming to me and saying, "Good gosh, if the President takes any of those options that have been presented to him, the rest of us are all going to be in trouble." Ms. BROWN. You mean be a party in ways more than just appearing as a witness? Chairman GIBBONS. In countervailing and antidumping and sections 201 and 301 and all those things. Ms. BROWN. Yes; we have been concerned about this. CWT does testify, not at the injury hearings, but when remedies are being discussed. And we communicate with the President about ITC determinations. However, the ITC does not have to consider views of the consumer. So we have suggested that the ITC should research the impact on the consumer of each petition and make it public knowledge. In that way it will become part of the debate from the very start. Mr. FRENZEL. That would be un-American to let the folks who have to pay the bill have anything to say about it, wouldn't it? Ms. BROWN. Yes, after all. Chairman GIBBONS. Well, this concludes our hearing. The hearing record will remain open until the close of business on Friday, July 27, so if any of you have any parting shots to fire at us, you better get them in in a hurry. Thank you very much. [Whereupon, at 1:45 p.m., the hearing was adjourned.] [Submissions for the record follow:] Hon. SAM M. GIBBONS, DEPARTMENT OF AGRICULTURE, Chairman, Subcommittee on Trade, Committee on Ways and Means, House of Representatives, Washington, DC. DEAR MR. CHAIRMAN: This is in response to your request during the Subcommittee hearing of July 24, 1984 for any additional comments by interested parties on the substitute proposal to H.R. 3795, the "Wine Equity and Export Expansion Act of 1984". The Department of Agriculture supports the position of the Administration as presented by Ambassador Brock, United States Trade Representative, and Alan Holmer, Deputy Assistant Secretary for Import Administration, U.S. Department of Commerce in opposition to the substitute proposal. We wish to submit supplementary comments on behalf of the Administration on Section 7 of the substitute proposal dealing with wine export programs that specifically affect the operation of export promotion programs administered by this Department. With regard to Section 7, we support the efforts of the wine industry to expand wine export markets. The Department's Foreign Agricultural Service (FAS) has for several years sponsored promotion programs for wine exports under the Cooperator Program. These programs have not only consisted of wine tastings in export markets, but have included partial reimbursements to firms for retail promotion expenditures under the export incentive program. Although these programs have been of some assistance to wine exports, the wine industry has indicated the need for more comprehensive, industry-supported efforts. We are troubled, however, by the language in Section 7 mandating funding levels for a wine program. Under the FAS Cooperator Program, funding levels for promotional activities are established by FSA in consultation with cooperators, within the confines of the overall budget and taking into account certain criteria. These criteria include an assessment of potential export gains from the promotion as well as the ability of the industry to provide matching funds and to effectively staff and carry out the activities. These criteria have been tested by time and have proven their effectiveness in the establishment of appropriate funding levels to the satisfaction of cooperators participating in the program. We are strongly opposed, therefore, to the provisions in Section 7 which would effectively circumvent these criteria and thereby change the structure of the cooperator program. Sincerely, JOHN R. BLOCK, Secretary. STATEMENT OF NATHAN G. STACKHOUSE, JR., PRESIDENT, THE ASSOCIATION OF AMERICAN VINTNERS Mr. Chairman and Members of the Subcommittee, my name is Nathan G. Stackhouse, Jr. I am the Winemaster of the Bernard D'Arcy Wine Cellars in Absecon, New Jersey, and the President of the Association of American Vintners (AAV), a nonprofit association representing 110 wineries located in 27 states. I appeared at these hearings on November 15, 1983 in support of H.R. 3795. Our Association continues to support the need for legislation that will give our trade negotiators the tools needed to increase access to foreign markets. The proposed amendments to H.R. 3795 will remove the negative aspects of the previous bill but will still provide adequate authority for the President to deal with the tariff and nontariff barriers of our trading partners that are restricting U.S. exports. After ten years of steady growth, U.