Foreign Relations of the United States, 1964–1968, Volume VIII, International Monetary and Trade Policy

299. Letter From the Special Representative for Trade Negotiations (Herter) to Secretary of the Treasury Fowler¹

Washington, November 17, 1965.

Dear Joe:

I understand that your Department is nearing the point of making a final decision on whether to put into effect a new procedure concerning the customs valuation of imports of competitive rubber-soled footwear. Under this procedure, as we understand it, the Bureau of Customs would apply the lowest American selling price as the basis of customs valuation, instead of applying the highest American selling price, as is done at the present time.

Jim Hendrick was kind enough to suggest that the other interested agencies might wish to comment on the question whether the new procedure should be put into effect. For the reasons set out below, I would like to urge that the Department of the Treasury do so as soon as possible.

First, I believe that it would be particularly unfortunate, both in terms of our general trade relations with the foreign countries concerned and in terms of the Kennedy Round in particular, if the new procedure were not put into effect. This is so primarily because the procedure concerns the application of American selling price, a basis of valuation which other countries have long objected to and which they are especially determined to have modified in the Kennedy Round. For the Department of the Treasury to have announced its intention to put the new procedure into effect and then to fail to do so, would be immediately construed by the other countries as evidence of a protectionist mood of the United States and a weakening of its resolve to liberalize trade in the Kennedy Round. Moreover, such a failure would be especially aggravating to the other countries in light of the recent action of the Congress in tripling the rate of duty on imports of synthetic rubber footwear.² While this action was salutary in that the American selling price was removed from imports of natural rubber footwear, it did substantially increase the protection with respect to synthetic rubber footwear, which accounts for the great bulk of the trade, and will undoubtedly damage the trade of some of our major trading partners. Indeed, it has already created serious problems in our relations with both Japan and the United Kingdom.

Second, on the basis of our experience with the members of the House Ways and Means and Senate Finance Committees and in the light of our recent experience in the Congress with respect to synthetic rubber footwear, I do not believe that putting the new procedure into effect would lead to any serious Congressional repercussions. While the rubber footwear industry is admittedly vocal, at no time did it control even a substantial group in either the House Ways and Means or Senate Finance Committee. Indeed, in the latter Committee Senator Ribicoff’s amendment to apply American selling price as a basis of customs valuation to synthetic rubber footwear was finally rejected. Moreover, on the floor of the Senate he had little support for his position, and his amendment was taken to conference primarily because he had raised a point of personal prestige. In the conference committee his amendment was very substantially modified. As we see it, whatever Congressional disadvantages there may be in putting the new procedure into effect are far outweighed by the disadvantages internationally in not doing so.

Third, I do not believe that a persuasive case can be made that putting the new procedure in effect would result in any harm to the domestic industry. It is our understanding that under the new procedure the rates of duty on imports of rubber footwear would be the equivalent of 70% to 80% ad valorem based upon normal methods of valuation. Such rates would far exceed the rates of duty ranging from 5% to 25% ad valorem which are applied to the entire range of footwear items other than rubber footwear. Moreover, on the basis of statements made to us by representatives of importers, I understand that whatever lower prices for imported products might be brought about under the new procedure have been in effect for the last year or more. Finally, while imports of rubber footwear are admittedly substantial, the domestic industry appears to have fared well in recent years, given the enormous increase in consumption of these products. Employment, production, and sales have all increased markedly in the last six or seven years.

Fourth, as you may know, in cooperation with the Bureau of Customs and the Tariff Commission, we are now attempting to establish a new set of rates of duty for benzenoid chemicals and rubber footwear, which, applied on the normal basis of valuation, would yield approximately the same amount of protection as is afforded by the present rates of duty based on American selling price. It has been pointed out that, if the new procedure is put into effect, the new rates of duty would be somewhat lower than what they would have been otherwise. While this is certainly true, we doubt that it argues very much either for or against putting the new procedure into effect. If the new procedure is put into effect, there may be some criticism of whatever new rates of duty are devised on the ground that they are too low. On the other hand, if the new procedure is not put into effect, importers, as well as consumers, would criticize the new rates on the ground that they are too high. Therefore, I do not believe that much can be made of the impact of either putting into effect or not putting into effect the new practice upon the acceptability of whatever new rates of duty we devise with respect to rubber footwear.

Fifth, I understand that, as a result of an investigation made by the Bureau of Customs of the application of American selling price to imports of rubber footwear, it was discovered that the highest American selling price was being used. This is directly contrary to the practice of applying what we understand to be the lowest American selling price to imports of competitive benzenoid chemicals, as well as canned clams and woolen gloves. Accordingly, as a matter of sound customs administration, there appears to be a strong reason for changing the present procedure. Moreover, if the present procedure is not changed, it might well lead to demands on the part of the influential chemical industry to apply the highest, rather than the lowest, American selling price in imports of competitive benzenoid chemicals. Needless to say, this would have a very serious impact upon our negotiating posture in the Kennedy Round, where American selling price has proven to be such a provocative issue.

For these reasons, we seriously doubt that any arguments based either upon Congressional reaction or the condition of the domestic industry can justify not putting the new procedure into effect. On the contrary, we believe that the interests of sound customs administration and a liberal trade policy, including, in particular, the promotion of the Kennedy Round, argue strongly for putting the new procedure into effect as soon as possible.

Best, as ever,

Christian A. Herter ³

1. Source: Kennedy Library, Herter Papers, Chronological File, November 1965, Box 4. Limited Official Use. Drafted by John B. Rehm on November 17 and cleared by Theodore R. Gates (STR) and Bernard Norwood (STR) in draft.
2. This legislation has not been further identified.
3. Printed from a copy that bears this typed signature.