Obstacle to International Trade: ASP

United States diplomats and economists have struggled for years to achieve a significant international move toward trade liberalization. The recently-concluded Kennedy Round of tariff-cutting negotiations, which was a momentous advance for the U.S. and many other nations, required much bargaining and arm-twisting. In the end, the U.S. received tariff-reduction commitments at least equal in value to those it made. The final result is a balance of mutual opportunities that should greatly stimulate and increase international trade. The advantages to all countries involved are undeniable.

Despite this, by reducing tariffs 50 per cent on some imports, the U.S. negotiating team has incurred the protests of powerful industries which feel the lower tariffs will bring disastrously stiff competition. The strongest reaction to the Round has come from the thriving chemical industry. At the negotiations, the American team made a tentative agreement, subject to approval of Congress, to eliminate the American Selling Price (ASP) method of evaluating certain chemicals (mostly dyes and pigments). The chemical industry considers this a life-and-death matter and is feverishly lobbying to defeat the legislation to repeal the ASP.

The ASP system uses the American price to evaluate chemicals rather than the importing company's price. The American price is usually higher, thereby artificially raising the value of the import on which the tariff is placed. It was a defensive measure used against Germany in the First World War, and once established it never relented. Nations at the Kennedy Round were, understandably, insistent upon the abolition of this discriminatory practice. Because they did not have specific authority under the 1962 Trade Act to abolish it, the U.S. negotiators agreed tentatively to seek abolition, in return for more concessions from the Common Market, England, and Switzerland. The negotiators did have authority, however, to cut duties on 95 per cent of all chemical imports to this country by nearly 50 per cent in return for corresponding cuts from the other major markets.

The chemical interests have much political pull, ranging from leading Washington and New York law firms, former Under Secretary of State George Ball, and Senator Russell B. Long, who is chairman of the Senate Finance Committee. They showed their power a year ago, when it was first learned that the U.S. team was considering bargaining on the ASP at the Common Market's insistence. The Senate promptly adopted a resolution urging the President to instruct the U.S. negotiators to agree only to provisions under the 1962 Trade Expansion Act, thereby aiming directly at the chemical issue.

The industry is currently adopting the argument that repeal of ASP would damage the industry and cause large-scale job cuts among semi-skilled workers. According to the industry these people are often Negroes and Puerto Ricans, who would have great difficulty finding other jobs with similar pay. The industry often points out that Newark and New Jersey would be particularly threatened.

These arguments are wildly exaggerated. The affected sector of the chemical industry is strong and has always thrived in international competition. Anyway, the new rates of duty in the Kennedy Round agreement provide a comfortable level of tariff protection, according to most impartial economists. And the level of protection is well above the other major chemical-producing countries. Still Congressional trade expansionists will never convince their fellow chemical protectionists, and the passage of an ASP repeal motion is questionable.

The other agreement reached in the Kennedy Round that depends upon Congressional action is the new grain deal which guarantees higher minimum wheat trading prices. The arrangement also committed participating countries to contribute 4.5 million tons of grain to a food aid program for less developed countries. Under this plan, the U.S. would supply 42 per cent of the total or maybe much more if the other countries bought their contributing share from Uncle Sam. American groups have complained mildly over the lack of significant accomplishments in agriculture, especially the U.S. failure to obtain a satisfactory guaranteed access to a certain percentage of the Common Market's wheat purchases. Otherwise, they support the Kennedy Round's outcome.

There has been some expected grumbling over other parts of the agreements. Domestic industries are not too kindly towards the reductions in tariffs on steel, aluminum, textiles, paper, pulp, lumber, and many other items. But these industries can seek remedies in other forms, such as Federal adjustment assistance or legislative limits on imports that compete for their American market.

What it boils down to is one major hassle over the ASP, and a defeat here would set back the whole trend toward more international trade. As Senator Jacob Javits put it, "Unless forces favoring trade liberalization are ready to go into battle in defense of the principle of trade liberalization on every one of these issues, much that has been gained over the past four years of the Kennedy Round could easily be lost. And let's not kid ourselves, unless we have the full support of the President the chances of resisting self-interest and protectionist forces will be small."