OAS

GENERAL AGREEMENT ON TARIFFS AND TRADE

(Continued)

IV. EXTENT AND DURATION OF THE ACTION TAKEN
BY THE UNITED STATES

31.Extent of the action. Article XIX provides that the action under paragraph 1 should be limited to the extent necessary to prevent or remedy the injury. In this connection two points were considered:

    (a)the scope of the products affected by the withdrawal; and

    (b)the resulting intensification of tariff protection.

32.The United States Government has not withdrawn the concession relating to item 1526 (a) in its entirety; the concession granted for women's hats and hat bodies valued at less than $9 per dozen, and those valued at more than $24 per dozen, as well as those on men's and boys' hats and hat bodies remain unaffected, as those products do not meet the requirements of Article XIX; the value-brackets for women's wear unaffected by the withdrawal, which constituted a substantial part of the total import of hats and hat bodies prior to 1948, have accounted for slightly more than 10 per cent of the imports since that date.

33.As regards the change in protection, the withdrawal of the concession had the effect of restoring the compound rates specified in the Tariff Act of 1930; the duty position would thus be the same as before the Geneva concession was made, except that the hats and hat bodies between $18 and $24 per dozen would also lose the benefit of the reduced rate of 50 per cent which had been in force since January 1939. The average percentage by which the withdrawal of the concessions in the Geneva agreement increased the rate of duty on the four value-brackets ranging from $9 to $24 per dozen was 49 per cent.8

34.The Czechoslovak representative questioned whether the substantial increase in rates of duty involved in the withdrawal were necessary to prevent or remedy the alleged injury and whether the re-establishment of prohibitive duties to enable an uneconomic industry to prolong its existence was consistent with the purposes of the General Agreement.

35.The other members of the Working Party considered that it is impossible to determine in advance with any degree of precision the level of import duty necessary to enable the United States industry to compete with overseas suppliers in the current competitive conditions of the United States market, and that it would be desirable that the position be reviewed by the United States from time to time in the light of experience of the actual effect of the higher import duties now in force on the economic position of the United States industry.

36.Duration of the action. Article XIX also provides that action under paragraph 1 should be limited to the time necessary to prevent or remedy the injury. The United States Government decided to withdraw the concession without a specified time limit as to the duration of such withdrawal, in order to remedy the injury which in their view had already been caused, and to prevent its threatened continuation and aggravation. In this connection the United States representative stated that there would be serious practical difficulty in limiting the duration of the withdrawal. Procedures comparable to those followed in the case of the negotiation of a new trade-agreement concession by the United States might have to be utilized before any lower rates of duty could again be applied to women's fur felt hat bodies. Moreover, the consultations with two contracting parties under paragraph 2 of Article XIX would in all probability result in agreement with respect to compensatory adjustments, and if the concession were restored at a later date it would bring in question continuation of such adjustments.

37.As regards the case under review, the other members of the Working Party were of the opinion that the evidence pointed rather to temporary difficulties in the industry and did not exclude the possibility of a successful adjustment in the near future which would enable producers to dispense wholly or in part with the additional protection afforded by the action taken under Article XIX.

38.The domestic production figures for the first eleven months of 1950 showed that the downward trend which influenced the United States authorities in September to conclude that a serious injury had been caused or threatened had been arrested, at least temporarily. It was generally agreed that no firm conclusion could be drawn from these data, since the second half of 1950 has to be considered in many respects as abnormal. These facts, however, provide additional reasons for considering it desirable that the position should be kept under review, in order that the 1947 tariff concessions may be wholly or partially restored, as required by Article XIX, if and as soon as the United States industry is in a position to compete with imported supplies without the support of the higher rates of import duty.

39.As regards the technical difficulty about compensatory adjustments, the French and Italian representatives expressed the view that this was not insuperable, and stated that they would be prepared to restore the balance of the concession if the United States Government decided later that it could restore the concession on hats and hat bodies.

