permits all countries signatory to that agreement to withdraw or modify concessions on imported products causing or threatening serious injury to their domestic producers. We are not aware of any other contracting party to the GATT which has evidenced any intention to forego the protection which article XIX affords their industries. Nor are we aware of any other GATT country which has indicated that it will sacrifice a single one of its domestic industries for the privilege of trading with the United States. We are, however, aware of many countries which have withdrawn or modified past concessions, or which have imposed discriminatory taxes on American products when they threaten domestic industries within those countries.

3. There has been no abuse in the administration of the escape clause provisions of our trade agreements program

Traditionally the investigation of claims of injury to a domestic industry by reason of concessions granted in trade agreements has been conducted by the Tariff Commission from 1947 to 1951 pursuant to Executive order, and from 1951 to date by virtue of section 7 of the Trade Agreements Extension Act of 1951, as amended. Following its investigation, usually after a public hearing, the Commission reports its findings and recommendations to the President who must report to the Congress if he does not accept the Commission's recommendations in cases where relief is found to be warranted. Of 131 investigations instituted to date, the Tariff Commission has completed 111, 18 having been dismissed or terminated prior to completion and 2 investigations are pending. In the 111 investigations completed, the Commission has forwarded 41 (8 of these on an evenly divided vote of the Commission) to the President who has invoked the escape clause in 15 cases. There are presently 11 escape clause proclamations in effect. The industries affected by these 11 currently effective escape clause proclamations are located in at least 21 of our States. Many of these States have more than one industry affected.

These 21

Escape clause relief should not be subject to an arbitrary time limit but should be effective so long as injury persists.-The period during which an escape clause proclamation remains effective should not be limited by any arbitrary time limit as is proposed in the pending bill, but should last as long as necessary to prevent further injury to a domestic industry.

Under the provisions of H.R. 9900, any increase in duty resulting from an escape clause action terminates automatically after 4 years unless the President acts affirmatively to continue the increase. This is an arbitrary limit, since a 4-year period has no necessary relation to the industry's need for relief. It places the burden upon the industry concerned to persuade the Department of State and the President to take an affirmative act in order to retain the relief. Under present procedures, if a duty is increased by an escape clause proceeding, the higher duty remains in effect until affirmative action is taken to restore the concession. Pursuant to Executive Order 10401 providing for periodic review of escape clause actions, the Tariff Commission annually advises the President whether continued relief is warranted and reports to the President on developments in the affected industries. The annual reports submitted to the President constitute a careful analysis of present conditions in light of conditions existing at the time escape clause relief was found to be warranted. These annual reviews furnish a continuing guarantee that the escape clause action will not be continued longer than needed. They are clearly preferable to an arbitrary termination.

If the arbitrary termination of escape clause relief as proposed in the bill remains unchanged, any industry affected will be denied the present right to a full-scale investigation and hearing prior to withdrawal of relief. This is a very serious impairment of what has always been regarded as reasonable due process in tariff matters.

4. The domestic watch industry-a case in point

(a) Escape clause relief has not impaired foreign producers.-In May of 1954, the Tariff Commission found that, partly as a result of customs treatment reflecting concessions granted in the 1936 trade agreement with Switzerland, certain watch movements were being imported in such increased quantities as to cause serious injury to the domestic watch industry. The President accepted the Commission's findings and increased the rates on the articles in question. Since the escape clause action, and even with the benefit of increased duties on imported watch movements, the number of domestic companies producing watch movements has decreased from 10 to 7; those producing jeweled watch movements declined from 5 to 4. According to the Tariff Commission's latest report to the President on the watch industry:

"The share of total U.S. consumption that was supplied by watches containing domestic jeweled-lever movements declined from 13.8 percent in 1951 to its lowest level of 4.6 percent in 1958, rose to 6.4 percent in 1959, and rose slightly again in 1960 **

These figures show that there has been a continued sharing of our domestic watch market with our foreign trading partners despite the escape clause action. It also shows that that action prevented complete destruction of the American industry. The foreign producers have continued to enjoy over 90 percent of our market, and the American industry has been able to maintain a marginal production.