Š. wine exports have declined for the second straight year. The 1983 decrease was 16.4% following the 14% decrease in 1982. Exports to Canada, our leading foreign market, were off almost 19%. At the same time imports of foreign wine increased 7.3% in 1983 and 6.4% in 1982. The trend continues to show increasing U.S. market share for imported wines, now almost 28% for table wine, while markets for our wines abroad are decreasing. Special attention to stop this trend is needed. The wine industry is not talking about attention to stop imports. Our Association participated in the administrative action under the anti-dumping and countervailing duty laws. That action is continuing and we expect it to run its full course. The assistance we seek in this legislation is the reduction or removal of those barriers that are limiting our ability to export. In the interest of time I will not rehash those barriers again but would refer you to my November 15, 1983, testimony which sets out a number of specific examples. Barriers do exist. While the Japanese government and the European economic Community have taken steps to reduce those barriers, Japan still has a $3.50 per gallon tariff compared to 37.5¢ in the United States and the EEC only reduced the countervailing duty under the reference price system to zero-it did not remove the system. Thus, the increased duty can be reinstated at any time. Canada continues to use listing and mark-up practices to effectively exclude U.S. bottled wines. In spite of these barriers, U.S. producers are still working to increase exports. Shipments to Japan increased by 49% in 1983 over 1982. Can you imagine what the increase in exports will be if the tariff is reduced to a reasonable level? So this legislation is necessary to help ensure that those countries and others continue to take steps necessary to permit equal access for our wine. The wine industry clearly does not want to create problems for other U.S. export interests. Historically the wine industry has been ignored in trade matters and feels that the time has come for the government to pay attention to its problems. Certainly there is no desire to violate international agreements that may trigger retaliation by our trading partners. For this reason the industry has spent considerable time and resources in developing the compromise amendments that are being offered here today. We feel these new provisions are reasonable and since they are based on existing law, are legal and GATT compatible. Continued consultations and investigation of barriers are needed. H.R. 3795 as amended will direct that they take place on a selective basis for those markets most promising to the industry. This is an equitable solution to our problems. I know that given equal access to markets, our modern and efficient wine producers will be able to sell their quality products. We urge your support for this legislation. Thank you. I am available to answer any questions that you may have. STATEMENT OF the French Federation of WINE & SPIRITS Exporters, by MAX N. BERRY AND MARSHA A. ECHOLS, COUNSEL SUMMARY OF POSITION The French Federation of Wine and Spirits Exporters ("Federation") opposes the passage of the Wine Equity Act of any substitute proposal. There are various aspects of the proposed legislation which are incompatible with United States international obligations. These aspects of the proposal were forcefully and correctly addressed by Ambassador William Brock during his testimony at the July 24 hearing of the Subcommittee on Trade. However, the Federation focuses its attention on Section 8, as an example of the problems raised by the proposed legislation. Section 8 defines a domestic industry in a manner contrary to United States international obligations. In so doing the amendment deprives the U.S. International Trade Commission ("Commission") of its ability to make an independent economic analysis and judgment of which domestic producers are affected by the imports under investigation. The result of the passage of the amendment will be additional complaints by our trading partners to the General Agreement on Tariffs and Trade ("GATT") and new charges of United States protectionism. With regard to the other issues raised by the proposed legislation, the Federation supports the July 24, 1984 testimony of the National Association of Beverage Importers and the panel of importing companies.1 Finally the Federation respectfully reminds the Subcommittee that the Wine Equity Act and the substitute proposal are not supported by the major domestic producers of table wine. 1. Section 8 Contravenes the International Obligations of the United States During the Tokyo Round of multilateral trade negotiations, the United States was a major proponent of a negotiated set of rules to govern the interpretation and application of Article VI of the GATT (relating to antidumping and countervailing duties). Article VI:b(a), in relevant part, limits the levying of any antidumping or countervailing duty to those situations in which the effect of the dumping or subsidization is such as to cause or threaten material injury to or to retard materially the establishment of a "domestic industry”. As a result of United States efforts during the Tokyo Round, an agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade ("Subsidies Codes") was negotiated. Article 6 of the Subsidies Code (relating to the determination of injury) epitomizes the intention of the signatories to emphasize the "effects" of subsidies. The determination of injury by national authorities must involve, among other things, an objective examination of the effect of the imports on prices in the domestic market for "like products" and the consequent impact of imports on "domestic producers of such products". (Cf. Article 3:1 (relating to determination of injury) and Article 4:1 (relating to definition of industry) of