V. PROCEDURAL REQUIREMENTS OF ARTICLE XIX

40.Paragraph 2 of Article XIX requires that a contracting party proposing to take action under the Article shall give notice in writing to the CONTRACTING PARTIES as far in advance as may be practicable. The report was made by the Tariff Commission to the President on September 25, 1950; notification was sent to the CONTRACTING PARTIES on October 19; the withdrawal of the concession was proclaimed at the beginning of November and entered into force on December 1. It should also be noted that a public announcement was made on October 19 regarding the proposed withdrawal.

41.Paragraph 2 also provides that the government taking action under Article XIX shall afford an opportunity to consult with it. The United States Government afforded this opportunity on and after October 19 and three contracting parties substantially interested availed themselves of this opportunity.

42.As regards the timing of the consultation, two procedures are outlined in Article XIX. As a rule, there should be "prior consultation", but in certain exceptional circumstances the action may be taken provisionally, provided that consultation takes place immediately afterwards. The United States Government invoked the second procedure, although by giving notice more than a month before the withdrawal entered into force it enabled exporting countries to enter into consultation before the duties were actually raised. The United States importers usually initiate price lines and samples for the season as early as December or January, and early contracts are made at that time; the United States Government considered therefore that if the entry into force of the withdrawal had been later than December 1, 1950 damage would have been caused which it would have been difficult to repair. Although the withdrawal was announced as early as October 19, it could be considered as provisional since it would have been legally possible to reconsider the measure before December 1. It was pointed out, however, that the issue of a public announcement would have, in practice, made it more difficult to revoke the measure contemplated.

43.Although agreement was not reached with all the interested parties in the course of consultations, the United States withdrew the concession as it was free to do in accordance with the terms of paragraph 3 of Article XIX.

44.The Czechoslovak representative questioned whether the action taken by the United States was "provisional" and whether the critical circumstances existed in this case.

45.The other members of the Working Party were of the opinion that the procedure followed by the United States Government was within the terms of Article XIX. They noted that the proceedings before the Tariff Commission could not have escaped the notice of the exporting countries who thus had an opportunity of consulting with the United States Government under Article XXII of the Agreement; they also recognized that the duration and publicity of these proceedings in the United States may have increased the possibilities of forestalling and speculation, and that these special circumstances would naturally lead the Unite States authorities to the conclusion that it was necessary to act quickly as soon as the decision was taken to withdraw the concession.

46.In this connection the Working Party wishes to draw the attention of the CONTRACTING PARTIES to the desirability of delaying, as far as practicable, the release of any public announcement on any proposed action under Article XIX, as a premature disclosure to the public would make it difficult for the government proposing to take action to take fully into consideration the representations made by other contracting parties in the course of consultations.

VI. CONCLUSIONS

47.The following paragraphs contain the conclusions arrived at by the members of the Working Party other than the Czechoslovak and the United States representatives.

48.These members were satisfied that the United States authorities had investigated the matter thoroughly on the basis of the data available to them at the time of their enquiry and had reached in good faith the conclusion that the proposed action fell within the terms of Article XIX as in their view it should be interpreted. Moreover, those differences of view on interpretation which emerged in the Working Party are not such as to affect the view of these members on the particular case under review. If they, in their appraisal of the facts, naturally gave what they consider to be appropriate weight to international factors and the effect of the action under Article XIX on the interests of exporting countries while the United States authorities would normally tend to give more weight to domestic factors, it must be recognized that any view on such a matter must be to a certain extent a matter of economic judgment and that it is natural that governments should on occasion be greatly influenced by social factors, such as local employment problems. It would not be proper to regard the consequent withdrawal of a tariff concession as ipso facto contrary to Article XIX unless the weight attached by the government concerned to such factors was clearly unreasonably great.

49.For the reasons outlined above, these members came to the conclusion that there was no conclusive evidence that the action taken by the United States under Article XIX constituted a breach of that Government's obligations under the General Agreement.

50.They wish however to point out that in their opinion, action under Article XIX is essentially of an emergency character and should be of limited duration. A government taking action under that Article should keep the position under review and be prepared to reconsider the matter as soon as this action is no longer necessary to prevent or remedy a serious injury. In the case under review events which have occurred after it was decided to raise the duties would indicate that it would be desirable for the United States Government to follow the trends of consumption, production and imports in the following months with a view to restoring the concession on hat bodies in whole or in part if and as soon as it becomes clear that its continued complete withdrawal cannot reasonably be maintained to be permissible under Article XIX.