In

Under the proposed bill, the existing escape clause relief afforded the domestic watch industry and other industries which have had such relief for more than 3 years would be terminated in 1 year from the effective date of the new act. Termination would occur without any hearing or investigation. the watch industry this would mean a return to the duties negotiated prior to the President's action in 1954, when circumstances show that conditions which caused the invocation of escape clause relief have not improved. Moreover, negotiations could be immediately initiated to reduce the pre-1954 rates by 50 percent.

Under no conditions should present escape clause proclamations be withdrawn until the conditions which prompted their issuance show improvement.

(b) Highly skilled industries threatened by abandonment of traditional escape clause procedure.-During the period since escape clause action was taken on watch movements, the domestic watch industry has led the world in new developments in the field of horology. Its problems do not result from inefficiency, incompetency, or lack of modern equipment, but are due to the high labor content of the article produced. Labor costs account for approximately 90 percent of the value of the finished article, and it has been rightly estimated that, in the watch industry, the cost of American labor is from three to six times that of watch industry employees in other countries. As a matter of fact, almost half the benefit obtained under the escape clause action was wiped out by a general wage increase in the industry and additional increases have greatly diminished the remaining benefit. Obviously, the "ordinary" adjustment assistance proposed in the administration's bill will not and is not intended to preserve industries such as the watch industry where labor costs make up the greater portion of the value of the finished product. Such assistance could not alleviate the tremendous disparity in domestic and foreign wage levels. The only alternative to loss of these industries is to include traditional escape clause relief as an ordinary remedy for injuries due to tariff concessions.

(c) Free competition and increased consumer benefits are illusory in many cases. It is argued that dropping our restrictions on imports will promote free world competition and result in great benefits to American trade. This is certainly not true in relation to the watch industry.

The two greatest watch producing nations in the world today are Switzerland and Russia. In Switzerland the watch industry is regulated by one of the most elaborate systems of interlocking trusts and cartels the world has known. This trust is supported and fostered by the Swiss Government. The operations of that trust as they affect the United States are the subject of an antitrust suit now pending in the U.S. district court at New York. If the American watch industry is left to face this "free competition" operating at about one-third of the American labor rates, it cannot survive.

The watch industry is the clearest example of the lack of reciprocity in trade agreements. While the Swiss have about 90 percent of our jeweled watch market, 81843-62-pt. 6—34

the committee learned from General Bradley and others that the Swiss impose an embargo on foreign watch producers so severe that even the tiniest part may not be legally imported into that country. At the time the Swiss were exhorting the President not to increase U.S. duties because this was contrary to all principles of free competition, they were rejecting applications for permission to ship U.S.-made mainsprings into Switzerland. This is not what the President in his message termed "healthy competition."

The Russian watch industry has been created and expanded by the Russian Government. It will most certainly receive as much governmental support as has the Swiss industry. There is little prospect of free competition with Russia. France also maintains severe restrictions on watch imports, while exporting an increasing number of watch movements to the United States. Perhaps it is significant that the word "reciprocal" does not appear in H.R. 9900 and that only twice (once in referring to the title of the old program) does the word appear in the President's message.

We strongly urge the committee to insert the concept of reciprocity in the new trade agreements program and to provide insurance therefor in the form of traditional escape clause relief. When the policies of other nations become truly nondiscriminatory to American products and less protective of their own, then, and only then, should we consider abandonment of our established means of preventing complete destruction of an American industry.

CONCLUSIONS

We are about to embark on a new trade policy for our Nation which, however well intended, is fraught with uncertainty. Because of the uncertainties we should not abandon our traditional safeguards against seriously injurious foreign competition.

Under the proposed bill, the Congress would abdicate all supervision over the administration of escape clause relief and the matter would be left entirely to the discretion of the President who may accept or ignore the advice of the Tariff Commission. In light of the many radical departures from our past trade agree ments policy which are proposed in H.R. 9900, it would appear advisable to retain some safeguards against unanticipated developments. A safety valve in the form of our existing escape clause procedures should be incorporated into the legislation. In view of the cautions exercise of this authority in the past, the retention of our existing remedies would not imperil the trade program envisioned by the President. Because of our higher wages and living standards, it is apparent that even our most efficient and modern industries will in some circumstances not benefit from the type of "ordinary" adjustment assistance contemplated in the proposed legislation. It is imperative, therefore, that we adopt a program of ordinary relief which will preserve, and not abandon, our industries possessing the highest of skilled workmen.