the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade ("Antidumping Code")). Article 6:5 defines a national 1 The companies represented were Joseph E. Seagram & Sons, Inc., Schieffelin & Co., BrownForman Corporation, Heublein Inc. and Hiram Walker & Sons, Inc. "domestic industry" as the "domestic producers as a whole of the like products or [to] those of them whose collective output of the products constitutes a major proportion of the total domestic production of those products. Clearly the crucial concept and the initial issue in defining the domestic industry is that of the "like product". Footnote 2 to Article 6:1 of the Subsidies Codes defines the term "like product" to mean: "a product which is identical, i.e. alike in all respects to the product under consideration or in the absence of such a product, another product which, although not alike in all respects, has characteristics closely resembling those of the product under consideration." (Emphasis added.) In summary, the internatioanl rules require that the national authorities measure the effect of the allegedly subsidized or less-than-fair value imports on the market for the product which is identical to the imports under investigation and on domestic producers of that product. Only in the absence of such an identical product can consideration be given to another product. However, that alternative product must at least have characteristics closely resembling those of the imports. No exception applies to raw or processed agricultural products. In this way the international obligations of the United States define and limit the range of competition in the marketplace which can be analyzed. Outside those perimeters, it has been agreed the effect or impact of imports is to tenuous to be cognizable under the countervailing and antidumping laws. The proposed section 8 of the substitute legislation on wine contravenes the carefully structured and economically sound international requirement described above. In the case of a Title VII investigation of imports of a processed agricultural product, the proposal includes in the domestic industry not only the United States producers of the identical processed product-as permitted by the international rulesbut also the producers of the raw agricultural product. The latter group produces a product which is neither identical to the imports nor closely resembling the characteristics of the imports. The fact that the raw product is the "principal" raw product in the processed end product is completely irrelevant. What is worse, the inclusion in the industry of these producers depends merely on their assertion that they are injured. This "requirement" lacks all substance. It is obviously intended to cover the situation faced by the grape growers during the recent Title VII wine investigation: by being automatically included in the domestic industry producing a good which includes their raw product, the "tail can wag the dog". It would be unimportant that the producers of the identical, i.e. processed, product do not claim import related injury, as was the circumstance in the wine investigation. Not one of the major domestic producers of table wine testified before the Commission in favor of an affirmative finding or has testified in support of the Wine Equity Act. The Commission, faced with the failure of Gallo (the largest domestic producer of Ordinary table wine) to even answer the questionnaire for its investigations, issued a subpoena to obtain information for its analysis of the economic condition of the domestic industry. Even then Gallo submitted a partially completed questionnaire. Yet the proposed section 8 allows such opposition by producers of the identical product to be ignored by producers of a raw or component product. The definition of "processed agricultural product", contained in section 8(a)(2) of the substitute proposal, is a variation of GATT's Note Ad Article XVI, Section B, paragraph 2, which defines a "Primary product". Article XVI, Section B contains the GATT rules specifically applicable to the use of subsidies on the export of primary products. It is interpreted in Article 10 of the Subsidies Code. The same definition (with the exception of the reference to minerals) is contained in footnote 4 to Article 10. The definition in section 8(a)(2) is a variation of the GATT language and appears, but is not, innocuous. It glosses over major issues which have been raisedand often unanswered-in the GATT. The proposed definition is overly broad and encompasses non-agricultural products. For example, wooden furniture is a product of a tree which has undergone processing beyond that customarily required to prepare the tree for marketing in its form as logs or lumber. The definition also raises questions similar to those which have perplexed the GATT, e.g. are wheat flour, tomato paste and pasta primary or nonprimary products? 2. The U.S. International Trade Commission Should Have the Discretion to Determine Independently the Domestic Industry in All Title VII Investigations The U.S. Congress implemented the Tokyo Round agreements, including the Subsidies and Antidumping Codes, in the Trade Agreements Act of 1979. The relevant provisions of that law amend Title VII of the Tariff Act of 1930. |