APPENDED TABLE

Women's fur felt hat bodies: recent changes in United States
rates of duty on the value-brackets affected by the action
under Article XIX

Table showing the principal foreign suppliers of United States
imports of women's fur hats and hat bodies

Tariff Act of 1930 and position in 1951: ad valorem equivalent of the compound duties Ad valorem rate at middle of bracket
Value-Bracket

(Per dozen)
At bottom of each bracket At top of each bracket 1930 Act and 1951  1948  Per cent reduction 1930-1948 Per cent increase 1948-1951

$9-$12

$12-$15

$15-$18

$18-$249

80.6

75.0

71.7

75.0

66.7

65.0

63.9

62.5

73.65

70.00

67.80

68.75

55.0

47.5

47.5

40.0

25.3

32.1

29.9

41.8

33.9

47.4

42.7

71.9

Simple average

32.3

49.0


APPENDIX A

COMMUNICATION FROM THE ACTING CHAIRMAN OF THE
UNITED STATES DELEGATION DATED OCTOBER 19, 1950

I am instructed by my Government to inform the CONTRACTING PARTIES that an investigation by the United States Tariff Commission has resulted in the following findings:

1.That as a result of unforeseen developments and of the effect of the tariff concessions granted thereon by the United States in the General Agreement on Tariffs and Trade, hats, caps, bonnets and hoods, for women's wear, trimmed or untrimmed, including bodies, hoods, plateaux, forms, or shapes, for women's hats or bonnets, composed wholly or in chief value of fur felt and valued at more than $9 and not more than $24 per dozen, which products are described in item 1526 (a) of Part I of Schedule XX (original) of the said General Agreement, are being imported into the United States in such relatively increased quantities and under such conditions as to cause serious injury to the domestic industry producing like or directly competitive products, and as to threaten continuance of such serious injury;

2.That the withdrawal in whole of the tariff concessions granted in said General Agreement on the foregoing products, without specified time-limit as to its duration, is necessary to prevent continuance of such injury; and that such withdrawal would afford much greater relief to the domestic producers if the effective date of such action were prior to December 1, 1950, than if it were later.

Among the circumstances which have led the Tariff Commission to make these findings are the following:

1.Imports of women's fur felt hat bodies since the reduction in duties in 1948 have supplied a progressively larger share of the domestic consumption of such articles; the domestic production has been materially smaller than before the war. Whereas imports throughout the 1930's and in immediate post-war years were equivalent to less than 5 per cent of production, they were equivalent to 7.2 per cent of production in 1948 (the first year following the reduction in duty); 21.4 per cent in 1949; and 30.5 per cent in the first six months of 1950. The reduction in the domestic output of women's fur felt hat bodies since the pre-war years has been due in large part to the decline in the total domestic consumption of such hats, resulting from the increasing practice of going without hats. Increased competition from imported hat bodies has, however, also contributed substantially to the decline in domestic output.

2.Before the war nearly all of the domestic production of women's fur felt hat bodies, and the larger part of the imports in most years, consisted of hat bodies of plain felt. About the time the duties were reduced there was a style change greatly favouring hats with napped or pile finishes (such as velours and suedes). Increase in the supply of hat bodies having these special finishes began in the import trade and later extended, in much smaller proportion, to domestic production. It is estimated that in 1949 and the first six months of 1950 more than 95 per cent of the imports consisted of these special finishes, whereas hat bodies of that type represented 6 or 7 per cent of the domestic production. Much the greater part of the consumption of hat bodies of these special finishes has been supplied by imports. Imports of hat bodies of these special finishes have to some extent affected domestic production of hat bodies of plain felt, particularly those in the higher-priced ranges. More especially, however, these imports have severely limited the establishment and expansion of domestic production of these special finishes. Domestic producers are not confronted with any technical obstacles in shifting their production from plain felt hat bodies to velours and other special finishes; the latter finishes, however, require much larger amounts of hand labour than the plain bodies.