RECOMMENDATIONS

In light of the foregoing comments we recommend that escape clause relief continue to be available to industries injured by concessions in duty treatment in the ordinary course and that the administration's proposal to make escape clause relief available only under extraordinary circumstances, and then for limited periods only, be rejected.

In addition, existing escape clause relief should not be arbitrarily terminated in 1 year from the effective date of the act. Nor should any arbitrary time limit be imposed on prospective escape clause invocations; such relief should continue so long as the conditions causing injury have not improved.

In order to accomplish the foregoing changes in the bill as proposed, we suggest that the existing procedures prescribed by section 7 of the Trade Agree ments Extension Act of 1951, as amended, be retained with certain modifications in definition of industry and criteria for injury suggested by H.R. 9900. We have prepared a specific proposal for amending H.R. 9900, which is attached. We ask your careful consideration of this amendment.

Sincerely,

PAUL MICKEY.

PROPOSED AMENDMENTS TO H.R. 9900 BY THE HAMILTON WATCH Co., MARCH 23, 1962

Incorporation of the following amendments to H.R. 9900 will provide for procedures pertaining to escape clause relief, similar to those now existing, including:

(a) Investigation and recommendations of Tariff Commission.

(b) Congressional review of President's failure to accept Tariff Commission recommendations.

These amendments would incorporate into H.R. 9900 the present provisions of section 7 of the act, except that they would substitute the criteria for relief found in section 305 of H.R. 9900 for the criteria for relief now appearing in section 7(e) of the Trade Agreements Extension Act of 1951, as amended. These amendments also provide that escape clause relief granted shall remain in effect until the Tariff Commission finds that conditions in the affected industry have changed sufficiently to warrant a modification of the relief. This procedure is presently provided by Executive Order 10401, issued October 14, 1952, 17 F.R. 9125, and has become an established part of escape clause proceedings. Under the provisions of H.R. 9900, escape clause relief would arbitrarily terminate after 4 years.

In addition, several technical amendments are necessary to conform the proposed bill to the principal amendments presented herein.

In making these changes, the concept of a distinction between "ordinary" and "extraordinary" relief contained in H.R. 9900 has been completely eliminated. Escape clause action would not be characterized as either "extraordinary" or "ordinary."

1. The following amendment inserts into the trade agreements program the existing provisions for the initiation of an escape clause investigation and the procedure to be followed by the Tariff Commission in the conduct of its investigation to include the holding of public hearings at the direction of certain congressional committees or where there is evidence of injury:

Page 23, lines 7 through 18: Strike out entire text of section and insert in lieu thereof:

"(a) Upon the request of the President; upon resolution of either House of Congress; upon resolution of either the Committee on Finance of the Senate or the Committee on Ways and Means of the House of Representatives; upon its own motion; or upon petition by a trade association, firm, certified or recognized union or other representative of employees on behalf of an industry, the United States Tariff Commission shall promptly make an investigation, and make a report thereon not later than six months after the application is made, to determine whether, as a result of continuance, reduction, or elimination of a duty or other import restriction, or continuance of duty-free or excise treatment under a trade agreement, an article like or directly competitive with an article produced by the industry is being imported into the United States in such increased quantities, either actual or relative, as to cause, or immediately threaten to cause, on a widespread basis in the industry, (1) significant idling of productive facilities of firms, (2) prolonged and persistent inability of firms to operate at a profit, and (3) unemployment or underemployment of workers. "(b) In the course of any such investigation, whenever it finds evidence that the conditions enumerated in subsection (a) of this section exist, or there is an immediate threat of the existence of such conditions, in the industry or whenever so directed by resolution of either the Finance Committee of the Senate or the Committee on Ways and Means of the House of Representatives, the Tariff Commission shall hold hearings giving reasonable public notice thereof and shall afford reasonable opportunity for interested parties to be present, to produce evidence, and to be heard at such hearings.