3.With respect to women's fur felt hat bodies corresponding to an import value of more than $9 and not more than $24 per dozen, there is direct and sharp competition between the imported and domestic products, particularly those with special finishes. This price range comprises the great bulk of the imports. It is the marked recent increase in imports within this middle range of values which has caused serious injury to the domestic industry. This injury has been steadily increasing since the concessions went into effect, and, unless the concessions are withdrawn, the injury will continue and perhaps become still more serious.

4.Women's fur felt hats are mostly for fall and winter wear, and imports and domestic production of women's fur felt hat bodies are highly seasonal. The peak period of production and sales of the domestic hat bodies occurs in June, July, and August, and that of the foreign hat bodies for the United States market somewhat earlier. Considerably in advance of the season, however, samples are made up and price lines are established. Usually as early as December or January preceding a season, price lines and samples are initiated by importers and early contracts are made. Under these circumstances, withdrawal of the concessions by December 1, 1950, is necessary to afford the most effective relief.

In accordance with these findings and pursuant to the provisions of Article XIX of the General Agreement, the Government of the United States finds it necessary to withdraw the concessions on the above-mentioned products. In view of the critical circumstances set forth above, which indicate that delay would cause further damage difficult to repair, it is necessary that a proclamation of the withdrawal be issued on or about November 1, 1950, to be effective December 1, 1950.

This action is being taken in accordance with the provisions of the last sentence of paragraph 2 of Article XIX, and my Government is prepared to afford the CONTRACTING PARTIES and those contracting parties having a substantial interest as exporters of the products concerned an opportunity to consult with it immediately in respect of the proposed action. There is attached a table showing the principal foreign suppliers of United States imports of these products.

It will be appreciated if you will inform the contracting parties immediately of this proposed action, and of my Government's willingness to enter into the required consultation at Torquay as soon as possible. A public announcement of the proposed action is being made today in Washington.

Enclosure

Hats, caps and bonnets of fur or fur felt,10 for women and girls,
valued over $9 and not over $24 per dozen: United States
imports for consumption by principal sources

Quantity (dozen)

1937 1938 1939 194711 1948 1949
Czechoslovakia 20,168 24,270 2,683 396 20,601 48,395
France 308 1,532 1,374 - 1,713 3,771
Italy 64 26 90 8,646 13,539 53,537
United Kingdom 424 313 277 12 - 646
Germany 151 221 1 - - -
Austria 649 122 - - - -
Belgium 150 95 25 - - -
Hungary 56 3 - - - -
Canada - 122 - - - 29
Japan - 30 - - - -
Netherlands - - - - 192 48
Other 8 14 - - - -

Total

21,978 26,748 4,450 9,054 36,045 106,426


APPENDIX B

MEMORANDUM BY THE CZECHOSLOVAK DELEGATION
DATED 7 NOVEMBER 1950

Article XIX gives a contracting party the right to withdraw, in the case of emergency, tariff concessions granted in respect of certain products. The provisions of this Article cannot, however, be interpreted in the sense that it is sufficient for a contracting party to announce that an emergency has arisen. This emergency must be qualified in accordance with the stipulations of paragraph 1 of Article XIX and must be fully proved. Any other interpretation of Article XIX may threaten the very foundations of the General Agreement, as there would be no certainty in effect as to the assured life of the existing tariff concessions. Article XIX is an exceptional measure and must, therefore, be interpreted restrictively. It is therefore the opinion of the Czechoslovak Delegation that provisions of Article XIX may be applied only if all conditions of paragraph 1 of Article XIX have been fulfilled. Paragraph 1 of Article XIX requires:

    (i)unforeseen development,

    (ii)products being imported in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers.

Both these conditions must be fulfilled together and only after their genuineness has been fully established may the provisions of Article XIX be applied.

In the United States of America the Havana Charter came in for strong criticism because it was supposed to contain too many exceptions. And now the United States is appealing to one of these exceptions which was devised for completely different circumstances. The United States Delegation has announced that, with reference to Article XIX of the Agreement, the United States of America as from December 1 is withdrawing the concessions granted on ladies' felt hats.

According to paragraph 1 of Article XIX this action would be justified

"if as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement any product is being imported in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers".