"(c) Should the Tariff Commission find that the conditions enumerated in subsection (a) of this section exist or there is an immediate threat of the existence of such conditions in the industry, it shall recommend to the President the withdrawal or modification of the existing customs treatment of the article, its suspension in whole or in part, or the establishment of import quotas, to the extent and for the time necessary to prevent or remedy such conditions. The Tariff Commission shall immediately make public its finding and recommendations to the President, including any dissenting or separate findings and recommendations, and shall cause a summary thereof to be published in the Federal Register.

"(d) In arriving at a determination in the procedure set forth in subsections (a), (b), and (c) of this section the Tariff Commission, without excluding other factors, shall take into consideration an increase in imports, either actual or relative to domestic production, a higher or growing inventory, or a decline in the proportion of the domestic market supplied by domestic producers. Increased imports, either actual or relative, shall be considered as the cause or immediate threat of the existence in industry of the conditions enumerated in subsection (a) of this section when the Commission finds that such increased imports have contributed substantially toward causing or immediately threatening the existence in the industry of the conditions enumerated in subsection (a) of this section.

"(e) When in the judgment of the Tariff Commission no sufficient reason exists for a recommendation to the President that an existing customs treatment should be withdrawn or modified or a quota established, it shall make and publish a report stating its findings and conclusion."

2. The following amendments delete the provisions of H.R. 9900 vesting discretion to grant escape clause relief solely in the President and reinsert the existing provisions obliging the President to take into account the recommendations of the Tariff Commission. They also provide for congressional review of cases in which the President disagrees with the recommendations of the Tariff Commission:

Page 18, line 10: Before subsection (d) insert the following paragraph: "(3) Section 7 of the Trade Agreements Extension Act of 1958 (72 Stat. 676) shall remain applicable to actions under chapter 4 of title III of this Act and the reference in paragraph (1) of subsection (b) thereof" to "section 7 of the Trade Agreements Act of 1951, as amended (19 U.S.C., Sec. 1364)" is amended to read, "section 351 of the Trade Adjustment Act of 1962"; and the reference in paragraph (2) of subsection (b) thereof to "section 7" is amended to read "section 351."

Page 53, line 7: Strike out present chapter title and substitute in lieu thereof: "Relief in the Form of Increased Duties or Other Import Restrictions". Page 53, lines 9 through 16: Strike out entire text of subsection (a) and insert in lieu thereof:

"(a) (1) Upon receipt of the Tariff Commission's report of its investigation and hearings pursuant to section 306 of this Act with respect to any article, the President may make such adjustment in the rates of duty, impose such quotas, withdraw any duty-free or excise treatment, or make such modifications by the Commission to be necessary to prevent or remedy the existence or immediate threat of existence in the industry of the conditions enumerated in subsection (a) of section 306. If the President does not take such action within sixty days he shall immediately submit a report to the Committee on Ways and Means of the House of Representatives and to the Committee on Finance of the Senate stating why he has not made such adjustments or modifications, imposed such quotas, or withdrawn such duty-free or excise treatment.

"(2) The action so found and reported by the Tariff Commission to be necessary shall take effect (as provided in the first sentence of par. (1) or in par. (3) of this subsec. (a), as the case may be) —

"(A) if approved by the President,

"(B) if disapproved by the President in whole or in part, upon the adoption by both Houses of the Congress (within the 60-day period following the date on which the report referred to in the second sentence of par. (1) of this subsec. (a) is submitted to such committees), by the yeas and nays by a two-thirds vote of each House, of a concurrent resolution stating in effect that the Senate and House of Representatives approve the action so found and reported by the Commission to be necessary.

"For the purposes of subparagraph (b), in the computation of the 60-day period there shall be excluded the days on which either House is not in session because of an adjournment of more than 3 days to a day certain, or an adjournment of the Congress sine die.

"(3) In any case in which the contingency set forth in paragraph (2) (B) of this subsection (a) occurs, the President shall, within 15 days after the adop tion of such resolution, take such action as may be necessary to make the adjustments, impose the quotas, or make such other modifications as were found and reported by the Commission to be necessary."