According to the Reports of Committees and Principal Sub-Committees (page 83) of the Havana Conference, "there would, however, have to be a relationship of cause and effect between the increase in imports resulting in injury and the obligations assumed by Members".

The United States Delegation has furnished in its communication a table showing that the export of hats to the United States has increased. However, the increase of exports alone does not justify the application of Article XIX as increase of exports is the primary aim of the Agreement. Furthermore, the increase of exports is a development foreseen by the Agreement and cannot be regarded as an "unforeseen development" as stipulated in paragraph 1 of Article XIX. The United States Delegation has not proved that the conditions of Article XIX have been fulfilled. It is necessary to point out that when the question of tariffs of Cuba was being discussed at Annecy or when there was any discussion of the measures adopted by countries under the terms of Article XVIII or when negotiations took place on the so-called Swiss reservations, the United States Delegation always asked for all possible data on the extent of the manufacture, on the manufacturing expenses, the number of workers, etc. We maintain that it is the duty of the United States Delegation to prove that the import takes place "under such conditions as to threaten domestic producers" and that the present tariffs are the cause of difficulties which may arise. We further maintain that it is not sufficient that the United States Delegation should limit itself to a single fact, i.e., the statement that the imports to the United States are rising, because, after all, the General Agreement aims at the extension of trade.

Since the customs reductions agreed upon at Geneva in respect of item 1526 (a) the tariffs have been 55 per cent and 47� per cent ad valorem. It cannot be disputed that these are tariffs which, particularly in a country of such high industrial development as the United States, are enormous and provide sufficient protection. These tariffs, even though reduced, are, in themselves, at direct variance with the fundamental purpose of the Agreement, i.e., "a substantial reduction of tariffs".

In order to judge the extent of the customs protection in the United States on hats, we have selected analogous customs items of other countries as set forth in the documents of the Agreement. For the sake of simplicity and easier comparison, we have taken into account only countries whose tariffs are expressed ad valorem. The result is as follows:

Australia     45%
Benelux     20%
Canada     22�%
Ceylon     22%
Cuba     20%
France     14-25%
Pakistan     20%
Sweden     15%
Union of South Africa     25%
United Kingdom     25%

It will be seen that all these tariffs are substantially lower than the one now current in the United States. And yet, not even this enormous customs protection is enough for the vested interests in the United States which are demanding an increase equal to about 70 per cent on the value of the goods, which is at variance with all the fundamental principles of the Agreement.

It is, therefore, quite obvious that neither the low tariffs nor an increased import are the reasons for the difficulties of the American hat industry, if these difficulties exist at all. In the United States the necessity for an increased import and the abolition of "less efficient" industries is being demanded. In A Charter for World Trade, by Clair Wilcox, page 192, we read:

"The real danger that faces us ... is not that we shall import too much but that we shall import too little ... We must permit foreign goods to displace domestic goods in our market; our less efficient producers must shift to other products or other industries."12

It is beyond dispute that the industry of a highly developed country which cannot make headway with the protection of tariffs amounting to 47�-55 per cent must be regarded as highly inefficient and its difficulties, if there are any, are in no way related to the reduction of tariffs as even these reduced tariffs are enormous and the highest existing.

"The real danger that faces us, according to other critics, is not that we shall import too much but that we shall import too little. If we are to maintain our export trade, imports should catch up with exports; if we are to accept payment on our loans, imports should exceed exports. And if this is to happen, it is argued, we must permit foreign goods to displace domestic goods in our market; our less efficient producers must shift to other products or other industries."

There being no relationship of cause and effect between the existing tariffs and the difficulties indicated by the United States Delegation, Article XIX cannot be applied.

In conclusion, it can be said that the conditions of paragraph 1 of Article XIX have not been fulfilled as there has been no unforeseen development since the signature of the Agreement and products are not imported under such conditions as to cause or threaten serious injury to domestic producers. In view of this the Czechoslovak Delegation proposes that the CONTRACTING PARTIES place on record that the unilateral action of the United States is not in accordance with the stipulations of Article XIX and recommend that the United States Government revoke its intention in view of the serious consequences which its steps may have on the whole Agreement.


APPENDIX C

ITEM 1526 (a) IN PART I OF SCHEDULE XX (UNITED STATES)
ANNEXED TO THE GENERAL AGREEMENT
(effective until December 1, 1950)

 Tariff Act of 1930, paragraph Description of Products Rate of Duty
1526 (a) Hats, caps, bonnets, and hoods, for men's,women's, boys', or children's wear, trimmed or untrimmed, including bodies, hoods, plateaux, forms, or shapes, for hats or bonnets, composed wholly or in chief value of fur of the rabbit, beaver, or other animals:

Valued at not more than $12 per dozen

55% ad val., but not less than $1.25 per doz.

Valued at more than $12 and not more than $18 per dozen

47�% ad val.

Valued at more than $18 and not more than $30 per dozen

40% ad val.

Valued at more than $30 per dozen

$8 per doz. and 12�% ad val.

Provided, that none of the foregoing shall be subject to any additional duty under the last clause in paragraph 1526 (a), Tariff Act of 1930.


APPENDIX D

ARTICLE XIX OF THE GENERAL AGREEMENT ON TARIFFS AND TRADE

Emergency Action on Imports of Particular Products

1.

    (a)If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.

    (b)If any product, which is the subject of a concession with respect to a preference, is being imported into the territory of a contracting party in the circumstances set forth in sub-paragraph (a) of this paragraph, so as to cause or threaten serious injury to domestic producers of like or directly competitive products in the territory of a contracting party which receives or received such preference, the importing contracting party shall be free, if that other contracting party so requests, to suspend the relevant obligation in whole or in part or to withdraw or modify the concession in respect of the product, to the extent and for such time as may be necessary to prevent or remedy such injury.

2.Before any contracting party shall take action pursuant to the provisions of paragraph 1 of this Article, it shall give notice in writing to the CONTRACTING PARTIES as far in advance as may be practicable and shall afford the CONTRACTING PARTIES and those contracting parties having a substantial interest as exporters of the product concerned an opportunity to consult with it in respect of the proposed action. When such notice is given in relation to a concession with respect to a preference, the notice shall name the contracting party which has requested the action. In critical circumstances, where delay would cause damage which it would be difficult to repair, action under paragraph 1 of this Article may be taken provisionally without prior consultation, on the condition that consultation shall be effected immediately after taking such action.

3.

    (a)If agreement among the interested contracting parties with respect to the action is not reached, the contracting party which proposes to take or continue the action shall, nevertheless, be free to do so, and if such action is taken or continued, the affected contracting parties shall then be free, not later than ninety days after such action is taken, to suspend, upon the expiration of thirty days from the day on which written notice of such suspension is received by the CONTRACTING PARTIES, the application to the trade of the contracting party taking such action, or, in the case envisaged in paragraph 1 (b) of this Article, to the trade of the contracting party requesting such action, of such substantially equivalent obligations or concessions under this Agreement the suspension of which the CONTRACTING PARTIES do not disapprove.

    (b)Notwithstanding the provisions of sub-paragraph (a) of this paragraph, where action is taken under paragraph 2 of this Article without prior consultation and causes or threatens serious injury in the territory of a contracting party to the domestic producers of products affected by the action, that contracting party shall, where delay would cause damage difficult to repair, be free to suspend, upon the taking of the action and throughout the period of consultation, such concessions or other obligations as may be necessary to prevent or remedy the injury.


8This figure is computed by (a) calculating for each of the four value-brackets concerned the ad valorem equivalent of the restored compound rate at the middle point of the bracket, and expressing the excess of this ad valorem equivalent over the straight ad valorem rate fixed in the General Agreement as a percentage of the latter, and (b) taking an average (unweighted) of the four percentages thus obtained. Further details are given in the appended table on page 19.

9The rate on this bracket was reduced by the 1938 trade agreement with the United Kingdom to 50 per cent ad valorem. The withdrawal of the Geneva concession restored the rate to the level of the Tariff Act of 1930.

10Including finished hats, bodies, hoods, plateaux and shapes.

11General imports; data on imports for consumption not readily available.

12Editorial note: - The full text of the passage from the book by Mr. Wilcox reads: