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TELEPHONE W04*2041
FOR RELEASE AT 10:00 A.M
STATEMENT OF
MR. JOHN M. HENNESSY, ASSISTANT SECRETARY FOR
AFFAIRS, THE DEPARTMENT OF THE TREASURY,
BEFORE THE FOREIGN OPERATIONS AND GOVERNMENT
INFORMATION SUBCOMMITTEE OF THE
HOUSE COMMITTEE ON GOVERNMENT OPERATIONS
MARCH 1, 1973, at 10:00 A.M.
AUG 2 1 1973
Mr. Chairman and Members of the Subcommittee, I am pleased to have
the opportunity to review with you once again the progress and problems
connected with the collection of delinquent foreign debt owed to the
United States.
As you indicated in your letter to Secretary Shultz,
today*s review will focus primarily on debt matters pertaining to the
eight countries you and your staff visited at the end of last year.
The hearings you held abroad in these selected countries have, in my
opinion, further emphasized the degree of Congressional concern with
foreign debt arrearages and demonstrated the determination of our
Government to find ways which will assure that the obligations of
foreign governments to us will be paid promptly and fully.
As you said in your letter, Mr. Chairman, the hearings abroad have
indicated that, at least in these particular countries, the military
arrearages represent a major percentage of the delinquencies.
Consequently,
you have asked that we focus this morning on any problems and suggestions
we might have to improve the collection of such debts.
S-129
2
The Treasury Department’s collection of information on military
debt arrearages, other than long-term military sales, is of comparatively
recent origin.
The arrearages we are discussing here represent principally
accounts receivable from foreigners by the military, the systematic
r
•ar
Hi
reporting of which was only begun less than a year ago.
Prior to that
01
time our reporting system only included foreign debt obligations with
ipn
a maturity of longer than one year.
Mi
Ot
As you well know, it was pursuant
to your Subcommittee’s suggestion that we broadened our reporting
requirements to include, in addition, all foreign accounts receivable
and short-term credits of U #S # Government agencies.
arrearages which had previously not been reported to Treasury, we
have established close contact with the military departments for the
Last fall,
for example, the National Advisory Council held a meeting with the
participation of all interested agencies, where the military arrearages
were discussed in considerable detail.
Mi.
It
•an
Since we first learned of the magnitude of the military debt
purpose of ascertaining the nature of these arrearages.
§e
In addition, both in connection
with our reporting functions and our responsibilities to provide current
information on country debts to the National Advisory Council, we are
Mi
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(jt!
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ip
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in contact with the military on staff level concerning the arrearages.
We have compiled a table on the arrearages of the eight countries
that the Subcommittee visited, broken down between military and other
debts.
I would like to submit this table for the record.
I
I
I
2-
- 3 Arrearages on Debts of Selected Countries
to the U.S. Government, as of June 30 and December 31, 1972
(In dollars or dollar equivalents)
Country and Tyne of Arrearage
June 30. 1972
December 31. 1972
ranee
Military
Other
169.364
163,194
6,170
441.140
437,611
3.529
>rmany, Federal Republic of
Military
Other
2 0 2 ,^ 1 1
173,945
28,966
187.852
171,288
16,564
•eece
1 8 ,400,0 33
1 8 .264.066
Military 1/
Other
18,398,691
1,342
18,217,617
46,449
■an
Military
Other 2/
36,807,419
949,838
35,857,581
37,057.763
1 ,345,866
35,711,897
JJ
ay
Military
Other
14,577,169
14,576,023
1,146
16.245.484
16,244,661
823
jocco
Military
Other
20 6 ,50 3
205,762
741
8,579
8,474
105
ain
Military
Jther
5.036,399
4,112,547
923,852
388,347
87,728.496
87,471,394
257,102
87.903.384
87,559,643
343,7a
■ key
U ilitary
Cjther
2/
36 6 ,6 16
21,731
m
■
■
I Includes $17,440,122 representing logistic support provided during the Korean Conflict.
I Includes arrearages on World War II accounts ($35,603,711 as of December 31, 1972).
I Includes $86,792,033 representing logistic support provided during the Korean Conflict.
- 4 -
Since representatives of the Defense Department and the military
agencies appearing before you today are far better qualified than I
am to comment on the specific problems pertaining to the collection
of debts owed to them, I will limit myself here to some general
observations.
As I mentioned when I last testified before the
Subcommittee, by far the largest portion of military debt arrearages
arose from logistical support provided by the United States to other
nations during the Korean conflict and the UN operations in the
Congo.
At the end of 1972, these accounts amounted to approximately
$204 million of the $250 million total due and unpaid military
arrearages.
Indeed, two of the largest amounts set forth in the
attached table, namely amounts listed for Turkey and Greece, repre
sent such logistical support costs.
These logistical support claims,
as you noted Mr. Chairman during one of the hearings in Europe, are
very controversial and difficult to resolve, with political as well
as financial implications.
Of the remainder of the military debt arrearages on December 31,
1972, military sales on short-term credit accounted for $38 million;
long-term credit sales, $4 million; unpaid military mission costs,
$3 million; and other logistical support expenses, $1 million.
I
understand that the specific problems which have given rise
to these arrearages will be discussed by representatives of the
5
military departments.
Let me just say that we consider it essential
that the creditor agencies review their billing and collection
procedures to assure timely payments by foreign debtors.
If payments
are not received on time, consideration should be given to imposing
penalty
charges on the unpaid balances.
It is important, however, that arrearage data reported by the
military agencies do in fact represent overdue obligations of the
foreign governments.
Because of the nature of the billing process,
some of the amounts recorded as outstanding on the books of U.S.
agencies may not be recorded as firm obligations on the books of
the foreign debtor.
For example, some of the amounts may be con-
tested by the foreign government because of discrepancies in quantity
or condition of the items delivered.
During the time when these
accounts are being reconciled with the foreign governments, there
is a question whether they should be characterized by the creditor
agencies as delinquent.
Consequently, it may be desirable to set
up a new category in agency reporting which would distinguish between
amounts clearly delinquent and those which are outstanding but under
discussion with the foreign governments.
This would be an additional
step in the accurate reporting of foreign debt arrearages.
Turning to the role of our diplomatic representatives in debt
collection, you have noted Mr. Chairman that some of our Embassy
6
personnel had little or no knowledge of the debt arrearages of the
countries you visited last year.
We could provide comprehensive
tabulations of arrearages to our diplomatic missions on the basis of
the agency reports submitted to Treasury.
However, considerable
explanatory material on each debt problem would have to be furnished
by each creditor agency at the same time if the data were to be
meaningful.
This would require a very substantial effort on the part
of the Government.
I question whether providing such detailed infor
mation on the whole range of debt arrearages to our posts abroad
would justify the very substantial cost since diplomatic intervention
in the debt collection process is required only in a relatively few
specific cases.
In my view, each creditor agency should collect the obligations
resulting from its programs and should request assistance from State
Department only after its own procedures have been fully exhausted.
In my opinion, it would be an error to shift the responsibility for
debt collection to our diplomatic posts.
Although their assistance
has certainly been utilized in the past and should continue to be
relied on in the future, the shifting of responsibility would inevitably
result in a duplication of efforts, added costs and, conceivably,
in the relaxation of collection efforts by the responsible agencies.
Nevertheless, I understand that the Department of State, when a claim
is fully documented and is ripe for diplomatic intervention, does not
hesitate to use the full range of its diplomatic mechanism to settle
overdue accounts.
7
Finally, Mr. Chairman, you have asked for our views on the
possible acceleration of payments, particularly by countries with
strong reserve positions.
It must be stressed that the foreign debts
are contractual in nature and thus their repayment terms can be
altered only by mutual agreement.
In a number of cases we have had
considerable success in reaching such agreements.
For example,
most of the Western European countries, particularly Germany, France,
Italy and the Netherlands, have already prepaid a substantial portion
of their war accounts and Marshall Plan debt to the U.S. Government.
Specifically, since the late 1950's we have received approximately
$2.2 billion of prepayments from these European countries on lend**lease,
surplus property, and other war account loans and the Marshall Plan
loans.
The remaining obligations on such loans are relatively small for
some of these countries.
For example, as of June 30 last year, Germany
owed $1.8 million and Italy only $1.2 million on these loans.
We are constantly alert to opportunities to maximize government
receipts.
One recent occasion on which we were particularly successful
was the repayment of the $355 million U.S. capital contribution to the
European Monetary Agreement at the beginning of the year.
We felt that
the purposes of the EMA, which was originally founded by grant from
our Economic Cooperation Administration in 1948, namely, to facilitate
full convertibility of the currencies of European members, had been
achieved.
Aflter several years of discussions, it was decided last
December to terminate the Agreement and return to the United States
its contribution and earnings thereon.
The United States has received
8
a total of $355 million, which represents the initial U.S. contribution
of over $270 million and accumulated interest of $84 million.
1
The funds
returned by EMA consist of a cash payment of $118 million, a release
of $123.5 million which had been held by Treasury in a trust account
in the name of the OECD, and the assignment of a long-term claim on
Turkey of $114 million.
We believe this was a very constructive step
by members of the EMA.
In addition, we have been discussing with the Japanese Government
the possibility of prepayment of their obligation stemming from our
economic assistance to that country after World War II.
These discussion®
have been concluded and the Japanese Government has agreed in principle
I
to make payment in the near future, which will extinguish this obligation!
This, Mr. Chairman, concludes my prepared statement.
I will be
glad to answer any questions you may have.
1
■
Departmentof
theTREASURY
SHINGTON. D.C. 20220
TELEPHONE W04-2041
FOR RE L E A S E ON D E L I V E R Y
S T A T EMENT BY THE H O N O R A B L E PAUL A. V O L C K E R
U N D E R SE C R E T A R Y OF THE TRE A S U R Y FOR M O N E T A R Y A F F A I R S
BEFORE THE C O M M I T T E E ON WAYS AND MEANS
OF THE HOUSE OF R E P R E S E N T A T I V E S
THURSDAY, M A R C H 1, 1973, AT 10:00 A.M. (EST)
FEDERAL F I N A N C I N G
Mr.
C h a i r m a n and M em ber s
I am pl eased
for
16,
29,
1972.
purposes?
First,
Fi nan ci ng
the m a r k e t i n g
S-131
Fina nci ng
it wo uld
submitted
to the
and
Congress
1971.
passed by the Senate
ad jo u r nm e n t
of
by
An amended
f a vor ab ly by your
Committee
on
taken up on the
the
92nd
Bank Act of 1973 has
Congress.
two major
e s ta b l i sh a new ag en cy -- the
Bank -- to pr ovide
and r ed uc ing
Bank to provide
fi na ncing of Federal
the bill was not
the Ho use be for e
The Federal
Federal
Yet,
of
Bank Act of 1973.
Financing
in December,
repo rt ed
1972 and was
the v ie ws
from the public.
first
the Tr ea su ry
the bill was
on September
floor of
bo rr ow i n gs
to express
Fi na ncing
effic ie nt
le gi s la ti o n was
the Se c re t ar y of
Oct ober
on the Fe deral
and more
F e d e ra ll y as sisted
v e r si o n of
today
e st ab l is h a Federal
coo rd i na t ed
This
the Committee:
to be here
the A d m i n i s t r a t i o n
The bill would
of
BANK
a me an s
the cost of direct
of ce n t r al i z i ng
and guar an tee d
- 2
borrowing ac tiv i ti es
of Fe d e r al agencies.
would as sur e debt m an a g e m e n t
the approva l
of
issues
the Tre as ury
of F e de r a l
to direct and guara nt eed
security
in the market.
The need
of Fe deral
for m o r e e ff ect iv e financing
credit pr ograms
of Go ve rn men t
and p ri va te
in several reports
the Co mp tro ll er
Act at
has been reco gn ize d
studies
need
for
to fi na nce credit pr ograms
rather
over
to the Con gr ess
than
we are al rea dy at
busi ne ss
the past de c ad e and
in recent years by
from the growing
d i re ct ly
through lending
of the p r o l i f e r a t i o n of new Fe deral
is coming
at least
Bank
tendency
in the securities
institutions.
Because
b or row in g ac ti vi t ie s
the point w h e r e some F e de ra l
to ma rk et
three out of
financing
every five
days.
Until
recent years
the typical
forms of credit
as s i s t a n c e by Fed era l ag encies w e r e either
financed
by the T r ea su ry
g e n e r al l y m a d e by lending
banks and
in that
in a number
the Federal F i n a n c i n g
this j un c t u r e arises
ma rke ts
and c o or d i n a t i o n
General.
The pr essing
loans
the bill
c o o r d i n a t i o n by r e qui ri ng
the Se cretary of
age ncy plans w ith respect
Second,
thrift
or guara nt ees
institutions,
institutions,
as su me
of
budget
loans
such as c om mer ci al
who were no r ma l l y
type of lending a c tiv it y and were
se r vi ce the loans and
direct
engaged
equipped
some p o rt io n of
to
the loan risks.
- 3 -
But in recent years, direct loans have given way to
increased guaranteed lending, and at the same time we
have moved toward full guarantees of timely payment of
principal and interest on loans made by private lenders
so that the share of risk borne by the lender has
declined.
Also, the Congress has increasingly provided
for direct Federal interest subsidies on loans made by
private lenders, so that a portion or all of any extra
borrowing costs resulting from inefficient financing of
these loans is now borne directly by the Federal taxpayer
rather than by the borrower.
Moreover, even with complete Federal guarantees
and interest subsidies, it was found that the flow of
credit at reasonable interest rates for the various
purposes authorized to be assisted by the Congress was
not always adequate.
Thus, more and more of these
programs have come to be financed, like Treasury
borrowings, directly in the securities markets rather
than through lending institutions,
This has been
particularly true during tight money periods when the
flow of deposit funds to banks and thrift institutions
has not been sufficient to assure the availability of
financing for Federal credit assistance programs.
4
Consequently, we have relied more and more on direct
securities market financing by means of Cl) issues by
the privately-owned Federally sponsored agencies, such
as FNMA and the farm credit agencies;
(2) direct borrowings
by Government-owned agencies such as the Export—Import Bank,
TVA, and the Postal Service;
(3) loan asset sales in
the securities market by Government agencies, such as the
Farmers Home Administration,
CCC, GNMA, FHA,
VA, SBA, and GSA, and (4) other Federally guaranteed
securities, such as GNMA mortgage-backed securities,
public housing bonds, urban renewal notes, new community
debentures, merchant marine bonds, mass transit bonds,
etc.
Similar financing arrangements have been proposed for
a number of new agencies or programs.
Federal credit agencies are thus required to develop
their own financing staffs, and their abilities to cope
with their principal program functions are lessened by
the need also to deal with the complex debt management
operations essential to minimizing their borrowing costs
and avoiding cash flow problems which could disrupt'
their basic lending programs.
Borrowing costs of the various Federal agency
financing methods normally exceed Treasury borrowing
costs by substantial amounts, despite the fact that
- 5
these issues are backed by the Federal Government.
Borrowing costs are increased because of the sheer
proliferation of competing issues crowding each other
in the financing calendar, the cumbersome nature of
many of the securities, problems of timing and small
size of issues, and the limited markets in which they
are sold.
Underwriting costs are often a significant
additional cost factor due to the method of marketing.
Under the proposed Federal Financing Bank Act these
essentially debt management problems could be shifted
from the program agencies to the Federal Financing Bank.
Many of the obligations which are now placed directly
in the private market under numerous Federal programs would
instead be financed by the Bank.
issue its own securities.
The Bank in turn would
The Bank would have the necessary
expertise, flexibility, volume, and marketing power
to minimize financing costs and to assure an effective
flow of credit for programs established by the Congress.
The proposed legislation would also assure more
orderly and effective Federal financial management by
requiring the submission of agency financing plans to
the Secretary of the Treasury and the coordination of
6
borrowing activities by the Secretary.
The Congress has
required such Treasury coordination of agency borrowings
in many cases, but some agencies are not subject to the
requirements, and in many cases the requirements are vague
or incomplete, and their lack of uniformity is awkward
and inefficient to administer.
The Federal Financing Bank Act would thus provide
both a more effective means of financing as well as a
focal point for early recognition of the volume and
timing of the proposed level of Government assisted
credit and its likely impact on financial markets.
During the course of the Financing Bank hearings
last year and in our discussions with Federal agencies,
public interest groups, and capital market participants,
considerable support for the legislation has developed.
Most people agree that the coordinated and economical
financing of the Government’s activities and programs
is clearly in the public interest.
In those discussions
we found it helpful to emphasize the following points:
First, the Bank would not be a program agency.
That is, it would neither add to nor subtract from
existing Federal credit assistance programs.
The Bank
would not be authorized, nor would the Secretary of the
Treasury be authorized, to make any judgments with respect
7
to the purposes of Federal agency programs.
The
Bank is designed merely to improve the financing
of programs otherwise authorized by the Congress,
Second, the Federal Financing Bank would not
be another big bureaucracy.
It would rely upon the
staff and facilities of the Treasury Department and
the Federal Reserve banks in its borrowing operations.
In fact, the establishment of the Bank would reduce
Federal bureaucracy since it would eliminate the need
for establishing new financing staffs for each new
Federal credit program or agency.
Third, the Federal Financing Bank is not a device
to remove programs from the Federal budget; npr is it
,
. i
: ...
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IfiOOj
a device to bring programs back into the budget.
bn £
The
3 nr 3vt5q£)09"x sioffl
Bank would in no way affect the existing budget
treatment
of Federal credit programs.
If a program
is now financed outside of the budget, that treatment
would continue.
If a program is now financed in the
m
®
budget, that treatment
,
(1 M
> U P
f t U, ,?
2
ft J ]
would continue.
,, ...0
v-
Ji
g
fi I
D If I
OH X
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a SIB IS
The Bank is
.3 3 ^ 1 -SflI J q0153X9-
intended to improve the financing of all Federal agency
borrowing activities, regardless of their budget treatment
Fourth, the Federal Financing Bank Act is not an
assault on the tax-exempt municipal bond market.
Rather than involving the Federal Government in the
tax-exempt market, the Financing Bank would permit the
8 Federal Government to withdraw from that market.
Under
existing arrangements Federal agencies finance some of
their programs in the municipal market by means of
Federal guarantees and debt service subsidies on
tax-exempt obligations, e.g., for public housing and
urban renewal.
Those programs currently require about
one out of every six dollars invested in tax-exempt
obligations.
Over time the Federal Financing Bank
would permit the removal of the financing of these
Federally-impacted programs from the tax-exempt market,
thus reducing pressures on that market.
Consequently,
State and local governments should benefit, in terms
of more receptive markets for all their borrowings,
by enactment of this legislation.
Virtually all interested parties now agree that
the Federal Government should not be financing its-own
Programs, including its loan guarantee programs, in the
^^
g xGinjpt
market.
It makes no sense to me, in view of
rjfr
fSf^ X
”,V,; ""'J, i,‘'[.■jp (> !
•
’ -J-P- the obvious potential problems in the municipal market,
for Federal agencies to be adding to those problems and
competing with hard-pressed local governments for the
limited and erratic supply of funds attracted by tax
S :I i ' j
exemp tion.
jTF.il
1
'
•.
t& ■
® ' :' M
to the purposes of Federal agency programs.
The
Bank is designed merely to improve the financing
of programs otherwise authorized by the Congress,.
Second, the Federal Financing Bank would not
be another big bureaucracy.
It would rely upon the
staff and facilities of the Treasury Department and
the Federal Reserve banks in its borrowing operations,
In fact, the establishment of the Bank would reduce
Federal bureaucracy since it would eliminate the need
for establishing new financing staffs for each new
Federal credit program or agency.
Third, the Federal Financing Bank is not a device
to remove programs from the Federal budget; nor Is it
a device to bring programs back into the budget.
The
Bank would in no way affect the existing budget
treatment
of Federal credit programs.
If a program
is now financed outside of the budget, that treatment
would continue.
If a program is now financed in the
budget, that treatment
would continue.
The |ank |s
intended to improve the financing of all Federal agency
borrowing activities, regardless of their budget treatment
Fourth, the Federal Financing Bank Act is not an
assault on the tax-exempt municipal bond market.
Rather than involving the Federal Government in the
rr Q J
tax-exempt market, the Financing Bank would permit the
Mi
r
Federal Government to withdraw from that market.
Under
existing arrangements Federal agencies finance some of
their programs in the municipal market by means of
Federal guarantees and debt service subsidies on
tax-exempt obligations, e.g., for public housing and
urban renewal.
Those programs currently require about
one out of every six dollars invested in tax-exempt
obligations.
Over time the Federal Financing Bank
would permit the removal of the financing of these
Federa1ly-impacted programs from the tax-exempt market,
thus reducing pressures on that market.
Consequently,
State and local governments should benefit, in terms
of more receptive markets for all their borrowings,
by enactment of this legislation.
Virtually all interested parties now agree that
the Federal Government should not be finaneing .its-own
programs, including its loan guarantee programs, in the
el isuS shT
tax-exempt market.
It makes no sense to me, in view of
the obvious potential problems in the municipal market,
for Federal agencies to be adding to those problems and
competing with hard-pressed local governments for the
limited and erratic supply of funds attracted by tax
9 if
exempt ion.
n i ' .1o s s
i v'f >
. <
•
*■?"*** ' ■
*
9
The Financing Bank itself would have no authority
to subsidize municipal obligations, and it would be
authorized to purchase only those municipal obligations
which are issued under those few programs which are
directly subsidized by other Federal agencies.
To the
extent that a decision is made to finance those
particular programs through the Bank there could be
significant savings to government at all levels.
Such
financing would not involve the Federal Government in
any municipal borrowing or project it was not already
involved in.
Thus the Financing Bank legislation does
not raise the question of Federal control over municipal
borrowing.
I would like to turn now to the two provisions of
the bill before you today which differ from the bill
approved by your Committee last year.
First, under this bill the obligations issued by
the Federal Financing Bank would be subject to State and
local taxation to the same extent as the obligations of
private corporations.
This provision is a departure
from the usual practice of exempting obligations of
Federal agencies from State and local taxes.
But, the
obligations issued by the Federal Financing Bank would
10
-
be issued primarily for the purpose of financing the
Bank’s purchases of guaranteed obligations which would
otherwise be financed directly in the market on a
taxable basis.
Consequently, if the Federal Financing
Bank issues were exempted from State and local taxation,
there would be a loss of tax revenues to State and local
governments as compared to the present methods of
financing guaranteed obligations.
The other difference between this bill and the
bill approved by your Committee last year is that this
bill would require the approval of the Secretary of the
Treasury of the market financing aspects of certain
guaranteed obligations sold in the market.
The bill
reported by your Committee would have required approval
of the Secretary of the Treasury of the market financing
aspects of obligations issued or sold by Federal agencies
but not of obligations guaranteed by Federal agencies.
Thus, under the bill approved last year, the
Treasury would be responsible for coordinating the
marketing of guaranteed issues only when they are sold
directly by a Federal agency.
Yet a number of Federal
agencies guarantee obligations sold by others, e.g., by
private trustees selected by the Federal agency to handle
11
the
sale.
Federal ag en ci e s
sec urities m ar ke t s
SBIC debentures,
many other
securities,
by a Federal
Bec ause
bill,
based
GSA b u ild in g
result
process.
of
tec hni cal d i s t i n c t i o n
on w he the r
an ag ency
arra ngi ng
for
flowing
about
a c tu al ly
its m a r k et
of
market.
the concerns
We have no
clear last
Our
in last
y e a r ’s
acq ui res
a
Government-backed
any ove ra ll
expr es sed
the a d m i n i s t r a t i v e
loan guarantee,
of small
in st it u ti on s
such gua ran te ed
acq ui red
coordination.
large num ber s
by d e p o s i t o r y
and
financing,
to the ma rket w i t ho u t
indi vid ua l
involving
bonds,
hou si ng
in the fina nc ing
the
in
cer ti fic at es,
in the Con gr ess
p r ob le ms w h i c h
if Tr ea su r y appr ova l were re q ui r e d
of each
provide
public
agency
We r ec og n iz e
year
sale
a c t u a l ly
debt m a n a g e m e n t
last
t ax -ex em pt
could be a s ub st an tia l vo lu me
se curiti es
the
w h ic h are not
sec urity before
there
for
of gu a r a nt e e d m e rc h a n t m a r i n e
new co mm uni ty debentures,
bonds,
arrange
loans,
especially
loans w h i c h
rather
in tenti on
of
than
terms
in pr o gr a m s
are fin an ced
in the se c ur i t i es
of ge tting
and we had
the
could
tried
i n vol ve d
to ma k e
in
this
year.
intent
in section
7 of
the bill
is simply
for c o o r d i n a t i o n of ag en cy f i na n c i ng
in the
to
12
securities market.
To clarify this further we have
amended last year’s proposal, so that the bill before
you would not require Treasury approval of obligations
guaranteed in connection with programs involving the
guarantee of large numbers of individual obligations
that are originated and serviced by local lending
institutions and that are not ordinarily bought and
sold in the same market as bonds and other similar
types of investment securities.
We believe that
this amendment would properly limit Treasury's
responsibilities but would also assure the effective
financing of agency programs in the securities market.
I would also like to point out that the provisions
of the bill before your Committee today are the same as
the provisions of the bill reported by your Committee
last year with respect to the U. S. Postal Service.
There has been no change in our understanding of the
application of the Federal Financing Bank Act provisions
to the Postal Reorganization Act.
As stated by Assistant
Postmaster General Bailar in testimony before your
Committee on September 27, 1972 on the Federal Financing
Bank Act (S. 3001), under the Postal Reorganization Act
the Treasury may purchase all Postal Service obligations
13
if it does so within the prescribed 15-day period, and
the Federal Financing Bank Act would have the effect of
giving the Secretary of the Treasury the authority to
exercise this preemptive right by requiring the Postal
Service to sell its securities to the Federal Financing
Bank.
Thus, the Federal Financing Bank Act would simply
provide an additional optional method of financing the
Postal obligations.
Mr. Chairman, that concludes my prepared statement.
I would be happy to try to answer any questions regarding
this legislation.
0 O0
TREASURY
Departmentofthe
INGTON, D C 20220
p
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
March 2, 1973
TREASURY SECRETARY SHULTZ NAMES JAMES H. JONES
SAVINGS BONDS CHAIRMAN FOR LOUISIANA
James H. Jones, President, Chief Executive Officer, and
Director, First National Bank of Commerce, New Orleans, is
appointed Volunteer State Chairman for Savings Bonds by Secre
tary of the Treasury George P. Shultz, effective immediately.
He succeeds Harold W. Mischler, former President National
American Bank of New Orleans, Since his retirement, Mischler
continues to serve the Bond Program as Chairman Emeritus.
Jones will head* a committee of business, banking, labor,
government, and media leaders throughout the state who -- in
cooperation with the U. S, Savings Bonds Division -- assist
in promoting Bond sales in Louisiana.
Born in Harrison, Ark., he attended the University of
Arkansas, from which he was graduated in 1953, with a BS in
Business Administration. He later attended Southern Methodist
University, Southwestern Graduate School of Banking, from which
he was graduated with honors in 1960.
Jones began his career in banking in 1953 with the Lakewood State Bank, Dallas. Next year, he joined the Republic
National Bank. By 1964, he had become Senior Vice President and
Member of the Executive Committee, Four years later he was
named Executive Vice President. Since moving to First National
Bank of Commerce, in mid-1969, Jones has been designated Chairman of the Board, President, Chief Executive Officer, and Direc
tor, First Commerce Corp.; also Chairman of the Board, Chief
Executive Officer, and Director, First Commerce Real Estate Corp.,
m addition to his bank duties.
He is active in numerous business and civic organizations -President, New Orleans Clearing House Association; Chairman,
Greater New Orleans Development Committee; Vice President, Inter
national House, New Orleans; Treasurer, Radio Free Europe, and
Director, Carmichael Foundation, Inc., Junior Achievement, and
New Orleans Philharmonic Symphony. Jones is also a member of
several clubs, including Bankers of Mexico, Petroleum and Bien
ville of New Orleans. His wife is the former Peggy Lou Bort.
They have three sons -- James B.; Cliff 0., and Lee Christopher.
oOo
DepartmentofthefREASURY
INGTON, D.c. 20220
TELEPHONE W04«2041
FOR RELEASE ON DELIVERY
STATEMENT BY THE HONORABLE GEORGE P. SHULTZ
SECRETARY OF THE TREASURY
BEFORE
THE HOUSE SUBCOMMITTEE ON APPROPRIATIONS
MONDAY, MARCH 5, 1973, 10:00 A.M.
Mr. Chairman and Members of the Committee, I am pleased
to be here to present the fiscal year 1974 budget requests
of the Treasury and to discuss them with you. I am well
aware of the helpful relationship that has existed for many
years between the Department and this committee. We
sincerely hope to promote this relationship which has been a
source of strong support and valuable guidance.
First, I would like to present my associates:
Mr. William E. Simon,Deputy Secretary; Mr. Edward L. Morgan,
Assistant Secretary for Enforcement, Tariff and Trade Affairs,
and Operations; Mr. Warren F. Brecht, Assistant Secretary for
Administration; and Mr. Edward J. Widmayer, the Departmental
Budget Officer. Under the customary procedure, I have for the
record biographical sketches of the witnesses who are making
their first appearance before this committee.
This budget reflects our comprehensive efforts to screen
and hold down budget expenditures while at the same time
recognizing that the growth of the Nation -- both in
population and in the economy -- presents almost irresistible
requirements for additional Treasury services. Each year the
Nation1s growth adds greater numbers of taxpayers and a
greater number of higher income and more complex returns,
increased numbers of travelers cross our borders, and we
experience new volumes and varieties of imports. All of these
must be dealt with promptly and equitably in accordance with
the laws. In addition, there is more business activity
requiring more currency, coins, and stamps. Unfortunately, too,
there are more counterfeiters, forgers, smugglers, tax
evaders, and other law violators. The Social Security
Amendments of 1972, which provide for additional Federal
S-132
2
Assistance to the aged, blind, and disabled, place correspondingly!
greater requirements on the Treasury for significant increased
volumes of check issues, check payments, and securities
transactions. This budget has been carefully designed and
balanced to meet these increasing mandatory workloads and
at the same time to provide much needed strengthening to the
revenue operations of both the Internal Revenue Service and
Customs.
Since you will examine bureau witnesses in detail at a
later date, I will only present brief general remarks and
provide as an addendum to my statement more detailed comments
on each bureau's request.
Fiscal Year 1974
The appropriation request for the regular annual operating
appropriations of the Department is $1,776 billion -- $79.2
million above the authorized level for 1973.
I
have for the record our usual table showing in detail
the derivation of the "proposed authorized level for 1973"
(Table 1). I also have a table comparing the fiscal year
1974 request for each appropriation with the 1973 authorized
level (Table 2), and a table showing "man-year" or average
position requirements (Table 3).
Fiscal Year 1974 Increases
Most of the budget year increases are for the Internal
Revenue Service, the Bureau of Customs, the Fiscal Service
Bureaus, and construction of the Federal Law Enforcement
Training Center.
Internal Revenue Service
The budget request for the Internal Revenue Service is
$1,189 billion. Requested increases of $104 million are
substantially offset by non-recurring costs -- chiefly the
Economic Stabilization Program -- leaving a net proposed
increase of $41.8 million over the 1973 level. New funds are
needed for IRS's frontline programs which will provide
taxpayer assistance in the preparation and filing of their
returns and strive to achieve greater compliance with tax laws
by strengthening the audit activity. The increased workload
for the processing of 2-1/2 million additional tax returns,
117 million in all, is expected to be met solely through
increased productivity.
3
As part of the effort to increase the availability and
responsiveness of IRS to taxpayers' needs, we plan for the
extension nationwide of Centiphone (a system providing taxpayers
toll-free telephone access to the nearest IRS offices staffed to
help them). We plan to keep many IRS offices around the country
open evenings and Saturdays during the filing season. Taxpayer
service is not being expanded to the point where it represents
competition with the returns preparation industry, but to a
point where the IRS can effectively meet legitimate taxpayer
requests for information and assistance.
Most of the additional manpower requested for IRS will be
devoted to increasing the audit of tax returns, the number of
fraud investigations, and to more intensive efforts to collect
delinquent taxes. For several years now audit coverage has
decreased to the point where literally billions of tax dollars
are going unreported and unrecovered. As a result our voluntary
tax system has deteriorated. This estimate represents an
important step toward reversing the current trend. Moreover, it
would result in additional tax collections, aggregating about
$250 million. More important, though, is its potential influence
toward fostering higher voluntary compliance.
Bureau of Customs
The budget request for Customs is $236.4 million, up $24.7
million over the 1973 level. Most of Customs increase will be
needed to meet the unprecedented expansion in international
travel and trade. During fiscal year 1972, for example,
commercial aircraft passengers arriving from foreign ports
increased over 18 percent. Customs processed over 236 million
persons through our ports of entry last year -- an increase that
represents almost five million people. And during this same
period, invoices of foreign importations increased by 14 percent,
resulting in increased collections of more than $725 million -from nearly $3.5 billion in 1971 to almost $4.2 billion in 1972.
We are continually improving our collection and enforcement
procedures to cope with this annual growth.
This budget also provides for the staffing for a permanent
anti-fraud program. This will be a new enforcement effort,
oriented toward team examination of cargo to determine if an
invoice is fraudulent as to quantity, identity, or value, and to
search for smuggled or undeclared items. While the vast majority
of importers comply with tariff laws, the increase in trade has
brought about a sharp increase in the incidence of attempted frauds.
Present examination and investigative methods are restricted by
limited manpower. Commissioner Acree wil go into the details of
the intensified reviews made in 1972 and the revisions that were
made in the Customs entry retrieval system that now makes this a
practical enforcement and revenue producing program.
4
We have also included funds to continue expansion of
our air and sea intrusion program to strengthen Customs
efforts at detecting and apprehending smuggler aircraft and
vessels® As you recall from our presentations in previous
years, this program includes the use of sensor equipped
aircraft and boats, ground radar, sonobuoys, and sensors0
The proposed expansion of this program, which is still only
partially implemented, will further control access across
the southern border®
Customs is also asking for modest increases to expand
the detector dog program® The bureau has been highly
successful in its use of trained dogs for screening mail
parcels, vehicles, and cargo® From the beginning of the
program in April 1970 through December of last year, the
seizures of 34,000 pounds of marijuana, 4,000 pounds of
hashish, and 16 pounds of heroin at a street price of a
quarter of a million dollars a pound, can be directly
attributed to the dog program® The training of dogs to
detect hard drugs has been a breakthrough® About 50 percent
of our dogs presently being trained have the capability of
sniffing out heroin and cocaine®
Fiscal Service Bureaus
Turning now to the Fiscal Service, the Bureau of
Accounts is requesting $71®1 million, an increase of
$7®8 million over the 1973 level® This increase is
entirely for uncontrollable rises in workloads® The
central disbursing activity of the bureau will issue
581 million checks in 1974 -- 61 million more than in 1973®
Over 60 percent of the total increase in cost for this work
is for the postage that will be paid to the U® S® Postal
Service®
The largest part of the increased volume is for the
45 million checks to be mailed to the aged, blind, and
disabled as provided by the Social Security Amendments of
1972® Sixteen million items are for the normal annual
increments in check issues to be made for Social Security,
veterans, tax refunds, and for salaries and vendors*
vouchers for the various agencies®
5
As you know, we have to process this kind of workload
twice* After the Bureau of Accounts issues the checks, the
Office of the Treasurer must pay and reconcile check payments
with the check issue registers as they return from the public*
That Office will also process an estimated 770,000 claims for
lost, stolen, and forged checks* An increase of $1*4 million,
from $11*3 to $12*7 million, is requested for this bureau
in this budget*
Since the Government must provide a proper cash flow
for these check payments, our third Fiscal Service bureau
is brought into play -- the Bureau of Public Debt* The
request for "Administering the Public Debt" is $79*4 million,
an increase of $5*4 million above the authorized level for
1973* The growth in the size of the public debt and in the
number and complexity of transactions in Treasury securities
keeps the workload of this bureau at a high level* There
are now about 585 million individual Treasury securities
outstanding* Issues and retirements in fiscal year 1974
will involve about 283*4 million of these securities — a
rise of 10*3 million over the anticipated volume for fiscal
year 1973* Our major items of additional expense involve
reimbursements to the Federal Reserve Banks for their
services as fiscal agents and to reimbursing paying agents
for redeeming savings bonds*
Federal Law Enforcement Training Center
The appropriation request for construction of the
Federal Law Enforcement Training Center is $6 million*
This increment would bring total funds appropriated to the
Center to $33 million* The remaining requirements to
complete funding — $17*9 million -- will be requested in
subsequent fiscal years* The outdoor firing ranges, the
Motorcade Training Area, and the Special Training Building
are now complete and in operation* The construction manager
for the project is now developing the entire project design
and construction schedule* It is our plan and hope that
the Center will be totally operational early in 1976*
Reductions
There are some major dollar reductions below the 1973
level that I have not mentioned* I refer specifically to
funds for design and engineering for Mint construction and
funds for additional capitalization of the Bureau of
Engraving and Printing Fund for equipment modernization*
Amounts for these purposes were provided in 1973 but are
not requested again in 1974.
6
Also, the Bureau of Alcohol, Tobacco, and Firearms shows
a reduction of $2C5 million,, This reduction is not an
indication of our lack of interest in the highly essential
functions performed by this new bureau, but it reflects our
intention to study its activities and responsibilities during'
1974o The bureau was established July 1, 1972, from
activities formerly conducted by the Internal Revenue Service0
It is responsible for the enforcement of the laws designed
to regulate and curtail illicit activities relating to
distilled spirits, beer, wine, manufactured tobacco products,
firearms, and explosives0
Environmental Financing Authority
In addition to the funding of our operating appropriations
we are also requesting $100 million to advance funds, repayable
with interest, for initial capital of the Environmental
Financing Authority0 This new fund was created by Public
Law 92-500, "The Federal Water Pollution Control Act
Amendments of 19720"
The $100 million -- plus $200 million requested for
borrowing authority -- will be used to purchase obligations
issued by states or local public bodies to finance the
non-Federal share of the cost of any project for the
construction of waste treatment works0 The purpose of the
Authority is to assure that no public body is unable to
carry out an approved project because of inability to borrow
the necessary funds on reasonable terms0 Their obligations
will be purchased only after the Administrator of the
Environmental Protection Agency has certified that the public
body is unable to obtain sufficient credit on reasonable
terms, that the project is eligible under the Federal Water
Pollution Control Act, and has guaranteed timely payment of
principal and interest on the obligationso
Bureau witnesses are prepared to explain their program
in detail when they appear before you0 This completes my
comments on the Department and on the 1974 estimates„ The
The tables and the addendum are here for the record0 I
will be glad to respond to any questions0
oOo
Attachments
7
Table 1
DEPARTMENT OF THE TREASURY
Derivation of "Proposed Authorized Level for 1973"
1973 Appropriations
(P.L. 92-351)
$1,671,018,000
Supplemental Appropriations enacted by
Congress (P.L. 92-607):
Office of the Secretary
Bureau of Customs
Internal Revenue Service, Compliance
Total Appropriations enacted by Congress
3,800,000
2,700,000
4,500,000
1,682,018,000
Pending Supplementals:
Bureau of Accounts
Internal Revenue Service
U«S. Secret Service
Transfer to National Archives from IRS
for early records retirement
Proposed Authorized Level for 1973
730038
February 2, 1973
1,100,000
12,539,000
1,825,000
-753,000
$1,696,729,000
- 8 -
'1
1
DEPARTMENT OF THE TREASURY
Table 2
Annual Appropriations for Treasury Department for 1973
and Estimated Requirements for 1974
(In Millions of Dollars)
1973
Proposed
Authorized
Leveli/
1974
Budget
Estimates
-
Increa
or
Decrea
(-)
Regular Operating Appropriations:
16.3
17.0
.7
2.0
2.2
6.0
.2
6.0
Bureau of A c c ounts:
Salaries and Expenses
Government Losses in Shipment
63.3
.3
71.1
.8
7.8
.5
Bureau of Alcohol, Tobacco and Firearms
75.5
73.0
-2.5
211.7
236.4
24.7
Office of the Secretary
Federal Law Enforcement Training Center:
Salaries and Expenses
Construction
Bureau of Customs
Bureau of Engraving and Printing
3.0
—
-3.0
Bureau of the Mint:
Salaries and Expenses
Construction of Mint Facilities
24.0
Bureau of the Public Debt
74.0
79.4
|J
34.7
517.0
595.4
1,147.0
34.7
531.7
622.4
1,188.8
14.7
27.1
41.8
Office of the Treasurer, U.S.:
Salaries and Expenses
Check Forgery Insurance Fund
11.3
1.8
12.7
l.'l
-1.8
U.S. Secret Service
64.5
64.0
§p]
1,696.7
1,775.9
79.2
Internal Revenue Service:
Salaries and Expenses
/ .
Accounts, Collection and Taxpayer Service
Compliance
Total, Internal Revenue Service
TOTAL, Regular Operating Appropriations
24.5
2.0
5
M
Febru
-—
NOTE:
Amounts are rounded and do not add to total
1/ Does not include pay increases authorized by Executive Order 11691,
effective January 7, 1973.
730039
February 2, 197 3
- “9 -
Table 3
D E P ^ T M E N T OF THE TREASURY
Comparative Statement of Average Positions
Fiscal Years 1973 and 1974
(Direct Appropriations Only)
1973
Authorized
Level
1974
Estimate
Increase
Decrease
over 197
Regular Annual Operating Appropriations:
632
718
86
75
83
8
■Bureau of Accounts
1,427
1,540
113
■Bureau of Alcohol, Tobacco and Firearms
3,915
3,805
-no
11,745
12,661
916
■Bureau of the Mint
1,513
1,554
41
^■Bureau of the Public Debt
2,478
2,467
-11
1,719
38,524
32,657
72,900
1,667
38,222
34,561
74,450
-52
-302
1,904
1,550
891
948
57
2,817
2,817
98,393
101,043
■Office of the Secretary
■Federal Law Enforcement Training Center
■Bureau of Customs
■internal Revenue Service:
Salaries and Expenses
Accounts, Collection and Taxpayer Service
Compliance
B
Total, Internal Revenue Service
B
B
B)ffice of the Treasurer, U.S.
Secret Service
i
H,
Regular Annual Operating Appropriations
1730040
February 2, 1973
79.:
—
\
2,650
-
10
-
ADDENDUM
BUREAU STATEMENTS
OFFICE OF THE SECRETARY
The estimate for the Office of the Secretary is $17 million
and 723 average positions.
The estimate is a net increase of
$700 thousand and 86 average positions over the proposed authorized
level for 1973.
The Office of the Secretary's functions are directly related
to the responsibilities of the Secretary of the Treasury as a
major policy advisor to the President.
This Office has the primary
responsibility for formulating domestic and international financial,
tax and fiscal, and monetary policies as well as the direction and
administration of the Department, supervision of legal and enforce
ment activities and the operation and maintenance of two buildings.
A total of 61 new positions (52 man-years) are proposed to
provide professional and clerical assistance in several offices.
Almost half of this increase is for the Office of Revenue Sharing —
29 positions and $718 thousand -- in the further implementation of
the State and Local Fiscal Assistance Act of 1972.
Administering
this Act, which covers 39,000 state and local governments, involves
a variety of exceedingly complex responsibilities and functions,
including:
control, verification, and analysis of data used for
applying revenue sharing formulas; development and issuance of
11
regulations; adjudication of disputes over amounts of allocations
and purposes of expenditures; on-site audits and review of audit
reports on local government expenditures.
The legal workload
includes promulgating revenue sharing regulations and responding
to or resolving a multitude of legal questions and problems.
The remaining 32 positions, costing $524 thousand, are to
provide adequate and competent staff support required for the
enormous amount of policy study, formulation and control operations
performed by the Office of the Secretary.
These are described and
justified in more detail in the submission covering the entire
Office of the Secretary.
12
CONSOLIDATED FEDERAL LAW ENFORCEMENT TRAINING CENTER
Salaries and Expenses
The appropriation request for this interagency training center for
the fiscal year 197*+ is $2.2 million, an increase of $200,000 over, the
proposed authorized level for 1973.
The training center now has two regular operating units, the
Criminal Investigator School, previously called the Treasury Law EnforceSchool, and the Basic Police School.
The Criminal Investigator School
conducts a 6-1/2-week basic training program in criminal investigation
and enforcement law for new agents of the five Treasury enforcement
agencies.
In fiscal year 1973 the school added training of Department
of State Security Agents, Bureau of Indian Affairs Investigators, Sports
Fisheries and Wildlife Game Management Agents and Commercial Fisheries'
Agents.
The expected student load in FY-1973 is 1,253.
In FY-197M- the
Postal Service Inspectors will be added.
At the beginning of IY-1973 the Basic Police School started to train
U. S. Park Rangers, U. S. Park Police, Executive Protective Service
officers, Bureau of Indian Affairs Police, Sports Fisheries and Wildlife
Vistor Protection Specialists and Smithsonian Zoo Police.
Arrangements
were made to train Deputy U. S. Marshals during FY—73, although originally
the schedule was for the deputy marshals to enter the program in IY-74.
FAA airport police are also trained when space is available.
anticipates the training of W 8
The Center
students in the basic police course
during fiscal year 1973.
During FY-1979- work towards the development of the curriculum for
the Consolidated Training Center will continue.
During FY-1971 and 1972
most of the course development work was handled by contracts.
In FY-1973
the Center Increased its staff to handle more of this work in—house
plans are to continue to increase this capability in FY-1974.
and
Construction of the Beltsville Facility
At the end of FY-1972 construction funds of $3.6 million had been
obligated from the CenterTs appropriation for the Beltsville facility
and the Government had total obligations from all sources that date
of $5.3 million.
The outdoor firing ranges, Motorcade Training Area and the
Special Training Building, now complete and operational, are being
used for .training.
A law suit filed by the Maryland National Capital Park and
Planning Commission and the District Council for Prince Georges County,
alleged that the Environmental Statement previously filed did not comply
with the provisions of the Environmental Protection Act.
A new
Environmental Impact Statement has been prepared and submitted to the
Council on Environmental Quality.
The law suit is still being contested
but we feel certain that it can be resolved shortly.
The Construction Manager for the project is now developing the
entire project design and construction schedule.
Current plans are
that the construction of the balance of the facility will begin this
/
year.
This would make the facilities totally operational early in
1976.
The Center1s 1974 construction appropriation request is for
$6 million.
This would b ring total funds appropriated for the Center
to $33 million allowing the Center to continue construction of the
facilities.
$17.9 million, which would complete funding, will be
requested in a later fiscal year when they a r e -required.
- 14 BUREAU OF ACCOUNTS
Salaries and Expenses Appropriation
The 1974 estimate for the Bureau of Accounts is $71.1 million -- a net
increase of $7.8 million above the 1973 level. This increase is entirely for
uncontrollable rises in workloads.
Over 60% ($4.7 million) is for postage on
increased check volume for social security and other benefit payments. The
central disbursing activity financed by this appropriation will issue 581 million!
checks in 1974 -- 61 million (12%) above the 1973 level.
Of the increased check workload, 16 million is the normal annual increase
in existing programs. At the 1972 productivity rate, these 16 million items
would require an additional 35 man-years. However, after giving effect to
productivity improvements, all manpower requirements for this normal workload
increase are being absorbed.
The rest of the increased check volume, 45 million items, is due to the
Social Security Amendments of 1972, Public Law 92-603. This law provides for
.
Federal assistance to the aged, blind and disabled -- starting in January 1974.
This major new program will increase the monthly check issue output by almost
20%, starting at mid-year, and will require a minimum of 113 man-years in 1974
including start-up costs involved in systems development and installation.
The funding requirement for the other four activities in the Bureau of
Accounts is only slightly over 1973 and is required to maintain current levels
of operations.
Government Losses in Shipment
This self insurance account covers losses in shipment of government property
such as coins, currency, securities and losses in connection with the redemption
of savings bonds. An appropriation of $800 thousand is requested in 1974 to covei
these losses
BUREAU OF ALCOHOL, TOBACCO AND FIREARMS
The request of the Bureau of Alcohol, Tobacco and Firearms for
the fiscal year 1974- is $73 million, a decrease of $2.5 million from
the proposed authorized level for 1973.
The B u r e a u Ts average positions
under this request would amount to 3,085, a decrease of 110 from the
average positions provided for in 1973.
Under this request, the Bureau will carry out its responsibility
for the enforcement of the laws designed to prevent illicit activities
and to regulate lawful activities relating to distilled spirits, beer,
wine, manufactured tobacco products, firearms and explosives.
The regulatory enforcement function, which is responsible for
administering the Internal Revenue Code and other laws pertaining to
distilled spirits, wine, beer, tobacco products, firearms and explosives,
will receive $23.7* million of the amount requested.
This is a decrease
of $382,000 from the prior year.
The criminal enforcement function will receive $99.1 million of
the requested amount to provide for the enforcement of the Federal
laws relating to distilled spirits, firearms and explosives.
The total
amount made available for this function is $2.1 million below the level
-
16
-
BUREAU OF CUSTOMS
The 1974 request of the Bureau of Customs is $236.4 million, an increase of
$24.7 million over the authorized level of 1973.
Of this increase, $8.2 million
is to maintain current levels of employment and operations, and $16.5 million is
for program increases.
Of the program increases, Customs proposes to devote $8.6
million toward increased workload, $1.6 million toward productivity enhancing
projects, such as, X-ray screening of mail, detector dogs, and the automated
merchandise processing system, $2.5 million to strengthen efforts against fraud,
and $3.3 million for the air and sea intrusion program.
All major Customs workload indices increased in fiscal 1972.
Commercial
aircraft passengers arriving from foreign ports increased over 18 percent.
In
total almost 5 million more persons arrived at our land, sea and air ports in 1972
than in 1971.
Invoices of foreign importations increased more than 14 percent.
These increases are continuing in 1973 with commercial aircraft passengers and
invoices of foreign importations both up more than 8 percent, and an increase of
well over a million persons crossing our land borders during the first quarter.
This budget is an attempt to catch up with ever increasing workloads and responsib
For the first time we are making provision for a permanent anti-fraud prograi
The competitive nature of the import business indicates that the potential for fra
by importers importing identical merchandize is very high.
In 1972 with 25 man-ye
of agents time and an equivalent amount of examination time, 649 fraud cases were
produced that reflected a loss of revenue of almost $6 million.
Fines and
on these cases would produce at least an additional $12 million, creating
$18 million additional revenue.
p e n a lti
almost
But present examination and investigation can be
only piecemeal due to limited manpower.
Customs proposes to redirect its
efforts
from piecemeal investigations to broad-scale, high potential investigations
importing community.
of tbe
17
On the narcotics enforcement side, we have made positive gains
with sharp increases in the number of seizures, arrests and convictions.
Despite this rise in seizures and arrests, drugs are still readily
available in our towns and cities, in our schools, and on our street
comers.
However, there are signs of progress.
Hero i n is in short
supply in several major east coast cities - New York, Baltimore and
Washington, D. C.
Outside of our borders drug abuse has spread and
assumed serious proportions in industrialized nations on several
continents.
This, in turn, has led to international cooperation on
an unprecedented scale.
under control.
Yet, we cannot claim that we have the situation
Therefore, Customs is requesting $3.3 million to expand
its air and sea intrusion program to strengthen our efforts at detecting
and apprehending smuggler aircraft and vessels.
The use of dogs in examining mail parcels and other shipments for
marihuana and hashish has been highly successful.
More significantly
about fifty percent of the dogs presently being trained have the
capability of sniffing out the harder narcotics of hero i n and cocaine.
In 1972 the detector dogs screened 111,152 vehicles, 8,442,920 mail
packages, and 2,120,426 units of cargo.
They were instrumental in the
i
seizure of 34,378 pounds of marihuana, 3,744 pounds of hashish,
27 pounds of opium, 16.7 pounds of heroin,7 plus smaller amounts of cocaine
hallucinogen, amphetamine or barbiturate pills and tablets.
The 1974
request of $926,000 will provide 95 more dogs and 71 additional dog
handlers.
We are continuing the development of an integrated computer system
to automate the processing of merchandise at major Customs ports of
entry,
it will help Customs handle a dramatic increase in trade
18
documentation through increased productivity in field operations and
standardization of duty assessment and revenue collection procedures.
The FY-1974 request will provide $600,000 for the operational test to
begin in December 1973 in Seattle, Washington.
Five X-ray units are presently in use at our mail facilities in
Chicago, Los Angeles, New York, and San Francisco.
Mail packages,
without being opened, can be examined in ten seconds via a remote
video screen.
Shadow characteristics indicate the presence of contra
band as well as assisting in the verification of declared contents.
The X-ray units process an average of 1,000 parcels p e r day.
request would provide 3 X-ray units and $120,000 for Miami,
San Francisco and Seattle.
The 1974
-* 19 BUREAU OF ENGRAVING AND PRINTING
The production operations dJ the Bureau of Engraving and Printing are
■conducted on a completely reimbursable basis, financed by means of a revolving
■fund authorized by the Congress *
As you are well aware your Committee had directed, in reporting out the
■1973 Appropriation Bill, that a review be made of the pricing policies for
[Bureau services.
The objective of this review was to establish prices which
Iwould generate sufficient funds to cover the direct and indirect cost of operations
las well as accumulate an adequate reserve for replacement of capital equipment.
|To this end much work has been accomplished within the Department in the
evelopment of both short and long-range proposals which, if implemented, will
I
bviate the necessity for the Bureau to seek appropriations to carry on its
jtechnological improvement programs which are the key to the remarkable productivity
..
record achieved by this organization.
Additionally, a contract was awarded to
a leading firm of consultants to perform an independent study to develop constructive
practical recommendations for an acceptable means of financing Bureau work programs
m n d capital improvements.
The report of findings by this firm were construc
t i v e and presented a solid foundation for the D epartment’s objectives.
A
positive program is currently being developed for presentation to your
committee;
Meanwhile, with the $3 million made available in the 1973 appropriation,
B i s Bureau is planning for the acquisition of equipment to accomplish present
■nd imminent product requirements.
A contract will be awarded for additional
B>dern high-speed currency presses which will enhance the Bureau's production
B p a c i t y in meeting continuing increases in the level of currency requirements.
^Bdxtional production units of the highly-successful currency numbering and
B l e s s i n g equipment are to be acquired to automate a greater portion of the all-
20
-
manual finishing operations associated with the production of currency*
In
addition, funds have been allocated to acquire photographic equipment to make
the negative and positive film work required for the etching of printing cylinder
used on rotogravure presses.
It is anticipated that the greater productivity
potentials from planned equipment acquisitions and improvements in the processing
operations will effect further economies to customer agencies served and to the
Government as a whole.
,
In light of the continuous upward demand being experienced in Bureau work
programs, the Department initiated a study during the past fiscal year to
determine whether an emergency or crisis situation existed with respect to the
ability of the present Bureau facilities to meet the anticipated demand for its I
products over the next 5 to 10 years.
In its report of findings, the study grouj
felt that an additional facility would be required by 1980 and should be of
sufficient size to accommodate the demand to the year 2,000.
In view of the
long lead time required for the construction of a special purpose industrial
type building, the Bureau has been actively engaged in doing much of the prelimij
work associated with the project prior to requesting funds of the Congress to
proceed with the construction of the building.
I
21
BUREAU OF THE MINT
The Bureau of the Mint i$ requesting a total appropriation for
Fiscal Year 1974 of $24.5 million, an increase of $500,000 over the
authorized level for Fiscal Year 1973,
The greater part of this request Is for $16.4 million for coinage
which will enable the Mint to produce 477 million more coins, or a
total of about 8.9 billion, as compared with 8.4 billion coins in
Fiscal Year 1973.
The production of 1£ pieces will comprise over
71 percent of total coinage, as the demand continues hi^i for this
denomination.
The remaining $8.1 million will be used for receiving
gold and silver bullion, safeguarding the Government’s holdings of
monetary metals, and refining gold and silver bullion.
The Philadelphia Mint will be operating at near optimum production
in manufacturing coinage strip, and substantial cost reductions in
coinage operations are expected to be realized at that facility during
this period.
The Philadelphia and Denver Mints will produce all the
domestic coins required for circulation, with the San Francisco Assay
Office operating only on numismatic products and other reimbursable
areas.
The latter office will be available also to meet any sharp
surge in the coin demand.
The Bureau of the Mint is not requesting funds for construction
in Fiscal Year 1974.
Due to the delay in obtaining a site for the new
Denver Mint, target dates for procurement of long-lead-time equipment
have been programmed for Fiscal Year 1975.
-
22
-
BUREAU OF THE PUBLIC DEBT
The request for the appropriation "Administering the Public Debt" I
for fiscal y e a r 1974- is $79.4 million, an increase of $5.4 million
above the authorized level for fiscal yea r 1973.
This appropriation
finances the operations of the Bureau of the Public Debt, estimated at I
$69.7 million, and the U. S. Savings Bonds Division, estimated at
$9.7 million.
The major items of increase are in the amounts provided to reimburl
the Federal Reserve Banks for their services as fiscal agents, to
reimburse p a ying agents for redeeming savings bonds, to purchase additij
security stock and to fund the ongoing consolidation of the B u r e a u ’s
field offices.
Except for the consolidation, the cost increases are
based on estimates of higher volume and anticipated higher costs of
goods and services.
At this Committee’s request we completed and filedl
with the Committee a study of the cost of reimbursing Federal Reserve
Banks for services and the use of p a ying agents to redeem savings bonds!
The principle of reimbursement to the banks is well-established; it
provides a means by which Congress can review all public debt costs,
direct and reimbursable, in the appropriation process.
The use of
financial institutions to redeem savings bonds is an essemtial element I
in the savings bond p rogram and there is no reasonable alternative that!
can provide the same service.
The fee schedule is of long-standing and!
is highly favorable to Treasury.
The growth in the size of the public debt and in the number and
complexity of transactions in Treasury securities keeps the workload
at high levels.
$449 billion.
The gross public debt as of December 31, 1972, was
There are now about 585 million individual Treasury
securities outstanding.
It is estimated that issues and retirements in fiscal year 197*+
will total 283.M- million securities, a rise of 10.3 million over the
anticipated 1973 volume.
The steady increase in the number of transactions and in the
volume of outstanding securities creates added workload for the Bureau
in processing correspondence, claims, and other requests from security
holders for service.
The Bureau is continuously seeking to expand the
automation of its operations and accounts to deal more efficiently and
economically with its workload.
- 24 -
SAVINGS BONDS DIVISION
In calendar 1972, the Savings Bonds program had its most successful year
since 1945*
Total 1972 sales amounted to a record $6,2 billion, up 14 percent
from 1971, while redemptions rose by only 2 percent, and the total amount of
Savings Bonds and Freedom Shares outstanding attained a record high of $58,1
billion at year-end.
This represents an increase of $3.3 billion during calendarj
year 1972, the greatest annual growth in 27 years.
The Savings Bonds Division operates with a paid staff of fewer than 500
full time employees, depending upon a great volunteer organization of several
hundred thousand to carry out its mission.
National working committees are
chaired by outstanding leaders and there is a volunteer organization in each
state, under the leadership of State and County Chairmen.
The national
advertising compaign, amounting to more than $60 million in donated time and
space is presented under the auspices of The Advertising Council.
Savings Bonds holdings account for nearly one quarter of the privately
held portion of the Public Debt and presently provide the lowest cost - and
least inflationary - type of financing available to the government.
The
average life of Savings Bonds now outstanding is over 7 years, and the Bonds
being sold today will remain outstanding, on the average, about five years and
10 months - in sharp contrast to the marketable debt, which has an average life
of only three years and two months.
Payroll Savings continue to be the dominant sales activity, accounting for
about 60% of total sales.
More than 2-1/2 million new and increased savers were
enrolled in 1972, oversubscribing the National Industrial Payroll Savings
Committee's goal and resulting in the greatest E Bond sales year since 1945.
/
- 25 INTERNAL REVENUE SERVICE
The Internal Revenue Service’s proposed budget for 1974 totals
$1,189 billion.
Requested increases of $104 million are substantially offset
by non-recurring costs - chiefly the Economic Stabilization Program - leaving
a net proposed increase of $42 million over the proposed level for fiscal
year 1973.
All program expansion requested in this budget is concentrated in the
Service’s frontline programs of taxpayer assistance and revenue production.
No program increase is requested for the support functions or even for pro
cessing the two and a half million more tax returns that are expected in 1974.
The Service plans to meet this 2 percent growth in return processing workload
through greater productivity afforded by the Integrated Data Retrieval System
(IDRS) and the increasingly efficient new service centers.
These major capital
improvements in Service operations were provided by this committee in earlier
budgets.
Taxpayer Service
Surely one measure of how well the tax system functions is the taxpayer's
ability to fill out his tax return.
The fact is most taxpayers feel they lack
2
this ability.
preparers.
They have turned in increasing numbers to commercial returns
Many can ill afford this surcharge in meeting their tax obligation;
and some returns preparers have been found to be unethical or incompetent.
The Service cannot ignore the problem.
The short Form 1040A has been
reintroduced this year to simplify filing for millions of taxpayers.
An
important part of this budget request is for additional taxpayer service
personnel and other resources (682 average positions, $12 million) to enable
IRS to be more conveniently available and responsive to taxpayers* need for
information and assistance.
/
....
Our request would permit extension nationwide of Centiphone, a system
providing taxpayers (no matter how remote) toll-free telephone access to IRS
offices staffed to help them.
It would provide for keeping many IRS offices
open evenings and Saturdays during the filing season - offering assistance at
the taxpayers* convenience.
areas.
It would also provide temporary offices in outlying*
The new taxpayer service specialists would also cut down on the costly I
detail of audit and collection staff into taxpayer service work.
We are not expanding our taxpayer service to the point where it represents I
competition with the returns preparation industry, but to a point where the IRS I
is effectively meeting legitimate taxpayer requests for information and
assistance.
Virtually all taxpayer service will continue to be provided
on the basis of self-help.
Audit
.
Just over
2,900 additional average positions ($40.8 million) are requested I
for expanding audit of tax returns.
This program is the heart of the effort
to assure compliance with the tax laws.
Over several years now, audit coverage I
has thinned to the point where billions of tax dollars annually are going
unreported and unrecovered and deterioration in the generally high levels of
tax compliance is of real concern.
The Government cannot afford to allow this
costly trend of insufficient tax law enforcement to continue.
1974 is a step toward reversing the trend.
mended tax from audits of about
This request for I
It would result in additional recom-1
$250 million, or about six times the cost.
Its I
indirect influence in fostering higher voluntary reporting and a healthier^
tax..system in future years is of still greater benefit than the first
y e a r ’s direct tax yield.
- 27 -
'Y/)
^
!
Tax Fraud Investigations
The Services*s budget includes 135 new average positions ($2.3 million)
I to achieve a more adequate level of investigation of tax fraud among the
I general population.
In recent years many agents have been shifted to investi
gations of organized crime and narcotics, resulting in far too few agents being
available for the general program.
Hundreds of potential fraud cases have had
to be passed over without investigation for lack of manpower.
It is important
to correct this situation and raise the deterrence to potential tax evasion in
the future.
I Collection
Unduly large backlogs of delinquent taxes are the costly result of a
I currently inadequate Collection program.
I which has not been adequately dealt with.
There also is the problem of nonfilers
This Committee has emphasized the
I need for a stronger program of identifying and getting on the rolls those who
I simply are not filing returns.
This applies both to income and excise taxes.
A program increase of $2 million for 86 average positions is requested
1 to improve Collection programs.
This will produce over $80 million in tax
I assessments from returns that would otherwise not have been filed.
This alone
I is about twice the amount of the net increase requested for the entire Service.
■ Collection of State Individual Income Taxes (Piggyb? king)
Finally, the Service*s 1974 request provides for the design and development
I of a system to collect state income taxes (piggybacking).
While it now appears
I the program will not be operative until 1975, IRS must design the system,
1 complete computer programming, and modify returns processing procedures and
I tax forms during fiscal year 1974.
This will require an estimated 177 average
I
positions, costing $3.2 million in fiscal year 1974.
These developmental
resources are essential in 1974 if the IRS - and the Federal Government to have ready a workable system of piggybacking when states wishing to
participate begin signing up.
27
Tax Fraud Investigations
The Services*s budget includes 135 new average positions ($2.3 million)
to achieve a more adequate level of investigation of tax fraud among the
general population.
In recent years many agents have been shifted to investi
gations of organized crime and narcotics, resulting in far too few agents being
available for the general program.
Hundreds of potential fraud cases have had
to be passed over without investigation for lack of manpower.
It is important
to correct this situation and raise the deterrence to potential tax evasion in
the future.
Collection
Unduly large backlogs of delinquent taxes are the costly result of a
currently inadequate Collection program.
which has not been adequately dealt with.
There also is the problem of nonfilers
This Committee has emphasized the
need for a stronger program of identifying and getting on the rolls those who
simply are not filing returns.
This applies both to income and excise taxes.
A program increase of $2 million for 86 average positions is requested
to improve Collection programs.
This will produce over $80 million in tax
assessments from returns that would otherwise not have been filed.
This alone
is about twice the amount of the net increase requested for the entire Service.
Collection of State Individual Income Taxes (Piggyb. king)
Finally, the Service*s 1974 request provides for the design and development
a system to collect state income taxes (piggybacking).
While it now appears
the program will not be operative until 1975, IRS must design the system,
complete computer programming, and modify returns processing procedures and
tax forms during fiscal year 1974.
This will require an estimated 177 average
28
positions, costing $3.2 million in fiscal year 1974.
These developmental
resources are essential in 1974 if the IRS - and the Federal Government - is
to have ready a workable system of piggybacking when states wishing to
participate begin signing up.
OFFICE OF THE TREASURER, U. S.
The Office of the Treasurer of the United States will require
$12.7 million for operating expenses during fiscal year 1974, an increase of
$1.4 million over the authorized level for 1973.
This office must process the
annual payment of about 725 million Government checks and reconcile these
checks against reports of issues submitted by disbursing officers.
Lost,
stolen, and forged Government checks will result in 770 thousand claims to be
processed.
The increase in 1974 is needed primarily to process the additional
workload which will be generated by Social Security Amendments of 1972.
This
law federalizes payments now made by the states to the blind, disabled, and
aged, and will require the processing of an additional 45 million checks and
71 thousand check claims by the Office of the Treasurer.
Manpower requirements for all other activities of the Treasurer*s Office
c v r **
\ & q ,n jr"% o/lS
lS\i
k
'•>&•
.v
>■
which involve accounting and reporting functions relating to public monies,
redemption of Government securities presented to the Treasurer, and custody
of securities for various Government departments or agencies are being held
to previous levels despite increased workloads and demands.
30
V. S. SECRET SERVICE
The appropriation request for the U. S. Secret Service for the fiscal
year 1974 totals $64 million, a net decrease of $475 thousand from the proposed
authorized level for the fiscal year 1973.
The reduction in the amount
requested, compared to the fiscal year 1973, is due to non-recurring costs of
candidate and nominee protection.
No additional positions are being requested.
However, funds are required for mandatory and other increases necessary to
maintain programs at current operational levels.
Counterfeiting activity increased slightly in the fiscal year 1972 with
23,333 cases received for investigation.
Despite the fact that the Service
seized $22,921,455 in counterfeit notes before circulation, almost matching
the record seizures in the fiscal year 1971, losses to the public increased
from $3,488,159 in fiscal year 1971 to $4,830,869 in the fiscal year 1972.
The large amount of notes seized before circulation is indicative of the
potential losses possible without vigorous enforcement.
The efforts of the
Service in this regard are best reflected in the 2,331 arrests for counter
feiting in the fiscal year 1972, an increase of 32 percent over the 1,766
arrests in the previous fiscal year.
/
The forgery of Government checks continues to be a major enforcement
problem.
The 75,759 check cases received for investigation in the fiscal
year 1972 is an increase of approximately 15 percent over the 66,004 cases
received in the fiscal year 1971.
During this same period of time the number
of arrests increased by 841, or 29 percent, from 2,910 in the fiscal year 1971
to 3,751 in the fiscal year 1972.
During fiscal year 1972 the Service closed 21,075 bond forgery cases.
Arrests in these cases for the fiscal year 1972 totaled 177, an increase of
22 percent over the number arrested in the preceding fiscal year.
Candidate and
Nominee Protection
The current program for the protection of candidates and nominees has
been concluded and the appropriate deduction for these non-recurring expenses
has been included in the appropriation request for the fiscal year 1974.
The
release in the latter part of the current fiscal year of the special agents
assigned to the program will permit the channeling of additional resources
into criminal investigations.
It should be noted that during the period of
augmentation for candidate and nominee protection, no additional special agents
were requested for criminal investigations in the field, since it has always
been the plan of the Service to utilize the additional agents in the intervening
periods between elections to combat the increasing criminal investigative
workloads in counterfeiting, forgeries, and other areas*
Foreign Dignitary Protection
Under the provisions of Public Law 91-651 approved January 5, 1971, the
Secret Service is required to "protect the person.of a visiting head of a
foreign state or government and,, at the direction of the President, other
distinguished foreign visitors to the United States and official representatives
of the United States performing special missions abroad".
For the fiscal year
1974, funds are requested to cover the additional travel costs being incurred
in this program.
Jpj»^ j|
hUREAU OF THE M INT
Hjl
i
WASH., D.C. 20220 - W04-5011
FOR RELEASE 10:30 A. M ., EST
MONDAY, MARCH 5, 1973
M arch 5, 1973
M rs. M ary B ro o k s, D ire c to r of th e Mint, m ade th e follow ing
sta te m e n t today:
D e sirin g to involve a ll A m e ric a n s in rec o g n izin g th e im p o rtan c e
of o u r n a tio n 's B ice n te n n ial in 1976, P re s id e n t Nixon h a s a sk ed e v e ry
governm ent d e p a rtm e n t and agency to c o o p e ra te in th e c e le b ra tio n of
th is m ile sto n e a n n iv e rs a ry of A m e ric a n Independence.
S e c re ta ry of the T r e a s u r y G eo rg e P . Shultz, on b e h alf of the
D ep artm ent of th e T r e a s u r y and its B u re au of th e M int, h a s se n t a d ra ft
b ill to th e C o n g re ss pro v id in g fo r d esig n changes on th e r e v e r s e of two
of o u r coins - - th e d o lla r and the h a lf-d o lla r - - honoring o u r 200th
a n n iv e rsa ry .
I
T he p ro p o se d changes m a rk the f i r s t tim e in o u r n a tio n 's h is to ry
that d esig n s on c irc u la tin g coins would be changed honoring an a n n iv e rs a ry
of A m e ric a n free d o m .
T he b ill would p e rm it a p p ro p ria te A m e ric a n R ev o lu tio n ary W ar
designs to re p la c e c u rr e n t d esig n s beginning in 1976 and re m a in in g on
both coins fo r a p e rio d le ft to th e d is c re tio n of th e S e c re ta ry of the
T re a s u ry .
T he d a te s 1776-1976 would a lso a p p e a r on both coins at th e tim e
of issu e and be changed y e a rly th e r e a f te r u n til such tim e as d e te rm in e d
by the T r e a s u r y S e c re ta ry .
T he new coins would be s tru c k at th e M ints at P h ilad e lp h ia , D enver
and San F ra n c is c o .
To help g e n e ra te public e n th u sia sm fo r a sig n ific a n t c e le b ra tio n
of th is la n d m a rk a n n iv e rs a ry , it is planned to r e le a s e th e new coins fo r
c irc u la tio n on Ju ly 4, 1975. T h is advance issu a n c e of coins dated fo r
the ap p ro aching y e a r of c e le b ra tio n would a s s u r e w id e sp re a d d istrib u tio n
throughout th e c o u n try and would p e rm it th e Mint to s tr ik e a l a r g e r
n u m b er in a n tic ip a tio n of g r e a te r public dem and fo r th e coins fo r u se
as c irc u la tin g m ed iu m s of exchange and fo r c o llec tin g a s so u v e n irs of
a m om entous o c ca sio n .
-
2
-
T he e a rly r e le a s e date of th e new d esig n s a p p lies only to th e
c irc u la tin g c u p ro -n ic k e l d o lla rs and h a lf-d o lla rs and would be av ailab le,
as is c u sto m a ry , at face value th ro u g h the n a tio n 's banking sy ste m .
The 40% s ilv e r p ro o f and u n c irc u la te d sp e c im e n s of th e d o lla r
and th e c u p ro -n ic k e l p ro o f and u n c irc u la te d v e rs io n s of th e d o lla r and
h a lf-d o lla r would be a v aila b le during 1976 u n d e r the fo u r sp e c ia l coin
p ro g ra m s a s p re s e n tly conducted by th e M int.
T he r e v e r s e d esig n s of the d o lla r and h a lf-d o lla r w e re e sp e c ia lly
se le c te d fo r change to p re v e n t d isru p tin g th e M in t's re g u la r p ro d u ctio n
cap acity and to avoid cau sin g a sh o rta g e of c irc u la tin g coins due to coin
co llectin g o r o th e r re a s o n s .
T he d o lla r and h a lf-d o lla r a re , of c o u rs e , c irc u la tin g coins but
n e ith e r enjoys as wide c irc u la tio n and u se as th e one cent p iec e, n ickel,
dim e and q u a rte r. T he la c k of wide c irc u la tio n , th e re fo re , w ill not be
d isru p tiv e to th e d aily c o m m e rc e of the c o u n try and th e d esig n changes
w ill not s tr a in the M in t's p ro d u ctio n c ap acity .
B e ca u se of the h is to r ic a l im p o rta n c e of th e new d e sig n s, th e
T r e a s u r y D ep artm en t h as ask ed and th e N ational S cu lp tu re Society,
250 E a s t 51st S tre e t, New Y ork, N. Y. 10022, has a g re e d to conduct
a d esig n c o n te st am ong its nationw ide m e m b e rsh ip , em p an el a ju ry of
e x p erts to judge th e e n trie s and su b m it s e v e r a l d esig n s fo r each coin
to the S e c re ta ry of th e T re a s u ry .
T he N ational S cu lp tu re S ociety w ill fo rm a lly announce th e d esig n
co n test at a l a t e r d ate.
C r ite r ia fo r s e le c tio n of the d esig n s w ill include the beauty and
h is to ric a l sig n ific a n c e of th e d esig n s and tak e into account the M in t's
sp e c ia l te c h n ic a l and m e c h an ica l o p e ra tio n s in rep ro d u c in g the d esig n s
onto coinage d ies th a t allow fo r m axim um p ro d u ctio n on high sp eed p r e s s e s .
T he fin al s e le c tio n of th e d esig n s w ill be m ade by the S e c re ta ry of
the T r e a s u r y on re c o m m e n d atio n s fro m a c o m m ittee com posed of the
D ire c to r of th e Mint; th e C h a irm a n of the S enate C o m m ittee on Banking,
Housing and U rban A ffa irs; th e C h a irm a n of the H ouse C o m m ittee on
Banking and C u rre n c y ; th e C h a irm a n of the A d v iso ry C o m m ittee on C oins
and M edals of the A m e ric a n R evolution B ice n te n n ial C o m m issio n and the
Fine A rts C o m m issio n .
-oOo-
A BILL
To p r o v i d e a n ew c o i n a g e d e s i g n and date e m b l e m a t i c of
the b i c e n t e n n i a l of the A m e r i c a n R e v o l u t i o n for dollars
and h a l f - d o l l a r s .
Be it e n a c t e d b y the S e n a t e and H o u s e of R e p r e s e n t a t i v e s
of the U n i t e d States o f A m e r i c a in Co n g r e s s
asse m b l e d , That
the re v e r s e side of all dollars an d h a l f - d o l l a r s m i n t e d for
is s u a n c e on or a f t e r J uly 4,
1975 a n d u n t i l s uch tim e as the
S e c r e t a r y of the T r e a s u r y may d e t e r m i n e s h a l l b e a r a d e s i g n
d e t e r m i n e d by the S e c r e t a r y to b e e m b l e m a t i c of the b i c e n
te n n i a l of the A m e r i c a n Revolution.
Sec.
2.
between July
A l l dollars
and h a l f - d o l l a r s m i n t e d for i s s u a n c e
4 f 1975 a nd J a n u a r y
in lieu of the date of coinage;
1,
1977 s h a l l b e a r "1776-1976"
a nd all dollars
and h a l f -
dollars m i n t e d t h e r e a f t e r u n t i l such time as the S e c r e t a r y
of the T r e a s u r y ma y d e t e r m i n e s h a l l b e a r a date e m b l e m a t i c of
the b i c e n t e n n i a l in a d d i t i o n to the d a t e of coinage.
JOSEPH LOFTUS NAMED ACTING SPECIAL ASSISTANT
FOR PUBLIC AFFAIRS AT TREASURY DEPARTMENT
S e c r e t a r y of the T r e a s u r y George P.
today the a p p o i n t m e n t of J o s e p h A.
Special A s s i s t a n t
Mr.
Loftus,
as A c t i n g
a m e m b e r of the N e w Y o r k Times W a s h i n g t o n
j o i n e d the L a b o r D e p a r t m e n t
ago as S p e cial A s s i s t a n t
Communications.
was Mr.
Loftus
announced
for Publ i c Affairs.
Bureau for 25 years,
years
Shultz
four
to the S e c r e t a r y for
The S e c r e t a r y of L a bor at that time
Shultz.
In ad d i t i o n to his T r e a s u r y duties,
aid the S e c r e t a r y
in his
Mr.
Loftus will
role as C h a i r m a n of the Council
on E c o n o m i c P o l i c y and A s s i s t a n t to the President.
0 O0
S-135
DeparlmentoftheTREASURY
fcHINGTON, D.C. 20220
Tf I f PH ONE W04-2041
M a r c h 5, 1973
FOR IMMEDIATE RELEASE
W I T H H O L D I N G OF A P P R A I S E M E N T ON
ELECTRONIC COLOR SEPARATING OR SORTING MACHINES
F R O M THE U N I T E D K I N G D O M
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
a n n o u n c e d t o d a y a w i t h h o l d i n g of a p p r a i s e m e n t on e l e c t r o n i c
color s e p a r a t i n g or sorting m a c h i n e s f r o m the U n i t e d K i n g d o m
p e n d i n g a d e t e r m i n a t i o n as to w h e t h e r the y are b e i n g sold at
less t h a n fair v a lue w i t h i n the m e a n i n g of the A n t i d u m p i n g
Act, 1921, as amended.
T h e s e m a c h i n e s u t i l i z e o p t i c a l and
p h o t o e l e c t r i c d e v i c e s to sort beans, nuts, grains and s i m ilar
items by color.
The d e c i s i o n w i l l a p pear in the F e d e r a l R e g i s t e r of
M a r c h 6, 197 3.
Under the Antidumping Act, the Secretary of the Treasury
is required to withhold appraisement whenever he has reasonable
cause to believe or suspect that sales at less than fair value
may be taking place.
A final T r e a s u r y d e c i s i o n in this i n v e s t i g a t i o n w i l l be
made w i t h i n t h ree months.
A p p r a i s e m e n t w i l l be w i t h h e l d for
a p e r i o d n ot to e x c e e d six m o n t h s from the dat e of p u b l i c a
tion of the "With h o l d i n g of A p p r a i s e m e n t No t i c e " in the
Fe d e r a l R e g i s t e r .
U n d e r the A n t i d u m p i n g Act, a d e t e r m i n a t i o n of sales in
the U n i t e d S t ates at less than fair v a l u e r e q u i r e s t h a t the
case be r e f e r r e d to the Tari f f Comm i s s i o n , w h i c h w o u l d c o n s i d e r
w h e t h e r an A m e r i c a n in d u s t r y w a s b e i n g injured.
B o t h sales at
less t h a n fair v a l u e and i n jury m u s t be shown to j u s t i f y a
finding of d u m p i n g u n d e r the law.
U p o n a fi n d i n g of dumping,
a s p e cial d u t y is assessed.
D u r i n g the p e r i o d of A u g u s t 1971 t h r o u g h D e c e m b e r 1972
imports of e l e c t r o n i c c o lor s e p a r a t i n g or sorting m a c h i n e s
from the U n i t e d K i n g d o m w e r e v a l u e d at a p p r o x i m a t e l y $500,000.
# # #
FOR IMMEDIATE R E L EASE
M a r c h 2,
1973
T R E A S U R Y S E C R E T A R Y SHULTZ NAMES M A U R I C E B. M I T C H E L L
S A V INGS BONDS C H A I R M A N FOR C O L O R A D O
M a u r i c e B. M i t c hell, C h a n c e l l o r of the U n i v e r s i t y of
Denver, is a p p o i n t e d V o l u n t e e r State C h a i r m a n for the Savings
Bonds P r o g r a m by S e c r e t a r y of the T r e a s u r y George P. Shultz,
effective immediately.
He succeeds the late G e r a l d P. Peters
who was, u n til his d e ath in mid - 1 9 7 2 , a leading D e n v e r f i n a n
cial consultant.
M i t c h e l l will h e a d a c o m m i t t e e of state, banking, business,
government, labor, and m e d i a leaders w ho -- in c o o p e r a t i o n w i t h
the U. S. Savings Bonds D i v i s i o n -- assist in p r o m o t i n g Bond
sales thr o u g h o u t Colorado.
Mitchell, b o r n in N e w Y o r k City, b e g a n his p r o f e s s i o n a l
career w i t h the N e w Y o r k " T i m e s ” . S u b s e q u e n t l y , he h e a d e d a
number of u p s t a t e N e w Y o r k news p a p e r s , b e f o r e j o i ning the armed
services d u r i n g the S e c o n d W o r l d War.
A f t e r the war, he b e g a n
a career in b r o a d c a s t i n g , h o l d i n g e x e c u t i v e p o s i t i o n s w i t h
Washington s t a t i o n WTOP, the N a t i o n a l A s s o c i a t i o n of Broad c a s t e r s ,
and the N a t i o n a l B r o a d c a s t i n g Co.
He later h e a d e d the M u z a k Corp.
and E n c y c l o p a e d i a B r i t a n n i c a Films.
In 1962, he was n a m e d P r e s i
dent and E d i t o r i a l D i r e c t o r of E n c y c l o p a e d i a B r i t a n n i c a Co.
Since b e c o m i n g C h a n c e l l o r in 1967, M i t c h e l l has b e e n active
in civic affairs, state and national.
He has s e rved on the U. S.
Civil Rights C o m m i s s i o n u n d e r P r e s i d e n t s J o h n s o n and Nixon.
In
addition, he is C h a i r m a n of the Denv e r B r a n c h of the F e d eral Re*
serve Bank of Kansas City.
He has b e e n on a n u m b e r of a d v i s o r y
boards to the G o v e r n o r and M a y o r of Denver.
M i t c h e l l has b e e n h o n o r e d w i t h a n u m b e r of awards, i n c l u d
ing the B r o t h e r h o o d A w a r d of the N a t i o n a l C o n f e r e n c e of C h r i stians
and Jews.
In 1969, he was n a m e d Co l o r a d o " Man of the Year".
Mitchell and his wife, V i r g i n i a , have two sons, Lee and Keith, and
a daughter, Debbie.
oOo
""TREASURY
■ iNGTON, D C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE
RELEASE
M a r c h 3,
1973
R I C HARD F. L A RSEN
A P P O I N T E D DEPUTY A S S I S T A N T S E C R E T A R Y FOR
D E V E L O P I N G NA T I O N S FINANCE
T r e a s u r y S e c r e t a r y G e orge P. Shultz today an n o u n c e d
the a p p o i n t m e n t of Dr. Ri c h a r d F. Lars e n of Grand Forks,
N o r t h Dakota, as D e p u t y A s s i s t a n t S e c r e t a r y for D e v e l o p
ing N a t i o n s F i n ance in the Office of the A s s i s t a n t S e c
reta r y for I n t e r n a t i o n a l Affairs.
Dr. L a rsen wil l s u c
ceed J o h n M. H e n n e s s y w ho w^.s a p p o i n t e d A s s i s t a n t S e c r e
tary in June, 1972.
Dr. Larsen, 36, served as L i e u t e n a n t Go v e r n o r of
N o rth D a k o t a f rom 1969-1972.
Pre v i o u s to this time he
was a m e m b e r of the N.D. S t ate H o u s e of R e p r e s e n t a t i v e s
from 1965-1966 and the N.D. State Sena t e fro m 1967-1968.
During this p e r i o d he was also C o m m i s s i o n e r from N o r t h
Dakota to the E d u c a t i o n C o m m i s s i o n of the States from
1967-1970 and C h a i r m a n of the Bu s i n e s s A d v i s o r y Council
to the U n i t e d Tribes D e v e l o p m e n t Corporation.
P r e v ious to his entra n c e in politics, Dr. L a rsen
taught bu s i n e s s and e c o nomics courses at the U n i v e r s i t y
of N o r t h D a k o t a (1963-1965) and at M o o r h e a d State College,
Moorhead, M i n n e s o t a (1965-1967).
Dr. L a rsen was a cum
laude gra d u a t e in E c o n o m i c s f r o m H a r v a r d in 1960 and
received his Ph.D. degree in E c o n o m i c s from the L o n d o n
School of E c o n o m i c s and P o l itics in 1963.
He a l s o c o n
tinued to t e a c h at N o r t h D a k o t a U n i v e r s i t y Gr a d u a t e School
of Industrial M a n a g e m e n t w h i l e he served in the State
legislature and as L t . Governor.
Dr. L a rsen is a n a t i v e of N o r t h Dakota.
He is m a r r i e d
to the former Chr i s t i n e E l l e n F r a w l e y of N e w York.
The
Larsens have two children.
oOo
S-L36
Departmentof theTREASU RY
JBiINGTON, D C 20220 ■
ATTENTION:
FOR
TELEPHONE W04-2041
FINANCIAL EDITOR
March 5, 1973
RELEASE 6:30 P.M.
RESULTS OF TREASURY’S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
bills, one series to be an additional issue of the bills dated December 7, 1972 , and
the other series to be dated March 8, 1973
, which were invited on February 27, 1973,
pele opened at the Federal Reserve Banks today. Tenders were invited for $2,400,000,000,
orlthereabouts, of 91-day bills and for $1,800,000,000, or thereabouts, of 182 -day
bills. The details of the two series are as follows:
RANGE OF ACCEPTED
COMPETITIVE BIDS:
I High
1 Low
1 Average
91 -day Treasury bills
maturing June 7, 1973
Approx. Equiv.
Price
Annual Rate ^
98.534
98.495
98.514
5.800$
5.954$
5.879$
182-day Treasury bills
maturing September 6, 1975
Approx. Equiv.
Price
Annual Rate
96.872
96.807
96.829
y
6.187$
6.316$
6.272$
y
a/ Excepting one tender of $50,000
53$ of the amount of 9lday bills bid for at the low price was accepted
53$ of the amount of 182-day bills bid for at the low price was accepted
TOTAL
TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
D is t r ic t
Boston
%w York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
■ lia s
Sin Francisco
TOTALS
Applied For
Accepted
> 21,630,000 ^ 11,630,000
3,004,460.000
1,991,460,000
42.190.000
24.840.000
25.270.000
25.270.000
22.030.000
21.680.000
20.410.000
20.410.000
206.025.000
128,675,000
42.470.000
33,000,000
24.390.000
24.390.000
28.615.000
21.615.000
42.620.000
32.620.000
139.450.000
64.450.000
Applied For
15,085,000
2,760,020,000
3.620.000
16.500.000
15.430.000
9.910.000
177.580.000
27.840.000
21.615.000
23.135.000
29.925.000
154.535.000
¥
>,619,560,000 $2,400,040,000 b/ $3,255,195,000
Accepted_____
I
2,085,000
1,558,520,000
3.620.000
16.500.000
11.080.000
9.910.000
86.580.000
24.840.000
13.615.000
21.135.000
8.970.000
43.535.000
$1,800,390,000 c.
^ftcludes $208,270,000 noncompetitive tenders accepted at the average price of 98.514
^■icludes $ 92,415,000 noncompetitive tenders accepted at the average price of 96.829
^■^ese rates are on a bank discount basis. The equivalent coupon issue yields are
■•05$ for the 91-day bills, and 6.57$ for the 182-day bills.
ington ,
g ®
m
U I 4t y y
F O R R E L E A S E ON D E L I V E R Y
S T A T E M E N T BY T HE H O N O R A B L E P AUL A. V O L C K E R
U N D E R S E C R E T A R Y OF THE T R E A S U R Y F O R M O N E T A R Y A F F A I R S
B E F O R E T HE
S U B C O M M I T T E E O N I N T E R N A T I O N A L F I N A N C E OF T HE
HOUSE BANKING AND CURRENCY COMMITTEE
TUESDAY, M A R C H 6, 1973, A T 1 0 : 0 0 A.M, (EST)
Mr. C h a i r m a n a nd M e m b e r s
One w e e k ago,
of the S u b c o m m i t t e e ?
I a p p e a r e d b e f o r e the S e n a t e Ba n k i n g
Committee in s u p p o r t of this B i l l
before you,
(H.R. 45>46)? w h i c h
to a u t h o r i s e a 1 0 - p e r c e n t r e d u c t i o n in the par
value of the dollar.
I a m att a c h i n g ,
for
full text of m y e a r l i e r statement, w h i c h
ground to the A d m i n i s t r a t i o n s
on this legis l a t i o n .
s u pplementary c o m m e n t s
As y o u know,
certain E u r o p e a n
weeks.
is n ow
the record,
g i ves
the
the full b a c k
request f o r favorable action
This m o r n i n g ,
I i n t e n d to tfiake a few
to b r i n g y o u up t:o date,
h e a v y s p e c u l a t i v e p r e s s u r e s d e v e l o p e d in
foreign exchange markets
In v i e w o f these pre s s u r e s ,
over
the p ast
two
those m e m b e r s of the
European C o m m u n i t y m a i n t a i n i n g a f i x e d e x c h a n g e r a t e h a v e
closed their m a r k e t s ,
3-137
at least in the s e n s e o f c e a s i n g
2
official s u p port for the e x c h a n g e r a t e structure.
Japanese, w h o a l r e a d y h a d a f l o a t i n g rate,
their m a r k e t entirely.
-- sterling,
S e v eral
the Swiss franc,
Th e
temporarily closed
important E u r o p e a n c u r r e n c i e s
and the I t a lian l ira —
floating b e f o r e the l a test d isturbance.
were
D u r i n g the w e e kend,
the F i n a n c e M i n i s t e r s of the E EC h a v e h a d d i s c u s s i o n s c o n c e r n
ing r e c e n t d e v e l o p m e n t s an d w a y s of c o n c e r t i n g a response.
We have b e e n in c o n t a c t w i t h a n u m b e r of
countries d u r i n g this period.
l e a ding
F u r t h e r m e e t i n g s on an i n t e r
national level h a v e b e e n scheduled,
inc l u d i n g a m e e t i n g
between the EEC cou n t r i e s and their G r o u p of 10 pa r t n e r s
on
Friday.
T h e r e a re several p o ints
I w o u l d like to r e i t e r a t e w i t h
respect to the events of the pas t few days.
First,
it r e m ains our c o n v i c t i o n that the
b a sic r e a l i g n m e n t of e x c h a n g e rates a c h i e v e d
in F e b r u a r y is appropriate.
provides
That r e a l i g n m e n t
-- insofar as e x c h a n g e r a t e changes
can -- a r e a l i s t i c b a s e for r e s t o r i n g s u s
tai n a b l e b a l a n c e of pa y m e n t s
equilibrium.
3
Th e s i t u a t i o n w e face today is a c o n s e q u e n c e
of a s p e c u l a t i v e outbursti
W e do n o t c o n
te m p l a t e f u r ther d e v a l u a t i o n of the dollar.
Second, w e are p r e p a r e d to w o r k e x p e d i t i o u s l y
w i t h the E u r o p e a n C o m m u n i t y and our o t h e r
tr a d i n g p a r t n e r s
t o ward a c h i e v i n g a speedy
and s a t i s f a c t o r y s o l u t i o n of this problem.
W e h a v e b e e n in c l o s e c o n t a c t w i t h them,
and
w e w i l l be m e e t i n g w i t h t h e m face to face in
Paris later this week.
Third,
r e c e n t developments r e - e m p h a s i z e once
a g a i n -- if such em p h a s i s
is n e c e s s a r y
-- the
n e e d to i n t e n s i f y the pac e of our efforts
towa r d f u n d a m e n t a l r e f o r m of the i n t e r n a t i o n a l
m o n e t a r y system.
with
In that respect,
I believe,
i n t e l l i g e n c e and g o o d w i l l on all sides,
w e can turn the events of r e cent w e e k s
c o n s t r u c t i v e achie v e m e n t .
with
two separate,
to
W e h a v e b e e n faced
but related,
problems.
We
n e e d to c o r r e c t the u n d e r l y i n g imba l a n c e s
in i n t e r n a t i o n a l p a y m e n t s
-- of the U. S. and
- 4 -
of other co u n t r i e s
-- that lie b e h i n d the
m o n e t a r y u n s e t t l e m e n t and d i sturbance.
The
e x c h a n g e r a t e changes are r e s p o n s i v e to that
requ i r e m e n t .
ments
W e also n e e d lasting a r r a n g e
to a s s u r e that these i m b a l a n c e s do
n o t recur;
that n e c e s s a r y
intern a t i o n a l
a d j u s t m e n t s are m a d e m o r e effectively,
smoothly,
a nd sure ly in the future;
and that
our m o n e t a r y a r r a n g e m e n t s c o n t r i b u t e to open
trade and p a y ments a m o n g n a t i o n s „
This
latt e r n e e d is the task of m o n e t a r y
reform.
assure
W e m u s t a c h i e v e both o b j e c t i v e s
to
that the i n t e r n a t i o n a l m o n e t a r y s y s t e m
-- i n s tead of i n t r uding so f r e q u e n t l y on our
consciousness
—
b e c omes
in an a t m o s p h e r e of
"crisis"
the u n o b t r u s i v e h a n d m a i d e n of a
g r o w i n g and p r o s p e r o u s w o r l d economy.
Fourth,
I want
and last
-- but by no m e a n s
least
--
to r e i t e r a t e e m p h a t i c a l l y that the
s t r e n g t h of the doll a r a b r o a d is,
analysis,
in the last
d e p e n d e n t u p o n the s t r ength of the
- 5 -
d o l l a r and the st r e n g t h of our e c o nomy at
home.
T h e A d m i n i s t r a t i o n is d e e p l y conscious
of that simple truth.
reflects
terms,
that concern.
I b e l i e v e our record
Indeed,
in r e l a t i v e
our p e r f o r m a n c e in r e s t o r i n g g r e a t e r
p r i c e s t a b i l i t y stands out fav o r a b l y a m ong
the m a j o r i n d u strial countries.
terms, w e a i m to do better.
monetary,
In a b s o l u t e
Budgetary,
a nd w a g e p r i c e p o l i c i e s are d i r e c t e d
to that g o a l .
In concluding,
I urg e the C o m m i t t e e to act soon and
favorably on the l e g i s l a t i o n b e f o r e you.
important part of the process
ing equilibrium,
partners
In d o i n g so, an
of ending uncer t a i n t y ,
restor
a nd w o r k i n g c o o p e r a t i v e l y w i t h our t r a ding
towards a str o n g e r m o n e t a r y s y s t e m w i l l be completed.
The real i g n m e n t of e x c h a n g e rates w a s n e c e s s a r y three w e e k s
ago, and it re m a i n s n e c e s s a r y today.
It r e q u i r e d d i f ficult
decisions and a c t i o n on the par t of m a n y o t her countries,
well as the U n i t e d States.
enable us to m e e t
T h e l e g i s l a t i o n is es s e n t i a l
as
to
the legal a nd fin a n c i a l c o n s e q u e n c e s of the
exchange r a t e changes.
M o r e broadly,
I h o p e y o u w i l l agree
6
the r e a l i g n m e n t of e x c h a n g e rates w i l l p r o m o t e the best
interests of A m e r i c a n w o r k e r s a nd producers,
an d p a s s a g e
of this l e g i s l a t i o n w i l l h e l p lay the bas e for f u rther
cooperation w i t h o t h e r n a t i o n s
toward restoring balance
in our payme n t s an d a c h i e v i n g n e e d e d m o n e t a r y reform.
Attachment
########
M ARCH 6 , 1973
for i m m e d i a t e r e l e a s e
O ffice of th e W hite H o u se P r e s s S e c r e t a r y
TH E W HITE HOUSE
The P r e sid e n t to d a y e s t a b lis h e d th e E a s t - W e s t T ra d e P o lic y C o m m itte e and
designated tn e C h a ir m a n of tne C o u n c il on E c o n o m ic P o lic y , G e o rg e P .
Shultz, t o s e r v e a s it s C h a ir m a n . T he P r e s id e n t a ls o d e s ig n a te d th e
Secretary of C o m m e r c e , F r e d e r ic k B . D e n t, to s e r v e a s V ic e C h a irm a n of
the C om m ittee and a s C h a ir m a n of th e O ffice of E a s t - W e s t T r a d e .
The m e m b er s o f th e E a s t - W e s t T r a d e P o lic y C o m m itte e w ill be:
The S e c r e t a r y of S ta te (W illia m P . R o g e r s )
The S e c r e t a r y of th e T r e a s u r y (G eo rg e P . S h u ltz)
The S e c r e t a r y of C o m m e r c e (F r e d e r ic k B* D en t)
The A s s is t a n t to th e P r e s id e n t fo r N a tio n a l S e c u r ity A ffa ir s
(D r. H en ry A . K is s in g e r )
The E x e c u tiv e D ir e c t o r of th e C o u n cil on I n te r n a tio n a l E c o n o m ic
P o lic y (P e t e r M . F la n ig a n )
The S p e c ia l R e p r e s e n ta tiv e fo r T ra d e N e g o tia tio n s
(A m b a ssa d o r W illia m D . E b e r le )
» m e s E . S m ith , the D ep u ty U nd er S e c r e t a r y o f th e T r e a s u r y , w ill s e r v e a s
Jxecutive S e c r e ta r y of th e E a s t - W e s t T ra d e P o lic y C o m m itte e .
negotiation of m a jo r tr a d e in it ia t iv e s w ill be h an d led un der the C h a ir m a n sh ip
of individuals to be d e s ig n a te d fo r th e s p e c if ic n e g o tia tio n . T he P r e s id e n t
H s designated G e o rg e P . S h ultz a s C h a irm a n of th e U n ited S ta te s s e c t io n of
H e Joint U S-U SSR C o m m e r c ia l C o m m issio jn .
H w orking grou p w ill be e s t a b lis h e d under th e C h a ir m a n sh ip o f th e U nder
Secretary of the T r e a s u r y and w ill in c lu d e r e p r e s e n ta tio n fr o m th e
H g a n iza tio n s on th e E a s t - W e s t T r a d e P o lic y C o m m itte e .
#
#
#
ANNOUNCEM ENT M a rc h 6, 1973
As the T r e a s u r y D e p a rtm e n t anno u n ced y e s te r d a y , at th e P r e s i d e n t 's r e q u e s t,
S e c re ta ry of the T r e a s u r y G e o rg e P . S h u ltz w ill fly to P a r i s T h u rs d a y to ta k e
o art in d is c u s s io n s on c u r r e n t in te rn a tio n a l m o n e ta ry p r o b le m s .
Today w e a r e announcing th a t follow ing h is sto p in P a r i s , S e c r e t a r y S hultz w ill
continue on to M oscow , to d is c u s s t r a d e m a t t e r s w ith o ffic ia ls of th e S o v iet
Union.
The S e c r e ta r y w ill be a cc o m p a n ie d by a s m a ll w o rk in g p a rty .
He w ill be in P a r i s M a rc h 8 to 10, and w ill be in M oscow M a rc h 11 to 14.
Following th e USSR v is it, S e c r e ta r y S hultz w ill c o n su lt w ith s e v e r a l fin an c e
m in is te rs in E u ro p e a s p a r t of h is p r e p a r a tio n s fo r th e m o n e ta ry r e f o r m
talks sc h e d u le d in W ashington by th e C o m m itte e of 20, M a rc h 2 6 -2 8 .
The S e c r e t a r y ’s i t i n e r a r y fo r the v is its a fte r th e USSR d is c u s s io n s w ill be
announced w hen a rr a n g e m e n ts a r e c o m p le te .
We have a ls o p ro v id e d you w ith a r e l e a s e w hich in d ic a te s th a t th e P r e s i d e n t h a s
e sta b lish e d th e E a s t- W e s t T ra d e P o lic y C o m m itte e .
T he P r e s i d e n t h a s
designated G e o rg e S hultz a s C h a irm a n of th e C o m m itte e and a s h e a d of
the US sid e of th e US-USSR J o in t C o m m e rc ia l C o m m issio n .
I believe th e r e l e a s e you h av e (a tta c h e d ) in d ic a te s th e m e m b e rs h ip of the
C om m ittee, th e d e sig n a tio n of S e c r e ta r y D ent a s V ice C h a irm a n an d o th e r
details of the E a s t- W e s t T ra d e P o lic y C o m m itte e .
B
Departmentof theTREASU RY
wmmnm
hiNGTON.
D.C. 20220
TELEPHONE W04-2041
8
M a r c h 6, 1973
FOR I M M E D I A T E R E L E A S E
D E T E R M I N A T I O N OF N O SALES A T
LESS T H A N F A I R V A L U E ON P I G IRON F R O M B R A Z I L
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
announced t o d a y a final d e t e r m i n a t i o n t h a t p i g iron f r o m
Brazil is n ot being, nor l i k e l y to be, sold at less tha n
fair v a l u e w i t h i n the m e a n i n g of the A n t i d u m p i n g Act, 1921,
as amended.
N o t i c e of the d e t e r m i n a t i o n w i l l be p u b l i s h e d in the
Federal R e g i s t e r of W e d n e s d a y , M a r c h 7, 1973.
A N o t i c e of T e n t a t i v e N e g a t i v e D e t e r m i n a t i o n w a s
published in the F e d e r a l R e g i s t e r on N o v e m b e r 21, 1972.
This n o t i c e i n v i t e d i n t e r e s t e d p a r t i e s to s u bmit w r i t t e n
views or arguments, or r e q u e s t s for an o p p o r t u n i t y to
present t h e i r v i e w s orally.
D u r i n g the p e r i o d of J a n u a r y t h r o u g h S e p t e m b e r 1972,
imports of p i g iron f r o m B r a z i l w e r e v a l u e d at r o u g h l y
$4.9 million.
oOo
of TREASURY
Department the
EHINGTON, D C. 20220
TELEPHONE W04-2041
M
March 6, 1973
FOR IMMEDIATE RELEASE
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series
■of Treasury bills to the aggregate amount of $4,200,000,000, or thereabouts, for
■cash and in exchange for Treasury bills maturing
March 15, 1973,
in the amount
lof $4,202,855,000 as follows :
91-day bills (to maturity date) to be issued
March 15, 1973,
in the amount
■of $2,400,000,000, or thereabouts, representing an additional amount of bills
■dated December 14, 1972, and to mature
June 14, 1973
■originally issued in the amount of $1,901,630,000,
(CUSIP No. 912793 QX7 )
the additional and original
■bills to be freely interchangeable.
182-day bills, for $1,800,000,000, or thereabouts, to be dated March 15, 1973,
land to mature September 13, 1973 (CUSIP No. 912793 RU2).
The bills of both series will be issued on a discount basis under competitive
land noncompetitive bidding as hereinafter provided, and at maturity their face.
■amount will be payable without interest.
They will be issued in bearer form only,
land in denominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
I(maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the closIpng hour, one-thirty p.m., Eastern Standard time, Monday, March 12, 1973.
■Tenders will not be received at the Treasury Department, Washington. Each tender
■must be for a minimum of $10,000. Tenders over $10,000 must be in multiples of
»5,000.
Ion
In the case of competitive tenders the price offered must be expressed
the basis of 100, with not more than three decimals, e.g., 99.925.
fay not be used.
Fractions
It is urged that tenders be made on the printed forms and for-
fcarded in the special envelopes which will be supplied by Federal Reserve Banks
■or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
■provided the names of the customers are set forth in such tenders.
Others than,
■tanking institutions will not be permitted to submit tenders except for their own
(OVER)
account.
Tenders will be received without deposit from incorporated banks and
trust companies and from responsible and recognized dealers in investment
securities.
Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, Unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids. Only thos
submitting competitive tenders will be advised of the acceptance or rejection
thereof. The Secretary of the Treasury expressly reserves the right to accept oi
reject any or all tenders, in whole or in part, and his action in any such respecl
shall be final. Subject to these reservations, noncompetitive tenders for each
issue for $200,000 or less without stated price from any one bidder will be accepl
in full at the average price (in three decimals) of accepted competitive bids for
the respective issues. Settlement for accepted tenders in accordance with the
bids must be made or completed at the Federal Reserve Bank on March 15, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing March 15, 1973.
treatment.
Cash and exchange tenders will receive equal
Cash adjustments will be made for differences between the par value oi
maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is considered to accfl
when the bills are sold, redeemed or otherwise disposed of, and the bills are ex
cluded from consideration as capital assets. Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder must include in his
income tax return, as ordinary gain or loss, the difference between the price Pal
for the bills, whether on original issue or on subsequent purchase, and the amou1
actually received either upon sale or redemption at maturity during the taxable
year for which the return is made.
Treasury Department Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their isS
Copies of the circular may be obtained from any Federal Reserve Bank or Branch-
O F
Department th eT R U SU R Y
KHINGTON. D C. 20220
TELEPHONE W04-2041
J 7 89
FOR RELEASE O N D E L I V E R Y
S T A T E M E N T BY T HE H O N O R A B L E PAUL A. V O L C K E R
U N DER S E C R E T A R Y OF T HE T R E A S U R Y F O R M O N E T A R Y A F F A I R S
B E F O R E T HE S E N A T E C O M M I T T E E O N F I N A N C E
O N T HE E X T E N S I O N OF T HE I N T E R E S T E Q U A L I Z A T I O N T A X
W E D N E S D A Y , M A R C H 7, 1973, A T 1 0 :00 A.M.
I iywBi \r, ij
I „1
I
|t.j I
<
Mr. Chairman a nd M e m b e r s of the C ommittee:
I
a m p l e a s e d to a p p e a r on b e h a l f of the A d m i n i s t r a t i o n
to support the e x t e n s i o n of the I n t e r e s t E q u a l i z a t i o n Tax.
Under p r e s e n t legislation,
the IET w o u l d expi r e at the end
of this month.
This tax w as
e n a c t e d in 1 964 as a t e m p o r a r y me a s u r e ,
designed to h e l p c u r t a i l o u r b a l a n c e of p a y m e n t s
deficit.
Our continuing d e f i c i t h as m a d e it n e c e s s a r y to e x t e n d the
Bill on four p r e v i o u s
occasions.
W e b e l i e v e that r e c e n t
jexchange rate a c t i o n s - - a c c o m p a n i e d b y a n d c o m b i n e d w i t h
leffective p o l i c i e s
in o t h e r dir e c t i o n s
and must b r i n g that d e f i c i t to a n end.
-- can,
a n d will,
B u t those actions
icannot bring a cur e to the d e f i c i t instantaneously.
The
*
Ihard fact is that n o m a t t e r h o w fo r c e f u l o u r p o l i c i e s
1
-9
-- a n d
2
I b e l i e v e they are f o r c e f u l -- it w i l l take time for the
m o r e f u n d a m e n t a l cures
to recover.
to work,
a n d for o u r trade b a l a n c e
F o r the t r a n s i t i o n a l p e r i o d ahead,
o u r p a y m e n t s p o s i t i o n still n e e d s
therefore,
the p r o t e c t i o n p r o v i d e d
b y the IET.
T h e IET s h a r p l y r e s t r a i n s
of s e c u r i t i e s
world
tax,
the p u r c h a s e s b y U.S.
i s s u e d b y o t h e r d e v e l o p e d cou n t r i e s
(with the e x c e p t i o n of Canada)
the d e v e l o p e d c o u n t r i e s
ing costs
capital
by imposing a graduated
c a p i t a l to b o r r o w e r s
in
the o u t f l o w of p o r t f o l i o
f r o m the U n i t e d States is contained.
O ur e x p e r i e n c e
that it has b e e n e f f e c t i v e in those
to w h i c h it applies.
s u p ports
By
to a level m o r e c o m p a r a b l e w i t h b o r r o w
in t h e i r o w n countries,
w i t h the I ET i n d i c a t e s
a r eas
of the
c u r r e n t l y e q u i v a l e n t to 3/4 p e r c e n t p e r annum.
e f f e c t i v e l y r a i s i n g the cos t of U.S.
residents
Moreover,
the C o m m e r c e D e p a r t m e n t s
flows of d i r e c t i n v e s t m e n t c a p i t a l
the tax c o m p l e m e n t s and
p r o g r a m to r e s t r a i n o u t
(FDIP)
a nd the F e d e r a l
R e s e r v e ' s V o l u n t a r y P r o g r a m to limit the e x p o r t of funds b y
financial institutions
(VFCR).
T h e s e three p r o g r a m s are inter
r e l a t e d a n d m u t u a l l y reinforcing.
As
I suggested, w e are p u r s u i n g policies,
and internationally,
to b r i n g an e nd to a p a y m e n t s d e f i c i t that
h a s p e r s i s t e d for too long.
conc e r n e d ,
b o t h at h o m e
So far as e x c h a n g e rates are
two e x c h a n g e rate r e a l i g n m e n t s —
one at the
3
S m i t hsonian a n d a g a i n in F e b r u a r y
-- have,
I a m conv i n c e d ,
produced a fair a nd r e a l i s t i c b a s e for r e p a i r i n g our t r a d e
and p a y m e n t s position.
W e do not,
a nd cannot,
do the w h o l e job.
l o o k to e x c h a n g e r a t e c h a n g e s
C o m p e t i t i v e pricing,
to be effe c t i v e ,
quires that f o r e i g n m a r k e t s be o p e n to us.
the efficiency,
to
re
W e m u s t a t t e n d to
p r o d u c t i v i t y a n d p r i c e s t a b i l i t y o f the U.S.
economy to m a i n t a i n our c o m p e t i t i v e edge.
has, as y o u know,
The Administration
b e e n m o v i n g v i g o r o u s l y in these d i r e c t i o n s *
Our c o n f i d e n c e that the steps w e h a v e
t a ken a n d a re
taking w i l l r e s t o r e o ur b a s i c b a l a n c e of p a y m e n t s p o s i t i o n is
an important f a c t o r in ou r t h i n k i n g that this
time w e s h o u l d a s k for an e x t e n s i o n of this
is the last
legislation,
provided the e x p i r a t i o n d a t e is set at the en d of 1974.
T he S p e c u l a t i v e a t m o s p h e r e in i n t e r n a t i o n a l c u r r e n c y
markets in the p a s t few w e e k s does n o t d i s t u r b o ur b a s i c
conviction in that r e s p e c t .
I
w o u l d p o i n t out
the c u r r e n c y m o v e m e n t s w h i c h h a v e
occurred a re n o t of the type that the IET is d e s i g n e d to
impede or,
indeed,
is c a p a b l e of impeding.
However,
it als o
seems obvious that this is not the time to permit this measure to expire.
We continue to need the IET and the= other ,
programs of capital restraint in this period of transition
and uncertainty in international monetary affairs.
We are now engaged in an effort to build a new interna
tional economic system.
One of our objectives in that: effort
is to establish a cooperative monetary order/,in/ which then*ynoo
United States and other nations do not have to rely on controls
to maintain balance.
Our conviction on that score also underlies
our expressed intent to phase out the IET by the. end of 1974,
along with the Foreign Direct Investment Program; HoweverprtheB°b‘
jectives of reform would not served by a •precipi ti-busddl&r
mantling of these restraint measures today.
Instead, we must
move by stages, consistent with anticipated improvement in our
basic payments position.
As we do so, we hope and expect that
more foreign capital will be attracted to our markets, reflecting
the positive attributes not only of satisfactory return; but of
high liquidity and freedom from threat of official controls.
The IET extension Bill, as it was approved by the House,
incorporates certain technical amendments which we are prepared
to support.
However, extension of the IET authority until
December
1974 rather than the date of June
3 1 ,
3 0 ,
1 9 7 4
p r o v id e d
5
in the Bil l as p a s s e d b y the H o u s e
This w o u l d b r i n g
-- seems to us appropriate.
the e x p i r a t i o n date into line w i t h the final
"phasing o u t ” date s t a t e d b y S e c r e t a r y S h u l t z f or the e x i s t i n g
restraint p r o g r a m s a n n o u n c e d on F e b r u a r y 12 in h is
on F o r e i g n E c o n o m i c policy.
statement
This date s h o u l d p r o v i d e us w i t h
an ample m a r g i n of time to a c c o m p l i s h the objective, w i t h o u t
forcing a c t i o n out of k e e p i n g w i t h the d e v e l o p m e n t of o ur
external position.
A t the same time, w e h a v e s i g n a l e d ou r
d e termination to a c h i e v e a p a y m e n t s p o s i t i o n a n d a m o n e t a r y
system that c an s t a n d w i t h o u t this a r t i f i c i a l crutch.
Attachments:
Four su m m a r y tables on the U.S.
b a l a n c e of p a y m e n t s a nd
transactions in fo r e i g n securities.
- k ' k ' k ’k ' k ' k ’k ' k
TABLE I:
BALANCE OF PAYMENTS SUMMARY TABLE,
(millions of dollars)
1961-1965
Average
Merchandise:
exports
imports
balance
Military transactions,
investment incomes.
Other services and
remittances, net
Balance on current account
excluding government grants
Government grants & capital, net
Private long-term capital 1/
U.S. assets abroad
Foreign assets in the U.S.
Balance
Current and long-term
capital accounts, net
Short-term non-liquid capital,
net
Errors and omissions
Net liquidity balance
(excl. SDR allocations)
Transactions in liquid funds
other than those of official
reserve agencies, net
Official reserve transactions
balance
(excl. SDR allocations)
-1972
Jan.-Sept.*
1972
1966
1967
1968
1969
1970
1971
23,011
17,578
5,433
29,287
25,463
3,824
30,638
26,821
3,81}
33,576
32,964
612
36,417
35,796
42,770
45,459
-2,663
47,391
54,355
48,838
55,659
621
41,963
39,799
2,164
-6,364
-67I2T
218
366
43
612
-12
-76
1,888
545
5,652
4,190
3,858
1,223
610
2,089
-802
-6,419
-3,042
-3,379
-4,226
-3,866
-3,570
-3,752
-4,423
-3,191
-3,631
193
-3,438
-3,918
1,363
-2,555
-4,429
1,517
-2,912
-4,297
5,495
1,198
-4,855
4,805
-50
-5,753
4,355
-1,398
-6,348
2,268
-4,079
-5,392
4,759
-633
-828
-1,744
-3,280
-1,444
-3,011
-3,059
-9,304
-10,243
-924
-848
-2,600
-104
-302
-2,151
-522
-881
-4,683
230
-399
-1,610
-640
-2,470
-6,122
-482
-1,174
-4,718
-2,386
-11,031
-22,719
849
2,370
1,265
3,251
8,824
-5,988
-7,763
-1,751
219
-3,418
1,641
2,702
-10,706
-30,482
* Seasonally adjusted, annual rate.
*» Preliminary
1/ For detail see Table II.
Source: U.S. Department of Commerce, Survey of Current Business, December
Commerce News Press Release of February 14, 1973.
1972**
-611
-2,951
-13,804
-14,607
1,461
3,667
-12,343
-10,940
1972 and earlier issues^ plus
March 5, 1973
TABLE XIs
PRIVATE LONG-TERM CAPITAL, 1961 -1972
^millions of dollars)
[(inflows of capital to U.S.(+): outflows of U.S. capital (—)]
U.S. assets abroad, net:
U.S. Direct investments (net)
U.S. Purchases of Foreign securities (net)
Stocks
Bonos
Outstanding U.S. loans and
other foreign assets
Reported by U.S. banks
Reported by U.S. concerns other
than banks
Total U.S. assets abroad, net
Foreign assets in the U.S., nets
Foreign direct investments (net)
Foreign purchases of U.S. securities
other than Treasury issues (net)
Stocks
Bonds
Outstanding foreign loans to the U.S.
and other foreign assets in the U.S.
Reported by U.S. banks
Reported by U.S. concerns other
than banks
Total foreign assets in the U.S. (net)
Balances•
Direct investments
Transactions in securities
Other long-term claims
Total private long-term
capital
1961-1965
Average
1966
1967
1968
1969
1970
1971
Jan.-Sept.*
1972
2,205
-3,661
-3,137
=3,209
-3,254
-4,400
-4,765
-3,331
-854
17
-871
-482
207
-689
-1,266
-51
-1,216
-i,226
-153
-1,073
-1,494
-467
-1,028
-942
-68
-874
-909
-20
-889
-693
292
-983
-599
438
337
255
358
317
175
-565
-1,156
-1,250
134
-112
-281
-220
-424
-586
-109
-212
-3,631
-3,918
-4,429
-4,297
-4,855
-5,753
-6,348
-5,392
50
86
258
319
832
1,030
-67
332
60
-7
67
909
-305
1,214
1,016
701
315
4,389
2,096
2,292
3,112
1,565
1,547
2,190
697
1,493
2,282
849
1,433
3,599
1,652
1,947
4,443
2,374
2,069
76
188
158
72
160
23
-249
281
148
6
180
85
715
701
1,112
303
547
193
1,363
1,517
5,495
4,805
4,355
2,269
4,759
-2,154
-795
-489
-3,575
427
593
-2,879
-250
217
-2,890
3,163
925
-2,422
1,618
754
-3,370
1,248
724
-4,832
1,373
-620
-2,999
-2,905
-540
-3,438
-2,555
-2,912
1,198
-50
-1,398
-4,079
-633
1972**
3,844
♦Seasonally adjusted, annual rate. ** Preliminary
Note: Details may not add to totals and quarterly figures may not add to annual figures due to rounding.
Source: U. S. Department of Commerce, Survey of Current Business, December 1972 and earlier issues, plus
Commerce News Press Release of February 14, 1973.
March 5, 1973
V ji
TABLE III: PURCHASES BY U.S. RESIDENTS OF FOREIGN SECURITIES
NEWLY ISSUED IN THE UNITED STATES, BY AREA, 1962 - 1972
(millions of dollars)
All Areas
IET Countries, Total
West Europe incl. U.K.
Japan
Other 1/
1962
First
Half*
1,076
1,000
356
195
101
60
1963
Second
Half*
Jan.-Sept.*
1972
1964
1965
1966
1967
1968
1969
1970
1971
250
1,063
1,206
1,210
1,619
1,712
1,668
1,456
1,506
1,137
343
110
35
147
19
14
45
13
130
3
17
219
107
17
53
57
35
—
95
52
15
4
42
3
11
130
——
14
—
3
—
3
—
—
—
—
17
of which:
exempt from IET 2/
subject to IET
—
—
Other Countries, Total (exempt)
722
656
Canada
Latin America 4/
Other Countries
International Institutions
458
119
61
84
608
13
35
—
___
20
15
52
95
10
9
14
—
3
42
___
14
130
—
141
1,027
1,058
1,191
1,605
1,667
1,655
1,326
1,503
1,120
85
23
33
—
700
200
115
—
709
36
134
179
922
68
121
80
1,007
140
212
246
957
144
176
390
1,270
32
189
164
775
117
193
241
790
33
304
376
616
54
176
274
110 3/
—
3
——
17
Hot seasonally adjusted.
1/ Australia, New Zealand, South Africa.
2/ Related to the export, the direct investment, and the Japanese exemptions. The latter for $100 million per year, ran from
1965 to February 1970.
3/ Represents commitments made prior to 7/18/63, the date of inception of the IET.
T/ Includes Inter-American Development Bank issues.
Source:
Department of Commerce, Bureau of Economic Analysis; Department of the Treasury, OASIA.
March 5, 1973
NET TRANSACTIONS IN OUTSTANDING FOREIGN SECURITIES
BY U.S. RESIDENTS BY AREA, 1962 - 1972
(Net; U.S. Purchases (-) in Millions of Dollars)
TABLE IV:
1962
All Areas
IET Countries, Total
West Europe
Jaoan
Canada 3/
Other 17
Other Countries, Total
Latin America 2/
Other Countries
International Institutions
1963
Second
First
Half*
Half*
1964
1965
1966
1967
1968
1969
1970
1971
Jan.-Sept,
1972
-96
-151
102
194
225
300
-135
-60
-305
80
117
211
15
-85
85
181
234
222
-111
0
-284
120
145
228
-16
-23
79
-25
-52
-25
7
-15
54
-4
30
5
152
—
17
12
119
6
147
-30
149
10
68
-5
-96
-5
-8
-2
-33
6
36
-9
90
-292
-82
0
27
31
53
9
16
-125
247
7
373
-156
10
1
-13
-6
10
2
-8
26
-36
-74
-51
-53
-23
-24
-25
12
-3
-3
1
9
-13
15
-13
5
2
24
-13
-23
-72
-2
-65
14
-64
11
-23
0
-18
-6
-98
-60
6
11
-3
51
13
16
30
13
-3
7
* Not seasonally adjusted.
1/ Australia, New Zealand, South Africa.
7/ Includes Latin American Development Bank issue of $145 million in 1964.
7/ Excludes Canadian repurchases, undertaken in '66, '67 and '68 for reserve management purposes.
NOTES: These data reflect residence of seller rather thari the original country of issue of the security— the basis on which
the IET applies. Also, the above data show net purchases (or sales) whereas the IET applies to gross purchases.
Detail may not add to total due to rounding.
Source:
Department of Commerce, Bureau of Economic Analysis.
March 5, 1973
*
I Department of t h e JR [A $ l]R Y
JsHINGTON. D.C. 20220
,
TELEPHONE WQ4-2041
FOR IMMEDIATE RELEASE
March 7, 1973
JOHNSON APPOINTED ENERGY
ADVISER AT TREASURY
William E. Simon, Deputy Secretary of the Treasury,
today announced the appointment of William A. Johnson,
36, as Energy Adviser to the Deputy Secretary of the
Treasuryo
Johnson comes to Treasury from the Council of
Economic Advisers where he served as a senior economist.
Previous to that time, he worked as a senior economist
for 8 years for the Rand Corporation,
Johnson, a native of Buffalo, No Y«, received his
Ph.Do from Harvard in 1964, He did his under-graduate
work at Syracuse University,
Johnson will advise the Deputy Secretary on energy
matters, dealing primarily with the oil import program,
Johnson also will serve as Chairman of the Working Group
of the Oil Policy Committee, an inter-departmental
advisory group which develops Government policy on oil
imports,
Mr, Johnson lives with his wife and two children
in Bethesda, Maryland,
oOo
S-134
FOR IMMEDIATE RELEASE
March 8, 1973
MEMORANDUM TO CORRESPONDENTS:
The Treasury Department today responded to a question
that has arisen concerning the method of computing bond yields
under its proposed arbitrage bond regulations.
Treasury said that in its proposed regulations it had
used the Investment Bankers Association method of computing yields
for reasons of convenience for issuers. However, it has come to
Treasury’s attention that certain disparities between the IBA
method and the more accurate actuarial method of computing yield
have been exploited in a manner designed to avoid the intent of
the arbitrage provisions.
Accordingly, Treasury announced that hereafter the IBA
method of computing yield may not be relied upon where the yield
on governmental obligations and acquired obligations when computed
under that method is significantly distorted, in comparison with
true, actuarial yield, by use of "deep” discounts, premiums, the
sale of bonds with a significant variance between coupon rates,
the sale of bonds stripped of coupons, or other similar devices.
In such a case, the TBA method may not be used and yields are to
be computed bTr use of the actuarial method to determine whether
a governmental obligation is an arbitrage bond.
0O0
S-138
I
theTREASURY
Departmentof
IHINGTON, O.C. 20220
TEIEPHONE W04-2041
FOR IMM E D I A T E R E L E A S E
T R E A S U R Y A N N O U N C E S A C T I O N S ON
F O U R I N V E S T I G A T I O N S U N D E R THE A N T I D U M P I N G A C T
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
announced t o d a y T r e a s u r y 's a c t i o n s w i t h r e s p e c t to four
i n vestigations u n d e r the A n t i d u m p i n g A c t of 1921, as amended.
In the first case the T r e a s u r y is w i t h h o l d i n g
appraisement p e n d i n g c o m p l e t i o n of its in v e s t i g a t i o n , and
in the o t her three cases a n t i d u m p i n g i n v e s t i g a t i o n s are b e i n g
initiated.
These d e c i s i o n s w i l l a p pear in the F e d e r a l R e g i s t e r
of M a r c h 9, 1973.
In the f i rst case A s s i s t a n t S e c r e t a r y M o r g a n a n n o u n c e d
that the T r e a s u r y is w i t h h o l d i n g a p p r a i s e m e n t on steel w i r e
rope from Japan.
This rope is u s e d for m a n y p u r p o s e s
including e l e v a t o r ropes, w i n c h lines, cranes, conveyors,
and r e i n f o r c i n g h e a v y - d u t y tires for trucks.
U n d e r the
Antidumping Act, the S e c r e t a r y of the T r e a s u r y is r e q u i r e d
to w i t h h o l d a p p r a i s e m e n t w h e n e v e r he has r e a s o n a b l e c a use
to believe or su s p e c t that sales at less than fair v a l u e
may be t a king place.
A final T r e a s u r y d e c i s i o n in this
investigation w i l l be m a d e w i t h i n t h r e e months.
If a
determination of sales at less than fair v a l u e w e r e m a d e in
this i n v e s tigation, the case w o u l d be r e f e r r e d to the T a r i f f
Commission, w h i c h w o u l d c o n s i d e r w h e t h e r an A m e r i c a n i n d u s t r y
was being injured.
If b o t h sales at less t han fair v a l u e and
injury w e r e shown, d u m p i n g d u t i e s w o u l d be a s s e s s e d as of the
date of w i t h h o l d i n g of a p p r a i sement.
D u r i n g the p e r i o d of
January t h r o u g h N o v e m b e r 1972, i m p orts of steel w i r e rope
from J a pan t o t a l e d a p p r o x i m a t e l y $6 m i l lion.
In the second a nd t h i r d cases, the T r e a s u r y a n n o u n c e d
the ini t i a t i o n of a n t i d u m p i n g i n v e s t i g a t i o n s on i m p orts of
hand-operated p l a s t i c p i s t o l - g r i p liquid s p r ayers f r o m J a p a n
and Korea.
This a n n o u n c e m e n t follows s u m m a r y i n v e s t i g a t i o n s
conducted b y the B u r e a u of C u s t o m s a f ter r e c e i p t of a c o m p l a i n t
alleging tha t d u m p i n g w a s t a k i n g p l a c e in the U n i t e d States.
During c a l e n d a r y e a r 1972 i m ports of t h ese sp r a y e r s fro m J a p a n
were valu e d at a p p r o x i m a t e l y $147,000.
I m p o r t s of these
sprayers f rom K o r e a d u r i n g the f i rst two m o n t h s of 1973 w e r e
estimated at a p p r o x i m a t e l y $80,000.
(OVER)
|
2
In the f o u r t h case Mr. M o r g a n a n n o u n c e d the i n i t i a t i o n
of an a n t i d u m p i n g i n v e s t i g a t i o n on imports of m a n d e l i c acid
f r o m the U n i t e d Kingdom.
This acid is used as a p r i m a r y
i n g r e d i e n t for a p h a r m a c e u t i c a l d r u g c a l l e d m e t h e n a n i n e
m a n d e l a t e , a u r i n a r y disin f e c t a n t .
This a n n o u n c e m e n t follows
a s u m mary i n v e s t i g a t i o n c o n d u c t e d b y the B u r e a u of Customs
after r e c e i p t of a c o m p l a i n t a l l e g i n g l i k e l i h o o d of d u m p i n g
in the U n i t e d States.
The i n f o r m a t i o n r e c e i v e d tends to
i n d i c a t e that the p r ices of the m e r c h a n d i s e o f f e r e d for
e x p o r t a t i o n to the U n i t e d States are less than p r i c e s for
h ome c o nsumption.
0 O0
1
yj
1
NATIONAL ASSOCIATION OF MANUFACTURERS
2
5
JOINT POLICY COMMITTEE
4
5
International Ballroom
Washington Hilton Hotel
6
W e d n e s d a y , M a r c h 7,
1:20 o ' c l o c k p.m.
7
8
A s p e e c h b y the H o n o r a b l e G e o r g e P.
9
S e c r e t a r y of the T r e a s u r y
10
MR. VE N E M A :
1973
Shultz,
In any p e r i o d of o u r h i s t o r y ,
the
11
T r e a s u r y D e p a r t m e n t is o n e of the t w o s p o t s in the F e d e r a l
12
st r u c t u r e e n c o m p a s s i n g r e s p o n s i b i l i t y to m a n y of the m a j o r
13
areas w e w i l l
14
Second J o i n t P o l i c y C o m m i t t e e C o n f e r e n c e .
15
c o n t i n u e to d i s c u s s d u r i n g the t w o day s of the
The m a n who presently holds
this
s p o t is
also
16
A s s i s t a n t t o t he P r e s i d e n t a n d is C h a i r m a n of the C o u n s e l on
17
Economic Activity.
18
-
W e h a v e an i n d i v i d u a l w h o a c c e p t s
thi s k i n d of
19
awesome r e s p o n s i b i l i t y ,/ t h e n the N a t i o n is b l e s s e d w i t h
20
a public servant with o u t parallel.
21
A f t e r distinguished undergraduate and graduate
22
record, he e m b a r k e d on a t e a c h i n g c a r e e r c u l m i n a t i n g in hi s
25
a p p o i n t m e n t as D e a n of t he G r a d u a t e S c h o o l o f B u s i n e s s
24
the U n i v e r s i t y of C h i c a g o .
25
Chicago,
at
D u r i n g this d e c a d e of s e r v i c e in
t h a t o f f i c e b e c a m e k n o w n to him,
a nd i t h a s b e e n
2
very p r i v i l e g e d to o b s e r v e this d i s t i n g u i s h e d i n d i v i d u a l to
c o n t i n u e to r e n d e r t i r e l e s s
s e r v i c e to h is u n i v e r s i t y ,
h is
community, m a n a g e m e n t a n d l a bor in m a n y n e g o t i a t i n g a nd
arbitrating capacities,
and now,
world.
“
to the n a t i o n a n d to the
r
N o s t r a n g e r to G o v e r n m e n t s e r vice,
w h i l e o n l e a v e of a b s e n c e f r o m MIT,
he was
f or i n 1955,
a staff economist
w i t h the P r e s i d e n t ' s C o u n c i l of E c o n o m i c A d v i s o r s .
T h e n in
1959 h e j o i n e d th e E i s e n h o w e r A d m i n i s t r a t i o n as a c o n s u l t a n t
to the S e c r e t a r y o f L a b o r •
He was
a m e m b e r of t h e i n i t i a l
N i x o n C a b i n e t s e r v i n g as S e c r e t a r y of L a b o r f r o m t h e o n s e t
of the A d m i n i s t r a t i o n u n t i l J u l y of 1970 w h e n h e b e c a m e the
first d i r e c t o r of the O f f i c e of M a n a g e m e n t and B u dget, .a
position he held until he was
^>*?»
a p p o i n t e d to h i s p r e s e n t p o s t
last June.
It's w i t h a g r e a t d e a l of p r i d e a n d p l e a s u r e t h a t
I p r e s e n t to y o u the H o n o r a b l e G e o r g e Sh u l t z .
" ; (S t a n d i n g Ovation.)
S E C R E T A R Y SHULTZ:
You mentioned my position within
the T r e a s u r y D e p a r t m e n t a n d y o u m i g h t b e i n t e r e s t e d to k n o w
about t h e r e a c t i o n s of m y t w o y o u n g e s t c h i l d r e n to that.
told t h e m a b o u t i t the d a y i t w a s
a n n o u n c e d a n d t h e y w e n t off
to s c hool n o t k n o w i n g q u i t e w h a t t h a t w a s g o i n g to m e an,
they g o t the w o r d in school.
and she a s k e d h e r m o t h e r ,
I
My daughter got home
she said, w h a t ' s
and
in tears
the m a t t e r w i t h
in 3
Ci
,
1
1
Daddy?
T h e P r e s i d e n t k e e p s m o v i n g h i m around.
2
move the other Cabinet members
5
(General laughter.)
4
S E C R E T A R Y SHULTZ:
3
He doesn't
around.
M y y o u n g e s t s on is a c o i n collector
5
He's a b i t of a mise r ,
s a v i n g m o n e y a n d so on.
He immediately
6
d i s c o v e r e d f rom h i s
schoolnates the S e c r e t a r y o f T r e a s u r y
1
signs d o l l a r bills,
an d m a y b e t h e y c o u l d b r i n g s o m e a r o u n d
8
and g e t t h e m signed.
-—
9
(General laughter.)
10
S E C R E T A R Y S H U LTZ:
■
11
I t h i n k s o m e t i m e s w h e n w e ' r e w o r k i n g in t he job,
I
12
-and y o u ' r e all c a u g h t u p in w h a t y o u ' r e d o i n g ,
as w e all
;4
IHH
are, oftentimes
m
hel p to p u t a l i t t l e p e r s p e c t i v e o n t he w h o l e thing.
15
that a c o u p l e t h i n g s t h a t h a p p e n e d to m e in c o n n e c t i o n w i t h
the e x c h a n g e c r i s i s of a b o u t t h r e e w e e k s o r so a g p —
17
things a l w a y s s e e m l i k e d i s t a n t h i s t o r y b e c a u s e t h e r e ' s
m uch in b e t w e e n ,
I know
these
so
but after working on that very hard throughout
a nd so on, w e f i n a l l y f i n i s h e d a n d a n n o u n c e d
19
the w e e k and n i g h t s
20
what had happened in a press
21
later f i e l d i n g p h o n e
22
in the m o r n i n g ,
|c o n f e r e n c e at t he T r e a s u r y ,
a nd
I
I
1 23
24
»
| 25
the POW's,
calls,
- ;J
t h a t ^happen £in y o u r *o w n f ami ly # # i.h.0
13
1 18'
little things
i
\o
1—1
■
H e t h o u g h t i t w a s g o o d job.
a n d I w ent home about
a nd m y w i f e w a s
there.
That was
12:30
the d a y t h a t
the f i r s t P O W ' s h i t C l a r k Field.
A n d m y w i f e w a s t h e r e a n d s he g r e e t e d me.
have y o u b e e n w a t c h i n g t e l e v i s i o n t o d a y ?
S h e said,
non 4
m
1
(General laughter.)
2
SECRETARY-SHULTZ:
I said,
no,
'
I haverft b e e n w a t c h i n g
5
t e l e v i s i o n today.
4
w as one of the m o s t e m o t i o n a l e x p e r i e n c e s
5
w a t c h i n g the m e n c o m e o f f t he plane.
6
She d e s c r i b e d to m e all t h e t h i n g s
7
w e n t on and o n a nd o n s i t t i n g there,
8
the way, w h a t ' s g o i n g o n w i t h y o u r m o n e t a r y thing.
S h e said, w e l l ,
y o u s h o u l d h a v e been.
It
that I've had
It was
just terrific.
that had happened,
a nd she
a n d f i n a l l y sh e said, b y
K..
9
(General l a u g h t e r a nd a p p l a u s e .)
10
SECRETARY'SHULTZ:
A t t he s a m e t i m e I t h i n k the
\\
H
11
sense of p e a c e m a k e s
■
12
hard for us to a p p r e c i a t e , a f t e r all t h o s e y e a r s , t h a t w e \re
■
13
■
14
m o v i n g i n t o an e r a of p e a c e * r$and rwe d o n ' t q u i t e *R e l i e v e
'..And.I t h i n k a l o n g w i t h m a n y o t h e r t h i n g s
have b e e n d o i n g
0
ri6
s u c h an i m p a c t o n u s , a n d I k n o w i t is
it.- ,v >
the P O W ' s
for us, w h e n w e s ee t h e m c o m i n g b a c k t h a t
makes it s i n k in a l i t t l e b i t more,
a n d as m o r e
17
it w i l l sin k in f u r t h e r .
18
peop l e w i l l b e g i n to b e l i e v e it.
19
factor t h a t w i l l s i n k in o u r society,
C\2
p o l i t i c a l life.
21
effect,
com e b a c k
W h e n t h e y a re a ll f i n a l l y . b a c k ,
This
seems
to m e to b e a
our economic
life,
our
o
n n nza a
h
j 1
22
It's g o i n g to b e a v e r y p o w e r f u l a n d p o s i t i v e
of course. .
_
T h e o t h e r t h i n g t h a t h a p p e n e d to m e i n c o n n e c t i o n
with that same set of problems
J
1
I
i 1
__
that kept me away from home
"
24
over the w e e k e n d a nd so f o r t h w a s a c o m m e n t m a d e b y m y
25
old son w h o h a s n ' t p a i d m u c h a t t e n t i o n to a l l this.
20 y e a r
He h as
long h a i r an d h e ' s a . v e r y s e r ious,
f e r v e n t y o u n g man .
he w a s g o i n g o u t the d o o r the n e x t m o r n i n g ,
up b l e a r y eyed,
he said,
b y the way,
w a n t to k n o w w h y w e d o n ' t buy,
y o u are doin g .
as I w a s g e t t i n g
he said,
if y o u r e a l l y
speaking of himself,
don't buy more A merican products,
People got to make
As
why people
i t i s n ' t b e c a u s e of w h a t
those products better,
an d
then t h e y ' l l b u y them.
I
insight,
felt,
c o m i n g f r o m him,
t h a t as w e a d d r e s s o u r p r o b l e m s
that was a nice little
at h o m e a nd abroad,
we n e e d to r e c o g n i z e t h a t i t is a c o m p e t i t i v e w o r l d a n d w e
n eed to look a t t he q u a l i t y of w h a t w e do.
h ow w e m a n a g e .
W e n e e d to look at
W e n e e d to look at c o m p a r a t i v e
good' s e r v i c e s a nd so on..oood s e r v i c e s
That was
cost,
providing
and so
c a -'V.--'
s o r t of an i n s t i n c t i v e i n s i g h t of t h a t o n e
y o ung p e r s o n t h a t s e e m e d q u i t e to t he p o i n t -.
~ -
I ' d like t o i n t r o d u c e m y c o m m e n t s w i t h
a little
story a b o u t a p e r s o n w h o h a d b e e n g i v e n an a p p o i n t m e n t and
was in the m i d s t of the p e o p l e t h a t he g o t t h e a p p o i n t m e n t
from a nd t h a t h e w a s g o i n g to w o r k w i t h ,
and said that it was
g r a t i f y i n g to h i m to h a v e t h a t a p p o i n t m e n t a nd w a s g r a t i f i e d
that they h a d t h o u g h t of him,
b u t the people that he was going
to be w o r k i n g w i t h m i g h t be i n t e r e s t e d in w h a t s o m e of his
friends d o w n in M a i n e w h e r e h e w a s
f r o m t h o u g h t of it.
And
then he said t h a t t wo of t h e m w e r e s i t t i n g b y the r a d i o w h e n the
appointment was
a n n o unced,
and t h e y w e r e c o m m e n t i n g to e a c h
.
6
C
1
o t h e r a b o u t it;
This man's name was Beamis.
2
meteorologist,
5
y o u know,
4
w e n t t h r o u g h o u r s c h o o l s y s t e m here.
5
awful s m a r t f e l l o w a n d h e j u s t a c q u i r e s
6
k n o w l e d g e l i k e a s p o nge.
7
learns m o r e a n d m o r e a ll t he time.
a n d h e said,
that Beamis
9
b ack and said,
10
r e a lize n o t h i n g .
12
a
o n e o l d c o d g e r s a i d to the other,
is o n e of t h e s m a r t e s t f e l l o w s t h a t e v e r
T h a t ' s right,
h e ' s an
i n f o r m a t i o n a nd
He n e v e r f o r g o t a n y t h i n g .
He knows
He just
everything.
A n d the o t h e r f e l l o w t ook a s u c k o n h i s pipe,
8
11
He w a s
-.....
that Beamis,
--
{General
brought
h e k n o w s e v e r y t h i n g b u t he d o n ' t
---
—
•-
laughter.)
y.SECRETARY SHULTZ:
I_ t h i n k i n .this w o r l d if y o u can
13
make policy —
14
back and f o rth a n d h o p e t h a t w e ' r e a ble to do i t r e a s o n a b l y
15
successfully —
'16
s o m e h o w or a n o t h e r w e ! r e - a l w a y s h a v i n g to g o
b e t w e e n w h a t y o u k n o w an d w h a t y o u re a l i z e ,
and on t h e o n e h a n d to r e c o g n i z e t h e p o w e r of
the
logical
17
a r g u m e n t as i t is d e v e l o p e d ,
18
a r g u ments in t h e i r p u r i t y ,
19
to a l l o w t h e m to g e t s u r r o u n d e d w i t h o t h e r w o r k
20
w o r k of the w o r l d g ets d o n e so t h a t y o u d o n ' t g e t p o l l u t e d
21
into t h i n k i n g t h a t t h e r e isn'-t a l o t t h a t h a s t o b e r e a l i z e d .
22
I
a n d w e n e e d to loo k a t - l o g i c a l
so to speak,
a nd a t t he s a m e t i m e
as the o t h e r
t h i n k t h a t o n e of the t h i n g s t h a t w e b o t h k n o w
23
and r e a l i z e is t h a t e v e r y t h i n g in t he e c o n o m i c sphere,
24
is r e l a t e d to e v e r y t h i n g else.
that as w e s t udy the subject.
W e k n o w t h a t a nd w e
everythi
learn about
B u t it n e v e r b e c o m e s m o r e
clear
7
7
.
■
' V
o
■
1
t han w h e n w e are s o m e w h e r e n e a r a c h i e v i n g t h e g o a l t h a t w e
2
set in e c o n o m i c po l i c y ,
5
reasonably stable prices
4
ge t s o m e w h e r e n e a r t h a t goal,
5
our m i n d s t h a t som e s i n g l e m i n d e d o b j e c t i v e lik e e x p a n d y o u r
6
e c o n o m y at a ll costs or s o m e t h i n g
7
namely,
to h a v e p r o s p e r i t y w i t h
in t h i s
t ime of p e a c e ,
and when we
t h e n w e are m u c h m o r e
c l e a r in
like t h a t is n o t e n o ugh.
W e h a v e to b e t h i n k i n g of all t h e c o m p l e x i t i e s
8
of the i n t e r r e l a t i o n s h i p s b e t w e e n d i f f e r e n t a s p e c t s of po l i c y .
9
So,
as w e c o n s i d e r a m a j o r exp a n s i o n ,
we
look at
10
the p i c t u r e f r o m t h a t p o i n t of view,
11
of v i e w of r e i n i n g i t in o r d e r to h a v e i t s i g n i f i c a n t w i t h
12
reasonably stable prices.
'
13‘
' 14
15
“16
.17
18
happens to food p r i c e s
and also from the point
W e see t h e r i c o c h e t b e t w e e n w h a t ;
and'what we
can "expect b y n W a y of w a g e >*
s e t t l e m e n t an d w h a t m a y g o o n i n i n t e r n a t i o n a l m a r k e t s .
things just r i c o c h e t arpund,
"-“
These
o n e to t he o t her.
T h a t is a l w a y s t he case, b u t w h e n t h e e c o n o m y is
operating right up near full capacity,
are s t r a i n e d an d e v e r - p r e s e n t .
19
\
So,
the interrelationships
-
I t h i n k w e m u s t p r o c e e d a nd w e a re t r y i n g to
20
p r o c e e d in the A d m i n i s t r a t i o n w i t h a s e n s e of t h e s e r e l a t i o h -
21
ships,
22
they are in som e w a y s g o o d p r o b l e m s in the s e n s e t h a t t h e y
23
are the k i n d s of p r o b l e m s t h a t y o u h a v e to cop e w i t h in t r y i n g
24
to m a n a g e the e c o n o m y w h e n it is o p e r a t i n g at this
25
level.
and w h i l e - w e are f i e l d i n g lots of p r o b l e m s
t h e s e days,
extraordinary
8
[smn 8
P
1
Now,
V
u n d e r the t h e m e of e v e r y t h i n g is r e l a t e d to
2
e v e r y t h i n g else,
5
to say a g r e a t d e a l h e r e a b o u t i n t e r n a t i o n a l m o n e t a r y d e v e l o p
4
ment,
5
t h a t ’s c o m i n g u p h e r e a n d s a y i n g t h a t w e ,a r e g o i n g to t h i s
6
m e e t i n g in a s p i r i t o f c o o p e r a t i o n ,
i t _m a y v e r y w e l l b e t h a t y o u w i l l e x p e c t me
'
I p r e f e r n o t to,
to s a v e m y c o m m e n t s
for t h e m e e t i n g
in t h e s p i r i t t h a t w e are
discussing a common problem that we w a n t to resolve and keep
I
?
8
r e s o l v i n g i n a m a n n e r t h a t is as c o n s i s t e n t as i t p o s s i b l y
9
can be,
10
i n t e r n a t i o n a l m o n e t a r y c o o p e r a t i o n t h a t w e speak.
11
i t e m b y i t e m w i t h the g o a l s O f
13
14
\
; 15
H -
j
.6
CO
17
'|
-JThat is t h e s p i r i t t h a t w e are t a k i n g t h e e f f o r t in
going t o P a r i s
■
l ong t e r m m o n e t a r y ,
and b e y o n d .
H a v i n g s a i d that,
.
l et m e p i c k o u t a c o u p l e - o t h e r
things t h a t are i n t e r r e l a t e d a nd t a l k a b o u t them.
a g r e a t d e a l of d i s c u s s i o n n o w a b o u t P h a s e III.
has b e e n k i c k e d a r o u n d q u i t e a lot.
There's
P o o r P h a s e III
P e o p l e a re e v a l u a t i n g it
and w o n d e r i n g w h e t h e r i t is a s t r o n g p r o g r a m or a w e a k p r o g r a m
or w h a t k i n d of p r o g r a m i t is.
1 19
I t h i n k i t is w e l l s u m m a r i z e d as a n y t h i n g b y a
I
j j 20
H
comment t h a t H e r b Stein,
C o u n c i l of E c o n o m i c A d v i s o r s m a d e ,
[ 21
that it w i l l b e as m a n d a t o r y as i t m u s t be,
[ 22
it can be.
1 23
but it is a l s o b e i n g a d m i n i s t e r e d in a s p i r i t of a t t e n t i o n to
24
, 25,
and v o l u n t a r y as
T h a t is the s p i r i t w i t h w h i c h it is b e i n g a d m i n i s t e red -
the f u n d a m e n t a l s .
and f o r e m o s t h e r e .
T h a t is w h a t I w o u l d
lik e to e m p h a s i z e f i r s t
nn 9
1
I
2
w i t h i nflation,
s
e x t e n t to w h i c h i n c o m e p o l i c i e s of v a r i o u s k i n d s
4
y ou see an i n t e r e s t i n g r e l a t i o n s h i p —
5
one to o ne basis,
6
the m o r e a c o u n t r y u s e s i n c o m e p o l icy,
7
is w i t h i n f l a t i o n .
m
I
I
If y o u s t u d y the r e l a t i o n s h i p b e t w e e n the e x p e r i e n c e
9
c o u n t r y b y c o u n t r y in t he f ree worl d ,
b ut does
I
and the
are used,
it's n o t o n a n a b s o l u t e
s e e m to b e t r u e m o r e o r less —
that
the w o r s e its e x p e r i e n c e
think, t h e r e is a v e r y s i m p l e e x p l a n a t i o n f or th
and it d o e s n ' t h a v e to d o w i t h the i n h e r e n t g o o d n e s s o r b a d n e s s
of the m e c h a n i c s of_ the i n c o m e p o l icy,
ra t h e r ,
i t h a s to
10
do w i t h the t e n d e n c y t h a t p e o p l e h a v e to say,
once w e have
■
11
I
12
this w a g e - p r i c e p o l i c y o r whatever- it is called,
13
r e p r e s e n t s o u r s o l u t i o n to t he p r o b l e m of* *i nf l a t i o n Sh ^And oh i sat
14.
h a v i n g t h a t s o l u t i o n at hand,
L
all k i n d s of e x t r a v a g a n t t h i n g s w i t h o u r bu d g e t ,
■
-16
fiscal p o l i c y ,
‘ 17
discipline ourselves
19
*.
w e t h e r e b y c a n go a h e a d and do
I' 15
18
that
and our mone t a r y policy.
and our
W e d o n ' t h a v e to
in t h o s e a r e a s a n y m o r e b e c a u s e w e ' v e g o t
the p r o b l e m s o l v e d b y this m e c h a n i s m o v e r h e re. .
I
t h i n k the h i s t o r y of e v e n t s shows v e r y c l e a r l y
20
that o v e r a ny p e r i o d of t i m e the f u n d a m e n t a l s m u s t b e t e n d e d
21
to in a w a y t h a t is c o n s i s t e n t w i t h y o u r b a s i c goals.
22
that w e h a v e g o t some k n o w l e d g e o u t of o u r e f f o r t s in w a g e
23
and p r i c e control,
24
k n o w l e d g e o u t of t h e m in P h a s e III,
26
w ith the k i n d of r e s u l t t h a t w e w a n t if w e ar e a b l e to p a y
a nd I t h i n k t h a t w e
I think
can c o n t i n u e t o g e t
bu t they will only deal
n 10
10
a t t e n t i o n , r e a l l y p a y a t t e n t i o n to the f u n d a m e n t a l s of m o n e t a r y
f i s c a l p o l icy.
Now,
policy,
I t h i n k o n t he s u b j e c t o f f i s c a l p o l i c y ,
I have some positive things that I wou l d
budget
l i k e t o say
and I h a v e s o m e n e g a t i v e t h i n g s t h a t I t h i n k s h o u l d b e p o i n t e d
up.
I b e l i e v e idiat w e h a v e m a d e a t r e m e n d o u s
p r o g r e s s in this area,
say,
a m o u n t of
o v e r t h e l a s t six o r e i g h t m o n t h s
particularly.
■
\
If y o u r e m e m b e r six o r e i g h t m o n t h s
ago,
was v e r y g e n e r a l t h a t t h e F e d e r a l b u d g e t w a s o u t of
and w e h a d s t u d i e s
the conviction
control,
from reputable research organizations,
studies m a d e b y w h o l l y p r o f e s s i o n a l p e o p l e w h o r e a l l y k n e w w h a t
they w e r e doing,
a n d p e o p l e of v a r y i n g p o l i t i c a l p e r s u a s i o n s
and w e a ll c a m e p r e t t y m u c h to the s a m e c o n c l u s i o n ,
b u d g e t w a s o u t of c o n t r o l an d w e r e a s s u m i n g
t h a t t he
later that there
was g o i n g to h a v e t o be a t a x i n c r e a s e .
An d I think that probably your own economists perhaps
told y o u t h e s a m e thing,
a n d it w a s
a very uncomfortable
feeling.
- T h e P r e s i d e n t d i d n ’t a c c e p t it.
de c i d e d t h a t $250 l b i l l i o n in f i s c a l
billion increase from fiscal
The President
'73 w a s e n o ugh,
*72 to f i s c a l
an $18
*73 w a s e n o u g h and
that w e s h o u l d be a b l e to live as w e m o v e i n t o f i s c a l
*74
w i t h i n the f r a m e w o r k of the r e v e n u e s o u r tax s y s t e m w o u l d
produce,
a nd t h a t w o u l d be enough.
m
Ip
/
And furthermore,
1
2
1S
to f i s c a l
11
h e t o o k t he t r o u b l e to p r o j e c t on
'75 to see t h e . i m p l i c a t i o n s
of t he t h i n g s
t h a t are
going on a nd w h e t h e r o r n o t the i m p l i e d f o r m of e x p e n d i t u r e
4
could b e c o n t a i n e d w i t h i n the r e v e n u e s
t h a t o ur s y s t e m
5
p r o d u c e s w i t h o u t a c h a n g e in t a x rate,
a nd s a t i s f i e d h i m s e l f
6
that it c o u l d b e d o n e and s a t i s f i e d h i m s e l f t h a t i t m u s t b e
7
done,
8
9
10
and w o r k e d at that.
T h i s : i s o n e of t he m o s t d r a m a t i c t u r n a r o u n d s in
t h i n k i n g a b o u t a f u n d a m e n t a l of e c o n o m i c p o l i c y t h a t w e ' v e se'en
in som e time,
bu t now-a-days people accept the fact that we
!i
11
are g o i n g to h o l d o u t l a y s in f i s c a l
12-
of the $261 m i l l i o n o r so t h a t w a s
I 13
14
' 15
s i t u a t i o n , sa nd t h a t w e should,
*73 to $250 b i l l i o n i n s t e a d
implied by a no contraint
a n d w h e n w e ^ c a n m o d e r a t e , a n d in
d i s c i p l i n e the,.outlays of the F e d e r a l b u d g e t . I t h i n k t h a t is a v e r y p o s i t i v e
'
V&ly. f 'vV
achievement.
I
1
I
It
1
16
shows w h a t a d e t e r m i n e d P r e s i d e n t can do w h e n h e
17
on s o m e t h i n g and r e a l l y g o e s i n t o it.
18
great t u r n a b o u t suc h t h a t w e
19
to i n c r e a s e t h e t a x r a t e for t he A m e r i c a n p e o p l e .
20
no n e e d to d i p in f u r t h e r i n t o the t a x p a y e r ' s p o c k e t a nd
1
21
take m o r e o u t _of it.
1
22
concentrates
1
T h e r e h a s n ' t b e e n this
1
can s ay t h a t t h e r e is no n e e d
T h e r e is
. ~----
- T o a d e g r e e I w o u l d say t h a t w e h a v e o n e m o r e b a t t l e
1
1
1
23
in t e rms of the o u t l o o k t h a t p e o p l e s e e m to h a v e , a nd I
1
24
have h e a l t h y e x p e r i e n c e f r o m t e s t i f y i n g b e f o r e a w i d e v a r i e t y
1
26
of c o m m i t t e e s of C o n g r e s s .
It s e ems
to m e t h a t I o u g h t to h a v e
1
B
mb 12
12
1
an o f f i c e o n the Hil l
I s p e n d so m u c h tim e t h e r e t e s t i f y i n g
2
in o n e w a y or another,
5
h a v e w e l c o m e d the o p p o r t u n i t y ,
4
i n t e r e s t i n g to m e to see in all thi s t e s t i m o n y t h a t v e r y
5
I d o n ' t r e a l l y r e m e m b e r any —
6
a p p r o p r i a t e n e s s of h o l d i n g t h e s e o u t l a y s u n d e r control.
7
E v e r y b o d y is on board.
8
Now,
b ut I h a v e l e a r n e d f r o m t h a t a nd I
b u t it has b e e n v e r y
p e o p l e c h a l l e n g i n g the
t h e r e is a p r o b l e m o f h o w y o u do that,
9
w h a t the r i g h t p r i o r i t i e s _ a r e , a nd so on,
10
a c c e p t a n c e of t he f a c t t h a t somehow-
11
figure o u t h o w to d i s c i p l i n e o u r s e l v e s w i t h - t h e m o s t
and
b u t in the
or a n o ther,
we must
■
12
.appropriate
R
13
^
I
14
b r oad front,
15
kind of b i t by b i t as w e go along.,. So I t h i n k t h a t w e
-16
17
; 18
19
|
totals.
'
w e d o n ' t w i n d up h a v i n g
it n i b b l e d .away f r o m us
now m u s t p ay a t t e n t i o n to all t he i n d i v i d u a l t h i n g s
that
go -on a n d k e e p r e m i n d i n g o u r s e l v e s , b o t h in the E x e c u t i v e
B r a n c h a nd the L e g i s l a t i v e B r a n c h t h a t we m u s t h a v e
m e ans of g o i n g b a c k and f o r t h b e t w e e n the i n d i v i d u a l
which always
21
w h a t 's - a n o t h e r
22
get i n t o .-
seem, small; in c o m p a r i s o n w i t h the
what
some
items
$250 billi o n ,
$100 m i l l i o n ? _ T h a t k i n d o f a t t i t u d e t h a t w e
S i n c e c o m i n g to W a s h i n g t o n ,
! 25
1 25
_■ -
I h o p e tha t h a v i n g w o n this b a t t l e on the
20
; 24
few
.3 r e a l l y means.
It m e a n s
(General laughter)
I'd say I h a v e l e a r n e d
$300 m i l l i o n .
13
13
We get very careless about this Kind of thing,
1
2
even those little sums do add up if we have enough of them.
5
That is what we have to pay attention to now.
4
maintain the integrity of these totals that people always
5.
accept as the appropriate totals.
6
_
.
So in.fact, we
:
-
But in any case I think attention is being paid to
7
fundamentals so that I believe this gives our Phase I,
8
Phase II, Phase III efforts at using income policy in a
9
creative national way a maximum chance for success.
10
Second, as.far. as fundamentals are concerned, we
11
all recognize our belief, certainly we recognize —
12
President recognized in his announcement of Phase III that
13
food prices were a critically important variable in the
14
whole process, so that, we must ..somehow bring food prices
15
under control, whereas a lot of other things -were going
~16
17
18'
■19
20
to unravel. ~
the
w
This again is just an illustration of this notion
of everything related to everything else.
This iscone .major it<
that is in everybody’s life and is understandable.
So, from the beginning we have concentrated on that .
21
subject and I believe that the Phase III program in the area
22
of food prices is a much more powerful and concerted attack on
23
the problem, than under Phase II or that we have seen in some
24
period of time.
25
The attack on the economy is not limited
by any
14
14
1
m e a n s to the m a i n t e n a n c e of m a n d a t o r y c o n t r o l s o n the f ood
2
processing and distribution industries,
5
t nat w e c a n get a l ot of m i l e a g e o u t o f w h a t w e are d o i n g .
4
We have a first-class
5
r e p r e s e n t i n g d i f f e r e n t s e g m e n t s of the i n d u s t r y
6
representing
7
a nd w e h o p e to w o r k c o o p e r a t i v e l y w i t h them.
although
I think
a d v i s o r y c o m m i t t e e f r o m the i n d u s t r y
labor and management,
and
a g r i c u l t u r e a nd so on,
There have been identified a number of potentially
8
9
very important ways
10
ind u s t r y c an be improved,
11
and t h e r e is a ■rea l ,w i l l a nd d e s i r e to w o r k at t h e s e things
12
and a c c o m p l i s h s o m e thing.
14
i m p o r t a n t -- area,
15
A nd the e f f o r t s
it c an b e ; met,
So t h a t is o n e a r e a of work.
t h a t is the w o r k o n a g r i c u l t u r a l policy.
to m e e t the p r o blem,
and t h e o n l y w a y that
is by i n c r e a s i n g t h e s u p p l y of f o o d p r o d u c t s .
As y o u know, w e h a v e e x p a n d e d a c r e a g e by a v e r y
17
18
large amount.
19
e x p a n d i n g acreage,
20
selling s t ocks now.
21
country,
22
t h e r e b y t h r o w i n g c o s t s down,
It l e a v e s us an., i m p o r t a n t *r.r dr ~I.w o u 1 d ’'say , m o r e
13
-16
in w h i c h t he p r o d u c t i v i t y of the
W e a r e s e l l i n g stocks,
k n o w i n g t h a t w e a re
an d w e w i l l h a v e a l a r g e o u t p u t .
W e are
W e are i n v i t i n g y o u to i n v e s t in y o u r
p a r t i c u l a r l y meat.
-We a re a l l o w i n g g r a z i n g on s e t - a s i d e a c r e s an d w e
23
are d o i n g a w h o l e v a r i e t y o f t h i n g s of this n a t u r e t h a t are
24
of a f u n d a m e n t a l
25
Now,
sor t a nd t h a t w i l l p ay off.
t h e r e is a c e r t a i n a m o u n t of s c e p t i c i s m t h a t
15
n
1
these fundamental
2
a re s c e p tical,
5
y o u rself,
4
say s o y b e a n s w h i c h h a v e b e e n a m a t t e r of g r e a t
5
S o m e b o d y s u g g e s t e d t h a t w e s h o u l d s e t t l e t h e l m o n e t a r y ’c r i s i s
6
w h e r e the p r i c e of a p o u n d of s o y b e a n s ’ r e a c h e s
7
of an o u n c e of g o l d .weciwould be all set; w e c o u l d go on a
8
so y b e a n standard.
9
t h ings w i l l p ay o f f an d t h o s e of y o u w h o
I i n v i t e y o u to h a v e s o m e b o d y -r g e t up for
grasp a price
f or som e p a r t i c u l a r c o m m o d i t y ,
I'd
importance.
t he p r i c e
..
B ut if y o u t a k e t h a t c o m m o d i t y ,
or y o u t a k e any
10
o t her c o m m o d i t y a n d y o u p l o t the o f f - t h e - s p o t p r i c e a nd
11
the f u t u r e p r i c e for a m o n t h l a t e r a n d a m o n t h l a t e r a nd so
12
on and y o u get d o w n t o w a r d s
13
see in m o s t of t h e s e c o m m o d i t i e s
14
In o t h e r words,
15
and o f t e n by q u i t e a lot.
16
That
the e nd of t h e year,
is a d e c l i n i n g
what you
line.
t he f u t u r e p r i c e is less t h a n the s p o t p r i c e
•-
is n o t true a c r o s s
t he board,
-
b ut
it is true,
17
fur the b u l k of f a r m p r o d u c t s ,
18
power of t h e s e r u l e s
19
I t h i n k w e h a v e p a i d a t t e n t i o n to s o m e t h i n g t h a t is
20
cr i t i c a l in m a k i n g s o m e t h i n g work.
21
Now,
and I t h i n k it r e f l e c t s the
t h a t h a v e b e e n made.
b e y o n d that,, of course,
F o r h e r e again,
we have the notion
22
of the s e l f - a d m i n i s t e r e d s y s t e m o f r e s t r a i n t .
23
one of o u r a d v i s o r s . . W e h a v e
24
and if all t h e s e d i f f e r e n t p r o g r a m s
25
around,
P e t e h as b e e n
icalled on h i m to m e e t w i t h us
I k n o w the N A M a t t i t u d e .
should be changed
Y o u ar e a fre e e n t e r p r i s e
'""A
it 2
1
organization,
2
It has b e e n a l l e g e d t h a t I i n t e n d to s h a r e t h a t view,
5
I do,
5
w a g e a nd p r i c e controls.
a l t h o u g h I a l s o t h i n k I try to l e a r n as
in W a s h i n g t o n .
and
I go a l o n g h e r e
I t h i n k t h a t y o u c a n ge t s o m e t h i n g o ut of
this w a g e a nd p r i c e bus i n e s s ,
6
1
you don't believe m
16
16
f
1
'4
1
s/
a n d w e have,
and w e will.
B u t w e are in a p r o g r a m of s e l f - a d m i n i s t r a t i o n .
7
It's s e l f - a d m i n i s t r a t i o n in th e s ame s e n s e t h a t y o u r
8
tax is a s e l f - a d m i n i s t e r i n g system.
9
are p r o b a b l y no less c o n f u s i n g t h a t t h e i n c o m e tax rules.
10
Y ou can them,
11
w o r k e d with,
in m o s t cases,
are identicial with
12
w h i c h y o u ' v e w o r k e d w i t h in P h a s e II.
‘iSolfcherO the y rare.
There are rules that
t h e y a r e r a t h e r s i m i l a r to w h a t y o u h a v e
ini fact,
I
15
1
14
rather t h a n b u r e a u c r a t i c a d m i n i s t r a t i o n ,
15
time r e s e r v e t h e r i g h t w h e r e w e b e l i e v e it is c a l l e d
-16
income
A n d w e ' r e s a y i n g let us h a v e s e l f - a d m i n r s t r a t i o n
a n d at t he same
for
by o u t - o f - l i n e b e h a v i o r or c a l l e d for in o r d e r to g i v e us
17
r e a s s u r a n c e t h a t t h e s i t u a t i o n is b e i n g w a t c h e d a n d is
18
being moderated.
19
area a nd w e w o u l d a nd w e w o u l d h a v e no h e s i t a t i o n a b o u t
20
that w h e r e w e t h i n k it is c a l l e d for and w h e r e w e t h i n k
21
that is feasible.-
22
W e c a n m o v e b a c k into t he m o n e t a r y c o n t r o l
- «
But fundamentally,
in all of this e f f o r t to h a v e
1
23
people,
1
24
basis of t he s p i r i t o f v o l u n t a r i s m in w o r k i n g o n a p r o b l e m
25
that p e o p l e see a n d s h are and a g r e e to w o r k o n t o g e ther.
to a s k p e o p l e to p r a c t i c e r e s t r a i n t ,
y o u go on the
17
t
■ amt *
1
2
T h a t w a s t h e spirit- in w h i c h P h a s e
i
5
4
and P h a s e
II and
P h a s e III is no d i f f e r e n t in t h a t respect.
- So
I w o u l d l i k e to c l o s e by s a y i n g t h a t I r e a l i z e
w h a t a p o w e r f u l o r g a n i z a t i o n the N A M is,
6
c o n s t r u c t i v e o r g a n i z a t i o n it is.
7
to see h o w t he p r o c e s s
8
d e v e l oping,
9
w e l c o m e d p a r t i c u l a r l y t he c h a n c e to g i v e this m e s s a g e and
10
giv e this a p p e a l to you,
I 12
15 .
[ 14
I realize what a
It is i n t e r e s t i n g
in w h i c h y o u r s t a t e m e n t s
are
h o w b r o a d l y r e p r e s e n t a t i v e the y are.
to get o u r s e l v e s
an a p p e a l t h a t says,
for m e
So I
we are trying
to p r o s p e r i t y w i t h r e a s o n a b l y s t a b l e prices.
W e ar e m a k i n g u s e as c r e a t i v e l y as w e c a n the
tools o± i n c o m e policy.
f u n d a mentals;
W e a r e p a y i n g a t t e n t i o n to the
w e h a v e n ' t f o r g o t t e n a b o u t s u p p l y a n d demand;
15
we h a v e n ' t f o r g o t t e n a b o u t m o n e t a r y a n d f i s c a l policy.
16
But w e a r e a l s o a s k i n g t h a t e v e r y b o d y e x e r c i s e a l i t t l e
17
bit of m o d e r a t i o n a n d e v e r y b o d y e x e r c i s e a l i t t l e r e s t r a i n t ,
18'
and if we do, w e t h i n k w e c a n g et t h e r e f r o m here.
19
T h a n k you.
20
.(General applause.)
21
(Whereupon,
22
22
wu
24
1
it work/
f o r w a r d and
5
11 '
I
that is t he s p i r i t w h i c h m a d e
I was put
25
concluded.)
at 1:50 o ' c l o c k p.m.,
the s p e e c h w a s
I
DepartmentoftheTHUSUIfY
OFFICE OF REVENUE SHARING
WASHINGTON, D.C. 2 0 2 2 0
FOR IMMEDIATE RELEASE
March 9, 1973
MEMO TO CORRESPONDENTS:
Treasury Secretary George P. Shultz has sent the
attached letter to the Members of Congress reporting
on the progress of the general revenue sharing program
since the "State and Local Fiscal Assistance Act of
1972" was signed by President Nixon in Philadelphia
on October 20, 1972c
THE SECRETARY OF THE TREASURY
WASHINGTON
2 0 2 2 0
March 1, 1973
Dear Mr. President:
The "State and Local Fiscal Assistance Act of 1972,"
which establishes the program of general revenue sharing,
requires by March 1 an annual report to the Congress on "the
operation and status of the Trust Fund during the preceding
fiscal year."
The first such report will be made on schedule
by March 1, 1974.
In consideration of the wide interest in general revenue
sharing, still a new program, I fm taking this opportunity to
report to you our progress since the Act was signed by Presi
dent Nixon on October 20, 1972, at Independence Hall in
Philadelphia.
The Office of Revenue Sharing has been created within
the Office of the Secretary.
Mr. Graham W. Watt, who has had
a distinguished career in municipal government since 1950,
was appointed Director on February 1, 1973, succeeding
Mr. Edwrard Fox w7h o , while on loan from the Federal Home Loan
Bank Board, directed our early efforts.
Staff, now numbering
36, has been assembled, and the operations are newly located
at 1900 Pennsylvania Avenue.
Working in closest cooperation with the Bureau of the
Census, more than 250,000 elements of data (population,
income, tax effort, etc.) were compiled and recorded on our
computer tapes for use in computing entitlements for 40,131
units of government qualified for general revenue sharing p a y
ments.
A complete mailing address verification and a special
census to update tax effort data were completed.
The first payments were made December 11, 1972, and a
second payment was dated January S, 1973.
Supplemental p a y
ments, including 1972 entitlements for Indian tribes and
Alaskan native villages, were made February 12, 1973.
In all,
73,481 payments have been made to date, totaling $ 5,142 ,S 4 0 ,000
Office of Revenue Sharing and other treasury Department
staff have participated in 60 meetings and workshops held all
2
around the country to familiarize local and state officials
with the details of the general revenue sharing program.
Literally thousands of mail and telephone inquiries have
been processed by the small staff, and the workload in this
area continues to be high.
Interim regulations were published and updated to cover
the 1972 entitlement payments.
Proposed final regulations,
drafted in close cooperation with the representatives of the
States, counties and cities, together with the Advisory
Commission on Intergovernmental Relations, the Office of
Management and Budget, and the General Accounting Ofrice,
were published for comment in the Federal Register on
February 22, 1973.
All jurisdictions have been individually advised of the
elements of data used by the Office of Revenue Sharing to
compute their entitlements and approximately 3,800 (less than
10 percent of the total) of the jurisdictions have requested
a review of one or more of their data elements.
This process,
which involves an extensive commitment by the Bureau of the
Census, is presently under way.
Each State and local jurisdiction has been provided a
statement of the assurances which the Act requires be made
by the Chief Executive prior to the next payment which is^
scheduled April 6.
Signed assurances are being returned in
increasing quantity at this time.
The Office of Revenue Sharing is developing the compli
ance system needed to carry out the audit and evaluation
responsibilities established by the Congress.
Complex
computer systems are being reviewed and improved and new
management information systems to produce data needed to
assess the quality of the program are being initiated.
New efforts to improve information flow to and from the
recipient governments are now in planning, and the Director
proposes soon to launch new efforts to broaden general kn o w
ledge of the general revenue sharing p r o g r a m ’s purposes and
philosophy.
.
It is now about four months since general revenue s h a r i n g
was made law.
Much has been accomplished and this a c c o m p l i s h "
ment has been characterized by its high quality and by the
3
I believe you
small size of the staff which produced it.
with
me
that
our
early
progress
presages
a good
will agree
this
most
vital
domestic
assistance
program.
future for
Sincerely yours,
George P . Shultz
The Honorable
Spiro T. Agnew
President of the Senate
Washington, D, C.
2Q51Q
DtpartmentoftheTREASURYJ|
f
iiirm
ni hj&Bffi&K&HKKH
KINGTON,
O.C. 20220
TELEPHO
NEW04 2041
FOR IMM E D I A T E RE L E A S E
T R E A S U R Y R E L E A S E S R E P O R T ON
BLOCKED CHINESE ASSETS
B l o c k e d C h i n e s e assets in the U n i t e d States w e r e v a l u e d
at $76.5 million, as of J u l y 31, 1970, a c c o r d i n g to a census
conducted by the T r e a s u r y D e p a r t m e n t ' s O f f i c e of F o r e i g n
Assets C o n t r o l w h i c h w as r e l e a s e d today.
T h e $76.5 m i l l i o n is less than the $105.4 m i l l i o n in
assets r e p o r t e d in a s i m i l a r c e nsus c o n d u c t e d in 1951.
The i n f o r m a t i o n g a t h e r e d in the e a r l i e r census w as no
longer c u r r e n t due to a n u m b e r of factors, w h i c h also c o n
tributed to the v a r i a n c e in d o l l a r amounts.
For example,
$35.5 m i l l i o n has b e e n r e l e a s e d u n d e r licen s e s i s s u e d by the
Treasury to p e r s o n s le a v i n g the P e o p l e s R e p u b l i c of C h i n a and
taking up p e r m a n e n t r e s i d e n c e in the U n i t e d S t ates or o t h e r
non-communist countries.
Also, i n c r eases and d e c r e a s e s in
the values of b l o c k e d securities, ac c r u a l s of d i v i d e n d s and
blocking of an a d d i t i o n a l $11 m i l l i o n h ave c o n t r i b u t e d to the
change.
The c u r r e n t census r e s u l t s r e v e a l that the m a j o r i t y
(90%) of the b l o c k e d asse t s ($68.7M) c o n s i s t s of b a n k d e p o s i t s
and securities.
T h e r e m a i n i n g assets c o n s i s t p r i n c i p a l l y of
debts to n a t i o n a l s of the P e o p l e s R e p u b l i c of C h i n a ($5.9M),
and p r o p e r t y such as i n s u r a n c e policies, estates, ($1.9M) etc.
Blocked assets h e l d for o f f i c i a l C h i n e s e a g e n c i e s total
$20.2 million.
Copies of the census r e p o r t are a v a i l a b l e f r o m the O f f i c e
of Foreign A s s e t s Control, T r e a s u r y Department, W a s h i ngton,
D.C. 20220, and f r o m the F o r e i g n A s s e t s C o n t r o l Division,
Federal R e s e r v e B a n k of N e w York, 33 L i b e r t y Street, N e w York>
New York 10045.
S-139
oOo
TREASURY DEPARTMENT
OFFICE OF FOREIGN ASSETS CONTROL
1970 CENSUS OF BLOCKED CHINESE ASSETS
IN THE UNITED STATES
Office of Foreign Assets Control
TREASURY DEPARTMENT
OFFICE OF FOREIGN ASSETS CONTROL
1970 CENSUS OF BLOCKED CHINESE ASSETS
IN THE UNITED STATES
I.
Background of Census
When military forces of the People*s Republic of China entered the
Korean War on December 14, 1950, President Truman declared a national
emergency. Acting under the authority of Section 5(b) of the Trading
with the Enemy Act, i/ the Secretary of the Treasury issued the Foreign
Assets Control Regulations on December 17, 1950. The Regulations
constituted a complete embargo on commercial and financial transactions
with the People's Republic of China (hereinafter referred to as China),
North Korea, and nationals thereof wherever located and in addition,
they blocked ail Chinese and North Korean property in the United States.
2/ Simultaneously, the Department of Commerce embargoed all exports from
the United States to China under the authority of the Export Control Act
of 19^9.
Immediately following the issuance of the blocking regulations, a
census of Chinese and North Korean blocked property was undertaken in
early 1951 by the Treasury. 3/ its purpose was to provide information
with respect to blocked Chinese assets to assist in the formulation of
licensing and other policies relating to these assets. zJ
The freeze on transactions with China and its nationals continued
substantially unchanged until the spring of 1971 when, pursuant to
President Nixon's April 14, 1971 announcement of an impending relax
ation of United States controls on trade with the People's Republic of
China, Treasury and Commerce removed most restrictions on current nonstrategic transactions with China. The Treasury blocking restrictions
continue to apply, however, to all Chinese property blocked prior to
May 7 , 1971.
In the interim, a second census of Chinese assets was undertaken in
June, 1970, seeking current information with respect to the status of
the blocked assets. In the nineteen years since the 1951 census, many
changes in the blocked assets had occurred due to appreciations and
depreciations in property values, and also to authorized changes
1/
2/
50 U.S.C. App. 5(b)
31 CFR Part 500» The Regulations were extended to North Viet-Nam
on May 5 , 1964.
2/ The census also included assets of Taiwan and South Korea although
those assets were not blocked.
4/ As a practical matter, there were no North Korean assets in the
United States which could be blocked. The Regulations effectively
preclude trade with North Korea.
»2<
in the forms of property* Decreases had also resulted from the
unblocking of assets under licensing policies which permit the
release of blocked property in situations which are not considered
harmful to American interests* On the other hand, increases had
occurred as the result of new blockings instituted on an ad-hoc basis,
pursuant to Foreign Assets Control enforcement actions. Changes in
the physical location of property had also occurred, e*g*, accounts
had been transferred to holders other than the original reporters.
New interests in blocked property had arisen by reason of the deaths
of nationals whose property had been reported. Many reporters had
changed their addresses, merged, liquidated, or simply disappeared.
In view of these numerous changes, and in anticipation of some form
of relationship with the People*s Republic of China, it appeared
desirable at that time (mid-1970) to bring the 1951 report up to date.
Among other considerations, it was believed that current information
would be helpful in connection with any future consideration of a
settlement of American property claims against the People’s Republic of
China.
II.
Results of Census
A.
Total Blocked Assets
The total of all, blocked property valued as of July 1, 19T0,
for which reports had been received by July 31* 1972, is $76.5
million. At the outset, it should be noted that the census is
not complete, and the final figures will show some changes. These
will, however, be relatively minor and will not significantly
affect the results *2J
70$ of the assets, valued at $53*2 million, consists of
deposits held by banks in the United States. $23*6 million of these
deposits is held by American banks for foreign banks who in turn
hold corresponding dollar accounts for persons in China. $18*3
million is held by American banks directly for China.
5/
86$ of the assets reported in 1951 have been accounted for.
Work is continuing to secure reports from persons who failed
to file when required, and to obtain corrections of erroneous
reports. It is anticipated that the unfiled reports will
consist mostly of accounts which were released to the owners
by the custodians either with proper Foreign Assets Control
authority, or which would have been authorized to be released
if a license had been applied for. Accordingly, the final
figures will probably not differ substantially from those in
this report.
-3-
The second largest category of assets, $1 5 * 6 million or
20$ consists of securities held by banks and brokerage firms •
$10,6 million of this total is held for individuals in China.
B.
Assets Classification
1*
Classification of Assets by Type of Assets,§J
Amounts Cdollars )
Percent of
Total
Bank Deposits
$53.2 million
7of,
U.S. $ Securities
$1 5 . 5 million
20$
Notes, Drafts, Debts
$ 5*9 million
i#
All Other Types
$ 1.9 million
2$
2.
Classification of Assets by Type of Ownerl/
Amounts (dollars)
Percent of
Total
People’s Republic of
China
$20.2 million
26$
Assets Held through
Third Country Banks
$23.6 million
31*
Individuals
$1 5 . 2 million
2056
Corporations, Partner
ships, Unincorporated
Associations
$1^.6 million
Others
$ 2*9 million
a.
U$
People’s Republic of China, Agents and Instrumentalities
thereof
Reports totaling $20.2 million were submitted represent
ing funds belonging to the People*s Republic of China, its
agents or instrumentalities.
6/
jJ
See Appendix I
See Appendix I
-4-
This figure includes those persons and firms located in
non-Comraunist countries who are "Designated Nationals" because
they are agencies of the Chinese Government. It also includes
firms located in China which are obviously under Government
control, e.g., banks and state trading firms
Of the $20.2 million classified above as PRC-owned, $18*3
million is in the form of bank deposits. Most of the remaining
$1.9 million is divided between "notes, drafts, and debts" and
"dollar securities." Of the seventy-two state-owned firms whose
property is reported under this category, thirty-five have
accounts valued at over $100,000, totaling $ 1 8 million of the
$20.2 million in this category.
b.
Third Country Banks
The census reports show $23.6 million under the heading of
"third country banks." This represents U.S. dollar accounts
held by banks in the United States for foreign banks, in which
accounts China, or a national of a third country who is an agent
for China, has an interest. Nearly all of this property is held
in the form of bank deposits. Fourteen of the accounts^/ were
valued at over $100,000, for a total of $23 million. This category
Is separately reported because these assets consist of property in
which not only China, but also a bank in a non-Communist country,
have an interest. In most cases, the banks are obligated to pay
the assets to the People's Republic of China or its agencies, if
unblocked.
8/
2/
Since most of the private property and external assets of
persons and firms in China have been nationalized, it is
possible that all property of persons and firms in the
People's Republic of China could properly be classified an
government-owned. For census purposes, however, the
classification assigned by the American holder of the
assets was followed, except where the reporter had obviously
placed the Chinese national in the wrong category
Branches of foreign banks were reported separately.
-5-
c.
Individual Accounts
The assets in the United States of individuals in
China total $15*2 million. The majority of these accounts
fall within the $1,000 - $10,000 range. Thirteen accounts
were valued at over $100,000 for a total of $5*^ million.
$10.5 million of the $1 5 * 2 million in this category is
held in the form of U,S. dollar securities. Most of the
■balance is held in the form of bank deposits.
Of the total of $15.2 million in individually-owned
property, $6 million was reported as owned by persons who
are residents of a country other than China. Most of
these persons are residents in Hong Kong. It is the policy
of the Control to unblock the assets of Chinese nationals
who have left China and taken up permanent residence in a
non-Communist country. A substantial amount of this
$6 million may belong to persons who are eligible for un
blocking under this policy.
d.
Corporations, Partnerships, Unincorporated Associations
The census total includes $1^.6 million reported for
this category. Of this amount, $13*3 million is held for
corporations. These accounts are evenly divided between
accounts under $10,000 and those over $10,000. Twenty-four
of the latter are valued at over $100,000, for a total of
$12 million out of the $1^.6 million reported in this
category. The $lk.6 million total includes bank deposits
valued at $6.7 million, "notes, drafts and debts" valued at
$4.5 million and U.S. dollar securities valued at $3*3 million.
$6 million is held for corporations which are not located
in China. Of this, $2 million is held in the name of firms
whose head office is in China or whose controlling stock
holders are residents of China. The other $k million is
held in the name of a single corporation in China which is
99$-owned by Americans. The firm is blocked because its
principal place of business is in China. No Chinese nationals
own stock in the parent corporation, and under present policies
the assets are eligible for unblocking,
3*
Description of Reporters
3,292 reports were filed by 179 reporters. One-third
of these reporters are domestic banks and the remaining
two-thirds are composed of other business, law firms,
-
6-
insurance companies, etc. About one-half of the reporters
are in New York City. It is interesting to note that 91#
of all assets reported, (or $6 9 *5 million) is held by
nineteen reporters, principally banks.
if.
Claims Against Blocked Assets
The total of all reported claims against blocked assets
is $12 million. These claims include offsets against losses
on cargo; bank and other liens; creditors* claims for services
rendered; etc., as well as claims by heirs and other bene
ficiaries of blocked decedents' estates.
The breakdown of claims by country of residence of
claimant and type of claim is:
Country
USA & NonCommunist Countries
Taiwan
PRC
Adverse Claim
1.9 million
9.6 million
•1 million
Other Claim
•2 million
•2 million
Of the $2 million in claims asserted by residents of the
United States and other non-Communist countries (except Taiwan);
$200,000 is a lien asserted by a third country bank against
blocked accounts held by it for Chinese firms in Hong Kong.
The claims asserted by the Government of the Republic of
China (Taiwan) are against funds held primarily in the name
of a bank in New York for its branches under People's Republic
of China control. The claims asserted by the People's Republic
of China are against funds held primarily in the names of third
country banks and in the names of Government of the Republic of
China (Taiwan) agencies.
No attempt has been made to verify the validity of any of
these claims.
III. Problems Affecting Validity of Results
Various problems were encountered in taking this census which
have a direct effect upon the completeness and accuracy of the results.
The initial, difficulty was to locate all the reporters who had
reported assets in 1951* During the twenty years since the 1951 census
was taken, many firms had merged with other firms, dissolved,- gone
bankrupt, or simply disappeared. To date, 86# of the property reported
in 1951 has been accounted for. Efforts are continuing to secure
-7-
current information with respect to $14*7 .million for which 1970
census reports have not been received. i2/
The second problem encountered was the difficulty reporters had
in retrieving records, and the loss or destruction of their records
regarding the disposition of blocked funds. As explained in Section
V(C) (9) particular attention has been given to reconciling any
discrepancy between the amount of funds reported in 1 9 5 1 and the
amount currently held by reporters. In many instances, reporters no
longer hold blocked accounts and no longer have records regarding
the disposition of these blocked accounts. Accounts which have been
improperly released by the reporters (i.e., released without a
Foreign Assets Control license), are required to be reinstated.
However, where a reporters' records were missing, the Control has
searched its files and has been able to resolve a substantial number
of these cases. In most instances the funds had been released with
out the requisite license. However, many of these cases involved
accounts of persons who had left China and taken up residence in a
non-Communist country. It is the policy of the Control to license
as unblocked the accounts of persons who have left China to take up
permanent residence in a non-Communist country provided they did not
leave close relatives in China. Accordingly, reinstatement is not
requested in cases where it is evident a license would have been
issued if applied for. In other cases, funds had been transferred
from one person to another and the new holder had not reported the
property in the census.
As of July 31, 1972, the Control still had 270 cases of incomplete
reports involving
million of blocked funds which were reported as
unblocked, without any authority for the unblocking being specified by
the reporter in the census report.
10/
Cf. footnote 5
-
IV.
8
-
Comparison with the 1951 Census
The total value of all assets reported in 1951,^as $192.1 million,
(letters of credit were not included in this totalii/). $7 1 . 1 million
was owned by persons in Taiwan and $15.6 million by South Korean
nationals. No reports regarding property of nationals of Taiwan or
South Korea were required under the 1970 census.
Of the remaining original $105*4 million, $90.8 million has been
accounted for and $6 0 .8 million of this remains blocked. $3 5 * 5 million
of the $90.8 million was released under licenses issued by the Treasury
leaving a balance of $55*3 million in 1951 values. However, the current
value of these assets is $60.8 million rather than $55• 3 million. The
difference is accounted for by both appreciations and depreciations in
the value of blocked accounts with a net appreciation of $5 . 5 million
or 9$. An additional $10.8 million was blocked subsequent to 1951
through various Foreign Assets Control enforcement actions and is
included in the 1970 census. Its value as of the 1970 census was $15.7
million. Adding this amount to the remaining $60.8 million of the
original total gives the current total of $7 6 .5 million.
One noticeable difference between the 1951 and 1970 censuses is in
the category of property classified as belonging to the People’s Republic
of China. This figure was $6 .5 million in 1951 > it is $20.2 million in
the 1970 census. The difference is accounted for by the Control’s
decision in processing the 1970 reports to classify accounts of Chinese
banks as owned by the People’s Republic of China, rather than as
privately-owned.
ll/
Letters of credit, valued at $25*9 million, opened by an American
importer in favor of a Chinese exporter were not included in this
1951 total because they were in effect only temporary Chinese assets
which would become valueless within a short period of time if they
were not used. The 1970 census results confirm that most of these
letters of credit expired unused. In those cases where goods were
on the high seas on December 17, 1950, and drafts were presented
for payment to a mainland Chinese bank, the Control licensed payment
into a blocked account in a domestic bank in the name of the Chinese
bank. These funds are included in the 1970 census under the appro
priate property type. In those instances where goods were on the
high seas on December 17# 1950, and a foreign bank which had already
negotiated drafts under the American bank’s letter of credit forwarded
such drafts to the American banks for payment, the control licensed
the payment to the foreign bank in unblocked funds.
- 9 -
V.
Census Procedures
A,
Authority for the Second Census
The reporting requirements were issued as Section 500*610
of the Foreign Assets Control Regulations (31 CFR 500,510)
under the authority of Section 5 of the Trading with the
Enemy Act (50 U,S,C, App, 5(b)) and were published in the
Federal Register on August 18, 1970> (31 F,R, 1312^-) •
B,
Publication and Distribution of Reporting Requirements
Public announcement of the census was made on August 17,
1970, The reporting requirements were publicized through
the Federal Reserve Bank, and through banks and other finan
cial institutions. Copies of the census report form (Form
TFR-610) and copies of a pamphlet containing the reporting
requirements and instructions were sent by the Treasury
Department to all persons who reported on the 1951 census;
to all persons on the Control's mailing list of the persons
known to be interested in the blocking regulations; and, to
others whom there was reason to believe might be holding
blocked Chinese assets. The forms and instructions were sent to
approximately 2,000 individuals, corporations, banks, and other
organizations throughout the United States, Additional forms
with accompanying instructions were distributed by the Federal
Reserve Bank of New York to financial institutions in its
district,
C,
Scope and Forms of the Census
1,
Property required to be reported
Reports on- Form TFR-610 were required to be filed with
respect to (l) all property subject to the Jurisdiction of
the United States on December 18, 1950 in which on that
date China or a Chinese national had any interest and which
had been reported on the 1 9 5 1 census; and (2 ) all property
subject to the Jurisdiction of the United States on July 1, 1970
in which on that date China or a Chinese national had any direct
-
10-
or indirect interest, except an unblocked national. The
filing date for reports was October 1, 1970. This date
was subsequently extended in numerous instances where
difficulties in meeting the deadline were reported.
2.
Persons required to report
Reports were required to be filed by the following persons,
or their successors:
a. A person who filed a report pursuant to the 1951
census report requirements.
b. A person who held, or had in his custody, control
or possession, directly or indirectly, in trust or otherwise,
any property on July 1, 1970 in which there was as of that
date, any interest of the People*s Republic of China or a
national thereof.
c. A business or non-business entity in the United States
with respect to any financial interest (stocks, bonds, etc.)
in such entity of China or a Chinese national which was
reported in the 1 9 5 1 census or which interest existed on
July 1, 1970.
d. An agent or representative in the United States of
China or a Chinese national who reported his principal’s
property on a 1 9 5 1 census report or who had any information
with respect to property subject to the jurisdiction of
the United States on July 1, 1970 in which his Chinese
principal had any interest.
3*
Exemptions from reporting requirements
The reporting requirements did not apply to the Republic of
China (Taiwan) or its nationals or to "unblocked Chinese
nationals." The term "China" was defined for purposes of report
ing as the mainland of China, specifically excluding the Republic
of China. The term "unblocked Chinese national" was defined as
(i) any individual in the United States or any non-Comraunist
country, except an individual who on or since December 18, 1950
has been in or has acted for or on behalf of the People’s Republic
of China; (ii) any other person who has been generally or
specifically licensed by the Treasury as an unblocked national;
(iii) any partnership, association, corporation, or other organi
zation which is a Chinese national solely by reason of the interest
of the person lifted in (i) and (ii) above.
-
11
Property classes
All types of property vere reportable, including both
tangible and intangible property with the exception of
patents, trademarks, copyrights and inventions* Reportable property was classified on the report form under the
following categories: (l) bullion, currency and coin;
(2) deposits; (3 ) notes, drafts and debts to nationals;
(4-) financial securities payable in dollars; (5) financial
securities not payable in dollars; (6) miscellaneous
personal property and personal property liens; (7) real
property, mortgage^ and other rights to real property;
(8) interests in estates and trusts; (9 ) insurance policies
and annuities; and (10) all other property.
5. Valuation of property reported
In general, the value required for each property type
was the fair market price of the property as of the close
of business on July 1, 1970, or, if such price was not
available, the estimated value of certain property. In
some cases, property values were indeterminable, and in
such cases, no value was required to be stated but the
facts with respect to ownership and description of the
property were nevertheless required.
6.
Classes of reporters and property owners
Information as to whether the national whose property
was being reported was an individual, corporation, partner
ship, unincorporated associations, Chinese government
organization or other entity, wan required, as well as
similar information about the reporter, e.g •> principal,
agent, trustee, banker, insurance company, or other.
7.
Adverse claims
Reporters were required to describe any adverse claim
against blocked property. An adverse claim was defined
as any claim asserted or existing against or with respect
to, any item of property being reported which was adverse
to the interests of the national whose property was being
reported. The term includes offsets, liens, and any legal
-
12
action or proceedings with respect to any items of
property reported# For example, substantial amounts
of blocked assets are held in bank accounts in the
names of banks in the People's Republic of China#
Their former officers and owners who escaped to Taiwan
have made claims for the deposits# These claims were
required to be described# Other examples of such adverse
claims are counterclaims, liens, and offsets asserted
by United States banks and other United States nationals
holding blocked assets for Chinese nationals#
Reporters were also required to describe "other
interests" in the property# "Other interests" was
defined to include interests in the property items
being reported that were not adverse to the interest
of the nationals whose property was being reported, such
as beneficiaries of insurance policies, heirs of estates
and trusts, etc#
8#
Successors in Interest
The reporting requirements apply to specific catego
ries of persons, or to the successor of any such person#
The purpose of this provision was to require that a report
would be filed despite the death, for example, of the
person who had reported in 1 9 5 1 or the dissolution or
merger of a firm which had so reported#
9*
Discrepancies between amounts reported on the 1951
census and reports on Form TFR-610
Reporters were required to state whether the property
being reported had been reported on the 1951 census and
if a different total had been reported, to explain the
difference# A careful check of the reasons for differences
in these amounts was made for any discrepancy over $2,000.
Discrepancies of $2,000 or less were disregarded for census
purposes# If the reporter could not provide a satisfactory
explanation for the release of funds, and our own files did
not disclose that a Treasury license had been issued author
izing the release of funds, the reporter was required to
reinstate the blocked account•
APPENDIX I
VALUE OP UNITED STATES ASSETS OWNED BY NATIONALS OF
THE PEOPLE’S REPUBLIC OF CHINA BY TYPE OF ASSETS AND TYPE OF OWNER
(Thousands of dollars)
Type of Owner
Type of Assets
Bullion, currency and coin
Deposits
Notes, drafts and debts
Dollar securities
Indi
vidual
—
Miscellaneous Personal Property
Partner
ship
—
2,9k0
526
10,561
736
Non-dollar securities
Corpo
ration
—
Unincorpo
rated
Associa
tion
—
5,939
k,k92
2,815
k
kk
PRC
Agent or
Instru
mentality
—
Third
Country
Bank
—
k29
77
—
703
263
211
19
—
669
3k8
—
—
—
—
—
—
18,335
23,591
—
2k
—
200
—
—
—
—
—
Insurance Annuities
209
—
—
—
—
—
Total
Note:
The figures are rounded,
52
30
15,22k
13 ,32k
—
31k
Estates and Trusts
Other Property
Other
1
67k
—
6ko
120
20, 17k
—
23,61k
1,615
no
1,038
87
2
60
2,9n
Total
—
53,162
5,908
15,580
1,193
kk
200
2n
263
76,563
DepartmentoftheJlf[/l$llIfY
USHINGTON, DC. 20220
TELEPHONE W04*2041
FOR IMM E D I A T E R E L E A S E
M a r c h 9,
1973
M E M O R A N D U M F O R THE PRESS
A t t a c h e d is a T r e a s u r y D e c i s i o n a p p r o v e d b y P r e s i d e n t
Nixon a m e n d i n g the r e g u l a t i o n s g o v e r n i n g the i n s p e c t i o n of
tax returns by U.S. a t t o r n e y s and a t t o r n e y s of the D e p a r t m e n t
of Justice and the use of tax r e t u r n s in grand j u r y p r o c e e d i n g s
and in litigation.
The a m e n d m e n t c h anges the r e g u l a t i o n s to r e q uire that
all a p p l i c a t i o n s for the i n s p e c t i o n of r e t u r n s b y U.S. a t t o r n e y s
and J u s tice D e p a r t m e n t a t t o r n e y s and for the use of returns
in grand jur y p r o c e e d i n g s m u s t n o w be m a d e to the C o m m i s s i o n e r
of Internal R e v enue.
Prev i o u s l y , a p p l i c a t i o n s could be filed
either w i t h the C o m m i s s i o n e r or the D i s t r i c t D i r e c t o r of I R S #
The a m e n d m e n t thus c e n t r a l i z e s the c l e a r a n c e p rocedure.
The a m e n d m e n t also p r o h i b i t s r e t u r n s b e i n g fur n i s h e d to
the Justice D e p a r t m e n t for p u r p o s e s o f e x a m i n i n g p r o s p e c t i v e
jurors except that the IRS m a y a n s w e r a J u s t i c e D e p a r t m e n t
inquiry as to w h e t h e r a p r o s p e c t i v e j u ror has or has not
been i n v e s t i g a t e d b y the IRS.
o 0 o
(T. D.
)
TITLE 26--INTERNAL REVENUE
C H A P T E R I - - I N T E R N A L R E V E N U E SERVICE,
D E P A R T M E N T OF TH E T R E A S U R Y
SUBCHAPTER F--PROCEDURE AND ADMINISTRATION
[REGULATIONS ON PROCEDURE AND ADMINISTRATION]
PART 301--PROCEDURE AND ADMINISTRATION
Inspection of returns by
U. S. attorneys and attorneys
of Department of Justice and
use of returns in grand /jury
proceedings and in litigation
D E P A R T M E N T OF T H E TREASURY,
W a s h i n g t o n , D. C.
20224
T O O F F I C E R S A N D E M P L O Y E E S OF
THE T R E A S U R Y D E P A R T M E N T
A N D OTHE R S CONCERNED:
In o r d e r to r e vise a n d s t r e n g t h e n the p r o c e d u r e s
g o v e r n i n g the i n s p e c t i o n of returns b y U.
S. a t t o r n e y s
and a t t o r n e y s of the D e p a r t m e n t of J u s t i c e a n d the u s e
of returns
in g r a n d jury p r o c e e d i n g s a n d in l i t i g a t i o n
u n d e r s e c t i o n 6103 of the Inter n a l R e v e n u e Code of 1954,
the R e g u l a t i o n s
on P r o c e d u r e a n d A d m i n i s t r a t i o n
(26 C F R P a r t 301) u n d e r suc h s e c t i o n a r e a m e n d e d as
follows:
2
Section 301.6103 (a)-l is amended by revising para
graphs (g) and (h).
The amended provisions read as
follows:
§ 301.6103 (a)-l
Inspection of returns by certain
classes of persons and State and Federal
Government establishments pursuant to
Executive order.
M
(g)
Jsi
§1
**
j#
**
Inspection of returns by U. S. attorneys
and attorneys of Department of Justice.
A return
in respect of any tax described in paragraph (a) (2)
of this section shall be open to inspection by a
U. S. attorney or by an attorney of the Department
of Justice where necessary in the performance of
his official duties.
The application for inspection
shall be in writing and shall show (1) the name and
address of the person for whom the return was made,
(2) the kind of tax reported on the return,
(3) the
taxable period covered by the return, and (4) the
reason why inspection is desired.
The application
shall, where the inspection is to be made by a
U. S. attorney, be signed by such attorney, and,
where the inspection is to be made by an attorney
of the Department of Justice, be signed by the
Attorney General, Deputy Attorney General, or an
Assistant Attorney General.
The application shall
be addressed to the Commissioner of Internal Revenue,
Washington, D. C.
20224, with a copy addressed to
the internal revenue officer (the district director
or the director of the service center) with whom
the return was filed.
(h)
Use of returns in grand jury proceedings
and in litigation.
Returns made in respect of any
tax described in paragraph (a) (2) of this section,
or copies thereof, may be furnished by the Secretary
or the Commissioner or the delegate of either to a
U. S. attorney or an attorney of the Department of
Justice for official use in proceedings before a
U. S. grand jury, or in litigation in any court,
if the United States is interested in the result,
or for use in preparation for such proceedings or
litigation.
The original return will be furnished
only in exceptional cases, and then only if it is
made to appear that the ends of justice may other
wise be defeated.
Returns or copies thereof will
be furnished without written application therefor
to U. S. attorneys and attorneys of the Department
of Justice for official use in the prosecution of
claims and demands by, and offenses against,
the
United States, or the defense of claims and demands
against the United States or officers or employees
thereof, in cases arising under the internal revenue
laws or related statutes which were referred by the
Department of the Treasury to the Department of
4
other cases, written application for a return or
copies thereof shall be made to the Commissioner
of Internal Revenue, Washington, D. C»
20224,
with a copy addressed to the internal revenue
officer (the district director or the director
of the service center) with whom the return was
filed.
The application shall be in writing and
shall show (1) the name and address of the person
for whom the return was made,
reported on the return,
(2) the kind of tax
(3) the taxable period
covered by the return, and (4) the reason why the
return or a copy thereof is desired.
Such applica
tion shall be signed by the U. S. attorney if the
return or copy is for his use, or by the Attorney
General,
the Deputy Attorney General, or an
Assistant Attorney General if the return or copy
is for the use of an attorney of the Department
of Justice.
For provisions relating to the
certification of copies of returns,
§ 301.6103 (a)-2.
see
If a return, or copy thereof,
is furnished pursuant to this paragraph, it shall
be limited in use to the purpose for which it is
furnished and is under no condition to be made
public except to the extent that publicity
necessarily results from such use.
Neither the
original nor a copy of a return desired for use
in litigation in court will be furnished if the
United States is not interested in the result, but
this provision is not a limitation on the use of
copies of returns by the persons entitled thereto.
See paragraphs (e) and (f) of this section for use,
in proceedings to which the United States is a
party, of information obtained by executive depart
ments and other Federal Government establishments
from inspection of returns.
If a U. S. attorney
or an attorney of the Department of Justice has
obtained a copy of a return under paragraph (g) of
this section, an application for the use of such
return in a situation specified in this paragraph
shall not be necessary.
Returns shall not be made
available to the Department of Justice for purposes
of examining prospective jurors except that this
shall not prohibit the answering of an inquiry,
from the Department of Justice, as to whether a
prospective juror has, or has not, been investigated
by the Internal Revenue Service.
Because this Treasury decision constitutes a
general statement of policy and establishes rules
of Departmental practice and procedure,
it is found
that it is unnecessary to issue this Treasury decision
6
with notice and public procedure thereon under
subsection (b) of section 553 of title 5 of the
United States Code or subject to the effective
date limitation of subsection (d) of that section.
The White House
March 8, 1973
/
FOR IMMEDIATE RELEASE
M arch 8, 1973
Office of the White House Press Secretary
THE WHITE HOUSE
EXECUTIVE ORDER
INSPECTION OP RETURNS BY U.S. ATTORNEYS
AND ATTORNEYS OP DEPARTMENT OP JUSTICE AND
USE OP RETURNS IN GRAND JURY
PROCEEDINGS AND IN LITIGATION
By virtue of the authority vested in me by section
6103 (a) of the Internal Revenue Code of 195^, as amended
(26 U.S.C. 6103 (a)), it is hereby ordered that returns
made in respect of the taxes imposed by chapters 1, 2, 3,
5, 6, 11, 12. and 32, subchapters B and C of chapter 33,
and chapter 4.1 of such Code shall be open to inspection by
U.S. attorneys and attorneys of the Department of Justice and
for use in grand jury proceedings and in litigation in accord
ance and upon compliance with the rules and regulations pre
scribed by the Secretary of the Treasury in Treasury Decision
65^3, relating to inspection and use of returns by certain
classes of persons and State and Federal Government establish
ments, approved by the President on January 17, 1961, the
amendments thereto approved by the President on April 4, 1963,
March 18, 1 9 6 5 , and February 16, 1972, and the amendment thereto
approved by me this date.
RICHARD NIXON
WHITE HOUSE,
March 8, 1973
the
§
§ 0 §
PRESS CO N FEREN CE
by
GEORGE SH ULTZ, SECRETARY OF THE TREASURY
A m e ric a n E m b a ss y , P a r i s ,
M a rch 9, 1973
Shultz: I think you have co p ies of the com m unique, so I w o n 't
dw ell on it, .1 would point out th at we have com e to th is m ee tin g
C h a irm a n B u rn s of the F e d e ra l R e se rv e B o a rd , G o v ern o r D aane
and P a u l V o lc k er, U n d e rs e c re ta ry of the T r e a s u r y - - we cam e in the
s p ir it of c o o p e ra tio n to w o rk w ith
p ro b le m s.
our frie n d s in solving com m on
We have had a m ee tin g th a t p ro c e e d e d in th a t m a n n e r,
and I think th at w hat h as re s u lte d fro m it b a s ic a lly is e s s e n tia lly an
a g re e m e n t, a n a ly tic a lly , on w hat the situ a tio n i s .
T hat i s , we
b ro ad ly b e liev e th a t the exchange r a te s th a t have been e s ta b lis h e d
a re re a s o n a b le , a s the com m unique sa y s, and th a t e s s e n tia lly th e
p ro b lem is one of sp e cu la tio n ; th a t we valu e o rd e rly exchange m a rk e ts
and w ant to e n s u re th e ir continuance; and p ro c e d u ra lly , we have
e sta b lish e d an a rra n g e m e n t fo r the next w eek to w o rk , on the one
hand, a t th e deputy le v e l, and th en fin ally to m e e t at the le v e l of
m in is te r s to see w hat f u r th e r ste p s m ig h t be tak e n .
So, I th in k th a t
th e re is a p ro c e d u ra l co n clu sio n , although th e r e is no su b sta n tiv e *
co n clu sio n fro m th e m ee tin g about any p a rtic u la r ste p .
So I b e lie v e
th is h as b een q u ite w orthw hile to e s ta b lis h th is p a tte rn of c o o p e ra tio n
-
?
w ith our frie n d s h e re and in Japan, and we look fo rw a rd to continuing
w o rk in th a t s p irit.
I'd be glad to resp o n d to your q u e stio n s or p a ss
th em along to any of the people who a re standing h e re .
Q. : You started, off by saying th a t we b ro a d ly b eliev e th a t the
exchange r a te s w hich have been e sta b lis h e d a r e r e a lis tic .
Does th a t
m ean th a t you - - th is w ord "b ro ad ly - - does th a t m ean th a t you p o ssib ly
fa v o r c e rta in changes o r c e rta in a lte ra tio n s in the sy ste m ?
Shultz: No, I would have don e b e tte r , I th in k ,ju st to re a d the
se n ten ce and stand on the se n te n c e . 'T h ey a lso a g re e d th at the ex istin g
relationships betw een p a ritie s and c e n tra l r a te s follow ing the re c e n t
re a lig n m e n t c o rre sp o n d in th e ir view to th e econom ic re q u ire m e n ts ,
and th a t th e s e re la tio n s h ip s w ill m ake an effectiv e m o n e ta ry contribu tio n
to a b e tte r b a la n ce of in te rn a tio n a l p ay m en ts ".
So I 'l l ju s t stand on
th a t.
Q. : M r. S e c re ta ry , have the E u ro p ea n s been able to convince
you th a t they would w ork to w a rd s an e q u ilib ria te d , balan ced exchange
s y s te m in th is p a rt of a re fo rm of the m o n e ta ry sy ste m ?
ab le to convince you of th is a t to d a y 's m eetin g ?
W ere they
Did you a sk fo r any
kind of notice of th is ?
Shultz: We d is c u s s e d - - and I think a lm o st ev ery o n e who spoke
in th e opening round of the d isc u s s io n , and th en you see i t in the
»
co m m unique, and th en it cam e up a s we w ent along, - - th e im p o rta n c e
of lo n g -te rm m o n e ta ry re fo rm , and I think th a t the sta te m e n t in the
co m m unique on th a t does e x p re s s the v e ry stro n g ly held and g e n e ra l
- 3 -
se n tim e n tth a t we need to m ove o nto th is ta s k .
tr y to d is c u s s the su b sta n c e of th a t su b je ct.
We did not, how ever,
As you know, th e re is
scheduled in W ashington fo r the end of th is m onth a m ee tin g of the
m in is te r s on the su b ject of lo n g -te rm m o n e ta ry re fo rm and undoubtedly
we w ill get into th e s e m a tte r s th en .
But I think th a t the need, the
u rg e n t need, to w o rk ohthis and w ork on it h a rd and find w ay s, fo rm a l
i
and in fo rm a l, to c o lle c t our thoughts and exchange id e a s is v e ry m uch
on e v e ry b o d y 's m ind.
C e rta in ly , it is on the m ind of us in the United
S ta te s, and a s you know, we have put fo rw a rd p ro p o s a ls , we have
tr ie d to b ack th o se p ro p o sa ls up w ith a d d itio n al staff w o rk , and in
g e n e ra l have pushed h a rd on th is .
Q .: May I a s k a q u e stio n of C h a irm an B u rn s?
The q u estio n I
have is : You re c e iv e d ex te n siv e play in th e H erald T ribune h e re in
P a r is co n cern in g your te stim o n y b e fo re th e House of R e p re se n ta tiv e is
c o m m ittee in su p p o rt of ra p id a c tio n to w a rd m o n e ta ry re fo rm , and X
w onder w h eth er y o u 're
sa tis fie d w ith th e p r o g r e s s th a t is being m ade
in th is d ire c tio n ?
C h a irm an B u rn s: W ell, I a m a h a rd m an to p le a s e ,
b een .
I'v e alw ays
But I fe lt a se n se of u rg en c y today th a t I have not se en b e fo re ,
and th e re fo re I'm in clin ed to thin k now th at we w ill stop d illy -d a lly in g
and r e a lly get on to th is job and t r y to a c c o m p lish it in m onths in ste a d
of taking y e a r s .
Q. : Did you a sk fo r tr a d e c o n c e ssio n s?
Shultz: No, we did not.
My p re s e n c e h e re , in e ffe ct, is p a rt of
14-
th e t r ip the o rig in a l d esig n of w hich w as in p a r t to d is c u s s the id e a s
on a tr a d e b ill th a t we a r e talk in g about in the a d m in is tra tio n and w ith
m e m b e rs of C o n g re ss, and to te ll our frie n d s about th o se id e a s , and
to h e a r th e ir v iew s, and I ex p ect to do th a t; but th e d is c u s s io n today
c o n c e n tra te d on the su b je ct of m o n e ta ry re f o r m in th e se n se of th is
im m e d ia te p ro b le m .
Q. : M r. S e c re ta ry , given th e la c k of su b sta n tiv e p r o g r e s s a t
today*s m e e tin g , w hat grounds do you have fo r expecting su b sta n tiv e
p r o g r e s s du rin g the c o u rs e of th e w eek so th a t th e m a r k e ts can
re o p e n , p e rh a p s u n d e r a new re g im e of som e s o r t, a w eek fro m
M onday?
Shultz: W ell, I thin k th a t su b sta n tiv e p r o g r e s s is a q u e stio n
of d is c u s s io n b a ck and fo rth , of ex p lo rin g view s and p o s s ib ilitie s ,
and of seeing w h e th er o r not on the b a s is of th a t kind of d is c u s s io n
i t se e m s w orthw hile to c o n s tru c t a p ro c e s s th a t we wall hope w ill
le a d to a c o n s tru c tiv e r e s u lt.
T hat c e rta in ly is e v e ry o n e ’s in te n t,
and th e fa c t th a t the p ro c e s s is e s ta b lis h e d su g g e sts th a t we th in k
th e r e a r e p o te n tia l p a tte rn s of c o o p e ra tio n h e re
th a t w ill be b ro a d ly
h elp fu l.
Q. : M r. S e c re ta ry , does th e s p ir it of c o o p e ra tio n m en tio n ed
in h e re in clu d e th e su g g estio n fo r A m e ric a n in te rv e n tio n , ahd w ith
th e h elp of sw ap s, to k eep th e d o lla r w ithin bounds?
Is th is s o m e
th in g th a t fro m the U nited S ta te s ' p o in t of view is c o n s id e re d to be
-5 -
a p o sitiv e id ea th a t we a r e in te re s te d in?
Shultz: W ell, we have u n d e rta k e n no c o m m itm en ts of any kind
in th is d is c u s s io n , o th er than the co m m itm en t to w ork c o n stru c tiv e ly
w ith o th e rs , and to tr y to u n d e rsta n d th e ir p ro b le m s a s w ell a s our
p ro b le m s, and to se e w hat can be done w ith th em w ithin the lim its of
our p o lic ie s and a b ilitie s to solve th o se p ro b le m s.
change in o ur p o sitio n on th a t.
So th e re is no
T hat is a su b je ct, of c o u rs e , th a t
did com e up.
Q. : M r. S e c re ta ry , on th a t sam e q u estio n , a p h ra s e in the c o m
m unique, "un an im o u sly e x p re s s th e ir d e te rm in a tio n to e n su re jo in tly " ,
se e m s to im p ly U nited S tates a g re e m e n t to e n te r into th e d efen se of th e
d o lla r by in te rv e n in g in th e m a rk e t.
Is th a t not c o r r e c t?
Shultz: What we have a g re e d to is th is se t of p ro c e d u re s , and it
is our hope th a t we c an , on th e one hand, see m o re c o n c re te ly w hat
o th e rs have in m ind and a t the sam e tim e develop our own thoughts
an d on th a t b a s is se e w hat m ay e m e rg e jo in tly to e n su re sta b ility in
exchange m a r k e ts .
B ut th e r e is no co m m itm en t on th a t q u e stio n of
in te rv e n tio n .
Q. : M r. S e c re ta ry , a ll th e s e q u e stio n s have b een d is c u s s e d .
What new th in g s did you d isc o v e r in th e d isc u ssio n th a t p e rm it you
o r en co u rag e you to say th a t you have now a g re e d on a p ro c e s s and
w ill find out?
T h e re m u st have b een som ething new th a t h as com e up
in th e s e d is c u s s io n s , b e c a u se w hat the B ritis h and F re n c h and o th e rs
-6 -
have been thinking about it you and th ey have known fo r a t le a s t eig h t
m o n ths o r so.
Shultz: W ell, I d o n 't w ant to p re ju d g e in any w ay w hat o th e rs m ay
d ecid e is good fo r th e m and so I'd r a th e r not t r y to develop th a t in
any w ay.
Q. : M r. S e c re ta ry , y o u r p o sitio n has b een d e s c rib e d by o th e rs
a s saying th a t f i r s t you w ant to s e e u h a t E u ro p e w ill do its e lf , and then
th a t you w ant m o re sp e c ific s on w hat has b een c a lle d the shopping lis t
p r e p a re d by the EEC econom ic and m o n e ta ry c o m m itte e .
Is th is a
f a ir su m m a ry of th e A m e ric a n p o sitio n ?
Shultz: It is c e rta in ly f a ir to say th a t w hen su g g e stio n s a r e m ade
to u s we w ant to be ab le to u n d e rs ta n d th em and study th e m and see them
e x p re s s e d w ith som e p re c is io n , so th a t we can know p r e c is e ly w hat
th ey a r e , and th e re fo re can say w hat kind of re s p o n s e is p o ss ib le
fo r u s .
At th e sa m e tim e a s we c o n s id e r th in g s th a t m ay o r m ay not
be on the shopping lis t, o u r know ledge and fe e lin g fo r th e w ay in which
o u r frie n d s h e re a r e looking at th e p ro b le m h e lp s to ev alu ate w hat might
do som e good o r w hat m ig h t not do som e good.
Q. : M r. S e c re ta ry , th e r e w e re two p a r ts to th a t p o sitio n th a t
w as a s c rib e d to you.
The f i r s t p a r t being th a t E u ro p e i ts e lf - - th a t
i s , th e EEC natio n s th e m s e lv e s - - m u s t f i r s t s e ttle on th e kind of
m o n e ta ry s y s te m v i s - a - v i s e ac h o th e r th a t th ey w ill h av e.
And is
th a t a ls o a p re c o n d itio n fo r an A m e ric a n re s p o n s e to m o re sp e c ific s
on th e shopping lis t?
- 7 Shultz: W ell, I c e rta in ly th in k we w ant to know w hat it is th a t
th ey w ish to do and we ex p ect to find th a t out, so we w ill be looking
fo r th a t.
I think a t the sa m e tim e th a t we have b een able to c la rify
som e th in g s - - fo r ex am p le , on th e q u e stio n of ou r c a p ita l c o n tro ls
p ro g ra m .
O ur announcem ent th e r e w as th at we in ten d ed to p h a se
th a t out o v e r roughly a tw o -y e a r p e rio d , and th a t re m a in s o ur in te n
tio n .
T hat is not an in te n tio n to d ro p th em im m e d ia te ly o r anything of
the kind, and we ex p ect to have the p h a s e -o u t p ro c e s s tak e p la c e in a
m a n n e r th a t is c o n s is te n t w ith o rd e rly exchange m a r k e ts .
th in k th a t can be done.
And we
We thin k th a t by the tim e th e end of 1974
a r r i v e s th a t th e p ic tu re m ay v e ry w ell look r a th e r d iffe re n t.
I m ig h t
say , in a d d itio n , th a t it is a w id e ly -h e ld b e lie f th a t th e r e h as b een
o v er the y e a rs a flow , a net flow , of p riv a te lo n g -te rm c a p ita l fro m
th e United S tates to E u ro p e w hich is not c o r r e c t. In e v e ry one, I
b e lie v e , of the p a s t fo u r o r five y e a r s , the net flow of p riv a te lo n g -te r m
c a p ita l, including d ir e c t in v e s tm e n t and p o rtfo lio in v e s tm e n t,h a s b een
fro m E u ro p e to the U .S .
So 1 th in k th e r e has b een som e m is u n d e rs ta n d in g
of p r e c is e ly w hat th e fa c tu a l situ a tio n i s . But t h a t 's an e x am p le of th e
type of thing th a t I know is m en tio n ed in th e s o -c a lle d shopping l i s t ,
and i t 's h elpful to c la rify th e s e m a t t e r s .
-
8
-
Q: M r. S e c re ta ry , did you bring any m e ssa g e fro m P re s id e n t
Nixon to th is m eeting today?
A: Well, I consulted w ith the P re s id e n t as w ell as w ith my
co lleag u es h ere, and the b a sic m e ssa g e fro m the P re s id e n t is
th at he re g a rd s our W e ste rn E uro p ean frie n d s as r e a l frie n d s
and we w ant to w o rk in a co o p erativ e s p ir it w ith th em and we
a re e s s e n tia lly an ex ten sio n of th at P r e s id e n tia l w ish.
Q: M r. S e c re ta ry , in w hat way w ill the r e s u l t today and the
sch ed u le. . . . hasr.now been se t up fo r next w eek have any p o ssib le
effect on your ta lk in M oscow?
A:
They a re not connected in any w ay.
Q: M r. S e c re ta ry , w hat a re your p lan s betw een now and the next
m eeting a ssu m in g th at you w ill be h e re ?
A: Yes^I do plan to be h e re and I expect to com e b ack fro m Moscow
to W e ste rn E u ro p e .
I p re s e n tly plan to go to Bonn and g e t th e re
on W ednesday evening.
And w hat happens then, I think w e 'll see
w hat the situ a tio n isla n d I 'll tr y to find P a u l V o lc k e r.
He is ta ll
enough so th at you can u su a lly notice h im in a crow d, and see w hat
h as been taking p la c e ,
Q: M r. S e c re ta ry , on the b a s is of y o u r ta lk s h e re today^what kind
of an exchange ra te sy s te m do you see in effe ct on M onday the 19?
A g e n e ra liz e d floating sy ste m ?
A: W ell, as I sa id , I d o n 't w ant to p re ju d g e d e c isio n s th a t o th e rs
m ay m ake and so I ’d r a th e r not com m ent on th a t.
Q: M r. S e c re ta ry , the p ro p o s a ls on the E u ro p ea n shopping l i s t have
b een u n d er d is c u s s io n fo r a long tim e , and they m u st c e rta in ly ,
in the Nixon a d m in is tra tio n and the T r e a s u r y D e p a rtm e n t and the
U .S . g o v ern m en t have re c e iv e d som e rev iew in g e n e ra l.
A re th e s e kind of things c o n sid e re d to be in the r e a lm of p o s s ib ilitie s
o r not?
A: W ell, the shopping lis t, we lis te n e d to th is m o rn in g and w hile
m any of the ite m s have b een d is c u s s e d fro m tim e to tim e , the
l ite r a l a v a ila b ility to us in any fo rm a l sen se w as th is m o rn in g .
As a m a tte r of fa c t, I don’t think th a t we do w ant to g e t a fo rm a l
copy and study it.
And m any of the things on the lis t a re m a tte r s
th a t re q u ire c a re fu l thought in the context in w hich th ey a re d e liv e re d ,
nd th at w a s one of our thoughts in not w anting to ju s t re s p o n d off hand.
T h e re a re o th e r things^however^ such a s the one I ju s t m en tio n ed about
c a p ita l c o n tro ls w h e re I think it is u sefu l to c le a r up any m is u n d e rs ta n d in
Q: M r, S e c re ta ry , is the F e d e ra l R e s e rv e B o a rd re a d y to defend
the value of the d o lla r?
A:
W ell, the U .S . g o v e rn m e n t a s we p ro je c t o u rs e lv e s a b ro a d >
a c ts a s one and I thin k th a t the fa c t th at D r. B u rn s and I a re h e re
to g eth er, and we have b een sittin g to g e th e r not only a ll day h e re b u t
m an y days and evenings in W ashington o v er the p a s t few w eeks and
m onths a s we c o n s id e re d th e s e m a tte r s s o r t of sy m b o liz e s th a t fa c t
10
so th at th e re is not any. . . th e re is only one view .
Q: M r, S e c re ta ry , w ill you have tra d e talk s while you a r e h e re ?
A: Only to the ex ten t of d isc u ssin g w ith people the way we a re
approaching th is su b je ct.
We a re not h e re to n eg o tiate w ith anybody
in any s o r t of p a rtic u la r se n se .
But we do w ant to d is c u s s the tra d e
'b ill p ro p o sa ls and lis te n to p e o p le ’s re a c tio n s and have th a t type of
d iscus sion.
Q: M r. S e c re ta ry , you said tw ice th at you m ade no co m m itm en t
w ith re g a rd in the question of in te rv e n tio n .
H ow ever on F e b ru a ry 12
you did m ake a co m m itm en t a g a in st in te rv e n tio n .
A: No, w hat we said w as: we have u n d e rta k en no obligation to intervene,
Q: I a m talk in g of . . . . (unde cip h er able on tape)
A: T h a t's w hat we sa id on F e b ru a ry 12, is th at the rig h t date?
Q: W ell, I a m asking you now why, in a p o sitiv e w ay, you have
s aid you have tak e n no co m m itm en t tonight o r today?
Is it p o ssib le
th a t you have rem o v e d th e neg ativ e co m m itm en t?
A: T h ere w as not a n eg ativ e c o m m itm en t.
T h ere w as a sta te m e n t
t h at we had u n d e rta k en no oblig atio n s to in te rv e n e .
T h a t's not the
- sam e thing a s a sta te m e n t th at we would n e v e r in te rv e n e un d er any
c irc u m s ta n c e s .
I t's ju s t a sim ple sta te m e n t of the fac t th a t we have
no obligation to in te rv e n e .
Q: Do you in ten d to p a rtic ip a te in th e (d e c isio n s)th a t w ill be adopted
next w eek o r do you intend to le t the E u ro p ean s do it?
11
A: W ell, they of c o u rse m eet freq u e n tly , I g a th e r fro m read in g ,
and w ill undoubtedly continue to do so, and w ill decide w h atev er
th ey w ish to d ecid e, and we a r e h e re today to ta lk w ith th em and
we w ill be h e re next w eek, p a rtic u la rly next F rid a y , to talk fu rth e r.
But, a s I said, I d o n 't w ant to com m ent on any d e cisio n s they m ay
o r they m ay not take; th a t is fo r th em to d ecid e.
If your q uestion is,
w ill we be a t the m eetin g , I thin k it is scheduled on Sunday in B ru s s e ls
no, we w ill not be th e re .
Q: M r. S e c re ta ry , m any o b s e rv e rs have noted a n u m b er of at le a s t
c irc u m s ta n tia l s im ila r itie s betw een the a p p a re n t lac k of confluence
of v iew s of the m o n e ta ry a u th o ritie s of the w o rld a t th is point. . . w ith
th e p e rio d of the th irtie s*
Why should the w o rld not be co n cern ed th a t t h e r e 's a breakdow n
of w ill and d e te rm in a tio n and a b ility to solve th is p ro b lem ?
A: W ell, I th in k it h a s b een a v e ry in te re s tin g thing th a t
during the p a s t two y e a r s , or roughly two y e a r s , w hen th e re
h as been a fa ir am ount of tu rm o il in exchange m a rk e ts , th at
w o rld tra d e has continued to expand; th at has been going on.
The eco n o m ies of the w o rld a re g e n e ra lly stro n g .
i s ris in g v e ry stro n g ly .
We announced today an in c re a s e in
em p lo y m ent of h alf a m illio n in one m onth.
ex p an sion in em ploym ent.
O ur econom y
T hat is a g igantic
So, we have stro n g eco n o m ies aro u n d
th e w o rld and we a ls o have a c o o p e ra tiv e a ttitu d e , know ledgeable
people who a r e w orking, I th in k , w ith c a re and goodw ill to solve
th e s e p e rio d ic c r i s e s and I th in k , a s D r. B u rn s sa id , w ith a
12
new se n se of u rg e n c y on lo n g -te rm m o n e ta ry re fo rm .
And I th in k
th a t one should e x p ect, a fte r a ll, th a t w hen y o u ’ve had a s y s te m in
e ffe ct fo r roughly 25 y e a r s and it h as b een b a se d on a sin g le re la tio n sh ip
b etw een th e v alue of th e d o lla r in t e r m s of gold, th a t h a s b e en a sy ste m
th a t stood th e re and now we a r e try in g to m ove to a n o th e r sy s te m ;
th a t in th is p e rio d in betw een th e r e a r e going to be rough sp o ts.
And I d o n 't thin k th a t th e r e is anything to g et y o u rs e lf into a s ta te of
such a la r m a s y o u r q u e stio n im p lie d .
Q: When D r. B u rn s said he n oticed a new se n se of u rg e n c y today?
w as th a t n o tic ea b le only am ong the E u ro p ea n d e le g a tio n s o r did it
a ls o e x is t w ithin the A m e ric a n d ele g atio n ?
A: W ell, I n e v er have b een b e atin g m y w ife.
h a s p ut fo rw a rd a p lan .
w o rk .
The U .S . d e le g a tio n
We have b ack ed up th a t plan w ith a d d itio n a l
We have e m p h a siz e d the im p o rta n c e of lo n g -te rm m o n e ta ry
r e f o r m in w hat we have sa id and w hat we have done.
So I th in k we
have fe lt a se n se of u rg e n c y and have e x p re s s e d it, p a r tic u la r ly sin ce
th e W orld Bank IM F m e e tin g s la s t fa ll to w hich th e P r e s id e n t p e rso n a lly
sp o k e, a s w ell a s m y own sp e ec h th e r e on b e h alf of th e s e g e n tlem e n
and
in
o th e rs p r e s e n t.
So I th in k th e U .S . h as had a v e ry stro n g t h r u s t
th is d ire c tio n , a ll along.
Department
oftheTREASURY
TELEPHONE W04-2041
liB & T O N . D.C 20220
ENTION: FINANCIAL EDITOR
March 12, 1973
RELEASE 6:30 P.M.
RESULTS OF TREASURY'S- WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
Is, one series to he an additional issue of the hills dated December 14, 1972 , and
elother series to be dated March 15, 1973
, which were invited on March 6, 1973,
Reopened at the Federal Reserve Banks today. Tenders were invited for $2,400,000,000,
■thereabouts, of 91-day bills and for $1,800,000,000, or thereabouts, of 182-day
ils. The details of the two series are as follows:
OF ACCEPTED
MPETITIVE BIDS:
EE
I High
I Low
I Average
91-day Treasury bills
maturing June 14, 1973
Approx. Equiv.
Annual Rate
Price
98.509 a/
98.468
98.484
5.898%
6.061%
5.997%
1/
182-day Treasury bills
maturing September 13, 1973
Approx. Equiv.
Annual Rate
Price
96.778 b/
96.715
96.744,
6.373%
6.498%
6.440%
1/
a/ Excepting one tender of $2,000,000; b/ Excepting one tender of $300,000
I 97% of the amount of 91-day bills bid for at the low price was accepted
I 38% of the amount of 182-day bills bid for at the low price was accepted
Jal TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
district
Boston
lew York
Philadelphia
■Loveland
Richmond
Atlanta
[Chicago
St. Louis
Minneapolis
Pansas City
t lla s
San Francisco
TOTALS
•Accepted
Applied For
$ 21,385,000 $ 11,385,000
1,826,410,000
2,728,510,000
25,910,000
36,060,000
24,520,000
24,520,000
16,130,000
16,130,000
18,120,000
18,120,000
239,460,000
274,460,000
43,610,000
46,140,000
22,190,0^0
26,190,000
27,890,000
35,920,000
15,375,000
34,405,000
129,055,000
154,055,000
Applied For
$ 14,055,000
2,342,640,000
13,820,000
14,470,000
12,065,000
12,355,000
189,720,000
29,540,000
21,730,000
27,800,000
29,095,000
94,160,000
$3,415,895,000 $2,400,055,000 c/ $2,801,450,000
Accepted
$
4,055,000
1,483,340,000
11,820,000
14,470,000
12,065,000
12,355,000
110,720,000
28,040,000
15,730,000
23,800,000
9,475,000
74,160,000
$1,800,030,000 d/
Includes $216,050,000 noncompetitive tenders accepted at the average price•of 98,484
Includes $111,600,000 noncompetitive tenders accepted at the average price of 96.744
Ipese rates are on a bank discount basis. The equivalent coupon issue yields are
■
for the 91-day bills, and 6.75$ for the 182-day bills.
Departmentof
mam D
n Cr 20220
RSHIN6T0N,
theTREASURY
ttllfM&ME WQ4-2Q4T
|
“
FOR R E L EASE ON D E L I V E R Y
S T A T E M E N T OF
E D W A R D L. MORGAN, A S S I S T A N T S E C R E T A R Y
(ENFORCEMENT, T A R I F F A N D T R A D E A F F A I R S A N D OPERATIONS)
F O R P R E S E N T A T I O N TO THE
H O USE S U B C O M M I T T E E OF THE
C O M M I T T E E ON A P P R O P R I A T I O N S
M A R C H 13, 1973, AT 11:00 A.M.
Mr.
C h a i r m a n and m e m b e r s of the S u bcommittee,
I am
pleased to a p pear here t o day in s u p p o r t of the FY 1974
appropriation r e q u e s t of the C o n s o l i d a t e d F e d e r a l L a w E n
forcement T r a i n i n g Center.
I
w o u l d like to i n t r o d u c e the r e p r e s e n t a t i v e s of the
Center w h o are a c c o m p a n y i n g m e today:
Director of the Center;
rector;
Mr.
Mr. John P.
School;
Mr.
R o b e r t G. Efteland,
D a v i d W. McKinley,
S. Stemple,
Mr. Mi c h a e l Martinex,
Criminal
Director,
Director,
Deputy D i
B u d g e t and F i s c a l Officer;
Director,
Mr. A l v i n C. Turner,
Mr. W i l l i a m B. Butler,
Investigator
P o l i c e School;
and
Curriculum Development
Division.
I
w i l l f i rst d i s c u s s the status of c o n s t r u c t i o n for the
Beltsville f a c i l i t y a nd the s a l a r y and e x p e n s e r e q u e s t t h e r e
after .
S-141
2
Construction Request
O ur FY 1974 c o n s t r u c t i o n a p p r o p r i a t i o n r e q u e s t is $6
million.
Thi s w o u l d b r i n g total m o n i e s a p p r o p r i a t e d to the
C e n t e r to $33 million.
T he p r o s p e c t u s a p p r o v e d in 1971 calls
for the total cos t to the C e n t e r for this f a c i l i t y in direct
a p p r o p r i a t i o n s to be
$50, 8 6 6 , 0 0 0 and the total cos t f r o m all
sources to be $52,664,000.
which includes estimates
The r e q u i r e d b a l a n c e of $17,866,000,
for equipment,
w i l l be r e q u e s t e d in
a later fiscal year.
Construction Obligations
Si
1
A t the e n d of FY 1972,
c o n s t r u c t i o n funds of $3,607,000
ha d b e e n o b l i g a t e d from the C e n t e r ' s a p p ropriations;
and
total o b l i g a t i o n s on all funds a v a i l a b l e for c o n s t r u c t i n g the
f a c i l i t i e s w e r e $5,255,000.
Our o u t l a y s d u r i n g that same
p e r i o d t o t a l e d a p p r o x i m a t e l y $ 4 , 6 00,000
$2,957,000
from C e n t e r funds.
f r o m all sources and
T h e s e i n c l u d e d the c ompletion
of the S p e c i a l T r a i n i n g B u i l d i n g and the O u t d o o r F i r i n g
R a n g e s and M o t o r c a d e T r a i n i n g Area,
w h i c h are n o w operational.
Sewer S e r v i c e
The Center has reached an agreement with the Department
of Agriculture to tie-in the sewage disposal plants of the
Agriculture Research Center, which are to be enlarged and im
proved.
The Agricultural Center has been told to upgrade its
current facilities by EPA and the Potomac River Enforcement
S-141
3
Conference.
The e s t i m a t e d total c o s t of u p g r a d i n g the
A g r i c u l t u r a l C e n t e r f a c i l i t y to w h i c h the T r a i n i n g C e n t e r
will be c o n n e c t e d is $750,000.
The T r a i n i n g C e n t e r has
agreed to c o n t r i b u t e to this cos t but,
if A g r i c u l t u r e is
unable to a l l o c a t e funds for this purpose,
the T r a i n i n g
Center w o u l d c o n s i d e r fu n d i n g the total $750,000 cost.
This
would be less e x p e n s i v e than c o n s t r u c t i n g our own o n - s i t e
facility at $ 1 , 3 00,000
(which is w i t h i n the a m o u n t a u t h o r i z e d
for the c o n s t r u c t i o n of these faci l i t i e s by the C o n g r e s s ) .
Law Suit
A l aw suit filed by the M a r y l a n d - N a t i o n a l C a p i t a l Par k
and P l a n n i n g C o m m i s s i o n and the D i s t r i c t C o u n c i l for Prin c e
George's C o u n t y c o n t e n d e d that the T r a i n i n g Ce n t e r ' s E n v i r o n
mental S t a t e m e n t p r e v i o u s l y filed wa s inadequate.
T r e a s u r y s t i p u l a t e d tha t it w o u l d n o t p r o c e e d w i t h c o n
struction u n t i l a r e v i s e d s t a t e m e n t was. filed.
statement w a s filed N o v e m b e r 24,
On F e b r u a r y 6, 1973,
The revised
1972.
the P l a i n t i f f s
filed a m o t i o n for
permissi on to a m e n d their c o m p l a i n t o b j e c t i n g to the s u f f i
ciency of the E n v i r o n m e n t a l Statement,
a l l e g i n g f a i lure to
comply w i t h E x e c u t i v e O r d e r 11512 a n d , r e n e w i n g t h eir request;
for injunction.
T r e a s u r y and G S A are w o r k i n g w i t h the D e
partment of J u s t i c e to file a m o t i o n for s u m m a r y ju d g m e n t for
dismissal of the c o m p l a i n bn the g r o u n d s t h a t the E n v i r o n m e n t a l
S-141
4
Impact Statement does fully comply with the National Environ
mental Policy Act.
Since the law suit does not now present
a legal impediment, GSA has advertised for a bid for clearing
and grubbing, the first of the construction contracts for the
balance of the facility.
Current Planning
We p l a n to o b l i g a t e
$1.9 m i l l i o n d u r i n g thi s
f i scal y e a r
w i t h c o r r e s p o n d i n g o u t l a y s of $2.5 million.
A s s u m i n g tha t the C o n g r e s s w i l l a p p r o p r i a t e the b a l a n c e
of $17, 866,000
in FY 1975 an d t h a t the n e c e s s a r y o u t l a y c e i l
ings are granted,
G SA b e l i e v e s we can c o n c l u d e the p r o j e c t
at close to the $ 5 2 , 6 6 4 , 0 0 0 cos t estimate.
S a l a r i e s and E x p e n s e s
For S a l a r i e s and Expenses,
F i scal Ye a r 1974,
a p p r o priation.
$2,200,000
an i n c r e a s e of $200,000
is r e q u e s t e d for
ove r the F Y 1973
This will provide needed additional personnel
and n e c e s s a r y f i n a n c i a l
s u p p o r t for the P o l i c e School,
b e g a n o p e r a t i o n s d u r i n g the c u r r e n t fiscal year,
which
and als o
to
c o n t i n u e the p l a n n i n g and d e v e l o p m e n t w o r k n e c e s s a r y for full
scale o p e r a t i o n s at o ur B e l t s v i l l e
facility.
CRIMINAL INVESTIGATOR SCHOOL
The C r i m i n a l I n v e s t i g a t o r School,
L a w E n f o r c e m e n t School,
will continue
f o r m e r l y the T r e a s u r y
its p r e s e n t r a t e of
5
training,
a p p r o x i m a t e l y 1,200
students,
d u r i n g FY 1974.
Th e
c u r r e n t six an d o n e - h a l f w e e k t r a i n i n g p r o g r a m w i l l be e x
p a nded to a seven and p o s s i b l y e i g h t w e e k curr i c u l u m .
Members
of the staff w i l l be i n v o l v e d w i t h the C u r r i c u l u m D e v e l o p m e n t
D i v i s i o n to lend s u p p o r t in the e x p a n s i o n of the c u r r i c u l u m .
The staff w i l l also be p r e p a r i n g for i n c r e a s e d t r a i n i n g loads
as all p a r t i c i p a t i n g a g e n c i e s
start u s i n g the s c hool p r e p a r a
tory to o p e r a t i n g in B eltsville.
The Criminal Investigator School
Ad v a n c e d P h o t o g r a p h y School.
staff also c o n d u c t s
an
Fiv e cl a s s e s w i l l be c o n d u c t e d
during FY 1973 and w i l l be e x p a n d e d to six c l a s s e s
in FY 1974#
No a d d i t i o n a l funds are b e i n g r e q u e s t e d for this activity.
POLICE SCHOOL
The P o l i c e S c h o o l b e g a n o p e r a t i o n s d u r i n g the c u r r e n t
fiscal year.
in length,
T he t r a i n i n g p r o g r a m is at p r e s e n t t w e l v e w e e k s
with approximately
48 st u d e n t s
in e a c h class.
Par
ticipants in the p r o g r a m d u r i n g this y e a r a nd FY 1974 are the
U.S.
Park S e r v i c e P o l i c e O f f i c e r s a nd Rangers,
tective Se r v i c e Officers,
U.S.
Mar s h a l s ,
Executive Pro-
Smithsonian
Zoo P o l i c e
and BIA I n dian P o l i c e Officers.
D u r i n g this fiscal year,
in eight classes.
364 s t u d e n t s w i l l be g r a d u a t e d
In FY 1974 it is e s t i m a t e d t h a t 654
will be g r a d u a t e d in 14 classes.
S-141
st u d e n t s
6
E x i s t i n g p o s i t i o n s are i n a d e q u a t e to service the w o r k l o a d
of the P o l i c e School.
A r r a n g e m e n t s have b e e n m a d e w i t h the
p a r t i c i p a t i n g a g e ncies to f u r n i s h i n s t r u c t o r s u p port for the
r e m a i n d e r of this fiscal y e a r on a n o n - r e i m b u r s a b l e basis.
Our F Y 1974 a p p r o p r i a t i o n r e q u e s t includes a d d i t i o n a l
funds and p o s i t i o n s to a d e q u a t e l y s u p port this activity.
Curriculum Development Work
D u r i n g FY 1974 the C u r r i c u l u m D e v e l o p m e n t D i v i s i o n will
co n t i n u e to w o r k on the d e v e l o p m e n t of the c u r r i c u l a for the
B e l t s v i l l e facility.
In FY 1973 there has b e e n and w i l l be
a d d i tional w o r k on the P o l i c e School curriculum/
as w ell as
w o r k on the e x p a n s i o n of the C r i m i n a l I n v e s t i g a t o r School.
Our FY 1974 r e q u e s t p r o v i d e s a d d i t i o n a l p o s i t i o n s to
a u g ment the p r o f e s s i o n a l
staff of the C u r r i c u l u m D e v e l o p m e n t
Division.
Conclusion
Mr.
C h a i r m a n and m e m b e r s of the S ubcommittee,
I w a n t to
thank y o u for this o p p o r t u n i t y to p r e s e n t this m a t e r i a l
your consideration.
you m a y have.
for
We w i l l be h a p p y to a n s w e r any q u e s t i o n s
DepartmentoftheTREASURY
WASHINGTON, D.C. 20220
TELEPHONE W04^2Q4l
F O R R E L EASE ON D E L I V E R Y
/
^
S T A T E M E N T OF
E D W A R D L. MORGAN, A S S I S T A N T S E C R E T A R Y
(ENFORCEMENT, T A R I F F A N D TRADE A F F A I R S A N D OPERATIONS)
F O R P R E S E N T A T I O N TO THE
H O U S E S U B C O M M I T T E E OF T HE
C O M M I T T E E ON A P P R O P R I A T I O N S
M A R C H 13, 1973, A T 3:00 P.M.
Mr. C h a i r m a n and M e m b e r s of the Committee:
It is a p l e a s u r e to a p p e a r b e f o r e this C o m m i t t e e in support
of the B u r e a u of E n g r a v i n g and Printing.
We are m o s t a p p r e c i a
tive of the c o n t i n u e d i n t e r e s t and g u i d a n c e of this C o m m i t t e e
for the B u r e a u ' s operations.
I hav e w i t h m e o f f i c i a l s of the Bureau,
knew,
I believe:
all of w h o m y ou
Mr.
J a m e s A. Conlon,
the B u r e a u ' s Director;
Mr. D o n a l d C. Tolson,
D e p u t y Director;
and Mr. A n d r e w J, Wilson,
Chief of the B u r e a u ' s O f f i c e of F i n a n c i a l Mana g e m e n t .
Accom
panying us,
Office
also,
is Mr. E d w a r d J. Widmayer,
of B u dget and Finance,
Director,
for the T r e a s u r y Department.
As a r e s u l t of the C o m m i t t e e ' s inq u i r i e s
last year,
the
D epartment has b e e n w o r k i n g c l o s e l y w i t h the B u r e a u in several
studies a i m e d at i m p r o v i n g its e f f e c t i v e n e s s and efficiency.
Specifically,
we h a v e c o n t r a c t e d for four studies,
the fi n a n c i n g of c a p i t a l improvements,
covering
the c o r r e s p o n d i n g
3
Mr.
Chairman,
I b e l i e v e the B u r e a u of E n g r a v i n g and
Printing is c o n t i n u i n g its a l e r t m a n a g e m e n t i m p r o v e m e n t e f
forts of r e c e n t years a n d I a m p l e a s e d to hav e had this
o p p o r tunity to c o m m e n t on them.
Mr.
Conlon will now report
on all the B u r e a u * s o n - g o i n g programs,
and w e w i l l be h a p p y
to answer an y q u e s t i o n s y o u m a y hav e f o l l o w i n g his testimony.
S-142
Departmentof
iHINGTON. DC 20220
^
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
TREASURY’S WEEKLY
OFFERING
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount Qf $4,200,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing
of $4,207,235,000
March 22, 1973,
in the amount
as follows;
91-day bills (to maturity date) to be issued
March 22, 1973,
in the amount
of $2,400,000,000, or thereabouts, representing an additional amount of bills
dated December 21, 1972, and to mature
June 21, 1973
originally issued in the amount of $1,905,870,000,
(CUSIP No. 912793 QY5)
the additional and original
ml
bills to be freely interchangeable,
182-day bills, for $1,800,000,000, or thereabouts, to .be dated March 22, 1973,
and to mature September 20, 1973 (CUSIP No. 912793
RVQ).
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided* and at maturity their face
amount will be payable without interest,
They will be issued in bearer form only,
and in denominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value),
Tenders will be received at Federal Reserve Banks and Branches up to the clos
ing hour, one-thirty p.m., Eastern Standard time, Monday, March 19, 1973.
Tenders will not be received at the Treasury Department, Washington.
must be for a minimum of $10,000.
$5,000.
Each tender
Tenders over $10^000 must be in multiples of
In the case of competitive tenders the price offered must be expressed
on the basis of 100, with not more than three decimals, e.g., 9 9 . 9 2 5 Fractions
may not be used.
It is urged that tenders be made on the printed forms and for
warded in the special envelopes which will be supplied by Federal Reserve Banks
or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
Others than
banking institutions will not be permitted to submit tenders except for their own
(OVER)
Ifl
§1
1
-
2-
account. Tenders will be received without deposit from incorporated banks and
trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids.
Only thoj
submitting competitive tenders will be advised of the acceptance or rejection
thereof.
The Secretary of the Treasury expressly reserves the right to accept or
reject any or all tenders, in whole or in part, and his action in any such resped
shall be final. Subject to these reservations, noncompetitive tenders for each
issue for $200,000 or less without stated price from any one bidder will be accepl
in full at the average price (in three decimals) of accepted competitive bids for
the respective issues. Settlement for accepted tenders in accordance with the
bids must be made or completed at the Federal Reserve Bank on March 22, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing March 22, 1973.
■ Cash and exchange tenders will receive equal
treatment. Cash adjustments will be made for differences between the par value of
maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is considered to accrt
when the bills are sold, redeemed or otherwise disposed of, and the bills are ex
cluded from consideration as capital assets. Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder must include in his
income tax return, as ordinary gain or loss, the difference between the pricepal
for the bills, 'whether on original issue or on subsequent purchase, and the amoun
actually received either’upon sale or redemption at maturity during the taxable
year for which the return is made.
.
Treasury Department Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern* the conditions of their issu ■
Copies of the circular may be obtained from any Federal Reserve Bank or Branch. I
M E M O R A N D U M TO THE P R E S S :
M a r c h 13,
1973
A c t i n g S e c r e t a r y of the T r e a s u r y W i l l i a m E.
t o day sent to Congress
one year
a p r o p o s e d bill to extend for
the a u t h o r i t y for more
flexible
m a x i m u m rates of int e r e s t or dividends.
copies
of the draft bill and Mr.
transmittal
A t t a c h e d are
to the P r e s i d e n t of the Senate
0O0
S-143
r e g u l a t i o n of
S i m o n ’s letter of
letter sent to the Speaker of the House).
Attachment
Simon
(identical
THE SECRETARY OF THE TREASURY
WASHINGTON
2 0 2 2 0
MR i
1973
Dear Mr. President:
There is transmitted herewith a draft of a proposed bill, "To
extend for one year the authority for more flexible regulation of
maximum rates of interest or dividends."
The present authority for the more flexible regulation of
maximum rates of interest or dividends will expire on June 1, 1973.
The Department recommends a temporary extension of the authority for
one year to give time for the consideration of legislation broader
in scope.
The control of deposit rates is but one aspect influencing the
competitive relationships among depository institutions and the
return which consumer-savers receive on their savings accounts. The
Administration deems a review of the whole spectrum of banking
legislation, rather than just one component, to be the appropriate
method in assuring that the public is best served by our financial
institutions.
The Administration is now concluding the policy review of a
comprehensive set of legislative recommendations relating to the
structure and regulation of the deposit financial institutions. A
central feature of these legislative proposals will be recommenda
tions concerning the future role of Federal regulation of interest
rates paid by financial institutions on time and savings deposits.
The Administration hopes to be able to announce these legisla
tive recommendations in narrative form by early April, with trans
mittal of draft legislation to follow by early June of this year.
Extension of the existing interest rate control authority for
one year, through May 31, 1974, should offer sufficient time for the
Congress to consider the Administration’s comprehensive legislative
recommendations.
It would be appreciated if you would lay the proposed bill
before the Senate. An identical bill has been transmitted to the
Speaker of the House of Representatives.
The Department has been advised by the Office of Management
and Budget that there would be no objection to the presentation of
this legislation to the Congress and that its enactment would be
consistent with the Administration’s objectives.
Sincerely ycttirs,
William E. bimen
Acting Secretary
The Honorable
Spiro T. Agnew
President of the Senate
Washington, D. C. 20510
Enclosure
A BILL
To extend for one year the authority for more flexible
regulation of maximum rates of interest or dividends.
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled, That
section 7 of the Act of September 21, 1966 (Public Law 89-597;
80 Stat. 823), as amended, is further amended by striking out
"1973" and inserting in lieu thereof "1974".
Departmentof
ASHINGTON, D C. 20220
thefREASURY
TELEPHONE W04-2041
i
FOR RELEASE ON DELIVERY
/
0
'
STATEM ENT OF MR. EDWARD L. MORGAN
ASSISTANT SECRETARY OF THE TREASURY FOR
ENFO RCEM EN T, T A R IF F AND TRADE AFFAIRS,
AND OPERATIONS, FOR PRESENTATION TO THE
HOUSE SUBCOMMITTEE ON APPROPRIATIONS
WEDNESDAY, MARCH 14, 1973, 10:00 A .M ., EST
M r. C h a irm a n and m e m b e rs of the C o m m ittee, it is a g re a t
p le a su re fo r m e to a p p e a r b e fo re y o u r d istin g u ish ed C o m m ittee on
behalf of th e p ro g ra m s of the B u re au of the M int. F i r s t , I would lik e
to in tro d u ce th e w itn e s se s fo r th is h earin g : T he H onorable M ary B ro o k s,
D irec to r of th e Mint; F ra n k H. M acDonald, Deputy D ire c to r of the Mint;
Ben C. H ollyfield, F in a n c ia l M anager; G eorge G. A m b ro se, A s s is ta n t
D irec to r fo r P ro d u ctio n ; Sidney F . C a rw ile , A s s is ta n t D ire c to r fo r
A dm in istration; Roy C. Cahoon, A s s is ta n t D ire c to r fo r P ublic In fo rm a
tion; J. E ugene S p a rk s, A s s is ta n t F in a n c ia l M anager; E dw ard J.
W idm ayer, D ire c to r, O ffice of B udget and F in an ce; and C. W. Sm ith,
Budget A nalyst.
The Mint h as b een e x p erien cin g grow ing p ain s o v e r th e la s t few
y e a rs, but we fee l th a t we a re w ell on th e way to having th e m a jo r
prob& ens u n d e r c o n tro l.
A c tiv itie s of the Mint include: th e m a n u fa ctu re and sh ip m en t of
coins; v a rio u s dep o sit tra n s a c tio n s including in te r-M in t tr a n s f e r s of
bullion; th e safeg u a rd in g of the G o v e rn m e n t’s holdings of m o n e ta ry m e ta ls
and coins; and th e refin in g of gold and s ilv e r bullion. T he M int o rg a n iz a
tion c o n sists of coinage M ints lo ca te d at P h ila d e lp h ia and D enver, A ssa y
Offices at San F ra n c is c o and New Y ork; B ullion D e p o sito rie s at F o rt Knox
and W est P o int; and th e W ashington H e a d q u a rte rs sta ff.
DIRECT PROGRAM
We a r e asking fo r an a p p ro p ria tio n of $24, 500, 000 fo r S a la rie s and
E xpenses fo r th e y e a r, an in c re a s e of $500, 000 o v e r th e to ta l of
$24, 000, 000 a u th o riz e d fo r the F is c a l Y e a r 1973. We w ill be able to
S-144
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p ro d u ce 477 m illio n m o re coins in F is c a l Y e a r 1974 th an in F is c a l Y e a r
1973. A lso, we plan to in c re a s e o u r m an u fa ctu re of coinage s trip
in -h o u se to th e extent th a t a p p ro p ria te d funds a re av aila b le.
A lthough o u r a p p ro p ria tio n re q u e s t is only $24, 500, 000, the
re v e n u e s of th e B u re au of th e M int d ep o sited to th e T r e a s u r y in F is c a l
Y e a r 1974 a re p ro je c te d at about $540 m illio n , w hich in clu d es se ig n io ra g e
and m isc e lla n e o u s re v e n u e s.
U nder th is budget we e s tim a te th a t we can coin about 8. 9 b illio n
p ie c e s d u rin g F is c a l Y e a r 1974, including 301 m illio n 50<? and d o lla r co in s,
at a c o st to th e a p p ro p ria tio n of $16, 435, 000, as c o m p a red w ith 8. 4
b illio n coins in the c u rre n t y e a r at $15, 480, 000.
In o u r continuing e ffo rt to im p ro v e tech n iq u es fo r e stim a tin g coin
dem and, th e M int and the F e d e ra l R e se rv e B o ard have fu rth e r refin e d
p ro c e d u re s fo r p ro je c tin g coin needs in a cc o rd a n c e w ith rec o m m e n d atio n s
p ro p o se d by th e O ffice of the S e c re ta ry in its in te rn a l m anagem ent study.
O u r co in p ro d u ctio n e s tim a te fo r F is c a l Y e a r 1974 of a lm o st 8. 9 b illio n
co in s is b a se d on th is coin fo re c a s tin g p ro g ra m .
NUMISMATIC AND OTHER REIMBURSABLE OPERATIONS
In F is c a l Y e a r 1974 we e s tim a te th at o u r re im b u rs a b le p ro g ra m
w ill c o st a p p ro x im a te ly $43, 386, 000. The M in t's re im b u rs a b le p ro g ra m s
continue to be v e ry a ctiv e . We a re c u rre n tly continuing the n u m ism a tic
p ro g ra m s w hich have b een p re v io u sly re p o rte d as w ell as two p ro g ra m s
fo r th e A m e ric a n R evolution B ice n te n n ial C o m m issio n . We a re also
a s s is tin g th e G e n e ra l S e rv ic e s A d m in istra tio n in so rtin g , packaging and
m ailin g th e C a rso n C ity s ilv e r d o lla rs .
CONSTRUCTION OF MINT FA CILITIES
A m a jo r c o n c e rn of th e D e p artm en t is th a t we have su fficien t
coining fa c ilitie s to m e e t the needs of th e econom y in the fu tu re. As you
a r e aw are , we a re planning a new Mint in D enver. H ow ever, as a re s u lt
of d elay s in obtaining a s ite , we a re not re q u e stin g any c o n stru c tio n funds
fo r F is c a l Y e a r 1974. T he D ire c to r of the M int and h e r s ta ff w ill be able
to give m o re sp e c ific d e ta ils as to th e p re s e n t s ta tu s of th is p ro je c t.
We a r e m o st g ra te fu l to th is C o m m ittee fo r its p a s t a s s is ta n c e .
I w ill now tu r n the te stim o n y o v e r to M rs. B ro o k s, D ire c to r of the Mint,
but w ill be a v aila b le fo r f u rth e r p a rtic ip a tio n .
oOo
j|
TREASURY
Departmentofthe
Iashington.O.C. 20220 W
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TELEPHONE W04-2041
II
17 89
FOR R E L E A S E A T 10:00 A.M.
S T A T E M E N T BY T H E H O N O R A B L E J A MES E. S M I T H
D E P U T Y U N D E R S E C R E T A R Y OF T HE T R E A S U R Y
BEFORE
SUBCOMMITTEE ON BANK SUPERVISION AND INSURANCE
HOUSE COMMITTEE ON BANKING AN D CURRENCY
THURSDAY, M A R C H 15, 1973, 10:00 A.M.
Mr.
Chairman,
I am p l e a s e d
to a p p e a r b e f o r e
d i s t i n g u i s h e d C o m m i t t e e t o day to discuss
p o s ition on H.R.
4070,
Secretary,
and o t her related matters.
Howard Beasley,
the S p e c i a l A s s i s t a n t
Accompanying
to the D e p u t y
w h o has p l a y e d a m a j o r role In a s s e s s i n g v a r i o u s
rec o m m e n d a t i o n s
for f i n anc ial
As y o u know,
on Tuesday, M a r c h
through M a y 31,
i n s t i t u t i o n reform.
the A d m i n i s t r a t i o n tran s m i t t e d
13, a d r aft b ill
1974,
to the Congress
e x t e n d i n g for one year,
the e x i s t i n g flexible a u t h o r i t y for regui
■
'
W
'
{
, ; ri,
lating time and savings d e p o s i t rates
financial
the A d m i n i s t r a t i o n ' s
de a l i n g w i t h the e x t e n s i o n of deposit
interest rate controls
me is Mr.
this
? ■, ■ - -
p
in F e d e r a l l y - i n s u r e d
institutions.
We b e l i e v e
that there
is real m e r i t
in e x t e n d i n g for a
period of time the c u r r e n t d e p o s i t rate controls but o n l y as
S-140
2
an i n t e r i m m e a s u r e w h i c h w i l l p r o v i d e us
comprehensive
the time to take a
look at the s p e c t r u m of laws w h i c h affect not
o n l y financial
inst i t u t i o n s but also c o n s u m e r - s a v e r s .
The c o n t r o l of d e p o s i t rates
is bu t one aspect influencing
the c o m p e t i t i v e r e l a t i o n s h i p s a m o n g d e p o s i t o r y insti t u t i o n s
and the r e t u r n w h i c h c o n s u m e r - s a v e r s
accounts.
r e c eive on their savings
The A d m i n i s t r a t i o n deems a total r e v i e w of the d e
p o s i t i n s t i t u t i o n str u c t u r e and services,
rath e r than of just
one component,
to be the a p p r o p r i a t e m e t h o d
p u blic
served b y our financial
is bes t
S i nce
c o n trols
to assure that the
institutions.
the i n c e p t i o n of the p r e s e n t str u c t u r e of rate
in 1966,
there has b e e n a c o n t i n u i n g deba t e as to the
e f f i c a c y of c e i l i n g rates on deposits
- b o t h from the standpoint
of the i n s t i t u t i o n and its a b i l i t y to c o m p e t e for funds and from
the s t a n d p o i n t of the c o n s u m e r and his right to a fair return
on his
savings.
important,
Unquestionably,
considerations.
these are two valid,
However,
and highly
b a l a n c e d a n a lysis demands
that we not o n l y look at the l i a b i l i t y s t r u c t u r e of these in
sti t u t i o n s b ut also at their a s s e t st r u c t u r e in o r d e r to determine
w h e t h e r or not they can g e n e r a t e
c o m p e t i t i v e rates on deposits.
s u f f i c i e n t earni n g s
This
e s s ential
to p ay
freely
interdependence
-3-
between assets and liabilities points u p the d i f f i c u l t y of
dealing w i t h a n y of these i n s t i t u t i o n a l powers in isolation.
The A d m i n i s t r a t i o n is n o w c o n c l u d i n g
the p o l i c y r e v i e w
of a c o m p r e h e n s i v e set of l e g i s l a t i v e r e c o m m e n d a t i o n s w h i c h
address the m a j o r issues w i t h r e s p e c t to the s t r u c t u r e and r e g u
lation of d e p o s i t f i n a n c i a l institutions.
A c e n t r a l feature of
these l e g i s l a t i v e pro p o s a l s w i l l be r e c o m m e n d a t i o n s c o n c e r n i n g
the future role of F e d e r a l r e g u l a t i o n of in t e r e s t rates p aid b y
financial insti t u t i o n s on time a nd savings d e p o s i t s „
The A d m i n i s t r a t i o n hopes
legislative r e c o m m e n d a t i o n s
to be a ble to a n n o u n c e these
in n a r r a t i v e f o r m b y e a r l y April,
with t r a n s m i t t a l of d r aft l e g i s l a t i o n to follow b y e a r l y June
of this y e a r 0
For these reasons
the A d m i n i s t r a t i o n be l i e v e s
that a
simple e x t e n s i o n of e x i s t i n g i n t erest rate c o n t r o l a u t h o r i t y
for one year,
at this time.
t h r o u g h M a y 31,
1974,
is the a p p r o p r i a t e a p p r o a c h
S u c h an a p p r o a c h w i l l pr o v i d e s u f f i c i e n t time for
Congress to c o n s i d e r c a r e f u l l y the A d m i n i s t r a t i o n s
legislative r e c o m m e n d a t i o n s .
attempt m e r e l y to p a t c h u p
comprehensive
It does not s e e m wis e to us to
the e x i s t i n g f i n a n c i a l s y s t e m w h i c h
- 4 -
the m o m e n t u m of c o m p e t i t i v e f o r c e s , spurred on b y c o n s u m e r
interests,
see d e s t i n e d to restr u c t u r e .
O u r f i n a n c i a l depository
s y s t e m is far too c o m p l e x a nd i m p o r t a n t to a t t e m p t to r e d e s i g n
b y u s i n g a n y m e t h o d s h ort of a c o m p r e h e n s i v e and t h o r o u g h review.
T h a n k you!
DepartmentoftheTREASURY
...n - rn a i
* ... n
n 'lin
ASHINBTON, O.C. 20220
.
........ T C I t n u o t i f t u r n
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1789
FOR RELEASE ON DELIVERY
FRIDAY. MARCH 16. 1973
REMARKS BY THE HONORABLE SAMUEL R. PIERCE, JR.
GENERAL COUNSEL OF THE TREASURY
AT THE
DENVER COST OF LIVING COUNCIL REGIONAL CONFERENCE
ON PHASE I I I
FRIDAY, MARCH 16, 1973
Denver, Colorado
(At 9:00 A.M. MST)
PHASE III QF THE ECONOMIC STABILIZATION PROGRAM
As William Shakespeare once said: ”Whatfs past is prologue” .
Phase III of the Economic Stabilization Program is built on what has
gone before. Many of the standards, objectives and goals of
Phase III are based on what occurred and what was learned during the
operations of Phases I and II. To best understand Phase III, it is
necessary to be generally familiar with what happened during
Phases I and II, and the facts and circumstances that led to the
adoption of those programs by the Nixon Administration.
Background
When President Nixon assumed office in January of 1969, he
inherited one of the most intractable economic problems in modern
times. Inflation and inflationary expectations had truly captured
the American economy. The Nation had experienced an annual rate of
inflation of 5 percent during the last three months of 1968 and it
accelerated to 6.4 percent in the first three months of 1969. This
was an intolerable rate of inflation. To combat this situation, the
Administration immediately instituted a program of fiscal and
monetary restraints aimed at cooling off the economy by winding down
The Tempest, Act II, Scene 1,
S-145
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2
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inflation. Significant progress was made toward that objective.
The Administration's fiscal and monetary policies squeezed out much
of the excess demand that had placed too much pressure on available
resources. However, substantial inflation continued — not primarily
as the result of excess demand, but as the consequence of the
momentum generated by past inflation and the expectations of continued
inflation.
The problem of continued inflation led the President and his top
economic advisers to engage in a comprehensive analysis of the economy,
and on August 15, 1971, the President announced his New Economic Policy.
The Policy was designed:
1. To restrain inflationary behavior and expectations by
a system of wage-price controls.
2. To assure acceleration of economic growth and employ
ment by the more rapid expansion of demand for goods
and services.
3.
To achieve a realignment in the external value of the
dollar which would reflect more realistically the
relative position of international prices and costs.
The Economic^Stabilization Program was organized to help achieve
those objectives.
Phase I of that program provided for a 90 day wage
and price freeze. The goals of the freeze were to put an immediate
halt to wage and price increases for 90 days; to restore confidence in
the economy by changing the expectations of the American people about
inflation; and to provide the necessary time to develop a plan for the
following phase.
3
The Cost of Living Council was created to provide policy guidance,
and the program was administered by the Office of Emergency Preparedness.
2. At the same time that the Economic Stabilization Program was
initiated, the President proposed a tax revision package, including
the Job Development Credit and repeal of the automobile excise tax,
a 10 percent surcharge on imports, and negotiations leading to
revaluation of world currencies.
3. The Council consisted of the Secretary of the Treasury, as Chairman;
the Chairman of the Council of Economic Advisers as Vice Chairman; the
Director of the Council who is Counsellor to the President; the
Secretaries of Agriculture, Commerce, Labor, Housing and Urban Develop
ment; the Director of the Office of Management and Budget; the Director
of the Office of Emergency Preparedness; the Special Assistant to the
President for Consumer Affairs; and the Chairman of the Federal Reserve
Board as an Adviser.
/
- 3The freeze was for a definite period because an indefinite freeze
would be unworkable in a dynamic economy like ours, where technology,
new products, and changing.demand patterns exert a continuing strong
influence on prices. Movements of prices and wages serve the
essential purposes of organizing and guiding the allocation of
resources, and to suppress them for long would seriously distort
resource allocation. Consequently, a sequel to Phase I was necessary.
It was realized that the success of Phase II would depend in
large measure on it being well understood and widely supported by the
public. Consequently, the President and his Cost of Living Council
consulted with numerous representatives of each major interest in
the control program: labor and business, farmers and consumers,
State and local governments, and the Congress. From these discussions,
a consensus was ultimately obtained on the belief that Phase II
required: (1) a clear cut, publicly supportable goal for the disin
flationary effort; (2) machinery allowing the public and major elements
of the economy to participate in setting policy and administering the
program; (3) an essentially self-administered system embodying strong
incentives to encourage anti-inflationary behavior; and (4) provision
in the system for maximum continued operation of competitive pricing
qqd frae collective bargaining.
The formulators of the plan for Phase II decided that in the
interest of equity and effectiveness, the controls should be mandatory,
and initially as comprehensive in their direct coverage as was adminis
tratively feasible. The decision for almost universal coverage at the
outset did not preclude the relaxation of the controls by stages, as
the effectiveness of the system was demonstrated, confidence in the
control of inflation was strengthened, and sectors of the economy no
longer requiring control were identified.
It was against this background that the Cost of Living Council
developed the plan for Phase II which was approved by the President,
and ultimately became effective on November 14, 1971. The Executive
Order establishing the administrative machinery for Phase II provided
for the continuation of the Cost of Living Council. The COLC was
assigned responsibility for establishing broad goals, determining the
coverage of the control program, overseeing enforcement, and coordinating
the anti-inflationary effort in line with the overall goals. In a
sense, it was the umbrella policy organization under which the groups
implementing Phase II operated.
The primary bodies created to develop standards and make decisions
.qp changes in all prices (including rents) and compensation (wages,
salaries and fringe benefits) were the Price Commission, composed of
- 4seven public members, and the tripartite Pay Board which originally
consisted of 15 members divided equally among business, labor, and
public representatives, but which was eventually reduced to seven
members (five public and one each for business and labor).
The Pay Board had the responsibility for promulgating regula
tions and making rulings which were designed to keep compensation at
levels consistent with the goals to reduce inflation set by the Cost
of Living Council. The Price Commission had the same responsibility
with respect to prices and rent. Although the COLC had the responsi
bility for setting goals in the Phase II program, it had no super
visory authority over any regulations issued or rulings made by either
the Pay Board or Price Commission.
Advisory committees were established to promote a voluntary
program to restrain interest rates and dividends, to solicit State
and local government cooperation, and to suggest means to curtail price
increases in the health services industry. A rent advisory board was
also created to counsel the Price Commission, while the pre-existlhg
tripartite Construction Industry Stabilization Committee was placed
under the authority of the Pay Board. The National Commission on
Productivity which existed prior to Phase I, was expanded and assigned
the advisory role of insuring that the entire stabilization program
encouraged productivity growth.
For the purposes of administrative efficiency, the COLC decided
that small economic units should not be required to give advance hotice
or to report price and wage increases which were consistent with the
basic guidelines established by the Price Commission and the Pay Board.
This group included the vast majority of businesses in the United States.
The largest firms and employee groups were required to obtain advanced
approval from the Commission and the Board for ahy change, and an
intermediate group was required to report after wages or prices were
increased in accordance with stabilization regulations.
The Cost of Living Council recognized that prices of some
products and services were either insignificant in the overall inflation
problem relative to the administrative difficulty of controlling them,
or were impractical to control, or were subject to direct controls
outside of the Phase II program. Consequently, the Council exempted
these products and services from the program. These exemptions
included such items as raw agricultural products, life insurance,
exports, securities, and damaged or used goods.
The organization basically responsible for Seeing to it that the
public complied with the rules and regulations issued under the Phase II
program was the Internal Revenue Service. The IRS assigned approximately
3,000 agents in 58 offices scattered throughout the Country to work on
the stabilization program. The Office of Emergency Preparedness, which
had administered Phase I, no longer had any responsibility for the program*
L
- 5The power of the President to freeze and control wages and
prices is based on the Economic Stabilization Act of 1970, In
reviewing that Act and considering the various legal aspects of the
Phase II program, several of us, having an official interest in the
program, concluded that it would operate much more smoothly and
have a greater chance of success if the Economic Stabilization Act
was substantially amended. Consequently, the Act was amended in a
number of respects. For example, the President’s power to stabilize
the economy was extended to include interest rates and dividends;
Phase II agencies were generally excluded from the Administrative
Procedure Act; stabilization agencies were authorized to issue subpoenas;
and a system for the Federal Courts to handle more efficiently cases
arising under the Economic Stabilization Program was written into the
Act. '
.• '1
During Phase II, as compared to the pre-freeze period, the rate
of inflation decreased, total employment rose, the rate of unemploy
ment dropped, and real spendable earnings rose. In general, the
program received wide public acceptance and voluntary cooperation.
The effectiveness of Phases I and II is clearly shown by the
leading economic indicators. At the time Phase I became effective
the annual rate of inflation as measured by the Cost of Living Index
was 4.8 percent. By the end of Phase II, it had dipped to 3.3 percent.
Real GNP was 1.4 percent at the beginning of Phase I, and by the end
of Phase II, it had risen to 7.5 percent. During the same period
real spendable earnings rose from 1.2 percent to 3.8 percent, and
the level of unemployment had fallen from 6.1 percent to 5 percent.
One may appropriately ask, "If Phase II was operating so well,
why did the Government shift to Phase III?"
Development of the Rationale for Phase III
While Phase II was generally successful, it did- have problems
that would eventually require a change in the system. This became
very clear to the Cost of Living Council and others responsible for
the Economic Stabilization Program after Phase II was carefully
analyzed during December, 1972 and early January, 1973. Consultation
meetings were held with labor, management, consumers, members of
Congress, and the members of the various boards and organizations
serving the Economic Stabilization Program. After reviewing the
results of this consultation process and the experience gained from
operating Phase II, it was clear that the burdens of the Phase II control
system would mount in the coming year.
It was found that red tape and administrative burdens, both for
the Government and the public, would expand. Delays and interferences
with the normal conduct of business would become more serious.
-
6
-
Inequities in the treatment of different individuals and businesses
would multiply. Incentives to efficiency and investment would be
weakened.
It was believed that if the present system continued for long
unchanged, these difficulties would become so overwhelming that the
system would become ineffective. Therefore, the system had to be
modified to achieve its continuing contribution to the anti-inflation
effort with less danger of injury to the economy, and with greater
equity in the treatment of the individuals and businesses covered by
the system.
During this battle against inflation — both in the pre-freeze
and post-freeze periods — the Administration learned a number of
lessons. Those of us involved with economic stabilization were
greatly impressed with the power of competition. In industries where
there were lots of firms and excess capacity, so that firms were really
fighting for business, competition was probably more effective than
our control system in holding down prices. There were many instances
during the operation of Phase II when firms met all of the necessary
requirements and received price increase approvals, but were not able
to implement those approvals because of the competition in their
industries.
We also learned that with public cooperation, a voluntary, selfadministered controlled system can, in general, operate effectively
in reducing inflation. There are, however, certain areas of the
economy where, for a variety of reasons, mandatory controls become
necessary. At the present time, with rapidly rising food prices,
food processing and retailing industries must be subject to mandatory
controls. The health care and construction industries also present
problems which — for the present time at least — can be better
handled with the aid of mandatory controls.
We also realize that our economy is extremely dynamic and other
situations may develop in the future where voluntary restraints are
not achieved and mandatory controls will become necessary. Therefore,
in any control system, it is necessary to retain the power to impose
mandatory controls whenever it is considered imperative to attain the
goals of the program.
Finally, we know that no wage-price system, regardless of how
ingeniously devised, can be successful and produce substantial results
unless certain fundamental economic principals are adhered to. Most
fundamental among these is sound fiscal policy. Without strong fiscal
discipline. Federal spending may be so pumped up that the same forces
are released that caused the earlier inflation. The Administration will
vigorously resist this danger. That Is why it intends to hold Federal
/
-7 spending for fiscal year 1973 within $250 billion. The Administration
submitted a budget for fiscal year 1974 in which expenditures are not
to exceed $268.7 billion, and which will not exceed the tax revenues
that would be generated by a fully employed economy. It is imperative
that Federal spending be kept within these bounds if two very important
goals to the American people are to be achieved, namely, further re
duction of inflation, and no increase in Federal income taxes.
It was against this background that the Phase III program was
formulated.
The Phase III Program
Phase III became effective on January 11, 1973. The Cost of
Living Council was continued. The Price Commission and Pay Board and
all advisory committees that existed under Phase II were terminated,
and the authority of the Commission and Board as well as their staffs
was transferred to the COLC.
Rental units are excluded from the program, but landlords are
expected to exercise restraint. Regulated industries will be guided
by the general criteria listed in present Price Commission regulations,
and restraint is expected to be reflected in their actions and the
actions of regulatory agencies.
Generally speaking, except for the food, health, and construction
industries, Phase III will be a voluntary, self-administered program.
As a general guide for prices, increases in prices above presently
authorized levels should not exceed increases in costs. Even where
costs have increased prices should not be increased if the firm's
profit margin exceeds the firm's base-profit margin. Alternatively,
a firm may increase prices to reflect increased cost without regard
to its profit margin if the firm's average price increases would not
exceed 1.5 percent in a year. Moreover, the base period for calculation
of the profit margin guide has been revised to permit inclusion of any
fiscal year that has been concluded since August 15, 1971.
the
and
has
the
The existing general standards of the Pay Board can be taken for
present as a guide to appropriate maximum wage increases unless
until they are modified. A Labor-Management Advisory Committee
been established to advise the Cost of Living Council on whether
standards should be modified and, if so, how.
In general, with the exception of firms in the food, health,
and construction industries, all firms with sales of more than $50
million (approximately 3,500 firms) are required to keep records o f
profit margin changes as well as price changes which will permit the
computation of weighted average price increases. Firms will have the
-
8
-
obligation of producing these upon request. All firms with sales of
$250 million or more (approximately 800 firms) are required to file
quarterly reports concerning any weighted average price change and
their profit margin.
Generally speaking, with the exception of employee units in the
food, health and construction industries, all employee units of 1,000
or more will be required to keep records of wage rate changes, and all
employee units of 5,000 or more will be required to file reports with
the Cost of Living Council indicating wage rate changes.
The Cost of Living Council staff and the Internal Revenue Service,
under the direction of the COLC, will monitor performance through
reviewing reports received from firms and employee units; spot checking
and auditing the records of firms; and using various government and
trade data. There will be a reduction in the number of Internal Revenue
Service agents working on Economic Stabilization from the 3,000 used
in Phase II to approximately 1,500.
• The Economic Stabilization Act of 1970, as amended, is sufficient
to give the Council the authority to invoke mandatory controls and
punitive sanctions when necessary. That is why the Act did not have to
be further amended, except to provide for a one year extension. The
Cost of Living Council has the authority to establish mandatory
standards where it is necessary to assure that future action in a
particular industry is consistent with the national goal of further
reducing inflation. Also, if it learns that an action has been or is
about to be taken that is inconsistent with the standards or goals of
the program, the Council can issue a temporary order setting interim
price and wage levels. In short, as has often been stated by officials
connected with the Economic Stabilization Program, the COLC has a
"big stick in the closet" which it can use if there is any breakdown
in the system of voluntary restraint. Recently, for example, the
Council took its big stick out of the closet and hit certain oil
companies with it by limiting their price increases, cancelling their
term limit pricing authorizations, and by imposing upon them certain
reporting requirements.
The food, health, and construction industries will be under
mandatory controls. Special rules have been or will be devised for
each of these industries.
Food processors will be required mandatorily to comply with
present regulations, somewhat modified, including pre-notification
and approval of cost-justified price increases. Food retailers will
be held to present margin markups. Pay units in the food processing
and retailing industries will continue to be covered by present
regulations. A committee drawn from the Cost of Living Council has
- 9 been established to review and recommend appropriate changes in Govern
ment policies having an adverse effect on food prices. There will
also be established a Food Industry Advisory Committee which will be
composed of people from the private sector appointed by the President
to advise the Council on the operation of the Economic Stabilization
Program in the food industry and other matters related to food costs
and prices.
The Federal Government has also taken certain steps to increase
the supply of food with the expectation that these actions will help
reduce the cost of food. For example, the Administration has suspended
all quotas on meat imports for 1973; and the Department of Agriculture
has temporarily suspended quotas on imported, non-fat dry milk, has
eliminated the mandatory set-aside requirement under the 1973 wheat
program, and has terminated direct export subsidies for lard, broilers,
and flour.
The present controls applicable to the health care industry will
continue until appropriate modifications are made by the Cost of Living
Council. A committee drawn from the Cost of Living Council will be
established to review and make recommendations concerning changes in
Government programs that could lessen the rise of health costs. Also,
an Advisory Committee composed of knowledgeable individuals outside
the Federal Government will be established to advise the Cost of Living
Council generally on the problem of health costs. This Committee will
also work to mobilize insurance companies and other third-party payers
to use their influence to curb the rise in health costs.
The Construction Industry Stabilization Committee, which existed
under Phase II, will continue its work with the twih. goals of improving
the bargaining structure in the industry and achieving additional pro
gress in bringing the rate of wage growth in this sector into line with
the general wage growth in the economy. Rules are provided to insure
that modifications in the wage growth rate can be reflected by adjust
ments in construction prices.
The Committee on Interest and Dividends, which was established
under Phase II, and chaired by the Chairman of the Board of Governors
of the Federal Reserve System, will be continued. This Committee,
subject to review by the COLC, is charged with formulating and executing
a program for obtaining voluntary restraints on interest rates and
dividends.
Will Phase III Be Successful?
By the end of 1972 the rate of inflation had been reduced to 3.3
percent. When he announced Phase III, the President stated that a
10
goal of the program was to further reduce the rate of inflation to 2-1/2
percent by the end of 1973. Can this goal be attained along with a
further substantial reduction in unemployment, a considerable increase
in GNP for 1973, and an increase in real spendable earnings? If this
question is eventually answered in the affirmative, then Phase III will
have been a success.
In my opinion, the success of Phase III will depend on three
factors:
1. Whether Federal spending is held within the budgetary
limits recommended by the Administration;
2. Whether food costs are brought under control; and
3. Whether the public will voluntarily comply with the
standards for wage and price increases set by the
COLC during Phase III.
To the extent these things are done, Phase III will be a success.
the extent they are not, Phase III will be a failure.
Thank you so much for your attention.
- 0 -
To
HINGTON, D.C. 20220
TELEPHONE W04-2041
F OR I M M E D I A T E R E L E A S E
M a r c h 15,
1973
A N T I D U M P I N G I N V E S T I G A T I O N S I N I T I A T E D ON
PRIMARY LEAD METAL FROM CANADA AND AUSTRALIA
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
ann o u n c e d t o d a y the i n i t i a t i o n of two a n t i d u m p i n g i n v e s t i
gations on i m ports of p r i m a r y lead m e t a l f r o m C a n a d a and
Australia.
T his lead m e t a l is u s e d c h i e f l y in the
p r o d u c t i o n of storage batt e r i e s , p i g m e n t s and chemicals,
including g a s o l i n e a d d i t i v e s .
N o t i c e of t h ese a c t i o n s w i l l be p u b l i s h e d in the
Federal R e g i s t e r of M a r c h 15, 1973.
Mr. M o r g a n ' s a n n o u n c e m e n t fo l l o w e d s u m m a r y i n v e s t i g a t i o n s
c o n d ucted by the B u r e a u of C u s t o m s a f t e r r e c e i p t of a
complaint a l l e g i n g that d u m p i n g w a s t a k i n g p l a c e in the
United States.
The total v a l u e of p r i m a r y lead m e t a l f r o m C a n a d a
during c a l e n d a r y e a r 1972 a m o u n t e d to a p p r o x i m a t e l y
$22 million.
D u r i n g the same period, i m p orts of this
lead f rom A u s t r a l i a w e r e v a l u e d at r o u g h l y $10.5 m i l lion.
oOo
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
F e b ru a ry 2 8 , 1973
(Dollar amounts in millions - rounded and will not necessarily add to totals)
D E S C R IP T IO N
A M O U N T IS S U E D i /
AMOUNT
r ed eem ed
J
!/
AMOUNT
O U T S T A N D IN G ^
/ /
% O U T S T A N D IN G
O F A M O U N T IS S U E D
TURED
Series A-1935 thru D -1 9 4 1 ___
Series P and G-1941 thru 1952
Series J and K-1952 thru 1957
5 ,0 0 3
2 9 ,5 2 1
3,754-
4 ,9 9 8
2 9 ,4 9 7
3 ,7 4 6
5
23
8
.1 0
.0 8
.2 1
1 ,9 2 0
1,4-73
1 3 ,6 1 4
1 5 ,8 9 6
1 2 ,5 1 3
5 ,7 0 5
5 ,4 3 6
5 ,6 3 6
5 ,5 9 1
4 ,9 0 6
4,24-3
4-,450
5 ,0 9 1
5 ,1 9 0
5 ,4 1 0
5 ,2 3 0
4 ,9 3 3
4 ,8 2 7
4 ,5 3 0
4 ,5 5 5
4,643
4 ,5 1 6
5 ,0 7 2
4 ,9 4 4
4 ,824
5 ,1 9 5
5 ,1 3 7
4 ,8 7 8
4 ,5 8 7
4 ,7 9 8
5 ,5 1 7
5 ,9 6 1
139
358
1 ,7 3 2
7 ,6 3 3
1 2 ,2 9 4
1 4 ,2 7 8
1 1 ,0 9 6
4 ,9 0 2
4 ,5 3 9
4,'629
4 ,5 1 4
3 ,9 0 9
3 ,3 8 0
3 ,5 2 0
3 ,9 5 0
3 ,9 7 4
4 ,1 0 1
3 ,9 3 1
3 ,6 6 1
3 ,4 8 6
3 ,2 3 4
3 ,1 5 9
3 ,0 9 8
2 ,9 2 5
3 ,0 8 4
3 ,0 1 3
2 ,9 0 5
3 ,0 0 5
2 ,9 4 2
2 ,7 4 8
2 ,4 5 8
2 ,2 5 1
2 ,0 9 5
1 ,3 1 3
316
188
841
1 ,3 2 0
1 ,6 1 8
1 ,4 1 7
802
897
1 ,0 0 7
1 ,0 7 7
997
863
930
1,14 2
1 ,2 1 7
1 ,3 0 9
1 ,2 9 9
1 ,2 7 2
1 ,3 4 0
1 ,2 9 6
1 ,3 9 6
1 ,5 4 6
1 ,5 9 0
1 ,9 8 8
1 ,9 3 0
1 ,9 1 9
2 ,1 8 9
2 ,1 9 5
2 ,1 3 0
2 ,1 2 9
2 ,5 4 7
3 ,4 2 3
3 ,6 4 8
139
42
9 .7 9
9 .9 3
9 .7 0
1 0 .1 8
1 1 ,3 2
1 4 .0 6
1 6 .5 0
1 7 .8 7
1 9 .2 6
2 0 .3 2
2 0 .3 4
2 0 .9 0
2 2 .4 3
2 3 .4 5
2 4 .2 0
24.84
2 5 ,7 9
2 7 .7 6
2 8 .6 1
3 0 .6 5
3 3 .3 0
3 5 .2 1
3 9 .2 0
3 9 .0 4
3 9 .7 8
4 2 .1 4
4 2 .7 3
4 3 .6 7
4 6 .4 1
5 3 .0 8
6 2 .0 4
7 7 .9 7
1 0 0 .0 0
1 1 .7 3
1 8 8 ,7 1 8
1 3 8 ,0 7 5
5 0 ,6 4 3
2 6 .8 4
5 ,4 8 5
8 ,8 9 3
3 ,9 4 0
2 ,9 1 8
1 ,5 4 4
5 ,9 7 6 .
2 8 .1 5
6 7 .2 0
1 4 ,3 7 8
6 ,8 5 8
7 ,5 2 0
5 2 .3 0
203 ,0 9 6
1 4 4 ,9 3 3
5 8 ,1 6 3
2 8 .6 4
3 8 ,2 7 8
203 ,0 9 6
2 4 1 ,3 7 4
3 8 ,2 4 1
1 4 4 ,9 3 3
1 8 3 ,1 7 4
36
5 8 ,1 6 3
5 8 ,1 9 9
.0 9
2 8 .6 4
2 4 .1 1
[(MATURED
Series
E -&
:
1941 ________________
1942 _________________
1943 _________________
1944 _________________
1945 _________________
1946 _________________
1947 _________ _______
1948 ________ ________
1949 _________________
1950 _________________
1951 _______ ,_______
1952 .■
_________
1953 ______________ __
1954 _________________
1955 _________________
1956 _______________ _
1957 _________________
1958 _________________
1959 _________________
1960 _________________
1961 ________________
1962 _________________
1963
__________
1964 _______ 1_________
1965 _________________
1966 _________________
1967 _________________
1968 _________________
1969 _________________
1970 _________________
1971 _________________
1972 _________________
1973 _________________
Unclassified
Total Series E
iSeries H (1952 thru May, 1 9 5 9 )4 1
H (June, 1959 thru 197$) _
Total Series H
Total Series E and H
T otal m atured__
T otal unmatured
Grand T otal
{
-
1 deludes
11
d e n ie d d isc o u n t
I* o a fe<*emP<*on v a /u e .
V °pHon of owner bo nds m ay be h e ld a n d w ill earn in tereej for a d d itio n a l p e rio d s after o r ig in a l m aturity dates.
Form PD 3812 (Rev. Jan. 1973) —Dept, of the Treasury — Bureau of the Public Debt
PRESS CONFERENCE
BY
GEORGE P. SHULTZ, SECRETARY OF THE TREASURY
Moscow, Russia
March 14, 1973
1.
J o s e p h A. Loftus:
The S e c r e t a r y is here.
His
remarks will be on the record.
In the inter e s t of
time we will have to limit this to t h irty m i n utes
and you wil l excuse us if we b r e a k and run then.
S e c r e t a r y Shultz:
I'd like to first express my
thanks to all of the officials of the R u s s i a n
G o v e r n m e n t w h o have g r e e t e d me w a r m l y and wit h
great h o s p i t a l i t y d u r i n g m y v i sit h ere and the
v i sit of m y coll e a g u e s w ho are w i t h me.
2.
As y o u know, the trip here on m y part was not
a trip to n e g o t i a t e a n y t h i n g in particular, bu t
w i t h the n e w r e s p o n s i b i l i t i e s w h i c h P r e s i d e n t N i x o n
has a s s i g n e d me in the f i eld of E a s t - W e s t Trade
and in the U.S.- U S S R Trade C o m m i s s i o n I hav e taken
the o p p o r t u n i t y to come here an d m e e t w i t h m a n y of
the r e s p o n s i b l e officials of the Soviet Union that
I will be h a v i n g d i s c u ssions wit h as all of this
unfolds.
3.
I b e l i e v e that the schedule of who I have m et
w i t h has b e e n m a d e public, is that correct, so I
don't n e e d to go over that.
I w o u l d say that
through it the series of m e e t i n g the disc u s s i o n s
have b e e n serious, p r o f e s s i o n a l and const r u c t i v e
in tone.
I have l e a r n e d a lot from them and I h a v e
also b e e n p l e a s e d w i t h the w a r m spirit that has
lain b e h i n d the discussion.
4.
As to topics w h i c h were discussed, I have
d e s c r i b e d to m y hos t the o r g a n i z a t i o n a l arran g e m e n t s
in the U.S. G o v e r n m e n t that were a n n o u n c e d by the
President last w e e k h a v i n g to do w i t h our w a y of
c o n s t r u c t i n g p o l i c y on E a s t - W e s t Trade a n d
c o n d ucting the b u s i n e s s of trade, and I tried
to e x p l a i n h o w that w o u l d w o r k and wh o all is involved.
5.
Second, I have r e v i e w e d w i t h the various peop l e
I have m e t with, the status of the M FN L e g i s l a t i o n
in our Congr e s s and t r i e d to e x p l a i n the n a t u r e of
the p r o b l e m as we see it, and to be sure that people
were g e n e r a l l y i n f o r m e d about that aspect of the
overall r e l a t ionship.
-
2
-
6.
I have r e v i e w e d the status of the various e n ergy
projects, p a r t i c u l a r l y the gas projects, and I think
I tried to put f o r ward our v i e w of them; namely, that
w h i l e there is a great deal of u ncertainty, there
are m a n y questions to be answered, m a n y engineering,
t e c hnical and ec o n o m i c m a t t e r s to be w o r k e d out.
We n e v e r t h e l e s s , w i t h i n the c o n text of the overall
d o m e s t i c e n e r g y picture in the U.S. w h i c h we are
w o r k i n g on, think that the p o s s i b i l i t i e s in the
d e v e l o p m e n t of Soviet gas and trade in that area are
p r o m i s i n g e n o u g h to w a r r a n t c o n t i n u e d e x p l o r a t i o n
of these p o s s i b i l i t i e s a nd the investment of effort
to a n swer some of the u n r e s o l v e d que s t i o n s about
just h o w that m i g h t p r o c e e d a nd w h e t h e r or n o t it
is i n d e e d a feasible thing and w o u l d be m u t u a l l y
b e n e f i c i a l to b o t h countries.
So there is no
conclusion, answer to that question, but from the
s t a n d p o i n t of the U.S. a con t i n u i n g desire to explore
f u r t h e r and try to u n d e r s t a n d b e t t e r what all is
involved.
7.
Finally, I h a d some d i s c u s s i o n w i t h the various
p e o p l e I m e t w i t h of the general subject of trade
a n d a g r i c u l t u r a l products, and of course this is
s o m e t h i n g that will have to be dealt w i t h by people
who are closer to the subject than I, from the
D e p a r t m e n t of Agric u l t u r e , but I think the general
p o i n t that I sought to b r i n g to p e o p l e ’s a t t e n t i o n
is that the m ore l e ad time we have and info r m a t i o n
of what the S o viet intentions are the mor e e f f i c i e n t l y
there can be in our p e r f o r m a n c e .
8.
I w o u l d say fi n a l l y that, in repeating, that the
Soviet o f f icials were quite f o r t h c o m i n g in their
e x p l a n a t i o n s to me of the duties of the various
d e p a r t m e n t s that I m e t with, a nd this was e s p e c i a l l y
so in trying to ap p r a i s e on m y par t the w a y in w h i c h
the subject of f o r eign trade i n t e r a c t e d w i t h the
w a y in w h i c h the s y s t e m works as a whole.
So again
I e x p ress m y g r a t i t u d e for their h o s p i t a l i t y and for
the w a r m tone and spirit of the conversations.
Q.
Mr. Shultz, w h a t did y o u tell Soviet leaders about
the J a c k s o n A m e n d m e n t and the pro b l e m s w i t h the Trade
Bill, and h o w serious is that pr o b l e m ?
A.
Well, I s i m p l y d e s c r i b e d it and the b a c k g r o u n d of
it and the n a t u r e of the A m e r i c a n P o l i t i c a l Process
i n v o l v i n g the i n t e r a c t i o n of the P r e s i d e n t and the
Co n g r e s s a n d at the same time e x p r e s s e d the P r e s i d e n t ’s
c o n t i n u i n g d e t e r m i n a t i o n to c a rry f o r w a r d on this par t
*»3 *■
o£ the agr e e m e n t that was m a d e w i t h the Soviet leaders.
But I think it is useful for t h e m to k now as c l e arly
as we can put it wha t the n a t u r e of the p r o b l e m is
and the p o l i t i c a l pr o c e s s that were e n g a g e d in it.
Q # Mr. Secretary, w h a t p r a c t i c a l results can be
expected, in your opinion, in A m e r i c a n trade in
the n e a r future?
In a y e a r or two?
A.
Well, I think, as I said, I d i d n ’t come here to
try to pin down any p a r t i c u l a r thing, b u t there have
al r e a d y b een quite a few d e v e l o p m e n t s in the f i eld
of trade.
There has b e e n a large flow of a g r i cultural
products.
There is u n d e r v e r y active, we hope v i r t u a l l y
con c l u s i v e d i s c u s s i o n right now, certain pr o j e c t s w i t h
w h i c h O S R E X - I M B a n k is con n e c t e d and, of course, there
is the c o n t i n u i n g e x p l o r a t i o n of e n e r g y sources a nd
arrangements of that k i n d so I think this is something
that develops and unfolds, b u t I ’ve t r i e d to m e n t i o n
some of the thijigs that have al r e a d y taken place.
Q.
W o u l d y o u say something, sir, about y o u r talks
this m o r n i n g w i t h S e c r e t a r y B r e z h n e v ?
A.
Well, I think that the comments that I have made
about the talks in general c e r t a i n l y apply to that.
It was the longest of all of the d i s c u s s i o n s that I
had, that is, the m e e t i n g itself wen t on over a longer
p e r i o d and c o v e r e d the sweep of r e l a t i o n s h i p s b e t w e e n
the U.S. and the Soviet Union, and I think s e rved to
emphasize and put in place s e c u r e l y the n o t i o n that
when w e ’re talking about trade m a t t e r s and w h e n w e ’re
talking about e c o n o m i c re l a t i o n s of a b r o a d e r and longer
term sort, those are of course of great s i gnificance
in and of themselves, but they take on an a d ded c h a r a c t e r
as p a r t of a c o n s t e l l a t i o n of things that are going on
c h a r a c t e r i z i n g the d e v e l o p i n g r e l ations b e t w e e n the
U.S. and the USSR.
We c o v e r e d that g r o u n d and m a n y o t her m a t t e r s along the
lines of the general d i s c u s s i o n I have a l ready given,
but I w o u l d emp h a s i z e that the w h ole d i s c u s s i o n was
c h a r a c t e r i z e d b y a v e r y good spirit.
Q.
Mr. Shultz, do y o u have an y i m p r e s s i o n that the
Soviet U n i o n ’s attitude t o ward J e w i s h E m i g r a t i o n will
change b e c a u s e of a n y t h i n g y o u s a i d or b e c ause of any
receptions of the p e o p l e y o u t a l k e d to had?
A.
Well, I think that is a q u e s t i o n that they will
hav e to answ e r and don't w ant to in any sense try to
estimate a n y t h i n g about their policy.
My obje c t i v e s
here was to e x p l a i n that p r o b l e m from the standpoint
of the U.S.
Q.
Did y o u tell t hem Mr. Shultz, that the bill is
u n l i k e l y to p ass u n less there is some l o o s e n i n g up
on the J e w i s h E m i g r a t i o n question?
A.
Well, I think there is a q u e s t i o n of course w hat
bill are we talking about, and p r e c i s e l y h o w is this
bill going to come before the Congress, and the President
has n o t yet d e c i d e d p r e c i s e l y h o w that will be done
so I think it remai ns to be seen.
Y ou can't p r e dict
the o u t c o m e of a piece of l e g i s l a t i o n that has n ot
yet b e e n introduced.
Q.
Mr. B r e z h n e v say an y t h i n g about his trip to the
U n i t e d States?
A.
No.
Q.
D id y o u d i s cuss
c u r r e n c y probl e m s
at all
-- Gold?
A.
No.
J u s t in p a s s i n g at one time one of the, I
think the finance m i n i s t e r m e n t i o n e d that he, in fact,
he did this at the b e g i n n i n g of the m e e t i n g w h e n the
t e l e v i s i o n was in the room, r e f e r r e d to my IMF Speech
and the em p h a s i s on SDR's w h i c h he on the whole seemed
to think was good.
Q.
Mr. Secretary, w o u l d y o u say at all w h a t Mr. Brezhnev
said about the J a c k s o n and those a m e n dments and h o w he
t a l k e d about the Soviet E m i g r a t i o n Law?
A.
N o , I w o u l d n ' t w a n t to in any sense so to speak
put m y s e l f in his shoes and try to express his views.
That is I think som e t h i n g I w o u l d n ' t w a n t to try to
do at all.
Q.
A re y ou optimistic,
sir?
A.
The answer to that q u e s t i o n is yes as a general
p r o p o s i t i o n , and I t h ink the p r i n c i p a l reason for that
is that there does seem to be w i t h o u t q u e s t i o n a w a r m
and goo d a nd c o n s t r u c t i v e spirit, a spirit that says
let us get on and let us do things that are w o r t h w h i l e
together, and I w o u l d couple that w i t h an a b i l i t y to
d i g into the details of things.
15It's obvious that y o u can't sort of i m p lement broad,
general g o o d relations, y o u have to get down to specifics
and then the q u e s t i o n is w h e t h e r or n o t f a ced w i t h
the sp e c i f i c pro b l e m s in a p a r t i c u l a r p r o j e c t or s o m e
thing of that kind, p e ople have the will to overcome
the inevitable d e t a i l e d p r o b l e m s that tend to arise
in e v e r y context, and so I think there is b o t h the
spirit to try to solve p r o blems and the w i l l i n g n e s s
to tackle them in v e r y real terms, and given those
two things it seems to me that we can be o p t i m i s t i c
about the general p r o s p e c t s for development.
Q.
D id they give you an i n d i c a t i o n that they are going
to h ave to bu y m o r e grain from us this year?
A.
I think that is rather early to be able to p r e dict
just wha t p u r c h a s e s there m a y be, but I did try to
call a t t e n t i o n to the fact, as I m e n t i o n e d earlier,
that the g r e a t e r the lead time that we have on these
ma t t e r s the m o r e e f f e c t i v e we can be not- onl y serving
w h a t p o s s i b i l i t i e s there m a y be here but in serving
our own p o p u l a t i o n and others a r o u n d the w o r l d who
want to buy far m pr o d u c t s from U.S.
I think something o n the order of a t h i r d of our total
farm output
goes into export so it's a very s i g n i f i c a n t
amount, a nd if we have a little long e r lead time we
can p lan b e t t e r for the p r o c e s s n ot only in terms
of p r o d u c t i o n of farm goods bu t also in terms of the
t r a n s p o r t a t i o n s y stem n e e d e d to m ove the farm goods
from the farm to coll e c t i n g places and th r o u g h the
rail s y s t e m and the barge system and out.
Q.
Mr. Shultz, y o u m e n t i o n e d that this was n o t a
n e g o t i a t i n g session bu t rather a series of me e t i n g s
to get acquainted.
(Yes) w h e n s p e c i f i c a l l y and h ow
do y ou n o w expect to m ove into a n e g o t i a t i n g phase
for all these que s t i o n s that are h a n g i n g fire:
gas,
energy, financing, as y o u look ahead the n e x t few
months?
A.
Well, I think that those things are l i t e r a l l y
cu r r e n t l y going on, and then the pace of n e g o t i a t i o n s
on some p a r t i c u l a r thing k i n d of goes f o r w a r d in its
own terms, that is, there has b e e n a set of d i s c u s s i o n s
that I assume are p r o b a b l y t a king place again today
involving our own E X - I M B ank and s e veral p r o j e c t s
that have bee n quite well w o r k e d out by this time
to try to b r i n g to a final c o n c l u s i o n those n e g o t i a t i o n s .
Well, that is som e t h i n g that has b e e n going on and
is l i t e r a l l y g o ing on.
If y ou take a n other one of
the subjects y o u m e n t i o n e d , the various pro p o s a l s
-
6
-
about d e v e l o p m e n t of gas and the use of gas.
Well,
there has b e e n quite a lot of d i s c u s s i o n about that
and m y e s t imate is that it has r e a c h e d the stage
w h ere one can say that at least certain of these
proje c t s s e e m to be promising, p r o m i s i n g enough
so that the great m a n y q u e stions that have to be
d e t e r m i n e d of an e n g i n e e r i n g and ec o n o m i c sort
m u c h m o r e p r e c i s e l y and in m u c h more detail than
we n o w k n o w them, well, w o r k s h o u l d go forward on
that, a nd not w i t h any c e r t a i n t y that there can be
a c o n c l u s i o n to go a h ead but w i t h e n o u g h p r o b a b i l i t y
to w a r r a n t spending the e x t r a time and effort to
see w h a t can take place.
So I think the answer to y our q u e s t i o n is at wha t
time will certain n e g o t i a t i o n s take place.
Well,
it depends on the p a r t i c u l a r p r o j e c t that one has
in m i n d and it varies.
'^0 CD
Q.
Mr. Shultz, can y ou c o n firm or deny a q u e s t i o n
of w h e t h e r there has bee n an a g r e e m e n t that the
U n i t e d States and other countries a g reed in pr i n c i p l
to sell gold on the free m a r k e t in the central banks.
A.
T h a t p a r t i c u l a r subject did no t come up in the
m e e t i n g s that we h a d last Friday in Paris.
I have
b e e n away fro m the in t e r n a t i o n a l m o n e t a r y scene
p e r s o n a l l y since last w e e k e n d and I e x p e c t to m e e t
w i t h Mr. Volcker, Under S e c r e t a r y of the Treasury,
this e v ening and then Dr. Burns will be b a c k and
r e join us on T h u r s d a y e v e n i n g in p r e p a r a t i o n for
the d i s c u s s i o n s on Friday.
What all m a y have come
up I don't know.
Q.
Mr. Secretary, do yo u get any i n d i cation or
do y o u have any c o m ments on h o w the Soviet Union
w o u l d like to p ay for p u r c h a s e s in the U n i t e d
States?
O u t side of credits and energy, are
there p a r t i c u l a r pr o d u c t s they have in mind?
Do they look f o r w a r d to a ba l a n c e in trade?
A.
Well, I think c e r t a i n l y we all m u s t look f o r ward
to a b a l a n c e in trade and that is the essence of
the matter, that is w h a t m u t u a l a d v a ntage is made
up of.
Of course, the p r o s p e c t s in the e n e r g y
f i e l d are p o t e n t i a l l y v a s t a nd can be of great
s ignificance.
There are quite a n u m b e r o f other
p r o d u c t s that have b e e n m e n t i o n e d I k n o w from
time to time here that they w o u l d like to sell
us, and I am not in a p o s i t i o n to comment detail
b y detail e x c e p t to say that I k n o w there is a
s u b s t a n t i a l list of p o s s i b i l i t i e s .
-7-
Q.
Are the y prepared, Mr. Shultz, to give yo u the
i n f o r m a t i o n the A m e r i c a n industry n e eds on the gas
p r o j e c t to go ahead w i t h these studies?
A.
Well, I a g ain w o u l d just have to repeat that as
to w h a t their o u t l o o k is and w h a t they are p r e p a r e d
to do y o u will have to ask them.
I can report to
yo u w h a t our o u t l o o k is and w h a t w e ’re p r e p a r e d to
do.
Q.
Mr. Secretary, w h a t are the p l ans for s u b m i t t i n g
l e g i s l a t i o n - - i s there a time limit b y w h i c h trade
l e g i s l a t i o n will be p r e s e n t e d in C o n g ress?
(Secretary:
Are y o u s p e a k i n g about trade l e g i s l a t i o n in general
or the MFN legislation?)
A.
Well, we w a n t to sen d that up as p r o m p t l y as we
can, of course it is e asy e n o u g h to send s o m e t h i n g
up to the Congress.
But that is n o t what w e ’re
looking for, w hat w e ’re l o o k i n g for is a const r u c t i v e
outcome of the J o i n t E x e c u t i v e / C o n g r e s s i o n a l Process,
and that is w h a t we are w o r k i n g on, b u t I expect
that there will soon be some m o t i o n on this on the
part of the E x e c u t i v e B r a n c h that is explicit, but
we are trying to see h o w this m a t t e r can be w o r k e d
at w i t h the m a x i m u m chance for success.
Q.
Is there still a q u e s t i o n of inc l u d i n g M FN w i t h
an overall trade bill?
Is that still on?
A.
That
as well.
is one q u e s t i o n and there m a y be others
Q.
Sir, is it fair to say that there can be no
B r e z h n e v v i s i t until after MFN is passed?
A.
That
I am n ot in a p o s i t i o n
to comment about.
Q.
Sir, d id y o u b r i n g any m e s s a g e w i t h y o u about the
n e w U.S. A m b a s s a d o r to
M o s c o w or a
c o m m e n t on the
absence of an a m b a s s a d o r at a v e r y vital time over the
past two m o n t h s ?
A.
I d o n ’t have any special i n f o r m a t i o n on that,
except that o b v i o u s l y P r e s i d e n t N i x o n regards the
rela t i o n s h i p -- the U.S. r e l a t i o n s h i p s w i t h the
U S S R -- as m a t t e r s of the h i g h e s t importance and
i t ’s for that reason that h e
has b e e n p a y i n g a
lot of a t t e n t i o n to it p e r s o n a l l y , and has for
example sent me h e r e .
-
8
-
Q.
D id y o u b r i n g any special letter or m e s s a g e from
the P r e s i d e n t in add i t i o n to the general type of
g r e eting?
A.
Well I b r o u g h t v e r y e x p l i c i t l y from the P r e s i d e n t
to this c o u n t r y and to general S e c r e t a r y B r e z h n e v the
P r e s i d e n t ' s own desire to see further d e v e l o p m e n t of
c o n s t r u c t i v e r e l a t i o n s h i p s b e t w e e n these two countries
and p a r t i c u l a r l y in the f i eld of trade, but as I said
earlier, seei n g this as p art of the u n f o l d i n g of a
general set of r e l a t i o n s h i p s as w ell as b e i n g s o m ething
im p o r t a n t in an d of itself.
Q.
Mr. Secretary, d id the q u e s t i o n of s t r a t e g i c controls,
that is to say, the em b a r g o come up in any w a y and if
not, (no) are there any channels of c o m m u n ications
b e i n g set up to discuss this q u e s t i o n or in some w a y
to r e s olve this p r o blem?
A.
T h e r e are, of course, talks going on s t r a tegic
arms l i m i t a t i o n s and (Mr. Secretary, I m e a n t e m bargo
on s t r a t e g i c goods, such as computers and the k i n d of
t e c h n o l o g y the Soviet Union...) Yes.
Well, those are
subjects that are always u n d e r r e v i e w but they did
n o t come up in the course of m y discussion.
Q.
A r e y o u ca r r y i n g any m e s s a g e
to P r e s i d e n t N i x o n ?
from S e c r e t a r y B r e z h n e v
A.
Well, I c e r t a i n l y intend to report to the P r e s i d e n t
the v e r y w a r m and f o r t h c o m i n g sentiments that the
General S e c r e t a r y e x p r e s s e d and to w h i c h I have
a l l u d e d in general terms here, and I will n a t u r a l l y
give h i m a full report on my conversations.
Q.
Mr. Secretary, d i d the qu e s t i o n of joint efforts
in the r e c o n s t r u c t i o n of V i e t n a m come up at all?
A.
No,
that didn't
come up.
E n d text.
Departmentof
SHINGTON, D C 20220
thef
TELEPHONE W041041
M A R C H 16,
FOR IMMEDIATE RELEASE
1973
S t a t e m e n t by A c t i n g S e c r e t a r y of the T r e a s u r y
W i l l i a m E. S i m o n on R e s i g n a t i o n of
C o m m i s s i o n e r of Internal Revenue
Jo h n n i e M. W a l ters
The P r e s i d e n t today a n n o u n c e d the r e s i g n a t i o n of
Johnnie M. W a l t e r s as C o m m i s s i o n e r of Internal Revenue.
At the r e q uest of S e c r e t a r y Shultz, C o m m i s s i o n e r W a l t e r s
had d e l a y e d his actual dep a r t u r e for several months.
Now
that the 1973 filing s e ason is d r a w i n g to a close, Mr.
Walters pla ns to leave his p ost shortly.
C o m m i s s i o n e r W a l t e r s has mad e an o u t s t a n d i n g c o n t r i b u t i o n
to the e f f e c t i v e a d m i n i s t r a t i o n of the v o l u n t a r y self>
assessment tax system.
Mr. W a l t e r s has s e r v e d in P r e s i d e n t N i x o n s
Administrations since J a n u a r y 1969.
In J a n u a r y 1969 he was c o n
firmed as A s s i s t a n t A t t o r n e y General.
He s e r v e d until A u g u s t 19/
as head of the D e p a r t m e n t of Ju s t i c e Ta x Division.
In June 1971,
President N i x o n n a m e d h i m C o m m i s s i o n e r of Internal Revenue.
After Sena t e confi r m a t i o n , he took the oath of office on
August 6, 1971.
As Co m m i s s i o n e r , Mr. Wa l t e r s has b e e n r e s p o n s i b l e for
managing the Internal Re v e n u e S e r v i c e ’s 70,000 employees in its
responsibility to c o l lect 200 b i l l i o n dollars annually.
While
performing that cr i t i c a l function, the Service also has c o n
tributed m i g h t i l y to P r e s i d e n t N i x o n ’s E c o n o m i c S t a b i l i z a t i o n
Program and campaigns against n a r c o t i c s t r a f f i c k e r s . At the
same time, u n d e r C o m m i s s i o n e r Wa l t e r s , the Interenal Revenue
Service, w i t h the theme ”We w a n t to h e l p , ” a d o p t e d and i m p l e m e n t e d
a f o r w a r d - l o o k i n g p r o g r a m e m p h a s i z i n g g r e ater service to the
public.
Mr. W a l t e r s p l ans to r e - e n t e r the p r i v a t e p r a c t i c e
when he leaves Internal Revenue.
oOo
S-146
of law
HINGTON,, DC 20220
TELEPHONE W04-2041
n c
M a r c h 16, 1973
FOR IMM E D I A T E R E L E A S E
M E M O R A N D U M F O R C O R RESPONDENTS:
S e c r e t a r y of the T r e a s u r y G e o r g e P.
leave Paris
S a t u r d a y morning, M a r c h 17. He w i l l
Brussels and later in the day w i l l
England.
officials
Shultz w i l l
fly on to London,
He w i l l m e e t w i t h trade and
in b o t h nations,
fly to
finance m i n i s t r y
to c o n t i n u e the series of
meetings, he has b e e n h a v i n g in the U S S R and Europe.
His e x act s c h edule
in b o t h cities w i l l be
announced on arrival.
oOo
Departmentof theTREASURY
HINGTON, D C 20220
TELEPHONE W04-2041
777
March 16, 1973
PRESS COMMUNIQUE
OF THE MINISTERIAL MEETING OF THE GROUP OF TEN
AND THE EUROPEAN ECONOMIC COMMUNITY
PARIS, FRANCE
The Ministers and Central Bank Governors of the ten
countries participating in the general arrangements to
borrow and the member countries of the European Economic
Community met in Paris on 16th March, 1973 under the
Chairmanship of Mr. Valery Giscard d'Estaing, Minister
of the Economy and of Finance of France. Mr. P. P. Schweitzer,
Managing Director of the International Monetary Fund, took
part in the meeting, which was also attended by
Mr. Nello Celio, head of the Federal Department of Finance
of the Swiss Confederation, M r c E. Stopper, President of
the Swiss National Bank, Mr. W.Haeferkamp, Vice President
of the Commission of the European Economic Community,
Mr. E. Vann Lennep, Secretary-General of the Organization
for Economic Co-operation and Development, Mr. Rene Larre,
General Manager of the Bank for International Settlements
and Mr. Jeremy Morse, Chairman of the Deputies of the
Committee of Twenty of the ICM.F0 The Ministers and
Governors heard a report by the Chairman of their
Deputies, Mr. Rinaldo Ossola on the results of the
technical study which the Deputies have carried out in
accordance with the instructions given to them.
The Ministers and Governors took note of the decisions
of the members of the E. E. C. announced on Monday. Six
members of the E. E. C. and certain other European countries,
including Sweden, will maintain 2-1/4 per cent margins
between their currencies. The currencies of certain
countries, such as Italy, the United Kingdom, Ireland,
Japan and Canada remain, for the time being, floating.
However, Italy, the United Kingdom and Ireland have
expressed the intention of associating themselves as soon
as possible with the decision to maintain E. E. C.
exchange rates within margins of 2-1/4 per cent and
meanwhile of remaining in consultation with their E. E. C.
partners.
2
T h e M i n i s t e r s a n d G o v e r n o r s r e i t e r a t e d their
d e t e r m i n a t i o n to e n s u r e j o i n t l y an o r d e r l y ex c h a n g e rate
system.
To this end, t h e y a g r e e d o n the b a s i s for an
o p e r a t i o n a l a p p r o a c h t o w a r d s the ex c h a n g e m a r k e t s in the
n e a r future and on c e r t a i n f u r t h e r studies to b e c o m p l e t e d
as a m a t t e r of u r g ency.
T h e y a g r e e d in p r i n c i p l e that o f f i c i a l i n t e r v e n t i o n
in e x c h a n g e m a r k e t s m a y be u s e f u l at a p p r o p r i a t e times to
f a c i l i t a t e the m a i n t e n a n c e of o r d e r l y conditions, k e e p i n g
in m i n d a l s o the d e s i r a b i l i t y of e n c o u r a g i n g r e f l o w s of
s p e c u l a t i v e m o v e m e n t s o f funds.
Each n a t i o n stated that
it w i l l b e p r e p a r e d to i n t e r v e n e at its i n i t i a t i v e in
its o w n market, w h e n n e c e s s a r y a nd desirable, acting
in a f l e x i b l e m a n n e r in the light of m a r k e t c o n d i t i o n s
a n d in c l o s e c o n s u l t a t i o n w i t h the a u t h o r i t i e s of the
n a t i o n w h o s e c u r r e n c y m a y b e b o u g h t or sold.
The
c o u n t r i e s w h i c h h a v e d e c i d e d to m a i n t a i n 2 - 1 / 4 p e r cent
m a r g i n s b e t w e e n t h e i r c u r r e n c i e s h a v e m a d e k n o w n t h eir
i n t e n t i o n of c o n c e r t i n g a m o n g t h e m s e l v e s the a p p l i c a t i o n
of t h ese p r o v i s i o n s .
Such i n t e r v e n t i o n w i l l be financed,
w h e n n e c e s s a r y , t h r o u g h u s e of m u t u a l credit facilities.
T o e n sure f u lly a d e q u a t e r e s o u r c e s for suc h operations, it is
e n v i s a g e d t hat some of the e x i s t i n g "swap" f a c i l i t i e s w i l l be
.enlarged.
Some c o u n t r i e s hav e a n n o u n c e d a d d i t i o n a l m e a s u r e s to
r e s t r a i n c a p i t a l inflows.
The U n i t e d S t ates a u t h o r i t i e s
e m p h a s i z e d tha t the p h a s i n g ou t of their c o n t r o l s on longerter m c a p i t a l o u t f l o w s by the end of 1974 was i n t e n d e d to
c o i n c i d e w i t h s t r o n g i m p r o v e m e n t in the U.S. b a l a n c e - o f p a y m e n t s position.
A n y steps t a ken d u r i n g the i n t e r i m p e r i o d
t o w a r d the e l i m i n a t i o n of t h ese c o n t r o l s w o u l d take d ue a c
c o u n t of e x c h a n g e m a r k e t c o n d i t i o n s and the b a l a n c e of p a y
m e n t s trends.
T h e U.S. a u t h o r i t i e s are als o r e v i e w i n g actions
that m a y be a p p r o p r i a t e to r e m o v e i n h i b i t i o n s on the i n f l o w
of c a p i t a l into the U n i t e d States.
C o u n t r i e s in a strong
p a y m e n t s p o s i t i o n w i l l r e v i e w the p o s s i b i l i t y of r e m o v i n g or
r e l a x i n g a ny r e s t r i c t i o n s on c a p i t a l outflows, p a r t i c u l a r y
long-term.
M i n i s t e r s and g o v e r n o r s n o t e d the i m p o r t a n c e of d a m p e n i n g
speculative capital movements.
T h e y s t ated their i n t e n t i o n
to seek m o r e c o m p l e t e u n d e r s t a n d i n g of the source and n a t u r e
of the large c a p i t a l flows w h i c h h ave r e c e n t l y taken place.
3
With respect to Euro-currency markets, they agreed that
methods of reducing the volatility of these markets will be
studied intensively, taking into account the implications
for the longer-run operation of the international monetary
system. These studies will address themselves, among other
factors, to limitations on placement of official reserves in
that market by member nations of the IMF and to the possible
need for reserve requirements comparable to those in national
banking markets. With respect to the former, the ministers
and governors confirmed that their authorities would be pre
pared to take the lead by implementing certain undertakings
that their own placements would be gradually and prudently
withdrawn. The United States will review possible action to
encourage a flow of Euro-currency funds to the United States
as market conditions permit.
In the context of discussions of monetary reform, the
ministers and governors agreed that proposals for funding
or consolidation of official currency balances deserved
thorough and urgent attention. This matter is already on
the agenda of the Committee of Twenty of the IMF.
Ministers and governors reaffirmed their attachment to
the basic principles which have governed international economic
relations since the last war as the greatest possible freedom
for international trade and investment and the avoidance of
competitive changes of exchange rates. They stated their
determination to continue to use the existing organizations
of international economic co-operation to maintain these
principles for the benefit of all their members.
Ministers and governors expressed their unanimous con
viction that international monetary stability rests, in the
last analysis, on the success of national efforts to contain
inflation. They are resolved to pursue fully appropriate
policies to this end.
Ministers and governors are confident that, taken to
gether, these moves will launch an internationally responsible
program for dealing with the speculative pressures that have
recently emerged and for maintaining orderly international
monetary arrangements, while the work of reform of the inter
national monetary system is pressed ahead. They reiterated
their concern that this work be expedited and brought to an
early conclusion in the framework of the Committee of Twenty
of the IMF.
0 O0
FOR IMM E D I A T E R E L E A S E
M a r c h 16,
1973
The E m e r g e n c y L o a n G u a r a n t e e B o a r d today gave its
consent to a r e q u e s t b y L o c k h e e d A i r c r a f t C o r p o r a t i o n
to a c q uire the M u r d o c k M a c h i n e and E n g i n e e r i n g C o m p a n y ,
a di v i s i o n of the CCI C orporation.
M u r d o c k is the su p p l i e r
of the p y l o n s u s e d in L o c k h e e d * s L - 1 0 1 1 Tristar.
The B o a r d
consent w a s r e q u i r e d u n d e r the 1971 A g r e e m e n t s b e t w e e n
Lockheed, its l e n ding banks and the Board.
oOo
S-148
s
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE
S E N A T E C O M M I T T E E ON A P P R O P R I A T I O N S
M O N D A Y , M A R C H 19, 1973, at 10:15 A.M. (EST)
Mr, Chairman and Members of the Committee:
I
welcome this opportunity to appear before the
Senate Appropriations Committee to explain the effect of
the proposed 10-percent change in par value of the dollar
on United States assets and liabilities, as well as the
need for an appropriation to meet certain of these
liabilities.
The details of these changes are quite complex.
I
believe it would be helpful in understanding this subject
if you would follow the tables attached to my testimony
as I proceed.
Devaluation has two purely financial effects: certain
assets and certain liabilities are increased in value.
First, let me discuss the assets side.
2
Increase in Value of Assets
Devaluation increases the value of assets that are
denominated in terms of gold.
An ounce of gold at the
official price is now worth $38?
after devaluation this
same ounce of gold will be valued at $42.22 —
percent increase.
an 11.1
Thus assets that are denominated in
terms of gold will be worth more in terms of dollars.
The United States has two classes of assets that
are denominated in gold:
(a)
international reserves —
gold, Special Drawing
Rights, and gold tranche drawing rights on
the IMF, and
(b)
subscriptions to the international financial
institutions.
First, the effect on our international reserve assets.
Gold
The dollar value of our gold stock will increase by
11.1 percent from $10,487 million to $11,652 million, an
increase of $1,165 million.
Under existing law, this
increment in value is transferred to miscellaneous receipts
of the Treasury.
The Treasury can issue gold certificates
to the Federal Reserve against this increased value of gold
and receive from the Federal Reserve a cash deposit.
/
3
Special Drawing Rights
The United States now holds $1,958 million Special
Drawing Rights and these SDRs are denominated in terms
of gold.
The dollar value increase as a result of
devaluation amounts to $218 million.
The SDR is a new
international reserve asset created by the IMF and
useable by member governments in a way comparable to
gold to settle international imbalances.
The United States
wishes to see greater reliance on the use of this instrument
in the international monetary system in the future.
IMF Gold Tranche
Our remaining gold tranche automatic drawing rights
on the International Monetary Fund, which represents gold
which we have paid to the Fund, increases by $52 million
to a total of $469 million.
These are automatic rights to
draw currencies from the IMF when needed to finance a
balance of payments deficit.
As of the present, we are
using $1.4 million of these drawing rights.
IMF Subscription and Paid-in Capital Subscriptions
The devaluation also has the effect of increasing
the value of another type of asset —
our paid-in
subscriptions to the International Monetary Fund and the
international development lending institutions.
These assets
are denominated in terms of gold and therefore increase in
4
dollar value —
$606 million for the Fund subscription
and $477 million for the paid-in capital subscriptions
to the lending institutions.
However, to realize this
increase in value, we must pay in additional dollars
to these institutions, which I will mention in the
discussion of the increase in our liabilities.
The total increase in assets amounts to $2.5
billion —
$1.4 billion in liquid international reserve
assets and $1.1 billion in the value of international
financial institutions subscriptions.
Increase in Liabilities
On the liability side, there are increases in three
general types of liabilities:
—
liabilities resulting from borrowing of foreign
currencies and foreign exchange operations;
—
increase in repayment obligations resulting from
IMF drawings and SDR allocations; and
—
maintenance of value obligations in the
international financial institutions.
Some of these liabilities will be financed from Federal
Reserve resources and from the Exchange Stabilization Fund
without need of appropriations.
The remainder —
our
increased payment obligations to the international financial
5
institutions —
will require an appropriation of up to
$2.25 billion.
However, of this new obligational
authority, only $477 million will result in budgetary
expenditures.
I would now like to give you some of the
details on each of these liability items.
Non-appropriation Liabilities —
SDRs and Swaps
Treasury Borrowings,
The portions of our liabilities not requiring
appropriations are those derived from Treasury borrowing
in foreign currencies, from Special Drawing Rights and
from Federal Reserve mutual credit
"swap" arrangements.
The devaluation will make it more costly in terms
of dollars to purchase the foreign currencies needed to
repay the $1,714 million of Treasury borrowing denominated
in Swiss francs and German marks.
The additional cost is
estimated at $193 million and would be financed from the
Exchange Stabilization Fund —
the organ of the Government
established for dealing in foreign exchange and which is
designed to absorb gains or losses involved in foreign
exchange transactions.
Similarly, our increased repayment obligations to the
IMF on allocations of Special Drawing Rights do not require
an appropriation.
In accordance with established
accounting
procedures, we have not only written up by $218 million the
6
increase in value of our present holdings of SDR as an
asset, as I have already described, but we have also
increased on the books of the ESF our liability to the
International Monetary Fund of $278 million based on
our allocations of Special Drawing Rights.
The net
liability, amounting to $60 million, would only be
realized if the SDR scheme were liquidated or if the
United States withdrew from it.
The last non-appropriation liability results from
the additional cost of purchasing foreign currencies at
the new exchange rates to repay Federal Reserve swap
borrowing totalling $1,639 million.
The additional cost
to the Federal Reserve of purchasing foreign currencies
is an estimated $196 million and this amount will be
absorbed from the earnings of the Federal Reserve System.
Liabilities Requiring Appropriations
I
will now turn to the liabilities requiring
appropriations.
—
These, too, are of three different types:
maintenance of value on the International Monetary
Fund's holdings of dollars?
—
contingent obligations to the international
development lending institutions? and
—
paid-in capital subscriptions to these institutions.
- 7 As you can see, all of these liabilities are to
the international financial institutions.
They derive
from a provision in their Articles of Agreement requiring
member countries to maintain the value of their subscriptions
in terms of a common denominator, in this case gold.
In
other words , a member that devalues its currency must pay
in additional amounts of that currency in order to maintain
the same gold value, and thus the same proportionate
contributions, as existed prior to devaluation.
The
provision is thus intended to guard against loss in the
relative value of the contributions of all members despite
alterations in exchange rates, thus assuring that the
equitable burden sharing that these institutions seek to
achieve is not distorted and that voting rights are not
diminished.
In the past, there have been over 200
devaluations involving 60 countries.
In every case,
maintenance of value obligations have been fulfilled.
Liability to IMF
The first type of liability —
maintenance of value
on International Monetary Fund holdings of dollars
two components.
has
First, the IMF Articles require us to
increase the value of our subscription of $7.2 billion by
11.1 percent.
In addition, the United States has paid
8
$1.4 billion to the Fund as a result of drawings of foreign
currencies.
This sum must also be maintained in value by
the same percentage resulting in a payment of $150 million.
Thus, total payments to the Fund wi11 amount to
$756 million.
This obligation —
form of a letter of credit —
to be reflected in the
will have no budgetary impact.
U.S. transactions with the Fund are excluded from the budget
in accordance with a recommendation of the President's
Commission on Budget Concepts which pointed out that
subscriptions, drawings and other transactions with the
Fund were monetary exchanges of assets.
Our subscription
is akin to a deposit in a bank that can be used by the bank
for lending to others and also to establish a line of credit
for the depositor —
in this case the United States.
Contingent Obligations to Development Banks
The second category involves contingent obligations
amounting to $992 million.
amount —
$920 million —
The largest part of this
derives from the United States
subscriptions to the callable capital of the World Bank,
the Inter-American Development Bank, and the Asian
Development Bank.
This callable subscription, together with
the similar subscriptions of other members, stands as a
guarantee behind the Banks' borrowing in private capital
markets and is to be called only if these Banks cannot meet
their obligations to bondholders.
f
- 9 The other element of contingent obligation, amounting
to $72 million, involves loans made in dollars by the
Fund for Special Operations of the Inter-American Development
Bank but repayable in dollars or local currencies.
The U.S.
will have to maintain the value of the loan repayments only
if made in dollars —
I
a highly unlikely event.
must emphasize the remote nature of these contingent
liabilities.
Our callable capital obligations have never,
as yet, been called and we do not expect calls in the future.
We can make this prediction based on the sound financial
condition of these institutions, their reserves, and the
fact that this guarantee is backed not only by the United
States but by other major countries as well.
Thus, we do not anticipate that these liabilities —
while constituting a contingent call upon U.S. Government
resources analogous to other government guarantees —
will
materialize.
Paid-in Capital
The third category of obligations involves paid-in
capital subscriptions.
This will involve $477 million
flowing from certain present and planned future contributions
to the three Banks mentioned above, plus the International
Development Association.
It is only this $477 million that will result in
10
budgetary expenditures.
There will be no expenditures in
fiscal year 1973 and $12 million in fiscal year 1974.
The
remaining amounts will be spread out in relatively small
installments over a period of 12 years.
The total amount of obligations requiring appropriation
resulting from the par value change now before you amounts
to $2,225 million consisting of (a) obligations to the IMF —
$756 million?
(b) contingent obligations —
and (c) paid-in capital subscriptions —
$992 million;
$477 million.
Our
appropriation request has been rounded to a maximum of
$2.25 billion because we cannot be precisely certain now
of the exact amounts involved because maintenance of value
is fixed only at the time that the United States communicates
its formal par value change to the International Monetary Fund.
It is my hope, in fact, the obligations will be less than
$2,225 million.
This is borne out by our experience with the
1972 appropriation which, when the final data were compiled,
involved obligations of $1,578 million against a rounded
appropriation of up to $1.6 billion.
As this summary suggests, there is a rough offsetting
between increases in assets and liabilities as a consequence
of devaluation.
Most of the liabilities involve either
exchanges of assets with the IMF or remote contingent liabilities.
11
The increase in value of liquid international reserve
assets totalling $1.4 billion —
the Treasury —
which provides cash to
is almost three times as large as the
liabilities on paid-in capital to the international financial
institutions of $477 million —
a cash drain.
which will eventually become
Moreover, the budgetary impact of those
increased liabilities is spread out over a long period of
time.
I would end by stressing that maintenance of value is
a legal obligation flowing from the devaluation and our
membership in the international financial institutions.
I
strongly feel that this obligation should be met in timely
fashion as it has been honored by other countries.
amounts involved are quite substantial.
The
However, the outline
I have given you today makes it clear that our appropriation
request cannot be looked at in isolation but as part of a
pattern of increases
in assets and liabilities that are
the direct consequences of the change in par value that we
have recommended to the Congress.
Atta c h m e n t s
ANNEX A
Summary Table
Financial Effects of U.S. Devaluation
$ Millions
I.
On U.S» Financial Statements
A. Increase in Assets
B >t_ Increase in Liabilities ,
C. Net Increase in Assets
II.
On Records of Contingent Liabilities
Increase in Obligation to Make Additional
Capital Subscription to the International
Lending Institutions, if called
III.
IV.
2518
1900
6l8
On Maximum Appropriation
Required
992
2,225
On Forecast Budgetary Expenditures
FY 1973
0
FY 197^
12
FY 1975-1985
ho
per annum
Financial Effects of U.S. 'Devaluation
^ (Explanatory Notes Attached}
I On U.S. Financial Statements
*
Accluing
$ Millions
to:
A. Increase in Assets
1
. Increase in Value of Reserves
Gold .....................
Special Drawing Rights (SDR)....
Gold Tranche Automatic IMF
Drawing Rights............
2. Increase in Value of U.S.
Currency Subscriptions in
the International Monetary
Fund (IMF)...........
Treasury General Fund
Exchange Stabilization F?
1,165
2l8
Treasury General Fund
52
\
^
Treasury General Fund
, *
606
3. Increase in Value of U.S.
Participation in Capital of
International Lending
•„
Institutions.....
Mi
Total Assets
B.
2,518
Treasury General Fund
Financed from:
Increase in Liabilities
■1 . Treasury Debt in Foreign
Currencies.................
193
Exchange Stabilization
2. Federal Reserve Obligations in
Foreign Currencies....... ....
196
Federal Reserve Resource?
3. Increase in Repayment of
Obligations to IMF
For Currency Drawings.....
For SDR Allocations.......
150
278
Appropriations or
Exchange of Assets
Exchange Stabilization
l*. Required Additional Subscription
to the IMF.................
606
5. .Obligation for Additional Capital
Subscription to International
Lending Institutions.........
Total Liabilities
C. Net •Increase in Assets
Appropriations or
Exchange of Assets
Appropriations
**77
1,900
6 l8
Financed from:
P* On Records of Contingent Obligations
Increase in Obligation to make
Additional Capital Subscription
to the International Lending
Institutions, if called.....*.....
On Maximum Appropriation required
Appropriations
2,225
On Forecast Cash Expenditures
||
fy 1 9 7 3 .......
................
FY I9 7 U........................
FY 1975-1985... -................
‘0
12
kO
per annum
Fu:
Fur.
Notes to Table:
"Financial Effects of U.S. Devaluation')
On U.S. Financial Statement
A.
Increase in Assets — Devaluation will result in increases in
the dollar value of three types of assets:
(l) reserve assets,
(2) currency subscriptions in the International Monetary Fund,
and (3) paid-in capital subscription to the international develop
ment lending institutions. The total increase in all three classes
is $2 , 5 1 8 million.
1.
Reserve Assets
|
•'
Gold -- United States holdings now total $10,U87 million. After
devaluation the value of'these holdings in current dollars will
increase by 11.11% or $1,165 million. The increment in value of
gold will result in a direct cash inflow into the Treasury of
$1,165 million as gold certificates equivalent to the increase
in gold value are issued to Federal Reserve banks. However,
under unified budgetary accounting concepts, this increment in
value will not be considered a budgetary receipt.
Special Drawing Rights (SDR) -- SDR’s are an international reserve
asset that are created by the IMF and allocated among members.
These assets have a gold value and United States holdings now
totalling $1 , 9 5 8 million will increase by 11.11% or $ 2 1 8 million.
Gold Tranche — The gold tranche is the amount of our automatic
regular drawing rights on the International Monetary Fund. These
rights can be used by the United States to purchase or draw for
eign currencies from the Fund to meet a balance of payments need.
These rights, which are included in U.S. reserves, now total
$*469 million. They represent gold paid to the Fund in partial
fulfillment of U.S. subscription obligations and will increase
in value by 11.11% or $52 million.
2.
Increase in value of our currency subscriptions in the Interna
tional Monetary Fund
Seventy-five percent of our subscription to the IMF was
paid in United States dollars but this subscription of $ 5 ,^ 5 6
million was denominated on the books of the Fund in dollars of
a fixed weight and fineness of gold. Thus, the value of this
subscription will increase in terms of current dollars after
devaluation to a total of $6 ,0 6 2 million -- an increase of
$606 million. This increase in value allows us to increase
our drawing rights, maintain our share of voting rights and
allocations of Special Drawing Rights.
-
3.
2
-
Increase in Value of U.S. participation in Capital of
Development Lending Institutions
Paid-in investments in the World Bank, the International
Development Association, the Inter-American Development Bank
and the Asian Development Bank are also denominated in dollars
of a fixed weight and fineness of gold. United States invest
ments in these institutions will increase in value by $U77
million. The increase for the Inter-American Development Bank
will be $233 million, for the World Bank — $71 million, for
the International Development Association — $l6l million,
and for the Asian Development Bank -- $12 million.
B.
Increase
1.
in Liabilities
Treasury Debt in' Foreign Currencies
The Treasury has outstanding $1,71^ million in foreign
currency borrowings -- $306 million in German marks and $1.U
billion in Swiss francs. Repayment of these obligations at
maturity under the new rates of exchange are estimated to
result in approximately $ 1 9 3 million additional expenditure
of dollars. The actual amount of loss will vary depending
upon the market rates at which the currencies are obtained
for repayment. The liability for meeting this additional
cost is borne by the Exchange Stabilization Fund. Thus, no
appropriation or budgetary expenditures are involved.
2.
Federal Reserve Obligations under Swaps
The Federal Reserve has outstanding mutual deposit arrange
ments or so-called'"swaps" with foreign central banks totalling
$1,639 million. The cost of buying foreign currencies to repay
these swap obligations is estimated to increase by about $ 1 9 6
million over what it would have been prior to devaluation. The
actual amount of loss will vary depending upon the market rates
at which the currencies are obtained for repayment. The
Federal Reserve will bear this additional cost and no appro
priation or budgetary expenditures are required.
3.
Increase in Repayment Obligation to the IMF
—
For Currency Drawings
The United States now has a drawing outstanding, representing
U.S. purchases of foreign exchange from the International Monetary
Fund in the amount of $1.^ billion. The International Monetary
Fund Articles of Agreement require the United States to maintain
the value of these dollars held by the Fund in terms of gold.
The payments required, in the form of a letter of credit, Will
amount to $150 million.
-3 —
For SDR Allocations
Special Drawing Rights allocated to the United States are
also denominated in terms of gold. The United States has been
allocated a total of $2,1+91 million in Special Drawing Rights
and should the SDR scheme ever be liquidated, the United States
would incur an increased liability of $278 million.
U.
Required Additional Subscriptions to the IMF
In addition to the currency drawing maintenance of value
described under item 3 above, the United States has a maintenance
of value obligation o n #its currency subscription in the Fund of
$5,1+55 million'. Under Fund rules, this currency subscription
must be maintained in gold value requiring a payment of $606
million in the form of a letter of credit.
5.
Obligations for Additional Capital Subscriptions to Inter
national Financial Institutions
The United States will incur an increased paid-in capital
obligation to the international development institutions
totalling $1+77 million. The amounts are: World Bank $71
million, Inter-American Bank $233 million, Asian Development
Bank $12 million, and the International Development Association
$l6l million. These amounts will be financed from an appro
priation requested of Congress.
This maintenance of value obligation stems from similar,
but not identical, provisions in the agreements governing each
of the international lending institutions providing that each
member country that devalues its currency must maintain
the value of its contributions as measured by a common
yardstick, in this case gold. The purpose of this, require
ment is to assure that the contributions of all members are
maintained in value in relation to each other despite changes in
exchange rat^s. This provision has worked in favor of the United
States by assuring that Qther countries that devalue their cur
rencies do not diminish the value of their contributions. Thus,
the burden-sharing principle is not adversely affected by currenc
devaluations. The maintenance of value provision also assures
that our share in the assets and voting rights in these institu
tions is not impaired by our devaluation.
- k All other countries have fulfilled their maintenance of
value obligations. In total, there have been over 200 par value
modifications in the International Monetary Fund and in each
case the country concerned has fulfilled its maintenance of
value obligations in the international financial institutions.
Moreover, most countries, especially the large industrial
countries, have fulfilled these obligations promptly. For
example, France devalued in 1957, 1958 and 19&9*
the
instance, maintenance of value was made on the date of devalua
tion, in the second, two days after, and in the third, three
days after. In the case of the United Kingdom’s devaluation
in 1967, maintenance of,value was made, 33 days after and in the
case of Canada in 19&2, 28 days after.
C.
Net increase in Assets — Increases in assets total about $2.5 billion
increases in liabilities total about $1 ,9 0 0 million; the result is a
net increase in assets of about $6l8 million.
On Records of Contingent Obligations
*
increase in Obligation to make Additional Capital Subscription to the
IFI’s, if called.
_ In the World Bank, the Inter-American Development Bank (IDB) and
the Asian Development Bank (ADB), our subscription of callable
or ’’guarantee" capital is denominated in dollars of a fixed weight
and fineness, and the change in the par value of the dollar will
mean an increase of II.II79 in our callable capital obligation.
The U.S. callable capital obligation in the World Bank is $703
million, in the IDB it is $205 million, and in the ADB it is
$12 million. The total increase in the current dollar amount
of these callable capital subscriptions amounts to $9 2 0 million.
'—
This callable capital is a highly contingent liability. It has
never been called in the past and it is highly unlikely that these
subscriptions will be called in the future, considering the size
of already existing callable capital and the reserves which the
international banks have built up. Therefore, no budgetary impact
is anticipated. Nevertheless, funds must be available to meet
these obligations if they are ever called, and an appropriation
of $9 2 0 million will be requested.
-- Of the total maintenance of value for the IDB-FS0 of $2^1
million, $72 million is a contingent liability representing
loans that have been made in dollars but are repayable in
either dollars or other currencies.
If repaid in other
currencies, and this is the most likely prospect, the United
States will have no maintenance of value obligations on this
sum..
III.
On Maximum Appropriation Required
Appropriations will be required for the paid-in capital subscrip
tions to the international lending institutions and for the callable
capital subscriptions to these institutions. Payments to the Inter
national Monetary Fund can be handled as either an appropriation or
as an exchange of assets. The maximum appropriations to be requested
are as follows:
($ millions)
paid-in capital
• callable capital
IMF
k77
992
736
.2,225
\
The maximum amounts for each institution are as follows:
*
*
'
’
[in millions of dollars]
Callable
To be paid in
IBRD .................. ......
I D A ..................... .
......................
IBB
ADB ..........................
277
12
subtotal
IMF ........................
992
h77
0____________ 756
Total ................ '..
703
992
71
161
233
12
1,233
These amounts are approximate. The exact amount of maintenance
of value obligations can be determined only on the basis of holdings
on the day of formal change in par value.
IV • On Forecast Budgetary Expenditure
Budgetary expenditures are expected in the near future only from
a portion of the obligations for increased capital to the international
lending institutions. In most cases these obligations will be met, at
least initially, not by cash expenditures but rather by the issue of
letters of credit, which do not constitute budget expenditures. All
of the paid-in capital subscriptions will be paid in letters of credit
except for the Asian Development Bank. In the case of that institution,
one-half of the paid-in subscription is required to be paid in cash.
Moreover, the letter of credit portion is expected to be drawn during
fiscal year 197^. Thus, the full maintenance of value amount of $12
million is expected to be paid to the Asian Development Bank in cash
during fiscal year 1 9 7 *+.
No draw-downs on the other letters of credit are expected in
fiscal years 1973 and 197b. It is expected that draw-downs will
begin in fiscal year 1 9 7 5 and will be spread out evenly over about an
ll^year period resulting in draw-downs of $ ^ 0 million per annum.
ANNEX C
Estimated Budgetary Outlays for Maintenance of Value
Fiscal Years
$ Millions'
1972 Devaluation
1212
1973
tm
12Hf
It
.91*
IDA
IBRD
IDB (ord. cap.)
IDB (FSO)
AD3
-
1*.30
2
12
TOTAL (1972)
-
1*.1*2
23.21*
.12
m
m
i
l
12 11
1218
1979
1983
17
17
«,
—
12
9
5
-
5
_
lit
13
328.66
161
169
1?
9
-
16
16
16
«
-
n
-
8
12
2
12
2
12
2
12
2
12
2
12
2
12
2
12
5
-
_
-
-
_
5
7
-
23
23
30
30
U.30*
22
22
12
-
-
-
12
-
li.l*2
35.21*
5
- .
2311
30
37
1*0
17
20
20
21
3
20
10
20
-
16
15
9
9
.10
15
9
1?06
TOTAL
120
8
50.06
1*1
109
8.60
18
3
18
18
10
11
-
-
-
-
-
-
-
—
lU
9
-
35
35
1*1
1*1
1*9
56
57
35
23
1*77.30
58
65
71
71
86
96
71*
1»Q
36
893.06
3
18
3
18
lit
3
-
-
-
23.3
35
35
1*5.3
57
58
18
6
-
1981*
1973 Devaluation
1*
1.3
v_
TOTAL (1972 4 1973)
1982
9
-
TOTAL (1973)
1981
8
-
—
_
—
-
i
6
-
«*
IDA
IBRD
IDB (ord. cap.)
IDB (FSO)
ABB
m
ii*
~
M
.
ll*
3
18
11
11
71.30
6U
Explanatory Mote
February 23, 1973
ANNEX C
The above figures represent estimated budgetary outlays arising from payments to the international development lending
institutions in fulfillment of United States maintenance of value obligations relating to the paid-in capital of these
institutions. With minor exceptions, payment has boon made or will be made by letters of credit.’ Budgetary expenditures
only arise as these letters of credit are drawn down. Drawdowns are made by each institution as the need arises for
cash funds to pay for goods and cervices furnished to borrowers of these institutions. It is anticipated that drawdowns
relating to maintenance of value obligations on IBRD and IDB dollar loans outstanding at the time of change in par value of
the dollar will be spread out over the period oC repayment of these loans, i.e.. through fiscal 1986. With regard to IDA,
funds relating to maintenance of value obligations on First, Second and Third Replenishments, respectively, will only be
drawn down after other funds from the particular Replenishment have been exhausted.
S E C R E T A R Y G E O R G E P c SHULTZ
P R ESS C O N F E R E N C E
PARIS, F R A N C E
M A R C H 16, 1973
Se c r e t a r y Shultz:
It almost seems as t h ough this is
something we do every F r i d a y « But I h o p e n o t 0 We came
here last w e e k as y o u know, as w e d i s c u s s e d in the p r e s s
conference last week, in a spirit of c o o p e r a t i o n to h e l p
solve a m u t u a l pr o b l e m ; and I t h i n k that the d i s c u s s i o n s
last week, the v a r i o u s d i s c u s s i o n s that w e r e h e l d during
the week, and the o u t c o m e of the m e e t i n g today, are a v e r y
helpful result,,
A n d w e feel that the spirit of c o o p e r a t i o n
has p r e v a i l e d here, and that w e h a v e a set of things
coming out of the M i n i s t e r i a l M e e t i n g that w ill h e l p to
maintain o r d e r l y e x c h a n g e markets, w h i c h is something that
of course, w e all h a v e a stake i n c So I w o u l d say, from
the stand p o i n t of the U n i t e d States, since we as others,
value or d e r l y exc h a n g e m a r kets, this is a p o s i t i v e result,
and we w e l c o m e it, and w e w e l c o m e the spirit of c o o p e r a t i o n
and the o p p o r t u n i t y for c o n t i n u i n g c o n s u l t a t i o n s that the
communique reflects.
1*11 be g l a d to take y o u r questions.
Q . : Mr* Secretary, m y o f f i c e in N e w Y o r k informs m e that the
Treasury b i l l rat e h a s g one up c o n s i d e r a b l y this a f t e r n o o n
in rather h e c t i c trading, on r u mors that the F e d eral R e s e r v e
discount r a t e is g o i n g to b e i n c r e a s e d and the U.S. h as m a d e
concessions to increase d o m e s t i c c o r p o r a t e
interest rates
as part o f the package*
C o u l d y o u say w h e t h e r these rumors
are true at all?
SHULTZ:
Well, since the q u e s t i o n is d i r e c t e d m o r e
particularly at Dr. Burns, I'd like to a sk h i m to a n s w e r that.
BURNS:
T he F e d e r a l R e s e r v e d i s count rate w as not even
mentioned b y a n y o n e at any time, and n e e d l e s s to say, w h a t
ever h a p p e n s to the F e d eral R e s e r v e d i s count rate h a p p e n s
in Washington, and n o w h e r e else, and t h ere is no imm e d i a t e
action b e i n g p l a n n e d o n that subject at all*
So the rumor
is false, c o m p l e t e l y so.
Q.: Mr. Secretary,
States made?
w hat kin d of c o m m i t m e n t s h a s the U n i t e d
SHULTZ:
We h a v e a g r e e d — well, w e h a v e a g r e e d to the
communique, and y o u ' v e rea d the communique.
I t h i n k that
2
the c e n t r a l q u e s t i o n that p e o p l e h a v e h a d on t h e i r m i n d s is
the q u e s t i o n of i n t e r v e n t i o n in o r d e r to m a i n t a i n o r d e r l y
exchange m a r k e t s 0
A n d we h a v e said, as w e said last week, w e h a v e no obligation
to intervene; on the o t h e r hand, w e s t and p r e p a r e d , in a
flexible manner, on an ad h o c basis, case by case, a nd in
c o n s u l t a t i o n w i t h our t r a d i n g p a r t n e r s to u s e i n t e r v e n t i o n
w h e r e it m a y be h e l p f u l in m a i n t a i n i n g o r d e r l y e x c h a n g e
m a r ketSo
N o w t h e r e a r e a v a r i e t y of o t h e r t h i n g s r e f lected
in the c o m m u n i q u e , bu t I t h i n k that is a c e n t r a l i s sue that
p e o p l e h a v e h a d o n t h e i r minds, a n d I b e l i e v e that the
u n d e r s t a n d i n g s and a r r a n g e m e n t s m a d e w i l l h e l p to p r e s e r v e
a reasonable exchange m a r k e t 0
Q . : M r 0 Secretary, c o u l d y o u g i v e some e x a m p l e s of the
ac t i o n s to r e m o v e i n h i b i t i o n s o n the i n f l o w of c a p i t a l into
the U n i t e d States?
SHULTZ:
Well, t h e r e m a y be v a r i o u s t h i n g s in mind, b u t an
e x a m p l e -- let m e just g i v e o n e examples
C h a i r m a n M i l l s of
the H o u s e W ays a nd M e a n s C o m m i t t e e s u g g e s t e d s e veral weeks
ago a nd h a s r e p e a t e d h i s s u g g e s t i o n since then, that we
c o n s i d e r r e m o v i n g the tax w h i c h is s t a t u t o r y on d i v i d e n d s
and interest that flo w to f o r e i g n e r s that is, n o n - U 0S 0
c i t i z e n s „ Well, that is a type of m e a s u r e that the
C h a i r m a n suggests, w e c e r t a i n l y w a n t to c o n s i d e r 0 A n d
w e 1 11 c o n s i d e r that, a nd i t fs an e x a m p l e 0
Q 0 : M r 0 Secretary, v i r t u a l l y e v ery m a j o r p o i n t in this
c o m m u n i q u e is p h r a s e d in terms of a p o s s i b l e review, if
m e a s u r e is d e e m e d a p p r o p r i a t e , r e v i e w i n g a c t i o n s that
m i g h t be c o n s i d e r e d u s e f u l 0 O n the b a s i s of the l a c k of
any c l ear c o m m i t m e n t to t ake any of t h e s e moves, n ot only
the i m m e d i a t e d e f e n s e of the c u r r e n c y b u t the l o n g e r - t e r m
moves, w h a t is the r e a s o n i n g that l e ads the M i n i s t e r s to
b e l i e v e that this is g o ing to r e s t o r e c o n f i d e n c e in the
m a rket?
SHULTZ°
Well, I t h i n k that y o u r q u e s t i o n p r e s u m e s that
t h ere is no c o n f i d e n c e in the m a r k e t 0 A n d I t h i n k that
the first p o i n t to m a k e is that the m a r k e t s h a v e n o t b e e n
all that d i s o r d e r l y in the last c o u p l e o f w e e k s „ T h e r e
h a s b e e n a free m a r k e t a n d t h e r e h a s b e e n some m o v e m e n t 0
O n the o t h e r hand, b u s i n e s s h a s b e e n t r a n s a c t e d , and I
t h i n k that it's l i k e l y that as the m a r k e t s o p e n o n a more
full basis, that w e w i l l see r e a s o n a b l e c o n d i t i o n s « Now,
Q
J
- 3 -
at the same time, to the extent that problems arise as the
future unfolds, we have set up a pattern of communication,
and an ability through the use of swap lines and other
methods, to deal with problems that may arise; and to deal
with it in the framework of the very flexible system that
is now in pl a c e <, So I think, in the first place, we have not
seen the extent of disorder that your question implies; and
in the second place, there are measures here that will help
maintain reasonable stability that we can take as time goes
along.
, ' M-bw
I
Qo: Mr. Secretary, did the United States undertake any
specific commitments?
SHULTZ: No, the extent of specificity as given in the
communique, the -- you know, I think that the commitment
to consult, the commitment to be willing to take steps
to intervene if that can be helpful in maintaining order
in exchange markets, is certainly something that we take
very seriously 0 And it will help the United States just
as it will help others.
Now, that is hot a commitment
to do anything under some specified conditions, but a
commitment to work in good will and in candor with our
trading partners to solve problems as they may arise and
the equipping of ourselves with an understanding through
which we can do that 0
Q 0: Mto Secretary, were any specific numbers discussed
between the United States and its trading partners as
to the margin that should prevail between the United States
and the joint members5 of the float? ^
^
mi ^
SHULTZ:
NOo
m *
-
*
Q 0: .Mr ° Secretary, are you saying that there h a s n ft been
any important change in U oS 0 policy as a result of this
meeting?
Sanrj ’t o
ri o & & & ? ? o r ^ * m
vfwfw
SHULTZ* Well, you want to put everything in terms of
extremes. I think the point is that we have had these
discussions with our friends here, and out of that has
come a renewed spirit of cooperation, a reinforcement of
certain patterns through which that can take place, and
X m sure that as problems arise, if they do, we will be
f .e ,to ^raw on those patterns and that fund of cooperation
and deal with those problems.
- 4 -
Q c : M r c Secretary, is there any understanding between
ourselves and our partners that any possible intervention
would be aimed at maintaining a given system of exchange
rates, as opposed to maintaining markets free of wild
swings?
SHULTZ: Well, the thrust here is toward the maintenance
of orderly market conditions, an orderly system, as
distinct from a given set of rates0 However, I would say
that in our judgment, the rates that now exist are
broadly reasonable,, Now, the market will make its
judgment, but in our view, the rates that have now been
put in place as a result of the two devaluations of the
dollar and other events are broadly reasonable rates0
And we think their market is likely to settle out somewhere
in this vicinityo
Q . : Mro Secretary, the communique says that y o u ’re putting
adequate resources for such operations -- intervention
operations -- and it is envisaged that some of the existing
"swap” facilities will be enlarged,,
Gould you tell us what
particular swap facilities will be enlarged?
SHULTZ: NOc We will work on that through the central banks
to assure burselves that where these facilities are needed,
they’re in place and able to be u s e d 0 But we d o n ’t want to
be more specific than that*
Q 0: Mr„ Secretary, do you regard the results of this
meeting as a temporary arrangement pending the adoption of
a more permanent system?
If so, how much time would you
say you have, or should figure on, before going to
something more permanent?
SHULTZ: We think that the events that led to last w e e k ’s
meeting and this w e e k ’s meeting, while not cataclysmic in
terms of world trade or anything of that kind, nevertheless
underline the importance of working and working hard on the
subject of long-term monetary reform0 And I say that here,
others said it in the meeting, it is said in the communique,
and we think this is a matter of urgency, something that
needs to be tended to, not as a matter of years, but as a
matter of weeks and months and needs to be worked on very
hard*
So I think the answer to your question is that we
see this as temporary, in the sense that we would like to
see a broadly systematic system put into place, and of
5
course we a d v a n c e d o n last September, a n d w e h a v e t r i e d to
develop that further, and w e ' v e d i s c u s s e d it some more, but
we think, b r o a d l y speaking, that w o u l d be a g o o d system,.
And we t h i n k it's imp o r t a n t to try to get it into p l a c e
as soon as possible, a nd I don't m e a n b y that -- as I said years away, but m o n t h s away.
We t h i n k it's i m p o rtant to
work on this w i t h a sense of u r g e n c y a n d w i t h a sense of
conviction that this t a s k c a n be a c h i e v e d c
Q 0 s. By the b e g i n n i n g of the summer,
sir?
SHULTZ:
Well, I don°t w a n t to try to set a ny p a r t i c u l a r
dates down, b ut I t h i n k the spirit of a g r e a t e r int e n s i t y
of interest t h a n w e h a v e seen is w h a t w e * r e t r y i n g to
interject into this p i c t u r e 0 A n d o t hers have, t o o 0
Q o : Mr. Secretary, w h e n y o u say in the c o m m u n i q u e that
official i n t e r v e n t i o n in the e x c hange m a r k e t s m a y be
useful, w o u l d y o u a l s o e x t e n d this p e r h a p s to the g o l d
market?
SHULTZ:
Well, I don't b e l i e v e it a r o s e at all in the c o urse
of the discussions.
A n d so that subject r e m a i n s u n d i s c u s s e d
at this p a r t i c u l a r meeting.
Q o : M r c Secretary, do y o u c o n s i d e r that the e x c h a n g e swap
lines are n o w a v a i l a b l e for u s e b y the U.S. and ot h e r s ?
SHULTZ:
Well, they r e p r e s e n t a network, they w i l l h a v e to
be w o r k e d on, c o u n t r y b y country, a n d that is o ne of the
tasks that m y f r i e n d Dr. B u r n s w i l l b e u n d e r t a k i n g in hi s
organization, in c o n s u ltation, of course, w i t h the T r e a s u r y *
Q o : I w as not t h i n k i n g of enlarging, b u t of m a k i n g u s e of
what exists n o w c Is that a n o p t i o n that is o p e n to the
U.So as a m a t t e r of p o l i c y ?
SHULTZ:
Well, it's open.
We have here a pattern through
which we w o u l d expect, to c o n sult w i t h p e o p l e a b out our
actions and a b o u t t h eir actions, and, o n the b a s i s o f
that and o n the b a s i s o f o u r a n a l y s i s of any p a r t i c u l a r
situation, to deal w i t h it.
6
Q 0 : M r c Secretary, r e c e n t l y A r t h u r B u r n s h a s s t a t e d that
w e m u s t r e s t o r e c o n f i d e n c e in p a p e r m o n e y 0 W e h a v e seen
n o t h i n g in the c o m m u n i q u e a b o u t t his pr o b l e m , a nd
n a t u r a l l y y o u a re t e l l i n g u s that the p r o b l e m o f g o l d
h as no t e v e n b e e n m e n t i o n e d 0 M a y the U 0S 0 try to go
a h e a d on t h e i r o w n a n d try to d e m o n e t i z e g o l d in o r d e r
to r e s t o r e c o n f i d e n c e in p a p e r money, since t h e r e w i l l be
n o o t h e r m o n e y t h a n paper?
SHULTZ:
Well, I t h i n k p a p e r m o n e y is a c c e p t e d a r o u n d the
worldo
I n o t i c e p e o p l e a c c e p t francs in F r a n c e a n d they
accept d o l l a r s in the U . S 0, a n d I've n o t i c e d that e v e n
d o l l a r s are a c c e p t e d s o m e w h e r e else in the w o r l d f r o m
the UoSo
so I don't t h i n k that t h e r e h a s b e e n any
t r e m e n d o u s loss of confidence, a n d as far as g o l d is
concerned, I t h i n k I !v e said about a l l I car e to say on
that r i ght h e r e at this m e e t i n g a
Qo:
Mro
Secretary,
A m e r i c a n s l i v i n g a b r o a d w h o a re 0 0 0 0
SHULTZ:
Yes, I k n o w e x a c t l y w h a t y o u are g o i n g to
(Laugh f r o m the a u d i e n c e ) 0
say0
Q 0: W i t h p u r c h a s i n g p o w e r a m o u n t i n g to s o m e t h i n g l i k e 18
to 20 p e r cent, h o w lon g do y o u t h i n k it w o u l d t a k e as
the r e sult o f w h a t the p e o p l e h a v e don e in the p a s t w e e k
to for e s t a l l that?
SHULTZ:
Well, I t h i n k o f c o u r s e that the c h a n g e s in
e x c h a n g e r a tes that h a v e t a k e n p l a c e o v e r the last c o u p l e
of y e a r s are d e s i g n e d to, in effect, p r i c e U 0S 0 p r o d u c t s
m o r e a t t r a c t i v e l y in the U QS 0 d o m e s t i c m a r k e t a n d in
m a r k e t s abroad, so that w e w i l l be a b l e to i m p r o v e o n
our b a l a n c e of trade
a nd o n our b a l a n c e of p a y m e n t s .
T h a t 1s the idea of i t 0 R i g h t now, w e are w a y out of
balance, a n d w e t h i n k that t h e s e steps that h a v e b e e n
t a k e n w i l l h e l p to b r i n g about a b e t t e r ba l a n c e .
What
m a y h a p p e n in the futu r e to some c h a n g e in the e x c h a n g e
r a t e s , X w o u l d n o t w a n t to s p e c u l a t e about, b ut c e r t a i n l y
we are n ot e x p e c t i n g the o l d r a t e s to p r e v a i l r i ght a w a y 0
We still h a v e a problem, a n d w e t h i n k that the steps
t a k e n h a v e n o w p r o v i d e d us w i t h a r e a s o n a b l e set of
e x c h a n g e r a tes a nd w e e x pect to see some r e s u l t s f r o m
that in terms o f o ur b a l a n c e of t r a d e a nd b a l a n c e of
pay m e n t s o
But I k n o w it's t o u g h o n t h o s e U . S a c i t i z e n s
l i ving a b r o a d in the embassies, a n d since I o n c e h a d to
/35
7
deal w i t h the O f f i c e o f M a n a g e m e n t a n d B u d g e t -- a nd still
talk to t h ose p e o p l e -- all of the e m b a s s i e s h a v e r e g i s t e r e d
on m e the p o i n t that t h e i r b u d g e t is n ot q u i t e as g o o d as
it was w h e n it w a s approved, so I've got that m e s s a g e ,
Q 0 : Mr, Secretary, w o u l d y o u be k i n d e n o u g h to e x p l a i n to
us p r e c i s e l y w h a t the s i t u a t i o n is w i t h the swaps,
How
much is outst a n d i n g , h o w m u c h h a s b e e n used, a nd w h e r e w e
stand r i ght now?
B e c a u s e t h e r e h a s b e e n a lot o f t a l k a b out
these swaps but I t h i n k that n o b o d y q u i t e u n d e r s t a n d s w h e r e
we a r e 0
SHULTZ:
Yes, this is s o m e t h i n g that is a d m i n i s t e r e d o n
behalf of the G o v e r n m e n t , on b e h a l f o f the Tre a s u r y , b y our
banker, so to speak, in i n t e r n a t i o n a l ma t t e r s , the F e d e r a l
Reserve System, so I t h i n k I'l l a s k Dr. B u r n s to r e s p o n d
to thato
DR, BURNS:
These swap-buyings outstanding amount
approximately to 1 1 05 b i l l i o n dollars; the a m o u n t
amounts a p p r o x i m a t e l y to l c6 b i l l i o n d o l l a r s 0
activated
Q o : Mr, Secretary, in c h a p t e r 7 o f the comm u n i q u e ,
referring to the v o l a t i l i t y o f the E u r o - c u r r e n c y m a r ket,
it says that m e t h o d s for r e d u c i n g v o l a t i l i t y w i l l b e
studied, but t h e re's spe c i f i c m e n t i o n onl y o f the r o l e
of central banks.
Is it p l a n n e d a l s o to tak e some m e a s u r e s
on n o n - c e n t r a l b a n k c a p i t a l involved?
SHULTZ:
W e ' v e s t u d i e d -- w h y don't y o u
to that?
(Volcker)
respond
VOLCKER:
I t h i n k at least two p o i n t s a re m e n t i o n e d s p e c i f i c a l l y ,
'pie central b a n k s p o i n t is m e n t i o n e d q u i t e s p e c i f i c a l l y ; t h e r e
is also a m e n t i o n o f r e s e r v e r e q u i r e m e n t s as I r e c a l l it,
which w o u l d a p p l y g e n e r a l l y to a n y k i n d o f m o n e y in the
Euro-dollar m a r ket,
Q 0:
Doesn't that a p p l y onl y to t he U n i t e d States?
VOLCKER:
No, no, t h e s e w o u l d b e r e s e r v e r e q u i r e m e n t s o n
banks o p e r a t i n g in the E u r o - d o l l a r m a r k e t w h i c h a r e o f f
shore o p e r a t i o n s a n d n ot r e g u l a t e d b y a n y n a t i o n a l
authority.
T h e y a re g e n e r a l l y free of r e s e r v e r e q u i r e m e n t s .
8
Q . : Well, then, w h i c h n a t i o n a l m a r k e t w o u l d it be
r e f e r r e d to?
SHULTZ:
Well, this is -- y o u q u e s t i o n e d e a r lier the u se
of the w o r d study —
I t h i n k we found in a n u m b e r of these
p r o b l e m s that i n s t a n t a n e o u s a c t i o n is n e i t h e r p o s s i b l e nor
feasible b e c a u s e one of the q u e s t i o n s that a r i s e s in this
area is precisely, in this kin d of i n t e r n a t i o n a l market,
h o w does one d i vide up r e g u l a t o r y r e s p o n s i b i l i t i e s so to
speak, b e t w e e n the p a r e n t of the b a n k a n d the n a t i o n a l i t y
of w h e r e they are offered.
A n d that's a c o m p l e x w eb that
h a s to be l o o k e d at, a m o n g o t h e r p r o b l e m s 0
Q . : Mr. Secretary, is the E u r o p e a n t a x p a y e r g o ing to give
m o r e for E u r o p e a n d e f e n s e since c e r t a i n p e o p l e said to
A m e r i c a y o u should p a y less for Europe in o r d e r n ot to have
a gap in de f i c i t s in y o u r budget?
SHULTZ:
Well, I t h i n k that q u e s t i o n g o e s b e y o n d the scope
of t h e s e d i s c u s s i o n s here, and I'll jus t d u c k on that.
: Mr. Secretary, p e r h a p s this is for Dr. Burns.
Quite
a n u m b e r of A m e r i c a n b a n k s in Europe this w e e k -- the
b r a n c h e s -- report that Fe d e r a l R e s e r v e exa m i n e r s are on
.their p r e m i s e s looking a m ong o t her things, at the foreign
exchange o p e r a t i o n s 0 Does this h a v e a n y t h i n g to do w i t h
the effort to e n c o u r a g e inflows to the U.S.?
BURNS:
No, this is simply an effort on the par t of the
Federal R e s e r v e to l e a r n wha t it c an a b out the r e cent flows,
w h e r e they o r i g i n a t e d a nd in wha t amounts.
It's a factual
study w e ' v e u n d e r taken.
Q.:
Mr. Secretary, I'd like to a s k w h e n the n e x t G r o u p of
20 M i n i s t e r i a l M e e t i n g is n o w scheduled, and w h e n as a
result o f this y o u l ook for an y fairly g ood u p s u r g e of
p r o g r e s s at that me e t i n g ?
SHULTZ:
Well, the next m e e t i n g is s c h e d u l e d for a w e e k from
M o n d a y and W e d n e s d a y in W a s h i n g t o n , and t h ere w i l l b e before
that a m e e t i n g of the C o m m i t t e e of 20 D e p u t i e s e Now, I think
that, w h i l e t h ere h a s b e e n a lot of d i s c u s s i o n a n d progress
and p a p e r s p r o d uced, and so on, a n d there is an a g e n d a for that
m e e t i n g that h a s b e e n set, c e r t a i n l y the events o f the last
few w e e k s e m p h a s i z e the u r g e n c y of w o r k i n g at this problem;
9
and while I don*t think that it?s reasonable to expect any
particular result out of the meeting that*s coming up, I
hope that we can transmit this sense of urgency all through
the Committee of 20, and that we can set in motion procedures
that will move the work along in a more speedy fashion in
our judgment, anyway, than it*s been going so farc
Q 0: Mr. Secretary, paragraph four of the communique speaks
of the determination to ensure orderly market, and it says
the Ministers agreed on the basis for an operational
approach. Could you describe or go into detail about that
operational approach?
SHULTZ: I think we have already discussed that, and the
operational approach is paragraph five, that is, the develop
ment of a pattern of consultation of swap lines designed
to give us the ability to intervene flexibly in consultation,
ad hoc, where we think it will do some good.
Q.: M r e Secretary, do you intend the dollar to come back
to a fixed parity one day?
SHULTZ: Well, we have outlined in the IMF speech a system
that is basically a par value system designed to be more
flexible than the system has been in the past, and you
can read that speech and we haven*t really changed our view
about that. The bromide around for the last year or so has
been that we need a system of par values that are easily
adjustableo And we took that bromide too heart, or to head,
and we tried to describe how such a system might be operated0
And so we have put forward some ideas on that very subject.
Well, I think we have another meeting that we have to go
here -- alright, one more*
Q c: Mro Secretary, at the bottom of paragraph seven you say
the U.S. will review possible action to encourage a flow of
Euro-currency funds back to the U oS 0 Could you give some
examples of that?
SHULTZ:
Yes, Paul, you ought to take that«
VOLCKER: Well, we actually, without going into great detail,
there are -- perhaps Arthur should be more appropriately
answering this -- and one example springs to mind: They have
regulations which inhibit the flow of Euro-dollars to the
U.S. that was put on in certain circumstances where it
seemed desirable to inhibit flows of Euro-dollars into the
10
U.S. a n d t hey h a v e had, in fact, out for c o m m e n t for some
time, a c h a n g e in tha t r e g u l a t i o n , a n d I p r e s u m e the y wil l
m a k e some decision.
A s to j u s t w h a t to do in that a r e a —
I w o n ' t p r e j u d g e when, A r thur.
BURNS:
Just a f u r t h e r w o r d
of e x p l a n a t i o n —
the p r e s e n t
r e s e r v e r e q u i r e m e n t is 20 p e r cen t a g a i n s t t h e s e f l o w amounts,
a n d w e ar e c o n s i d e r i n g a c h a n g e in that, h a v e b e e n considering
it for a c e r t a i n p e r i o d of time.
Q.:
T h a t w o u l d m e a n l o w e r i n g it,
is that right?
SHULTZ:
Yes, w e h a v e a p r o p o s a l sent out to th e b a n k s for
co m m e n t w h i c h w o u l d i n v o l v e a l o w e r i n g o f that s p e c i f i c
reserve requirement.
W e ' v e t a k e n n o d e c i s i o n o n that as
yet.
T h a n k y o u v e r y much.
0O0
DepartmentofIhefREASURY
TELEPHONE W04-2041
INGTON. D.C. 20220
/v
1
fTENTION: FINANCIAL EDITOR
k
RELEASE 6:30 P.M.
March 19. 1973
RESULTS OF TREASURY’S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
Ills, one series to be an additional issue of the bills dated December 21, 1972 , and
lieother series to be dated March 22, 1973
, which were invited on March 13, 1973,
5ere opened at the Federal Reserve Banks today. Tenders were invited for $2,400,000,000
jr thereabouts, of 91-day bills and for $1,800,000,000, or thereabouts, of 182-day
Jills. The details of the two series are as follows:
E OF ACCEPTED
J)MPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing June 21, 1975
Approx. Equiv.
Annual Rate
Price
98.414
98.388
98.399
a/
6.274$
6.377$
6.334$
182-day Treasury bills
maturing September 20, 1975
Approx. Equiv,
Price
Annual Rate
6.745$
96.590
6.767$
96.579
6.759$ 1/
96.583
1/
a/ Excepting two tenders totaling $200,000
59$ of the amount of 91-day bills bid for at the low price was accepted
29$ of the amount of 182-day bills bid for at the low price was accepted
fOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
Hew York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis'
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
Applied For
Accepted
Applied For
Accepted
$ 27,130,000
2,839,385,000
33,755,000
26,270,000
11,540,000
20,750,000
238,030,000
46,840,000
15,595,000
40,570,000
37,930,000
129,190,000
$ 12,130,000
1,974,585,000
13,755,000
26,270,000
11,540,000
16,975,000
146,970,000
37,840,000
13,595,000
33,070,000
20,110,000
93,190,000
$
$
3,735,000
1,697,860,000
5,015,000
10,315,000
7,250,000
10,335,000
16,940,000
15,870,000
2,980,000
16,530,000
5,705,000
8,550,000
$4,686,345,000
$1,801,085,000 c/
$3,466,985,000 $2,400,030,000 b/
41,985,000
3,851,500,000
26,115,000
40,465,000
27,550,000
12,785,000
352,385,000
55,690,000
9,680,000
31,285,000
37,105,000
199,800,000
Includes $215,800,000 noncompetitive tenders accepted at the average price'of 98.399
noncompetitive tenders accepted at the average price of 96.583
[ J-Jlese rates are on a bank discount basis. The equivalent coupon issue yields are
6.53$ for the 91-day bills, and 7.10$ for the 182-day bills.
M.
I ^cludes $116,200,000
tiltTREASURY f
Departmentof
SHINGTON, D C. 20220
rTEIEPW
t t t o u nONE
u t \u
n * WMH
WO#
1041
UV-
FOR RELEASE A T 12 NOON, CDT
WEDNESDAY, M A RCH 21, 1973
EX C E R P T S F ROM REMARKS
BY THE H O N O R A B L E E D G A R R. FIEDLER
ASSISTANT S E C R E T A R Y OF THE T R E A S U R Y FOR ECONOMIC POLICY
BEFORE THE S E C U R I T I E S INDUSTRY A S S O C I A T I O N
CHICAGO, ILLINOIS
M A RCH 21, 1973
Around the turn of the year, the b u s iness and financial
communities s h a r e d a w i d e s p r e a d c onfidence that e c o n o m i c conditions were i m p r o v i n g in almost every way.
More recently,
despite the clear evidence that b usiness activity is growing
vigorous l y , the eco n o m i c headl i n e s have featu r e d some sour
notes. In p articular, there is g reat s k e p t i c i s m that i n f l a t i o n
will remain u n der control -- that the A d m i n i s t r a t i o n ' s goal to
cut back the rate of i n f l a t i o n to 2 1/2 p e r c e n t or less by the
end of 1973 w i l l be met.
Although that is an ambitious goal, it is attainable,
because President N i x o n has p ut the w e i g h t of m e a n i n g f u l p o l i c y
actions b e h i n d it.
1.
A compr e h e n s i v e s y s t e m of dire c t price and wage
restraints continues in place.
Although enforcement
is mostly s e l f - a d m i n i s t e r e d now, the rules and
standards for r esponsible price and wage b e h a v i o r have
changed but very little.
If any sect o r gets out of
line, or requires special treatment for any reason, the
A d m i n i s t r a t i o n retains the a u t h o r i t y and the w i l l to
reinstate fully m a n d a t o r y controls -- as i n d e e d it did
with the oil i n d ustry early this m o n t h /
2.
By far the m o s t t r o u blesome s e c t o r in the battle
against in f l a t i o n is food.
In 1972 the vigorous e x p a n
sion in c o n sumer incomes c r e a t e d a sharp increase in
the demand for foods, e s p e c i a l l y red meats.
This,
S-149
2
coupled w i t h a b ur g e o n i n g demand from abroad and
a decline in food supplies, caused a sharp upsurge
in prices of raw farm products, w h i c h is no w being
t r an s mit te d to retail markets.
This pr ice bulge
will only be temporary, however, as the A d m i n i s t r a
tion has taken a series of m a j o r steps to expand
food p r o d u c t i o n su bs ta n t i al l y in 1973 and beyond.
Once these additional supplies reach the market,
farm prices will m ov e down rapidly.
Consequently,
the sharp rise in g rocery store prices now in
process will give way to a m u c h slower rise in
the second half of 1973.
Indeed, the rate of
increase may be close to zero by the end of the
year.
3.
In another action to keep prices in check,
the A d m i n i s t r a t i o n has announced its intentions
to sell a large q ua nt it y of me ta ls and other
co m mo di tie s no w in excess supply in G ov ern me nt
stockpiles.
4.
Of all the important po l ic y steps taken, the
gr ea te s t need is to m a i n t a i n a tight rein on the
budget.
We must not repeat the mi s ta k e s of 1965-1968
when, at a time of full employment, the c o mb i na ti on
of m a s s i v e Federal de ficits and an irresp on sib le
m o n e t a r y p o li c y created a ru naway economic bo o m
and a sp ira l li ng inflation.
If the economic e x p a n
sion no w u n d e r w a y were to c o nti nu e unch ec ked , we
could see that u n h a p p y p a t te r n repeated.
To pr event
it, P re si den t Ni x o n is de t er m i n ed to re si st the
enormous pr ess ur e s for increasing spe nd ing on a w id e
range of Federal pr ograms and to hold the bu dg et to
n o n i n f l a t i o n a r y levels.
The fight against in fl ation is far from over.
Retail
food prices will be e sp eci al ly tr ou ble so me in the next few
months.
Nev ert he les s, the A d mi n i s t r a t i o n ' s m a j o r antiinf lat i on a ry o ff en siv e will have a m ea nin gf ul impact on prices
and wages durin g the course of 1973.
Thus, we have a good,
solid chance to slow the rate of in fl ation to 2 - 1/2 pe rcent
or less by the end of the year.
oOo
of TREASURY
Department the
W
ashington ,
d .c . 2 0 2 2 0
telepho ne
□
W 04-2041
fob immediate release
March 20, 1973
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series >
of Treasury bills to the aggregate amount of $4,200,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing
of $4,205,120,000
March 29, 1973,
in the amount
as follows:
91-day bills (to maturity date) to be issued March 29, 1973, in the amount
of $2,400,000,000, or thereabouts, representing an additional amount of bills
dated December 28, 1972, and to mature
June 28, 1973
(CUSIP No. 912793 QZ2)
originally issued in the amount of $1,903,160,000, the additional and original
bills to be freely interchangeable.
182-day bills, for $1,800,000,000, or thereabouts, to be dated March 29, 1973,
and. to mature September 27, 1973 (CUSIP No.>912793 RW8)..
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at-Federal Reserve Banks and Branches up to the clos
ing hour, one-thirty p.m., Eastern Standard time, Monday, March 26, 1973.
Tenders will not be received at the Treasury Department, Washington. Each tender
must be for a minimum of $10,000. Tenders over $10,000 must be in multiples of
$5,000.
In the case of competitive tenders the price offered must be expressed
on the basis of 100, with not more than three decimals, e.g., 99.925. Fractions
may not be used. It is urged that tenders be made on the printed forms and for
warded in the special envelopes which will be supplied by Federal Reserve Banks
or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
tanking institutions will not be permitted to submit tenders except for their own
(OVER)
n
-
account.
2-
Tenders will be received without deposit from incorporated banks and
trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids.
Only those
submitting competitive tenders will be advised of the acceptance or rejection
thereof.
The Secretary of the Treasury expressly reserves the right to accept or
reject any or all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders for each
issue for $200,000 or less without stated price from any one bidder will be accepted
in full at the average price (in three decimals) of accepted competitive bids for
the respective issues. Settlement for accepted tenders in accordance with the
bids must be made or completed at the Federal Reserve Bank on March 29, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing March 29, 1973.
treatment.
Cash and exchange tenders will receive equal
Cash adjustments will be made for differences between the par value of
maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is considered to accrue
when the bills are sold, redeemed or otherwise disposed of, and the bills are ex
cluded from consideration as capital assets. Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder must include in his
income tax return, as ordinary gain or loss, the difference between the price paid
for the bills, whether on original issue or on subsequent purchase, and the amount
actually received either upon sale or redemption at maturity during the taxable
year for which the return is made.
Treasury Department Circular Wo. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
F O R IMM E D I A T E R E L E A S E
M a r c h 20,
1973
PERMANENT MAGNETS OF ALNICO OR CERAMIC MATERIAL
F R O M J A P A N A R E N O T B E I N G S O L D A T LESS THA N
______F A I R V A L U E U N D E R THE A N T I D U M P I N G A C T _______
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
a n n ounced t o d a y a final d e t e r m i n a t i o n t h a t p e r m a n e n t m a g n e t s
of alnico or c e r a m i c m a t e r i a l from J a p a n are n o t being, no r
likely to be, sol d at less tha n fair v a l u e w i t h i n the m e a n i n g
of the A n t i d u m p i n g A c t o f 1921, as amended.
Alnico magnets
consist of m e t a l alloys, and are u s e d in a l a rge n u m b e r of
applications s uch as telephones, loudspeakers, and motors.
Ceramic m a g n e t s h a v e g r e a t e r e l e c t r i c a l resistence, are
lightweight, and are u s e d in e l e c t r o - m e c h a n i c a l a p p l i c a t i o n s
such as g e n e r a t o r relays.
N o t i c e o f the d e t e r m i n a t i o n w i l l b e p u b l i s h e d in the
Federal R e g i s t e r o f Wedn e s d a y , M a r c h 21, 1973.
A "Notice of T e n t a t i v e N e g a t i v e D e t e r m i n a t i o n " w a s
p u b l i s h e d in the F e d eral R e g i s t e r o f D e c e m b e r 16, 1972.
This n o t i c e i n v i t e d i n t e r e s t e d p e r s o n s to subm i t w r i t t e n v i ews
or arguments, o r r e q uests for an o p p o r t u n i t y to p r e s e n t t h e i r
views orally.
D u r i n g the c a l e n d a r y e a r 1972, imports o f p e r m a n e n t
magnets of c e r a m i c or a l nico m a t e r i a l i m p o r t e d from J a p a n w e r e
valued at a p p r o x i m a t e l y $3.3. mi l l i o n .
# # #
FOR RELEASE ON DELIVERY
THURSDAY. MARCH 22. 1973
REMARKS BY THE HONORABLE SAMUEL R. PIERCE, JR.
GENERAL COUNSEL OF THE TREASURY
AT THE
NEW ORLEANS COST OF LIVING COUNCIL REGIONAL CONFERENCE
ON PHASE III
THURSDAY, MARCH 22, 1973
NEW ORLEANS, LOUISIANA
(At 9:00 A.M. CST)
PHASE III OF THE ECONOMIC STABILIZATION PROGRAM
As William Shakespeare once said: "What’s past is prologue".
Phase III of the Economic Stabilization Program is built on what has
gone before. Many of the standards, objectives and goals of
Phase III are based on what occurred and what was learned during the
operations of Phases I and II. To best understand Phase III, it is
necessary to be generally familiar with what happened during
Phases I and II, and the facts and circumstances that led to the
adoption of those programs by the Nixon Administration.
Background
When President Nixon assumed office in January of 1969, he
inherited one of the most intractable economic problems in modern
times. Inflation and inflationary expectations had truly captured
the American economy. The Nation had experienced an annual rate of
inflation of 5 percent during the last three months of 1968 and it
accelerated to 6.4 percent in the first three months of 1969. This
was an intolerable rate of inflation. To combat this situation, the
Administration immediately instituted a program of fiscal and
monetary restraints aimed at cooling off the economy by winding down
1.
The Tempest, Act II, Scene 1.
-
2
-
inflation. Significant progress was made toward that objective.
The Administration's fiscal and monetary policies squeezed out much
of the excess demand that had placed too much pressure on available
resources. However, substantial inflation continued — not primarily
as the result of excess demand, but as the consequence of the
momentum generated by past inflation and the expectations of continued
inflation.
The problem of continued inflation led the President and his top
economic advisers to engage in a comprehensive analysis of the economy,
and on August 15, 1971, the President announced his New Economic Policy.
The Policy was designed:
1.
To restrain inflationary behavior and expectations by
a system of wage-price controls.
2.
To assure acceleration of economic growth and employ
ment by the more rapid expansion of demand for goods
and services.
3.
To achieve a realignment in the external value of the
dollar which would reflect more realistically the
relative position of international prices and costs.
The Economic2Stabilization Program was organized to help achieve
those objectives.
Phase I of that program provided for a 90 day wage
and price freeze. The goals of the freeze were to put an immediate
halt to wage and price increases for 90 days; to restore confidence in
the economy by changing the expectations of the American people about
inflation; and to provide the necessary time to develop a plan for the
following phase.
The Cost of Living Council3 was created to provide policy guidance,
and the program was administered by the Office of Emergency Preparedness.
2. At the same time that the Economic Stabilization Program was
initiated, the President proposed a tax revision package, including
the Job Development Credit and repeal of the automobile excise tax,
a 10 percent surcharge on imports, and negotiations leading to
revaluation of world currencies.
3. The Council consisted of the Secretary of the Treasury, as Chairman;
the Chairman of the Council of Economic Advisers as Vice Chairman; the
Director of the Council who is Counsellor to the President; the
Secretaries of Agriculture, Commerce, Labor, Housing and Urban Develop
ment; the Director of the Office of Management and Budget; the Director
of the Office of Emergency Preparedness; the Special Assistant to the
President for Consumer Affairs; and the Chairman of the Federal Reserve
Board as an Adviser.
- 3 -
The freeze was for a definite period because an indefinite freeze
would be unworkable in a dynamic economy like ours, where technology,
new products, and changing demand patterns exert a continuing strong
influence on prices. Movements of prices and wages serve the
essential purposes of organizing and guiding the allocation of
resources, and to suppress them for long would seriously distort
resource allocation. Consequently, a sequel to Phase I was necessary.
It was realized that the success of Phase II would depend in
large measure on it being well understood and widely supported by the
public. Consequently, the President and his Cost of Living Council
consulted with numerous representatives of each major interest in
the control program: labor and business, farmers and consumers,
State and local governments, and the Congress. From these discussions,
a consensus was ultimately obtained on the belief that Phase II
required: Cl) a clear cut, publicly supportable goal for the disin
flationary effort; (2) machinery allowing the public and major elements
of the economy to participate in setting policy and administering the
program; (3) an essentially self-administered system embodying strong
incentives to encourage anti-inflationary behavior; and (4) provision
in the system for maximum continued operation of competitive pricing
and free collective bargaining.
The formulators of the plan for Phase II decided that in the
interest of equity and effectiveness, the controls should be mandatory,
and initially as comprehensive in their direct coverage as was adminis
tratively feasible. The decision for almost universal coverage at the
outset did not preclude the relaxation of the controls by stages, as
the effectiveness of the system was demonstrated, confidence in the
control of inflation was strengthened, and sectors of the economy no
longer requiring control were identified.
It was against this background that the Cost of Living Council
developed the plan for Phase II which was approved by the President,
and ultimately became effective on November 14, 1971. The Executive
Order establishing the administrative machinery for Phase II provided
for the continuation of the Cost of Living Council. The COLC was
assigned responsibility for establishing broad goals, determining the
coverage of the control program, overseeing enforcement, and coordinating
the anti-inflationary effort in line with the overall goals. In a
sense, it was the umbrella policy organization under which the groups
implementing Phase II operated.
The primary bodies created to develop standards and make decisions
on changes in all prices (including rents) and compensation (wages,
salaries and fringe benefits) were the Price Commission, composed of
- 4 -
seven public members, and the tripartite Pay Board which originally
consisted of 15 members divided equally among business, labor, and
public representatives, but which was eventually reduced to seven
members (five public and one each for business and labor).
The Pay Board had the responsibility for promulgating regula
tions and making rulings which were designed to keep compensation at
levels consistent with the goals to reduce inflation set by the Cost
of Living Council. The Price Commission had the same responsibility
with respect to prices and rent. Although the COLC had the responsi
bility for setting goals in the Phase II program, it had no super
visory authority over any regulations issued or rulings made by either
the Pay Board or Price Commission.
Advisory committees were established to promote a voluntary
program to restrain interest rates and dividends, to solicit State
and local government cooperation, and to suggest means to curtail price
increases in the health services industry. A rent advisory board was
also created to counsel the Price Commission, while the pre-existing
tripartite Construction Industry Stabilization Committee was placed
under the authority of the Pay Board. The National Commission on
Productivity which existed prior to Phase I, was expanded and assigned
the advisory role of insuring that the entire stabilization program
encouraged productivity growth.
For the purposes of administrative efficiency, the COLC decided
that small economic units should not be required to give advance notice
or to report price and wage increases which were consistent with the
basic guidelines established by the Price Commission and the Pay Board.
This group included the vast majority of businesses in the United States.
The largest firms and employee groups were required to obtain advanced
approval from the Commission and the Board for any change, and an
intermediate group was required to report after wages or prices were
increased in accordance with stabilization regulations.
The Cost of Living Council recognized that prices of some
products and services were either insignificant in the overall inflation
problem relative to the administrative difficulty of controlling them,
or were impractical to control, or were subject to direct controls
outside of the Phase II program. Consequently, the Council exempted
these products and services from the program. These exemptions
included such items as raw agricultural products, life insurance,
exports, securities, and damaged or used goods.
The organization basically responsible for seeing to it that the
public complied with the rules and regulations issued under the Phase II
program was the Internal Revenue Service. The IRS assigned approximately
3,000 agents in 58 offices scattered throughout the Country to work on
the stabilization program. The Office of Emergency Preparedness, which
had administered Phase I, no longer had any responsibility for the program.
- 5 -
The power of the President to freeze and control wages and
prices is based on the Economic Stabilization Act of 1970. In
reviewing that Act and considering the various legal aspects of the
Phase II program, several of us, having an official interest in the
program, concluded that it would operate much more smoothly and
have a greater chance of success if the Economic Stabilization Act
was substantially amended. Consequently, the Act was amended in a
number of respects. For example, the President’s power to stabilize
the economy was extended to include interest rates and dividends;
Phase II agencies were generally excluded from the Administrative
Procedure Act; stabilization agencies were authorized to issue subpoenas;
and a system for the Federal Courts to handle more efficiently cases
arising under the Economic Stabilization Program was written into the
Act.
During Phase II, as compared to the pre-freeze period, the rate
of inflation decreased, total employment rose, the rate of unemploy
ment dropped, and real spendable earnings rose. In general, the
program received wide public acceptance and voluntary cooperation.
The effectiveness of Phases I and II is clearly shown by the
leading economic indicators. At the time Phase I became effective
the annual rate of inflation as measured by the Cost of Living Index
was 4.8 percent. By the end of Phase II, it had dipped to 3.3 percent.
Real GNP was 1.4 percent at the beginning of Phase I, and by the end
of Phase II, it had risen to 7.5 percent. During the same period
real spendable earnings rose from 1.2 percent to 3.8 percent, and
the level of unemployment had fallen from 6.1 percent to 5 percent.
One may appropriately ask, "If Phase II was operating so well,
why did the Government shift to Phase III?"
Development of the Rationale for Phase III
While Phase II was generally successful, it did have problems
that would eventually require a change in the system. This became
very clear to the Cost of Living Council and others responsible for
the Economic Stabilization Program after Phase II was carefully
analyzed during December, 1972 and early January, 1973. Consultation
meetings were held with labor, management, consumers, members of
Congress, and the members of the various boards and organizations
serving the Economic Stabilization Program. After reviewing the
results of this consultation process and the experience gained from
operating Phase II, it was clear that the burdens of the Phase II control
system would mount in the coming year.
It was found that red tape and administrative burdens, both for
the Government and the public, would expand. Delays and interferences
with the normal conduct of business would become more serious.
- 6 -
Inequities, in the treatment of different individuals and businesses
would multiply. Incentives to efficiency and investment would be
weakened•
It was believed that if the present system continued for long
unchanged, these difficulties would become so overwhelming that the
system would become ineffective. Therefore, the system had to be
modified to achieve its continuing contribution to the anti-inflation
effort with less, danger of injury to the economy, and with greater
equity in the treatment of the individuals and businesses covered by
the system.
During this battle against inflation — both in the pre-freeze
and post-freeze periods — the Administration learned a number of
lessons. Those of us involved with economic stabilization were
greatly impressed with the power of competition. In industries where
there were lots of firms and excess capacity, so that firms were really
fighting for business, competition was probably more effective than
our control system in holding down prices. There were many instances
during the operation of Phase II when firms met all of the necessary
requirements and received price increase approvals, but were not able
to implement those approvals because of the competition in their
industries.
We also learned that with public cooperation, a voluntary, selfadministered controlled system can, in general, operate effectively
in reducing inflation. There are, however, certain areas of the
economy where, for a variety of reasons, mandatory controls become
necessary. At the present time, with rapidly rising food prices,
food processing and retailing industries must be subject to mandatory
controls. The health care and construction industries also present
problems which — for the present time at least — can be better
handled with the aid of mandatory controls.
We also realize that our economy is extremely dynamic and other
situations may develop in the future where voluntary restraints are
not achieved and mandatory controls will become necessary. Therefore,
in any control system, it is necessary to retain the power to impose
mandatory controls whenever it is considered imperative to attain the
goals of the program.
Finally, we know that no wage-price system, regardless of how
ingeniously devised, can be successful and produce substantial results
unless certain fundamental economic pri n c i p l e s are adhered to. Most
fundamental among these is sound fiscal policy. Without strong fiscal
discipline, Federal spending may be so pumped up that the same forces
are released that caused the earlier inflation. The Administration will
vigorously resist this danger. That is why it intends to hold Federal
spending for fiscal year 1973 within $250 billion. The Administration
submitted a budget for fiscal year 1974 in which expenditures are not
to exceed $268.7 billion, and which will not exceed the tax revenues
that would be generated by a fully employed economy. It is imperative
that Federal spending be kept within these bounds if two very important
goals to the American people are to be achieved, namely, further re
duction of inflation, and no increase in Federal income taxes.
It was against this background that the Phase III program was
formulated.
The Phase III Program
Phase III became effective on January 11, 1973. The Cost of
Living Council was continued. The Price Commission and Pay Board and
all advisory committees that existed under Phase II were terminated,
and the authority of the Commission and Board as well as their staffs
was transferred to the COLC.
Rental units are excluded from the program, but landlords are
expected to exercise restraint. Regulated industries will be guided
by the general criteria listed in present Price Commission regulations,
and restraint is expected to be reflected in their actions and the
actions of regulatory agencies.
Generally speaking, except for the food, health, and construction
industries, Phase III will be a voluntary, self-administered program.
As a general guide for prices, increases in prices above presently
authorized levels should not exceed increases in costs. Even where
costs have increased prices should not be increased if the firm's
profit margin exceeds the firm's base-profit margin. Alternatively,
a firm may increase prices to reflect increased cost without regard
to its profit margin if the firm's average price increases would not
exceed 1.5 percent in a year. Moreover, the base period for calculation
of the profit margin guide has been revised to permit inclusion of any
fiscal year that has been concluded since August 15, 1971.
the
and
has
the
The existing general standards of the Pay Board can be taken for
present as a guide to appropriate maximum wage increases unless
until they are modified. A Labor-Management Advisory Committee
been established to advise the Cost of Living Council on whether
standards should be modified and, if so, how.
In general, with the exception of firms in the food, health,
and construction industries, all firms with sales of more than $50
million (approximately 3,500 firms) are required to keep records of
profit margin changes as well as price changes which will permit the
computation of weighted average price increases. Firms will have the
If
8 —
obligation of producing these upon request, A H firms ^ith sales of
$250 million or more (approximately 800 firms) are required to file
quarterly reports concerning any weighted average price change and
their profit margin.
Generally speaking, with the exception of employee units in the
food, health and construction industries, all employee units of 1,000
or more will be required to keep records of wage rate changes, and all
employee units of 5,000 or more will be required to file reports with
the Cost of Living Council indicating wage rate changes.
The Cost of Living Council staff and the Internal Revenue Service,
under the direction of the COLC, will monitor performance through
reviewing reports received from firms and employee units; spot checking
and auditing the records of firms; and using various government and
trade data. There will be a reduction in the number of Internal Revenue
Service agents working on Economic Stabilization from the 3,000 used
in Phase IT to approximately 1,500.
The Economic Stabilization Act of 1970, as amended, is sufficient
to give the Council the authority to invoke mandatory controls and
punitive sanctions when necessary. That is why the Act did not have to
be further amended, except to provide for a one year extension. The
Cost of Living Council has the authority to establish mandatory
standards where it is necessary to assure that future action in a
particular industry is consistent with the national goal of further
reducing inflation. Also, if it learns that an action has been or is
about to be taken that is inconsistent with the standards or goals of
the program, the Council can issue a temporary order setting interim
price and wage levels. In short, as has often been stated by officials
connected with the Economic Stabilization Program, the COLC has a
"big stick in the closet" which it can use if there is any breakdown
in the system of voluntary restraint. Recently, for example, the
Council took its big stick out of the closet and hit certain oil
companies with it by limiting their price increases, cancelling their
term limit pricing authorizations, and by imposing upon them certain
reporting requirements.
The food, health, and construction industries will be under
mandatory controls. Special rules have been or will be devised for
each of these industries.
Food processors will be required mandatorily to comply with
present regulations, somewhat modified, including pre-notification
and approval of cost-justified price increases. Food retailers will
be held to present margin markups. Pay units in the food processing
and retailing industries will continue to be covered by present
regulations. A committee drawn from the Cost of Living Council has
- 9 -
been established to review and recommend appropriate changes in Govern
ment policies having an adverse effect on food prices. There will
also be established a Food Industry Advisory Committee which will be
composed of people from the private sector appointed by the President
to advise the Council on the operation of the Economic Stabilization
Program in the food industry and other matters related to food costs
and prices.
The Federal Government has also taken certain steps to increase
the supply of food with the expectation that these actions will help
reduce the cost of food. For example, the Administration has suspended
all quotas on meat imports for 1973; and the Department of Agriculture
has temporarily suspended quotas on imported, non-fat dry milk, has
eliminated the mandatory set-aside requirement under the 1973 wheat
program, and has terminated direct export subsidies for lard, broilers,
and flour.
The present controls applicable to the health care industry will
continue until appropriate modifications are made by the Cost of Living
Council. A committee drawn from the Cost of Living Council will be
established to review and make recommendations concerning changes in
Government programs that could lessen the rise of health costs. Also,
an Advisory Committee composed of knowledgeable individuals outside
the Federal Government will be established to advise the Cost of Living
Council generally on the problem of health costs. This Committee will
also work to mobilize insurance companies and other third-party payers
to use their influence to curb the rise in health costs.
The Construction Industry Stabilization Committee, which existed
under Phase II, will continue its work with the twitt goals of improving
the bargaining structure in the industry and achieving additional pro
gress in bringing the rate of wage growth in this sector into line with
the general wage growth in the economy. Rules are provided to insure
that modifications in the wage growth rate can be reflected by adjust
ments in construction prices.
The Committee on Interest and Dividends, which was established
under Phase II, and chaired by the Chairman of the Board of Governors
of the Federal Reserve System, will be continued. This Committee,
subject to review by the COLC, is charged with formulating and executing
a program for obtaining voluntary restraints on interest rates and
dividends.
Will Phase III Be Successful?
By the end of 1972 the rate of inflation had been reduced to 3.3
percent. When he announced Phase III, the President stated that a
10
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II
-
goal of the program was to further reduce the rate of inflation to 2-1/2
percent by the end of 1973. Can this goal be attained along with a
further substantial reduction in unemployment, a considerable increase
in GNP for 1973, and an increase in real spendable earnings? If this
question is eventually answered in the affirmative, then Phase III will
have been a success.
In my opinion, the success of Phase III will depend on three
factorsi
1.
Whether Federal spending is held within the budgetary
limits recommended by the Administration;
2.
Whether food costs are brought under control; and
3.
Whether the public will voluntarily comply with the
standards for wage and price increases set by the
COLC during Phase III.
To the extent these things are done, Phase III will be a success.
the extent they are not, Phase III will be a failure.
Thank you so much for your attention.
-
0
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To
oftheTREASURY
P
Department
ASHINGTON. D C. 20220
.
mm
il
J
■
Mam
TELEPHONE W04-2041
17 89
C
FOR I M M E D I A T E R E L E A S E
M a r c h 20,
1973
S T A T E M E N T BY TH E A C T I N G S E C R E T A R Y OF THE T R E A S U R Y
W I L L I A M E. SIMON, O N THE R E S I G N A T I O N
OF THE C O M P T R O L L E R OF THE C U R R E N C Y
W I L L I A M B. CAMP
P r e s i d e n t N i x o n has a n n ounced that he is w i t h
deepest r e l u ctance a c c e p t i n g the r e s i g n a t i o n of
William E. Camp as C o m p t r o l l e r of the Currency.
On b e h a l f of S e c r e t a r y Shultz,
the T r e a sury*s sense of loss at Mr.
I w i s h to express
Camp's departure.
Mr. Camp served six P r e s i d e n t s of the U n i t e d States
and e l e v e n S e c r etaries of the Treasury.
Mr. Camp joined
the T r e a s u r y as a c l e r k in 1937 and b e c a m e the top
official of the a g e n c y w h i c h a d m i nisters the laws for
4,600 national banks and their f o r eign branches.
He was
first named C o m p t r o l l e r in 1966 and was reappointed by
the P r e s i d e n t in 1972.
F r o m the time he join e d the Treasury, he has b e e n
a forthright ad v o c a t e of c o m p e t i t i o n in the b a n k i n g
industry.
He has c o n t i n u a l l y s t r essed that such
competition w i l l u l t i m a t e l y b e n e f i t the publ i c -- through
increased service and lower costs.
T h r o u g h his years of
service, Mr. Camp has w o n the respect of gov e r n m e n t
officials as w e l l as leaders of the b a n k i n g industry.
oOo
S-150
Departmentof theTREASURY
INGTQN. D .C 20220
TELEPHONE W04-2041
M a r c h 21,
FOR IMMEDIATE RELEASE
1973
ANTIDUMPING INVESTIGATION INITIATED
ON MANDELIC ACID FROM JAPAN
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
ann o u n c e d today the i n i t i a t i o n of an a n t i d u m p i n g i n v e s t i
gation on i m p orts of m a n d e l i c acid f r o m Japan.
T h i s acid
is u sed as a p r i m a r y i n g r e d i e n t for a p h a r m a c e u t i c a l d r u g
called m e t h e n a n i n e m a n d e l a t e , a u r i n a r y d i s i n f e c t a n t .
N o t i c e of this a c t i o n w i l l be p u b l i s h e d in the
Federal R e g i s t e r of M a r c h 22, 1973.
Mr. M o r g a n ' s a n n o u n c e m e n t fo l l o w e d a s u m mary
in v e s t i g a t i o n c o n d u c t e d by the B u r e a u of C u s t o m s after
receipt of a c o m p l a i n t a l l e g i n g the l i k e l i h o o d of d u m p i n g
in the U n i t e d States.
The i n f o r m a t i o n r e c e i v e d tends to
indicate that the p r i c e s of the m e r c h a n d i s e sold or
offered for sale for e x p o r t a t i o n to the U n i t e d States
are less than the e s t i m a t e d h ome m a r k e t price.
D u r i n g c a l e n d a r y e a r 1971 imports of m a n d e l i c acid
from J a p a n w e r e v a l u e d at $12,000.
oOo
DepartmentoftheTREASURY
ASHINGTON. D.C. 20220
TEUEPMONE W04-2041
FOR RELEASE ON DELIVERY
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL FINANCE OF THE
HOUSE BANKING AND CURRENCY COMMITTEE
WEDNESDAY, MARCH 21, 1973, AT 11:00 A.M.
Mr. C h a i r m a n a nd M e m b e r s of the S u b c o m mittee:
Y o u h a v e a s k e d that I a p p e a r a g a i n b e f o r e this S u b
committee to r e v i e w d e v e l o p m e n t s
in the i n t e r n a t i o n a l
monetary a r e a in the past two weeks,
and their impl i c a t i o n s
for the l e g i s l a t i o n b e f o r e y o u c o n c e r n i n g the par v a l u e of
the dollar.
In that conn e c t i o n ,
I believe your record might u s e
fully i n c lude three d o c u m e n t s a t t a c h e d to this statement:
1)
Th e Press C o m m u n i q u e of the M i n i s t e r i a l
M e e t i n g of the G r o u p of Te n a nd the
E u r o p e a n E c o n o m i c Community,
March
2)
9, 1973, in Paris.
Statement
by the C o u n c i l of M i n i s t e r s of
the E u r o p e a n C ommunity,
1973, in Brussels.
S-152
dated
dated March
12,
2
3)
Press Communique of the Ministerial Meeting
of the Group of Ten and the European
Economic Community, dated March 16, 1973,
in Paris.
As these documents indicate, broad agreement has been
reached among the leading industrial nations on a coopera
tive approach aimed at assuring an orderly exchange rate
system, dealing with speculative disturbances, and helping
to speed the task of fundamental monetary reform.
To these ends ^ at the meeting of the Group of 10 with
the Members of the European Economic Community on March 16,
there was agreement Min principle that official intervention
in exchange markets may be useful at appropriate times to
facilitate the maintenance of orderly conditions .... "
This does not imply an obligation to intervene generally to
maintain given margins about par or central values.
Instead,
intervention, when considered necessary and desirable in the
light of market conditions, will be handled in a flexible
manner in close consultation with the authorities of the
nation whose currency may be bought or sold.
Consistent with this overall framework, a number of
'/V
-3 -
European countries have decided to maintain a 2^;-percent
margin among their own currencies.
In addition, some countries have taken additional
steps to discourage speculative capital flows, and the
United States is reviewing actions that may be appropriate
to remove inhibitions on the flow of capital to this
country.
More generally, it was also agreed to study
urgently approaches toward dealing with the volatility of
the Euro-currency markets and with the funding or consolida
tion of official currency balances.
These matters are on
the agenda of the Committee of 20 of the IMF.
Beyond these specific points, more general considera
tions were emphasized:
1)
The need to deal effectively with domestic
inflation; and
2)
The goal of the greatest possible freedom for
international trade and investment, and the
avoidance of competitive changes of exchange
rates.
Those participating in the series of meetings over
recent weeks could not help but be struck by a sense of
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4
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c o o p e r a t i o n and a g r e e m e n t t o w a r d a c o m m o n app r o a c h .
Obv i o u s l y , m u c h r e m a i n s
to be d o n e to a s s u r e a s m o o t h
t r a n s i t i o n to a d u r a b l e a n d s a t i s f a c t o r y m o n e t a r y
the future.
optimism.
But
I feel there are s o lid g r o u n d s
T h e p r e s s u r e s of r e c e n t w e e k s have,
helped precipitate forward progress
that w i l l
T h e actu a l
have,
serve
past week.
Indeed,
established
intended devaluation
of all.
in the m a r k e t
the e x c h a n g e rates
other leading currencies remained
w i t h i n a m a r g i n of - 2 % p e r c e n t a r o u n d
c e n t r a l rates
the p ar v a l u e s
or
f o l l o w i n g the a n n o u n c e m e n t o f our
(taking a c c o u n t of the f u r t h e r small
r e v a l u a t i o n s u b s e q u e n t l y a n n o u n c e d by G e r m a n y ) .
performance,
that
n o t m o v e d o ver a l a rge r a n g e in the
on M o n d a y and T u e s d a y
of the d o l l a r v i s - a - v i s
I believe,
in our m o n e t a r y
the int e r e s t s
e x c h a n g e rates p r e v a i l i n g
for the m o s t part,
for
toward achieving
c o m b i n a t i o n of f l e x i b i l i t y a nd s t a b i l i t y
arrangements
s y s t e m in
This m a r k e t
in the a b s e n c e of i n t e r v e n t i o n in d o l l a r markets
by the l e a d i n g c o u n t r i e s m a i n t a i n i n g p a r or c e n t r a l values,
is c o n s i s t e n t w i t h o ur j u d g m e n t ,
and
that of others,
that
the p a t t e r n of e x c h a n g e rates e s t a b l i s h e d by our d e v a l u a t i o n
is b r o a d l y r e a s o n a b l e an d real i s t i c .
5
Certainly,
the events of the p ast
two w e e k s
in n o w a y
change our j u d g m e n t as to the w i s d o m of the e x c h a n g e r a t e
r ealignment p r e c i p i t a t i n g the p r o p o s e d d e v a l u a t i o n of the
dollar.
speed,
I hope
the C o n g r e s s w i ll, w i t h all d e l i b e r a t e
c o m p l e t e the n e c e s s a r y a c t i o n on this l e g i s l a t i o n .
Attachments-3
0000
I
PRE!
COMMUNIQUE
MINISTERIAL MEETING OF THE GROUP OF TEN
A N D THE EUROPEAN ECONOMIC COMMUNITY,
9 T H M A R C H , 1973, IN PARIS
OF T H E
1.
T h e M i n i s t e r s an d C e n t r a l B a n k G o v e r n o r s of the ten
c o u n t r i e s p a r t i c i p a t i n g in the G e n e r a l A r r a n g e m e n t s to Bor
row* m e t in P a r i s on 9t.h March, 1973, u n d e r the Chairmanship I
of Mr. V a l e r y G i s c a r d d'E s t a i n g , the M i n i s t e r of the Economy
and of F i n a n c e of France.
Mr. P.-P. S c h w e i t z e r , M a n a g i n g
" D i r ector of the I n t e r n a t i o n a l M o n e t a r y Fund, took p a r t in
the me e t i n g , w h i c h w a s als o a t t e n d e d b y Mr. N e l l o Celio, Head
of the F e d e r a l D e p a r t m e n t of F i n a n c e of the S w i s s Confederatioi
Mr. E. Stopper, P r e s i d e n t of the S w i s s N a t i o n a l Bank,
Mr. F r a n c o i s - X a v i e r Ortoli, P r e s i d e n t of the C o m m i s s i o n of the
E u r o p e a n E c o n o m i c C o m m unity, Mr. E. V a n Lennep, S e c etaryG e n e r a l of the O r g a n i z a t i o n for E c o n o m i c C o - o p e r a t i o n and
D e v e l o p m e n t and Mr. R e n e Larre, G e n e r a l M a n a g e r of the Bank
for I n t e r n a t i o n a l S e t t l e m e n t s .
*■ ■
H r^
Mr. A l i Wardhanai, P r e s i d e n t of the C o m m i t t e of Twenty
of the' I n t e r n a t i o n a l M o n e t a r y F u n d -was s p e c i a l l y in v i t e d to
p a r t i c i p a t e in this m e e t i n g .
2.
T h e y e x a m i n e d the i n t e r n a t i o n a l m o n e t a r y s i t u a t i o n in
the l i ght of the p r e s e n t c r i s i s and h a d a b r o a d e x c h a n g e of
v i e w s b o t h on the o r i g i n s of the c r i s i s a nd o n w a y s of dealing
w i t h it in a s p i r i t of c o - o p e r a t i o n .
3.
T h e y a g r e e d t h a t th e cris i s w a s d u e to s p e c u l a t i v e move
m e n t s of funds.
T h e y als o a g r e e d t h a t the e x i s t i n g relation
ships b e t w e e n p a r i t i e s and c e n t r a l rates, f o l l o w i n g the recent
re-al i g n m e n t , correspond, in t h e i r view, to the e c o n o m i c
r e q u i r e m e n t s a n d t h a t t h e s e r e l a t i o n s h i p s w i l l m a k e an e f f e c t s
m o n e t a r y c o n t r i b u t i o n to a b e t t e r b a l a n c e of inter n a t i o n a l pan
ments.
In t h e s e c i r c u m s t a n c e s t h e y u n a n i m o u s l y e x p r e s s e d theij
d e t e r m i n a t i o n to e n s u r e j o i n t l y an o r d e r l y e x c h a n g e rate systej
* T h e G r o u p of T e n c o m p r i s e s six of the m e m b e r cou n t r i e s of H
E u r o p e a n E c o n o m i c C o m m u n i t y (Belgium, France, Germany, Italy*
the N e t h e r l a n d s and the U n i t e d Kingdom) , as w e l l as four other |
c o u n t r i e s (Canada, Japan, S w e d e n a nd the U n i t e d S t a t e s ) . The
o t h e r t h r e e m e m b e r c o u n t r i e s of the E.E.C., De n m a r k , I r e l a n c aj
L u x e m b o u r g , a l s o p a r t i c i p a t e d in this me e t i n g .
PRESS RELEASE
EUROPEAN COMMUNITY INFORMATION SERVICE
2100 M Street Northwest, Suite 707, Washington, D.C. 20037 Telephone:(202)872-8350
New York Office: 277 Park Avenue, New York, N.Y. 10017 Telephone: (212) 371-3804
No. 12/1973
March 13, 1973
FOR IMMEDIATE RELEASE
COMMON
MARKET
P R E P AR E S
FOR
MARKETS
REOPENI NG
EXCHANGE
Washington — March 13 fj Technical details concerning the joint Common Market
currency float, announced yesterday in Brussels, will be worked out this week
before the scheduled March 19 reopening of European exchange markets.
Following is an unofficial translation of the March 12 statement by the
Council of Ministers:
The Council of the Community met on March 11, 1973, to discuss measures
to deal with the international monetary crisis in light of the meeting of the
enlarged "Group of Ten" which took place in Paris on March 9.
The Council decided that
-The maximum margin at any one time between the German mark, the
Danish kroner, the Dutch florin, the Belgian franc, the Luxem
bourg franc, and the French franc is maintained at 2.25 per
cent.
For the member states which are maintaining a two-tier
system of exchange rates, this commitment applies only to the
regulated market.
-The central banks are no longer obligated to intervene in the
fluctuation margins of the US dollar.
This material is prepared, edited, issued, and circulated by thi European Community Information Service, 2100 M Street, NW. Suite 707, Wash
ington. DC 20037 which is registered under the Foreign Agents Registration Act as an agent ot the Commission o( the European Communities.
Brussels R'-tfimm Thu material is tiled with the Deoartment ol Justice where the rcQuned registration statement is available tor public in-
2
4.
The Ministers
t h i s purpose,
a nd Governors are a g r e e d that, for
a s e t of m e a s u r e s n e e d s to b e d r a w n up
5.
T h e f o r m u l a t i o n of t h e s e m e a s u r e s r e q u i r e a t e c h n i
cal study whi c h they h a v e instructed their Deputies
to u n d e r t a k e forthwith.
6.
T h e M i n i s t e r s a n d G o v e r n o r s h a v e d e c i d e d to m e e t
a g a i n on Friday, 16th M a rch, to d r a w j o i n t c o n c l u
s i ons o n t he b a s i s of t h i s s t u d y a n d t a k e the
d e c i s i o n s w h i c h a re c a l l e d for, so as to m a k e it
p o s s i b l e for the E.E.C. c o u n t r i e s a nd S w e d e n to
r e - d p e n t h eir e x c h a n g e m a r k e t s o n Monday, 19th M a rch
7.
F i n ally, the M i n i s t e r s a n d G o v e r n o r s c o n s i d e r e d
t h a t t h e r e c e n t d i s t u r b a n c e s u n d e r l i n e the u r g e n t
n e e d for an e f f e c t i v e r e f o r m of t he i n t e r n a t i o n a l
m o n e t a r y system.
T h e y d e c i d e d to tak e the
n e c e s s a r y steps to a c c e l e r a t e the w o r k of the
C o m m i t t e e ' o f T w e n t y o f the i n t e r n a t i o n a l M o n e t a r y
Fund.
(
-
2
-
-To protect the system against disruptive capital movements, the
application of the March 21, 1972, directive will be reinforced
,nof j b Iijoeqe Id
and complementary instruments of control will be established to
whatever degree is necessary.
-wO
ni ,aaeiorfJeno’
/l
:>r tii soruasefit /!ocxu obioeb oS
The British, Irish, and Italian members declared that their governments
•
jrfj
htiSOO
intend to participate as soon as possible in the decision to maintain
Community margins of fluctuation.
To this end, the Commission will present suggestions irt-::c8iiSiderisoliuJ
adequate before June 30, 1973, when it is also due to report On pr^pdfa%ion
for short-term monetary support and conditions for the gradual pooling of
reserves.
n o - f e l l arts ydvr ax xsdT
The Council agreed that, in the meantime, close and continuous coopera
tion in monetary matters will be maintained between the member States^ jl
authorities.
boa aovrofcffi io gnilooq OfIt no
The representative of the German Government indicated his Governments
intention to undertake before the exchange markets’ reopening a limited
adjustment in the central exchange rate of the mark to contribute to an
orderly development in exchange relations.
The technical details of the matters mentioned above will be worked
out in the next few days, taking into account the next meeting of the
enlarged Group of Ten which will take place in Paris on March 16, so that
they will become applicable on March 19, 1973, the scheduled date for the
reopening of exchange markets.
*
*
*
Following is the translation of the March 12 declaration by the
Commission’s spokesman:
- 3 -
The Commission believes that the arrangements undertaken by the
Council, which will avoid a disjointed float, ward off the risk
of speculation.
Nonetheless, the Commission regrets that the Council was unable
to decide upon measures in which all Community member states
could participate, as the Commission had proposed.
The Community must still work toward economic and monetary
union., Therefore,the nine nationr must return as soon as
possible to a Community system of exchange rates, as agreed
lO i, a
m3
»i'0 .J i. UCj: > %»
a year ago.
That is why the Commission attaches the greatest importance
to the mandate it has received to make suggestions to this end.
It ascribes equal' importance to the proposals it must make
on the pooling of reserves and short-term support.
5
in*
PRESS COMMUNIQUE
OF THE MINISTERIAL MEETING OF THE GROUP OF TER
AND THE EUROPEAN ECONOMIC C O M M U N I T Y ,
16TH MARCH,
1.
1973,
IN PARIS
The Ministers and Central Bank Governors of the ten
countries participating in the General Arrangements to Borrow*
and the member countries of the European Economic Community*
met in Paris on 16th March,
1973 under the Chairmanship of
Mr. Valery Gisca. d d'Estaing, Minister of the Economy and of
Finance of France.
Mr. P.-P.
Schweitzer, Managing Director of
the International Monetary Fund,
took part in the meeting, which
was also attended by Mr. Nello Celio, Head of the Federal
Department of Finance of the Swiss Confederation, Mr. E. Stepper
President of the Swiss National Bank, Mr. W. Kaferkamp,
Vice-
President of the Commission of the European Economic Community,
Mr* E. van Lennep,
Secretary-General of the Organisation for
Economic Co-operation and Development, Mr. Rene Larre,
General
Manager of the Bank for International Settlements and
Mr. Jeremy Morse,
Chairman
of the Deputies of the Committee
of twenty of the I.M.F.
The Group of Ten comprises six of the member countries of
the European Economic Community (Belgium, France, Germany,
Italy, the Netherlands and the United Kingdom), as well as
our other countries (Canada, Japan, Sweden and the United
tates). The other three member countries of the E.E.C.,
Denmark, Ireland and Luxembourg, also participated in this
feting.
1
2
2.
The Ministers and Governors heard a report by the
Chairman of their Deputies, Mr. Rinaldo Ossola, on the results
of the technical study which the Deputies have carried out in
accordance with the instructions given to them.
3.
The Ministers and Governors took note of the decisions
of the members of the E.E.C.
of the E.E.C.
announced on Monday.
Six members
and certain other European countries, including
Sweden, will maintain 2j per cent margins between their curren
cies.
The currencies of certain countries, such as Italy, the
United Kingdom, Ireland, Japan, and Canada remain, for the time
being, floating.
However, Italy, the United Kingdom and Ireland
have expressed the intention of associating themselves as soon
as possible with the decision to maintain E.E.C. exchange rates
within margins of 2J- per cent and meanwhile of remaining in
consultation with their E.E.C. partners.
4.
The Ministers and Governors reiterated their determination!
to ensure jointly an orderly exchange rate system.
To this
end, they agreed on the basis for an operational approach
towards the exchange markets in the near future and on certain
further studies to be completed as a matter of urgency.
5.
They agreed in principle that official intervention in
exchange markets may be useful at appropriate times to facilitate
the maintenance of orderly conditions, keeping in mind also the
desirability of encouraging reflows of speculative movements of
funds.
Each nation stated that it v/ill be prepared to intervene
at its initiative in its own market, when necessary a n d .desirable
acting In a flexible manner in the light of market conditions
and inclose consultation with the authorities of the nation whose
c u r " 'j-y ray 1? height 01
or cold.
The countries which have deci
ded to maintain 2| per cent margins between their currencies
have made known their intention of concerting among themselves
the application of these provisions.
Such intervention will be
financed, when necessary, through use of mutual credit facilities
To ensure fully adequate resources for such operations, it is en
visaged that some of the existing "swap” facilities will be en
larged.
6.
Some countries have announced additional U,cac5ures to
restrain capital inflows.
The United States authorities empha
sized that the phasing out of their controls on longer-term
capital outflows by the end of 1974 was intended to coincide
with strong improvement in the U.S. balance-of-payments
position.
Any steps taken during the interim period toward
the elimination of these controls would take due account of
exchange market conditions and the balance of payments trends.
The U.S. authorities are also reviewing actions tha-t may be
appropriate to remove inhibitions on the inflow of capital into
the United States.
Countries in a strong payments position
will review the possibility of removing or relaxing any res uric,
tions on capital outflows, particularly long-term.
7.
Ministers and Governors noted the importance of dampening
speculative capital movements.
They stated their intention to
seek more completeunderstanding of the sources and nature of the
large capital flows which have recently taken place.
With
respect to Euro-currency markets, they agreed that methods of
reducing the volatility cf these markets will be studied in
tensively, taking into account the implications for the longer
run operation of the international monetary system.
These ^
studies will address themselves, among other factors, to
limitations on placement of official reserves in that market
4
by member nations of the IMF and to the possible need for reserve
requirements comparable to those in national banking markets.
V/ith respect to the former,
the M i n i s t e r s ■and Governors confir
med that their authorities would be prepared to take the
lead by implementing certain undertakings that their own place
ments would be graudally and prudently-withdrawn.
The United
States will review possible action to endourage a flow of Euro
currency funds to the United States as market conditions permit.
8.
In the context of discussions of monetary reform,
the
Ministers and Governors agreed that proposals for funding or
consolidation of official currency balances deserved thorough
and urgent attention.
This matter is already on the agenda of
the Committee of Twenty of the IMF.
9.
.Ministers and Governors reaffirmed their attachment to
the basic principles which have governed international economic
relations since the last war - the greatest possible freedom
for international trade and investment and the avoidance of
competitive changes of exchange rates.
They stated their
determination to continue to use the existing organisations of
international economic co-operation to maintain these principles
for the benefit of all their members.
10.
Ministers and Governors expressed their unanimous con
viction that international monetary stability rests,
last analysis,
inflation.
in the
on the success of national efforts to contain
They are resolved to pursue fully appropriate
policies to this end.
Department o f
HINGTON. D.C. 20220
theTREASURY
*
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
v *
March 21, 1973
TREASURY’S MONTHLY BILL OFFERING
The Treasury Department, by this public notice,1 invites tenders for
$1,800,000,000, or thereabouts, of 346-day Treasury bills for cash and in exchange
for Treasury bills maturing
March 31, 1973
The bills of this series will be dated
March 12, 1974
j in the amount of $1,701,930,000.
March 31, 1973
, and will mature
(CUSIP No. 912793 SN7).
The bills will be issued on a discount basis under competitive and noncom
petitive bidding as hereinafter provided, and at maturity their face amount will
be payable without interest.
They will be issued in bearer form only, and in
denominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the closing
hour, one-thirty p.m., Eastern Standard time, Tuesday, March 27, 1973.
Tenders will not be received at the Treasury Department, Washington.
must be for a minimum of $10,000.
$5,000.
Each tender
Tenders over $10,000 must be in multiples of
In the case of competitive tenders the price offered must be expressed on
the basis of 100, with not more them three decimals, e.g., 99.925.
not be used.
Fractions may
It is urged that tenders be made on the printed forms and forwarded in
the special envelopes which will be supplied by Federal Reserve Banks or Branches
°n application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
Others than
hanking institutions will not be permitted to submit tenders except for their own
account.
Tenders will be received without deposit from incorporated banks and trust
companies and from responsible and recognized dealers in investment securities.
Tenders from others must be accompanied by payment of 2 percent of the face amount
°f Treasury bills applied for, unless the tenders are accompanied by an egress
guaranty of payment by an incorporated bank or trust company.
(OVER)
-
2-
Immediately after the closing hour, tenders will be opened at the Federal Reserve!
Banks and Branches, following which public announcement will be made by the Treasury I
Department of the amount and price range of accepted bids.
Only those submitting
competitive tenders will be advised of the acceptance or rejection thereof.
The
Secretary of the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect shall be final,
Subject to these reservations, noncompetitive tenders for $200,000 or less without
stated price from any one bidder will be accepted in full at the average price (in
three decimals) of accepted competitive bids.
Settlement for accepted tenders in
accordance with the bids must be made or completed at the Federal Reserve Bank on
April 2, 1973
, in cash or other immediately available funds or in a like
face amount of Treasury bills maturing March 31, 1973.
tenders will receive equal treatment.
Cash and exchange
Cash adjustments will be made for differences
between the par value of maturing bills accepted in exchange and the issue price of
the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the amount
of discount at which bills issued hereunder are sold is considered to accrue when the
bills are sold, redeemed or otherwise disposed of, and the bills are excluded from
consideration as capital assets.
Accordingly, the owner of Treasury bills (other thai
life insurance companies) issued hereunder must include in his income tax return, as j
ordinary gain or loss, the difference between the price paid for the bills, whether
on original issue or on subsequent purchase, and the amount actually received either
upon sale or redemption at maturity during the taxable year for which the return is
made.
Treasury Department Circular No. 418 (current revision) and this notice, pre
issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
scribe the terms of the Treasury bills and govern the conditions of their
FOR IMMEDIATE RELEASE
March 21, 1973
REVENUE SHARING CHECKS
TOTALLING NEARLY $1.5 BILLION
WILL BE MAILED APRIL 6, 1973
Graham W. Watt, Director of the Office of Revenue
Sharing of the U. S. Treasury Department, today said the
mailing date for the next general revenue sharing checks
will be April 6, 1973.
The checks for the entitlement period beginning
January 1 and extending through June 30, 1973, will be
mailed to over 38,000 State and local governments,
Indian tribes and Alaskan villages. These checks, the
third to be issued since the general revenue sharing
program was signed into law by President Nixon on
October 20, 1972, will total $1.49 billion. They will
be calculated according to the formula prescribed by
the Congress.
Mr. Watt stated that checks can be mailed on April 6
only to those governments that have returned to the Office
of Revenue Sharing the previously distributed forms which
contain the assurance by the Chief Executive Officer of the
government that each government will conform to the
requirements established in the general revenue sharing law.
Mr. Watt stated that as of March 20, more than 32,000
governments had returned the assurance form to the Office
of Revenue Sharing. He expressed concern that some of the
governments not heard from might have failed to understand
the importance of their official assurance that they would
comply with the provisions of the Act and the regulations.
Therefore, ORS is sending a last-minute notice to each of
the governments who had not replied to the Office of Revenue
Sharing by noon, March 20, 1973.
2
M r c Watt said, "A1though we are receiving assurance
forms by the thousands, I would not like to think that
any government would have the next revenue sharing payment
withheld because of inadvertent failure to comply with
the law and regulations0 Therefore, I am directly advising
each local and State government which has not yet filed
the necessary assurance that by prompt action they may
still qualify for the April payment by returning to this
office the necessary assurance stating their intention to
comply with the provisions of the Act0 We are prepared
to accept these assurances as late as March 27."
M r c Watt noted that his office has received a number
of inquiries concerning other reports by local and State
governments required under the law0 He stated that the
Office of Revenue Sharing expects to mail the first Planned
Use reports about April 9, 1973„ Each recipient government
must indicate on this one-page form the amount of general
revenue sharing funds it plans to spend in each of the
priority categories specified by the Congressc These plans
must be published in a newspaper of general local circulation
for public information and comment» A total of 60 days will
be allowed for recipient governments to accomplish the
necessary actions and return the Planned Use reports0
The law also requires recipient governments to report
the way they actually spend general revenue sharing funds0
The first of these reports will be required as of
September 1, 19730 M r 0 Watt added° "This summer we
will be advising local and State governments of the
reporting procedures necessary to implement that part of
the law having to do with the actual expenditures of funds0
We will provide sufficient advance notice so that each
government may obtain the necessary financial information
and report it to us in a form which we will provide to them0
In the meantime, local and State governments need only to
follow those accounting procedures which apply to all
expenditures of public funds in their jurisdiction, in
accordance with the requirements of the general revenue
sharing regulations published by the Treasury Department in
the Federal Register and previously distributed to the local
and State governments0" (37 FR 23100, 0cto 28, 1972)
oOo
Departmentof theTREASURY
SHINGTON. D C. 20220
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
E X E R P T S OF R E M ARKS D E L I V E R E D BY
THE H O N O R A B L E S A M U E L R. PIERCE, JR.
G E N E R A L C O U N S E L OF THE T R E A S U R Y
AT THE
N E W O R L E A N S C OST OF L I V I N G C O U N C I L C O N F E R E N C E
ON P H A S E III
Thursday, M a r c h 22, 1973
N e w Orleans, L o u i s i a n a (9:00 A M CST)
Samuel R. Pierce,
Department,
Jr.,
G e n e r a l C o u n s e l of the T r e a s u r y
stated that in his o p i n i o n
"the success of P h ase
III w i l l d e p e n d on three factors:
- W h e t h e r F e d e r a l s p e n d i n g is h e l d w i t h i n
the b u d g e t a r y limits r e c o m m e n d e d by the
Administration;
- Whether
and
food costs are b r o u g h t u n d e r control;
- W h e t h e r the p u b l i c w i l l v o l u n t a r i l y c o m p l y w i t h
the s t a n d a r d s
for w a g e and p r ice increases
set
by the C o s t of L i v i n g C o u n c i l d u r i n g P h a s e III."
W i t h r e s p e c t to the nee d to h o l d d o w n F e d e r a l sp e n d i n g
Pierce said,
"We k n o w that no w a g e - p r i c e system,
of how i n g e n i o u s l y devised,
substantial results unle s s
principles are a d h e r e d to.
is sound fiscal policy.
reg a r d l e s s
can be s u c c e s s f u l and p r o d u c e
c e r t a i n f u n d a m e n t a l ec o n o m i c
M o s t f u n d a m e n t a l a m o n g these
W i t h o u t strong fiscal d iscipline,
Federal s p e n d i n g m a y be so p u m p e d up that the same forces
are r e l e a s e d tha t caus e d the e a r l i e r
inflation.
The
-
2-
A d m i n i s t r a t i o n w i l l v i g o r o u s l y r e s i s t this danger.
Tha t
is w h y it intends to h o l d F e d e r a l sp e n d i n g for fiscal
y ear
1973 w i t h i n $250 billion.
a b u d g e t for fiscal y e a r 1974
to e x c e e d $268.7 billion,
revenues
The A d m i n i s t r a t i o n submitted
in w h i c h e x p e n d i t u r e s are not
and w h i c h w i l l n ot e x c e e d the tax
that w o u l d be g e n e r a t e d by a fully e m p l o y e d economy.
It is i m p e r a t i v e that F e d e r a l s p e n d i n g be kep t w i t h i n these
bounds
if two v e r y i m p o r t a n t goals to the A m e r i c a n p e ople
are to be achieved,
namely,
and no i n c r e a s e in F e d e r a l
Mr.
income t a x e s ."
P i e r c e e m p h a s i z e d that the A d m i n i s t r a t i o n is
g i v i n g the
efforts.
f u r ther r e d u c t i o n of inflation,
food p r o b l e m top p r i o r i t y in its a n t i - i n f l a t i o n
He p o i n t e d out that p r i c e c o n t r o l s h a v e b e e n
r e t a i n e d on food proc e s s o r s ,
and the
d i s t r ibutors,
and retailers,
"Federal G o v e r n m e n t has t a k e n c e r t a i n steps to
i n c r e a s e the s u p p l y of food w i t h the e x p e c t a t i o n that these
actions w i l l h e l p r e duce the cost of food.
the A d m i n i s t r a t i o n has
for 1973;
For example,
s u s p e n d e d all quotas on m e a t imports
and the D e p a r t m e n t of A g r i c u l t u r e has temporarily
s u s p e n d e d q u otas on imported,
n o n - f a t dry m i l k , h a s eliminated
the m a n d a t o r y s e t - a s i d e r e q u i r e m e n t u n d e r the 1973 w h e a t
program,
lard,
and has t e r m i n a t e d d i r e c t e x p o r t sub s i d i e s
b r o ilers,
and flour."
for
-3-
Pierce
further s t a t e d that as p a r t of P h ase III n e w
advisory and d e c i s i o n - m a k i n g m a c h i n e r y has b e e n e s t a b l i s h e d
to m a k e c e r t a i n that food p r i c e s r e c e i v e top priority.
He
said a C o s t of L i v i n g C o u n c i l C o m m i t t e e on F o o d and a Foo d
Advisory Committee
(composed of p e o p l e o u t s i d e of Government)
have b e e n e s t a b l i s h e d to r e c o m m e n d steps to be t a k e n by the
G o v e r n m e n t a nd p r i v a t e sector to p r o v i d e an a d e quate supply
of food at r e a s o n a b l e p r i c e s , and that a n e w F o o d I n d ustry
Wage and S a lary C o m m i t t e e has b e e n formed to address w a g e
and p r o d u c t i v i t y p r o b l e m s
in the food i n d u s t r y .
P i e r c e a d ded that by the end of
to the p r e - f r e e z e period,
total e m p l o y m e n t rose,
real spe n d a b l e ear n i n g s
"Phase II,
as com p a r e d
the rate of i n f l a t i o n decreased,
the rate of u n e m p l o y m e n t dropped,
rose,"
and,
in general,
Phases
and
I and
II "received w i d e p u b l i c a c c e p t a n c e and v o l u n t a r y cooperation".
He said he e x p e c t e d this same spirit of p u b l i c c o o p e r a t i o n and
acceptance to c o n t i n u e t h r o u g h P h ase III.
"Ge n e r a l l y speaking",
the food,
health,
be a voluntary,
a c c o r d i n g to Pierce,
and c o n s t r u c t i o n industries,
s e l f - a d m i n i s t e r e d p r o g ram."
"except for
P h a s e III w i l l
However,
pointed o u t t h a t the Cost of L i v i n g C o u n c i l has
he
"the p o w e r
to impose a d d i t i o n a l m a n d a t o r y co n t r o l s w h e n e v e r it is
considered i m p e r a t i v e to a t t a i n the goals of the p r o g r a m . "
P i e r c e said,
"The Economic S t a b i l i z a t i o n A c t of 1970,
-4-
as amended,
is s u f f i c i e n t to give the C o u n c i l the aut h o r i t y
to invoke m a n d a t o r y controls
necessary.
amended,
and p u n i t i v e sanctions w h e n
T h a t is w h y the A c t did n ot h ave to be further
e x c e p t to p r o v i d e for a one y e a r extension.
The
C o s t of L i v i n g C o u n c i l has the a u t h o r i t y to e s t a b l i s h
m a n d a t o r y sta n d a r d s w h e r e it is n e c e s s a r y to assure that
future a c t i o n in a p a r t i c u l a r ind u s t r y is c o n s i s t e n t w i t h
the n a t i o n a l goal of
f u r ther r e d u c i n g inflation.
Also,
if it learns that an a c t i o n has b e e n or is about to be
t a k e n that is i n c o n s i s t e n t w i t h the standards or goals
of the program,
the Co u n c i l
can issue a tem p o r a r y order
s e t t i n g i n t e r i m p r i c e and w a g e levels.
o f t e n b e e n s t ated by o f f i c i a l s
S t a b i l i z a t i o n Program,
closet'
In short,
as has
c o n n e c t e d w i t h the Eco n o m i c
the C O L C has a
'big stick in the
w h i c h it can use if there is any b r e a k d o w n in the
s y s t e m of v o l u n t a r y restraint.
Recently,
for example,
the C o u n c i l took its b i g s t ick o ut of the c l o s e t and hit
c e r t a i n oil c o m p a n i e s w i t h it by li m i t i n g their price
increases,
c a n c e l l i n g their t e r m limit p r i c i n g authorizations,
and by i m p o s i n g u p o n t h e m c e r t a i n r e p o r t i n g requi r e m e n t s . "
FOR RELEASE AT 10:00 A.M.
S T A T E M E N T BY THE H O N O R A B L E JAMES E. SMITH
D E PUTY U N D E R S E C R E T A R Y OF THE T R E A S U R Y
BEFORE
S U B C O M M I T T E E ON FIN A N C I A L I N S T I TUTIONS
SENATE C O M M ITTEE ON BANKING, H O U S I N G
AND URBAN AFFAIRS
THURSDAY, M A R C H 22, 1973, 10:00 A.M.
Mr.
Chairman,
I am p l e a s e d to appear b e f o r e
d i s t i n g u i s h e d Com m i t t e e
position on S.1008,
today to discuss
S.1256
extension of deposit
and S.1257
interest
A c c o m p a n y i n g me
Assistant
to the D e p u t y Secretary,
role in a s s e s s i n g various
the A d m i n i s t r a t i o n ’s
d e a ling w i t h the
rate controls
matters.
is Dr.
this
and other re l a t e d
H o w a r d Beasley,
the Special
who has p l a y e d a m a jor
recommendations
for financial
institution reform.
As y o u know,
Congress
the A d m i n i s t r a t i o n t r a n s m i t t e d to the
on Tuesday,
M a r c h 13,
31,
1974,
a draft bill
one year,
t h r ough M a y
authority
for r e g u l a t i n g time and saving deposit rates
F e d e r a l l y - i n s u r e d financial
We b e l i e v e
that there
period of time the current
S-153
the ex i s t i n g
e x t e n d i n g for
flexible
in
institutions.
is real m e rit
in ext e n d i n g
for a
deposit rate controls but only as
-2-
an
i n t erim m e a s u r e w h i c h will p r o v i d e us
comprehensive
look at the
only financial
The
i nstitutions but also
the
institutions
on their
comp e t i t i v e
rates
accounts.
r e v i e w of the deposit
inst i t u t i o n
method
to assure that
the
in 1966,
s t a n d p o i n t of the
there has b een
the a p p r o priate
is best
s e rved by our
st r u c t u r e
a con t i n u i n g
on deposits
of rate
debate
- both
as
to
from the
and from the s t a n d p o i n t of the c o n sumer and his
are two valid,
and h i g h l y
l i a b i l i t y s t r ucture
not they can g e n erate
c o m p e t i t i v e rates
savings.
important,
b a l a n c e d analysis
their asset s t r ucture
between
a total
i n s t i t u t i o n and its a b i l i t y to compete
right to a fair return on his
at
to be
i n c e ption of the present
the e f f i c a c y of ceiling rates
at the
deems
institutions.
Since
However,
receive
s t r ucture a nd services,
than of just one component,
for funds
among d e p o s i t o r y
The A d m i n i s t r a t i o n
rather
contr o l s
affect not
is but one aspect
relationships
the p u b l i c
to take a
consumer-savers.
and the return w h i c h c o n s u m e r - s a v e r s
savings
financial
time
s p e c t r u m of laws w h i c h
control of deposit
influencing
the
demands
of these
Unq u e s t i o n a b l y ,
these
c o n s i d erations.
tha t we not only look
i nstitutions b ut also
in order to d e t e rmine w h e t h e r or
s u f f icient
on deposits.
earnings
to pay freely
This es s e n t i a l
interdependence
assets a nd l i a b i lities p o ints up the d i f f i c u l t y of
d e a l i n g w i t h any of these
in s t i t u t i o n a l powers
in isolation.
I
recognize,
suggested approach,
Mr.
C h a i r m a n that the A d m i n i s t r a t i o n ’s
S.1257,
is e x p l i c i t l y r e s p o n s i v e
to the e x t e n s i o n of the R e g u l a t i o n Q authority.
We
only
are
reco m m e n d i n g a o n e - y e a r ext e n s i o n rather than a two-year
extension.
But
implicit
in the p o s i t i o n of the A d m i n i s t r a t i o n
is the r e c o m m e n d a t i o n that no
i n t erim or i s o lated action be
taken by the Congress w i t h respect to N O W accounts.
We are,
not adopt
in fact,
r e c o m m e n d i n g that the Committee
those sections
with N OW accounts
Our reasons
of the p r o p o s e d bills w h i c h deal
and the r e lated e x t e n s i o n of FDIC authority.
for taking that p o s t u r e
are several:
One, we are not c o n v i n c e d by the data w h i c h we have thus
far seen w i t h
respect to the d e v e l o p m e n t of the N O W accounts
in both M a s s a c h u s e t t s
case for Federal
We do not
and N ew H a m p s h i r e
that there
is a solid
i n t e r v e n t i o n at this moment.
see a c o m p e t i t i v e d i s r u p t i o n of such a magnitude,
if indeed there is a comp e t i t i v e d i s r u p t i o n at all, w h i c h
would suggest
that the Federal
G o v e rnment
is c o m p e l l e d to
intervene.
The N OW account r e p r esents
a competitive
inn o v a t i o n
a competitive b r e a k t h r o u g h w h i c h m a n y commentators
financial
c o m m unity wil l
role that tec h n o l o g y
The b e n e f i t
argue
is p l a y i n g
on the
is inevitable w i t h the growing
in the t r a nsfer of funds process.
to the s m a ller c o n s u m e r - s a v e r seems obvious.
not yet have s u f f icient
on the off e r i n g
e m p i rical
institution.
--
evidence to judge the
We do
impact
-4We have
experiment,
in M assachusetts
which,
and New H a m p s h i r e
a laboratory
does not at this time appear to be h i ghly
d i s r u p t i v e .in a competitive sense.
Rather,
this
situaton
provides us w i t h an o pp ortunity to see w h e t h e r the per m i t t i n g
of negotiable orders
accounts
of w i t h drawal
out of int e r e s t - b e a r i n g
is indeed a feasible u n d e r t a k i n g for financial
institutions.
feasible,
There are those who will
that these
institutions
argue that
simply cannot
long p e r i o d of time to provide this
afford over any
type of process
interest-bearing account, because of their asset
The only way we are going to get a real
question is to permit this
It is an experiment
of soundness
situation,
service,
that
answer to that
it is a question
if it proves
is either
or make m o difications
Lastly,
structure.
in no w a y threatens
And obviously,
good management
out of an
experiment to continue.
of the institutions;
profitability.
it is not
the safety
of
to be an
unprofitable
going to eliminate
in it.
our reason for urging you not to u n d ertake
s h o r t-term interim solution is that we think that what
desperately needed is a c o mprehensive
interrelationships
the
a
is
review of the competitive
of the thrift and commercial
deposit
institutions.
The A d m i n i s t r a t i o n is now concluding the p o l i c y review
of a comprehensive set of legislative r e commendations w h i c h
address
the major fssues w i t h respect
regulation of deposit
financial
to the structure
institutions.
and
-5The A d m i n i s t r a t i o n hopes
l e g i slative r e c o m m e n d a t i o n s
with t r a n s m i t t a l
of this year.
of draft
to be able
to a n n o u n c e
in n a r r a t i v e
f o r m by e a rly April,
l e g i s l a t i o n to f o l l o w by e a rly June
For these reasons
the A d m i n i s t r a t i o n b e l i e v e s
that a simple e x t e n s i o n of ex i s t i n g
interest
authority for one year,
through May
31,
approach at this
Such an a p p r o a c h w i l l p r o v i d e
time.
time for Congress
c o m p r ehensive
forces,
legislative
and important
financial
to us
is the a p p r o p r i a t e
to at t e m p t m e r e l y
system which
Our financial
to attempt
of a c o m p r e h e n s i v e
control
sufficient
recomme n d a t i o n s .
s p u r r e d on b y c o n s u m e r
resturcure.
1974,
rate
to c o n s i d e r c a r e f u l l y the A d m i n i s t r a t i o n ’s
It does not see m w i s e
the exi s t i n g
these
to p a t c h up
the m o m e n t u m of c o m p e t i t i v e
interests,
see d e s t i n e d to
d e p o s i t o r y s y s t e m is far too c o m p l e x
to r e d e s i g n by u s i n g
and t h o r o u g h review.
oOo
any m e t h o d short
of
the]REASURY
Department
iSHINGTON. D C. 20220
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
M a r c h 22,
1973
T R E A S U R Y ISSUES D U M P I N G F I N D I N G W I T H R E S P E C T TO
C A N N E D B A R T L E T T P E ARS F R O M A U S T R A L I A
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
a n n o u n c e d t o d a y tha t he has issued a d u m p i n g finding
w i t h r e s p e c t to c a n n e d B a r t l e t t p e a r s f r o m Aus t r a l i a .
The f i n ding w i l l be p u b l i s h e d in the F e d e r a l R e g i s t e r
of Friday, M a r c h 23, 1973.
On D e c e m b e r l f 1972, the T r e a s u r y D e p a r t m e n t
a d v i s e d the T a r i f f C o m m i s s i o n tha t c a n n e d B a r t l e t t p e ars
fro m A u s t r a l i a w e r e b e i n g sold at less t h a n fair v a l u e
w i t h i n the m e a n i n g of the A n t i d u m p i n g Act, 1921, as
amended.
O n M a r c h 1, 1973, the T a r i f f C o m m i s s i o n i s sued a
d e t e r m i n a t i o n t hat an i n d u s t r y in the U n i t e d S t a t e s
was b e i n g i n j u r e d by r e a s o n of the i m p o r t a t i o n of
canned B a r t l e t t p e a r s fro m A u s t r a l i a sold, or l i k e l y '
to be sold, at less tha n fair v a l u e w i t h i n the m e a n i n g
of the A n t i d u m p i n g Act, 1921, as amended.
A f t e r t h ese two d e t e r m i n a t i o n s , the f i n ding of
d u m p i n g a u t o m a t i c a l l y f o l lows as the final a d m i n i s t r a t i v e
r e q u i r e m e n t in a n t i d u m p i n g i n v e s t igations.
D u r i n g the p e r i o d of J a n u a r y t h r o u g h A u g u s t 1972,
canned B a r t l e t t p e a r s v a l u e d at a p p r o x i m a t e l y $567,000
were i m p o r t e d fro m A u s t ralia.
oOo
DepartmentoftheTREASURY
OFFICE OF REVENUE SHARING
WASHINGTON. D.C. 20220
New telephone No, 634-5191
March 22, 1973
MEMO TO CORRESPONDENTS:
Please note that comments on the proposed final regulations regarding
Title I of the State and Local Fiscal Assistance Act of 1972(General
Revenue Sharing) are on public view in the Department of the Treasury
Library, Room $OOk, Main Treasury Building,
FOR IMMEDIATE RELEASE
THURSDAY, MARCH 22, 1973
HEARING ON PROPOSED REGULATIONS
UNDER THE STATE AND LOCAL FISCAL ASSISTANCE ACT of"1972
March 26, 1973 - 10:00 a.m.
Conference Room "B"
Departmental Auditorium
Washington, D, C.
AGENDA FOR PUBLIC HEARING
In re:
Proposed regulations under the State and Local
Fiscal Assistance Act of 1972,
Date:
March 26, 1973.
Place:
Conference Room B, Departmental Auditorium
Constitution Avenue, N. W.
(between 12th and
14th Sts., N.W.), Washington, D. C.
There follows a list of persons who have requested the
opportunity to testify with respect to the proposed regulations
to be prescribed in order to disburse entitlement payments to
the States and units of local government under the State and
Local Fiscal Assistance Act of 1972, for the entitlement period
beginning January 1, 1973, and for entitlement periods subsequent
thereto.
The following list shows the order in which the testi
mony of the persons speaking on this subject has been scheduled:
Honorable Louis Stokes
Congressman - 21st Congressional District, Ohio
10 min.
2
Wayne Anderson
City Manager
Alexandria, Virginia
National League of Cities
and
U. S. Conference of Mayors
10 min.
10 min.
William G. Mullen
National Newspaper Association
10 min.
Timothy L . Jenkins)
or
Maurine R. Cooper )
The Match Institution
10 min.
Frank A. Kirk, Director
Department of Local Government Affairs
State of Illinois
10 min.
J, 0. Spiller
Director of State Finance
State of Oklahoma
10 min.
Seth A. Armen
Office of State Planning and Management
Commonwealth of Massachusetts
10 min.
David A. Bucove
Chairman of Legislative Committee
Indiana Library Trustee Association
10 min.
M. Carl Holman, President
The National Urban Coalition
10 min.
Dr. Ralph D. Abernathy
Southern Christian Leadership Conference
10 min.
Jesse Jackson
Peoples United to Save Humanity (PUSH)
10 min.
Ms. Johnnie Tillman
National Welfare Rights Organization
10 min.
George H. Esser, Jr., Executive Director)
or
Harry Bowie, Associate Director
)
Southern Regional Council, Inc.
10 min.
v)
3
Ms. Barbara W. Moffett
Community Relations Division
American Friends Service, Inc.
10 min
Ms. Ann Scott
Vice President for Legislation
National Organization for Women
10 min.
William L. Taylor
Center for National Policy Review
10 min.
Clarence Mitchell
N.A.A.C.P.
10 min.
Harold C. Fleming
Chairman, Task Force on Federal Program Coordination
Leadership Conference on Civil Rights
10 min.
Leon Shull
National Director
Americans for Democratic Action
10 min.
Ed Darden
Movement for Economic Justice
10 min.
Richard D c Warden
Assistant Legislative Director
United Auto Workers
10 min.
Henry M. Ramirez
Cabinet Committee on Opportunities for
Spanish Speaking People
10 min.
Stuart R. Benson
Lawyers Committee for Civil Rights under Law
10 min
Deportmentof
ASHINGTON, DC. 20220
theJREHSURYjH
j1TO
M
TELEPHONE W04-2041
F OR I M M E D I A T E R E L E A S E
U U U a m j
March 22, 1973
IMPACT OF RECENT INTERNATIONAL CURRENCY REALIGNMENTS
ON T R E A S U R Y D E P A R T M E N T A D M I N I S T R A T I O N OF A N T I D U M P I N G A C T
E d w a r d L. M o r g a n , A s s i s t a n t S e c r e t a r y of the T r e a s u r y
for E n f o r c e m e n t , T a r i f f a n d T r a d e A f f a i r s , a nd O p e r a t i o n s ,
today i s s u e d a s t a t e m e n t r e g a r d i n g the i m p a c t of r e c e n t
i n t e r n a t i o n a l c u r r e n c y r e a l i g n m e n t s o n the T r e a s u r y D e p a r t
ment's a d m i n i s t r a t i o n of the A n t i d u m p i n g A c t of 1921, as
amended.
T h e p u r p o s e of this a n n o u n c e m e n t is to r e e m p h a s i z e
the i n t e r r e l a t i o n s h i p b e t w e e n s uch r e a l i g n m e n t s an d T r e a s u r y
Department antidumping investigations.
An earlier Treasury
statement on this s u b j e c t w a s r e l e a s e d on M a r c h 30, 1972.
In the n o r m a l s i t u ation, d u m p i n g t a k e s p l a c e w h e n
m e r c h a n d i s e is sold b y a f o r e i g n e x p o r t e r to a p u r c h a s e r
in the U n i t e d S t a t e s at a l o w e r p r i c e t han in the e x p o r t e r ' s
home m a r ket, i.e., "less t h a n fair v a l u e , " and t h e s e sales
injure U.S. industry.
T h e r e c e n t c h a n g e s in the m a r k e t r a t e
of the d o l l a r in r e l a t i o n to c e r t a i n f o r e i g n c u r r e n c i e s h a v e
e f f e c t i v e l y i n c r e a s e d the h o m e m a r k e t p r i c e of f o r e i g n
merchandise, as e x p r e s s e d in dolla r s .
T h u s sales at less than
fair v a l u e m a y r e s u l t f r o m the c h a n g e s in the m a r k e t r a t e of
the d o l l a r u n l e s s f o r e i g n e x p o r t e r s t a k e a p p r o p r i a t e a c t i o n s
to a d j u s t prices.
The D e p a r t m e n t of the T r e a s u r y r e c o g n i z e s t h a t i m m e d i a t e
price a d j u s t m e n t s m a y n o t a l w a y s be po s s i b l e .
Accordingly,
no p r ice d i s c r e p a n c i e s r e s u l t i n g s o l e l y f r o m the c u r r e n c y
r e a l i g n m e n t s w i l l be t a k e n int o a c c o u n t in fair v a l u e
i n v e s t i g a t i o n s w i t h r e s p e c t to r e l e v a n t t r a n s a c t i o n s t a k i n g
place w i t h i n 45 d a y s of the e x c h a n g e r a t e changes.
mpartmentojtheTREASURY
INGTON. D C. 20220
TELEPHONE W04-2041
/t
ITTENTION: FINANCIAL EDITOR
RELEASE 6:30 P.M.
March 26, 1973
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
fills, one series to be an additional issue of the bills dated December 28, 1972 , and
The other series to be dated
March 29, 1973 , which were invited on March 20, 1973,
Jere opened at the Federal Reserve Banks today. Tenders were invited for $2,400,000,000,
lor thereabouts, of 91-day bills and for $1,800,000,000, or thereabouts, of 182-day
[bills. The details of the two series are as follows:
[\(GE OF ACCEPTED
[COMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing June 28, 1973
Approx. Equiv.
Price
Annual Rate
98.430
98.410
98.420
6.211#
6.290#
6.251#
1/
182-day Treasury bills
maturing September 27, 1975
Approx. Equiv.
Price
Annual Rate
96.657
96.644
96.647
6.613#
6.638#
6.632#
1/
53# of the amount of 91-day bills bid for at the low price was accepted
87# of the amount of 182-day bills bid for at the low price was accepted
|°TAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
INew York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis'
Minneapolis
Kansas City
Balias
San Francisco
TOTALS
Applied For
> 31,920,000
2,949,155,000
36.735.000
29.380.000
31.590.000
23.360.000
281,055,000
54.695.000
24.255.000
37.010.000
33.030.000
124,000,000
Accepted
> 21,665,000
2,032,040,000
31.735.000
29.335.000
12.590.000
21.360.000
106,380,000
38.255.000
12.255.000
25.205.000
11.030.000
58.950.000
Applied For
$ 43,540,000
3,643,560,000
42.430.000
50.280.000
24.690.000
27.270.000
238.550.000
44,000,000
20.865.000
31.125.000
50.170.000
407.420.000
$3,656,185,000 $2,400,780,000 a/ $4,623,900,000
Accepted
£
3,340,000
1,620,505,000
23.870.000
12.715.000
5.575.000
11.560.000
34.775.000
12.500.000
4.115.000
16.400.000
7.740.000
55.040.000
$1,806,135,000 b/
|
f?^’665’000 noncompetitive tenders' accepted at the average price'of 98.420
K rPclU(ies $122,895,000 noncompetitive tenders accepted at the average price of 96.647
■ fi ?S!y ra^es are 011 a baftk discount basis. The equivalent coupon issue yields are
4# for the 91-day bills, and 6.96# for the 182-day bills.
of TREASURY
Department the
Washington , d .c . 20220
telepho ne
W04-2041
FOR RELEASE ON DELIVERY
STATEMENT BY THE HONORABLE JOHN M. HENNESSY
ASSISTANT SECRETARY OF THE TREASURY FOR INTERNATIONAL AFFAIRS
BEFORE THE
SUBCOMMITTEE ON MULTINATIONAL CORPORATIONS OF THE
SENATE FOREIGN RELATIONS COMMITTEE
WEDNESDAY, MARCH 28, 1973, AT 10;00 A.M.
Mr. Chairman and Members of the Subcommittee:
You have asked us to review the record of lending to Chile by the
international development institutions since November 1970, when
Salvador Allende was elected President of Chile. You have also asked
me to comment on the contacts between the Treasury Department and the
International Telephone and Telegraph Corporation and any role that
company may have played in influencing Treasury Department views in
this area.
There are three international development lending institutions
from which Chile or Chilean nationals are eligible to borrow.
These
are the World Bank, the International Finance Corporation (IFC) and
the Inter-American Development Bank (IDB).
Chile is not eligible to
borrow from the International Development Association, since lending
by this institution is limited to the poorest of the developing
countries.
The record of international institution lending is as follows:
In the World Bank, just before the close of its fiscal year in
June 1970, three loans were made to Chile totaling $1 8 . 9 million.
S-15U
-
2
-
Subsequently, monthly reports of projects under consideration circulated
to the Executive Board of the World Bank and IFC show that at various
times a total of eight projects involving possible loans to Chile or
its nationals were under review.
These reports to the Executive Board
also disclose that no loans have been made since the election by either
institution and no loans are now under active consideration.
In the IDB, operations reports to the Board of Directors indicate
that two loans were under consideration by the staff in the pre-November 1970
period. Both loans were for educational development — one of $7 million
to the Universidad Catolica de Chile and another of $^-.6 million to the
Universidad Austral de Chile.
These loans were brought before the
Executive Board of the Bank and were approved on January
loans have been made by IDB to Chile since that time.
lk,
1971. No
The Bank staff
now has a number of investment proposals under technical review.
In years prior to 1971? Chile had been a major recipient of
development assistance provided through the multilateral lending insti
tutions.
Since their inception Chile has received over $270 million
in loans from the World Bank Group and $312 million from the IDB.
The
major decline in lending is explained by a number of factors.
Initially, with a new government coming to power in Chile on a
platform calling for far-reaching changes in the economic structure
of the country, it was appropriate for the development banks to wait
until the new administration’s development program had been formulated
before commencing new lending programs.
The bank^ place great emphasis
- 3 -
on the economic and financial condition of the borrower in making loans,
and had to be concerned about how the proposed structural
changes would affect the Chilean economy, and its ability to utilize
and repay foreign borrowings.
Their charters make the assurance of
repayment an explicit requirement.
In point of fact, over the past 2 years the performance of the
Chilean economy has been poor and a major reason for the present lack
of new lending by the international development institutions.
This
was brought into sharp focus by World Bank President Robert McNamara
at the meeting of the United Nations Economic and Social Council in
October of 1972. McNamara stated that a primary condition for bank
lending which Chile had failed to meet was a soundly managed economy
with a clear potential for utilizing additional funds effectively.
McNamara indicated that rampant inflation, a balance of payments
deficit of $370 million for 1972, and successive annual losses in net
foreign exchange reserves, even after Chile had suspended most payments
on its external debts, were grounds for the Bank’s decision not to
initiate new projects in Chile. He made the further point that no
amount of external financial assistance could substitute for needed
internal measures and under present conditions it was simply impossible
for Bank funds to be used productively for the benefit of the Chilean
people and with reasonable possibility of repayment which the Bank’s
Articles of Agreement required.
- b -
Thus, if for no other reason, the international development hanks
have not been lending to Chile because of problems of creditworthiness.
But there are two other factors — debt repayment record and fulfillment
of international obligations — which also apply to this situation.
In the case of Chile, there is a general debt repayment problem
and particular problems of debt repudiation.
In November 1971 > Chile
declared a unilateral moratorium on its external public debt, due to
its precarious balance of payments situation. Although a multilateral
agreement was reached in April 1972 on rescheduling of 1971-72 maturities,
Chile is again in default on repayments due in 1973 and is behind schedule
on repayments to certain of the international institutions.
In addition, there are 2 cases of actual debt repudiation.
Chile
has repudiated a $153 million debt owed to the Anaconda Copper Corpo
ration.
It has unilaterally disallowed $8 million of a government-
guaranteed debt to the Kennecott Copper Company, and it has
defaulted on payments on the remaining debt to Kennecott that was
recently assumed by the Overseas Private Investment Corporation.
Any bank -- whether for development or other purposes — must take
importantly into account a country’s situation on paying existing
international obligations when considering the granting of new loans.
When the most recent repayment record is questionable, common sense
alone would dictate a go slow policy in approving loans.
Chile’s eligibility for new loans has also been adversely affected
by its expropriation without compensation of the Kennecott Copper Company
and the Anaconda Copper Corporation, as well as the intervention
I
- 5 -
of the International Telephone and Telegraph Corporation with the
subsequently announced intention of expropriating that company. Adequate
compensation is being effectively denied through the unprecedented and
illegal deduction of alleged excess profits. Moreover, Chile has failed
to provide the companies with any genuine mode of appeal of the
government’s decisions --a clear denial of justice under international
law. These actions are in violation of international law.
Because of the importance of these two factors — debt repayment
record and fulfillment of international obligations, especially those
concerning compensation for expropriation -- the World Bank has developed
a formal policy position on these two Questions.
The World Bank will
not lend to countries that have defaulted on private debt obligations
or expropriated foreign private investments without compensation unless
there is evidence that satisfactory progress is being made toward
settlement of the dispute;. This policy came about originally because
of the Bank’s concern over defaults on external bond issues held by
foreign private investors.
The Bank, felt that it had a direct stake
in the principle of repayment on international bonds in view of its
heavy reliance on private capital markets as a source of its own funds.
The Bank’s policy has evolved to include — for similar underlying
reasons
place.
situations where expropriation of direct investments takes
The United,States has a policy similar to that of the World Bank.
On January 19, 1972, in a statement on "Economic Assistance and
Investment Security in Developing Nations," the President took the
position that when a country expropriates a significant U.S. interest
without making reasonable provision for compensation to U.S. citizens,
there will be a presumption that the United States will not extend
bilateral economic benefits to the expropriating country unless and
until it is determined that the country is taking reasonable steps to
provide adequate compensation or that there are major factors affecting
U.S. interests which require continuance of all or part of these benefits.
The same presumption applies to the multilateral institutions.
In the
face of expropriation without compensation, the United States will
withhold its support from loans to the expropriating country under
consideration in the multilateral development banks.
Congressional policy has. also dictated a United States position
in opposition to lending by the international financial institutions
to countries that expropriate American-owned property without compensa
tion.
This is not a new concern but has run through the history of the
United States foreign assistance program.
You are all aware of the
Hickenlooper Amendment.
More recently, Congress has provided even more specific instructions
affecting U.S. voting in international development banks in the form of
the Gonzalez Amendment, adopted in March, 1972.
That amendment requires
'i M -
a negative vote against loans to countries that
e x p ro p r ia te
American
property -without compensation unless compensation has been made, or
good-faith negotiations are in progress leading to prompt, adequate
and effective compensation under international law, or the dispute
has been submitted to arbitration.
The formalization, through a policy statement, of the President’s
position on expropriation without compensation, as well as the expression
of Congressional policy contained in the Gonzalez Amendment', can be
explained in part by the expropriations that have
years, including the Chilean expropriations.
b c c u rre d
in recent
In dealing with this
problem, it is necessary for the Executive Branch to follow the
situation closely and to obtain current information both from the
American companies and the country- involved.
This is, in fact, required
by the President’s investment security statement and is inherent in
the Gonzalez Amendment which calls upon the President to make an
assessment of whether good-faith negotiations aimed at providing
compensation are in progress.
Information comes to the United States
from various sources -- from foreign embassies and from our embassies
abroad, among others.
It also comes to the United States from direct
contacts with American businessmen.
A procedure has been developed for dealing with the facts and
opinions obtained from these information sources. An inter-agency
group -under the chairmanship of the State Department has been
established under the Council on International Economic Policy to
-
8
-
review expropriation cases and to recommend courses of action for the
United States Government.
In matters concerning votes in the inter
national financial institutions, the advice of the CIEP group, as well
as the National Advisory Council on International Financial Policies,
is conveyed to the .Secretary of the Treasury, to whom the President
has delegated responsibility for instructing the U.S. Executive
Directors on voting where Gonzalez Amendment questions are involved.
In the case of the Chilean expropriations, we have attempted to stay
on top of factual developments, and this has included contacts with all
the American companies involved, including ITT.
In closing, I must emphasize that the decisions on U.S. Government
policy in expropriation.matters are strictly determined by the overall
national interests of the United States. More specifically, as applied
to the multilateral development banks, United States Government policy
has been formulated on the basis of the long-standing policies of the
institutions themselves, as well as by Presidential policies and
Congressional directives.
fREASURY
Departmentof
IAMGTON, D C 20220
e
h
t
TELEPHONE W04-2041
FOR IMMEDIATE
RELEASE
■
March 27.7 -1973
r
TREASURY’S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $4,200,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing
April 5, 1973,
in the amount
of $4,202,790,000 as follows:
91-day bills (to maturity date) to be issued
April 5, 1973, in the amount
of $2,400,000,000, or thereabouts, representing an additional amount of bills
dated January 4, 1973,
and to mature
July 5, 1973
(CUSIP No. 912793 RJ7 )f
originally issued in the amount of $1,901,105,000, the additional and original
bills to be freely interchangeable.
182-day bills, for $1,800,000,000, or thereabouts, to be dated April 5, 1973,
and.to mature
October 4, 1973
(CUSIP No. 912793 RX6 ).
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the clos
ing hour, one-thirty p.m., Eastern Standard time, Monday, April 2, 1973.
Tenders will not be received at the Treasury Department, Washington. Each tender
®ist be for a minimum of $10,000. Tenders over $10,000 must be in multiples of
$5,000. In the case of competitive tenders the price offered must be expressed
on the basis of 100, with not more than three decimals, e.g., 99.925.
Nay not be used.
Fractions
It is urged that tenders be made on the printed forms and for
warded in the special envelopes which will be supplied by Federal Reserve Banks
or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
Others than
banking institutions will not be permitted to submit tenders except for their own
II
account.
Tenders will be received without deposit from incorporated banks and
trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids.
Only those
submitting competitive tenders will be advised of the acceptance or rejection
thereof. The Secretary of the Treasury expressly reserves the right to accept or
reject any or all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders for each
issue for $200,000 or less without stated price from any one bidder will be accepted
in full at the average price (in three decimals) of accepted competitive bids for
the respective issues. Settlement for accepted tenders in accordance with the
bids must be made or completed at the Federal Reserve Bank on April 5, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing April 5, 1973.
treatment.
Cash and exchange tenders will receive equal
Cash adjustments will be made for differences between-the par value of
maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is considered to accrue
when the bills are sold, redeemed or otherwise disposed of, and the bills are exfrom consideration as capital assets. Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder must include in his
income tax return, as ordinary gain or loss, the difference between the price paid
for the bills, whether on original issue or on subsequent purchase, and the amount
actually received either upon sale or redemption at maturity during the taxable
year for which the return is made.
Treasury Department Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
FOR I M M E D I A T E RE L E A S E
M a r c h 27,
1973
T R E A S U R Y ISSUES C O U N T E R V A I L I N G D U T Y O R D E R
A G A I N S T R E FRIGERATORS, FREEZERS, O T H E R R E F R I G E R A T I N G
________ E Q U I P M E N T A N D P A R T S T H E R E O F F R O M I T A L Y
A s s i s t a n t S e c r e t a r y o f the T r e a s u r y E d w a r d L. M o r g a n
announced t o d a y the i s s u a n c e of a c o u n t e r v a i l i n g d u t y o r d e r
upon imports o f r e frigerators, freezers, o t h e r r e f r i g e r a t i n g
equipment a n d p a r t s t h e r e o f from Italy.
This a c t i o n w a s t a k e n u n d e r s e c t i o n 303 o f the T a r i f f A c t
of 1930 (19 U.S.C. 1303).
U n d e r this section, the S e c r e t a r y of
the T r e a s u r y is r e q u i r e d to assess an a d d i t i o n a l d u t y equal to
any "bounties or grants" p a i d or b e s t o w e d on m e r c h a n d i s e i m p o r t e d
into the U n i t e d States.
The o r d e r w i l l b e p u b l i s h e d in the F e d e r a l R e g i s t e r of
March 28, 1973.
C o u n t e r v a i l i n g d u t i e s w i l l b e a s s e s s e d 3 0 -days
after p u b l i c a t i o n in the C u s t o m s B u l l e t i n o f A p r i l 11, 1973.
The duties w i l l thus b e c o m e e f f e c t i v e M a y 11, 1973.
B a s e d u p o n i n f o r m a t i o n p r e s e n t l y available, c o m p l e t e r e f r i g
erators r e c e i v e p a y m e n t s o f 17.85 lire p e r k i l o (or a p p r o x i m a t e l y
1*5 cents p e r p o u n d ) , i n s u l a t e d col d c a b i n e t s 14.82 lire p e r k i l o
(approximately 1.2 cents p e r pound), and on r e f r i g e r a t i n g e q u i p
ment 21.24 lire p e r k i l o ( a p p r o x i m a t e l y 1.7 cents p e r p o u n d ) .
The
date of e n t r y o f the m e r c h a n d i s e into the United S t a t e s w i l l b e
the effective d a t e for c o n v e r s i o n p u r poses.
D u r i n g the p e r i o d c a l e n d a r y e a r 1972, i m p o r t s o f I t a l i a n
refrigerators, freezers, o t h e r r e f r i g e r a t i n g e q u i p m e n t a nd p a r t s
thereof t o t a l e d a p p r o x i m a t e l y $ 45,200,000.
# # #
FOR IMMEDIATE RELEASE
March 27, 1973
WITHHOLDING OF APPRAISEMENT OF
GERMANIUM POINT CONTACT DIODES FROM JAPAN
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
announced t o d a y the w i t h h o l d i n g of a p p r a i s e m e n t of g e r m a n i u m
point c o n t a c t d i o d e s f r o m J a p a n p e n d i n g a d e t e r m i n a t i o n as to
whether the y are b e i n g sold at less tha n fair v a l u e w i t h i n the
meaning of the A n t i d u m p i n g Act, 1921, as amended.
T h ese
diodes are solid state s e m i c o n d u c t o r s u s e d in v a r i o u s c o n s u m e r
electronic products.
The d e c i s i o n w i l l a p p e a r in the F e d e r a l R e g i s t e r of
March 28, 1973.
Under the A n t i d u m p i n g Act, the S e c r e t a r y of the T r e a s u r y
is required to w i t h h o l d a p p r a i s e m e n t w h e n e v e r he has r e a s o n a b l e
cause to b e l i e v e or s u s p e c t tha t sales at less than fair v a l u e
may be t a king place.
Germanium point contact diodes produced
by Tokyo S h i b a u r a E l e c t r i c Co., Ltd., (Toshiba) of Tokyo, Japan,
are excluded f r o m this action, since 100 p e r c e n t of its e x p o r t
sales d u r i n g the p e r i o d u n d e r c o n s i d e r a t i o n w e r e examined, &nd
no sales by T o s h i b a w e r e found to be at less tha n fair value,
nor is there any l i k e l i h o o d the y w i l l be at less t han fair value.
A final T r e a s u r y d e c i s i o n in this i n v e s t i g a t i o n w i l l be
made w i t h i n three months.
A p p r a i s e m e n t w i l l be w i t h h e l d for
a period n ot to e x c e e d six m o n t h s f r o m the d a t e of p u b l i c a t i o n
of the " W i t h holding of A p p r a i s e m e n t N o t ice" in the F e d e r a l
Register.
Under the A n t i d u m p i n g Act, a d e t e r m i n a t i o n of sales in the
United States at less t h a n fair v a l u e r e q u i r e s t hat the case
be referred to the T a r i f f C o m m i s s i o n , w h i c h w o u l d c o n s i d e r
whether an A m e r i c a n i n d u s t r y wa s b e i n g injured.
B o t h sales at
loss than fair v a l u e and injury m u s t be shown to j u s t i f y a
finding of d u m p i n g u n d e r the law.
U p o n a f i n ding of dumping,
a special d u t y is assessed.
During the p e r i o d of J a n u a r y t h r o u g h M a y 1972, i m ports of
germanium p o i n t c o n t a c t d i o d e s f r o m J a p a n w e r e v a l u e d at
approximately $87,500.
oOo
MEMO FOR CORRESPONDENTS:
March 27, 1973
Treasury Under Secretary for Monetary Affairs
Paul A. Volcker will deliver the Frank D. Graham
Memorial Lecture, 8:00 p.m., March 29, 1973, Woodrow
Wilson School, Auditorium, Princeton University,
Princeton, New Jersey.
The Lecture is entitled
"The Evolution of Monetary Reform".
There will be
no texts available, but members of the press are
invited to attend the lecture in Princeton and the
question and answer session that will follow.
The lectur
will be transcribed for future publication.
Contacts:
Princeton:
Barclay Bollas, (609) 452-3600
Treasury:
Charles Arnold, 964-2041
of TREASURY
Department the
HINGTON, D.C. 20220
p
TELEPHONE W04-204t
MEMORANDUM TO CORRESPONDENTS;
March 27,1973
The President today approved an amendment of
the rules and regulations governing inspection of
income tax returns by the Department of Agriculture
of persons having farm operations.
The amendment limits the type of data available
to the Department of Agriculture from its inspection
of income tax returns.
The Department of Agriculture
was granted authority to inspect income tax returns
of individuals, corporations, and.other taxpayers
having farm operations in order to obtain data as to
the farm operations of such taxpayers under regula
tions approved January 17, 1973.
Specifically, under
the amendment approved today, the only tax return data
which will be made available to the Department of
Agriculture are the names, addresses, taxpayer
identification numbers, type of farm activity, and
one or more indicia of size of farm operations such
as gross income from farming or gross sales of farm
products.
Similarly, only the aforementioned items
will be available for inspection on returns by
authorized employees of the Department of Agriculture.
S-155
~ My,
The information obtained will be used by the
Department of Agriculture as part of the basis for
statistical surveys of farming operations to be
conducted jointly with the Department of Commerce.
Further, the information obtained from income tax
returns is to be used solely for statistical purposes.
The amendment approved today does not affect the new
procedures and safeguards contained in the regulations
approved January 17, 1973, -whichprovide for more
protection than in the past for the confidentiality
of data obtained from the inspection of returns.
(T.D.
)
TITLE 26--INTERNAL REVENUE
CHAPTER .I--INTERNAL REVENUE SERVICE,
DEPARTMENT OF THE TREASURY
SUBCHAPTER F--PROCEDURE AND ADMINISTRATION
[REGULATIONS ON PROCEDURE AND ADMINISTRATION]
PART 301--PROCEDURE AND ADMINISTRATION
Inspection by Department
of Agriculture of Income
tax returns made under the
Internal Revenue Code ot
1954 ot persons having
farm o pera tion s
?
DEPARTMENT OF THE TREASURY,
Washington, D. C. .20224
TO OFFICERS AND EMPLOYEES OF
THE INTERNAL REVENUE SERVICEAND OTHERS CONCERNED:
Pursuant to section 6103 (a) of the Internal
Revenue Code of 1954, as amended (26 U.S.C. 6103 (a)),
and the Executive order signed this date concerning
inspection by the Department of Agriculture of income
tax returns made under the Internal Revenue Code of
1954 of persons having farm operations, the Regulations
on Procedure and Administration (26 CFR 301) under such
section are amended as follows:
2
Section 301.6103 (a)-108 is amended by revising
paragraph (c).
The amended provision reads as follows:
§ 301.6103 (a)-108
Inspection by Department of
Agriculture of income tax returns made
under the Internal Revenue Code of 1954
of persons having farm operations^
(a)
In general.
* * *
(c)
Data available.
The Secretary of the
Treasury, or any officer or employee of the
Department of the Treasury with the approval of the
Secretary, may furnish' the Department of Agriculture
(for the purpose of obtaining data as to the farm
operations of such persons) with the names,
V
addresses, taxpayer identification numbers, type
of farm activity, and one or more measures of size
of farm operations such as gross income from farm
ing or gross sales of farm products.
Inspection
of such returns shall be limited to inspection of
the data enumerated above and shall be in accor
dance with permission granted by the Secretary of
the Treasury pursuant to this section.
Upon
receipt of a request for inspection approved by the
Secretary of the Treasury, any officer or employee
of the Internal Revenue may make such returns available
3
for inspection, provided inspection is limited
tp the data specified above, in an office of the
Internal Revenue Service by any duly authorized
officer or employee of the Department of Agriculture
or may make the data enumerated above on such
returns available to such Department.
Because this Treasury decision constitutes a
general statement of policy and establishes rules of
Departmental practice and procedure, it is found that it
is unnecessary to issue this Treasury decision with
notice and public procedure thereon under 5 U.S.C. 553 (b),
or subject to the effective date limitation of
5 U.S.C. 553 (d).
This Treasury decision shall be effective upon
its filing for publication in the Federal Register.
Secretary of the Treasury
Approved:
The White House
EXECUTIVE ORDER
INSPECTION BY DEPARTMENT
OF AGRICULTURE OF INCOME
TAX RETURNS MADE UNDER
THE INTERNAL REVENUE CODE
OF 1954 OF PERSONS HAVING
FARM OPERATIONS
By virtue of the authority vested in me by
section 6103 (a) of the Internal Revenue Code of
1954, as amended (26 U.S.C. 6103 (a)), it is
hereby ordered that income tax returns made for
taxable years beginning on or after January 1,
1967, of persons having farm operations shall
be open to inspection to the extent readily
available in the Internal Revenue Service by
the Department of Agriculture as may be needed
for statistical purposes only, in accordance
and upon compliance with the rules and regulations
prescribed by the Secretary of the Treasury in
2
Treasury Decision 7255, relating to inspection
by the Department of Agriculture of certain
income tax returns, approved by the President
on January 17, 1973, and the amendment _the re to
approved by me this date.
THE WHITE HOUSE,
of TREASURY
Department the
(HINGTON; D.C. 20220/
TELEPHONE W04-2041
ATTENTION: FINANCIAL EDITOR
FOR RELEASE 6:30 P. M.
March 27, 1973
RESULTS OF TREASURY’S MONTHLY BILL OFFERING
The Treasury Department announced that the tenders for $1,800,000,000,
or thereabouts, of 346-day Treasury bills to be dated
March 31, 1973 , and
to mature
March 12, 1974 , which were offered pn
March 21, 1973 , were
opened at the Federal Reserve Banks today.
The details of this issue are as follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:
High
- 93.741
Low
- 93.606
Average - 93.642
•
Approx, equiv, annual rate 6,512$ per annum
Approx, equiv. annual rate 6.653$ per annum
Approx, equiv. annual rate 6.615$ per annum l/
0-00 $ of the amount bid for at the low price was accepted)
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Federal Reserve
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS '
Total
Applied for
Total
Accepted
$ 15,910,000
2,529,865,000
18,125,000
3,365,000
31,735,000
10,660,000
184,320,000
42,070,000
24,110,000
17,915,000
24,220,000
118,770?000
$
910,000
1,547,865,000
2,125,000
3,365,000
13,705,000
3,660,000
90,320,000
28,070,000
16,110,000
7,885,000
13,220,0.00
72,745,000
$3,021,065,000
$1,799,980,000
1/ This is on a bank discount basis. The equivalent coupon issue yield is 7.05
2/ Includes $44,280,000 entered on a noncompetitive basis and accepted in full
at the average price shown above.
FOR RELEASE AT 10:00 A.M.,EST
THURSDAY, MARCH 29, 1973
NEW TELEPHONE NUMBER --634-5191
WATT ANNOUNCES STATE ALLOCATIONS
FOR FIRST HALF OF 1973
Graham W. Watt, Director of the Office of Revenue
Sharing, today announced state allocations of general
revenue sharing funds for the first half of 1973, He
stated that each State*s allocation will be greater than
the 1972 amounts.
The increased appropriations and distribution flow from
the use of more recent population data, and the use of
actual rather than estimated 1972 state income tax
collections.
The total amount allocated for the first half of 1973
is $2,989,890,000, up $339,229,144 from the $2,650,660,856
allocated for the second half of 1972.
The amounts a n n o u n c e d t o day w i l l be p aid in two equal
installments d i r e c t l y to eac h e l i g i b l e unit of government.
The first payment will be mailed on April 6, and the second
in early July. The detailed listing of amounts to be paid
to each unit of government will also be available on
April 6.
The attached table shows the total amount allocated to
all units of government in each State. One-third of the
amount shown for each State goes to the State government,
and two-thirds goes to the local governments.
A t t a chment
GENERAL REVENUE SHARING ALLOCATIONS BY STATE
Third Entitlement Period: Jan. 1 to June 30, 1973
Increase Over
State
Total Amount
Allocated*
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
D. Co
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
50678132.
3860622c
30254182c
30797028c
322088752c
31391870c
37315982c
8846722.
13472135c
86093338c
61870417c
13207852c
12390021c
152265061.
63618166.
42295784.
28903562.
48911022.
68690178.
17649139.
58837208.
94687297.
126718539.
58257149.
49566175.
55501304.
11650543.
21909661.
6605863.
9519309.
93334070.
18956246.
331956586.
76573943.
12455068.
117874266.
33294990.
29219994.
155683144.
13464544.
40723522c
13495707.
55721174.
141608202.
17846469.
8387910.
58594440.
43197425.
29121714.
74847512.
5680062.
Allocation
July 1 - Dec.
72
11.9%
16„8%
20.5%
12.9%
15»0%
15.2%
llc0%
10.1%
12.7%
17 c 4%
12.9%
11.5%
16.4%
11.1%
11.8%
12.0%
10.2%
12.5%
12.1%
13.7%
9.9%
14.7%
12 „9%
9.5%
12.1%
13.0%
13.7%
12.7%
14.7%
14.8%
12.0%
15.0%
12 „7%
12.6%
12.3%
10.2%
13.0%
10.2%
12.0%
11.5%
12.9%
11.9%
12.7%
14.2%
16.7%
14.1%
10.2%
10.8%
12.1%
12.3%
14.0%
Source: Office of Revenue Sharing, Department of the Treasury
*0ne-half to be paid in April; one-half to be paid in July.
DepartmentoftheTREASURYl
SHINGTON, OX. 2 0 2 2 0 ^
FO R I M M E DIATE
TELEPHONE W042041
RELEASE
M A R C H 2 9 / 19 73
T R E A S U R Y R E Q UESTS S E C U R I T I E S A S S O C I A T I O N , E X C H A N G E S
TO C O N T I N U E I N T EREST E Q U A L I Z A T I O N T AX P R O C E D U R E S
The D e p a r t m e n t of the T r e a s u r y today r e q u e s t e d the
N a t i o n a l A s s o c i a t i o n of Secu r i t i e s Dealers, Inc., and
n a t i o n a l s e c u rities exchanges to request me m b e r s and
m e m b e r firms to c o n tinue ex i s t i n g p r o c e d u r e s on securities
t r a n s a c t i o n s w h i c h are subject to the Interest E q u a l i z a t i o n
Tax.
The tax is due to expire at m i d n i g h t M a r c h 31, 1973.
P r o p o s e d l e g i s l a t i o n e x t e n d i n g the Interest E q u a l i z a t i o n
Tax to June 30, 1974, was p a s s e d by the H o u s e of R e p r e s e n t a
tives on F e b r u a r y 27, 1973, and was p a s s e d b y the Senate on
M a r c h 27, 1973, w i t h a n u m b e r of technical amendments.
A
H o u s e - S e n a t e c o n f e r e n c e com m i t t e e on M a r c h 28, 1973 app r o v e d
a c o m p r o m i s e bill, w h i c h was then a p p r o v e d b y the Senate on
M a r c h 29, 1973.
However, it is not e x p e c t e d that the H o u s e
of R e p r e s e n t a t i v e s w ill approve the conf e r e n c e bill until
after the tax expires at m i d n i g h t on M a r c h 31, 1973.
The D e p a r t m e n t of the T r e a s u r y a n n o u n c e d that, if the
l e g i s l a t i v e pr o c e s s to e x t e n d the tax is not c o m p l e t e d on or
b e fore A p r i l 1, 1973, it is in t e n d e d that the p e n d i n g
l e g i s l a t i o n shall apply as of m i d n i g h t M a r c h 31, 1973, in o r der
to assure the u n i n t e r r u p t e d a p p l i c a b i l i t y of the tax b e y o n d
M a r c h 31, 1973 at the rates and u n d e r the p r o c e d u r e s in effect
on the latter date.
C o n s u l t a t i o n s w i t h r e p r e s e n t a t i v e s of the s ecurities
i n d ustry indicate that it is fe a s i b l e and des i r a b l e to
continue b e y o n d M a r c h 31, 1973, p r o c e d u r e s p r e v i o u s l y a d o p t e d
for de a l i n g in stocks of fo r e i g n issuers and debt obli g a t i o n s
of f o r e i g n obligors, e s p e c i a l l y those a p p l i c a b l e to the
i d e n t i f i c a t i o n of f o reign s e c u rities o w n e d by U.S. persons
w h i c h m ay be t r a d e d free of tax among U.S. persons.
Such
c o n t i n u a t i o n w i l l assure the m a i n t e n a n c e of o r d e r l y m a r k e t s
in these sec u r i t i e s p e n d i n g a c tion on the p r o p o s e d legislation.
-
2
-
The T r e a s u r y has b e e n a d v i s e d by the N a t ional
A s s o c i a t i o n of S e c u r i t i e s Dealers that the rules a d o p t e d
by the A s s o c i a t i o n to cover a s i m i l a r s i t u a t i o n in 1969,
at the time of a s i m i l a r i m p e n d i n g e x p i r a t i o n of the Interest
E q u a l i z a t i o n Tax, r e m a i n in effect and wil l be app l i c a b l e to
a c q u i s i t i o n s on or after A p ril 1, 1973.
The T r e a s u r y has
r e q u e s t e d that the N a t i o n a l A s s o c i a t i o n of Sec u r i t i e s
Dealers so advise its m e m bers and that the n a t i o n a l securities
e x c h anges adopt and p u b l i s h any n e c e s s a r y rules r e q u i r i n g their
me m b e r s and m e m b e r firms to c o n t i n u e b e y o n d M a r c h 31, 1973, the
p r o c e d u r e s e x i s t i n g on that date for tran s a c t i o n s and securities
then su b j e c t to the Interest E q u a l i z a t i o n Tax.
T e c h n i c a l details a n n o u n c e d t o day by the T r e a s u r y are
a t t a c h e d and are b e i n g s u b m i t t e d to the Federal R e g i s t e r for
p u b l i cation.
OoO
Xf
If:
Attachments
SI
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\ ■%
March 29, 1973
Treasury Department Announcement
INTEREST EQUALIZATION TAX
CONTINUATION OF CURRENT PROCEDURES AFTER
MARCH 31/ 1973, AND RETROACTIVE EFFECT
In the event that the interest equalization tax is
not extended on or before April 1, 1973, it is intended
that the pending legislation will be effective with respect
to acquisitions made after March 31, 1973, so as to assure
uninterrupted applicability of the interest equalization
tax.
The Treasury Department also intends that the
rates, rules and procedures in effect on March 31, 1973
shall continue in effect during the period from April 1',
1973 and extending until the legislation is enacted, in all
respects as if the tax had been extended prior to April 1,
1973.
The status of participating firms will continue as such
unless terminated under current procedures.
Banks and trust
companies which are participating custodians will continue
as such until further notice, as indicated below.
Under current law, the interest equalization tax is
not applicable to any acquisition of stock of a foreign
issuer or debt obligation of a foreign obligor made after
2
March 31, 1973.
H.R. 3577, as agreed to by a House-Senate
conference committee on March 28, 1973, would extend the tax
to June 30, 1974.
Some of the rules and procedures in effect on March 31,
1973, and which will continue in effect, are set forth below
along with the special procedures for participating custodians.
1.
Participating Firms and Participating Custodians.
Those broker-dealers having status as participating
firms on March 31, 1973, will retain their status as such
with respect to acquisitions after such date, unless their
status is terminated and the termination announced under
i
iqty
| i <,ui I| ♦
sexisting procedures. If any broker-dealer does not want to
■at'"continue its status as a participating firm, it must follow
•
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such termination procedures.
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Those banks (or trust companies) having status as
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participating custodians on March 31, 1973 will retain their
status as such during the period following March 31, 1973.
■ 8 * ■ ’ 'f3 -
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It is assumed that during the period before the legislation
is passed by the House of Representatives and signed by the
President, all participating custodians shall continue to
comply with the statutory requirements in effect on
March 31, 1973, and with the documentation, record keeping,
reporting, and auditing requirements of the Internal Revenue
Code in effect on such date. • If action for extension is not
c o m p l e t e d d u r i n g the w e e k of A p r i l
1, a f u r t h e r a n n o u n c e m e n t
w i l l b e m a d e a n d a d a t e w i l l b e s e t b y w h i c h all p a r t i c i p a t i n g
c u s t o d i a n s m u s t n o t i f y the C o m m i s s i o n e r of I n t e r n a l R e v e n u e
t h a t t h e y w i l l c o n t i n u e to c o m p l y w i t h t he a p p l i c a b l e
requirements,
2.
I s s u a n c e of V a l i d a t i o n C e r t i f i c a t e s .
V a l i d a t i o n C e r t i f i c a t e s w i l l c o n t i n u e to b e i s s u e d
b y the I n t e r n a l R e v e n u e S e r v i c e a f t e r M a r c h 31,. 1973.
Internal Revenue Service will
The
follow those procedures
c u r r e n t l y in f o r c e d e a l i n g w i t h the i s s u a n c e of V a l i d a t i o n
C e r t i f i c a t e s , a nd w i l l r e q u i r e s u c h p r o o f of s t a t u s as a
oi, ■
U n i t e d S t a t e s p e r s o n an d c o m p l i a n c e w i t h the t a x (on the
wc . | |
m kt t e
»\ ;
-
- ;
a s s u m p t i o n t h a t the p r o p o s e d l e g i s l a t i o n w i l l b e enacted)
as is c u r r e n t l y r e q u ired.
3.
ie
Payments
in R e s p e c t of T a x ,
D u r i n g the i n t e r i m p e r i o d ,
the I n t e r n a l R e v e n u e S e r v i c e
w i l l c o n t i n u e to r e c e i v e r e t u r n s a n d p a y m e n t s in r e s p e c t of
tax
(on the a s s u m p t i o n t h a t the p r o p o s e d l e g i s l a t i o n w i l l
be enacted)
4.
and m a k e a p p r o p r i a t e refunds.
Participating Firms Purchasing and Selling Taxable
S e c u r i t i e s for O w n A c c o u n t .
A p a r t i c i p a t i n g f i r m m a k i n g a sale of t a x a b l e s e c u r i t i e s
for its o w n a c c o u n t m u s t p a y the t ax on o r b e f o r e the
e f f e c t i v e d a t e of the sale
(generally the s e t t l e m e n t d a t e ) .
4
In s u c h c a s e s the a c q u i s i t i o n is c u r r e n t l y r e p o r t e d on F o r m
3780A which accompanies
the p a y m e n t of tax.
This procedure,
including payments
in r e s p e c t of the tax, w i l l r e m a i n in
effect after March
31,
5•
1973.
Withholding Procedures.
The withholding procedures currently provided under
s e c t i o n 4918(e)(7)
and Temporary Regulation § 147.5-2 will
c o n t i n u e to apply.
6.
Information Ret u r n s .
R e p o r t i n g on i n f o r m a t i o n r e t u r n s c u r r e n t l y p r e s c r i b e d
in c o n n e c t i o n w i t h the i n t e r e s t e q u a l i z a t i o n t ax w i l l
c o n t i n u e in e f f e c t e x c e p t as m a y b e p r o v i d e d in s u b s e q u e n t
Treasury Department publications.
F O R IMMEDIATE. R E L E A S E
M a r c h 30,
1973
NOTE TO CORRESPONDENTS:
T h e T r e a s u r y t o d a y a n n o u n c e d it has p o s t p o n e d the
o f f e r i n g of
$2.0 b i l l i o n of 2 - y e a r n o t e s w h i c h it p r e
v i o u s l y h ad a n n o u n c e d it e x p e c t e d to o f fer a r o u n d the end
of March.
T h i s p o s t p o n e m e n t r e f l e c t s the stro n g T r e a s u r y
cas h position,
in p a r t the r e s u l t of the r e c e n t sales of
n o n m a r k e t a b l e s e c u r i t i e s to f o r e i g n m o n e t a r y a u thorities.
oOo
FOR IMM E D I A T E RE L E A S E
APRIL
2, 1973
R O B E R T T. COLE R E S I G N S AS
I N T E R N A T I O N A L T A X COUNSEL
T r e a s u r y S e c r e t a r y George P. Shultz has a c c e p t e d
Mw i t h great regret," the r e s i g n a t i o n of R o bert T. Cole,
I n t e r n a t i o n a l Tax Counsel.
Mr. Cole is leaving the T r e a s u r y
D e p a r t m e n t to e s t a b l i s h a law office in W a s h i n g t o n , D.C.
Mr. Cole has b e e n w i t h the T r e a s u r y D e p a r t m e n t since
April 1967, w h e n he a c c e p t e d a p p o i n t m e n t as D e p u t y Special
A s s i s t a n t for I n t e r n a t i o n a l T ax Affairs.
In S e p t e m b e r 1969,
Mr. Cole was p r o m o t e d to Special A s s i s t a n t for I n t e r n a t i o n a l
Tax Affairs, and in M a r c h 1971 to the n e w l y - c r e a t e d p o s i t i o n
of I n t e r n a t i o n a l Tax Counsel.
Mr. Cole has a c ted as the T r e a s u r y ’s p r i n c i p a l legal
advisor in the f o r m u l a t i o n of policy, legislation, and
regu l a t i o n s on i n t e r n a t i o n a l tax matters.
He has p l a y e d a
leading, role in n e g o t i a t i n g and i m p l e m e n t i n g U n i t e d States
tax treaties w i t h o t her nations.
Mr. Cole also was one of
the group that d e v e l o p e d the F o r e i g n Direct I n v e stment
R e g u l ations i s sued in 1968, and has b e e n the T r e a s u r y
r e p r e s e n t a t i v e in an i n t e r - a g e n c y group d e a l i n g w i t h the
problems of f o r e i g n b a n k secrecy.
A n a t i v e of N e w Y o r k City, and a 1953 g r a duate of the
W h a r t o n School of F i nance and C o m m e r c e at the U n i v e r s i t y
of P e n n s y l v a n i a , Mr. Cole holds an LL.B degree fro m H a r v a r d
Law School (1956) , and also an A c a d e m i c Post G r a duate D i p l o m a
in Law f r o m the L o n d o n School of E c o n o m i c s (1959).
P r i o r to
joining T r e a sury, he was w i t h the N e w Y o r k law f i r m of M u d g e
Rose Gu t h r i e § A l e x ander.
Prev i o u s l y , he p r a c t i c e d law in
Brussels, B e l g i u m and s e r v e d in the Judge A d v o c a t e G e n e r a l ’s
D e p a r t m e n t of the A i r Force.
S-157
oOo
oftheTREASURY
Department
SHINGTQN, 0 C 20220
TELEPHONE W04-2041
F O R R E L E A S E A T 10:00 a.m.
Statement of
GEORGE P. SHULTZ, Chairman
Cost of Living Council
and
JOHN T. DUNLOP, Director
Cost of Living Council
Before the
HOUSE COMMITTEE ON BANKING AND CURRENCY
April 2, 1973
10:00 a. m.
We are pleased to appear before this Committee in support of the
extension of the Economic Stabilization Act.
1973 is a crucial
year in the continuing transition to a more stable prosperity, and
we believe that a flexible program of direct restraints on prices
and wages can play an important supporting role.
As you know, last week the President announced the imposition of
ceiling prices on red meats.
We will first describe this action
and its background, and then move on to a review of the broader
aspects of the Economic Stabilization Program.
S-158
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Food Prices
The most serious aspect of the present concern over inflation is
the sharp run-up in food prices over the past few months.
Retail
food prices increased by 5 percent in 1972— somewhat more rapidly
than other consumer prices— and then moved sharply higher in early
1973— 4.7 percent in January and February alone.
This spurt was
led by prices of red meats, which went up 10.4 percent in the first
two months of 1973.
This rise in food prices generally and in red
meat specifically is the result of a sharp increase in demand during
1972 and early 1973 while, at the same time, supplies did not
increase.
The ceilings imposed last week apply to beef, pork and lamb sold at
the retail, wholesale and packer levels.
The ceilings do not apply
to animals on the hoof; we feel it is vitally important not to
impede the buildup of livestock herds now undemay.
This buildup
will bring increased meat supplies, and lower prices, later in 1973
and in 1974.
In the meantime, the ceilings, which are of indefinite
duration (though by no means permanent), are intended to prevent any
further rise in red meat prices from taking place, while increased
supplies come into better balance with demand.
It is important to understand that the recent spurt: in food prices
is not a permanent thing— that food prices will level off during
the second half of 1973.
In particular, this sharp but short-lived
rise in food prices should not be built into decisions on prices
%
and wages in other sectors of the economy.
-3-
The rapid rise in food prices will be short-lived not primarily
because of the ceilings, but because the recent shift toward a
tighter balance of supply and demand for meat and other foods can
and will be reversed.
In response to market forces, farmers are
increasing their plantings of crops and building up their livestock
herds.
In addition, the agricultural policies of the Federal Govern
ment have been adjusted sharply and comprehensively to ensure that
this change takes place quickly.
•
Set-aside acreage of crop land has been reduced by about
HO million acres to permit greater production of grains;
•
Government-owned stocks of grains have been sold and
loans on farm-stored crops are being terminated.
•
Restrictions on imports of meat have been suspended.
•
Additional imports of nonfat dry milk were permitted,
and the
Tariff Commission is investigating the possibility
11
of raising cheese import quotas by 50 percent.
These and other actions will ensure that a greatly enlarged supply
of food products will become available during the second half of
this year.
When these additional supplies reach the market, farm
prices should move down quickly and we should have a flattening out
of grocery store prices.
.
•
s
-4-
Prices in Other Sectors
Outside Of food, prices have increased moderately in most industries.
Nonfood consumer prices have increased at an annual rate of 2.9 per
cent since the stabilization program began, and 3.2 percent over the
past six months.
Industrial wholesale prices have increased at an
annual rate of 3.3 percent since August 1971.
In the past six months,
the rise in industrial wholesale prices has accelerated to a 4.0 per
cent rate, because of sharp increases for lumber, hides and fuels.
These industries, along with food, have been troublesome all along
and have accounted for a disproportionate share of the overall price
increase.
Together, these four sectors represent less than 40 percent
of the weight of the total index, but during 1972 they accounted for
more than three-fourths of the overall increase in wholesale prices.
There are two striking features about these sectors of the economy.
First, they are highly competitive industries that are not dominated
by a small handful of large firms.
Second, the main problem that
led to rising prices in each of these industries was an inadequacy
of supply, or pressures on supply of strong demand in international
markets.
Phase II of the Economic Stabilization Program, we should
note, was not designed for situations in which the available produc
tive capacity was insufficient to meet increases in demand— which
are generally situations in which price adjustments are necessary to
allocate limited supplies and to call forth increases in production.
-3-
The rapid rise in food prices will be short-lived not primarily
because of the ceilings, but because the recent shift toward a
tighter balance of supply and demand for meat and other foods can
and will be reversed.
In response to market forces, farmers are
increasing their plantings of crops and building up their livestock
herds.
In addition, the agricultural policies of the Federal Govern
ment have been adjusted sharply and comprehensively to ensure that
this change takes place quickly.
•
Set-aside acreage of crop land has been reduced by about
UO million acres to permit greater production of grains.
•
Government-owned stocks of grains have been sold and
loans on farm-stored crops are being terminated.
•
Restrictions on imports of meat have been suspended.
•
Additional imports of nonfat dry milk were permitted,
and the
Tariff Commission is investigating the possibility
of raising cheese import quotas by 50 percent.
These and other actions will ensure that a greatly enlarged supply
of food products will become available during the second half of
this year.
When these additional supplies reach the market, farm
prices should move down quickly and. we should have a flattening out
of grocery store prices.
-4 -
Prices in Other Sectors
Outside Of food, prices have increased moderately in most industries.
Nonfood consumer prices have increased at an annual rate of 2.9 per
cent since the stabilization program began, and 3.2 percent over the
past six months.
Industrial wholesale prices have increased at an
annual rate of 3.3 percent since August 1971.
In the past six months,
the rise in industrial wholesale prices has accelerated to a 4.0 per
cent rate, because of sharp increases for lumber, hides and fuels.
These industries, along with food, have been troublesome all along
and have accounted for a disproportionate share of the overall price
increase.
Together, these four sectors represent less than 40 percent
of the weight of the total index, but during 1972 they accounted for
more than three-fourths of the overall increase in wholesale prices.
There are two striking features about these sectors of the economy.
First, they are highly competitive industries that are not dominated
by a small handful of large firms.
Second, the main problem that
led to rising prices in each of these industries was an inadequacy
of supply, or pressures on supply of strong demand in international
markets.
Phase II of the Economic Stabilization Program, we should
note, was not designed for situations in which the available produc
tive capacity was insufficient to meet increases in demand— which
are generally situations in which price adjustments are necessary to
allocate limited supplies and to call forth increases in production.
^5-
The Need for Flexibility
These problem areas demonstrate the need for a flexible controls
program.
Each situation has its own special characteristics.
For
example, foreign sources account for a large share of our petroleum
supplies, which means that world market conditions must be taken into
account.
In lumber, government-owned lands provide a major part of
the raw material, and environmental considerations are important.
Special circumstances must be taken into account in dealing with
different food items as has already been noted.
In all these areas,
combining policies to increase supply with appropriate price control
policies, as we have done, is the only way to restrain prices without
creating shortages.
The need to take account of supply shortages and other special considera
tions has become more important with the continuing vigorous growth in the economy.
As market conditions change, different control strat
egies must be developed if controls are to perform their role most
effectively.
Current market conditions are very different from those that prevailed
in the fall of 1971.
The unemployment rate was then about 6 percent,
compared to about 5 percent new.
There was a great deal of slack in
the economy, with considerable unused industrial capacity.
This slack
led to prices that were belcw ceiling levels in many sectors during
most of the program.
Also, demand in markets for internationally
traded commodities was not pushing up prices as much at that tin/-.
%
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Since then, strong growth in output has brought many sectors close
to full capacity.
As market conditions changed, difficulties began
to emerge under the procedures and regulations of Phase II.
Thus,
in some industries such as lumber and fertilizer, application of the
general regulations would not permit price increases necessary to
induce increased supplies.
Higher world prices for fertilizer led
to a sharp increase in exports, despite the risk of a shortage of
fertilizer here at home.
In other instances, firms that were efficient
and aggressive in reducing costs were constrained by base period
profit margins from working toward still greater efficiency.
On the wage side, the procedures for review and formal approval
required for pay adjustments were beginning to erode seriously the
collective bargaining process.
The general pay standard too often
became a target that labor organizations had to exceed in negotia
tions to demonstrate their effectiveness.
Too often negotiations
started at that figure and did not consider sufficiently competitive
conditions, productivity and special problems of the particular sector.
Too often negotiators were avoiding hard choices and their responsi
bilities in collective bargaining by leaving decisions to the stabiliza
tion authorities.
Thus, changing conditions on both the price and pay sides require
different stabilization strategies.
When supplies are inadequate,
it is especially important to avoid using controls in a way that
would discourage increased supplies--and thus exacerbate the problem.
Instead, controls should be used to supplement policy actions on the
supply side.
This is the approach we h*ve followed with petroleum,
lumber, and food.
Consequently, there is a need for a more flexible tailoring of sta
bilization rules to individual industry and product situations than
was possible under the Phase II program.
Other government policies
can and must also be brought to bear to reduce inflationary pressures.
This flexibility in applying controls is available under Phase III.
It permits exemption of sectors from controls as soon as it is safe
to do so, just as it permits reimposition of mandatory controls in
sectors with persistent inflationary tendencies that direct controls
can help to constrain.
The program was also designed for a period of transition toward less
reliance on controls.
The flexibility of the program will help to
avoid the problem that incomes policies have typically confronted
both in the United States and abroad— the tendency for a significant
jump in wages and prices when controls are eliminated all at one time.
At the end of previous stabilization efforts, prices and wages have
often risen to levels that would likely have been reached had there
been no controls.
Phase III was designed to avoid such an abrupt
upsurge in wages and prices.
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8-
A flexible approach will also help to achieve a reasonable pattern of
wage settlements during 1973.
The industrial relations climate is
clearly better than it has been in many years.
The top leaders of
labor and management on our advisory committee are working together
to seek new ways to find industrial relations peace and, as they have
reported to us, to "use their good offices to create a climate favor
able to the settlement of collective bargaining negotiations in 1973
within the framework of stabilization policies."
Among the most important collective bargaining agreements for the year
in terms of their potential for widespread impact on the economy, are
railroads and over-the-road trucking.
At this very early date in the
year, more than three months ahead of schedule, very substantial
progress has been made toward achieving a resolution.
The settlement
does not appear on its face to be unreasonably inconsistent with the
stabilization program; it will be reviewed fully by the Cost of Living
Council when the agreements have been ratified.
The railroad settle
ment is truly an outstanding industrial relations achievement,
particularly in an industry that has been plagued by strife in recent
years and that has too often required special legislative intervention.
While negotiations have not yet begun in the over-the-road trucking
industry, the Chicago situation that has upset the last two negotia
tions appears to have been approached in a constructive way.
%
-9-
The agreement in the steel industry announced last week also represents
a very innovative and constructive approach, both with respect to the
terns of the settlement and its timing.
Elimination of the potential
for a strike next year will avoid a costly inventory buildup followed
by slack work.
steel
It will also help to reduce the inroads of imported
into the domestic market and assure labor peace in the industry
for the next four years.
The Cost of Living Council has monitored carefully the various collec
tive bargaining agreements that have been settled since January 11,
1973.
Several settlements are under particular scrutiny and should
the review show that they are unreasonably inconsistent with the
standards provided in the regulations, the Council will require that
the agreements be modified;
While labor markets generally are likely to tighten somewhat during
the year as the level of unemployment declines further, there is
little evidence yet of critical shortages of workers such as existed
in the 1966-68 period.
There is also no evidence that the level of
wage settlements in collective bargaining has moved up to a new level.
Other Program Areas
We have been concerned with the rent
increases that
in some metropolitan areas in the past two months.
have taken place
The Cost of
Living Council has assembled information on these increases,
particularly in areas where there were indications of tight rental
markets. All of the available evidence indicates that this does not
reflect a problem of national
proportions.
The large increases in
-
10-
rent have been concentrated in a limited number of local areas, rather
than being general throughout the country.
Industry representatives
have indicated their interest in cooperating to assure voluntary
restraint in rents in areas, where pressures have occurred.
In this
way restraint can be achieved without deleterious effects on the housing
stock and on new housing construction.
Another area to which special attention has been devoted in recent
months is interest;rates.
The Cdnmittee on Interest and Dividends
has worked arduously throughout; the stabilization program to achieve
restraint in this area— and it has,been effective.
Chairman Burns
reported to you last Friday on the <kanmittee1s efforts. We wish to
emphasize again our concern, that mandatory constraints on interest
rates, even if limited to institutional rates, would distort the flow
of credit through the financial system, disrupt the growth of business
activity, and intensify inflationary pressures.
It would also have
disruptive consequences for the international monetary system.
The National Commission: on Productivity has made a promising contribu
tion to the stabilization program; in 1972 by drawing on its two main
strengths:
bringing labor, management? and government together at
the same table and providing a forum for consideration of productivity
issues that cut across agency and jurisdictional lines.
In the food
sector, for example, labor and management representatives from farming,
food processing, and food distribution were asked to identify problem
areas contributing to the high cost of food.
A number of problems were
identified and specific actions were suggested that would help alleviate
cost pressures in that sector.
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11-
In the work to be done to improve productivity growth, real progress
will be made only through the constructive efforts of labor and manage
ment working together.
The Productivity Commission provides a highly
constructive mechanism for such efforts, and provision should be made
in the legislation for continuing these efforts to facilitate more
rapid growth in the Nation’s productivity.
We are continuing the work of assuring compliance with the stabiliza
tion program.
In addition to processing the violations that occurred
in Phase II, procedures have been developed in conjunction with the
Internal Revenue Service for monitoring and fact-finding activities
to determine compliance with Phase III standards.
The Internal
Revenue Service has conducted a survey of executive compensation for
the 1972 control year.
A survey to evaluate the management-control
systems installed by large firms to maintain compliance with the price
standard is underway.
And procedures for monitoring individual pay
and price situations have been established.
In the weeks ahead,
special attention will be given to ensuring close compliance with the
ceilings on red meat prices.
Summing Up
The main elements in our anti-inflation strategy are farm policies
that will assure a fully adequate supply of red meat and other
foodstuffs, a comprehensive but flexible system of price and wage
controls and, most Important, the necessary restraint in the budget
and in monetary policy.
The present inflation has its deep roots in
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12 -
the extraordinary rise in Federal spending from 1965 to 1968, which
overstimulated an already fully employed economy.
that history from being repeated.
We must prevent
We commend the Joint Economic
Committee for its support of a $269 billion ceiling on Federal
expenditures in fiscal 1974.
We feel that the Economic Stabilization Program can play an important
supporting role in our anti-inflation strategy, just as it contributed
to the slow-down of inflation during 1972.
But the stabilization
approach cannot remain fixed; it must be adapted to reflect the changes
that take place in economic conditions.
We believe that the Phase III stabilization program has been designed
to perform most effectively the continuing role that controls can play.
Consequently, we have requested a simple extension of the Economic
Stabilization Act for one year.
This additional year of stabilization
authority will permit the application of flexible policies to changing
circumstances in this year of transition to less reliance on controls
in managing economic policy.
of
Departmentof
iSHINGTON, D.C, 20220
thefR EA SU R Y
LTi
TELEPHONE W04-2041
,,
; ■*
■. .
April
FOR IMMEDIATE RELEASE
J 7 S'
2, 1973
TENTATIVE NEGATIVE DETERMINATION ON
M I C R O W A V E O V ENS F R O M J A P A N
U N D E R THE A N T I D U M P I N G A C T
A s s i s t a n t S e c r e t a r y o f the T r e a s u r y E d w a r d L. M o r g a n
announced today a tentative determination that microwave
ovens from J a p a n are n o t being, n o r are l i k e l y to be, sold
at less t h a n fair v a l u e w i t h i n the m e a n i n g o f t he A n t i d u m p i n g
A c t of 1921, as amended.
T h e s e o v ens are e l e c t r o n i c a l l y
o p e r a t e d an d u s e r a d i a n t e n e r g y g e n e r a t e d b y a m a g n e t r o n tube
for the r a p i d c o o k i n g o f food items.
N o t i c e o f this d e t e r m i n a t i o n w i l l b e p u b l i s h e d in the
Federal R e g i s t e r o f Tuesday, A p r i l 3, 1973.
I n f o r m a t i o n g a t h e r e d in this i n v e s t i g a t i o n s h o w e d t h a t the
price to b u y e r s in the h o m e m a r k e t w a s l o w e r t han the p r i c e to
buye r s in the U n i t e d States.
A p p r a i s e m e n t of this m e r c h a n d i s e
from J a p a n h a s n o t b e e n w i t h h e l d .
D u r i n g c a l e n d a r y e a r 1972 imports of m i c r o w a v e o v ens
Japan w e r e v a l u e d at a p p r o x i m a t e l y $20 mi l l i o n .
# # #
from
FO R IMMEDIATE RELEASE
MARCH 29, 1973
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
PRESS CONFERENCE
OF
SECRETARY OF THE TREASURY GEORGE SHULTZ
SECRETARY OF AGRICULTURE EAR L BUTZ
AND JOHN T. DUNLOP, D O C T O R , COST OF LIVING COUNCIL
THE BRIEFING ROOM
8:16 P.M.
EST
MR. ZIEGLER:
I know you have not had a chance to
read all of the material we have given you, but I thought we
would proceed anyway, because the material that you have is
embargoed until 9:00 p.m. and Secretary Shultz will outline
the basic action indicated in the President's address tonight
relating to retail prices of beef, pork and lamb.
Also here tonight is Secretary Butz and Mr. Dunlop.
So we will proceed with a discussion of that section of the
speech and then you will have an opportunity to look at the
other subjects contained in the material we have given you.
SECRETARY SHULTZ:
The President is ajmouncing tonight
the imposition of a ceiling on the prices of beef t pork and
lamb.
This ceiling will exist at the retail level, at the
wholesale level and the packer level.
It will not apply to
animals on the hoof.
The duration of the ceiling is indefinite; that is,
it will last until the p r o b l e m is solved.
As you know, the
President has taken a long series of steps designed to increase
the supply of food products.
Some of the actions that he has
taken are beginning to show their effects, but most will have
effects that will become apparent later in the year.
Our biggest p r o b le m in the food area has been in
the area of mea t prices, and the P r e s i d e n t - e x p e c t s , through
this action, that we will, so to speak, cut off a potential
bulge and potential further increases i n price, and that as
the long-term actions that he has put into- effe c t have their
impact on prices, we will see these'prices- coming down.
So at this p o in t we look for c o m b i n e d action, with
the President's action on imposing a ceiling or a freeze, with
the housewives rebellion at the high food prices and the
farmers
increase in supply, to come~ t o ge t h e r and stop the
rise in prices and, as these forces t - a k e e f feet, bring these
prices down.
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2
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The Internal Revenue Service will put forward its
network of enforcement personnel all around the country to
see that there is compliance with this order.
However, I
woul d say that the mood of the country, no matter how you
read it, is that this problem mus t be solved and we expect
th^t there will be cooperation all around to do the job.
Now, as an additional step also being announced
tonight, the President is sending up an article that was
scheduled to be in the trade bill, probably will be in the
trade bill also, but we hope for immediate action from
the Congress on it, and that is a provision that allows
the President to reduce or suspend tariffs and quotas on
commodities where prices have been rising at a rapid
rate and demand cannot be satisfied at reasonable prices.
So, he w il l seek this authority, and just to
give some examples of the extent of the tariffs that are
now on, on beef the tariff is about 3-1/2 percent, on lamb
about 2-1/2 percent; t o take a different type of item
entirely, on plywood it is about 12-1/2 percent.
So those
are some examples of items that wou ld b e affected if the
President had this authority and suspended the tariffs.
So, in summary, I wou ld say this is an action to
stop the rise in meat prices, food prices — meat prices
as the particular focal point here — and we expect that with
this action and wit h the actions of the housewife and the
farmer together, as the long-term measures take effect,
we w il l not only have stopped the rise in these prices, but
we will see some decline,
Q
Mr, Secretary, do your remarks about the house
wife's cooperation and what n o t mean that the Administration
now is supporting the boycott that is scheduled to take place?
SECRETARY SHULTZs I don't think it is so much the
boycott as it is the clear fact that the housewives of
A m e ri ca are darn smart people and they react to high prices
by adjusting their shopping patterns.
They are doing that
and I think it is pretty clear it is having an impact.
Q
W o n 't this action tend to freeze prices at
their present high levels?
SECRETARY SHULTZ:
No.
We have deliberately
chosen the word "ceiling" rather than "freeze" in order
just to deal with that problem, at least at the rhetorical
level.
W e are talking here about putting in a ceiling.
(Laughter)
A n d that is not a point freeze, it is something
that represents a top, and w e expect and hope that there
w il l be prices below that level.
Q
Can y o u give us a time estimate as to when
y o u think prices w il l beg in to come down in food?
SECRETARY SHULTZ:
We have said, as we have looked
at this, as w e get into the second half of the year we expect
these prices, broadly speaking, to be declining as a result
of all the supply actions that have been taken.
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3
Now just when that will happen, I don't know, but
we will keep this ceiling on until we are able to see that the
job is being done.
There nay be some things that happen
sooner and there have been some very significant price breaks,
just in the recent week, and I think they result from the
fact that there is a good supply there and there has been
resistance at the buyer level, and I think that there is also
a tendency, once suppliers see that the price is not going
to go up any further, or might go down, that if they were
holding supply at all they tend to bring it onto the market.
Q
Mr. Secretary, President Nixon said the other
day that price controls led to shortage, black market,
and eventually rationing.
What about that?
SECRETARY SHULTZ:
The point to be clear about is
that we mus t be careful not to try to control prices at
the raw agricultural level, at the level of the farmer,
at the level of the cattle on the hoof, the pig while it
still squeals, and there we want to let the forces of the
market place play, and let the price encourage the supply,
and we stick with that principle, just as the President has
consistently said.
Q
If the prices go up at the livestock, won't
the seller be in a terrible squeeze?
How can he keep
the price at a ceiling when the price is going up?
SECRETARY SHULTZ:
I think the sellers, with their
prices at a ceiling, obviously will not be able to buy at
prices that are going to have them lose a lot of money at
those levels and in effect that restriction on demand, buttressing
the restriction that the housewife herself is placing on it,
tend?to be passed back down the distribution line.
We are at levels where we have a tremendous volume
of food coming on the market, and it is this tremendous
surge of demand that has resulted in this problem, and if
it cools off just a little bit, we will probably be all right.
Q
Secretary?
Why didn't you do it two months ago, Mr.
SECRETARY SHULTZ:
This problem, I think, has
become obviously a very severe one and we felt that now
is the time to hit it.
Perhaps it should have been done
two months ago.
The prices have gone up.
On the other hand, if it ha d been done then, we
might very well be facing now just the problems that were
suggested in the previous question, that the supplies that
are being encouraged and brought onto the market would not
have been in that posture and we would have been facing
some real shortages here.
Q
Mr. Secretary, wou l d Secretary Butz care
to identify the damn fools w h o ganged up on him?
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4
SECRETARY SHULTZ:
unlike you. (Laughter)
Peter, that question is so
SECRETARY B U T Z : Hell, y o u saw me laughing at
the time when I made the comment.
Q
Through clenched teeth.
(Laughter)
SECRETARY BUTZ:
Obviously a facetious remark
about some of those who hold a different point of view.
Q
Do y o u support this move now?
SECRETARY BUTZ:
Yes, indeed.
I think the time
is ripe for this and I thoroughly second what Secretary
Shultz said about not imposing ceilings on live animals, which,
in my opinion, would be
counter-productive.
O u r farmers
are increasing their production.
The number of cows and
heifers held back for breeding purposes on January 1 was
up a whopping six percent over a year ago.
Up so much,
some people in the cattle industry feel they may be
overdoing it. Hog farrowing in this six month period is
up.
They will be coming to market later in the year.
I think to have imposed a ceiling at the farm le^el
would have discouraged that and w o u l d have been counter
productive.
Q
Secretary Butz, supermarkets complain already
that their profits are virtually nil#
Ho w are they going
to cope if they have to cope with increasingly higher prices
for l?eef on the hoof, as y o u call it?
How are they going
to cope?
SECRETARY S H U L T Z : I think whe n buying can only
take place at a certain price it is going to ration itself
back down through the system and since we are at a very
high level, w e are at a level that encourages supply.
So
we don't have, as Secretary Butz pointed out, the problem of
prices that migh t have been very discouraging to farmers.
Q
Mr. Secretary, in the absence of these controls,
had you expected the prices at the slaughter house would
ha\e continued above their present level or were y ou expecting
they w o ul d go down?
SECRETARY SHULTZ:
We have been expecting right along
that somehow this w o ul d top out as a result of all the
actions that have been taken, but it hasn't happened.
The prices
have kept going up and so we have felt the thing to do is to
take action, and to take firm action and put a ceiling on, and
this is in a sense, y ou might say, putting ou r mouth where our
money is.
We have been saying this is going to happen and this
downtrend will occur, so we are putting in a ceiling and w e expect
that the downtrend wil l come about before long and we will ride
it down.
Q
Mr. Secretary, the ceiling is the prices in effect
today.
SECRETARY SHULTZ:
Well, the way y ou calculate the ceil
ing is the same way it was done in Phase I, whi ch is the same way
it was done in the OPS days.
You establish a base period which is
basically the month of March and then y o u array your prices and
come down the line of prices until you have 10 percent of the
volume and that is you r ceiling price, and it goes by a whole
set of commodity groups that are essentially the commodities
that housewives buy and that has been a fairly standard method.
5
Q
Do you think this will satisfy Mr. Meany, and
has there been prior consultation with Hr. Meany?
SECRETARY SHULTZ:
I don't know how Mr. Meany will
react to this.
I do know that last Friday we had a lengthy
discussion in the Labor-Management Advisory Committee which,
as you know, is set up as an advisory committee to the Cost
of Living Council particularly having to do with wage matters,
but we spent a high proportion of the time in that session
discussing food price problems, and we certainly had the feel
ing from that group, both the management side and the labor
side, that the situation called for very firm action by the
President.
That was their advice, and that was transmitted to
the President.
But how Mr. Meany will react to this, I am
sure we will all find out before long.
Q
Do you have a quantitative goal on what will
have to happen to prices specifically before the job is done?
SECRETARY SHULTZ:
No.
We are deliberately leaving
this a little up in the air and just saying that this action
k® for an indefinite duration, as long as it takes to
do the job.
Q
How are retailers and shoppers tomorrow sup
posed to know what the allowable price is?
SECRETARY SHULTZ:
The reaiilers, of course, don't
know about t h i s , so I d o n 't know what they can actually do
tomorrow.
That is asking for pretty quick action, but all
of the reference prices are in the past.
The 30-day period,
I believe, ends the 28th, so that whatever prices m a y have
been in today or tomorrow don't affect this.
Now it is up to
them to figure their ceiling price and post it.
The IRS will
be around and this is the way it was done in Phase I, and so on.
Q
Won't the
result, in effect — this average
for the month -- be catching the prices at pretty mu c h their
record levels?
SECRETARY SHULTZ:
It depends.
It is a little hard
to tell how this method works out, and it may vary somewhat
from product to product.
It could be on the low end.
It could
be on the high end.
It depends on the way the distribution of
sales went by price.
Q
The legislation to remove tariffs and quotas,
if necessary, woul d that also apply to quotas covering textiles?
SECRETARY SHULTZ:
These are statutory tariffs and
quotas.
The textile agreement is a voluntary agreement.
But
it empowers the President to remove statutory tariffs and
quotas where the prices have been rising rapidly and where
the demand cannot be satisfied at reasonable prices.
So
what commodities w o ul d qualify from time to time —
Q
an agreement;
But not textiles, because they are covered by
right?
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-
6
-
SECRETARY SHULTZ:
They are covered by a voluntary
agreement and they are not a wide measure , but this is
something w e have thought of particularly as we have worked
on the meat problem and the lumber problem.
A n d you look at
this and say, "My goodness, we have removed all the quotas
on meat imports.
There are no quotas on lumber imports, but
we are charginq a 3-1/2 percent tariff on beef, we are
charging a 2- 1 / 2 percent tariff on lamb, we are charging a
12-1/2 percent tariff on plywood, so let's get rid of those."
Q
Does the present notification of all pay
adjustments affecting the employees in the food industry apply
to the retail level as well?
SECRETARY S H U L T Z :
Yes.
John, do y o u want to respond to that?
Q
Does the present notification referring to all
employees in the food industry affect retail level as well?
DR. DUNLOP:
Oh, yes.
The measures provide that
all wage applications mus t be submitted to the Cost of Living
Council in advance and that there is no area of self
administration.
In other words, increases which before tonight could
have been put into effect on a self—administering basis cannot,
in the future, be done so without explicit review of the Cost
of Living Council.
SECRETARY SHULTZ:
That is the wage counterpart of
wha t exists on the price side.
Q
Is this Phase IV or still a part of Phase III?
SECRETARY SHULTZ:
This is, yo u might say, the club
in the closet, or something.
I don't know.
Q
Why has poultry been excluded, not included
in the controls?
SECRETARY SHULTZ:
Because poultry is an entirely
different cycle.
It is a very short production cycle,
and right now we have a situation where the prices are
encouraging supply, and furthermore, the feed — what do you
call that, sourmash or something (Laughter) —
feed is
going down and it is a good situation and that situation
is going to cure itself the way we said.
So that is why.
Q
Mr. Secretary, do you believe that overseas
suppliers of the American meat market have been holding back
supplies and secondly, what makes y o u think they wil l continue
to send the supplies here wh e n yo u are limiting the money
they can get from this market?
SECRETARY SHULTZ:
Well, I believe it was last June
the President suspended all quantitative restrictions on
imports and most people said there w o uldn't be much reaction
to that.
MORE
7
Actually, there was quite a reaction, and I have
forgotten the percentages exactly, but there was a
significant percentage increase in imports as a result of
that.
This year, so far, the imports are running at a
significant percentage above last year.
Perhaps yo u know
what the percentage is, Earl, offhand.
Do you?
SECRETARY B U T Z : The volume of imports is up about
50 percent from before quotas were lifted.
SECRETARY SHULTZ:
At any rate, the volume has been
expanding.
Obviously we are in a competitive price situation
with other possible places where this meat could go, but
the fact of the matter is right now it is coming here, it is
coming here in large quantities and goodness knows, our
prices are high.
Now, I think it will help us to take the tariff
off.
Why have the tariff on when we are trying to import
this stuff.
Q
Why don't y o u impose an embargo on meat exports?
SECRETARY S H U L T Z : The volume of meat exports is
slight.
W e are a big net importer and we will watch that
situation, but we don't think that is a problem at the
present time, and you can get yourself all tripped up by
trying to put too many controls cn too many things.
Q
There is some indication that retail beef prices
might be about to come down.
Do yo u think the fact that
aceiling is being set
will keep them up at a ceiling level?
SECRETARY SHULTZ:
No, I don't.
I think if anything
it will operate the other way.
That is, I have the
impression that when prices are in a strongly rising trend,
what tends to happen is that people hold off in the
expectation that prices may go up further.
So, we think one possible productive impact of
this is to, in effect, say they have gone as far as they
are going to go and people can stop speculating on the
possibility of still higher prices.
Now, I think an awful lot depends, of course, on the
way people approach this.
We think we have a national
problem here.
It is a prob l e m that everybody cares about,
everybody is interested in, and the housewives have been
taking an interest in, the amount of cattle in the feed lots
has been going up, as it certainly ought to with these high
prices and the situation is just basically ripe for putting
this ceiling on and expecting that with these forces operating
we will be able to get these prices down.
Q
One more question, Mr. Secretary. Y ou were
talking about supply of these types of meat on the hoof,
before the feed lot level —
MORE
SECRETARY SHULTZ:
They are still on the hoof when
they are in the feed lot and that is the phase of the production.
Q
How much of
independent operators and
operation or a subsidiary
much of this is corporate
SECRETARY B U T Z :
Q
this originates with individual,
how much of it is a corporate
or otherwise; in other words, how
generation of one kind or another?
Are yo u asking me?
Yes.
SECRETARY SHULTZ:
He will take that, but let me
just call your attention to page four of these facts.
You
can see the number of markets involved and so on and you have
roughly a third of the sales going through the auction
market which is one of the reasons why it is so difficult
to get at these sales at the on-the-hoof level.
SECRETARY BUTZ:
You heard a great deal about the
development of the large feed lots in recent years, but the
great bulk of those are individually owned by very small
groups of farmers.
The number of corporate owned feed lots
is not large in this country.
THE PRESS:
Thank you very much, gentlemen.
END
(AT 8:38 P.M. EST)
9
EMBARGOED FOR RELEASE
UNTIL 9:00 P . M. , EST
March 29, 1973
O ffice of the White House P r e s s Secretary
THE WHITE HOUSE
STATEMENT BY SECRETARY GEORGE P. SHULTZ,
CHAIRMAN, COST OF LIVING COUNCIL
By d irection of P resid en t Nixon the Cost of Living Council is today im plem enting
a s e r ie s of new m andatory controls designed to restra in the risin g p r ic e s of
m eat.
T h ese a n ti-in flation actions feature:
- - A ceilin g on p r ic e s of b eef, lam b, and pork effective today, which w ill
rem ain in force for as long as n e c e ssa r y to do the job. The ceilin g affects
m eat p r b c e s s o r s , m eat w h o le sa le r s, and m eat r e ta ile r s . It se ts ceilin g
p r ic e s on a ll le v e ls of tra n saction s for m eat ite m s, both on the buyer
and s e lle r in each sa le .
- - P ren otification to and approval by the Cost of Living Council of a ll pay
adjustm ents affecting em p loyees in the food industry.
- - A ceilin g p r ic e posting requirem ent for all m eat r e ta ile r s , which c a lls for
prom inent public d isp lay at a ll m eat counters no later than A p ril 9.
- - E stab lish m en t of a nationwide enforcem en t network operated by Econom ic
Stab ilization P rogram o ffic e r s of the Internal Revenue S ervice to a ssu re
com pliance with new ceilin g p r ic e s .
A s an im portant step to r e str a in inflation and to aid the A m erican consum er,
the P resid en t is seek in g authority from the C ongress to suspend tariffs and
quotas on im p orts of food. T h is authority would be used when the P resid en t
d eterm in es that supply is inadequate to m eet d om estic demand at resonable
p r ic e s . Coupled with the action s that have been taken to in crease food
su p p lies, th is w ill further help to m oderate food p rice in c r e a se s.
The P r e sid e n t has a lso em p h asized it is im p erative that the E conom ic
Stab ilization P ro g ra m and the D epartm ent of A griculture continue to m onitor
and encourage food production at the farm le v e l, and a ssu r e that step s
already taken w ill r e su lt in in c r e a sed protein su p p lies.
The Cost of L iving Council C om m ittee on Food, after taking a hard look at all
a sp ects of the food situ ation , issu e d a report on the problem on M arch 20.
The report pointed out that a sh ortage of protein food supplies in the United
S ta tes, and abroad, had pushed the p r ic e s of food up to record high le v e ls .
It a lso sp elled out a number of step s taken by the governm ent to restra in
food p r ic e in c r e a s e s by m oving to expand food su p p lies, reducing im pedim ents
to im p orts and m aintaining m andatory P h a se III con trols on the food industry.
The rep ort p red icted that the effect of th ese supply actions w ill m oderate
food p r ic e in c r e a s e s in the second half of 1973. We firm ly b eliev e they w ill.
H ow ever, the rep ort a lso m ade c le a r that continued esca la tio n of food p r ic e s
posed a se r io u s th reat to our sta b ilization program goal of reducing the rate
of inflation to 2. 5 p ercen t by the end of th is y ea r.
H ere are som e of the hard fa c ts. During P h a se II, food p r ic e s at the grocery
sto re in crea sed by 5. 2 p ercen t and red m eat, b eef, and pork, went up by
11. 8 p ercen t. Food at r e ta il, excluding m e a t, in crea sed at a much m ore
m oderate rate of 2. 9 p ercen t. T his was w e ll within the P h ase II goal of
the stab iliza tio n p rogram . But the core of the p resen t problem is the r ise
in die p r ic e of red m ea t, which has soared 10 to 15 percen t at w h olesale
in the p a st th ree m onths.
10
Waiting until the end of 1973 for food p r ic e s to le v e l off is not good enough.
R isin g p r ic e s are threatening to erode the gains recorded by wage earn ers
in P h ase II when rea l spendable earnings in creased substantially.
To th ose groups of A m erican s affected by this d ecisio n , I would say th is.
The h ou sew ife, who w ield s the m ost pow erful anti-inflation weapon through
her buying d e c isio n s, can bring about stab ilization by refusing to pay high
m eat p r ic e s . The housew ife can help bring about an end to risin g m eat
p r ic e s by r e sistin g high p r ic e s and by shopping w ise ly .
To the A m erican fa rm er, who has an unmatched ability to produce m ore food
at le s s c o st than any nation inihe w orld, we look for ev ery effort that w ill
encourage bountiful crops and anim al production. We encourage fa rm ers to
continue to expand th eir production of crops and m arketings of beef and
pork during the ceilin g p eriod to insure that shortages do not develop.
To a ll co n su m ers, we a sk for cooperation. A united effort is needed now:
prudent food buying d e c isio n s, an understanding that we face a tem porary
supply p roblem and the confidence that we w ill defeat food inflation and
attain the goals of the Econom ic Stabilization P rogram in 1973.
#
#
#
11
FO R IMMEDIATE RELEASE
MARCH 29, 1973
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
THE WHITE HOUSE
ADDRESS BY THE PRESIDENT
ON LIVE TELEVISION AN D RADIO
THE OVAL OFFICE
9:01 P.M.
EST
Good evening.
Four years and two months ago, when I first came
into this office as President, by far the most difficult
problem confronting the Nation was the seemingly endless
w a r in Vietnam.
550,000 Americans were in Vietnam.
As ma n y
as 300 a week were being killed in action.
Hundreds were
held as prisoners of w a r in North Vietnam.
No progress was
being made at the peace negotiations.
I immediately initiated a program to end the war
and w i n an honorable peace.
Eleven times over the past four years I have re
ported to the Nation from this room on the progress we have
made toward that goal.
Tonight, the day we have all worked
and prayed for has finally come.
For the first time in 12 years, no American military
forces are in Vietnam.
All of our American POWs are on their
way home.
The 17 million people of South Vietnam have the
right to choose their own government without outside inter
ference, and because of our program of Vietnamization, they
have the strength to defend that right.
We have prevented the
imposition of
a Communist government by force on South Vietnam.
There are still some problem areas.
The provisions
of the agreement requiring an accounting for all missing in
action in Indochina, the provisions with regard to Laos and
Cambodia, the provisions prohibiting infiltration from North
Viet na m into South V ietamm have not been complied with.
We
have and will continue to comply wi t h the agreement.
We shall
insist that North Viet na m comply with the agreement, and the
leaders of North Vietnam should have no doubt as to the conse
quences if they fail to comply wi t h the agreement.
But despite these difficulties, we can be proud
tonight of the fact that we have achieved our goal of obtaining
an agreement which provides peace wi t h honor in Vietnam.
On this day, let us h o n o r those wh o made this achieve
men t possible: those who sacrificed their lives; those who
were disabled; those w h o made every one of us proud to be an
American as they returned from years of Communist imprisonment,
and every one of the 2-1/2 million Americans wh o served hon or
ably in our Nation's longest war.
Never have men served with
greater devotion abroad wit h less apparent support at home.
Let us provide these men with the veterans' benefits
and the job opportunities they have earned.
Let us honor them
wit h the respect they deserve.
A n d I say again tonight, let
us not dishonor those w h o served their country by granting
amnesty to those w h o deserted America.
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12
We have been through som e difficult tim es together. I r e c a ll the tim e
in N ovem ber, 1969. when hundreds of thousands of p ro testers m arched
on the White House; the tim e in A pril, 1970, when 1 found it n e c e ssa r y
to ord er attacks on C om m unist b a ses in Cambodia; the tim e in May,
1972, when I ordered the m ining pf Haiphong and a ir str ik e s on m ilita ry
ta rg ets in North V ietnam in order to stop a m a ssiv e Com m unist invasion
of South V ietnam . And, then perhaps the hardest d ecisio n I have m ade a s
P r e sid e n t, on D ecem ber 18, 1972, when our hopes fo r peace w ere so
high and when the North V ietn am ese ston e-w alled us at the con feren ce
tab le, I found it n e c e ssa r y to order m ore a ir str ik e s on m ilita r y ta rg ets
in North V ietnam to break the deadlock.
On each of th ese o cca sio n s the v o ices of opposition w e heard in W ashington
w ere so loud they at tim es seem ed to be the m a jority. But a c r o s s A m erica,
the overw helm ing m ajority stood firm against th o se who advocated peace at
any p rice - - even if the p rice would have been defeat and hum iliation for
the United S ta tes.
B eca u se you stood firm for doing what was right, C olonel McKnight w as able
to say for h is fellow POWs when he returned hom e, "Thank you for bringing us
hom e on our feet instead of on our k n e e s ."
L et us turn now to som e of our problem s at hom e. Tonight I a sk your support
in another b attle. We can be thankful that this is not a battle in war abroad,
but a battle we m ust win if w e a re to build a new p ro sp erity without war and
without inflation at hom e.
What 1 r e fe r to is the b attle of the budget. Not ju st the battle over the F ed era l
budget, but, even m ore im portant, the b attle o f your budget - - the fam ily
budget of e v e r y hom e in A m erica .
One of the m o st terrib le c o s ts of war is inflation. The c o st of living has
skyrocketed during and after every war we have b een engaged in . We recogn ized
this danger four years ago and have taken strong action to d ea l with it. A s a
r e su lt of our p o lic ie s we have cut the rate of inflation in h alf sin c e it reached
a peak in 1969 and 1970. -Today our rate of inflation is the low est of any
m ajor in d u strial nation.
But th ese p o sitiv e s ta tis tic s a r e sm a ll com fort to a fa m ily trying to m ake both
ends m e e t. And they a re no com fort at a ll to the h ou sew ife who s e e s m eat
p r ic e s soarin g ev ery tim e sh e g o es to the m arket. The m ajor weak spot in
our fight ag a in st inflation is in the area of m eat p r ic e s .
1 have taken a ction
to in c r e a se im p orts from abroad and production at hom e. T his w ill in c r e a se
the supply of m ea t and w ill help bring p r ic e s down la ter th is yea r.
But what we need is action that w ill stop the r is e in m eat p r ic e s now. That is
why I have today ordered the C ost of L iving Council to im p ose a c eilin g on
p r ic e s of b eef, pork and lam b. The ceilin g w ill rem ain in effect a s long a s is
n e c e ssa r y to do the job. M eat p rices m ust not go high er. With the help of the
housew ife and the fa rm er, they can and should go down.
J
T his cellin g w ill help in our battle again st inflation. But it is not a perm anent
solu tion .
We m u st a ct on a ll fronts and h ere is w here the F ed e r a l budget
c o m e s in.
1 have subm itted to C ongress for the next fis c a l year the la r g e st budget
in our h isto ry — $268 b illio n .
amount 1 have req u ested in th is budget for d o m estic program s in such field s
a s health, housing, education, and aid to the eld e r ly , the handicapped and the
poor, is tw ice a s big as the amount in m y fir s t budget four y ears ago. H ow ever,
so m e m em b ers of C on gress b e lie v e the budget in th ese a rea s should be even
h ig h er.
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%
4
.
3
13
But what we need is action that will stop the
rise in meat prices now, and that is why I have today ordered
the Cost of Living Council to impose a ceiling on prices of
beef, pork and lamb.
The ceiling will remain in effect as
long as it is necessary to do the job.
Meat prices must not go higher, and with the
help of the housewife and the farmer they can and they
should go down.
This ceiling will help in our battle against
inflation.
But it is not a permanent solution.
We must
act on all fronts, and here is where the Federal budget
comes in,
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14 -
I have submitted to Congress for the next fiscal
year the largest budget in our history —
$268 billion.
The amount I have requested in this budget for
domestic programs in such fields as health, housing,
education, aid to the elderly, the handicapped, the poor,
is twice as big as the amount I asked for for these items
four yearsago.
However,some Members of Congress believe
the budget in these areas should be even higher.
Now, if I were to approve the increases in my
budget that have been proposed in the Congress, it would
mean a 15 percent increase in your taxes, or an increase in
prices for every American.
And, that is wh y I shall veto
the bills which w o u l d break the Federal budget which I have
submitted.
If I do not veto these bills, increased prices
or taxes w o u l d break the family budget of millions of
Americans.
Including possibly, yo u r own.
This is not a battle between Congress and the
President.
It is yo u r battle.
It is your money, your
prices, y o u r taxes I am trying to save.
Twenty-five years ago, as a freshman Congressman,
I first came into this office.
I met Harry Truman, wh o
was then President of the United States.
I remember he
h a d a sign on the desk.
It read, "The buck stops here."
Now that meant, of course, that a President can't pass the
buck to anyone else w h e n a tough decision has to be made.
It also means that y o u r buck stops here.
If I do not act
to stop the spending increases which Congress sends to
this desk, y o u wi l l have to pay the bill.
N o w I admit there is an hone s t difference of opinion
on the matter of the Federal budget.
If yo u are willing
to pay the high er taxes o r prices that w i l l result if we
increase Federal spending over m y budget, as some in Congress
have proposed, y o u should ask yo u r Senators and your Congressmen
to override my vetoes, but if y o u w a n t to stop the rise
in taxes, and prices, I hav e a suggestion to make.
I remember
w h e n I was a Congressman and a Senator, I always seemed to
h ea r from those wh o w a n t e d g o vernment to spend more, I seldom
h e a rd from the people w h o hav e t o pay the bill — the taxpayer.
A n d if y ou r C on gressman o r Sena t o r has the courage to
vote against more govern m e n t spending, so that y o u won't
have to pay h i g h e r prices or taxes — let h i m know that
y o u support him.
Winn i ng th e battle to hol d down the Federal budget
is essential if w e are to achieve o u r goal of a new
prosperity — prosperity with o u t w a r and with o u t inflation.
I ask y o u tonight for y o u r support in helping to wi n this
vitally important battle.
Let me turn, finally, tonight to another great
challenge we face.
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15
As we end America's longest war, let us resolve that
we shall not lose the peace. During the past year we have
made great progress toward our goal of a generation of peace
for America and the world.
The wa r in Vietnam has been ended.
After 20 years of hostility and confrontation we have opened
a constructive new relationship with the People's Republic
of China where one-fourth of all the people in the world live.
We negotiated last year with the Soviet Union a number of
important agreements, including an agreement which takes
a major step in limiting nuclear arms.
Now there are some who say that in view of all this
progress toward peace, why not cut our defense budget?
Well, let's look at the facts.
Our defense budget
today takes the lowest percentage of our Gross National
Product that it has in 20 years.
There is nothing I would like
better than to be able to reduce it further.
But we must
never forget that we would not have made the progress toward
lasting peace that we have made in this past year unless
we had had the military strength that commanded respect.
This year we have begun new negotiations with the
Soviet Union for further limitations on nuclear arms.
And
we shall be participating later in the year in negotiations
for mutual reduction o f forces in Europe.
If prior to these negotiations we in the United
States unilaterally reduce our defense budget, or reduce
our forces in Europe, any Chance for successful negotiations
for mutual reduction of forces or limitation of arms will
be destroyed.
There is one unbreakable rule of international
diplomacy.
You can't get something in a negotiation unless
you have something to give.
If we cut our defenses before
negotiations begin, any incentive for other nations to cut
theirs wil l go right out the window.
If the United States reduces its defenses and others
do not, it will increase the danger of war.
It is only a
mutual reduction of forces which will reduce the danger of war.
And that is why we must main t a in our strength until we get
agreements under which other nations will join us in reducing
the burden of armaments.
Wha t is at stake is w hether the United States shall
become the second strongest nation in the world.
If that
day ever comes, the chance for building a new structure of
peace in the world w o ul d be irreparably damaged and free
nations everywhere woul d be living in mortal danger.
A strong United States is not a threat to peace.
It is the free world's indispensable guardian of peace and
freedom.
MORE
16
I ask for your support tonight, for keeping the
strength, the strength which enabled us to make such
great progress toward world peace in the past year and which is
indispensable as we continue our bold new initiatives for
peace in the years ahead.
As we consider some of our problems tonight,
let us never forget how fortunate we are to live in America
at this time in our history.
We have ended the longest and
most difficult war in our history in a way that maintains
the trust of our allies and the respect of our adversaries.
We are the strongest and most prosperous nation in the world.
Because of our strength, America has the magnificent
opportunity to play the leading role of bringing down the walls
of hostility which divide the people of the world; in reducing
the burden of armaments in the world; of building a structure
of lasting peace in the world.
And because of our wealth,
we have the means to move forward at home on exciting
new programs, programs for progress which will provide better
environment, education, housing and health care for all
Americans and which will enable us to be more generous to the
poor, the elderly, the disabled and the disadvantaged than
any nation in the history of the world.
These are goals worthy of a great people.
Let us,
therefore, put aside those honest differences about war which
have divided us and dedicate ourselves to meet the great
challenges of peace which can unite us.
As we do, let us
not overlook a third element, an element more important
even than m ilitary might or economic power, because it is
essential for greatness in a nation.
The pages of history are strewn with the wreckage
of nations which fell by the wayside at the height of their
strength and wealth because their people became weak, soft
and self-indulgent and lost the character and the spirit
which had led to their greatness.
As I speak to you tonight, I am confident that
will not happen to America.
And my confidence has been
increased by the fact that a wa r which cost America so much
in lives and mon ey and division at home has, as it ended,
provided an opportunity for millions of Americans to see again
the character and the spirit which made America a great nation.
A few days ago in this room, I talked to a man who
had spent almost eight years in a Communist prison camp in
North Vietnam.
For over four years he was in solitary confine
ment.
In that four-year period he never saw and never talked
to another human being except his Communist captors.
He
lived on two meals a day, usually just a piece of bread, a
bowl of soup.
All he was given to read was Communist
propaganda.
All he could listen to was the Communist
propaganda on radio.
I asked him how he was able to survive it and come
home, standing tall and proud, saluting the American flag.
He paused a long time before he answered.
And then he said,
"It is difficult for me to answer.
I am not very good at
words.
All I can say.is that it was faith, faith in God and
faith in my c o u n t r y ."
MORE
17
If men who suffered so much for America can have
such faith, let us who have received so much from America
renew our faith — our faith in God, our faith in our
country and our faith in ourselves.
If we meet the great challenges of peace that
lie ahead with this kind of faith, then one day it will
be written, this was America's finest hour.
Thank you and good evening.
END
(AT 9:21 P.M
EST
Departmentof
ASHINGTON, D.C. 20220
thefREASURY
TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
A p r i l 2, 1973
E D W A R D M. R O O B A P P O I N T E D
S P E C I A L A S S I S T A N T TO THE S E C R E T A R Y
FOR DEBT MANAGEMENT
S e c r e t a r y of the T r e a s u r y G e o r g e P. Shultz t o d a y
a n n o u n c e d the a p p o i n t m e n t of E d w a r d M. R o o b as S p e c i a l
A s s i s t a n t for D e b t M a n a gement.
P r i o r to his appoi n t m e n t , Mr. Roob, 38, w as V i c e
P r e s i d e n t and D e p u t y A d m i n i s t r a t i v e H e a d of the B o n d D e
partment, F i r s t N a t i o n a l B a n k of Chicago, w h e r e he b e g a n
his c a reer in 1956.
He w as n a m e d V i c e P r e s i d e n t in c h a r g e
of the G o v e r n m e n t B o n d D e p a r t m e n t in 1967 and a s s u m e d his
latest p o s t in 1971.
A n a t i v e of Chicago, Mr. R o o b holds d e g r e e s f r o m
D e P a u w U niversity, G reencastle, Indiana, and the U n i v e r s i t y
of Chicago, w h e r e he r e c e i v e d the d e g r e e of M a s t e r of B u s i
ness A d m i n i s t r a t i o n in 1962.
Mr.
Chicago.
R o o b is m a r r i e d to the form e r B a r b a r a L e s k e of
T he R o o b s h ave t h ree children.
oOo
S-159
DepartmentoftheTREASURM
SHINGTON, D C 20220
MENTION:
B
TELEPHONE W04-2041
FINANCIAL EDITOR
RELEASE 6:30 P.M.
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
dlls, one series to be an additional issue of the bills dated
January 4, 1973 , and
;he other series to be dated
April 5, 1973 , which were invited on March 27, 1973,
rere opened at the Federal Reserve Banks today. Tenders were invited for $2,400,000,000,
>r thereabouts, of 91-day bills and for $L,800,000,000, or thereabouts, of 182-day
)ills. The details of the two series are as follows:
1ANGE OF ACCEPTED
IOMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing July 5, 1973
Approx. Equiv.
Annual Rate
Price
98.367
98.341
98.349
6.460$
6.563$
6.531$
1/
182-day Treasury bills
maturing October 4, 1973
Approx. Equiv.
Price
Annual Rate
96.585
96.548
96.555
*
6.755$
6.828$
6.814$
1/
100$ of the amount of 91-day bills bid for at the low price was accepted
85$ of the amount of 182-day bills bid for at the low price was accepted
FOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
TOTALS
Accepted
Applied For
$
28,700,000 $
13,700,000
2,943,785,000 1,895,785,000
23,240,000
43,240,000
27,675,000
27,675,000
27,515,000
13,515,000
20,930,000
20,930,000
243,420,000
330,420,000
48,585,000
69,585,000
17,510,000
27,510,000
20,625,000
30,625,000
. 16,130,000
37,130,000
58,715,000
302,715,000
Applied For
$ 19,310,000
3,094,645,000
14,045,000
64,275,000
34,340,000
21,665,000
380,660,000
62,995,000
25,845,000
28,155,000
50,630,000
442,175,000
Accepted
$
4,010,000
1,505,265,000
6,045,000
19,275,000
8,240,000
16,565,000
112,735,000
18,495,000
4,845,000
16,655,000
14,980,000
73,175,000
$3,889,830,000 $2,399,830,000 a/
$4,238,740,000
$1,800,285,000
l/ Includes $228,550,000
noncompetitive tenders accepted at the average price'of 98.349
i!/ Includes $146,270,000 noncompetitive tenders accepted at the average price of 96,555
[/ These rates are on a bank discount basis.
The equivalent coupon issue yields are
8.73$ for the 91-day bills, and 7.16$ for the 182-day bills.
\
DtpartmentoftheTREASURY
INGTON, D.C. 20220
TELEPHONE W04-2041
FOR I M M E D I A T E R E L E A S E
April
3, 1973
TREASURY ANNOUNCES ACTIONS ON TWO INVESTIGATIONS
____________U N D E R THE A N T I D U M P I N G A C T _______________
A s s i s t a n t S e c r e t a r y o f the T r e a s u r y E d w a r d L. M o r g a n
announced t o d a y a c t ions on two i n v e s t i g a t i o n s u n d e r the A n t i
dumping A c t o f 1921, as amended.
In the f i rst case there is a w i t h h o l d i n g o f a p p r a i s e m e n t
pending c o m p l e t i o n of the a n t i d u m p i n g i n v e s tigation, and in the
second c ase t h ere is a t e n t a t i v e n e g a t i v e d e t e r m i n a t i o n .
N o t i c e s of these a c t ions w i l l b e p u b l i s h e d in the Fe d e r a l
Register of A p r i l 4, 1973.
In the f i rst case, A s s i s t a n t S e c r e t a r y M o r g a n a n n o u n c e d
that the T r e a s u r y is w i t h h o l d i n g a p p r a i s e m e n t o n c o l d r o l l e d
stainless steel s h e e t a nd strip from France.
This steel is u s e d
in the m a n u f a c t u r e of a v a r i e t y o f items, i n c l u d i n g w h e e l covers,
tank and t r uck trailers, and h o u s e h o l d a p p l i a n c e s and utensils.
Under the A n t i d u m p i n g Act, the S e c r e t a r y of the T r e a s u r y is r e q u i r e d
to w i t h h o l d a p p r a i s e m e n t w h e n e v e r h e h a s r e a s o n a b l e c a use to b e l i e v e
or s u s p e c t t h a t sales at less t h a n fair v a l u e m a y b e t a k i n g place.
A final T r e a s u r y d e c i s i o n in this i n v e s t i g a t i o n w i l l b e m a d e w i t h i n
three m o n t h s .
If a d e t e r m i n a t i o n of sales at less t h a n fair v a l u e
were m a d e in this invest i g a t i o n , the case w o u l d b e r e f e r r e d to
the T a r i f f C ommission, w h i c h w o u l d c o n s i d e r w h e t h e r an A m e r i c a n
industry w a s b e i n g injured.
If b o t h sales at less t h a n fair v a l u e
and i n j u r y w e r e shown, d u m p i n g d u t i e s w o u l d b e a s s e s s e d as of the
date of w i t h h o l d i n g of appra i s e m e n t .
D u r i n g c a l e n d a r y e a r 1972,
imports o f this s t a i n l e s s steel s h e e t an d strip from F r a n c e to t a l e d
appro x i m a t e l y $9.4 m i l lion.
In the s e c o n d case, the T r e a s u r y i s s u e d a t e n t a t i v e d e t e r m i n a
tion t h a t s u r g i c a l r u b b e r g l o v e s are n o t being, nor are l i k e l y to
be# sold at less t h a n fair v a l u e w i t h i n the m e a n i n g o f the A n t i
dumping Act.
The i n v e s t i g a t i o n s r e v e a l e d that the p r i c e to b u y e r s
in the h o m e m a r k e t w a s l o w e r t h a n the p r i c e to b u y e r s in the
United States.
A p p r a i s e m e n t o f this m e r c h a n d i s e h as n o t b e e n
withheld.
D u r i n g c a l e n d a r y e a r 1972, s u r g i c a l r u b b e r gloves from
Austria i m p o r t e d into the U n i t e d S t a t e s w e r e v a l u e d at a p p r o x i m a t e l y
$120, 000.
# # #
DepartmentoftheTREASURY
SHINGtON, D.C. 20220
TELEPHONE W04-2041
For Immediate Release
n
April 3, 1973
TREASURY S CHIEF LIBRARIAN
LILLIAN MCLAURIN RETIRES
Miss Lillian McLaurin, chief of the Library services at
Treasury, closed the book on 30 years of government service
March 2 and retired to her home in Natchez, Mississippi.
During her nine years at Treasury, Miss McLaurin undertook
a vast four-year project of completely renovating and reorganiz
ing the Treasury Library, including its removal from the present
Exhibit Hall area to the current aerie on the fifth floor of
Main Treasury. Of the books and reference works assembled there,
she recalled "moving them umpteen times," and added that she had
always "moved them" in each of her previous library posts.
Although few of her Treasury colleagues knew it, the softspoken, Southern accented Miss McLaurin had both law and military
credits in her background as well as advanced librarian degrees.
She earned bachelor of arts and doctor of jurisprudence degrees
at Vanderbilt University in Nashville, a bachelor's degree in
library science at George Peabody and a LL.M. at George
Washington University. She was admitted to the bar in both
Tennessee and Mississippi; a member of the Federal Bar
Association, she is also active in the American Association of
Law Librarians.
Miss McLaurin's military career included four years of
active duty in the WAVE; she was commissioned in 1943 as a member
of the first WAVE class, and holds the rank of lieutenant-commander
in the Navy Reserves.
As chief of Treasury's library she participated as a member
of the Federal Library Committee and is a past president of the
Law Librarians Society.
Miss McLaurin started her government career with the TVA
project in Paris, Tennessee, and then went on to spend 11 years
as a civilian librarian with Navy Judge Advocate-General's
office, and nine years with the U.S. Tax Court
-
2
-
The new chief of the Library, Anne Stewart, has been with
Treasury for eight years, serving as Miss McLaurin's deputy.
Her previous government service has been with the Federal
Reserve, the Army Library at the Pentagon, and the Federal
Maritime Commission.
Miss Stewart, who lives in Arlington, Virginia, earned a
bachelor of science degree in political science* at Duke
University, and a master's in library science at the University
of Illinois. Her hobbies include needlepoint and the organ.
0O0
Departmentof ih efR EA SU R Y
HINGTON, D C 20220
TELEPHONE W04-2041
| PH
U U Lb
U U
April 3, 1973
FOR IMMEDIATE RELEASE
TREASURY’S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $4,200,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing
April 12, 1973, in the amount
of $4,204,960,000 as follows:
91-day bills (to maturity date) to be issued April 12, 1973, in the amount
of $2,400,000,000, or thereabouts, representing an additional amount of bills
dated January 11, 1973, and to mature
July 12, 1973
originally issued in the amount of $1,901,780,000,
(CUSIP No. 912793 RK4 ),
the additional and original
bills to be freely interchangeable.
182-day bills, for $1,800,000,000, or thereabouts, to be dated April 12, 1973,
and to mature October 11, 1973
(CUSIP No. 912793 RY4 ).
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the clos
ing hour, one-thirty p.m., Eastern Standard time, Monday, April 9, 1973.
Tenders will not be received at the Treasury Department, Washington. Each tender
must be for a minimum of $10,000. Tenders over $10,000 must be in multiples of
$5,000.
In the case of competitive tenders the price offered must be expressed
on the basis of 100, with not more than three decimals, e.g., 99.925.
may not be used.
Fractions
It is urged that tenders be made on the printed forms and for
warded in the special envelopes which will be supplied by Federal Reserve Banks
or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to submit tenders except for their own
-
account.
2-
Tenders will be received without deposit from incorporated banks and
trust companies and from responsible and recognized dealers in investment
securities.
Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids.
Only those
submitting competitive tenders will be advised of the acceptance or rejection
thereof.
The Secretary of the Treasury expressly reserves the right to accept or
reject any or all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders for each
issue for $200,000 or less without stated price from any one bidder will be accepte
in full at the average price (in three decimals) of accepted competitive bids for
the respective issues. Settlement for accepted tenders in accordance with the
bids must be made or completed at the Federal Reserve Bank on April 12, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing April 12, 1973.
treatment.
Cash and exchange tenders will receive equal
Cash adjustments will be made for differences between the par value of
maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is considered to accrue
when the bills are sold, redeemed or otherwise disposed of, and the bills are ex
cluded from consideration as capital assets. Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder must include in his
income tax return, as ordinary gain or loss, the difference between the price paidfor the bills, whether on original issue or on subsequent purchase, and the amoun
actually received either upon sale or redemption at maturity during the taxable
year for which the return is made.
Treasury Department Circular No. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
1
THE DEPARTMENT OF THE TREASURY
2
5
REMARKS OF
4
HONORABLE PAUL A. VOLCKER,
5
UNDER SECRETARY OF THE TREASURY
6
FOR MONETARY AFFAIRS
7
AT
8
PRINCETON UNIVERSITY
9
10
11
12
13
14
15
16
17
March 29, 1973
18
19
20
21
22
23
24
25
[This transcript was prepared from a tape recording*]
2
1
2
5
MR. VOLCKER:
Thank you very much, Peter.
One finds
all sorts of surprises when one returns to town.
I
must say I was -very pleased by your invitation to
4
come here tonight, not least because of the experience that I
5
had with Frank Graham.
He is certainly my fondest memory of
6
a Princeton professor.
I wasn't exactly the type that knew all
7
the professors when I was here, and the comment about not
8
doing much at Princeton would have been even more accurate had
9
I not run into Frank Graham in my senior year and he had not
10
taken me almost literally by the hand and going page by page
11
through a thesis until I finally got it out.
12
was certainly the finest educational experience that I had when
13
I was at Princetone.
14
priate that I can come back and talk a little bit about inter
15
national monetary reform that was so close to his heart at
16
that time and throughout his career.
17
I
And I think that
And I suppose it is a little bit appro
say, when I think of coming to an academic audien
18
my imagination roamed a bit as to what a professorial type, if
19
not a professional type, or both, would think hidden in the
20
various meetings that I have been going to fairly constantly
21
in recent months, trying to do something about international
22
reform, and I think it would be very easy for them to conclude
23
that recent proposals for international monetary reform reveal
24
a confusion of purpose and a lack of consistent principles,
25
which are likely to result only in frustration or disaster.
3
1
Until we are quite clear as to what we want, we
2
really can't know how to get it.
The issues have not been
5
defined with any precision, aims are lacking in congruity, and
4
the experience by which they would be realized are often
5
contradictory.
Two general objectives, freedom and stability, are
6
7
of preeminent importance and are comprehensive enough to cover
8
all the debate.
9
inevitable conflicts, since freedom implies change and adjust
10
ment, rather than stability.
11
value in change that does not promote adjustment and accommoda
12
tion.
It might at first blush seem that there are
Yet it is also true there is no
13
In particular, exchange rates, that, while mobile,
14
are not so much free as deliberately manipulated, constitute
15
an impairment of stability.
16
nothing like a unanimity of opinion in the ideal pattern of
17
international monetary relations.
18
fluctuating rates of exchange; others hold that exchange rates
19
should be fixed.
20
Now, we all know that there is
Some find, virtue in freely
Most persons with view of any sort on this question
21
stand somewhere in between these extremes.
They simply don't
22
want to make any clear-cut choice between the alternatives.
23
They might be happy with either system; where the other dear
24
charm are far away.
25
both, a little freedom and a little stability, and not so much
But as it is, they prefer a little of
4
1
of e i t h e r
2
imply.
as the
This
5
future
forthright
c o n f l i c t of
4
the
as in the past,
5
collapse.
6
it is the o n l y p r u d e n t
But,
Now,
7
s e l e c t i o n of one or the o t h e r w o u l d
loyalties
may well
on the o t h e r hand,
is a l w a y s
r i s k y and,
in
lead to s c h i z o p h r e n i c
there
are t h o s e w h o t h i n k
course.
those words were wri t t e n
in 1943 b y F r a n k Graham.
8
B u t I c a n ’t t h i n k of a n y t h i n g m o r e a p p r o p r i a t e to the p r e s e n t
9
state of i n t e r n a t i o n a l m o n e t a r y reform.
1°
[Laughter]
11
A n d it is a litt l e b i t c h a s t e n i n g w h e n y o u t h i n k th a t
12
you are d e a l i n g w i t h
13
f i l l e d w i t h all sorts o f ^ r e f o r m zeal to r e a d thi s
s o r t of r e
14
m i n d e r t h a t n o t h i n g s e ems v e r y n e w u n d e r the sun,
the p r o b l e m s
15
aren't
16
s l i p p e r y as ever.
17
some v e r y u n i q u e p r o b l e m s
so n e w a f t e r all,
a n d the
B u t in a p p r o a c h i n g
a nd y o u are
s o l u t i o n s s e e m a b o u t as
the m o n e t a r y
r e f o r m p r o b l e m in
18
the s e t t i n g of
19
a p ropos w o r d s
20
to s t art o u t by t r y i n g to s o r t o u t t h ose
21
little d i f f e r e n t
22
i d e n t i f y some of t h o s e p r o b l e m s
23
and t h a t w e r e his p r e o c c u p a t i o n t h e n a nd r e m a i n a p r e o c c u p a t i o n
24
today.
25
Th e
1973,
and p a r t i c u l a r l y a f t e r
finding these
of F r a n k Graham,, it s e e m e d to m e p e r h a p s u s e f u l
things
t han t h e y w e r e t h i r t y y e a r s
t h a t m a y be a
ago,
a nd a l s o
t h a t m a y n o t be so d i f f e r e n t
f i r s t t h i n g t h a t is d i f f e r e n t
and t h a t c o l o r s
the
5
1
w h o l e p r e s e n t sit u a t i o n ,
2
a s u g g e s t i o n t h a t the p r o b l e m s
5
t hey are,
4
of a v e r y m a j o r
5
the U n i t e d States,
6
a k i n d t h a t d o e s n ’t c ome a l o n g e v e r y y e a r or two,
7
ness.
8
p r o b l e m t hat a c c u m u l a t e d
9
A n d it is an i m p o r t a n t pro b l e m .
10
world financial markets
11
that h a v e b e e n involved,
12
t e m p o r a r y aspect.
13
adjustment very frequently.
14
the e x c h a n g e rate r e l a t i o n s h i p s
15
t han t h e y h a v e s e e m e d for some time.
I think,
is that w e h a v e been,
adjustment
and in some w a y s m a y
are e v e n m o r e d i f f i c u l t
in m y
j u d gment,
than
in the t h r o e s
in c o m p e t i t i v e r e l a t i o n s h i p s b e t w e e n
J a p a n and Europe.
A n d it is a d j u s t m e n t of
It is an a d j u s t m e n t t h a t r e p r e s e n t s
thank g o o d
a response
to a
l i t e r a l l y o v e r t wo d e c a d e s or more.
It h a s h a d a j a r r i n g i m p a c t on
in t e r m s of the e x c h a n g e
b u t it d o e s
in some
r ate c h a n g e s
s e nse h a v e
a
Y o u d o n ' t h a v e to g o t h r o u g h this k i n d of
So
16
lead to
A t the m o m e n t ,
I would think that
at l e a s t s e e m m o r e
tha t in a s e nse
reasonable
is a p a s s i n g p h ase,
But interrelated with
17
v e r y i m p o r t a n t phase.
18
this
19
an u n d e r l y i n g r e a l i t y t h a t h e l p e d c o n t r i b u t e
20
and that
21
and p o l i t i c a l p o w e r r e l a t i o n s h i p s
22
the e n d of W o r l d W a r II.
23
s t a t i s t i c i n t e r n a t i o n a l l y t h a t one p i c k s up; m o s t d r a m a t i c a l l y ,
24
for instance,
25
st a r t e d out at the e n d of W o r l d W a r w i t h
is the o t h e r n e w feature,
is a v e r y d e e p change,
it —
although a
a nd I t h i n k
or a s e c o n d n e w f e a t u r e
I think,
—
is
to t h a t a d j u s t m e n t ,
in the b a s i c e c o n o m i c
in the w e s t e r n w o r l d
since
It is r e f l e c t e d in a l m o s t any
in f i g u r e s of i n t e r n a t i o n a l r e s e r v e s , w h e r e we
t h r e e - q u a r t e r s or 80
6
1
p e r c e n t of all the g o l d in the w o r l d ,
and p r a c t i c a l l y t h a t m u c h
2
of all the r e s erves,
from a positive reserve
5
p o s i t i o n of o v e r w h e l m i n g
4
p o s i t i o n of $70 or $80 b i l l i o n ,
5
b u i l t up v e r y s i z a b l e p o s i t i v e p o s i t i o n s
6
reserves.
and w e h a v e g o n e
7
I
8
real e c o n o m i c factors,
9
national
10
p e r - c a p i t a income,
11
a b out f o u r t i m e s
12
Japan.
13
14
15
two- t h i r d s .
17
t hat
in E u r ope,
financial, i n t e r
in the U n i t e d
the a v e r a g e
States was
and a b o u t t en t i m e s
in the U n i t e d States?
T he GN P of E u r o p e
tha t in
a nd J a p a n is c o m i n g u p on
is a p p r o a c h i n g o urs
—
it is h a r d to r e m e m b e r ,
a $7 b i l l i o n c u r r e n t a c c o u n t
after World War
in size?
large and a c t i v e p o w e r center.
18
years
19
n ow h a v e a $7 b i l l i o n d e f i c i t ,
20
surplus,
21
numbers.
22
trends,
E u r o p e a n p e r - c a p i t a G N P is at l e a s t t h r e e -
We used to have
u s e d to h a v e
in i n t e r n a t i o n a l
At the e n d of the war,
for ins t a n c e ,
J a p a n is a n o t h e r v e r y
16
w h i l e o t h e r c o u n t r i e s hav e
as w e l l as the p u r e l y
f i n a n c i a l data.
that
reserve
t h i n k y o u see it in some m o r e b a s i c
Today,
quarters
i m p o r t a n c e to a n e g a t i v e
II.
surplus
b u t we
in the e a r l y
S e v e n is a m a g i c n u m b e r here.
We
an d E u r o p e has a $7 b i l l i o n
and J a p a n h as a $7 b i l l i o n
s u r plus,
too,
in r o u n d
T h a t is p a r t of t h a t a d j u s t m e n t p r o b l e m .
W e u s e d to a c c o u n t
for 50 p e r c e n t of the w o r l d ' s
23.
N o w w e a c c o u n t for less t h a n 30 p e r c e n t .
24
c h ange i n t h e s e b a s i c i n d i c a t o r s
25
has,
I think,
very
So y o u
see a s t r i k i n g
of e c o n o m i c power.
s i g n i f i c a n t a nd p e r v a s i v e
GNP.
A n d this
i n f l u e n c e on w h a t
some
7
1
y o u c a n do in the w o r l d m o n e t a r y
2
c h a r a c t e r i s t i c s an d in its p o l i t i c a l c h a r a c t e r i s t i c s .
The U n i t e d S t a t e s
5
s y s t e m in its e c o n o m i c
I t h i n k c a n no l o n g e r
~~ n e i t h e r
4
the U n i t e d
S t ates
nor the r e s t of the
world
5
h a v e the s t r e n g t h
and the p o w e r to be
a k i n d of p a s s i v e h u b
6
of the
7
the c o n c e p t i o n of
the B r e t t o n W o o d s
8
the w a y
and t h a t
9
It d e v e l o p e d
10
by the U n i t e d States,
11
terms.
system,
around which others
it acted,
in p r a c t i c e
adjust.
c an a s s u m e t h a t we
That
system either,
is the w a y
it d e v e l o p e d
as a s y s t e m w h i c h w a s
I think
really wasn't
b u t t hat is
in p r a c t i c e .
largely managed
in e c o n o m i c
and in p o l i t i c a l
A n d w e h a d the s t r e n g t h to m a n a g e
it a t one point.
In r e l a t i v e t e r m s
12
—
a n d I d o n ' t w a n t to p l e a d
15
p o v e r t y here,
14
r i c h e s t c o u ntry,
15
as w e d i d in the e a r l i e r p o s t - w a r p e r i o d ,
16
c e r t a i n r i s k s and p r o b l e m s
of b o t h the t e c h n i c a l
17
kind.
a single
18
think t h e r e is a g r e a t e r r i s k of d i s i n t e g r a t i o n of the w o r l d
19
economy.
20
21
22
23
24
25
the U n i t e d S t a t e s
b u t in r e l a t i v e
When you don't have
is s t i l l the
terms we
s t r o n g e s t and
no l o nger
s t a n d out
and this c r e a t e s
an d p o l i t i c a l
l e a d e r in the w o r l d ,
I
&
1
relationships now have to reflect the fact that we have at least
2
in the western world three big.power centers.
5
face the fact that sometimes there may be more than one way to
4
reach Nirvana, but when .there is disagreement among the
5
principals involved about which way is best, you have the
6
possibility of conflict when the gods disagree, who decides.
7
A third and not unrelated to this point I think is
And you have to
8
the rise of the Common Market, a new phenomena here that kind
9
of caught in the half-way house a unit potentially as large as
10
the United States, aiming for unity but not quite unified, not
11
able to act as independent countries, but not able to act as
12
fully as they would like as a unified unit, neither independ
13
14
ent nor unified.
tlen „
They have special problems during this period.
They
15
have a particularly strong need, a felt need for stability of
16
exchange rate relationships within Europe, even though full
17
economic and political integration is still some time off, and
18
this affects their views of the world monetary system.
19
Two other relatively new developments I think are the
20
developing power of the developing countries themselves in
21
trade and manufactured goods.
22
material suppliers.
23
of consumer and manufactured goods, but in a number of cases
24
they are a new and real competitive force in manufactured goods.
25
And a number of developing countries for a decade have
We think of them as raw
They still are, in large part, importers
9
1
experienced growth rates of 20 and 30 percent of exports of
2
manufacturers, a new phenomena coming over behind these three
5
big power centers that have been used to capturing almost all
I4
the trade in manufactured goods.
And finally I do think there is a qualitative differ
5
6
ence in the integration of world financial markets.
We have a
7
more integrated world economy financially, an immense potential
8
for capital flows.
9
capital flows certainly isn't new, but the dimensions of the
The idea of capital flows, disturbing
i
10
flows, the change in degree is enough to make it perhaps a
11
change in kind.
These are some of the new factors and at the same time
12
13
we have to grapple with precisely those factors that Frank
14
Graham was thinking of when he wrote those remarks that I read.
15
We all still live in a world of sovereign states, we all have
16
domestic impairities economically, we don't follow one world
17
monetary policies, which was a great emphasis of his, even
18
though we like to think sometimes in terms of an international
19
financial system that really requires a one world monetary
20
policy.
21
we have problems.
22
And when we preach one gospel and practice another,
We have other divergencies in national economies, we
23
have structural impediments to trade, slow adjustment, we
24
have structural factors that lead to imbalances, even if prices,
25
relative prices or relative monetary policies don't change.—
gp
10
1
the favorite example these days, of course, being the big oil
2
problem, which will lead to a big change in the structure of
5
our trade and others.
We have the speculative problem, which preoccupied
4
5
him.
6
getting worse, but when you take certain adjustment measures,
7
and particularly exchange rate measures, there seems to be a
8
long and indefinite time lag between the action and the results
9
and this is always a difficult economic phenomena to deal with.
10
So I suppose the k>urden of this introduction at least
11
is to impress you that we have a very difficult problem to deal
12
with, so we don’t get criticized too much when we don't deal
13
with it all instantaneously.
14
complicated problem, with a mixture of new and old elements.
15
We have a problem, which I suspect is not new, maybe
But I do indeed think it is a
And in terms of the response to the problems, I
16
think it may be useful to think of us proceeding really on two
17
different tracks simultaneously.
18
of events or reality.
19
markets, certain events take place, a certain response is
20
taken for right or wrong to those, events.
21
system in a given direction.
22
One might be called the track
Certain things seem to be happening in
This pushes the
At the same time we carry on seemingly interminable
23
negotiations, the same people, but they -—
sometimes when they
24
get in a negotiating room, they seem somewhat removed from the
25
people who were reacting to the market events the week before,
11
1
because you
2
d i f f e r e n t v i sion.
I
5
4
5
6
7
8
9
10
11
12
look at it t h r o u g h a d i f f e r e n t eye,
t h i n k the
g o i n g on s i m u l t a n e o u s l y
with'a
l i ttle
f act that b o t h of t h e s e p r o c e s s e s
is p o t e n t i a l l y q u i t e
f r u i tful,
t hat
the n e g o t i a t i o n s c a n l e a r n f r o m the e v e n t s a n d the e v ents,
and at least a r e s p o n s e
negotiations.
bring
to the e v e n t s , c a n
A n d in a g e n e r a l w a y
t h e s e t wo tracks,
relate
them.
w i t h r e a l i t y off h e r e
I t h i n k w e are t r y i n g to
if y o u w i ll,
If we don't,
l e a r n f r o m the
closer t o g e t h e r and i n t e r
of c o u rse, w e a re g o i n g to e n d up
and the n e g o t i a t e d r e s u l t w a y off there,
and I t h i n k that is p r o b a b l y a r e c i p e
for b o t h b a d n e g o t i a t i o n s
and b a d events.
...
M u c h of the d e b a t e ,
15
look at the n e g o t i a t i o n s ,
as w e
look at the e v e n t s
14
we
15
arou n d this v e r y issue t h a t w e ar e
so m u c h p r e o c c u p y i n g p e o p l e
16
before Bretton Woods
f i x e d or f l o a t i n g rates,
17
fixed or f l o a t i n g e x c h a n g e rates.
18
Now,
—
on the s u r f a c e at
and as.
do we have
l e ast r e v o l v e s
this d e b a t e d o e s n ' t take p l a c e t y p i c a l l in e x
19
tremes.
20
g e r n e r a l terms,
21
And it is a s s u m e d on a l l sides
22
of e v e n t s
23
e x c h a n g e rat e
24
the n eed or the d e s i r e
25
of a c t i o n in a w a y i n c o n s i s t e n t w i t h r e a l l y m a i n t a i n i n g
T h e s e days,
everybody will very quickly concede
you need more
a nd n e g o t i a t i o n s ,
str u c t u r e ,
flexibility.
that we will
have more
recognizing,
That
in
is a g o o d w o r d
indeed,
as a r e s u l t
f l e x i b i l i t y in the
I suppose most basically,
f or e v e r y c o u n t r y
for d o m e s t i c
freedom
f i xed
are
12
1
exchange r a t e s .
Now,
2
the g e n e r a l c o n s e n s u s a m o n g o f f i c i a l d o m —
5
I d o n ' t p r e t e n d this
is a g e n e r a l c o n s e n s u s
4
academe
5
able ra t e s , " w h i c h p e o p l e
6
adjustable,
7
it a d j u s t a b l e b u t s t a b l e rates,
8
fixed c a l l it s t a b l e b u t a d j u s t a b l e rates.
-- g o e s u n d e r a f a s h i o n a b l e
10
far away,
11
well,
12
float,
13
another,
and t h o s e t h a t
like m o r e
as I w i l l
Now,
s t a b l e and
f l e x i b i l i t y ten d to call
an d t h o s e t h a t
like m o r e
of d e b a t e , w h i c h
i s n ' t so
they would
say,
i n t e r v e n t i o n b y o ne m e a n s
or
leave the r a t e e n t i r e l y u p to the m a r k e t .
in p r a c t i c e w h e r e
15
adjustable power value
16
clear.
17
is s i m p l y the e x t r e m e
18
p o i n t of h o l d i n g
19
a d j u s t at int e r v a l s .
o ne d r a w s
and m a n a g e d
floating
the
line b e t w e e n .an
isn't altogether
I s u p p o s e one c o u l d s ay t h a t an a d j u s t a b l e p a r v a l u e
of a m a n a g e d
float.
21
far,
22
system,
23
established exchange
24
value. .
unless
some f l e x i b i l i t y ,
why
it to the
an d t h e n y o u
a ll the d e b a t e
I t h i n k w e are g o i n g to e nd up w i t h
Now,
You manage
it p r e t t y s t e a d y for a w h i l e ,
B u t in any event,
20
" s t able b u t a d j u s t
it is g o i n g to be a k i n d of m a n a g e d
t h e r e w i l l be o f f i c i a l
you don't
n e c e s s a r i l y in
it says b o t h
a t t e m p t to d e m o n s t r a t e ,
if y o u f l o a t it all,
14
25
like b e c a u s e
Or at the o t h e r e x t r e m e
9
t e r m of
and
is w r o n g
so
s o m e w h a t of a m i x e d
some r e t e n t i o n of the n o t i o n of an
rate t h a t is b o u n d u p in the t e r m of p a r
is,
o n the o f f i c i a l d e b a t e ,
the ten d e n c y ,
13
1
the insistence upon a par value and an established exchange
2
rate, admitting that it is going to. change from time to time
5
—
'4
why is this thought to be so important?
In my view, and it is hard to read p e o p l e ’s minds,
5
part of the emphasis on this may be miguided, it may be a false
6
issue, because people like to think, even if they say it is
7
adjustable, they like to think of a par value as being fixed
8
and changing very infrequently if at all.
9
countires say they like a par value system, an adjustable par
And when many
10
value system, I think what they tend to think of is at least
11
the leading countries will really stay fixed and that they
12
might do the adjusting, but the others —
15
other countries, they may want to adjust for a while, but the
14
other countries will stay fixed, and that is a rather conven
15
ient system,for an individual country, if it is the one doing
16
the adjusting, but of course it is not a realistic system b e
17
cause in this kind of a system the major countries may be
18
adjusting as well.
19
change rates, you can get destabilizing speculation.
20
think this, therefore, is a strong argument for a par value
21
system, the implicit feeling in many people's minds it maybe
22
won't change very often.
when they look at
And, i-n fact, when people adjust their e x
I don't
23
The real issue - - a n d it is often expressed this way
24
in my judgment, is whether it is more conducive to an audit
25
international system, and specifically something that can be
14
1
b o u n d u p in the t e r m
2
h a v e k i n d of a f i xed o f f i c i a l n o t i o n of w h a t e x c h a n g e r a t e
5
appropriate,
and one d e c l a r e s
4
one d e c l a r e s
an e x c h a n g e rate,
5
sition,
6
ate.
7
t h e r e is a s e n s e in w h i c h p e o ple,
8
in w h i c h p e o p l e
9
i n t e r n a t i o n a l o r d e r a nd y o u
10
yo u n e e d a p o i n t of r e f e r e n c e
11
least a b a s i c a r g u m e n t for a p a r v a l u e
presumably,
"international surveillance,"
whether
an e x c h a n g e rate.
t h a t is a p p r o p r i a t e
—
to e x a m i n e ,
and I h e a r this m a n y t i m e s
may have
15
management.
16
the IMF,
17
g o i n g to be m a n a g e d .
18
ative i n t e r n a t i o n a l e f f o r t a nd e x a m i n a t i o n .
if y o u h a v e
is at
a floating
from
s y s t e m .that
b u t d o n ' t e x p e c t any i n t e r n a t i o n a l
We w o u l e r e f u s e
I
19
look for
system.
14
say.
but I think
and that this
my associates abroad
let's
or i n a p p r o p r i
look for i n t e r n a t i o n a l m a n a g e m e n t ,
13
some a d v a n t a g e s ,
the p r o p o
in a r a t h e r d e e p l y f e l t sense,
t h i n k t h a t in a w o r l d w h e r e y o u
T h e c o n v e r s e is —
in a f l o a t i n g s y s t e m to
We will manage
it o u r s e l v e s ,
It is n o t a s y s t e m c o n d u c i v e
l i s t e n to
if it is
to a c o o p e r
am n ot r e a l l y a r g u i n g the m e r i t s
another.
I think you can overstate
21
respect.
I do a r g u e t hat it is r a t h e r d e e p l y f e l t b y m a n y
22
o f f i cials,
23
there is s o m e t h i n g to the argument.
25
in this
and to the e x t e n t t h e y f e e l it a nd a c t t h a t way,
Now,
that
the d i f f e r e n c e
of this o ne w a y o
20
24
is
Because when
one c a n t h e n e x a m i n e
T h a t m a y be a v e r y d i f f i c u l t t h i n g to do,
12
if y o u
this
leaves us w i t h the p r o b l e m ,
line of r e a s o n i n g ,
if we
follow
that w e w o r k w i t h i n the f r a m e w o r k of
1 5
1
e s t a b l i s h e d e x c h a n g e rates,
2
make
5
p a r v a l u e s c a n be a v e r y d i s t u r b i n g p h e n o m e n a .
4
make
it w o r k
tha t
in a w o r l d
system,
in w h i c h w e h a v e
and h o w do> we
seen that changes
in
A n d h o w d o we
s u r v e i l l a n c e w o r k t h a t t h e y are t a l k i n g about.
Now,
5
a par value
here
I t h i n k w e g e t to the g u t s
of the
i s sues
6
that are g o i n g to be p r e c u p p y i n g the U n i t e d S t a t e s a n d o t h e r s
7
in n e g o t i a t i o n s
8
of m a k i n g the v e r y a s s e s s m e n t t h a t is b o u n d u p in t h e r t e r m
9
"international surveillance,"
10
that is n e c e s s a r y b y one c o u n t r y or a n o ther,
11
t h o s e e x c h a n g e r a t e s r e a l i s t i c or to c h a n g e them.
12
all the p r o c e s s w h i c h e c o n o m i s t s
13
the f a m o u s or i n f a m o u s
14
a d j u s t m e n t p r o c e s s w o r k e f f e c t i v e l y in a s y s t e m of b a s i c a l l y
15
e s t a b l i s h e d e x c h a n g e rates.
Now,
16
in c o m i n g m o n t h s , b e c a u s e w e c ome to the p r o b l e m
and
i n d u c i n g the k i n d of a c t i o n
e i t h e r to m a k e
A n d thi s
is
t h i n k of w h e n t h e y s p e a k of
adjustment process:
How do,we make
f rom the v i e w p o i n t of t he U n i t e d
States,
the
which
17
is n e v e r a c o m p l e t e l y p a r o c h i a l v i e w p o i n t ,
18
—
19
quite w e l l in t e r m s
20
War II,
21
p a s s i v e rol e and o t h e r p e o p l e c o u l d set t h e i r e x c h a n g e r a t e s
22
pretty much
23
appro p r i a t e .
24
objectives more
25
in w h i c h
and I t h i n k c o r r e c t l y
—
the a r g u m e n t is m a d e
t h a t the p a r v a l u e
of r e s u l t s d u r i n g a long p e r i o d
essentially because
the U n i t e d
in t h e i r j u d g m e n t of w h e r e
less
satisfied,
after World
States did play a
t h e y t h o u g h t it w as
They satisfied their objectives.
or
system worked
With their
y o u c r e a t e d an e n v i r o n m e n t
t r ade a n d p a y m e n t s c o u l d be
freed.
B u t the s y s t e m
16
was built upon a premise that the United States would and could
play a passive role and, as the United States position weakened
in this passive role, when the United States didn’t take active
measures in a sense to protect its own position, the presumption
of this form of a par value system and the stability of that par
value system broke down.
The dollar, upon which it rested, in
a sense, weakened, and when the pivot of the system weakened,
the system itself was thrown off stride and no longer worked
effectively.
So you have a problem of making this exchange rate
system work in an environment where no country, including the
United States, can play the passive role, can play the role of
the residual country.
And this is a much more difficult kind
of problem.
It has seemed to us that to make this work you are
going to need much clearer understandings among nations as to
who does what when to promote and maintain a reasonable balance
of payments equilibrium.
You come down to the problem of
writing, in a sense, stricter rules, and enforcing stricter
rules.
And I am not just talking about when exchange rate
changes, because one of the implications of a par value system
must be that the par values don’t change all that frequently.
So you have to have other adjustment means, and there a.ren’t so
many of these, if people a r e n ’t willing to adjust their
domestic economy very freely, there are trade measures which
17
1
people don't like to take, there are controls on capital flows
2
which for the same general type of reason the people resist
5 . trade controls, are not a preferred method of adjustment.
There are changes in aid flows which, for other
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
reasons, are not considered highly desirable method of adjust
ment.
So you are working in a rather circumscribed list of
fully effective tools, which only aggravates the problem.
And
we have thought, and-continue to think, that this does take
much more conscious international decision making? it takes
much more explicit rules of the game, as you use that term;
it will take rather tangible incentives, and the tangible in
centives probably should be labeled as sanctions —
likes that word —
nobody
in some cases, if you are really going to
get necessary responses out of governments sometimes doing
things that are in themselves distasteful things for political
governments to do.
So we have got that whole list of issues,
which I will return to in a minute.
Related to that, you have the whole issue of broadly
19
international liquidity, who finances presumably temporary
20
balance of payments deficits or surpluses in the context of a
21
par value system, and this raises all the questions of a
22
reserve mechanism.
23
Now, in this area —
and I am not going to go into
24
the technical side of this —- I think there is a pretty wide
25
consensus on some simple propositions, such as the SDR or some
r
of gold will diminish, the role of reserve currencies will
12
At that qualitative level, the consensus is broad.
14
What bothers me is we have not come yet to the rather simple
5
question of how much liquidity or how many reserves is the
6
i
9
I
diminish, we won't any longer have a dollar-cent system.
10
1 8
18
currency unit will become the central reserve asset, the role
11
7
j
appropriate amount of reserves to make a par value system
operate, how much liquidity do we need, how much time do we
let go by before an exchange rate has to change.
And I suspect
when we get down to this point, we will find rather widely
10
differing views on a rather basic element in the equation that
1 11
.I 12
I 13
u
inevitably is tied to the adjustment problem, because it is
partly a substitute for adjustment,
ic■ ^
The essence of the proposals that the United States
15
has made is to tie these two questions together as firmly as
16
we can, because we think they are related.
17
in essence to say that we can look at movements of reserves
18
from one country to another as a judge, not the only judge but
19
a primary indicator of when adjustment is necessary, adjust
20
ment of some sort, not necessarily an exchange rate change.
21
And we have chosen
Now, when you say you take movements of reserves as
22
an indicator, you have to measure it against some kind of norm,
23
how much is a big enough move to force or stipulate action,
24
which brings us back to the other part of the problem, how
25
many reserves should there be in the system as a whole.
i
.1
11
KH,■
1
So we h a v e t r i e d to c o n s t r u c t
w i t h a g i v e n p i e c e of data,
reserves
there
starts
i n t e r n a t i o n a l a g r e e m e n t on h o w m a n y
s h o u l d be in th e system,
are t h a t m a n y r e s e r v e s
an a p p r o a c h w h i c h
in the w o r l d
in e f f e c t s
as a w h o l e ,
says
there
obviously
in a
n o r m a l e q u i l i b r i u m s i t u a t i o n t h e y s h o u l d be d i v i d e d a m o n g all
the c o u n t r i e s
in the w o r l d
in some
r a t i o r e l a t e d to t r ade
or
economic importance.
As t h ose r e s e r v e s
one c o u n t r y to another,
t h e n s h i f t o u t of e q u i l i b r i u m f r o m
y o u h a v e g o t a lot of u s e f u l i n f o r m a t i o n
as to w h e t h e r b a l a n c e of p a y m e n t s
are o u t of e q u i l i b r i u m ,
m u c h t h e y are o ut of e q u i l i b r i u m ,
h o w f ar a w a y t h e y are
the norms,
if y o u a t t a c h to t hat k i n d of a s y s t e m some
d i c a t i o n , some i n t e r n a t i o n a l
a c t i o n is a p p r o p r i a t e
are
and,
inappropriate,
have the n e c e s s a r y
at l e a s t as i m p o r t a n t , w h a t k i n d of
in our o p i n i o n y o u t h e n b e g i n to
framework
for e x e r c i s i n g
and e s s e n t i a l to its e f f e c t i v e
Clearly,
this
controls,
earlier,
c o u ntry
and a v e r y
the
surveillance
s y s t e m in the
f i r s t plac e ,
operation.
is a v e r y s u m m a r y v i e w of the p r o c e s s
of i n t e r n a t i o n a l m o n e t a r y reform,
that arise
in
cod e of r u l e s as to w h a t k i n d of
w h i c h is the p o i n t of the p a r v a l u e
hot issu e s
from
and w h o s h o u l d act when.
Now,
actions
how
concerning
and t h e r e
s p e c u l a t i o n and c a p i t a l
interesting question,
of h o w the s y s t e m is m a n a g e d
is no l o nger d o m i n a n t ,
are a lot of o t h e r
t h a t I a l l u d e d to
in a w o r l d
in w h i c h one
and t h e r e are c o m p e t i n g p o w e r
20
centers —
it may be the toughest question of al
But I do want to emphasize, and keep tonight's eye
anyway, on this difficult problem of operating a system of
established exchange rates and putting the appropriate discip
lines in the system in terms of the adjustment process to make
it work in an orderly way.
And I do think it is terribly im
portant that we not forget about the disciplines, what I will
call disciplines, in proceeding to construct this bright new
monetary system, because I think we have seen evidence enough
in recent years that a par value system without this kind of
discipline, without the adjustment process working effectively,
is going to break down.
I
think we all need to pay a lot of heed to the war
ing implicit in those comments of Frank Grahams that I read
initially about ending up with an unworkable hodge-podge in
refusing to make a decision to go all the way toward a more
flexible system or a refusal to accept the kind of rigorous
discipline that is involved in a completely fixed rate system.
We end up in some happy illusion that an in-between course,
without any discipline, is going to work.
I don't think it is'
going to work.
Fortunately, I think we have enough time to do.this
process and do it right.
I think we have got some interim
arrangements from which we can learn whiel this process is going
on, as I suggested earlier.
These days, one never promises no
21
1
crises for a very long period of time:
It is an interesting
2
fact that the exchange rates have been steadier in the past two
5
weeks, when nobody is defending par values, than they were
4
before we were defending par values.
5
no long-range predictions from that.
But I conclude, I make
Someone suggested it took twenty years to have the
6
7
first major crisis of the Bretton Woods system, and twenty
8
months to have the next crisis, and twenty days >to have the
9
third major crisis.
10
so we will begin going the other way now.
11
[Laughter]
12
I
We are almost up to the twenty-day period,
do think we have a flexible, by force of events,
13
system in place.
I think there is reason to believe that will
14
be resilient enough to avoid major problems for the period
15
ahead, as we work on the kind
16
which I have
17
right.
18
slacken our efforts.
19
but I hope and believe we are going to be dealing with some
20
very difficult and contentious issues in the process.
alluded.
I hope we will take enough time to do it
That does notmean in
21
Thank you.
22
MR.
of difficult reform issue to
any way that we. have time to
We should be working very intensively,
: Mr. Volcker has consented to
23
entertain —
24
the floor.
25
handling these-yourself.
if that is the appropriate word —
questions from
I suppose, Paul, you are as skilled as anyone in
Why don’t I let you field them for as
0
long as you would care to.
MR. VOLCKER:
2
. z-
22
As long as you don't imply the answers
have to be entertaining.
QUESTION:
You mentioned or alluded to sanctions
that would have to be put together, regulations for strengthen
ing or keeping strong the new system that comes about.
What
are some of these sanctions that are proposed in meetings to
enforce the new system?
MR. VOLCKER:
Well, it is much easier to think of
these in a noncontroversial way on the side of a deficit country
because in a par value convertibility system, there are certain
sanctions which come almost automatically on the deficit countr
and this is considered, in fact, by most I think a virtue of
...
the system.
They lose reserves and the ultimate sanction, of
course, is when you lose enough reserves you run out, and there
fore you can't maintain the rate, you have to devalue, if that
is the direction in which you are going.
Now, that oversimplifies.
You can borrow.
So one of
the sanctions you can put on a deficit country is cut off the
credit line, and this is putting it more bluntly than it is put
in police circles, but that is a
deficit country.
traditional sanction on a
And we would contemplate that that kind of
sanction on an orderly and agreed basis remain on the deficit
country.
23
The sanction for the surplus country is the more dif
1
2
ficult issue, because, while people eventually run out of
5
reserves, it takes them longer- to run out to be surfeit with
4
reserves.
5
than it used to be, but it is still very substantial.
6
And the appetite for holding reserves is maybe less
So here —
well, in a sense, along the lines of our
7
own thinking, it is the movement of reserves that itself in
8
dicates a need for action, just as it does in the case of the
9
deficit country.
10
the sanctions.
11
tives, like cutting off interest on reserve holdings, refusing
12
to permit them to hold certain types of international assets,
13
but in the end we have suggested.that if it takes this degree
14
of push, you would have to consider sanctions on the trade
15
side, in other words discrimination against the trade of the
16
persistent surplus country.
17
You probably have to be more conscious about
Now, you can think of relatively mild incen
Now, that sounds shocking to some people.
It is not
18
really very shocking, I think.
A notion of this sort was in
19
corporated in the Bretton Woods agreement, in the so-called
20
"scarce currency clause."
The trouble with that is that it
21
wasn't very effective, it wasn't used.
22
need an effective sanction of that type to make this process
23
symmetrical.
So we would say you
24
QUESTION:
[inaudible]
25
MR. VOLCKER: Well, I was careful to note use the
1
argument that fixed rates are good for trade, because I am not
2
sure —
[Laughter]
5
^
4
QUESTION:
[inaudible]
5
MR. VOLCKER:
Well, let me clarify that answer.
I
6
think the argument is quite straight-forward.
7
had fixed rates and they stayed fixed, that is the best environ
8
ment for trade.
9
economy.
10
You are comparing two different situations.
11
temporarily fixed, and the temporary may be for some years.
12
would have to be for some years to be stable at all.
13
that moves by jumps is a.rate that moves more smoothly, and
14
thereJI thinkithe case of which is better for trade is more
15
If -you really
That leads to the most integrated world
But I don't think you really have that choice today.
You are comparing
It
But a rate
obscure.
But the reason you need the sanctions is the worst
16
17
thing in the end under any system, just in terms of what is
18
good for trade, is I think permitting very largel imbalances
19
to build up and persist, because then you eventually have to
20
have some correction.
And because the imbalances have built up
21
and persisted, the correction is more difficult and leads to
22
both real economic problems of adjustment and political problems
23
and tensions.
24
through, and the rest of the world with us, in the past couple
25
of years.
And I think this is what we have been going
25
The adjustment problem has gotten big enough so that
1
2
the whole structure of our economy in some respects is geared
5
toward importing in some important industries.
4
of some other economies is overly geared toward exporting.
5
The imbalance has gotten big enough so it is kind of jarring
6
to some industries to make that adjustment.
7
8
9
10
11
1,4
15
16
aggressive tendencies on the other side of the adjustment process, the surplus countries resisting the adjustment, that is
the environment that really breeds the trade restrictions,
potentially.
To avoid that environment, you want to stay closer
to equilibrium, you may need the sanction, because. otherwise the
easiest thing in the world is to do nothing.
19
20
21
22
23
24
25
We found it easy
and the rest of the world found it easy for twenty years.
How
do you prod them to do something?
Now, one principle I learned from a professor at
17
18
You lead to
economic and political tensions, protectionist pressures,
12
13
The structure
Harvard, I remember, and not at Princeton —
Harvard to learn this —
I had to get to
was something, some fancy constitu
tional doctrine of the law of the anticipated reaction.
And
if you have a sanction, maybe you never use it, because nobody
really wants to be hauled off to jail, so to speak, so he be
haves.
But if you don't have the sanction, the antisocial
behavior will persist, and I think that is the way.
If you had a system with sanctions, and you actually
26
had to use the sanctions with any frequency, the system would
not be working, because it is clear that the cooperative effort
that is necessary was not there.
That doesn’t mean you don’t
need the sanctions there as the ultimate step.
QUESTION:
I just can’t see why government would want
to take upon itself the burden of coping with the decisions of
when and how to apply a set of sanctions.
Everything that
you have been saying seems to argue so overwhelmingly in favor
of a float.
MR. VOLCKER:
QUESTION:
Well, I —
And, you know, why the U.S. government
doesn’t take a much stronger line than it has taken thus far.
MR. VOLCKER:
All right.
I think my remarks were
probably a fair criticism unbalanced, because I really was
making the case in terms of fixed but adjustable rates
and
what was necessary in my judgment to make that a reasonable
system, because that is where most governments quite over
whelmingly declare their preference.
So therefore I didn’t
have to consider the other case in a sense, and consider the
negative side of flexible rates.
I
think there is a real fear of two factors.
that they are at markets, and people feel one way or the other
on' this issue.
Some people feel markets are unstable, and
other people feel they are stable, and it depends on which
market you look at.
You can bring evidence to bear on either
One i
^ ' 3
27
7
1
side.
2
more unstable markets, people feel directly it is repercussions
5
on trade.
4
But if the exchange market turned out to be one of the
But apart from that argument, there is this feeling
5
that people cannot resist the temptation to manipulate a
6
floating rate system, and they cannot imagine —
7
case, in my judgment —
8
tional code of conduct would be and how it would be enforced
9
to kind of legitimize a floating rate system so that one
10
country can feel that he is being dealt with fairly as against
11
another country.
12
is just an indication of the bureaucratic mind, that they feel
13
they must deal in a fixed known kind of quantity to make.this
14
kind of judgment.
wrong, in this
they cannot imagine what the interna
And this concern runs very deep.
Maybe it
15
But I think there is more to it than that.
16
there is a real element in this argument growing out of tradi
17
tion and history in part, that this kind of a system is more
18
conducive to international consultation, international rule-
19
making, international enforcement than a floating rate system.
20
And I think this is the premise upon which this argument is
21
basically made.
22
QUESTION:
I think
So, following up on that, you have said
23'
that whether the system is nominally floating or whether it
24
is nominally fixed or adjustable, it has got to have coopera
25
tive international surveillance, and I think that is completely
28
1
2
right.
But then you went on.to say that you would look to
5
reserve changes as the basic indicator, not the only one, but
4
the basic indicator in a fixed but adjustable system.
5
question is whether you would also look to that as the key in-
6
dicator under a system that was nominally floating but where
7
people intervened?
8
of course, the basic reason that you get huge moves in reserves
9
in short terms, is speculative capital movements, and that in
10
turn is why many countries are unwilling to let their rates
11
float freely.
12
at underlying balances, basic balance conditions, if you will,
13
rather than movements in reserves as the chief,factor in deter
14
mining whether nominal fixed rates are to be adjusted or where
15
people are intervening fairly under a nominally floating system.
16
My
My question would be related to the fact,
So the punch line is should one be looking more
MR. VOLCKER:
It will be no surprise to you that I
17
think the burden of the argument runs the other w a y , and one of
18
the convenient side effects of using reserves as an indicator
19
is that I think it is a kind of indicator that is rather
20
readily applicable to a floating rate country, too.
21
course, in our proposals specifically we allow for a mixed
22
system, where some countries at least might be floating.
23
And, of
The criticism of reserves, of course, is that they are
24
subject to short-term speculative movements.
25
partly on how you define them, the length of time it takes
Now, this depends
2
i
j
29
1
before one considers a movement significant, and the size of
2
a movement before it is significant.
But let me grant readily that some concept such as
5
4
basic balance brings useful information, and I think it would
5
be an important consideration in whether the appropriate re
6
sponse to a disequilibrium is an exchange rate change or not.
7
I would think it would be a very important factor in that con
8
nection.
9
But I don’t want to rely upon basic balances pri
10
marily because it has two, in my view, grave defects.
11
all, people do tend to act in response to reserves, whatever
12
the basic balance trend is, and they generally move in the
13
same direction anyway.
14
ing an indicator that triggers action anyway.
15
action for the deficit country because they must act, and re
16
cently we have seen a lot of examples of triggering action on
17
the surplus side.
18
First of
So there is a certain reality to pick
It triggers
Secondly, it provides this link that I was trying to
19
emphasize between the adequacy of world reserves and the opera
20
tion of the adjustment process, and that link is lost entirely
21
if you simply use, let’s say, a balance trend as your r- an
22
underlying balance of payments trend as your indicator for
23
adjustment.
24
25
So you can get incompatible results.
You get the
adjustment trigger showing no action, but somebody runs out of
n
30
1
reserves, so he has got to act.
2
sistency.
QUESTION:
5
4
And I want to avoid that incon
Unless you cycle the money back through a
swap network or something.
QUESTION:
5
On this same thing, Mr. Volcker, your
6
proposal to the Committee of Twenty to use changes in reserves
7
as the objective indicator, your paper was published in the
8
President’s Economic Report here so everybody can read it.
9
am sure you are aware that a good number of foreign officials
10
have drawma' conclusion from this that, well, sure, it leads
11
you to a system of stability with flexibility, but the United
m
States gets the stability and the other countries get the
15
flexibility and, you know, they feel, well, let's .suppose there
14
is a heavy buying of D marks, as there was recently, and the
15
reserves generally go up, and so generally the indicator points
16
to Germany and the Germans don't think it is their problem
17
really.
• l..
18
How do you answer this question?
MR. VOLCKER:
I
..
I will give you a very straightforward
19
answer to that.
In terms of -- let's imagine the conditions,
20
that all the rest of the world for some reason is out of this
21
particular show and reserves are doing nothing and their
22
balance of payments are doing nothing, but either Germany
23
tightens their monetary policy or the United States eases, or
24
something happens to the trade accounts, so the reserves move
25
from the United States to Germany, the only two countries
31
1
2
involved, starting in each case from a position of equilibrium.
The answer there to me is. very simple:
Germany
5
initiates the adjustment action, because Germany is the smaller
4
country here, and you get an insoluble moral dilemma if one
5
begins carrying on a great moral argument as to whether it is
6
the U.S. easy money policy at fault or the Germany tight money
7
policy at fault.
8
9
10
The theory of this kind of approach is the same theory
used on no-fault automobile insurance.
Clean out the courts of
all these tortuous cases about who. ran into who and who turned
11
left a little bit before he should have, when the other guy was
12
a little bit out of his lane, too.
13
uble problems.
14
principle is very simple.
15
You get all sorts of insol
You need.some:agreed way of doing it, and this
You decide who initiates the adjustment action by
16
where the greatest or the least weight, the least disturbance
17
is created by the adjustment action, because they are smaller.
18
Now, you get a different answer:
Suppose I just
19
change the example slightly, which is probably a more accurate
20
case, really, a more probable case, and let's say Europe
21
tightens money and the United States eases money.
22
this case, Europe as a whole is likely to have more weight
23
than the United States.
24
pointed at the United States as the initiator of the action,
25
and that seems to me to be a perfectly reasonable response.
Well, in
In that case, the finger would be
32
1
If the United States is in deficit and the rest of
2
the world is in surplus, the United States acts.
5
United States is in deficit and Japan is the only big surplus
4
country, Japan should initiate the action.
5
QUESTION:
Could I follow that up.
If the
Just to play
6
around with the economics of the thing a little bit, let's take
7
the situation we have been having, where the United States has
8
a large deficit and Japan had a large surplus, and let's assume
9
there are no other countries involved and this was the dis
10
equilibrium.
11
revalue and that would tend to correct its trade surplus.
12
you see, that trade surplus would not all go to the United,
13
States to cover the U.S. deficit.
14
around the world, and the United States would only get its
15
little share of it.
16
right answer?
17
Now, Japan is the smaller country, so Japan would
But,
It would be spread all
So then how does that bring you to the
MR. VOLCKER:
Look, in real cases you may often get
18
the answer that both ought to do something, but in this case,
19
precisely in the type of argument you are using, if Japan
20
adjusts, the impact on third country trade is less than if
21
the United States adjusts, bedause Japan is a relatively small
22
share of our trade, but we are a very large share of their
23
trade, and the total Japanese economy, the total Japanese
24
weight in the world is less, so by definition their change
25
will be less disturbing to the rest of the world than our
1
change.
So the logic seems to point right in that direction.
QUESTION:
2
5
time ?
MR. VOLCKER:
4
5
You mean it is an empirical question every
Yes, it is an empirical question di
rectly related to the weight in the world economy.
QUESTION:
6
But how do you decide who has got the
7
bigger weight each time?
8
everybody get on the scale?
[Laughter]
9
MR. VOLCKER:
10
11
Every time something happens, does
No, no, no.
Precisely what we negoti
ate is the scale. ' We have a type of scale, for instance.
QUESTION:
12
I am afraid I can't see —
you are insist
13
ing that everybody has an independent monetary policy, with
14
joint capital markets, and then everybody goes an independent
15
16
m
way, you have big flows of funds back and forth, and then
everybody jumps on the scale to see who is bigger.
17
[Laughter]
18
MR. VOLCKER:
Sure, you are setting up a caricature,
19
if I may say so.
Obviously, everything is a compromise in
20
this area.
21
exchange rates at all.
22
formula every time.
23
not saying this is the right formula, but somebody made up the
24
so-called Bretton Woods formula initially to establish fund
25
quotas.
We h^ive no coordination, we have no stability in
But you don't have to renegotiate this
We have a formula.
You do the same thing.
For instance —
I am
It is that concept which lies
34
1
behind the thing.
2
QUESTION:
C / '--V
But I gather, as Bretton Woods has de*"
5
veloped, everybody has a veto and nobody has any leadership,
4
the United States has a veto, we have —
5
percent to get anywhere, Europe has a veto, and now the rest
6
have a veto, and we are right back in the U.N. Security Council
7
formula, where everybody has a veto.
MR. VOLCKER:
8
you have to have 80
Well, not quite that bad, but I agree
9
that this is a fundamental problem.
10
problem.
11
if I had a really good answer to that question, I would give
1" 12
This is a different
This is the problem of who manages the system.
And
it to you, but nobody has a really good answer, because we
15
have an inherently difficult problem.
1
14
to say let’s have the United States manage the system, for
■
15
instance, but it is not real.
16 ■
[Laughter]
17
QUESTION:
. .
You know, I would love
\I
Or Europe?
i m
MR. VOLCKER:
18
19
We-ll, I am almost ready to say or
m
*«•«■
m
Europe.
20
[Laughter]
21
But in any case, what I am ready to say is it doesn't
I- 22
make any difference, because Europe w o n ’t let the United States
23
manage it and we aren’t going to let Europe manage it.
24
how do you deal with that problem?
25
hell of a problem.
Now,
And, as you say, it is a
I agree with you.
i
0
1
[Laughter]
2
QUESTION:
5
I have one more question.
35
I didn't'hear
once tonight the word "overhang."
4
MR. VOLCKER:
5
QUESTION:
What do you mean by "overhang"?
The overhang, the $80 billion, $120 billion
6
you name it, depending on how you count, which is messing up
7
the system.
8
on SDR's, how much good we have in the system, but we have too
9
much right now and these corporations and the government don't
10
want to hold dollars, and now the question is —
11
that unwilling holders have dollars, how do you get them out
12
of their hands so we can get back to some —
15
14
You talk about getting on to SDR's, we all agree
MR. VOLCKER:
Let me make a couple of responses to
that, Charlie, because —
15
QUESTION:
16
[Laughter]
17
MR. VOLCKER:
this means
. v i .>
-.
,,
Make three.
Well, you say tell people what you do
18
about the overhang, and I really think the first question is
19
what overhang are you talking about because people use this
20
term very loosely.and sometimes they mean the dollars in
21
central bank hands, and that is about $80 billion, and some
22
times they mean the dollars in the Eurodollar market, and all
23
these figures are $80 billion.
24
[Laughter]
25
Except another figure which concerns me, the overhang
36
1
I t h i n k tha t s h o u l d c o n c e r n us at
2
hangs
5
is a b o u t $800 b i l l i o n of
4
so t h a t is a n o t h e r
l e a s t as m u c h as t h o s e o v e r
are the o v e r h a n g s r i g h t h e r e
in the U n i t e d States,
liquidity,
l e t ’s say 10 p e r c e n t of it,
$80 b i l l i o n t h a t c a n m o ve.
5
[Laughter]
6
Now,
this r a i s e s
som e d i f f i c u l t p r o b l e m s .
suppose we magically dealt with
8
whatever that means.
9
s i t t i n g ou t o v e r there.
10
of g o o d if w e h a v e n ’t d e a l t w i t h this
11
w e s i m p l y add a n o t h e r
12
hav e g r e a t r e s e r v a t i o n s a b o u t d e a l i n g w i t h t h a t o v e r h a n g
13
without
L e t ’s s ay b o t h of t h o s e
Now,
lem,
16
ment problem,
17
be so loose,
18
in d o l lars.
f u n d e d it,
$80 b i l l i o n are
T h a t d o e s n ' t d o us a h e l l of a lot
a d j u s t m e n t p r o b l e m and
$10 or $15 b i l l i o n to it,
then you
e v e n if y o u h a v e
find,
that
too,
a nd w e w o u l d
t a k e n car e of t h a t o t h e r p r o b
if y o u h a v e t a k e n car e of the a d j u s t
$80 b i l l i o n p l u s
f i r s t of all.
$80 b i l l i o n i s n ' t g o i n g to
T h e y are g o i n g to t e n d to h o l d
B u t j u s t the m e r e m e c h a n i c s
20
very difficult.
21
these p r o j e c t i o n s
22
you h a v e the p r o j e c t i o n s ?
of d e a l i n g w i t h
Y o u r e f e r to the o i l s h i e k s
of
$20 or
Because
[Laughter]
24
A n d the p r i c e g o e s up.
it
it are
a n d y o u see all
$30 b i l l i o n a year.
23
25
we
s i m u l t a n e o u s l y t a k i n g c are of t h a t other..problem.
15
19
the o v e r h a n g ,
L e t's
7
14
which
W e ll,
w h y do
t h e y h a v e g o t the oil.
So let's
not forget they have
the oil and the p r i c e g o e s up w h e n w e t a l k a b o u t d e a l i n g w i t h
37
1
the overhang.
And you go to a shiek and say, I ’ve got a nice
I
security
5
don't want to get funded, I want to move my dollars around
4
where I want to and when I want to."
5
got to cooperate."
I would like you to fund into."
You say, "Oh, no, you’ve
He says, "Hell, I ’ll cut off your oil."
6
[Laughter]
7
I don't think there is any --
8
QUESTION:
9
MR. VOLCKER:
10
QUESTION:
11
MR, VOLCKER:
12
And they say, "I
Can’t you cut off his market?
Pardon me?
Cut off his market.
Yes, that's great when you have got an
energy shortage.
1 Lr/ug 4 1 $ r l
■[Laughter 3
13
I don't have any hopes that there is magic in this
14
15
area, and I would rather —
16
to work on the other problem, which is why I didn't mention
17
this.
18
and that it is not a problem and we can't work on this with
19
various financial techniques.
20
that people have to deal with the overhang
21
goes away is wrong.
22
with in an effective way.
23
I think it basically more important
Now, I am not saying there is nothing to be done here
QUESTION:
But I think this kind of feeling
and the problem
It is, first of all, very hard to deal
I have two questions.
The first is some
24
what rhetorical.
How can you expect these sanctions to last
25
for any period of time when the U.S., in a pluralistic fashion,
1
abandoned the fixed rate system when it was coming into heat?
2
It seemed convenient for it, and now you have proposed a system
5
which clearly is seen in the eyes of every other country as
4
loaded for the U.S.
5
affairs continues to shift, I don’t see how you can expect the
6
system which is now being devised for U.S. convenience to last.
7
The second question is, returning to the oil shieks,
So as the weight of world monetary
8
does the administration have any separate strategy for dealing
9
with their acquisition of reserves or see any other factors for
10
treating reserves at the time?
MF. VOLCKEK:
11
Well, I guess your first question in
12
volves a certain amount of premises that I do not share.
We
15
sit most of the time worrying about the system being rigged
14
against us and I hardly know how to answer a question^that
15
makes the presumption that it is rigged in our favor.
16
[Laughter]
17
We, I think, in August of *71, were- responding to
18
some very real facts, as other countries have responded, and
19
you don’t by choice say we abandon a fixed rate system.
20
fact, we didn't.
21
great difficulty then in making an adjustment that was inade
22
quate, and even when it was inadequate we had difficulty making
23
1'5*
24
a bias in the system quite clearly as we see it, that we wanted
25
to make an adjustment of a kind that other countries make
We went back to it in December.
We wanted to make an adjustment.
That is —
In
We had
and this is
'2
1
almost routinely,
2
country,
b u t it is r o u t i n e
5
system.
You call up your Executive Director
4
t i o n a l M o n e t a r y Fund,
5
fun d w e w a n t to d e v a l u a e ,
6
percent.
Well,
7
8
9
10
11
I
12
13
for the i n t e r n a t i o n a l m o n e t a r y
in the
w e h a v e a l r e a d y a n n o u n c e d it b y
w e r e t r y i n g to see w h a t s e e m s
and m o r e
Nov/, this p r e s e n t system,
to our c o n v e n i e n c e or not.
So w e w e n t
legitimate
a g r e e d to be a . l e g i t i
•/O , -
OC
con
b u t f u n d a m e n t a l l y we
to m e a p e r f e c t l y
and. I t h i n k it is g e n e r a l l y
obj e c t i v e .
works
15
t h a t is n o t a n o p t i o n o p e n to the U n i t e d States,
a b o u t it in a s o m e w h a t d i f f e r e n t way,
mate
1i
Interna
a n d y o u t e l l h i m g o a r o u n d and t e l l the
s t r i c t e d p o s i t i o n in the o p e r a t i o n of the system.
obje c t i v e ,
I
i n t e r n a l l y for a n y
w h i c h i n d i c a t e s we a re in a s o m e w h a t d i f f e r e n t
14
■
n ot t h a t it is r o u t i n e
39
^
.
.
I d o n ’t k n o w w h e t h e r
This doesn't prove
it
anything,
15
16
17
18
19
20
21
■' 22
23
24
25
I suppose,
a r r i v e d at,
b u t the p r e s e n t system,
t h ose d e c i s i o n s w e r e
if w e
arrived
c a l l it that,
was
at in as m u c h h a r m o n y
«M
r■
among the m a j o r c o u n t r i e s .as I h a v e
was
a k i n d of u n a n i m o u s
that e x i s t e d ,
interest.
pervades
And
this w a s
the b e s t r e s p o n s e
in e v e r y b o d y ' s
at least,
somewhat different premise,
if y o u w i l l ,
als o
in t h e s e o t h e r n e g o t i a t i o n s ,
as at l e a s t one of t h e i r p o i n t s
of the c o u n t r i e s ,
It
a p p r e c i a t i o n t h a t in the c i r c u m s t a n c e s
I t h i n k t h a t k i n d of spirit,
at the m o m e n t ,
w h i c h take,
s e e n f or s e v e r a l years.
that we will by
of d e p a r t u r e ,
a
and large, m o s t
m o s t of the time, w i l l w a n t
to h a v e
a fixed
•A M
if]
%
5
^?
40
1
exchange rate.
2
sides that nobody can really rig the system effectively to
5
benefit their own position very long, because the system will
4
break down.
5
And I hope there is an appreciation on all
The other partner will sooner or later break out.
Now, I would suggest that that appreciation may be
6
stronger in the United States simply because we are larger,
7
not because we have any special virtue.
8
United States to understand that its reactions or its advant
9
ages or disadvantages have repercussions on others to which
10
they will react.
11
real opportunity and illusion is that you can kind of yourself
12
get some special advantage out of it, because you are not big
13
enough to disturb other people. ^ disturb
But it is easy for the
The smaller the country, the more I think
.••i
14
Of course, where the system breaks down is if all
15
relatively small countries act that way, together they are big,
16
and the system does break down.
17
mental appreciation of the negotiators, and I hope it exists.
18
QUESTION:
19
MR. VOLCKER:
And this has to be a funda
[inaudible]
Well, implicitly, when I speak of fixed
20
but adjustable rates, I am assuming that that is underlain by a
21
system of convertibility.
22
sitional problem, and I don’t mean to underplay it by calling
23
it a transitional problem, because there is no point in resuming
24
this kind of obligation before you can bear the burden.
25
an attenuated reserve position, to say the least, and in an
The problem of returning is a tran
And in
41
1
attenuated balance of payments position, convertibility isn’t
2
sustainable, and this implies you need a period of time to
5
restore our balance of payments position and our financial po
4
sition before the United States itself can undertake the con
5
vertibility .
6
Now, that is one side of it.
The other side is you
7
want to d o ;it in the framework of a system that enables you to
8
maintain that position, so you need both the system and the
9
facts, so to speak, but it is definitely implied in this kind
10
of a system that countries maintaining the fixed rates would
11
have a convertibility obligation, including the United States.
12
15
14
15
16
17
18
19
20
21
22
23
24
25
[Whereupon, the above-entitled remarks were concluded]
Departmentof ^ T R E A S U R Y
TELEPHONE W04-2041
WASHINGTON. D C. 20220
---- ----- — .■,
n
iBBS'»- '■
•
April
FOR IMMEDIATE RELEASE
3,
1973
DR. J O H N T. D U N L O P T O BE C H A I R M A N OF TH E
NATIONAL COMMISSION ON PRODUCTIVITY
P r e s i d e n t N i x o n has a p p o i n t e d Dr.
J o h n T.
Dunlopr to be C h a i r m a n of the N a t i o n a l C o m m i s s i o n
on Produc t i v i t y .
His p r e d e c e s s o r s w e r e George P.
Shultz,
S e c r e t a r y of the T r e a s u r y and A s s i s t a n t
President,
and Peter G.
S e c r e t a r y of Commerce,
to serve as a d v isors
To e n able
responsive
Peterson,
former
b o t h of w h o m will c o n t i n u e
to the Commission.
the F e d eral
to way s
to the
government
to improve
to be m o r e
its own p r o d u c t i v i t y
and to the effects of F e d e r a l actions on the p r o
d u c t i v i t y of others,, the P r e s i d e n t
Caspar Weinberger,
James
Lynn,
also
invited
Secretaries
of
the D e p a r t m e n t s of H E W and H U D and c o u n s e l o r s
the President,
a nd
Roy Ash,
to
D i r e c t o r of the
r;"!
O f f i c e of M a n a g e m e n t
the C ommission.
and Budget,
In addition,
of L a b o r and Commerce,
Dent,
will
replace
continue
the o u t g o i n g
to be m e m b e r s
of
the n e w S e c r e t a r i e s
Peter B r e n n a n and F r e d e r i c k
to serve on the C o m m i s s i o n to
S e c r e t a r i e s of those D e p a r t m e n t s
S-160
(OVER)
2
Dr.
D u n l o p has
s e rved w i t h d i s t i n c t i o n as
C h a i r m a n of the C o n s t r u c t i o n I n d u s t r y Stabilization,
C o m m i t t e e since A p r i l
of 1971%
and has b e e n a m e m b e r
of the P r o d u c t i v i t y C o m m i s s i o n since its
heading
its L a b o r - M a n a g e m e n t w o r k group.
the P r e s i d e n t
inception,
O n J a n u a r y 11,
a p p o i n t e d hi m D i r e c t o r o f the Cost of
L i v i n g Council.
B e c a u s e p r o d u c t i v i t y g r o w t h o f fers
s o l u t i o n to the p r o b l e m of s p i r a l i n g
Dr.
Dunlop's
improves.
solutions
e n able h i m
g r a d u a l l y as p r o d u c t i v i t y
The P r e s i d e n t ' s
of l o n g - r a n g e
long-run
inflation,
j o int r e s p o n s i b i l i t i e s wil l
to d e - e m p h a s i z e c o n t r o l s
one
c o n c e r n for d e v e l o p m e n t
to i n f l a t i o n was m a n i f e s t e d
b y his b u d g e t r e q u e s t of $ 5 , 0 0 0 , 0 0 0 for the C o m m i s s i o n
and his a p p o i n t m e n t of n e w labor and g o v e r n m e n t m e m b e r s
representing a broad range of
Dr.
career,
interests.
D u n l o p has h ad a long a n d d i s t i n g u i s h e d
b o t h as a p r o f e s s o r of labor and eco n o m i c s
at H a r v a r d
since
1938,
a n d as a m e m b e r of the v a r i o u s
Governments commissions,
In addition,
panels,
boards,
and c o nferences.
he m o s t r e c e n t l y has b e e n the
D e a n of the F a c u l t y of A r t s a n d S c i e n c e s a n d
L a m o n t U n i v e r s i t y P r o f e s s o r at H a r v a r d U n i v e r s i t y .
His
experience
in b o t h a c a d e m i a a nd
m e n t u n i q u e l y q u a l i f y h i m for
v a r i e d tasks o f c o m b a t i n g
the c o m p l e x and
i n f l a t i o n and p r o m o t i n g
l o n g - r u n p r o d u c t i v i t y growth.
oOo
in G o v e r n
theTREASURY
Departmentof
HINGTON, D.C. 20220
/T iU P H O N I W04-2041
H
April 3/ 1973
FOR RELEASE AT 8;00 P.M. , EST
REMARKS BY THE HONORABLE GEORGE P. SHULTZ
SECRETARY OF THE TREASURY
AT A DINNER HOSTED BY THE
INTER-AMERICAN DEVELOPMENT BANK
FOR MEMBERS OF THE HOUSE BANKING AND CURRENCY COMMITTEE
IDB HEADQUARTERS, WASHINGTON, D. C.
APRIL 3, 1973
Mr. President,
Mrs. Shultz and I are happy to be here this evening with
the officials and friends and supporters of the Inter-American
Development Bank.
This dinner with members of the Banking
and Currency Committee is becoming an annual tradition and
it is an excellent one to have.
It gives us all an oppor
tunity to review past accomplishments and to plan together
for the future.
There is no question at all about the successful record
of the Bank.
ment in 1959.
Clearly, much has been done since its establish
In July of 1960, President Eisenhower made
his Declaration of Newport.
He called for enlarged programs
for development in Latin America.
Since then, the Bank has
committed more than $5.0 billion for important and worthwhile
projects.
It has been an innovative and pioneering lender —
not only trying to increase economic growth but also trying
(OVER)
2
to i n c r e a s e the p a r t i c i p a t i o n of p e o p l e in this process.
L o o k i n g t o w a r d the future,
Mr.
Pres i d e n t ,
I share y o u r
h o p e s a nd p l a c e g r e a t c o n f i d e n c e in y o u r leadership.
I
a p p l a u d y o u r e f f o r t s to im p r o v e the B a n k ' s o r g a n i z a t i o n and
o p e r a t i o n s an d to b r o a d e n its r e s o u r c e base.
T h e s e are i m
p o r t a n t i n i t i a t i v e s on y o u r p a r t w h i c h w e s t r o n g l y support.
A s a c h a r t e r m e m ber,
the U n i t e d S t a t e s is h a p p y to be
a s s o c i a t e d w i t h the B a n k ' s a c h i e v e m e n t s .
We c e r t a i n l y w a n t
to do our p a r t to s u p p o r t its f u t u r e programs.
get for this year,
In his b u d
P r e s i d e n t N i x o n has i n c l u d e d $693 m i l l i o n
for the I n t e r - A m e r i c a n D e v e l o p m e n t Bank.
T h i s w a s d o n e in
spite of b u d g e t a r y s t r i n g e n c y and s t r a i n e d i n t e r n a t i o n a l
accounts.
I a s s u r e y o u t h a t the A d m i n i s t r a t i o n w i l l be
p r e s s i n g v e r y h a r d for its full a p p r o p r i a t i o n .
# # #
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Document Type: Transcript
Number of Pages Removed: 6
Author(s):
Title:
"The Today Show" Interview with Treasury Secretary Shultz
Date:
1973-04-04
Journal:
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
DepartmentoftheTREASURY
IfASHINGTON, D C 20220
TELEPHONE W04-2041
FOR RELEASE ON DELIVERY
S T A T E M E N T BY THE H O N O R A B L E J O H N M. H E N N E S S Y
A S S I S T A N T S E C R E T A R Y OF THE T R E A S U R Y FOR
I N T E R N A T I O N A L AF F A I R S , B E F O R E THE FO R E I G N
O P E R A T I O N S S U B C O M M I T T E E OF THE A P P R O P R I A T I O N S
C O M M I T T E E OF THE H O U S E OF R E P R E S E N T A T I V E S
THURSDAY, A P R I L 5, 1973
A T 1:00 P.M.
Mr.
Chairman:
I
am her e this m o r n i n g
Nixon's
FY 1974 a p p r o p r i a t i o n s
for the
i n t e r n a t i o n a l l e n ding
to t e s t i f y
re q u e s t s
in favor of Pre s i d e n t
tot a l l i n g
institutions.
$1.2 b i l l i o n
I strongly urge
that y ou and the C o n g r e s s act p r o m p t l y and a p p r o p r i a t e the
full a m o u n t s w h i c h are being requested.
My s t a t e m e n t a d d r e s s e s
U.S.
itself to the b r o a d e r
G o v e r n m e n t p a r t i c i p a t i o n in the three i n s t i t u t i o n s
the S e c r e t a r y of the T r e a s u r y has overall
U.S.
issues of
representative
since
responsibility.
in e ach of the i n s t i t u t i o n s will
The
accompany
me and p r o v i d e you w i t h a s t a t e m e n t on the d e t a i l s of o p e r a t i o n s
in his r e s p e c t i v e bank.
Before providing
i n f o r m a t i o n on the specific r e q u e s t s and
on the o p e r a t i o n s of the
two q u e s t i o n s w h i c h
is:
i n s t i t utions,
I consider
I would
important.
like to raise
The first q u e s t i o n
W h y shou l d you a p p r o p r i a t e this a m ount of m o n e y for fo r e i g n
economic a s s i s t a n c e at a time of e x t r e m e b u d g e t a r y s t r i n g e n c y
and serious b a l a n c e of p a y m e n t s
S-162
and trade p r o b l e m s ?
This year,
2
the entire B u dget has b een subject
in terms of our n a t i o n a l
to e x t r e m e l y close
interests.
a h i g h p r i o r i t y to the i n t e r n a t i o n a l
for v e r y p r a c t i c a l
It is clear,
The P r e s i d e n t has as s i g n e d
lending
institutions
Mr.
we have
Chairman,
that our first c o n c e r n mus t
i m p o rtant
interests
It is also clear
in the d e v e l o p i n g
of the world.
T h e i r e c o nomic g r o w t h and s t a b i l i t y are
fact
to us for e c o nomic as well as g e n eral
i m p ortant
p o l i c y reasons.
Our econo m i c
and p a r t i c u l a r l y these,
materials,
and
reasons.
be for the w e l f a r e of the A m e r i c a n people.
as a nation,
scr u t i n y
that
areas
in actual
f o r eign
i n t e r d e p e n d e n c e w i t h all nations,
has grown.
Today,
they p r o v i d e raw
as well as m a n u f a c t u r e d and s e m i - m a n u f a c t u r e d products,
w h i c h are vital
to the c o n t i n u e d v i t a l i t y and n o n - i n f l a t i o n a r y
e x p a n s i o n of our economy.
A little k n own fact
y e a r the U n i t e d States has had a p o s i t i v e
less d e v e l o p e d countries;
including
is that y ear after
trade b a l a n c e w i t h the
a modest
surplus
last year,
w h e n we ran a large de f i c i t w i t h the rest of the world.
is that
they are goo d c u s t o m e r s and it is in our
provide
them w i t h ca p i t a l
interest
to e x pand their e c o n o m i e s
The truth
to
and their
a b i l i t y to r e pay us.
A s e cond
r aw m a t e r i a l s
little k n o w n fact
imports
c e r t a i n to rise
the
is that we get o n e - t h i r d of our
from them n o w and this
in the future.
i m p o r t a n c e of h ow our
A third
investment
figure
is almost
little k n o w n fact
e a r nings
is
in these countries
c o n t r i b u t e to our b a l a n c e of p a y m e n t s and to the w e l f a r e of our
A/iiO
3
people.
direct
The U n i t e d States has close
i n v e stments
to $25 b i l l i o n
in less d e v e l o p e d countries.
b ank loans hel p p r o v i d e the i n f r a s t r u c t u r e
activity of p r i v a t e capital.
In 1972,
Multilateral
to c o m p l e m e n t the
the gross
r e p a t r i a t e d earnings, d i v i d e n d s , interest,
in p r i v a t e
i n flow of
roy a l t i e s
and fees
to this c o u n t r y from LDC's a m o u n t e d to $4.2 billion.
allowing for
inve s t m e n t outflows,
there was
E v e n after
still a n et i n flow
of $2.6 billion.
A s i d e f rom the e c o n o m i c r e asons
I have just outlined,
there
is a second r e a s o n w h y the f o r e i g n a s s i s t a n c e that we p r o v i d e
through the inter n a t i o n a l
in this y e a r ’s budget.
lending
i n s t i t u t i o n s has b e e n included
Such a s s i s t a n c e fits
overall f o r e i g n policy.
M o r eover,
we are n o w e n g a g e d
tions on i m p ortant m a t t e r s of i n t e r n a t i o n a l
national
finance.
in w i t h the P r e s i d e n t ' s
trade and
in n e g o t i a
inter
The q u e s t i o n of d e v e l o p m e n t a s s i s t a n c e
is
closely re l a t e d to and even i n t e r d e p e n d e n t w i t h these other
two questions.
cannot,
All
in m y view,
three are legs of the same stool.
expect
to a c h i e v e our o b j e c t i v e s
and finance u n l e s s we are w i l l i n g
We
in trade
to p r o v i d e our fair share
for economic development.
A f t e r why,
the seco n d m a j o r question,
provide f o r e i g n eco n o m i c assistance.
institutions?
The a n s w e r
Mr.
Chairman,
W h y u se m u l t i l a t e r a l
is that the i n t e r n a t i o n a l
are eff i c i e n t and effective.
is h ow to
i n s t i tutions
T h e y have b e e n o r g a n i z e d and op e r a t e d
4
as r e s p o n s i b l e
fin a n c i a l
i n s t i tutions.
T h e y sell
t h eir b o n d s
the m a r k e t p l a c e and they are d i s c i p l i n e d by the d e m a n d s
the m a r k e t place.
This discipline
is r e f l e c t e d
in
of
in g o o d o r g a n i
zation, m a n a g e m e n t and s t a f f i n g and h i g h q u a l i t y of analysis.
In m y judgment,
there
is a p l a c e for the m just as t h e r e
imp o r t a n t p l a c e for b i l a t e r a l
aid p r o g rams.
and b i l a t e r a l p r o g r a m s c o m p l e m e n t
There
U.S.
is also the f i n a n c i a l
a d v a n t a g e of b u r d e n - s h a r i n g .
w h a t we are aski n g y ou to a p p r o p r i a t e
i n c r e a s e d by p a i d - i n c o n t r i b u t i o n s
i n c e p t i o n of the
sharing
Thus,
industrial
Their
share
c o u n t r i e s w ho
c an c o n t r i b u t e
we get a g r e a t e r d e g r e e of b u rden-
than we w o u l d o t h e r w i s e get.
The p a i d - i n c a p ital
are also
these o t h e r d e v e l o p e d
their o wn b i l a t e r a l p r o g r a m s
t h r o u g h the Banks.
e l e m e n t of
of o t h e r d e v e l o p e d countries.
of $4.8 billion.
is s t e a d i l y i n c r e a s i n g a nd s m a l l e r
c o uld not m o u n t
important
today--are greatly
institutions,
c o u n t r i e s h ave p r o v i d e d a total
T he m u l t i l a t e r a l
eac h other.
Government paid-in contributions--an
Since the
is an
leveraged
contributions
to a g r eat
77 p e r c e n t of c a p i t a l
has come fro m p r i v a t e m a r k e t s
nea r m a r k e t rates.
p r i v a t e ca p i t a l
T his
Government
e x t e n t by the B a n k s ’ b o r r o w i n g s
in the w o r l d ’s p r i v a t e c a pital ma r k e t s .
of the Banks,
of the U.S.
S i nce
funds,
the establishment
or a total of $14 billi°
and has b e e n r e l e n t at m a r k e t or
represents
an e n o r m o u s m o b i l i z a t i o n of
for e c o n o m i c d e v e l o p m e n t p u r p o s e s
at no cost
5
to the U.S.
taxpayer.
Furthermore,
in r e c e n t y e a r s
a large
and g r o w i n g p e r c e n t a g e of these b o r r o w i n g s h a v e b e e n m a d e
W e s t e r n E u r o p e and Japan.
b o r r o w i n g s b y the
In fact,
international
during
the p a s t
factors
two y e a r s
institutions have taken place
almost e x c l u s i v e l y o u t s i d e the U n i t e d States.
official,
in
As a T r e a s u r y
I c o n s i d e r these b u d g e t a r y and f o r e i g n e x c h a n g e
i m p o r t a n t ones
Against
to keep
this b a c k g r o u n d ,
in mind.
let m e
t u r n n o w to the s p e c i f i c
pro p o s a l s b e f o r e y ou w h i c h a re s u m m a r i z e d
in this t a b l e by
institution.
FY 1974 B u d g e t a r y R e q u e s t s for the I n t e r n a t i o n a l
Financial Institutions
($ m i l l i o n s )
I nternational D e v e l o p m e n t A s s o c i a t i o n
Inter-American Development Bank
C a l l a b l e O r d i n a r y Ca p i t a l
Paid-In Ordinary Capital
Fund for S p e cial O p e r a t i o n s
$320
($168)
(
25)
Asian D e v e l o p m e n t Ban k
Special Funds
Callable Ordinary Capital
Paid-In Ordinary Capital
193
500
100
($
(
96.8)
24.2)
121
$1,234
New b u d g e t a u t h o r i t y s o ught
$320 m i l l i o n for the
this y e a r a m o u n t s
International
to $1.2 bi l l i o n :
Development Association;
m i llion for the Fund for S p e cial O p e r a t i o n s of the
Inter-American
Development B a n k and $193 m i l l i o n to its o r d i n a r y c a p i t a l
resources;
$100 m i l l i o n to the S p e c i a l
D evelopment B a n k and $121 m i l l i o n
$500
Funds of the A s i a n
to its o r d i n a r y capital.
6
A large p o r t i o n of this total
w h i c h funding was
relates
sought but not rec e i v e d
The amounts not funded u n d e r the fiscal
R e s o l u t i o n are:
to p r o g r a m s
in fiscal
for
1973.
1973 C o n t i n u i n g
$193 m i l l i o n for the O r d i n a r y C a pital of
the I n t e r - A m e r i c a n D e v e l o p m e n t Bank,
$225 m i l l i o n for the
Fund for Special O p e r a t i o n s and $100 m i l l i o n for the Special
Funds of the A s i a n D e v e l o p m e n t Bank.
outlays for fiscal
Projected budgetary
1974 a m ount to $548 m i l l i o n p r a c t i c a l l y
all of w h i c h stems from p r i o r yea r approp r i a t i o n .
T he
IDA c o n t r i b u t i o n of $320 m i l l i o n
of the third r e p l e n ishment.
came
into effect
The third r e p l e n i s h m e n t
its share of $960 million.
the U n i t e d States p aid
its first
U n der terms of the or i g i n a l
15,
agreement,
the
lending a f f i l i a t e of the
1972.
second t r a nche was
IDA is the c o n c e ssional
I n t e r n a t i o n a l B ank for R e c o n s t r u c t i o n
Its funds are u s e d to f i n a n c e d e v e l o p m e n t
p r o jects and p r o g r a m s on c o n c e s s i o n a l
of the d e v e l o p i n g c ountries,
i.e.,
including
10 y e ars grace,
t e r m s - - i n the p o o rest
those c o u n t r i e s w i t h annual
per c a p i t a incomes of $300 or below.
m a t u rity,
26,
1972.
As m e m b e r s of the C o m m i t t e e know,
and Deve l o p m e n t .
S h o rtly
tranche of $320
m i l l i o n u n d e r the C o n t i n u i n g R e s o l u t i o n of O c t o b e r
due on N o v e m b e r
f o r mally
in S e p t e m b e r 1972 w h e n the U n i t e d States
agreed to m a k e a v a i l a b l e
t h e r eafter
is the second tranche
Its terms are
50 years
and a s e r vice c h a r g e of
t h r e e - f o u r t h s of one p e r c e n t p e r annum.
As of 31 D e c e m b e r 1972,
7
it had m a d e total
c u m u l a t i v e c o m m i t m e n t s of $4,608 m i l l i o n
m a i n l y in a g r i c u l t u r e and transpo r t a t i o n .
In recent years,
has plac e d an i n c r easing em p h a s i s on education,
it
h o u s i n g and
related areas.
In its R e p o r t of M a y
on s u p p lemental
there is no
11,
1972,
appropriations
said "The m a n a g e r s
int e n t i o n of d e n ying
installments of $ 3 2 0 , 0 0 0 , 0 0 0
and that the first
the C o m m i t t e e of C o n f e r e n c e
e ach of the three annual
in the next
three fiscal years
i n s t a l l m e n t w ill be p r o v i d e d
year b e g i n n i n g J u l y
1,
1972."
agree that
I urg e
in the fiscal
this s u b c o m m i t t e e to
act p r o m p t l y in the spirit of that joint e x p l a n a t o r y statement.
T he
$193 m i l l i o n for the
O r d i n a r y Capital
the cu r r e n t
is part of the third and final
increase
amount rep r e s e n t s
I n t e r - A m e r i c a n D e v e l o p m e n t Bank's
in those resources.
however,
$168 m i l l i o n of this
cal l a b l e g u a r a n t e e capital and does not
constitute a b u d g e t a r y outlay.
It will,
t r a nche of
$25 m i l l i o n
is to the paid-in.
be p a i d in the form of n o n - i n t e r e s t - b e a r i n g
letters of cred i t and not c o n s t i t u t e a b u d g e t a r y o u t l a y in
fiscal 1974.
These
two amounts,
appro p r i a t e d by the C o n gress
as w ell
in fiscal
as the
$193 m i l l i o n
1 9 7 3 ’s C o n t i n u i n g
Resolution,
wil l be due u n d e r terms of the original
on Jun e 30,
1973.
The
funding
$500 m i l l i o n for FSO r e s o u r c e s r e p r e s e n t s
agreement
f u r ther
t o w a r d our $1 b i l l i o n c o n t r i b u t i o n to the c o n c e s s i o n a l
lending r e s o u r c e s of the
be p r o v i d e d
IDB.
in letter of c r e d i t
All of these funds wil l also
form to be d r a w n down later.
8
As a result,
Under
there will
be no b u d g e t a r y i m pact
in FY 1974.
the o r i g i n a l u n d e r s t a n d i n g b e t w e e n the U.S.
countries,
the U.S.
w o u l d hav e c o m p l e t e d
and L a t i n
the final
installment
of the $1 b i l l i o n c o n t r i b u t i o n by the end of fiscal
full a p p r o p r i a t i o n of this y e a r ' s
request,
b e e n p r o v i d e d b e f o r e the end of fiscal
r e q u e s t e d $500 m i l l i o n w ill
s t r e t c h - o u t of the U.S.
thus
21,
tion and p r i o r a p p r o p r i a t i o n ,
exhausted
part,
1974.
$353 m i l l i o n .
funds,
1972 u n d e r
Resolu
in r e s i d u a l
are n o w e x p e c t e d
if IDB c o n c e s s i o n a l
i n c l u d e d $20
the C o n t i n u i n g
and $56 m i l l i o n
however,
This
$275 m i l l i o n w h i c h we
in the final q u a r t e r of this year.
is n e e d e d
P r o v i s i o n of the
uncommitted hard currency r e
to the FSO w e r e
m a d e a v a i l a b l e on D e c e m b e r
These
$775 m i l l i o n w i l l have
c o n t r i b u t i o n to the FSO r e p l e n i s h m e n t .
m i l l i o n from the C a n a d i a n c o n t r i b u t i o n ,
resources.
Assuming
still r e p r e s e n t a c o n s i d e r a b l e
On J a n u a r y 1, of this year,
sources a v a i l a b l e
1973.
to be
A c t i o n on y o u r
l e n ding a c t i v i t y
is to
c o n t i n u e t h r o u g h this c a l e n d a r year.
T he first A s i a n D e v e l o p m e n t
m i l l i o n for Sp e c i a l
B a n k re q u e s t
Funds for c o n c e s s i o n a l
d e l e t e d e n t i r e l y for FY 1973 u n d e r
R e s o lution.
to m a k e
Thu s
several years.
Italy,
the U n i t e d
any funds a v a i l a b l e
although proposals
Canada,
far,
lending.
the terms
$100
It was
of the C o n t i n u i n g
S t a t e s has not b e e n able
to the B a n k for this p r o gram,
to do so hav e b e e n b e f o r e
the C o n g r e s s
O t h e r d e v e l o p e d n a t i o n s ,--the U n i t e d
Australia,
Belgium,
is for
N e w Zealand,
Netherlands,
No r w a y ,
for
Kingdom,
Germany,
F i n l a n d and J a p a n - - h a v e g one a h e a d to m a k e
o
- 9 m o r e t han $240 m i l l i o n a v a i l a b l e
to the B a n k on an ad hoc
b i l a t e r a l basis.
31,
As of D e c e m b e r
b e e n c o m m i t t e d on S p e cial
B a n k ’s S p e cial
Funds
Funds r e s o u r c e s
1972,
loans,
$201.5 m i l l i o n h ad
and the b a l a n c e of the
is e x p e c t e d
to be f u l l y c o m m i t t e d
by S e p t e m b e r of this year.
Under
Congress
the terms of a u t h o r i z i n g
in F e b r u a r y 1972,
tied to the p u r c h a s e
the funds
of goods
U.S.
suppliers will
p a s s e d by the
in this r e q u e s t are to be
and s e r v i c e s
be g i v e n to p r o j e c t s and p r o g r a m s
contribute,
legislation,
and p r i o r i t y
in S o u t h e a s t Asia.
remain
ineligible
is to
U n t i l we
for p r o c u r e
m ent from the c o n t r i b u t e d S p ecial
F und r e s o u r c e s of the Bank.
This
item has b e e n long delayed.
I urge
The other p o r t i o n of our A D B
request relates
in the O r d i n a r y C a pital
of the Bank,
r e s o u r c e s of the Bank.
w i t h the U.S.
1971 a u t h o r i z i n g
in the c a p ital
This wa s d o n e
orderly 10 p e r c e n t per a n n u m
lending of the B a n k over
enough m e m b e r s
in r e s o u r c e s
the y e a r s
had t a ken up t h eir
f o r m a l l y to com e
passed a
increase
to p e r m i t
1973-75.
shares
By N o v e m b e r
to p e r m i t
the
Authorizing
l e g i s l a t i o n for U.S.
shortly.
increase
reduced
that of o t h e r c o u n t r i e s
in the a b s e n c e of U.S.
submitted to the C o n g r e s s
1972,
W h e n this h a p p e n e d ,
the v o t i n g p o w e r of the U n i t e d S t a t e s w a s a u t o m a t i c a l l y
rose p r o p o r t i o n a l l y
an
in the o r d i n a r y c a p i t a l
into effect.
from 16 p e r c e n t to 8 p e r c e n t w h i l e
increase
Governors
a 150 p e r c e n t
in o r der
increase
to the
T he
Governor abstaining,
r e s o l u t i o n in N o v e m b e r
stock.
its p r o m p t passage.
participation.
p a r t i c i p a t i o n w i l l be
We are thus
testifying
today
10
-
on an a p p r o p r i a t i o n r e q uest that will be for later t r a n s m i t t a l
A s s u m i n g approval
value,
of the p r o p o s e d
l e g i s l a t i o n on c h a n g e of par
the total a u t h o r i z a t i o n w o u l d be for $362 million.
this amount,
80 p e r c e n t or $289 m i l l i o n w o u l d be ca l l a b l e
gu a r a n t e e capital
The r e m a i n i n g
and not c o n s t i t u t e an actual b u d g e t a r y outlay.
20 percent,
a t h r e e - y e a r period,
interest-bearing
$72.4 million,
40 p e r c e n t
N e w b u d g e t a u t h o r i t y b e ing r e q u e s t e d
is limited to $9.6 million.
position
in non-
to be d r awn dow n later as
1974 w o u l d be $121 million.
in order to p e r m i t
w o u l d be p a i d - i n over
in c ash and 60 p e r c e n t
letters of c r edit
need e d for d i s b u rsement.
for fiscal
Of
This
FY 1974 b u d g e t a r y
impact
a p p r o p r i a t i o n should go forward
the U n i t e d States
to r e gain
its o r i ginal
equity
in the Bank.
Tha t c o m p l e t e s m y r e v i e w of the specific
requested.
am o u n t s being
I w o u l d like to turn n o w to some m a t t e r s
result in futu r e a p p r o p r i a t i o n s
requests.
that m a y
Over the past year,
T r e a s u r y has sought to find b e t t e r ways of c o n s u l t i n g w i t h the
Congress
in a d v a n c e of formal a p p r o p r i a t i o n s
as s p e c i f i c a l l y r e q u e s t e d by this committee,
c o m m i t m e n t s are en t e r e d
It is in this
committee,
briefings.
Mr.
r e q uests
no n e w international
into w i t h o u t y our full p r i o r knowledge.
spirit that we have kept the Co n g r e s s
Chairman,
N o w I wan t
so that,
infor m e d by letter and by
to summarize,
record, w h e r e we stand on two
and y our
informal
f o r m a l l y and for the
important
i s s u es--a f o u r t h
r e p l e n i s h m e n t of IDA and the r e s t r u c t u r i n g and r e p l e n i s h m e n t
of A D B S p e cial
First,
Funds.
w i t h r e g a r d to IDA IV, as
to yo u of M a r c h 6, a m e e t i n g
of Part
I in d i c a t e d
in m y letter
I c o u n t r i e s was held on
11
M a r c h 13,
in London.
O t h e r d e v e l o p e d n a t i o n s are n o w c l e a r l y
ready to go a h ead w i t h a n e w r o und of c o n t r i b u t i o n s
IDA lending
to c o n t i n u e
in FY 1975 and beyond.
the U n i t e d States has p l a y e d a p a s s i v e role,
to p e r m i t
T hus
far,
i n f o rming others
that until c o n s u l t a t i o n s w e r e h e l d w i t h our Congress,
not be in a p o s i t i o n to discuss
consensus has d e v e l o p e d among
amounts.
the basis of our existing p e r c e n t a g e
in FY 1976.
Nonetheless,
a broad
the o t her d e v e l o p e d n a t i o n s on a
three-year p a y - i n p r o g r a m at an annual
annual U.S.
we w o u l d
rate of $1.5 billion.
rate,
On
this w o u l d m e a n an
c o n t r i b u t i o n of $600 m i l l i o n for three y e ars b e g i n n i n g
However,
large r e d u c t i o n
we have also m a d e
in our p e r c e n t a g e
it clear that a v e r y
share
is n e c e s s a r y for our
p a r t i c i p a t i o n in v i e w of our serious b a l a n c e of p a y m e n t s
situation.
Mr.
Chairman,
you y o u r s e l f have p o i n t e d out the n e c e s s i t y
for c o n s u l t a t i o n s on these m a t t e r s w i t h the A p p r o p r i a t i o n s
Committees.
T h e T r e a s u r y D e p a r t m e n t w a nts
to have the b e n e f i t
of your C o m m i t t e e ' s ge n e r a l v i ews on amounts b e f o r e c o n t i n u i n g
further w i t h the n egotiations.
The next m e e t i n g on this m a t t e r w i l l be h e l d
May.
We w o u l d welcome,
members of this
Mr.
Chairman,
in T o kyo
in
the p a r t i c i p a t i o n of
s u b - c o m m i t t e e as m e m b e r s
of the U.S.
delegation
to that meeting.
As we hav e e x p l a i n e d in the past,
b e c a u s e of the n u m b e r
of nations
involved,
we n e e d quite a long lead time.
would hope
that n e g o t i a t i o n s c o uld go f o r w a r d
We
in time for
submission to l e g i s l a t u r e s by the end of the year.
12
A m e e t i n g was also h e l d in M a r c h on a p r o p o s a l
r e s t r u c t u r e and r e p l e n i s h the S p e c i a l
the A s i a n D e v e l o p m e n t Bank.
As
Funds r e s o u r c e s
I indicated
in m y
this was a f o l l o w - o n to a p r e l i m i n a r y m e e t i n g
d e v e l o p e d m e m b e r c o u n t r i e s h e l d on this
1972,
at the time of the
of funds,
to r e p l a c e the p r e s e n t
the same.
The
IDA m o d e l but
contribu
At b o t h m e e t i n g s ,
We c o u l d n ot n o w m o v e b e y o n d
in p r i n c i p l e of the c o n c e p t of the Fund,
funds
in S e p t e m b e r
s y s t e m of b i l a t e r a l
tions m a d e on an u n s c h e d u l e d basis.
p o s i t i o n w as
of A D B
subject
on the
of
letter,
IMF/IBRD annual meetings.
p r o p o s a l w o u l d c r e a t e a pool
smaller,
to
that
is,
the U.
S.
acceptance
that
ideally
shou l d be m a d e a v a i l a b l e on a m u l t i l a t e r a l l y - n e g o t i a t e d
b a sis and be a v a i l a b l e for u se u n d e r c o m m o n terms
In taking
this position,
States was
experiencing
it was
serious
emphasized
that
and conditions.
the U n i t e d
t r a d e and b a l a n c e of p a y m e n t s
p r o b l e m s w h i c h w o u l d a f f e c t our a b i l i t y
to p r o v i d e
funds
on
an u n t i e d basis.
In o r der
m a d e our
to a c c o m m o d a t e to the fact
initial c o n t r i b u t i o n of $100 m i l l i o n to S p e c i a l
other developed members
are n o w c o n s i d e r i n g
lau n c h i n g and c o n t r i b u t i n g
stages,
that we h a v e n o t yet
representing
re s p e c t i v e l y .
Under
a nd o n e - t h i r d of the
this approach,
the
and services.
stage,
could
a p p r o a c h w o u l d also
a f u r t h e r U.S.
total,
s e r v e as our share
stage and c o u l d be tied to p r o c u r e m e n t
This
in two
$100 m i l l i o n contribution,
p r e s e n t l y a u t h o r i z e d but not a p p r o p r i a t e d ,
of the first
the p o s s i b i l i t y of
to this n e w fun d s t r u c t u r e
two-thirds
Funds,
imply,
of U.S.
in the
c o n t r i b u t i o n of $50 m i l l i o n .
goods
second
Since
the
- 13
o v e rall
a m o u n t b e ing d i s c u s s e d
-
is $525 m i l l i o n ,
our
the t w o - s t a g e a r r a n g e m e n t w o u l d be a p p r o x i m a t e l y
the total.
As y o u recall,
$240 mil l i o n ,
28 p e r c e n t of
o t hers h a v e a l r e a d y p a i d
in m o r e
tha n
w h i c h w o u l d n ot c o u n t as p a r t of the n e w p r o p o s a l
a l t h o u g h our initial c o n t r i b u t i o n would.
I also n e e d an e x p r e s s i o n
of y o u r v i e w s b e f o r e we c a n p r o c e e d f u r t h e r a l o n g
T he final p a r t of m y s tatement,
two report s
share u n d e r
Mr.
this
Chairman,
line.
deals with
r e l e a s e d by the G e n e r a l A c c o u n t i n g Office:
on T r e a s u r y ' s m a n a g e m e n t of U.S.
A m e r i c a n D e v e l o p m e n t Bank,
our p a r t i c i p a t i o n
participation
dated August
22,
in the W o r l d B a n k a nd
in the
1972;
IDA,
the
the first
Inters e c o n d on
dated February
14,
1973.
As
indicated,
b o t h in the a n n e x of the report,
any in m y t e s t i m o n y b e f o r e Mr.
Fascell
last
fall,
a c c epted and i m p l e m e n t e d the r e c o m m e n d a t i o n s
However,
we v e r y s t r o n g l y d i s a g r e e d w i t h
critical
tone.
judgment,
T r e a s u r y has
of the
IDB report.
its o v e r a l l h i g h l y
We t h ink that T r e a s u r y has
system for m a n a g i n g U.S.
itself,
a g o o d a nd
p a r t i c i p a t i o n in the Bank.
improving
In m y
the GAO r e p o r t did not take a d e q u a t e a c c o u n t of
p r o gress a c h i e v e d by T r e a s u r y and the B a n k
itself.
of our i m p l e m e n t a t i o n of the r e c o m m e n d a t i o n s
a separ a t e r e p o r t
I am n o w s u b m i t t i n g
The details
are c o n t a i n e d
in
for the record.
T h e GAO R e p o r t on our p a r t i c i p a t i o n in the W o r l d B a n k and
IDA has a n u m b e r of r e c o m m e n d a t i o n s w h i c h are
in the
IDB Report.
We are n o w c o m p l e t i n g
identical
our f o rmal
to those
response
to
14
the G o v e r n m e n t O p e r a t i o n s C o m m i t t e e s of the H o u s e and the Senate
We will
also r e port to this C o m m i t t e e on our p r o g r e s s
menting
these r e c o m m e n d a t i o n s
as well.
in i m p l e
SUMMARY OF TREASURY DEPARTMENT ACTIONS TO
IMPLEMENT GAO RECOMMENDATIONS
U.S. System for Appraising and Evaluating Inter-American
Development Bank Projects and Activities
The Treasu ry Department's complete response to the Report
is
CO
ntained in an annex of th e Report, itself, and in Assistant
Sec retary Henne ssy's testimony before a subcommittee of the House
For eign Affairs Committee on September 22, 1972.
Although the
Dep ar tment has accepted all of the recommendations which were
mad e, we very strongly disagre e with the over-all highly critiWe co ntinue to think that we have
cal tone of the Report.
developed a goo d and improving system for managing U.S. participat ion in the Bank.
In our judgment, the GAO Report has not
taken adequate account of prog ress achieved by the Treasury
Depar tment and the Bank, itsel f .
The GAO's major recommend ations were:
1, Recommendation;
The United States sho uld sort out the recommendations
of the Group of Controllers it wishes to support and vigorously
pursue their acceptance and re commendation.
Action:
The U.S. Government h as adopted and supported firm
positions on all the recommend ations in the three Controller
Group Reports acted upon by th e IDB Board of Executive Directors.
The Board, with- the support of the United States, has taken actio
on all the recommendations in those reports.
Implementation of
-
2
-
the Board's decisions is being pressed.
At the initiative of
the United States, a deadline has been established for receipt
of the Bank management's comments on reports submitted by the
Group, and a system of semi-annual reports on progress made
toward implementation of recommendations has been set up. The
first of these reports is due on June 30, 1973.
Two other Controller Group Reports have been released
very recently and are under study and review within the U.S.
Government.
These two Reports are: Reporting Systems (December
1972) and Preinvestment Studies (January 1973).
2. Recommendation:
The United States should arrange for
the development of instructions that stipulate the desired
depth and parameters of the U.S. process for appraising proposed
projects to guide U.S. officials and technicians in making
their appraisals.
These instructions should include a clear
statement of policy regarding the appraisal of the economic
and technical aspects of the projects.
Action:
Instructions and guidelines for appraisal of loan
proposals have always existed within the U.S. Government.
What has not heretofore existed is their formal codification.
A preliminary edition of this formal codification has, how
ever, been issued this month.
It is available to officials
and technicians in the five NAC agencies.
It now contains
nearly 50 pages of detailed information relating to loan pro
posal documentation, project criteria, special policy criteria*
-3and country performance criteria.
It can be expanded and
modified to accommodate additional requirements or changes
in policy.
3. Recommendation: The United States should arrange
for followup on the U.S. positions with respect to specific
loan proposals to determine the extent to which they have been
accepted in the implementation of the project.
Provision also
should be made for the feedback of results to those officials
and technicians participating in the appraisal process for
use in subsequent appraisals.
Action:
Followup action has always been taken on U.S. positions
on specific loan proposals.
basis.
It is now being done on a formalized
The U.S. Executive Director’s Office at the IDB reports
regularly both verbally and in writing to members of the NAC
Staff Committee on points
they have raised.
These reports
are now incorporated into the Minutes of meetings.
In addition,
a new reporting requirement has been added to the Combined
Economic Reporting Program (CERP).
It requires reports from
U.S, personnel in the field on IFI-financed projects and on
project proposals which may be submitted to the IFI’s in the
Revision of this requirement will be made as necessary
to assure an adequate flow of information back to Washington.
4.
Recommendation:
The United States should take thh
necessary steps to develop, and get agreement among member
countries on firm and sustainable criteria for eligibility
for IDB lending.
Such criteria, although based predominantly
on the economic performance of recipient countries, should
also provide for such things as guidelines on access to re
sources of FSO by more developed countries and recognize the
need for value judgments in certain individual cases.
Action:
Economic performance of recipient countries has
always been considered by the Bank.
This is done through annual
economic reviews conducted under aegis of the CIAP.
Reviews
are attended by representatives from the IMF, IBRD, IDB, arid
USAID.
In two instances, the IDB has halted lending activity
for extended periods of time because of inadequate economic
performance.
In July, 1972, the Board of Directors of the IDB received
a management plan to phase down access to FSO resources by
relatively more advanced recipient countries.
This phase^down
will take place over a three-year period in 1972-5 and reduce
the share of the four largest countries from 40 percent to 20
percent.
This was a course of action earlier urged by the
U.S. Government.
ll
DepartmentoftheTREASURY
WASHINGTON, D C 20220
TELEPHONE W04-2041
April 5, 1973
M E M O R A N D U M T O THE PRESS:
The T r e a s u r y Department responded today to questions that
have aris e n as to the intent of the T r e a s u r y fs news release
issued on M a r c h 8, 1973, con c e r n i n g the method of c o m p uting bond
yield under the proposed arbitrage bond regulations.
The M a r c h 8, 1973, release is directed to situations where
yield on governmental obligations and acquired obligations,
when computed under the I BA or "bond-year" method, is
significantly distorted in c o m p a r i s o n w i t h true, actuarial
yield b y the use of "deep" discounts or other devices specified
in the release.
The release provides that in such situations
the IBA method m a y not be relied u p o n and that yields are to be
computed b y use of the actuarial method.
In response to inquiries as to the extent to w h i c h
computation under the I B A method m a y be disregarded, Tr e a s u r y
said that where there is c o m p liance w i t h the arbitrage bond
provisions w h e n yields are computed on the actuarial method, the
issuer need not make, and m a y disregard, computations under the
less accurat e I BA method.
T r e a s u r y has also received inquiries as to w h e t h e r the
release is applicable w h ere k n o wledge of its issuance was
obtained by an issuer after bids had b e e n accepted but the
obligations of the parties w ere reversible in the event of
failure to receive an opinion of counsel that interest on the
governmental obligations was tax exempt.
It was the intent of
Treasury that counsel in those transactions could not disregard
the existence of arbitrage under an accurate c o m p u t a t i o n once
such distortions in yield had b e e n p u b l i c l y called to their
attention and, accordingly, that the release w o uld apply and the
governmental obligations would be taxable unless the yield
computation requirements of the release were satisfied. Tr e a s u r y
has c o n s i s t e n t l y so advised persons w h o inquired as to the
relationship b e t w e e n the release and c o u n s e l fs opinion.
Nevertheless, there m a y have b e e n some basis for reaching a
contrary conclusion, p a r t i c u l a r l y since the release did not
specifically cover the point.
Therefore, if such a transaction
has now bee n c l osed w i t h o u t s a t i sfying the requirements of the
release, p u r s u a n t to an opinion of counsel rendered in good faith,
Treasury stated that the tran s a c t i o n will n o t be disturbed.
S-163
o0 °
Departmentof
(WASHINGTON, D.C. 20220
F OR R E L E A S E AT
^T
TELEPHONE W04-2041
2 P.M.
APRIL
m,w
5, 1973
TEXT OF S E C R E T A R Y OF THE T R E A S U R Y GEORGE P. S H U L T Z ’S
R E M ARKS T O D A Y BEFO R E THE
S U B C O M M I T T E E ON P R O D U C T I O N A N D S T A B I L I Z A T I O N
OF THE
SENATE C O M M I T T E E ON
BANKING, H O U S I N G A N D U R B A N A F F A I R S
The s e r i o u s n e s s of the food p r o b l e m is u n d e r s c o r e d b y the
price dat a r e l e a s e d this morning, w h i c h show e d w h o l e s a l e prices
of farm p r o d u c t s and p r o c e s s e d foods r i sing sh a r p l y from F e b r u a r y
to March.
As y o u know, one w e e k ago the P r e s i d e n t a n n o u n c e d the
imp o s i t i o n of ce i l i n g p r i c e s on red meats.
I w i l l first
describe this a c t i o n and its b a c k g r o u n d , and then m ove on to
a r e v i e w of the o t h e r a g r i c u l t u r a l p o l i c y changes that we have
made in an effort to increase the supply of foodstuffs and to
check risi n g food prices.
Reta i l food p r ices i n c r e a s e d by 5 p e r c e n t in 1972 -somewhat mor e r a p i d l y than other co n s u m e r pric e s -- and then
moved s h a r p l y h i g h e r in e a rly 1973 -- 4.7 p e r c e n t in J a n u a r y
and F e b r u a r y alone.
This spurt was led b y p r ices of red meats,
w h i c h w e n t up 10.4 p e r c e n t in the first two mont h s of 1973.
This rise in food p r i c e s generally, and in red meats s p e c i fic ally,
is the result of a sharp increase in d e m a n d d u ring 1972 and e a rly
1973 while, at the same time, supplies have not increased.
The c e i lings im p o s e d last w e e k a p ply to beef, pork, and
lamb p r o d u c t s sold at the retail, who l e s a l e , and p a c k e r levels.
The ceilings do not a p ply to animals on t h e hoof; we feel it is
vitally i m p o r t a n t not to impede the b u i l d - u p of l i v e s t o c k herds
now u n d e r way.
This b u i l d - u p w i l l b r i n g in c r e a s e d mea t s u p p l i e s ^
and lower p r i c e s -- later in 1973 and in 1974.
In the meantime,
the ceilings, w h i c h are of ind e f i n i t e d u r a t i o n (though b y no means
p e r m a n e n t ) , are i n t e n d e d to p r e v e n t any further rise in red meat
prices f r o m t a k i n g place, w h i l e i n c r e a s e d supplies come into
better b a l a n c e w i t h demand.
S - 161
over
2
In response to market forces, farmers are increasing their
plantings of crops and building up their livestock herds.
In addition, starting last June but mostly in December and
January, the agricultural policies of the Federal Government
have been adjusted sharply and comprehensively to insure
that this increase in supplies takes place as quickly as
possible.
o
Set-aside acreage of cropland has been reduced
by about 50 million acres to permit greater
production of grains0
o
Government-owned stocks of grains are being soldo
o
All Government loans on farm-stored grains are
being terminated.
o
Meat import quotas, which were first suspended
in June 1972, have been suspended for all of 1973o
Thus far in 1973, meat imports are up 20 percent
compared with the same period last year.
.
President Nixon announced last week that he would
ask the Congress for legislation to suspend the
tariffs on red meatsc
.
Additional imports of nonfat, dried milk have
been permitted, and the Tariff Commission is
currently investigating the possibility of
raising cheese import quotas by 50 percent0
.
All direct export subsidies on agricultural
products have been ended0
These and other actions should bring forth an enlarged
supply of food products. In all but a few cases, the
impact of these actions is still ahead of us. However, a
review of changes in some key farm and food prices at
wholesale since mid-March, when the wholesale price data
were collected, shows some further increases but also some
declines. For example, cattle prices are down about
4 percent. On balance, the pattern thus far suggests a
leveling off in farm prices for this month.
oOo
Departmentof theJREA SU RY
|SHINGTON, D . C 20220
TELEPHONE W04-2041
iI mm ■ ■ ■ m i I■ ■ ■
wm 11.i
FOR RELEASE ON DELIVERY
STATEMENT BY REUBEN STERNFELD
ALTERNATE U.S. EXECUTIVE DIRECTOR
INTER-AMERICAN DEVELOPMENT BANK
BEFORE THE FOREIGN OPERATIONS SUBCOMMITTEE
OF THE APPROPRIATIONS COMMITTEE OF THE
HOUSE OF REPRESENTATIVES
THURSDAY, APRIL 5, 1973
AT 1:00 P.M.
Mr. Chairman:
I
would like to present to the Committee a summary of
the record of the Inter-American Development Bank since my
appearance last year.
This summary includes the lending
activities of the Bank as well as what has been done to
strengthen and improve its operations.
taken
It also details actions
in response to suggestions and recommendations on in
creasing the effectiveness of U.S. participation in the Bank.
For calendar year 1972, the Inter-American Development
Bank committed a total of US$807 million for loans in various
currencies.
This represented 52 loans to foster Latin America’s
development and is a record figure for the Bank's lending in
any one year.
It has pushed the Bank’s cumulative lending level
to US$5.4 billion (719 loans).
I am sure, however, that you
recognize the Bank’s loans are only one part of the story.
The projects financed with these loans have a total value of
US$16 billion.
As one can appreciate from these figures, the
Bank’s role as a catalyst for other development investment
financed from both private and public sources is important in
our hemisphere
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In specific terms, concrete results from lending to
this point can be summarized as follows:
1. 6.0 million acres have been brought into new or
accelerated production;
2. 20,000 miles of main highways and farmer-to-market
roads have been built or improved;
3. 2.7 million kilowatts of new electric generating
capacity has been installed.
4. 628 universities and schools have been helped by IDB loans.
5. Nearly 320,000 housing units with community facilities
have been constructed.
6. 3,945 water supply and sewerage systems have been put
in operation.
7. 5,097 small entrepreneurs have been helped through
the Bank’s intermediate credit program.
Of the US$807 million total 1972 lending, US$344 million
was authorized from the resources of the Fund for Special
Operations and US$443 million was authorized from
Capital.
Ordinary
In addition, US$20 million was committed from special
funds entrusted to the Bank by certain non-member countries.
Several additional statistics will be of interest: during
1972, disbursements against outstanding Bank loans increased
to a level of US$479 million, repayments of principal reached
-3US$147 million —
again the highest level in the Bank’s
history -- and were all current with two exceptions of
private borrowers in Brazil and Chile, who were delinquent
in amortization and interest payments.
The
Bank continues
to pursue its interest in these cases and is confident that
there will be recovery.
Borrowings on the capital markets in Japan and Europe
were US$141 million in new funds.
Thus, for the second con
secutive year the Bank was able to obtain needed funds without
recourse to the U.S. capital market.
In total, 58 percent of IDB
borrowings have been placed in markets outside the United States.
I am attaching a table which shows the distribution of the
Bank loans by sector for the year 1972, and for the 11 years
of the Bank’s life, as well as a table on the undisbursed
balances of approved loans.
It is heartening to be able to report the above progress
in lending activity and mobilization of resources for development.
It is also gratifying to be able to report improvements and new
departures in the Bank’s approach to the allocation of its
resources to the development problems of Latin America in the
context of the 1970’s.
From time of its establishment, the Bank has exercised
leadership in making loans for projects and programs designed
to reach the economic and social problems of the low income
people of Latin America.
Progressively, the Bank has evplved
-4new techniques and approaches to meet the circumstances as
they exist.
The heavy emphasis on agriculture in the Bank
portfolio is one measure of this; the number of projects
in potable water and education is another expression of this
concern.
During 1972, we continued along these lines with
additional loans for small farmer credit, rural potable water
and small irrigation systems.
The Bank has also been able
to evolve new approaches to the serious problems of urban
development in the region and to promote further regional
economic integration, as reflected in a 1972 loan from Ordinary
Capital for US$80 million to finance a $432 million integrated
hydroelectric power plant being built jointly by Argentina and
Uruguay -- the most important economic integration project ever
undertaken by the Bank.
During the past year, the Bank has made significant
progress in reevaluating and realigning its organization policies|
and procedures to adjust them to the realities of current needs
and circumstances.
In July of 1972, the Bank put into effect
a significant new policy designed to allocate a progressively
increasing share of its soft resources to relatively less
developed member countries.
Correspondingly, the Bank is phasing
down its soft loan support to the larger and relatively advanced
member countries.
As part of this policy, the Bank established
-5
a category of relatively less developed countries which
includes nine of its 24 members.
Forty-nine percent of
FSO loans were allocated to these nine countries in 1972,
compared with an average of 23 percent in the yeais 1966-1967.
The goal for 1973 and future years is to continue to assign
higher proportions of the Bank’s soft resources to these rela
tively less developed countries.
This has the effect of using
scarce soft loan resources where they are most needed, and
allocating the more costly resources to those countries in
relatively better economic condition.
Another major change in FSO policy will have its effect
beginning this year when loans made from the new FSO resources
will be required to be repaid in the currencies lent.
This
replaces the former policy of allowing most borrowers the
option of repaying either in local currencies or in dollars.
Significant actions are underway to implement the organiza
tional changes recommended by a major U.S. management consulting
firm. Fundamental procedural changes are also being made to
further improve the control and quality of Bank operations.
Some of the reforms include: (1) removing the technical project
preparation and appraisal function from supervision by officers
making loans.
This independence enhances the importance of
technical and engineering judgments in project development and
execution, particularly in the analysis of the feasibility and
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efficiency of a project, (2) Combining in one office and on
a geographic basis, the overall responsibility for loan
preparation and administration until completion of a project.
This change will clarly pin-point responsibility for operations.
(3) Establishing a special group of top Management to function
as a Loan and Technical Assistance review and evaluation com
mittee.
The committee now regularly screens out loan requests
when initial applications are submitted.
It also reviews all
projects before they are considered by the Board and rejects
those not ready for Board action.
In the area of management control, there have been also
some important changes.
A controller (a Canadian citizen)
has been named with broad responsibility to assure that the
Bank's activities are consistent with policies, programs,
procedures and directives.
As noted by the GAO, the Board
of Executive Directors' Group of Controllers is now presenting
greatly improved reports with specific actions recommended
for the Board and Management.
A follow-up system has been
established to see that recommendations accepted are carried
out.
In addition, the Bank is combining all procedures in an
organized manual system and setting up a master plan for com
puter use.
In this connection, I also want to note that with
a major increase in level and complexity of operations, the
1972 Administrative expenses were only 2.9% above those for
1971, and no increase in authorized staff positions has been
approved by the Board for 1973.
I don't mean to say that the entire job of management
improvement has been accomplished.
There continues to be a
need for further organizational tightening, for improvement
in the operations of the Field Offices and for strengthening
of the management and information systems.
However, I am satis
fied that the Bank will pursue these and additional areas
of economy and efficiency in the coming year.
The GAO has issued two reports relating to
American Development Bank.
.the Inter-
The first, an evaluation of the
early work of the Group of Controllers and the second on the
effectiveness of U.S. participation in the IDB.
As I just
indicated, the work of the Group of Controllers has benefitted
from the views of the GAO and there have been major improvements
The GAO is currently making an assessment of their most recent
reports .
With regard to GAO views on U.S. participation in the
Bank in general, we have accepted their recommendations. The
GAO recommended that the U.S. should support the work of the
Group of Controllers.
This is being done.
have been prepared by the Group.
To date, 5 reports
Of these, 3 have been studied
hy the U.S. and action has been taken by the Board of Directors.
The remaining two reports were only recently completed, and
they are presently undergoing detailed study by U.S. agencies,
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and will shortly go to the Board for formal action.
In
addition, at U.S. initiative, the Board has requested Bank
management to report twice a year on the steps taken to im
plement the Board decisions on Controller Group recommendations
on all reports.
The first implementation report is due
June 30, 1973.
In closing, I would like to refer to the list of project
proposals as of December 31, 1972 totalling $1.4 billion, which
has been made available to the Subcommittee and which the
Bank staff is reviewing.
It is from this list and additional
applications which may come in during the year that loans will
be approved by the Board of Executive Directors.
rejected.
Some will be
A good number will be altered in the process of
review and evaluation, but this list provides the bulk of the
work of the Bank in this year, depending on the availability of
funds including the sums we are requesting today.
INTER-AMERICAN DEVELOPMENT BANK
D I S T R I B U T I O N OF L O A N S BY S E C T O R
Sector
1961-72
1972
of
dollars)
(In m i l l i o n s
$130
$1,283
Electric Power
233
973
Transportation & Communications
124
951
I n d u s t r y an d M i n i n g
160
813
W a t e r and S e w a g e Systems
61
595
Urban Development
44
402
Education
29
197
9
100
16
91
1
35
$807
$5,541
Agriculture
Preinvestment
Export Financing
Tourism
TOTAL
UNDISBURSED BALANCES OF APPROVED LOANS 1/
(as of December 31 of each year)
in Millions of U.S. Dollars
ORDINARY CAPITAL
Dollars and other
Latin American
Hard Currencies
Currencies
1/ >
TOTAL
FUND FOR SPECIAL OPERATIONS
Latin American
TOTAL
Dollars
Currencies
TOT/LS
1961
90.0
33.2
123.2
43.4
2.1
45.5
168.7
1962
146.3
28.2
174.5
66.8
10.1
76.9
251.4
1963
249.8
J
/9 J
287.3
78.3
16.7
95.0
382.3
1964
284.1
56.0
340.1
98.5
21.2
119.7
459.8
1965
321.7
44.1
365.8
241.0
45.5
286.5
652.3
1966
325.4
38.2
363.6
428.8
103.6
532.4
896.0
1967
362.5
36.8
399.3
618.5
154.9
773.4
1,172.7
1968
433.7
32.7
466.4
689.4
165.8
855.2
1,321.6
1969
515.8
23.7
539.5
827.8
246.8
1,074.6
1,614.1
1970
552.1
30.2
582.3
943.5
326.6
1,270.1
1,852.4
1971
618.1
43.4
661.5
1,026.4
377.9
1,404.3
1972
810.1
61.9
872.0
1,032.0
375.9
1,407.9
2,065.8
~— &
2,279.9
Does not include uncommitted balances, nor undisbursed balances of loan participations sold.
Departmentof theTREASURY
OFFICE OF REVENUE SHARING
WASHINGTON, O.C. 20220
New telephone No, 634-5191
FOR RELEASE AT 10 ;00 A„M0. EST
FRIDAY, APRIL 6, 1973
GENERAL REVENUE SHARING CHECKS
MAILED TO 36,500 STATE AND LOCAL GOVERNMENTS
G r a h a m W., Watt, D i r e c t o r o f the T r e a s u r y D e p a r t m e n t s
O f f i c e of R e v e n u e Sharing, a n n o u n c e d today the m a i l i n g of
the first 1973 g e n e r a l re v e n u e sharing p a y m e n t s to m o r e tha n
36,000 el i g i b l e State and local g o v e r n m e n t s 0
T he c h e c k s m a i l e d today d i r e c t l y to 36,492 g o v e r n m e n t s
r e p r e s e n t p a y m e n t for the first t h ree m o n t h s of 1973 and
total $1,482,001,010c
A n equal amount w i l l be d i s t r i b u t e d
in early July*
M r c W a t t stated that the two checks c o v e r i n g
the first h a l f of 1973 w i l l h a v e no p e r c e n t a g e w i t h h e l d for
r e s e r v e for future a d j u s t m e n t s as h a s b e e n done in the two
p r e v i o u s g e n e r a l r e v e n u e sharing p a y m e n t s for c a l e n d a r yea r
1972 c
"I n the last four months, the t r e a s u r i e s of State and
local g o v e r n m e n t s h a v e b e e n e n r i c h e d by about $6»6 b i l l i o n
of g e n e r a l r e v e n u e s h a ring funds," W a t t n o t e d 0 " R e v e n u e
sharing is the k e y s t o n e of P r e s i d e n t N i x o n * s n e w F e d e r a l i s m
w h i c h p u t s r e s o u r c e s in the states and citi e s w h e r e the
r e s p o n s i b i l i t y for d e c i s i o n m a k i n g c a n b e s t be e x e r c i s e d 0"
Since the last p a y m e n t w h i c h w as m a d e in early January,
each r e c i p i e n t g o v e r n m e n t h a s p r o v i d e d the T r e a s u r y D e p a r t
m e n t w i t h w r i t t e n a s s u r a n c e of c o m p l i a n c e w i t h the r e q u i r e
m e n t s of the State a nd L o c a l Fisc a l A s s i s t a n c e A c t of 19720
The A c t r e q u i r e s these a s s u r a n c e s signed b y the g o v e r n o r or
c h i e f e x e c u t i v e o f f i c e r as a c o n d i t i o n of c o n t i n u e d
e l i g i b i l i t y to p a r t i c i p a t e in the g e n e r a l r e v e n u e sharing
program,
L e s s t h a n 1,500 g o v e r n m e n t s h a v e n ot yet responded,
and t h e i r p a y m e n t s a r e b e i n g w i t h h e l d u n t i l the y h a v e complied.
over
2
Those governments which appealed the data elements used
to compute previous entitlements and whose appeals have been
accepted by the Treasury Department have been notified of
this action© Any changes in data elements which have occurred
because of this verification procedure have been used in
calculating the current entitlement payment. Any adjustments
to be made in previous payments as a result of these data
corrections will be accomplished in the next entitlement
period which begins July 1©
New regulations to be filed with the Federal Register
this week will apply to the use of the funds being distributed
today© These regulations replace interim regulations first
issued by the Office of Revenue Sharing to cover the payments
for 1972.
oOo
i
1
DepartmentoftheTREA$llRY
HINGTON, D C. 20220
TELEPHONE W04-2041
F O R IMM E D I A T E RE L E A S E
A p r i l 6, 1973
H E L M U T S O N N E N F E L D T N O M I N A T E D TO BE
U N D E R S E C R E T A R Y O F THE T R E A S U R Y
H e l m u t S o n n enfeldt, n o m i n a t e d by P r e s i d e n t N i x o n today
to be U n der S e c r e t a r y of the Treasury, will be a p r i n c i p a l
a d v i s e r to T r e a s u r y S e c r e t a r y G e o r g e P. Shultz in the
S e c r e t a r y ' s c a p a c i t y as C h a i r m a n of the E a s t - W e s t T r a d e
P o l i c y C o m m i t t e e and C h a i r m a n of the U n i t e d Stat e s section
of the J o i n t U . S . - U.S.S.R. C o m m e r c i a l C ommission.
Mr.
S o n n e n f e l d t w ill be C h a i r m a n of a w o r k i n g g r o u p of the
E a s t - W e s t T r a d e P o l i c y C o m m i t t e e w i t h r e p r e s e n t a t i o n from
the a g e n c i e s on the C o m m ittee.
He w i l l a lso be a senior
a d v i s e r to the S e c r e t a r y on as p e c t s of U.S. f o r e i g n e c o n
omic p o l i c y that r e l a t e to i n t e r n a t i o n a l s e c u r i t y and
p o l i t i c a l interests.
Mr. S o n n e n f e l d t s u c ceeds E d w i n S. Cohen, w h o r e s i g n e d
as U n d e r S e c r e t a r y in J a n u a r y to r e t u r n to p r i v a t e life.
S i nce J a n u a r y 1969, Mr. Sonn e n f e l d t , 46, has b e e n a
Senior Staff M e m b e r of the N a t i o n a l S e c u r i t y C o u n c i l Staff
for E u r o p e and E a s t - W e s t relations.
In t h a t p o s t he r e p r e
sented the N S C on all n e g o t i a t i o n s l e a d i n g to the e c o n o m i c
a g r e e m e n t s b e t w e e n the U n i t e d S t ates and the U.S.S.R. and
E a s t e r n Europe.
He is a F o r e i g n S e r v i c e Officer, C l a s s 1.
A n a t i v e of Germany, Mr. S o n n e n f e l d t holds A B and M A
de g r e e s in P o l i t i c a l S c i e n c e f r o m J o h n s H o p k i n s U niversity,
Baltimore, and the J o h n s H o p k i n s S c h o o l of A d v a n c e d I n t e r
n a t i o n a l Studies, W a s h i n g t o n , D. C.
He p r e v i o u s l y a t t e n d e d
the U n i v e r s i t y of M a n c h e s t e r , England.
He s e rved in the
U.S. A r m y d u r i n g W o r l d W ar II.
A s p e c i a l i s t in S o v i e t and E a s t E u r o p e a n affairs, Mr.
S o n n e n f e l d t w a s w i t h the D e p a r t m e n t of S t a t e from 1952 to
1969, w h e r e f r o m 1966 to 1969 he w a s D i r e c t o r of the O f f i c e
of R e s e a r c h and A n a l y s i s for the U.S.S.R. and E a s t e r n Europe.
He has s e rved on U.S. d e l e g a t i o n s to n u m e r o u s m e e t i n g s and
c o n f e r e n c e s w i t h the S o v i e t U n i o n and has a c c o m p a n i e d the
P r e s i d e n t on his v i s i t s to E u r o p e a nd the S o v i e t Union.
Mr. S o n n e n f e l d t is m a r r i e d to the f o r m e r M a r j o r i e H e c h t
of Baltimore, Maryland.
The S o n n e n f e l d t s h ave three c h i l d r e n
Departmentofth e JR [JlS llR Y
(ASHINGTON, O.C. 20220
TELEPHONE W04-2041
April
FOR IMMEDIATE RELEASE
9, 1973
T R E A S U R Y A N N O U N C E S S T A I N L E S S S T E E L W I R E RODS F R O M F R A N C E
A R E B E I N G SOL D A T LESS T H A N F A I R V A L U E
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
a n n o u n c e d that s t a i n l e s s steel w i r e rods f r o m F r a n c e are
being, or are l i k e l y to be, sold at less t h a n fair v a l u e
w i t h i n the m e a n i n g of the A n t i d u m p i n g Act, 1921, as
amended.
N o t i c e of the d e t e r m i n a t i o n w i l l be p u b l i s h e d
in the F e d e r a l R e g i s t e r of A p r i l 10, 1973.
The c ase w i l l n o w be r e f e r r e d to the T a r i f f C o m m i s s i o n
for a d e t e r m i n a t i o n as to w h e t h e r an A m e r i c a n i n d u s t r y is
b e i n g or is l i k e l y to be, injured.
In the e v e n t of an
a f f i r m a t i v e d e t e r m i n a t i o n , d u m p i n g d u i t e s w i l l be a s s e s s e d
on all e n t r i e s of s t a i n l e s s steel w i r e rod s f r o m F r a n c e
w h i c h h a v e n o t b e e n a p p r a i s e d and on w h i c h d u m p i n g m a r g i n s
exist.
A n o t i c e of " W i t h h o l d i n g of A p p r a i s e m e n t " w a s i s s u e d on
J a n u a r y 8, 1973, w h i c h s t a t e d t h a t t h e r e w a s r e a s o n a b l e c a use
to b e l i e v e or s u s p e c t t h a t t h ere w e r e sales at less t h a n fair
value.
P u r s u a n t to this notice, i n t e r e s t e d p a r t i e s w e r e
af f o r d e d the o p p o r t u n i t y to p r e s e n t o r a l and w r i t t e n v i e w s
prior to the final d e t e r m i n a t i o n in this case.
S t a i n l e s s steel w i r e r ods p r o d u c e d b y C r e u s o t - L o i r e of
Paris, France, are e x c l u d e d f r o m the w i t h h o l d i n g of a p p r a i s e m e n t o r d e r e d in thi s case and the d e t e r m i n a t i o n of sales at
less t h a n fair v a l u e n o w b e i n g i s s u e d since 100 p e r c e n t of its
e x port sales d u r i n g the p e r i o d u n d e r c o n s i d e r a t i o n w e r e
e x a m i n e d and the h o m e m a r k e t p r i c e of C r e u s o t - L o i r e 's
m e r c h a n d i s e wa s found to be lower t h a n the p u r c h a s e p r i c e
of such or s i m i l a r m e r c h a n d i s e in e v e r y instance.
D u r i n g c a l e n d a r y e a r 1972 i m p o r t s of s t a i n l e s s steel
w ire rods f r o m F r a n c e a m o u n t e d to a p p r o x i m a t e l y $4 milli o n .
OoO
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rp
DepartmentoftheTR EA SU R Y
HINGTON. D.C. 20220
1
TELEPHONE W04-2041
M M
FOR RELEASE UPON DELIVERY
TUESDAY, APRIL 10, 1973, 1 P.M., PST
EXCERPTS FROM REMARKS
BY THE HONORABLE EDGAR R. FIEDLER
ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY
AT TOWN HALL OF CALIFORNIA
LOS ANGELES, CALIFORNIA
APRIL 10, 1973
The vigorous expansion in economic activity continues to
sweep ahead.
Production, sales, employment, personal income
and profits are all on a strong uptrend, and unemployment is
declining.
In addition, all the portents of future economic
activity point decisively toward further gains in the months
ahead.
This strong economic performance, however, has been com
pletely overshadowed by the recent upsurge in inflation.
This
surge of price increases has been concentrated in the farm and
food sector, but some industrial commodities have also been marked
up sharply.
Public discussion of the burst of price increases -- d is
cussion of how it happened and what should be done about it -has focused almost exclusively on the Government’s program of
price and wage controls.
This emphasis on the controls is
worrisome, since it threatens to divert our attention from the
basic causes of the situation and from the main targets of
economic policy.
Price and wage controls, if they are flexible enough to
reflect changing economic conditions, can make a contribution
to the anti-inflation effort -- as they did in part during 1972.
But what happens to inflation during 1973 and 1974 does not
depend in the main on the controls program.
What it does depend
on, fundamentally, is the economic pressure of demand upon
supply .
Most of our recent inflation has been of this nature.
Demand for foodstuffs, especially red meats, has climbed sharply
because of rising incomes, but supply did not increase.
Under
S-165
(O V E R )
2
those conditions, a temporary upsurge in food prices was in
evitable.
The same pattern exists in lumber (the homebuilding
boom), petroleum (the fuel oil shortage) and nonferrous metals
(the vigorous business expansion here and abroad).
These three industrial sectors together with food account
for the dominant part of the rise in wholesale prices over the
past couple of months.
This fact points up the need to pursue
economic policies that get at the fundamentals, and not just
the symptoms, of the inflation problem:
expand food supplies by increasing cropland
acreage, selling government-owned stocks of
grains, suspending meat import quotas, and
making other major changes in farm policies;
increase the available supply of nonferrous
metals and other commodities by selling excess
inventories from the government stockpiles;
increase gasoline and fuel oil supplies by
suspending oil import quotas;
maintain a tight rein on the budget to keep the
economy from running away with itself.
Of all
the policy steps taken, this is the most
important.
We must not repeat the mistakes of
1965-68 when, at a time of full employment,
massive budget deficits in combination with
an excessively easy monetary policy created
a runaway inflation.
To prevent that unhappy
pattern from taking place again, President
Nixon is determined to resist the many pressures
for increased Federal spending and to hold the
budget to noninflationary levels.
Holding down the rate of inflation is not a simple matter.
No safe or sure or painless or instantaneous remedy is avail
able.
But we can be confident that the policies now in place
will prevent the present temporary spurt in prices from b e
coming an endless inflationary spiral.
0O0
FOR RELEASE UPON DELIVERY
TESTIMONY BY THE HONORABLE WILL I A M E 0 SIMON
DEPUTY SECRETARY OF THE TREASURY BEFORE
THE HOUSE FOREIGN AFFAIRS SUBCOMMITTEE
ON NEAR EASTERN AFFAIRS
TUESDAY, A P R I L 10, 197 3 A T 10:00 A CM.
Mro
C h a i r m a n a n d M e m b e r s of the Committee:
L e t m e b e g i n by e x p l a i n i n g the T r e a s u r y ° s r ole in our
n a t i o n ’s v i t a l p e t r o l e u m program,.
O n F e b r u a r y 7, the P r e s i d e n t
which assigned responsibility
(OPC)
s i gned an E x e c u t i v e O r d e r
for the O il P o l i c y C o m m i t t e e
to the T r e a s u r y D e p a r t m e n t „
I was named C h a i r m a n „
T he O il P o l i c y C o m m i t t e e w i l l c o n t i n u e to f u n c t i o n as in the
pasto
T h e sp e c i f i c r e s p o n s i b i l i t i e s b e i n g a s s u m e d by the
Deputy
S e c r e t a r y of the T r e a s u r y as C h a i r m a n of the Oil P o l i c y
C o m m i t t e e are as follows:
10
To p r o v i d e the p o l i c y direction,
coordination
a nd s u r v e i l l a n c e of the oil import p r o g r a m w i t h the a d v i c e
of the Oil P o l i c y C o m m i t t e e 0
c o n stant
As
such, h e m u s t m a i n t a i n
s u r v e i l l a n c e of im p o r t s of p e t r o l e u m a n d its
p r i m a r y d e r i v a t i v e s in r e s p e c t to the n a t i o n a l
security„
■-pII
2.
A f t e r c o n s u l t a t i o n w i t h the Oi l P o l i c y
C o m m i t t e e w h i c h c o n s i s t s of the heads of State,
Defen s e ,
Justice,
Interior,
Economic Advisers,
C o m m e r c e and the C o u n c i l of
the C h a i r m a n is to i n f o r m the P r e s i d e n t
of a ny c i r c u m s t a n c e s which,
the need
Treasury,
in h is opinion, m i g h t
indicate
for further P r e s i d e n t i a l a c t i o n to adjust
3.
I n the event of p r i c e
imports.
increases of crude oil
or its p r o d u c t s or d e r i v a t i v e s d u r i n g the e x i s t e n c e
oil import program,
of the
the s u r v e i l l a n c e of the p r o g r a m is to
include a d e t e r m i n a t i o n by the C h a i r m a n as to w h e t h e r the
price
i n c r eases are n e c e s s a r y to a c c o m p l i s h the n a t i o n a l
security
o b j e c t i v e s of the oil import p r o g r a m and of the
s t a t u t o r y a u t h o r i t y on w h i c h it is based.
The Oil P o l i c y C o m m i t t e e c o n s i d e r s C o n g r e s s i o n a l
hearings
ch a n g e s
on the oil import p r o g r a m and a n y r e c o m m e n d e d
in it,
adjustments
enhance
i n c l u d i n g b o t h i n t e r i m and
that w i l l
increase
long-term
the e f f e c t i v e n e s s and
the e q u i t y of the program.
I
t h i n k it i m p o rtant
to m e n t i o n b r i e f l y the r e l a t i o n
ship of the O i l P o l i c y C o m m i t t e e
I n t e r i o r w i t h r e s pect
to the D e p a r t m e n t
to the oil import program.
of the
The
C h a i r m a n of the Oil P o l i c y C o m m i t t e e w i l l set p o l i c y d i r e c t i o n
and a s s u m e r e s p o n s i b i l i t y for c o o r d i n a t i o n w i t h i n the
gove r n m e n t .
Interior.
I m p l e m e n t a t i o n of the p r o g r a m w i l l r e m a i n w i t h i n
In order to a s s u r e e f f e c t i v e coordi n a t i o n ,
2
3
it is a n t i c i p a t e d tha t the D i r e c t o r of I n t e r i o r ' s O f f i c e of
Oil and Gas w i l l serve as E x e c u t i v e S e c r e t a r y of the Oil
P o l i c y Committee.
This type of c o o r d i n a t i o n has b e e n
d e s i g n e d to f a c i l i t a t e i m m e d i a t e i m p l e m e n t a t i o n of p o l i c y
d e c i s i o n s and to i m p rove the p r o c e s s of l o n g - r a n g e p l a n n i n g
n e c e s s a r y to p r o v i d e a d e q u a t e fuel supplies.
Thus,
the
p o l i c y and i m p l e m e n t a t i o n f u n ctions w i l l be m o r e c l o s e l y
a l i g n e d in o r d e r to s t r e n g t h e n the g o v e r n m e n t ' s p e r f o r m a n c e
in this area.
The m i s s i o n of the Oil P o l i c y C o m m i t t e e is to c r e a t e a
vigorous domestic
industry.
This
is a d i f f i c u l t
p a r t i c u l a r l y n o w that w e are faced w i t h serious
of c r u d e oil and r e f i n e r y products.
are w o r l d wide.
M i d d l e East,
task,
s h o r tages
Some of these s h o rtages
We m u s t look abroad,
p a r t i c u l a r l y to the
for the oil we n e e d and to c o m p e t e in i n c r e a s i n g l y
tight markets.
I p l a n to d i s c u s s this
s i t u a t i o n today.
U n d e r S e c r e t a r y W i l l i a m C a s e y of the State D e p a r t m e n t
w ill a p p e a r b e f o r e y o u n e x t w e e k to d i s c u s s
as U.S*
such subje c t s
oil c o m p a n y n e g o t i a t i o n s w i t h the O r g a n i z a t i o n of
Petroleum Exporting Countries
(OPEC)
w i t h our f o r e i g n p o l i c y r e l a t i o n s
and o t h e r m a t t e r s d e a l i n g
in the M i d d l e East.
c o n c e n t r a t e i n s t e a d on the e c o n o m i c and f i n a n c i a l
of U.S.
r e l i a n c e on M i d d l e E a s t oil.
I will
implications
H i s t o r y o f Oil I m p o r t P r o g r a m
T he Oil I m p o r t P r o g r a m b e g a n on a v o l u n t a r y b a s i s in 1955
w h e n s u b s t a n t i a l a m o u n t s of c r u d e oil first b e g a n to be
p r o d u c e d in the M i d d l e Easto
T h e v o l u n t a r y p r o g r a m f a iled and,
O il I m p o r t P r o g r a m (MOIP)
Oil I m p o r t Program,
in 1959,
t o o k its p l a c e 0
the M a n d a t o r y
U n d e r the Mandatory
the G o v e r n m e n t w a s g i v e n the p o w e r to set
import q u o t a s for oil in an effort to a s s u r e that dom e s t i c
p r o d u c t i o n and,
jeopardizedo
b e c a u s e of this, U 0S 0 security w a s not
T h e c i r c u m s t a n c e s w h i c h g ave r i s e to this oil
import p r o g r a m m a y b e
Hemisphere,
exportable
1) E a s t e r n
e s p e c i a l l y the M i d d l e East h a d a n a b u n d a n t and
surplus o f oil;
c h e a p e s t crude;
a n d 4)
s u m m a r i z e d as follows:
2)
it w a s the source of the world*s
3) the r e g i o n w a s m a r k e d b y p o l i t i c a l turmoil;
as the p r i n c i p a l
e c o n o m i c r e s o u r c e o f the region,
oil
w a s l i k e l y to b e i n t i m a t e l y i n v o l v e d w i t h the p o l i t i c s of
the e x p o r t i n g c o u n t r i e s 0
It w a s c l e a r that,
U.So
without
some c o n t r o l o n imports,
i n t e g r a t e d oil c o m p a n i e s w o u l d e x p loit c h e a p e r foreign
r e s e r v e s o f c r u d e oil d e s p i t e the r i s k of d i s r u p t i o n to
supplyo
E x c e s s i v e i m p o r t s o f cheap
f o r e i g n oil,
in turn,
c o u l d j e o p a r d i z e the v i a b i l i t y of o u r o w n d o m e s t i c oil
industryo
The r e f o r e ,
q u o t a s w e r e e s t a b l i s h e d and imports
5
limited to
imports
9
p e r c e n t of U.S.
are d e t e r m i n e d
distributed to U.S.
consumption.
Under this system,
annually by the Government.
They
o il companies u s ing a s t a t i s t i c a l
are
formula
based largely on their n e e d for petroleum.
It is imp o r t a n t to realize,
however,
gave rise to the current p o licy h ave
particularly
low- s u l p h u r crude oil,
Nor is it cheap.
Moreover,
need foreign crude oil
that the factors w h i c h
changed.
Fo r e i g n
is n o t e s p e c i a l l y
crude oil,
abundant.
for the rest of this decade w e w i l l
from w h e r e v e r we
can o b t a i n it i n c l u d i n g
the Middle East.
Since
1970,
prorationing has
U.S.
d e m a n d has e x c e e d e d U.S.
all but b een suspended,
p roduction.
thereby p e r m i t t i n g p r o
duction at the w e l l h e a d at m a x i m u m e f f i c i e n t rates.
refineries
that can find s u f f i c i e n t crude
maximum rate of capacity.
However,
some refineries,
and cooperatives,
to find e n o u g h crude
at full capacity.
U.S. demand,
at a n e a r
particularly
have b e e n unable
To m e e t
it has been n e c e s s a r y to increase our imports
particularly imports
total oil imports
while imports
Those
are r u n ning
the n o n - i n t e g r a t e d i n d e p e n d e n t s
to operate
from the M i d d l e East.
rose by
State
Between
1969
incr e a s i n g
substanti
and 1972,
52 p e r c e n t to 4,685,000 barrels per day,
from the M i d d l e E a s t i n c r e a s e d by
83 p e r c e n t to
573,000 b a r rels p er day.
In light of the c u r rent situation, w e
mandatory O i l Import P r o g r a m as it exists
It is our concern —
are r e v i e w i n g the
today.
ove r the s h o r t - t e r m to in c r e a s e
°f pe t r o l e u m in the U n i t e d States
the supply
to avert a g a s o l i n e s h o rtage this
summer and a fuel oil crisis n e x t w i n t e r —
and ove r the
long-term
6
—
to d e v e l o p a s t r o n g d o m e s t i c oil p r o d u c t i o n a nd r e f i n i n g
i n d u s t r y and to assure
a stable
s u p p l y of p e t r o l e u m a d e q u a t e to
m e e t our requirements.
U.S.
R e l i a n c e on Oi l Imports
It's n o t too d i f f i c u l t to p r o j e c t oil i m p o r t r e q u i r e m e n t s
for 1973 or e ven
when we
1974.
B u t it's m u c h m o r e d i f f i c u l t to p r o j e c t
look down the roa d t o w a r d 1980.
imports w i l l d e p e n d upon m a n y
To begin,
d e m a n d is
agree
that U.S.
p e r c e n t p e r year.
U.S.
c l i m b i n g sharply.
Presently,
m e e t i n g our e n e r g y needs
oil
O u r n e e d for oil
and p o p u l a t i o n e x p and.
energy consumption will grow
e n e r g y consumption.
18 percent?
level of U.S.
factors.
goes up each y e a r as o u r e c o n o m y
sources
The
oil ac c o u n t s
for
The o t h e r s i g n i f i c a n t
are n a t u r a l gas
at 4 to 4 1/2
44 p e r c e n t of total
contributors
at 33 pe r c e n t ;
h y d r o e l e c t r i c p o w e r at 4 p e r cent;
Most
to
coa l at
a nd n u c l e a r p o w e r
at less tha n one percent.
The p r o d u c t i o n of gas,
pace w i t h demand.
Unduly
m a r k e t and s l u g g i s h n e s s
o u r c l e a n e s t fuel,
low gas p r i c e s
for p r o d u c e r s
d r i l l new wells.
Low p r i c e s h a v e
of gas.
to e x p l o r e
areas h a v e p r o v i d e d
for n e w s o u r c e s
or to
also e n c o u r a g e d i n e f f i c i e n t use
A b o u t 70 p e r c e n t of o ur gas o u t p u t is c o n s u m e d b y industry-
Some of these i n d u s t r i a l users
plentiful
i m p o s e d on the interstate
in l e a s i n g o f f s h o r e
little i n c e n t i v e s
has n o t k e p t
fuels.
c o uld s w i t c h to other, m o r e
7
C oal is o ne of t h e s e fuels.
p r i n c i p a l customer,
the utilities,
H o w e v e r , its use by its
has b e e n d e c l i n i n g b e c a u s e
the m o s t r e a d i l y a s s e s s i b l e d e p o s i t s of coal c o n t a i n an
a m o u n t of s u l p h u r that is h i g h e r t h a n tha t p e r m i t t e d by the
C l e a n A i r A c t of 1970.
We can r e v e r s e this d e c l i n e by
adopting better techniques
for u s i n g coal.
We a lso m u s t
a c h i e v e c o m p a t i b i l i t y b e t w e e n o ur e n e r g y needs and
environmental standards.
In addition, w e h o p e to i n c r e a s e the a m o u n t of e l e c t r i c
p o w e r g e n e r a t e d by n u c l e a r r e a c t o r s and,
by 1980,
e n e r g y fro m
this s o urce s h o u l d g r o w ten-fold.
A l l this m e a n s that, w i t h o u t c h a n g e s in policy, m o s t
of ou r i n c r e a s e d e n e r g y d e m a n d s are g o i n g to hav e to be
satisfied,
in the n e a r term,
by oil.
D o m e s t i c d e m a n d for oil
w i l l i n c r e a s e f rom 15.1 m i l l i o n b a r r e l s a d a y in 1971 to
18 m i l l i o n in 1973 to 21 m i l l i o n in 1975 to 25 m i l l i o n in 1980
and to u p w a r d s of 30 m i l l i o n b a r r e l s a d ay by 1985.
Where
w i l l it c o m e from?
Unfortunately,
by the U.S.
m o s t of this i n c r e a s e w i l l not be p r o v i d e d
p e t r o l e u m industry.
For a c o m b i n a t i o n of reasons,
the rat e of e x p l o r a t i o n a nd d r i l l i n g in the U n i t e d Stat e s has
been d e c l i n i n g
for some time,
and w i l l not i n c r e a s e a g a i n
unless a d e q u a t e i n c e n t i v e s are provided.
that,
today,
The p l a i n fact is
an A m e r i c a n oil c o m p a n y can a n d is o b t a i n i n g
a g r e a t e r r e t u r n on its d o l l a r by i n v e s t i n g a b r o a d t han by
inv e s t i n g in the U n i t e d States.
8
R e l a t i o n s h i p of O i l I m p o r t s
to the U.S. B a l a n c e of T r a d e
The c o s t of i m p o r t i n g oil w i l l c o n t i n u e
Ho w e v e r ,
flow.
to increase.
several factors w i l l h e l p to o f fset t he d o l l a r o u t
American oil companies will continue
m u c h of the free w o r l d ' s o il prod u c t i o n .
to o wn or m a r k e t
Some of their
p r o f i t s f r o m f o r e i g n i n v e s t m e n t s w i l l be r e p a t riated.
Canada, V e n e z u e l a ,
have
significant
Iran, A l g e r i a ,
Libya,
import n e e d s and w i l l u n d o u b t e d l y use m o s t
of their oi l r e v e n u e s to p u r c h a s e goods
third c o u n tries.
f r o m the U.S.
or
The P e r s i a n G u l f S t ates of S a udi A r a b i a ,
Kuwait, A b u D h a b i and Qatar,
in c r e a s e
and I n d o n e s i a
however,
ar e not e x p e c t e d to
their i m p orts as r a p i d l y as their exports.
Department of Commerce estimates
The
that the o u t f l o w of d o l l a r s
to p a y for o il i m p orts w i l l g e n e r a t e U.S.
e x p o r t s w o r t h some
$8.2 b i l l i o n in 1980.
The D e p a r t m e n t of C o m m e r c e a l s o e s t i m a t e s that,
a b o u t $5.9 b i l l i o n w i l l r e t u r n to the U n i t e d S t ates
f o r m of r e p a t r i a t e d profits.
exports,
w i l l p a r t i a l l y o f fset
This,
the
in 1980,
in the
plus the $8.2 b i l l i o n in
$17 b i l l i o n a d d i t i o n to
f o r e i g n e x c h a n g e o u t l a y s r e q u i r e d b y i n c reased
imports of
f o r e i g n o i l in 1980.
Nevertheless,
these
factors c a n n o t c o m p l e t e l y offset
the d o l l a r o u t f l o w f r o m v a s t l y
inc r e a s e d
imports.
Pric e s
of f o r e i g n c r u d e oi l have gone up c o n s i d e r a b l y since the
- 9 -
1970 agr e e m e n t s b e t w e e n the p r o d u c i n g countries and the
oil companies,
and we can expect
to rise as U.S.
that they w i l l continue
dependence on f o r eign oil increases.
The overall impact on the balance of trade of trade
of re l y i n g on imported oil w i l l be still greater.
of this impact w i l l also depend
size
upon h o w m u c h U.S. c a p ital w i l l
flow into overseas oil exploration,
construction.
The
development,
and r e f i n e r y
T he Chase M a n h a t t a n B a n k estimates that capital
and e x p l o r a t i o n expe n d i t u r e s overseas by the world p e t r o l e u m
i n d ustry in the
15 years
$360 b i l l i o n dollars.
investment
from 1970 and
1985 w i l l be about
To the extent that m u c h of this
is mad e b y the Unit e d States,
b e a r i n g on what happens
OPEC:
Since
to the U.S.
G r e ater Revenue.
its i n c eption in 1960,
it would have a m a j o r
foreign exchange position.
G r e a t e r C o n trol
the OPEC has achieved
significant gains in n e g o t i a t i o n s w i t h inter n a t i o n a l oil
companies.
Supply disr u p t i o n s
C a n a l closure,
the T a pline rupture,
L i b y a n production,
1967,
such as the Suez
and c u r t a i l m e n t s
increases
in posted oil prices, n e w
for c a l c u l a t i n g r o y a l t y payments and taxes,
most recently,
in
as w ell as the v i g orous n e g o t i a t i n g stance
of OPEC, have brought
formulas
since
and,
agr e e m e n t s on p a r t i c i p a t i o n in ownership.
OPEC has also forced changes
in the price of crude oil to
reflect d e v a l u a t i o n of the dollar.
members will bring considerable
These actions by OPEC's
increases
in revenue as
well as c o n t r o l of the local assets of oil companies.
Con-
10
versely,
these
same events have b r o u g h t problems
to the
oil companies and c o n c e r n to the c o n s u m i n g nations.
The T e h e r a n and T r i p o l i A g r e e m e n t s
step increase
set forth a four-
in posted prices t h r o u g h 1975.
v a r i e s b y type and source of crude,
This increase
and w ill raise oil c o m
p a n y pay m e n t s to the P e r s i a n G u l f nations b y $1.50 per
b a r r e l or 80 percent over 1969
in historic perspective,
levels.
To place these payments
let me point out that there was
v i r t u a l l y no increase in p e r - b a r r e l pay m e n t s in the 1950s
and o n l y a 12c p e r - b a r r e l increase in the 60s.
I m i g h t add that there has b e e n a r i s e
price and,
hence,
in the posted
the tax paid per b a r r e l as a result of
the d e v a l u a t i o n of the dollar.
the cost to the U.S.
co n s u m e r
The r e s u l t i n g increase in
is governed by a formula
agreed to b y the W e s t e r n oil companies and the p r o ducer
n a t i o n s at G e n e v a in J a n u a r y 1972.
It provides
prices w i l l be a d j usted e v e r y time the U.S.
d i f fers
that posted
exchange rate
fro m an index of nine m a j o r cur r e n c i e s b y mor e
2 percent.
Posted prices rose b}^ 8.55 percent
than
in F e b r u a r y
1972 and are expec t e d to rise by a n o t h e r 5.8 p e r cent this
month.
N e g o t i a t i o n s on the 5.8 percent rise are scheduled
for A p r i l
12 b e t w e e n OPEC and the r e p r e s e n t a t i v e s of the
oil companies.
OPEC's m ost recent demands have c o n cerned the extent
to w h i c h host cou n t r i e s would
"part i c i p a t e " in oil production.
Some a g r e e m e n t s cal l for the trans f e r of a m a j o r i t y share to
hos t g overnments,
while
others,
suc h as that w i t h Iran,
call
11
for total o w n e r s h i p by the p r o d u c i n g c o u n t r y and
c a n c e l l a t i o n of conce s s i o n s .
In m o s t cases,
future
the oil
c o m p anies have a g reed to b u y b a c k a c o u n t r y ’s share at
p r ices
lower than could be r e a l i z e d
purchasers.
to be m a d e
Compensatory payments
from third-party
to the c o m p a n i e s are
in crude oil.
Oil
p r o d u c i n g c o u n t r i e s can be e x p e c t e d
further increases.
Their
for
spo k e s m e n c l a i m that they have
n ot b e e n a d e q u a t e l y c o m p e n s a t e d
prices the oi l c o m p a n i e s
to p r ess
r e a lize
for their oil g i v e n the
in the m a r k e t place.
I m pact on the I n t e r n a t i o n a l M o n e t a r y S y s t e m
In the case of m o s t o i l - p r o d u c i n g countries,
income
fro m oil is l i k e l y to lead to an e q u i v a l e n t e x p a n s i o n of
imports.
Ho w e v e r ,
a f ew of the oil p r o d u c i n g
states,
p a r t i c u l a r l y those located on the P e r s i a n Gulf,
have
small
p o p u l a t i o n s and o nly limited d e v e l o p m e n t p o t e ntial, m a k i n g
it h i g h l y u n l i k e l y that they c o u l d
increase e x p e n d i t u r e s
in
c o n s u m p t i o n and i n v e s t m e n t as fast as their o il revenues.
These c o u n t r i e s w i l l spend part of their re v e n u e s on aid to
other countries.
U n i t e d States.
T h e y m a y invest part
in E u r o p e
And, w h a t has g i v e n some cause
and the
for concern,
they m a y hold m u c h of their e a r n i n g s as i n t e r n a t i o n a l reserves.
The m a j o r o i l p r o d u c e r s on the
Saudi Ar a b i a ,
mated
Kuwait, A b u Dhabi,
income of a b out
to i n c rease
Arabian peninsula
and Q a t a r
$5 b i l l i o n in 1972.
to $10 b i l l i o n b y 1975,
--
-- had an e s t i
This
is likely
and up to $ 20 to $30
12
b i l l i o n by 1980.
T h ese
countries could absorb about
billion
in imports a n n u a l l y b y 1980,
billion
to be a l l o c a t e d
and
w e r e added
to reserves,
l e a v i n g $10 to $20
to f o r e i g n aid,
f o r e i g n e x c h a n g e reserves.
i m p o r t a n t role
the h o l d i n g s
of these c o u n t r i e s w o u l d
It is to be e x p e c t e d
in d e t e r m i n i n g the use of
that p a y the h i g h e s t
desi r e
the U n i t e d
w i l l i n g n e s s to invest
in the U 0S 0 oil
turn,
would benefit
might
i n c lude t h e i r p a r t i c i p a t i n g
fields„
States
return.
should
serve
i n v e s t m e n t area.
Some p r o d u c i n g c o u n t r i e s h a v e a l r e a d y
gas
system.
they w i l l p r i m a r i l y be m o t i v a t e d b y the
In a c c o r d a n c e w i t h that
elsewhere,
substan
on i n t e r n a t i o n a l m o n e t a r y
that,
investment opportunities
as an e x c e l l e n t
is a v e r y
countries have been
p a r t i c i p a t i n g fully in d i s c u s s i o n s
normal
This
in the i n t e r n a t i o n a l m o n e t a r y
their oil income,
investments,
that o b v i o u s l y c o u l d p l a y a m o s t
F o r t u n a t e l y the oil p r o d u c i n g
reform.
foreign
If a n n u a l e x c e s s e a r n i n g s
rise to $40 to $70 b i l l i o n b y 1980.
tial p o o l of d o l l a r s
$10
expressed their
industry,.
t h e i r o w n eco n o m i e s .
in l a r g e
such as the e x p l o i t a t i o n of the
This,
in
Other possibilities
investment projects
S i b e r i a n oil and
Since the a b i l i t y of m o s t M i d d l e E a s t e r n governments
to d e v e l o p a n d p r o v i d e a d e q u a t e
s u p e r v i s i o n for l a r g e - s c a l e
investment projects
a s s i s t a n c e b y the U.S.
is limited,
o t h e r g o v e r n m e n t s m a y be n e c e s s a r y
p r o d u c e r s to c o m m i t t h e i r
in g e t t i n g
the oil
funds to t h e s e p r o j e c t s 0
and
24 r
13
National
Sec u r i t y a n d O il I m p o r t s
Th e M i d d l e East h a s b e e n the p r e d o m i n a n t
oil to E u r o p e a n d J a p a n for some time,
a m a j o r sour c e of U.S*
of t h e s e su p p l i e s
s u p p l i e r of
a n d is r a p i d l y b e c o m i n g
p e t r o l e u m requirements,.
is o f p a r a m o u n t
Th e
security
c o n c e r n to the i m p o r t i n g
nations.
T he b u l k of the w o r l d ’s oil r e s e r v e s
East.
At present,
this a r e a h a s
are in the M i d d l e
67 p e r c e n t
of the w o r l d ’s
k n o w n reserves.
T h r e e c o u n t r i e s -p o s s e s s oil r e s e r v e s
Saud i a Ar a b i a ,
sufficient
Iraq,
a nd I r a n ~
to a l l o w s u b s t a n t i a l
in p r o d u c t i o n a b o v e c u r r e n t l e v e l s a
that its o u tput of c r u d e oil w i l l n o t
But I r a n h a s
increases
indicated
expand muc h beyond a
m a x i m u m of 8 to 9 m i l l i o n b a r r e l s p e r day*
S a u d i a A r a b i a h o l d s the l a r g e s t r e s e r v e s of oil,
about
140 b i l l i o n b a r r e l s or 24 p e r c e n t o f t h e w o r l d ’s p r o v e n
reserves*
reserves,
Thus,
s
Saudi r e s e r v e s are e q u i v a l e n t to 4 t i m e s U*S*
i n c l u d i n g t he N o r t h
S l o p e ’s 10 b i l l i o n b a r r e l s *
Saudi A r a b i a w i l l p l a y a key r o l e in t he b a l a n c e b e t w e e n
w o r l d oil
supply a nd demand*
T h e M i d d l e East m u s t g r e a t l y e x p a n d its p r o d u c t i o n
its r e s e r v e s to m e e t the a n t i c i p a t e d g r o w t h
in the U n i t e d States,
W e s t e r n Europe,
exporting nations may choose different
in d e m a n d
a n d Japan*
strategies
fro m
for oil
W h i l e the
in
14 -
e x p l o i t i n g their r e m a i n i n g r e s e r v e s
total flow of revenues,
p r o d u c t i o n in the M i d d l e
so as to m a x i m i z e their
it is r e a s o n a b l e to expect that oil
East a n d N o r t h A f r i c a will
increase
from 22 m i l l i o n b a r r e l s p e r day in 1970 to about 40 to 50
million barrels
in 1980.
Saudi A r a b i a w i l l
p e r c e n t of the e x p e c t e d g r o w t h in M i d d l e
t h r o u g h 1980 a n d I ran a n o t h e r 20 p e r c e n t 0
the M i d d l e
East w i l l be p r o d u c i n g
75
E a s t e r n oil p r o d u c t i o n
On a g l obal basis,
50 p e r c e n t of the w o r l d * s
oil and Saudi A r a b i a and Ira n will,
this oil by 1 9 8 0 0
supply about
In o t h e r words,
together,
supply h a l f of
the w o r l d * s oil economy
ha s c h a n g e d d r a s t i c a l l y fro m w h e n the oil
import p r o g r a m was
first i n i t i a t e d c
Oil
imports
f rom the M i d d l e East w i l l be
imports of n a t u r a l gas,
as l i q u i f i e d n a t u r a l g as
I T G c o n tract was,
Algeria
s h i pped to the U n i t e d States e i ther
(LNG)
or m e t h a n o l 0
a f t e r long delay,
for d e l i v e r y
s u p p l e m e n t e d by
in 1977,
A l t h o u g h an
c o n s u m m a t e d last w e e k with
it is u n l i k e l y that a r r a n g e m e n t s
c o uld be m a d e w i t h P e r s i a n G u l f g o v e r n m e n t s to d e l i v e r gas
to the U n i t e d States b e f o r e
19800
G r e a t e r r e l i a n c e o n M i d d l e East oil c o u l d r e p r e s e n t a
security p r o b l e m for the U n i t e d States
for several r e a s o n s 0
15
First,
d e s p i t e t h eir ties to the U n i t e d States,
producing countries have
m o r e for t h eir oil.
all
shown an i n c r e a s i n g t e n d e n c y to d e m a n d
Some h a v e a c t u a l l y t h r e a t e n e d w i t h h o l d i n g
supplies to a s s u r e that t h e i r d e m a n d s are m e t c
Second,
b r o k e n out
supplies
the M i d d l e East is n o t t r o u b l e - f r e e .
several t i mes d u r i n g the p a s t t h ree decades,
f rom this a r e a h a v e s u f f e r e d frequent
Third,
War has
a nd
i n t e r r uptions.
some g o v e r n m e n t s m i g h t b e t e m p t e d to t h r e a t e n
l o n g - s t a n d i n g a g r e e m e n t s w i t h the oil c o m p a n i e s and u s e their
oil r e s o u r c e s as a p o l i t i c a l weapon.
T he r e l a t i o n s h i p s b e t w e e n o i l - p r o d u c i n g n a t i o n s and the
i n t e r n a t i o n a l oil c o m p a n i e s o p e r a t i n g w i t h i n t h e i r b o r d e r s are
c h a n g i n g rapidly.
M o s t O P E C m e m b e r s are s e e k i n g p a r t i c i p a t i o n
in oil p r o d u c t i o n w i t h i n t h e i r bo r d e r s .
Agreements have
b e e n s i gned w h i c h p r o v i d e that h o s t g o v e r n m e n t s w i l l o b t a i n
a 25 p e r c e n t o w n e r s h i p in i n t e r n a t i o n a l oil companies,
b e g i n n i n g last January,
a n d e v e n t u a l l y r e a c h i n g 51 p e r c e n t
by 1982.
P a r t i c i p a t i o n in e x p l o r a t i o n a n d d e v e l o p m e n t w i l l
give p r o d u c i n g c o u n t r i e s t h e i r o w n oil w h i c h t h e y m a y u s e
as they wish.
Revenues
f r o m this oil,
t o g e t h e r w i t h the
16 -
taxes
f r o m n o n - p a r t i c i p a t i o n oil, w i l l y i e l d e x t r e m e l y h i g h
foreign exchange earnings
In 1980,
alone,
for s e v e r a l p r o d u c i n g n a t i o n s 0
this o i l - d r i v e d r e v e n u e to the M i d d l e
c o u l d w e l l t o t a l as h i g h as
t h ese
sums w i l l
Hopefully,
fin d a u s e w i t h i n t h e M i d d l e East or w i l l
be i n v e s t e d abroad,
we
$60 b i l l i o n p e r y e a r c
East
perhaps
face the p r o s p e c t that
in the U n i t e d
States„
some p r o d u c e r s w i l l
If not,
find other,
less d e s i r a b l e u s e s
for t h e i r r e v e n u e s or m a y d e c i d e that
it is in t h e i r b e s t
i n t e r e s t s to k eep t h e i r oil
in the
ground.
Under these circumstances,
i n t e r e s t s in the M i d d l e East be
of the oil p r o d u c i n g n a t i o n s
b e e n u s e d to a d v a n t a g e
h o w b e s t c a n o ur
security
served?
strength
The new
is w e l l k n o w n a n d it h a s
in r e c e n t m o n t h s 0
It w i l l b e
d i f f i c u l t to c o o r d i n a t e the e n e r g y p o l i c i e s of a l a r g e
g r o u p of c o n s u m i n g na t i o n s ,
a n d to secure a j o i n t
to c o m m o n supp l y p r o b l e m s 0
W e are con v i n c e d ,
the c o n s u m i n g c o u n t r i e s
seriouslyo
approach
however,
s h o u l d b e g i n to e x p l o r e
that
this a p p roach
u n
17
W h a t Do We D o ?
W h a t a c t ions
can the U n i t e d Stat e s t ake at h o m e to
p r o t e c t a g a i n s t a c u t - o f f of the s u p p l y of c r u d e o il?
the last few years,
w e h a v e i n v e s t i g a t e d v a r i o u s w a y s of
r e s p o n d i n g to i n t e r r u p t i o n in f o r e i g n supplies.
for example,
In
W e have,
b e g u n to c o n s i d e r s t o r a g e and s h u t - i n p r o d u c t i o n
of oil and coa l reserves.
in ou r p o w e r plants.
b a c k to coal if,
We a lso h a v e
some d u a l c a p a b i l i t y
We ca n s w i t c h some of t h e s e p l a n t s
in t h e m e a n t i m e ,
i n d u s t r y o ut of business.
we have not put our coal
If d i s r u p t i o n of i m p o r t s
be serious e n o u g h to t h r e a t e n U.S.
security,
should
t he G o v e r n m e n t
can e v o k e the p o w e r to set p r i o r i t i e s a nd a l l o c a t e
supplies
o
u n der T i t l e I of the D e f e n s e P r o d u c t i o n A c t of 1950.
But,
let us r e s o l v e t h a t it shall n o t c o m e to this.
As we
look ahead,
the f o l l o w i n g i m p r o v e m e n t s m u s t be
made:
F i r s t , w e m u s t p r o d u c e m o r e o i l h e r e at home.
not be c o n t e n t w i t h d e c l i n i n g
levels of p r o d u c t i o n .
p r o v i d e the i n c e n t i v e s to i n c r e a s e U.S.
has b e c o m e obs o l e t e .
We must
production.
S e c o n d , the M a n d a t o r y Oil I m p o r t P r o gram,
constituted,
We ca n
as p r e s e n t l y
W e m u s t e n d the s t o p - a n d - g o
o p e r a t i o n s of the p r o g r a m t h a t h a v e c r e a t e d u n c e r t a i n t y in
the i n d u s t r y and d e t e r r e d n e e d e d i n v e s t m e n t in d r i l l i n g and
new r e f i n e r y c o n s t r u c t i o n .
O ur m i s s i o n ,
as p r e v i o u s l y
stated,
-
18
-
is to have a v i g o r o u s d o m e s t i c p e t r o l e u m industry.
We
m u s t e n c o u r a g e e x p l o r a t i o n and p r o d u c t i o n as w e l l as n ew
r e f i n e r y c o n s t r u c t i o n and expansion.
In the end,
industry,
should all benefit.
T h a n k you.
c o n s u m e r s and the n a t i o n a l
interest
illii!
Departmentof
^
TELEPHONE W04-2041
WASHINGTON, D.C. 20220
CENTION: FINANCIAL EDITOR
RELEASE 6:30 P.M.
April 9, 1973
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
[is, one series to be an additional issue of the bills dated January 11, 1973 , and
iother series to be dated April 12, 1973
, which were invited on April 3, 1973,
re opened at the Federal Reserve Banks today. Tenders were invited for $2,400,000,000,
[thereabouts, of 91-day bills and for $1,800,000,000, or thereabouts, of 182-day
Lis. The details of the two series are as follows:
[JGE OF ACCEPTED
MPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing July 12, 1973
Approx. Equiv.
Annual Rate
Price
6.124#
98.452
6.211#
98.430
98.436
6.187#
ij
182 -day Treasury bills
maturing October 11, 1973
Approx. Equiv.
Annual Rate
Price
6.223#
96.854
6.298#
96.816
6.268#
1/
96.831
51# of the amount of 91-day bills bid for at the low price was accepted
84# of the amount of 182-day bills bid for at the low price was accepted
IAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
district
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis'
Minneapolis
Kansas City
Pallas
San Francisco
TOTALS
Accepted
Applied For
$ 59,000,000 $ 42,540,000
2,919,980,000 1,813,910,000
17,910,000
39,820,000
24,255,000
26,770,000
15,580,000
23,150,000
18,185,000
23,965,000
86,260,000
259,730,000
22,175,000
69,875,000
4,945,000
15,995,000
14,800,000
34,580,000
12,325,000
42,280,000
327,215,000
583,605,000
Applied For
20,525,000
$
2 ,602,085,000
8,240,000
16,260,000
24,440,000
29,915,000
217,165,000
71,700,000
15,550,000
29,710,000
37,055,000
358,390,000
$4,098,750,000 $2,400,100,000 ay/ $ 3,430,835,000
Accepted
$
5,525,000
1,513,120,000
8,240,000
15,960,000
19,550,000
15,905,000
57,275,000
27,820,000
8,355,000
15,150,000
9,490,000
103,955,000
$1,800,145,000 b/
Includes $231,655,000 noncompetitive tenders accepted at the average price of 98.436
Includes $160,965,000 noncompetitive tenders accepted at the average price of 96.831
These rates are on a bank discount basis. The equivalent coupon issue yields are
6*3l for the 91-day bills, and 6-56$ for the 182-day bills.
THE DEPARTMENT OF THE TREASURY
WASHINGTON, D C.
20220
April 10, 1973
SUMMARY OF TREASURY RECOMMENDATIONS ON CHANCES
IN THE TAXATION OF FOREIGN SOURCE INCOME
The Treasury recommends the following modifications
in the rules relating to the taxation of foreign income,
(1) United States shareholders would
be taxed on
future undistributed earnings of a controlled foreign
corporation engaged in manufacturing or processing
activities where the corporation makes new or additional
investment and is allowed a foreign "tax holiday" or
similar tax incentive with respect to such investment.
(2) United States shareholders would
be taxed on
the future undistributed earnings of a controlled foreign
corporation where the corporation makes new or additional
foreign investment in the manufacturing or processing of
products exported to the United States market, if the
income from such investment is subject to foreign corporate
tax significantly lower than in the United States.
(3)
Where a United States taxpayer has deducted
foreign losses against United States income, such losses
would
be taken into account to reduce the amount of
foreign tax credit claimed by such taxpayer on foreign
earnings in later years.
3
EXPLANATION OF TREASURY
R E C O M M E N D A T I O N S ON C H A N G E S
IN T HE T A X A T I O N OF F O R E I G N
SOUR C E INCOME
‘
Table of Contents:
I.
II.
III.
Tax Holidays
Controlled Foreign Corporations Exporting to
the United States
Recovery of Foreign Losses
- 4 I.
Explanation of Tax Holiday Proposal
1.
Background.
Under existing law, the income of foreign corporations
operating abroad is generally not subject to current United
States taxation, regardless of whether the stockholders of
the corporation are U.S. or foreign.
The Subpart F pro
visions of the internal Revenue Code, adopted by the Congress
in 1962, represent an exception to this general rule in the
case of certain tax haven activities conducted by corporations
controlled by U.S. stockholders.
The great bulk of United
States investment abroad in manufacturing and processing
facilities is located in countries which impose substantial
corporate income taxes.
Investment decisions in such cases
are made on the basis of general business considerations in
which tax burdens are a largely neutral factor.
However,
there has been an increasing tendency by both developed
and developing countries to deviate from their normal corporate
tax structures by offering tax related incentives, such as
li}
11
holidays from taxation, to attract foreign investment.
This
has led in some significant cases to United States companies
making investments in manufacturing facilities abroad in
to obtain special tax benefits.
order
These tax incentives are an
unwarranted and undesirable use of income tax structures
and create a distortion in the application of our existing
tax rules with respect to foreign source income.
2.
Basic Proposal.
United States
shareholders
would
b e t a x e d on f u t u r e
u n d i s t r i b u t e d e a r n i n g s of a c o n t r o l l e d f o r e i g n c o r p o r a t i o n
e n g a g e d in m a n u f a c t u r i n g o r p r o c e s s i n g a c t i v i t i e s w h e r e the
corporation makes h e w or additional
a foreign
i n v e s t m e n t a n d is a l l o w e d
"£ax h o l i d a y " o r s i m i l a r tax i n c e n t i v e w i t h r e s p e c t
to s u c h investment.
3.
Detailed Description.
A.
Taxation of United States Shareholders.
It is proposed
that a new section 951(a) (1) (C) be added to the Internal
Revenue Code to provide that the United States shareholders,
as defined in section 951(b), of a controlled foreign cor
poration engaged in manufacturing or processing abroad be
taxed currently on their pro rata share of the earnings of
such corporation if it is allowed a foreign tax investment
incentive (i.e., the earnings of such a corporation would
be deemed to be distributed currently to its shareholders).
*7
-
6
—
These provisions would operate independently of the
exceptions to Subpart F.
Once the income of a foreign
corporation is subject to current taxation, its income
would continue to be taxed currently thereafter, whether
to the same shareholders or to new shareholders and whether
or not the foreign tax incentive continues to apply.
B.
Manufacturing and Processing.
A new section would
be added to the Code to define a corporation engaged in
manufacturing and processing abroad.
The new rules would
apply to a controlled foreign corporation engaged in manu
facturing or processing (including refining) outside of the
United States, provided that more than 10 percent of the
unadjusted basis of the corporation’s assets are used in
manufacturing and processing operations.
C.
Existing Foreign Investment.
In the case of an
existing facility, current taxation would not occur unless
or until the investment made after the effective date and
during a period when the applicable foreign tax incentives
are still in effect exceeds 20 percent of the unadjusted
7
basis of existing manufacturing assets.
It would make
no difference whether the investment was funded from
new capital or re-invested earnings.
This rule provides
a margin for normal modernization and replacement of
existing facilities.
D.
Foreign Branches of Controlled Foreign Corporations.
For purposes of applying these rules, a branch of a foreign
corporation located outside of the country of incorporation
will be treated as a separate corporation.
4.
Foreign Tax Incentive.
The Treasury Department would be granted
authority
to determine which foreign practices constitute tax
investment incentives.
This authority could be exercised by
determinations with respect to general categories of
incentives, such as an exemption or reduction of tax for
a period of time or for cash grants that are not required
to be taken into account as taxable income.
The authority
could also be exercised by determinations with respect to
specific incentives in specific countries, including local
and regional incentives.
Incentives would include those
f
-
8
-
provided by law or regulations or individually negotiated
arrangements.
The fact that there is a generally low rate
of tax in a country would not be considered by itself a
tax incentive.
The Treasury would have authority to
exempt tax benefits determined not to be significant in
amount or effect and to make determinations prospective
in appropriate cases , and would be prepared to rule
on the status of tax arrangements under which foreign
investments are made.
5.
Treaty Exceptions.
The legislation would preserve discretion in the
Executive, subject to Senate approval, to enter into
bilateral income tax treaties which would make these
rules inapplicable to specific incentives, in order to
promote investment in appropriate situations and with
appropriate safeguards„
6.
Limitation on Tax Credit.
Income treated as distributed under this provision
would not be entitled to be taken into account for the
over-all foreign tax credit computation, but would be
separately computated.
-9-
II.
Explanation of Proposal
W i t h Ttespe'ct' to C o n t r o l l e d F o r e i gn""Corporations
E x p o r t i n g to the U n i t e d S t ates
1.
Background.
In a d d i t i o n to the p r o b l e m of f o r e i g n
"tax h o l i d a y s "
and s i m i l a r tax i n c e n t i v e s d e s i g n e d to i n d u c e U n i t e d S t a t e s
i n v e s t m e n t abroad,
Stat e s c o m p a n i e s
p u r p o s e of
t h e r e are c e r t a i n c a ses w h e r e U n i t e d
m a k e f o r e i g n i n v e s t m e n t s w i t h the s p e c i f i c
p r o d u c i n g ‘ for the U n i t e d S t ates m a r k e t .
" r u naway p l a nts"
Such
are o f t e n e s t a b l i s h e d to tak e a d v a n t a g e
of s i g n i f i c a n t l y lower f o r e i g n c o r p o r a t e ta x r a t e s .
2.
Basic P r o p o s a l .
In a d d i t i o n to t a x i n g s h a r e h o l d e r s on the f u t u r e
u n d i s t r i b u t e d e a r n i n g s of c o n t r o l l e d f o r e i g n c o r p o r a t i o n s
t a k i n g a d v a n t a g e of a tax h o l i d a y or o t h e r
incentive,
U n i t e d S t ates
f o r e i g n tax
s h a r e h o l d e r s w o u l d be t a x e d on
the f u t u r e u n d i s t r i b u t e d e a r n i n g s of a c o n t r o l l e d f o r e i g n
c o r p o r a t i o n w h e r e the c o r p o r a t i o n m a k e s n e w or a d d i t i o n a l
f o r e i g n i n v e s t m e n t in the m a n u f a c t u r i n g or p r o c e s s i n g of
p r o d u c t s e x p o r t e d to the U n i t e d S t a t e s m a r k e t ,
if the
i n c o m e f r o m s u c h i n v e s t m e n t is s u b j e c t to f o r e i g n c o r p o r a t e
tax s i g n i f i c a n t l y
lower t h a n in the U n i t e d States.
3.
Detailed Description«
A.
Taxation of United States Shareholders.
New section 951(a)(1)(C) of the Code would provide
that the United States shareholders, as defined in section
951(b), of a controlled foreign corporation engaged in
manufacturing or processing abroad be taxed currently on
their pro rata share of the earnings of such corporation,
even though the corporation is not taking or has not taken
advantage of a foreign tax investment incentive, if:
(1)
25 percent or more of the corporation's
gross receipts are from the manufacture
and sale of products destined for the
United States market, and
(2)
The effective rate of tax on the income
of the controlled foreign corporation is
less than 80 percent of the United States
tax rate.
B.
Existing Investment.
This provision would not apply unless or until
investment made after the effective date of this proposal
exceeds 20 percent of the unadjusted basis of existing
manufacturing and processing assets.
-
C•
11 -
Foreign Branches of Controlled Foreign Corporations.
For purposes of applying these rules, a branch of a
foreign corporation located outside of the country of incor
poration will be treated as a separate corporation.
P.
Limitation on Tax Credit.
Income treated as distributed under this provision
would not be entitled to be taken into account for the
over-all foreign tax credit computation, but would be
separately computated.
E.
Exceptions.
The President would be given authority to exempt
companies in particular industries if he determines that
it is in the public interest to do so.
The legislation
would preserve discretion in the Executive to enter into
income tax treaties, subject to Senate approval, which
would make these rules inapplicable in specific situations,
in order to promote investment in appropriate situations
and with appropriate safeguards.
-
12
-
III.
Explanation of Recovery of Foreign Losses Proposal
1.
Background.
Under existing law, United States taxpayers may deduct
losses from foreign transactions for purposes of computing
their taxable income.
Thus, the foreign losses reduce the
U.S. tax on U.S. source income.
In addition, a United
States taxpayer is allowed to credit against his United
States tax on foreign income an amount equal to the U.S.
tax imposed on the foreign income with respect to which
the foreign taxes were paid.
foreign taxes may be deducted.
In the alternative, the
If the taxpayer chooses to
credit his foreign taxes the amount creditable is limited
to the U.S. tax imposed on the foreign income with respect
to which the foreign taxes were paid.
The limitation may
be computed either separately for each country
country" limitation), or on an over-all basis
(the "per(the "over-all"
limitation) under which all foreign income taxes and foreign
source income are aggregated.
A taxpayer who is on the per-country limitation at the
time a loss from a foreign transaction is incurred does not
-13-
have to reduce the limitation for foreign taxes paid on
foreign income from other countries as he would if he were
on the over-all limitation.
Thus, he gets the full credit
for other foreign taxes paid, plus the full deduction for
the foreign losses.
When the foreign operations in the
country of loss become profitable, taxes are often paid to
such country without taking into account the prior losses.
The tax credit allowed by the United States for such taxes
may effectively eliminate any United States tax on the earned
income during the profitable period.
The same result occurs
in the case of a taxpayer on the over-all limitation who has
an over-all loss on his foreign operations.
In such cases
the United States bears the burden of the taxpayer’s
deducting large losses which greatly reduce U.S. taxes, while
the foreign country collects the taxes on the operation once
it becomes profitable with the U.S. tax eliminated by the
foreign tax credit.
It is also presently possible for taxpayers to incur
large start-up losses in the early years of an operation in
a foreign country, and then to incorporate the operation
once it becomes profitable.
In this case no U.S. tax would
be paid, even if the foreign country takes the prior losses
into account, unless the earnings were repatriated.
-14-
2.
Basic Proposal.
Modify the limitations on the foreign tax credit pro
i
vided by section 904 to provide a special limitation for
taxes of a foreign country which are excessive because the
foreign country has not permitted losses of the enterprise
to be offset against subsequent profits, and to provide
recapture of losses where the legal form or ownership of
the enterprise changes.
3.
Detailed Description.
A.
It is proposed that a new subparagraph (3) be added
to section 9 0 4 (a) of the Code to provide that if a taxpayer
sustained a loss
(whether ordinary or capital)
in a foreign
country or possession of the United States in a taxable year,
then to the extent that the loss was not taken into account
in such year for purposes of computing the foreign tax credit
limitations provided by section 904(a)(1) or (2), then for
purposes of computing the limitation on the foreign tax
credit such loss would be taken into account in succeeding
taxable years as a reduction of the taxpayer's taxable income
from sources within such country or possession.
The amount
of the reduction in any one year is not to exceed 25 percent
of the taxpayer's income from such country or possession
computed without regard to such reduction.
The amount of the
losses not taken into account shall be carried forward in
the ten succeeding years until exhausted.
Such a reduction
r\
-15will not be m a d e , however, to the extent that the loss has
been allowed by the foreign country where the loss was incurred
and has thereby reduced the amount of foreign tax paid.
Thus, if a taxpayer has elected the per-country limitation,
and sustains a loss for 1973 in country X, the taxable income
from sources within such country for 1974, for purposes of
computing the limitation on the amount of the foreign tax
credit that may be taken, is to be reduced by the amount of
the 1973 loss but only to the extent that the adjustment does
not exceed 25 percent of the corporation's taxable income
from X for 1974.
subsequent years.
Any excess would be carried over to
Likewise, a taxpayer who has elected
the over-all limitation and sustains an over-all loss on
his foreign operations in 1973 would reduce his taxable
income from sources without the U.S. in 1974 by the amount
of that loss subject to the 25 percent of taxable income
limitation.
Detailed rules relating to the allocations
of losses among years, countries and classes of income
would be provided in Treasury regulations.
B.
In cases in which material income producing capital
assets used in the trade or business which gave rise to
the losses are disposed of before the prior losses have
been fully taken into account,
including cases in which
-16the enterprise is transferred to a corporation before the
losses have been fully taken into account, the losses not
previously taken into account would be included in the
taxpayer’s gross income in the year of disposition of the
property.
C.
Section 904(d) will be amended to provide that
taxes not allowed as a credit by reason of the application
of new section 904(a)(3) may not be carried back or carried
forward.
New Telephone No„ 634-5191
FOR IMMEDIATE RELEASE
April 10, 1973
REVISED REVENUE SHARING REGULATIONS
ARE PUBLISHED IN FEDERAL REGISTER
Revised regulations for the administration of general
revenue sharing were announced today in the-Federal Register
by Graham W„ Watt , Director of the Treasury Department *s
Office of Revenue Sharing«
These regulations replace interim regulations which
governed the payments made under President Nixon’s new
program to more than 38,000 States and localities for 19720
The regulations are effective immediately and apply to
general revenue sharing payments for the first quarter of
1973, totalling nearly $1*5 billion, distributed on April 6.
First published in proposed form on February 22, 1973,
the Office of Revenue Sharing has expanded and revised
several sections of the proposed regulations to reflect
comment received in writing and in a public hearing held
March 26 in Washington0
The section prohibiting the discriminatory use of funds
has been changed.,
In instances of noncompliance with the
civil rights requirement of the State and Local Fiscal
2
Assistance Act of 1972 by a recipient government, the
Secretary of the Treasury, in addition to requiring repayment
(or forfeiture) of any money spent in a discriminatory
activity, is now empowered to withhold all entitlement
payments from a government found in violation until
compliance has been achieved0
In addition, the scope of the programs and activities
funded with revenue sharing moneys falling under the
non-discrimination provisions has been expandedc
The
definition now includes programs undertaken by units of
government and contractors to which entitlement funds have
been transferred by recipient governments,,
Also, the Office of Revenue Sharing has clarified the
accounting requirements for this program,.
The system which
recipient governments use to account for the distribution
of entitlement funds must be detailed to a level which
adequately indicates that a recipient government has not
violated the restrictions and prohibitions of the Act0
Too, the section dealing with reporting and publicity
of the use of funds has been broadened to require
notification to bilingual and minority news media as well
as the general news media regarding publication reports
of planned and actual distribution of funds0
3
Finally, the administrative ruling of the Office of
Revenue Sharing which details the limitations on the
retirement of indebtedness with revenue sharing funds has
been incorporated into the priority expenditures section
of the regulations.
These regulations apply to general revenue sharing
funds paid for all entitlement periods beginning on or
after January 1, 1973, Mr. Watt stated.
"The preparation of these regulations reflect the
determination of the Treasury Department to secure the
greatest input possible from those groups and individuals
affected by the program and its administration.
We want
to continue our ’hands off* style of administration,
requiring of the States and local governments only that
which the law itself makes necessary," Watt noted.
"All
comments, written and oral, have been fully considered in the
preparation of our final regulations."
oOo
Departmentof
SHIN6T0N, D.C. 20220
theTREASURY
> TELEPHONE W04-2041
FOR IMMEDIATE RELEASE
April 10, 1973
OFFERING
TREASURY'S WEEKLY
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $ 4,200,000,000?or thereabouts, for
cash and in exchange for Treasury bills maturing
of $4,201,456,000
April 19, 1973,
in the amount
as follows:
91-day bills (to maturity date) to be issued April 19, 1973?
in the amount
of $2,400,000,000, or thereabouts, representing an additional amount of bills
dated
January 18, 1973, and to mature
July 19, 1973
(CUSIP No. 912793 RL2 ),
originally issued in the amount of $ 1,902,100,000, the additional and original
bills to be freely interchangeable.
182-day bills, for $1,800,000,000, or thereabouts, to be dated April 19, 1973,
and. to mature
October 18, 1973
(CUSIP No. 912793 RZ1 ).
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $10,000, $15,000, $50,600, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the clos
ing hour, one-thirty p.m., Eastern Standard time, Monday April 16, 1973.
Tenders will not be received at the Treasury Department, Washington.
must be for a minimum of $10,000.
$5,000.
Each tender
Tenders over $10,000 must be in multiples of
In the case of competitive tenders the price offered must be expressed
on the basis of 100, with not more than three decimals, e.g., 99.925.
may not be used.
,J
| . L .. ; | .
Fractions
It is urged that tenders be made on the printed forms and for• ... .
„
,
.....
_
.
...
...
■’
;
warded in the special envelopes which will be supplied by Federal Reserve Banks
or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
Others than
banking institutions will not be permitted to submit tenders except for their own
(OVER)
I
-
account.
2-
Tenders will be received without deposit from incorporated banks and
trust companies and from responsible and recognized dealers in investment
securities.
Tenders from others must be accompanied by payment of 2 percent
ATUR
Serie
Serie
Serie
INMAT!
of the face amount of Treasury bills applied for, unless the tenders are
Serie
accompanied by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids.
Only thoi
submitting competitive tenders will be advised of the acceptance or rejection
thereof.
The Secretary of the Treasury expressly reserves the right to accept or
reject any or all tenders, in whole or in part, and his action in any such respeci
shall be final. Subject to these reservations, noncompetitive tenders for each
issue for $200,000 or less without stated price from any one bidder will be accepi
in full at the average price (in three decimals) of accepted competitive bids for
the respective issues. Settlement for accepted tenders in accordance with the
bids must be made or completed at the Federal Reserve Bank on April 19, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing
treatment.
April 19, 1973.
Cash and exchange tenders will receive equal
Cash adjustments will be made for differences between the par value oi
maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is considered t o accru
when the bills are sold, redeemed or otherwise disposed of, and the bills are ex
cluded from consideration as capital assets. Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder must include in his
t
income tax return, as ordinary gain or loss, the difference between the price paW
1
for the bills, whether on original issue or on subsequent purchase, and the amounij
Seri
actually received either upon sale or redemption at maturity during the ta x a b le
year for which the return is made.
1
Treasury Department Circular No. 418 (current revision) and this notice,
1
prescribe the terms of the Treasury bills and govern the conditions of their issue
Copies of the circular may be obtained from any Federal Reserve Bank or Branch*
Allj
Pdudei
parent
M
optic
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH
March 3l| 1973
(Dollar amounts in millions - rounded and will not necessarily add to totals)
D E S C R IP T IO N
A M O U N T IS S U E D -!/
AM OUNT
R E D E E M E D i/
5,003
29,521
3,754
4,999
29,497
1,920
8,476
13,624
15,900
12,516
5,708
5,440
5,640
5,595
4,910
4,247
4,554
5,098
5,197
5,417
5,237
4,941
4,832
4,538
4,561
4,650
4,523
5,080
4,952
4,832
5,207
5,146
4,887
4,595
4,808
5,529
6,061
601
380
■ 1,733
7,639
12,303
14,290
11,106
4,908
4,546
4,635
4,522
3,916
3,386
3,527
3^,957
3,981
4,110
3,940
3,668
3,493
3,241
3,166
3,106
2,935
3,095
3,024
2,916
3,016
2,959
2,759
2,474
2,267
2,122
1,449
392
187
838
1,321
1,610
1,411
800
894
1,004
1,074
994
861
928
1,141
1,216
1,308
1,297
1,273
1,339
1,298
1,395
1,544
1,589
1,985
1,928
1,916
2,192
2,186
2,128
2,121
2,540
3,407
4,613
601
m
189,505
138,580
50 ,9 25
5,485
8,956
3,950
2,945
1 ,5 3 4
6 ,0 1 2 .
27.97
67.13
14,441
6,895
7,54 6
52.25
203,946
145,475
58,471
28.67
38,278
203,946
242,224
38,242
145,475
183,717
36
58,471
58,507
.09
28.67
24.15
AM OUNT
O U T S T A N D IN G
ATURED
Series A-1935 thru D-1941
Series F and G-1941 thru 1952
Series .T and K-1952 thru 1957
5
23
8
3 ,74 6
|
J/
% O U T S T A N D IN G
O F A M O U N T IS S U E D
.1 0
.08
.21
NMATURED
Series E-^ :
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972 1
1973
Unclassified
Total Series Fi
Series H (1952 thru May, 1 9 5 9 )i/
H (June, 1959 thru 197?)
Total Series H
Total Series
v .
and h
(T o t a l matured
All Series JT o t a l unmatur^d
(Grand Total
—
>
accrued d isc o u n t.
'^reni T6demption value.
°Pt on oi owner bonds m ay b e h e ld and w ill earn in tere a t for a d d itio n a l p erio d s a fte r original ma tu rity d a tes .
Form PD 3812 (R«v. Jon. 1973) - Dept, of the Treasury —Bureau of the Public Debt,
9.74
9.87
9.70
10.13
11.27
1 4 .0 2
16.43
17.80
19.20
20.24
20.27
20.38
22.38
23.40
24.15
24.77
25.76
27.71
28.60
30.59
33.20
35.13
39.07
38.93
39.65
42.10
4 2 .4$
43.54
4 6 .16
52.83
61.62
76.11
100.00
—
26.87
DepartmentoftheTREASURY
/ A S H iN 8 i: i| iii^ M 2 0
TEfcJWO'NE W04-2O41
F O R I M M E D I A T E RELEASE.
A p r i l 11,
1973
T R E A S U R Y A N N O U N C E S A C T I O N S ON
F O U R I N V E S T I G A T I O N S U N D E R T HE A N T I D U M P I N G A C T
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
a n n o u n c e d t o d a y a c t i o n s on four i n v e s t i g a t i o n s u n der the
A n t i d u m p i n g A c t of 1921, as amended.
In the first two c a ses a n t i d u m p i n g i n v e s t i g a t i o n s are
b e ing initiated, in the t h i r d case a f i n d i n g of d i p p i n g is
b e ing issued, and in the f o u r t h case t h ere is a final
n e g a t i v e det e r m i n a t i o n .
N o t i c e of t h ese a c t i o n s w i l l a p p e a r in the F e d e r a l
R e g i s t e r of A p r i l 12, 1973.
In the first case A s s i s t a n t S e c r e t a r y M o r g a n a n n o u n c e d
the i n i t i a t i o n of an a n t i d u m p i n g i n v e s t i g a t i o n on imports
of r a c i n g p l a t e s (aluminum horseshoes) f r o m Canada.
T h ese
h o r s e s h o e s are l i g h t w e i g h t and are u sed on racehorses,
polo, jumping, hunting, a n d o t her p e r f o r m a n c e horses.
This a n n o u n c e m e n t follows a s u m m a r y i n v e s t i g a t i o n c o n d u c t e d
by the B u r e a u of C u s t o m s a f t e r r e c e i p t of a c o m p l a i n t
al l e g i n g tha t d u m p i n g w a s t a king p l a c e in the U n i t e d States.
D u r i n g c a l e n d a r yea r 1972 im p o r t s of r a c i n g p l a t e s f r o m
C a n a d a w e r e v a l u e d at a p p r o x i m a t e l y $100,000.
In the s e c o n d case the D e p a r t m e n t a n n o u n c e d the
i n i t i a t i o n of an a n t i d u m p i n g i n v e s t i g a t i o n on imports of
u p h o l s t e r y spring w i r e of c o i l i n g and k n o t t i n g q u a l i t y
from Japan.
This w i r e is p r o c e s s e d w i t h an a u t o m a t i c c o i l i n g
and k n o t t i n g m a c h i n e to m a k e springs for v a r i o u s types of
u p h o l s t e r e d p r o d u c t s such as m a t t r e s s e s , a u t o m o b i l e seats,
and cushions.
This a n n o u n c e m e n t follows a s u m m a r y i n v e s t i g a
tion c o n d u c t e d b y the B u r e a u of C u s t o m s after r e c e i p t of a
c o m p l a i n t a l l e g i n g tha t d u m p i n g w a s t a k i n g p l a c e in the
U n ited States.
D u r i n g c a l e n d a r y e a r 1972 i m p orts of this u p h o l s t e r y
spring w i r e f rom J a p a n w e r e v a l u e d at a p p r o x i m a t e l y $6.9 m i l l i o n
(OVER)
2
In t^ie
case the T r e a s u r y has issued a d u m p i n g
f i n ding w i t h r e s p e c t to roll e r chain, o t her than bicycle,
fro m Japan.
On D e c e m b e r 1, 1972, the T r e a s u r y D e p a r t m e n t
a d v i s e d the T a r i f f C o m m i s s i o n that this r o l l e r c h ain was
b e i n g sold at less than fair v a l u e w i t h i n the m e a n i n g of
the A n t i d u m p i n g Act.
On M a r c h 1, 1973, the Tari f f C o m m i s s i o n
d e t e r m i n e d there w as inju r y to a U.S. industry.
In such
s i t u a t i o n s the d u m p i n g f i n ding a u t o m a t i c a l l y follows as
the final a d m i n i s t r a t i v e r e q u i r e m e n t in a n t i d u m p i n g
investi g a t i o n s .
D u m p i n g d u t i e s w i l l be a s s e s s e d on
i m p orts of this r o l l e r c h ain w h i c h have n ot b e e n a p p r a i s e d
and on w h i c h d u m p i n g m a r g i n s are found.
During calendar
y e a r 1972 imports of r o l l e r chain, o t h e r than bicycle,
w e r e v a l u e d at a p p r o x i m a t e l y $14 million.
In the f o u r t h case T r e a s u r y a n n o u n c e d that a final
d e t e r m i n a t i o n has b e e n m a d e that slide f a s t eners and parts
of slide f a s t e n e r s f r o m J a p a n are n ot being, nor l i k e l y
to be, sold at less than fair value.
Slide f a s t e n e r s and
p a r t s t h e r e o f are c o m m o n l y k n o w n as zippers and are p r i m a r i l y
u s e d in w e a r i n g a p p a r e l . A t e n t a t i v e n e g a t i v e d e t e r m i n a t i o n
w a s p u b l i s h e d in the F e d e r a l R e g i s t e r on F e b r u a r y 1, 1973.
This n o t i c e i n v i t e d i n t e r e s t e d p a r t i e s to s u bmit w r i t t e n
v i e w s or arguments, or r e q u e s t s for an o p p o r t u n i t y to
p r e s e n t t h e i r v i e w s orally.
No s u b m i s s i o n s or r e q u e s t s
w e r e received.
D u r i n g c a l e n d a r y e a r 1972 imports of these
slide fas t e n e r s and p a rts th e r e o f f r o m J a p a n w e r e v a l u e d
at a p p r o x i m a t e l y $13 million.
oOo
DepartmentoftheTREASURY
W
a s h in g t o n ,
d c
20220
TELEPHONE W04-2041
17 89
FOR RELEASE UPON DELIVERY
M O N D A Y , A P R I L 16, 1973, 1 P.M.,
CST
E X C E R P T S F R O M RE M A R K S BY J AY N. W O O D W O R T H
D E P U T Y TO T HE ASSISTANT^ S E C R E T A R Y OF THE T R E A S U R Y
FOR ECONOMIC POLICY
A T THE
1973 O M A H A A R E A K I C K - O F F OF THE
U. S. S A V I N G S B O N D C A M P A I G N
OMAHA, N E B R A S K A
A P R I L 16, 1973
E c o n o m i c a c t i v i t y is c l e a r l y c o n t i n u i n g its r o b u s t
expansion.
Empl o y m e n t , output, sales, p e r s o n a l income, and
p r o f i t s are all on a v e r y strong uptrend, and u n e m p l o y m e n t
is declining.
In addition, all a v a i l a b l e e v i d e n c e poin t s
to f u r t h e r r a p i d g a ins in e c o n o m i c a c t i v i t y in the m o n t h s
ahead.
W h i l e this c h e e r y b u s i n e s s p e r f o r m a n c e w o u l d n o r m a l l y
d o m i n a t e n e w s p a p e r h e a d l i n e s , the g o o d news has b e e n p u s h e d
aside by the b a d news of inflation.
The r e c e n t u p s u r g e in
p r ices has b e e n c o n c e n t r a t e d in the f a r m and food sector,
b u t p r i c e s of some i n d u s t r i a l c o m m o d i t i e s h ave als o r i s e n
s h a r p l y in the p a s t two months.
It is p o s s i b l e that i n d u s
t r ial p r i c e s hav e r i sen eve n m o r e r a p i d l y in the p a s t
s e v e r a l w e eks, due to the w i d e s p r e a d a n t i c i p a t i o n by b u s i n e s s
m e n of a r e n e w e d f r eeze on prices.
P u b l i c d i s c u s s i o n of the b u r s t of p r i c e i n c r e a s e s —
d i s c u s s i o n of h o w it h a p p e n e d a nd w h a t s h o u l d be d o n e a b out
it —
has f o c u s e d a l m o s t e x c l u s i v e l y on the G o v e r n m e n t ' s
p r o g r a m of p r i c e and w a g e controls.
This e m p h a s i s on the
c o n t r o l s is w o r r i s o m e , s i nce it t h r e a t e n s to d i v e r t our
a t t e n t i o n f r o m the b a s i c causes of the s i t u a t i o n a n d from
the m a i n ta r g e t s of e c o n o m i c policy.
P r i c e and w a g e controls, if they are fl e x i b l e e n o u g h
to r e f l e c t c h a n g i n g e c o n o m i c cond i t i o n s , can m a k e a c o n t r i
b u t i o n to the a n t i - i n f l a t i o n e f f o r t —
as they d id in part
d u r i n g 1972.
B u t w h a t h a p p e n s to i n f l a t i o n d u r i n g 1973 and
1974 does n o t d e p e n d in the m a i n on the c o n t r o l s program.
W h a t it doe s d e p e n d on, fu n d a m e n t a l l y , is the e c o n o m i c
p r e s s u r e of d e m a n d u p o n supply.
S-169
2
M o s t of o u r r e c e n t i n f l a t i o n has b e e n of this nature.
D e m a n d for foodstuffs, e s p e c i a l l y r ed meats, has c l i m b e d
s h a r p l y b e c a u s e of rising incomes, b u t s u pply d i d not
increase.
U n d e r t h o s e conditions, a t e m p o r a r y u p s u r g e in
food p r i c e s w a s inevitable.
The same p a t t e r n exists in
l u m b e r (due to the c o n t i n u e d h o m e b u i l d i n g b o o m ) , p e t r o l e u m
(the fuel oil shortage) and n o n f e r r o u s m e t a l s (the v i g o r o u s
b u s i n e s s e x p a n s i o n h e r e and abroad).
T h e s e t h ree i n d u s t r i a l sectors t o g e t h e r w i t h food
a c c o u n t for the d o m i n a n t p a r t of the rise in w h o l e s a l e prices
o v e r the p a s t c o uple of months.
This fact p o i n t s up the
n e e d to p u rsue e c o n o m i c p o l i c i e s t h a t g e t at t h e fundamentals,
and n ot just the symptoms, of the i n f l a t i o n problem:
—
e x p a n d f ood s u p plies by i n c r e a s i n g c r o p l a n d
acreage, s e l ling g o v e r n m e n t - o w n e d stocks of
grains, s u s p e n d i n g m e a t i m p o r t quotas, and
m a k i n g o t h e r m a j o r changes in f a r m policies?
—
i n c r e a s e the a v a i l a b l e supply of n o n f e r r o u s
m e t a l s and o t h e r c o m m o d i t i e s by s e l l i n g excess
i n v e n t o r i e s f r o m the g o v e r n m e n t s t o c k p i l e s ;
-- i n c r e a s e g a s o l i n e and fuel oil s u p plies by
s u s p e n d i n g oil i m p o r t quotas;
—
m a i n t a i n a t i g h t r e i n on the b u d g e t to k e e p the
e c o n o m y fro m r u n n i n g away w i t h itself.
Of all
the p o l i c y steps taken, this is the m o s t
important.
W e m u s t n o t r e p e a t the m i s t a k e s of
1965-68 when, at a time of full e m p l oyment,
m a s s i v e b u d g e t d e f i c i t s in c o m b i n a t i o n w i t h an
excessively easy monetary policy created a runa
w a y inflation.
To p r e v e n t that u n h a p p y p a t t e r n
f r o m t a k i n g p l a c e again, P r e s i d e n t N i x o n is
d e t e r m i n e d to r e s i s t the m a n y p r e s s u r e s for
i n c r e a s e d F e d e r a l s p e n d i n g and to h o l d the b u d g e t
to n o n i n f l a t i o n a r y levels.
H o l d i n g d o w n the rate of i n f l a t i o n is no t a s i mple matter.
N o safe or sure or p a i n l e s s or i n s t a n t a n e o u s r e m e d y is a v a i l a
ble.
B u t w e c an be c o n f i d e n t t h a t the p o l i c i e s n o w in place
w i l l p r e v e n t the p r e s e n t t e m p o r a r y s p urt in p r ices from
b e c o m i n g ' a n e n d less i n f l a t i o n a r y spiral.
000
FOR IMMEDIATE RELEASE
(IMl) .tooth?,
April 13, 1973
JERRY L. OPPENHEIMER RESIGNS AS
DEPUTY TAX LEGISLATIVE COUNSEL
Treasury Secretary George P. Shultz has accepted "with
regret," the resignation of Jerry L. Oppenheimer, Deputy
Tax Legislative Counsel.
Mr. Oppenheimer is leaving the
Treasury Department to become a partner in the law firm
of Mayer, Brown & Platt and will be located in its
Washington, D. C. office.
Since January 1973, Mr. Oppenheimer has been Acting
Tax Legislative Counsel.
Mr. Oppenheimer has been with the
Treasury Department since September 1969.
In 1970, he was
appointed Associate Tax Legislative Counsel, and in 1972,
he was appointed Deputy Tax Legislative Counsel.
Mr. Oppenheimer has acted as a principal Treasury legal
advisor in the formulation of policy, legislation, and
regulations on tax matters.
He played a leading role in
development of the Tax Reform Act of 1969, the Revenue Act
of 1971, and the regulations implementing those tax laws.
S-167
2
A native of Birmingham, Alabama, and a 1958 graduate
of the Business School of the University of North Carolina,
Mr. Oppenheimer holds an LLeBo degree from the University
of Virginia Law School (1961)0
Prior to joining Treasury,
he was with the Washington, DoCo law firm of Covington &
Burlingo
oOo
April 13, 1973
JOHN M. PORGES
NOMINATED AS U.S. EXECUTIVE DIRECTOR
THE INTER AMERICAN DEVELOPMENT BANK
President Nixon today announced the nomination of
John M.. Porges of New York City as the U.S. Executive
Director of the Inter American Development Bank for a
term of three years.
Mr. Porges will replace Henry J.
Costanzo, who resigned December 31, 19 7/.
Mr. Porges has been the Vice President in charge
of Latin America with Morgan Guaranty Trust Co. since
1962.
He joined Morgan Guaranty’s International Division
in 1953 and was named Assistant Treasurer in the Latin
America area in 1958.
He has also served as the American
Director, Banco Frances del Rio de la Plata, B.A. and as
President of the Pan American Society.
Mr. Porges enlisted
in the U.S. Army in 1942 and served in the 44th Infantry
Division in the European Theatre of Operations.
He
received a battlefield commission in France in 1945.
Mr. Porges, 50, attended Grinell College, Grii^ll,
Iowa, and New York University where he received a B.A.
degree.
He also holds an M.A. degree from the University
of Florida, Gainesville.
Mr. Porges ii married to Anne Elina Berea of New
York City.
They have two children and presently reside
in Douglas Manor, New York.
S T A T E M E N T B Y H O W A R D L. W O R T H I N G T O N
D E P U T Y A S S I S T A N T S E C R E T A R Y OF THE T R E A S U R Y F O R T R ADE
B E F O R E THE
S U B C O M M I T T E E ON F O R E I G N A G R I C U L T U R A L P O L I C Y
SENATE AGRICULTURE AND FORESTRY COMMITTEE
M O N D A Y , A P R I L 16 , 1973
10:00 A.M.
It is i n d e e d a p l e a s u r e
for me to a p p e a r today
b e f o r e this c o m m i t t e e to talk a b out the f o r t h c o m i n g
i n t e r n a t i o n a l t r ade n e g o t i a t i o n s
a g r i c u l t u r a l trade.
of the Treasury,
and h o w they a f f e c t
I w i l l do so fro m the v a n t a g e p o i n t
and our c o n t i n u i n g e f f o r t to deal w i t h
the f o r e i g n e c o n o m i c p o l i c y p r o b l e m s of the U.S.
c o h e r e n t whole,
problems,
r a t h e r t han trade p r o b lems,
b a l a n c e of p a y m e n t s p r o b l e m s
as a
monetary
and so on.
International Economic Negotiations
The A g r i c u l t u r a l S e c t o r
and
A g r i c u l t u r a l trade has b e e n -- and w i l l c o n tinue
i n c r e a s i n g l y to be —
a c r u c i a l fact o r in the state of our
o v e r a l l e x t e r n a l accounts.
Farm exports make a substantial
p o s i t i v e c o n t r i b u t i o n to our b a l a n c e of p a y m e n t s and trade.
Since 1960, w e h a v e h a d c o n t i n u o u s
b a l a n c e of a g r i c u l t u r a l trade.
su r p l u s e s
L ast year,
in our
in 1972,
w h e n the d e f i c i t in our o v e r a l l trade a c c o u n t r e a c h e d $6.4
b i l l i o n on a census basis,
a surplus
S-168
of $2.9 billio n.
agricultural products
contributed
The e f f i c i e n c y of the A m e r i c a n
2
f a r m e r ,c o m b i n e d w i t h o u r n a t u r a l r e s o u r c e s , has g i ven
the U n i t e d States a c o m p a r a t i v e
c u l t u r a l field.
a d v a n t a g e in the a g r i
We must therefore provide
e x p a n s i o n of a g r i c u l t u r a l trade,
for the
and c o n s i d e r this
e x p a n s i o n as one of o ur m a j o r o bjectives.
The n e e d for a m a j o r i m p r o v e m e n t in o ur trade position
is clear.
We are c u r r e n t l y in trade deficit,
p r a c t i c a l m a t ter,
and as a
we see no w a y to a c h ieve e q u i l i b r i u m
in o u r o v erall b a l a n c e of p a y m e n t s w i t h o u t a trade surplus.
The ne t flow of aid and p r i v a t e
l o n g - t e r m ca p i t a l
to the d e v e l o p i n g n a t i o n s of the w o r l d can o n l y be financed
by a net e x p o r t surplus of goods and s e r v i c e s — if we are
to a v oid fu r t h e r b o r r o w i n g
from the i n d u s t r i a l i z e d countries
We c a n n o t e x p e c t to finance these aid an d c a p i t a l flows by
f o reign i n v e s t m e n t
in the U n i t e d S t a t e s — we w e l c o m e
i n v e s t m e n t b u t there is little p r o s pect,
to come,
for some years
that it w i l l be large e n o u g h to cover n ot only
i n v e s t m e n t s by our own firms
b u t also the
countries.
in the a d v a n c e d countries
flow of aid and c a p i t a l to the d e v e l o p i n g
N e i t h e r can we e x p e c t to finance t h e s e flows
w i t h n et i n come
ments
such
fro m services.
Income
f r o m U.S.
invest
a b r o a d has c o n t i n u e d to rise, b u t m o s t of this
i n c r e a s e has b e e n o f f s e t by the rise in i n t e r e s t payments
on our debts
as o u r - p a y m e n t s d e f i c i t s have
c o n t i n u e d to
increase those debts.
lays are heavy.
And our military and travel out
Thus, while some contribution can be
expected from the service accounts, it will not be
enough to make a trade surplus unnecessary.
A strong
improvement in our trade balance is the key to the
restoration of equilibrium to our balance of payments.
A l t h o u g h the T r a d e R e f o r m A c t of 1973, w h i c h the
P r e s i d e n t p r o p o s e d to the C o n g r e s s
last week,
does n o t
request specific negotiating authority with respect
to a g r i c u l t u r a l trade,
this
n e v e r t h e l e s s we e x p e c t to u se
l e g i s l a t i o n as a v e h i c l e
for l i b e r a l i z a t i o n in this
sector.
The
s t r e n g t h of A m e r i c a n a g r i c u l t u r e d e p e n d s
c o n t i n u e d e x p a n s i o n of o ur w o r l d m a r k e t s
—
on the
especially
for the m a j o r b u l k c o m m o d i t i e s o ur f a r mers p r o d u c e
so
e f f i c i e n t l y ; a b o u t 25% of o ur a c r e a g e p r o d u c e s commodities
for export.
While
it w o u l d n o t be a p p r o p r i a t e
for me
to go into d e t a i l at this time r e g a r d i n g n e g o t i a t i n g
s t r a t e g y and tactics,
objective
let m e a s s u r e y o u t h a t o u r p r i m a r y
in t h ese n e g o t i a t i o n s w i l l be to h a v e m a r k e t
forces p l a y a g r e a t e r d e t e r m i n i n g r ole in s u p p l y i n g the
needs of c o n s u m e r s
the world.
for f a r m p r o d u c t s
in all p a r t s of
4
We h ave al r e a d y t a ken steps to m a k e our agriculture
here at hom e m o r e r e s p o n s i v e to m a r k e t
forces.
U n d e r the
A g r i c u l t u r a l A c t of 1970 we have r e d u c e d the government's
role as the prime guide to p r o d u c t i o n decisions.
re c e n t l y we hav e
restrictions
freed farmers
M ore
fro m acreage and production
and e x p o r t subsidies on wheat,
and o t her p r o d u c t s have b e e n suspended.
feedgrains
In the same manner
we seek to b r o a d e n the role of m a r k e t forces on the
international
level by r e d u c i n g and r e m o v i n g b a r r i e r s to
a g r i c u l t u r a l trade.
m u c h to h e l p ensure
M o v e m e n t in this d i r e c t i o n can do
an adequate s u pply of food and to
b r i n g a b out m o r e e f f i c i e n t a l l o c a t i o n of r e s o u r c e s in
the a g r i c u l t u r a l sector.
L et me repeat: we are committed
to i n t e r n a t i o n a l a g r i c u l t u r a l l i b e r a lization,
w h i c h cannot
but b e n e f i t the mor e e f f i c i e n t A m e r i c a n farmer.
Indeed,
if our t r a d i n g pa r t n e r s do not join us in this commitment
to m e a n i n g f u l
sector,
realistic negotiations
in the agricultu ral
it w o u l d be d i f f i c u l t for the U n i t e d States to
p r o c e e d w i t h m u l t i l a t e r a l trade n e g o t i a t i o n s
in other
sectors.
T r ade n e g o t i a t i o n s c an no longer be v i e w e d
i n d e p e n d e n t l y f r o m n e g o t i a t i o n s w h i c h are p r o c e e d i n g
in o t her i n t e r n a t i o n a l e c o n o m i c fora.
international economic system —
In fact,
the entire
of w h i c h the international
t r a d i n g s y s t e m is an i n t e g r a l p a r t —
is n o w at a watershed,
Negotiations
are a l r e a d y w e l l u n d e r w a y in the
"Committee
of Twent y , " u n d e r the au s p i c e s of the I n t e r n a t i o n a l
M o n e t a r y Fun d ,to r e f o r m the m o n e t a r y s y s t e m to take
a c c ount of the changes w h i c h have t a k e n p l ace
in the
w o r l d since the c r e a t i o n of the B r e t t o n W o o d s
system
a q u a r t e r ce n t u r y ago.
T a k e n together,
the trade and m o n e t a r y n e g o t i a t i o n s
seek to c r e a t e a n e w i n t e r n a t i o n a l e c o n o m i c o r d e r w h i c h
w i l l be e q u a l to the cha l l e n g e s of our time'I
Our
efforts to improve the w o r l d ' s m o n e t a r y s y s t e m c a n n o t
m e e t w i t h l a s t i n g success u n l e s s b a s i c i m p r o v e m e n t s
c o n s i s t e n t w i t h our ef f o r t s
in the m o n e t a r y sphere
are also a c h i e v e d in the field of i n t e r n a t i o n a l trade.
For example, we have
sought in the m o n e t a r y n e g o t i a t i o n s
to d e v e l o p a m o r e e f f e c t i v e a d j u s t m e n t process.
the a d j u s t m e n t p r o c e s s
is to be e ffective,
Yet,
if
it m u s t be
a l lowed to o p e r a t e e f f e c t i v e l y in the k ey t r a d i n g sectors.
We m u s t p r e v e n t trade r e s t r i c t i o n s
adjustments
f rom d i s t o r t i n g the
in the a l l o c a t i o n of real r e s o u r c e s w h i c h
m u s t take p l ace if m o n e t a r y a d j u s t m e n t s are to hav e their
in t e n d e d impact.
P r i o r i t y a t t e n t i o n m u s t t h e r e f o r e be
given to the a g r i c u l t u r a l sector, w h e r e the p r o t e c t i o n i s m
inherent in v a r i o u s n a t i o n a l a g r i c u l t u r a l p o l i c i e s has
led to a s e r ious m i s a l l o c a t i o n of w o r l d r e s o u r c e s and m a y
have ha d a s i g n i f i c a n t e f f e c t on b a l a n c e of p a y m e n t s
adjustments.
6
The o p e r a t i o n of v a r i a b l e
i m p o r t p r i c e s y s tems
levy s y s t e m s a n d m i n i m u m
in the EC,
for e x a mple,
acts to
s k i m of f any b e n e f i t s u p p l y i n g c o u n t r i e s m a y a c h i e v e
t h r o u g h e x c h a n g e rat e c h a n g e s or i n c r e a s e d p r i c e
c o m p e t i t i v e n e s s gene r a l l y .
sub s i d i e s
On the e x p o r t side,
are u s e d to m o v e
export
s u r p l u s e s p r o d u c e d in response
to a r t i f i c i a l l y h i g h d o m e s t i c s u p p o r t p r i c e s on to w o r l d
ma r k e t s ,
thus n e g a t i n g a d v a n t a g e s
o t h e r s u p p l y i n g countries
m a y h a v e g a i n e d in t h ird c o u n t r y m a r k e t s due to e x c h a n g e
rate changes.
U.S.
f e e d g r a i n ex p o r t s
t h e s e policies.
onl y v a r i a b l e
Japan,
U.S.
B e c a u s e U.S.
levies
trading practices
feedgrain exports
and i m p o r t s u b s t i t u t i o n p o l i c i e s
farmers
cannot
Between
One b r i e f s t a t i s t i c w i l l highlight
1962
and 1972,
n ot s u b j e c t to the v a r i a b l e
the v a l u e of U.S.
to be reversed, w e m u s t have
s y s t e m t h a t a l lows n a t i o n s
134%
levy and by o n l y 13%
s u b j e c t to the v a r i a b l e
m o s t e f f i c i e n t manner.
in
fully c a p i t a l i z e on t h eir
a g r i c u l t u r a l ex p o r t s to the EC of six r ose by
products
face not
in the C o m m o n M a r k e t b u t a l s o state
c o m p a r a t i v e advantage.
this point:
are e s p e c i a l l y h a r d h i t by
levy.
in produ
in
If this t r e n d is
an i n t e r n a t i o n a l
trading
to u se t h e i r r e s o u r c e s
in the
7
The f a i l u r e to l i b e r a l i z e i n t e r n a t i o n a l a g r i c u l t u r a l
t r ade ove r the las t t w e n t y y e a r s has u n d o u b t e d l y c o n t r i
b u t e d to the r e c u r r e n t crises
system by
in the i n t e r n a t i o n a l m o n e t a r y
a m p l i f y i n g the g r o w i n g w e a k n e s s
t r ade and p a y m e n t s p o s i tion.
p r e d i c t w h a t U.S.
of the U.S.
It is a l w a y s d i f f i c u l t to
a g r i c u l t u r a l e x p o r t s w o u l d h a v e b e e n in
the a b s e n c e of r e s t r i c t i o n s .
However,
we believe that
s u b s t a n t i a l l i b e r a l i z a t i o n in a g r i c u l t u r e w o u l d h a v e n e t t e d
a d d i t i o n a l b e n e f i t s to o ur b a l a n c e of p a y m e n t s on the
o r d e r of b i l l i o n s of dollars.
The b u d g e t a r y c o sts of
agricultural protection have also been enormous.
Among
the p r i n c i p a l d e v e l o p e d c o u n t r i e s , the c u r r e n t level of
costs of f a r m i n c o m e a n d p r i c e - s u p p o r t m e a s u r e s ,
con s u m e r s
and to taxpayers,
to
is at l e a s t $30 b i l l i o n a n n u a l l y .
In a d d i t i o n to the p o s s i b l e w o r l d - w i d e b u d g e t a r y
savings,
a m o r e e f f i c i e n t a l l o c a t i o n of r e s o u r c e s w o u l d
r e s u l t f r o m the r e m o v a l of b a r r i e r s
trade.
to w o r l d a g r i c u l t u r a l
W h i l e the A m e r i c a n s y s t e m is b e c o m i n g i n c r e a s i n g l y
m o r e m a r k e t ori e n t e d ,
food to c o n s u m e r s
in E u r o p e a n d J a p a n the c o sts of
c o n t i n u e to be d i s t o r t e d b y p o l i c i e s
w h i c h e n c o u r a g e i n e f f i c i e n t d o m e s t i c p r o d u c t i o n an d b a r
the e n t r y of c h e a p e r p r o d u c t s
f r o m abroad.
Thus
the
l i b e r a l i z a t i o n of a g r i c u l t u r a l t r a d e b a r r i e r s w o u l d p r o
v i d e d i r e c t e c o n o m i c b e n e f i t s to all, w h i l e
contributing
8
s i g n i f i c a n t l y to i m p r o v e m e n t in the U.S.
trade and
pa y m e n t s positions.
F urthermore,
the m a i n t e n a n c e of these b a r r i e r s
is
p a r t i c u l a r l y i n a p p r o p r i a t e in the case of those of our
t r a d i n g p a r t n e r s w h i c h are r u n n i n g p a y m e n t s
surpluses.
The m o n e t a r y crises of r e c e n t years have r e f l e c t e d in
par t a failure of the s y s t e m to p r o v i d e e f f e c t i v e
incentives
for countries
to take action,
including action
in the trade sect o r to e l i m i n a t e p r o l o n g e d a nd e x c e s s i v e
payments
surpluses.
N or has the i n t e r n a t i o n a l c o m m u n i t y
had a v a i l a b l e e f f e c t i v e
sanctions
to induce c h r o n i c a l l y
d e l i n q u e n t c o u ntries to take a d j u s t m e n t action.
B o t h the p r e s e n t m o n e t a r y and t r a d i n g rules n e e d to
be changed.
W e b e l i e v e t h a t trade m e a s u r e s c o uld be used
b o t h as e f f e c t i v e a d j u s t m e n t m e a s u r e s
and as s a n ctions
a r e f o r m e d i n t e r n a t i o n a l e c o n o m i c system.
in order to p r o m o t e
in
For example,
a l i b eral t r a d i n g o r d e r and at the
same time aid in the a d j u s t m e n t process,
international
e c o n o m i c rules
for trade
s h ould p r o v i d e
l i b e r a l i z a t i o n by surplus
i n c e ntives
countries.
Such c o u ntries
c o u l d s i g n i f i c a n t l y redu c e t h e i r t a r iffs an d o t her trade
barriers
and p a r t i c u l a r l y their a g r i c u l t u r a l trade barriers
to the exports of o t h e r countries,
c o n c e n t r a t i n g on these
items of i n t e r e s t to d e f i c i t countries.
should p r o v i d e such i n c e n t i v e s .
t end to d o now,
The rules
T hey s h o u l d not,
as they
o p e r a t e p r i m a r i l y to m a k e c o u n tries
r e l u c t a n t to l i b e r a l i z e u n i l a t e r a l l y ,
b e c a u s e of p o s s i b l e
i m p a i r m e n t to t h eir b a r g a i n i n g p o s i t i o n in future trade
negot i a t i o n s .
In e x c e p t i o n a l c i r c u m s t a n c e s and for
l i m ited p e r i o d s of time,
ava i l a b l e
trade m e a s u r e s
should be
for us e by d e f i c i t cou n t r i e s to p r o t e c t their
o v e r a l l e x t e r n a l position.
One use of such m e a s u r e s w o u l d
be to e n a b l e a c o u n t r y to get t h r o u g h the t r a n s i t i o n
period until more fundamental
effect.
In addition,
c o r r e c t i v e m e a s u r e s take
cou n t r i e s
s h o u l d u l t i m a t e l y be
p e r m i t t e d to impose san c t i o n s on a ch r o n i c surplus
co u n t r y w h i c h p e r s i s t e n t l y r e f u s e s to take e f f e c t i v e
a d j u s t m e n t measures.
The p r o p o s a l s
for r e f o r m of the t r a d i n g and m o n e t a r y
rules w h i c h I h ave o u t l i n e d above and w h i c h the U.S.
has
p r o p o s e d as a p a r t of the r e f o r m of the i n t e r n a t i o n a l
m o n e t a r y s y s t e m are o b v i o u s l y of g r e a t i m p o r t a n c e to
the A m e r i c a n farmer.
Success in these n e g o t i a t i o n s w i l l
incre a s e the b e n e f i t s w h i c h A m e r i c a n farmers
can e x p e c t
as a r e sult of the m a j o r r e a l i g n m e n t of the w o r l d ' s
c u r r encies w h i c h has n o w b e e n achieved.
10
S i n c e 1971,
t h ere has b e e n a h i g h l y
in c u r r e n c y r e l a t i o n s h i p s .
steps
—
the
The c h a n g e
important shift
t ook p l a c e
first in D e c e m b e r 1971 w h e n the U.S.
p o s e d a 7.9 p e r c e n t d e v a l u a t i o n in the do l l a r ,
s e c o n d in F e b r u a r y
in t wo
pro
an d the
1973 w h e n we p r o p o s e d a f u r t h e r
d e v a l u a t i o n of 10 percent.
Both moves were
accompanied
by e x c h a n g e rate c h anges by a n u m b e r of o t h e r c o u n t r i e s .
We c o n s i d e r the two U.S. m o v e s
by others
and the a c c o m p a n y i n g changes
as one sing l e a d j u s t m e n t — a m a j o r a d j u s t m e n t
of rates w h i c h was ne eded,
a nd w h i c h has n o w b e e n completed,
to r e f l e c t the m a j o r s t r u c t u r a l
c h a nges
e c o n o m y r e s u l t i n g from the p o s t w a r
in the w o r l d
s t r e n g t h e n i n g of
E u r o p e a n and J a p a n e s e e conomies.
In total,
a v e r a g e of U.S.
if w e m e a s u r e this r e a d j u s t m e n t by a weigh t e d
trade,
it m e a n s
of the d o l l a r a g a i n s t E u r o p e
24 p e r c e n t as of A p r i l
13,
an e f f e c t i v e d e v a l u a t i o n
and J a p a n of a p p r o x i m a t e l y
1973.
By the same w e i g h t e d a v e r a g e m e t h o d ,
it m e a n s
an e f f e c t i v e d e v a l u a t i o n of the d o l l a r a g a i n s t the e n t i r e
w o r l d of 11 percent.
Since
the c u r r e n c i e s of m a n y m a j o r
c o u n t r i e s are n o w f l o a t i n g r e l a t i v e to the dollar,
percentages may change
f r o m day to day,
e x t e n t of such c h a n g e s has
Table
1 attached,
indicates
thus
these
a l t h o u g h the
far b e e n q u i t e
the a p p r o x i m a t e
small.
change
for
some of the m a j o r cur r e n c i e s
from the par v a lues
w h i c h w e r e in e f f e c t on A p r i l
This
30,
1971.
large e x c h a n g e rata r e a l i g n m e n t yiel d s
c o m p e t i t i v e o p p o r t u n i t i e s to U.S.
producers
important
and p r o v i d e s
a r e a l i s t i c b a s e for r e s t o r a t i o n of a s a t i s f a c t o r y
e q u i l i b r i u m in the U.S.
we can,
access
p a y m e n t s position.
th r o u g h the c o m i n g n e g o t i a t i o n s ,
Provided
assu r e fair
for our exports to fo r e i g n markets,
and p r o v i d e d
we m a i n t a i n sound d o m e s t i c p o l i c i e s to spur p r o d u c t i v i t y
and h o l d p r ices
a viable,
in c h eck in the U.S., we s h o u l d atta i n
s u s t a i n a b l e e q u i l i b r i u m in our i n t e r n a t i o n a l
pa y m e n t s position.
W i t h o u t s u c c e s s f u l trade n e g o t i a t i o n s ,
the exc h a n g e rate changes w h i c h have t a ken p l ace w i l l
have
less e f f e c t on our f a r m exports.
As
I have
the w o r l d m a r k e t for a g r i c u l t u r a l p r o d u c t s
to e x t e n s i v e restri c t i o n s .
said,
is s u b j e c t
Trade p a t t e r n s do not fully
r e flect c o m p e t i t i v e positions.
To the e x t e n t c o m p e t i t i v e
world markets
for a g r i c u l t u r a l products,
can be e x p e c t e d to produce,
in the value
forces are a l l o w e d to a f f e c t
in time,
and share of U.S.
the r e a l i g n m e n t
a m a r k e d increase
a g r i c u l t u r a l exports.
The
impact w i l l v a r y for p a r t i c u l a r p r o d u c t s and in p a r t i c u l a r
markets.
Bu t the t o tal s h ould be substantial.
y sr
-
12
-
There have been attempts
to e s t i m a t e the t o tal
e f f e c t on our b a l a n c e of p a y m e n t s
of the r e a l i g n m e n t .
Some a c a d e m i c e x p e r t s h a v e e s t i m a t e d t h a t e x c h a n g e
rate c h a nges
ments
— n ot
since
1971 s h o u l d b e n e f i t o u r b a l a n c e of p a y
just in a g r i c u l t u r a l p r o d u c t s b u t in all
goods and s e r v i c e s - - b y as m u c h as
hav e said $10 b i l lion.
of t h e s e f o r e c a s t s .
certainties
$15 bi l l i o n .
Others
We d o n ' t p u t m u c h f a i t h in any
For one t h i n g t h e r e
are m a n y u n
a b o u t s u p p l y and d e m a n d e l a s t i c i t i e s .
Also
m u c h d e p e n d s on our a b i l i t y to m a i n t a i n the c o m p e t i t i v e
edge w h i c h the r e a l i g n m e n t p r o v i d e s by h o l d i n g d o w n o u r
costs
ducers
and prices,
and on the v i g o r w i t h w h i c h our p r o
and e x p o r t e r s e x p l o i t t h e i r n e w c o m p e t i t i v e
advantages.
The r e a l i g n m e n t p r o v i d e s
opportunity,
and we m u s t m a k e the m o s t of it.
cannot accurately
w i l l be.
f o r e c a s t w h a t the
an i m p o r t a n t
actual
But we
trade e f f e c t s
U.S. TRADE RELATIONS WITH THE SOVIET U N I O N ,
EASTERN EUROPE AND THfe ^feOPIiE1S REPUBLIC OF CHINA
I
would like to turn now to the potential for new trade
relations with the Soviet Union, Eastern Europe, and the
People's Republic of china— particularly with regard to the
potential for U.S. farm exports to these countries.
As you are undoubtedly aware, our trade relations with
these countries are in various stages of economic normaliza
tion.
Let me briefly summarize the current status of these
relations:
(1) We have had fully normalized trade relations
with Yugoslavia, including the extension of most-favored nation
(MFN) treatment and Eximbank credits, for many years.
(2)
Poland received MFN treatment in 1960, but only became eligible
for Eximbank credits in November 1972, following the signature
of the uS-Polish trade protocol in the wake of President Nixon's
visit to Warsaw at the end of May, 1972.
Also in November,
Poland entered into an interim agreement with the Foreign Bond
holders Protective Council, Inc., with respect to dollar bonds
issued prior to World Way II.
(3) Romania became eligible for
Eximbank credits in late 1971, but has not yet received MFN
treatment.
We extended the facilities of the Overseas Private
Investment Corporation (OPIC) to Romania in 1972 and supported
its successful application to join the International Monetary
Fund (IMF) and the International Bank for Reconstruction and
Development (IBRD)•
Some outstanding financial and business
14
facilitation issues remain to be discussed in bilateral
relations.
(4) Many of the remaining East European countries
(Hungary, Czechoslovakia, Bulgaria, the German Democratic
Republic and Albania) have indicated an interest in improving
trade relations with the United States, including receiving
MFN treatment and Eximbank credits.
We signed a claims agree
ment with Hungary in March, 1973 and preliminary Hungarian
discussions with the Foreign Bondholders Protective Council
have begun.
Czechoslovakia has indicated a desire to reopen
claims talks and begin trade discussions.
Discussions on a
consular convention are underway with Bulgaria.
We have had
no trade discussions to date with the GDR or Albania.
(5) Our
trade relations with the Soviet Union showed the most marked
improvement in 1972, including the May agreement to establish
a joint UIS.-Soviet Commercial Commission (during President
Nixon*s visit to Moscow), the July grains agreement, and the
October trade, maritime, and lend-lease agreements.
The trade
agreement includes as one of its provisions the extension
of MFN to the Soviet Union and its entry into force therefore
awaits Congressional action on this issue.
(6) We have had
no formal trade agreements with the People *s Republic of china
but have reduced restrictions on U.S. exports to and imports
from China to the same level which applies to our trade with
the Soviet Union.
President Nixon's visit to China demonstrated
an overall improvement in our relations which has resulted in
15
the first direct trade with China since 1951, although the
S
level of trade remains small.
The United States is interested in normalizing its trade
relations with all of these countries for many reasons— as an
important aspect of detente, representing mutual benefits for
both sides; as potential markets for U.S. goods and the rebenefits for the U.S. balance of payments; as a stimulus
for more U.S. jobs through increased exports.
The recent agreements with the Soviet Union have already
had a major impact on trade levels.
U.S. two-way trade with
the USSR rose from $218 million in 1971 to $642 million in 1972.
During this same period, U.S. exports rose from $161 to $547
million, while imports rose from $57 to $95 million-for a u.S.
balance of trade improvement of $348 million.
Much of this
increase occurred in farm products, mainly grains: the Soviet
Union took $438 million worth (excluding transshipments) of
U.S. agricultural products in 1972, compared to just $30 million
in 1971.
After a lapse of 20 years the People's Republic of
China also emerged as a significant market for our agricultural
commodities, taking $58 million in 1972.
Eastern European
countries (excluding Yugoslavia) took $184 million in U.S. agri
cultural goods in 1972, compared to $162 million a year earlier.
Our overall favorable balance of trade with the Soviet Union
and Eastern Europe (again excluding Yugoslavia) in all commo
dities increased from $159 million in 1971 to $496 million in
1972.
16 These trade figures provide a good indication of the
agricultural market potential in these countries*
Even though
the failure of the Soviet grain crop was one of the major
causes of the large increase in U.S. grain exports (especially
wheat) to the USSR in 1972 and continuing into 1973, Soviet
plans to increase meat production are expected to maintain a
significant market for U.S. feedgrains in the USSR in the future.
Similar attempts to step up meat production in Eastern Europe
will also assist U.S. feedgrain exports.
The share of agricultural exports in our total exports
to these nations has been very high: 76 percent of our exports
to the Soviet Union and Eastern Europe (excluding Yugoslavia)
and 97 percent of our exports to the People*s Republic of China
in 1972 were agricultural goods.
Exports of manufactured
goods are expected to increase substantially in the future and
this share of the market for U.S. agricultural exports is likely
to change, but agricultural exports are expected to remain signi
ficant.
The potential for increased exports to these countries in
the future depends in large part on our willingness to fully
normalize economic relations with them.
This includes our
willingness to grant these nations most-favored nation treat
ment and credits, for which we in turn obtain improved market
access for exports and reciprocal credits.
Our trade agree
ment with the Soviet Union, for example, included the provi
sion that both Governments would take appropriate measures
17
to encourage trade on the basis of mutual advantage and in
expectation of such efforts, both Governments envisioned that
total bilateral trade would at least triple over the threeyear period of the Agreement, in comparison with the period
1969-1971.
billion.
This would mean a 3-year trade total of $1.5
The Department of agriculture has indicated that we
contracted in 1972 to export $1 billion in grains alone to the
Soviet Union for shipment during fiscal 1973.
Our trade pro
tocol with Poland similarly contemplates a tripling of trade
over a five-year period.
The most-favored nation provision of the Trade Reform Act
of 1973 (Section 504(b) of TitleV) is central of any improve
ment of commercial relationships with these countries.
The
provision would enable the President to extend MFN where he
considers it to be in the national interest, and to suspend
or withdraw in whole or part this treatment to prevent market
disruption if necessary.
The extension of MFN could be vetoed
by a majority vote of either the House or the Senate within
a three month period.
This authority would enable the United States to carry out
its trade agreement with the Soviet Union and to ensure con
tinued Soviet repayment of its lend-lease debt, which is linked
to receipt of MFN status.
It would also enable the United States
to take advantage of opportunities to conclude beneficial agree
ments with other countries not now receiving MFN, including
Romania
TABLE 1
Exchange Rate Changes Against U.S. Dollar
April 30, 1971 to April 13, 1973
Percent
Canada
France
0.9
22.2
Sweden 5./
Italy
15.1
6.7
U.K.
Bel-Lux
3.5
25.0
Netherlands
Switzerland
23.1
35.3
Germany
Japan
29.2
35.4
Australia —^
Austria a/
26.3
26.6
Denmark a/
Finland b/
20.9
8.2
Greece b/
Iceland b/
0
-10.7
Ireland
Norway a/
3.5
21.0
Portugal a/
Spain a/
14.4
20.4
Turkey b/
a/
Market rate for April 6, 1973.
b/
New par value or central rate.
7.1
Notes:
Percent changes are calculated on basis of U.S. cents per
foreign currency unit.
Base rates for the calculation are April 30, 1971 par values
or, for Canada, market rate. For new rates, market rates as of
April 13, 1971 are used, except as noted.
A positive (negative) number represents an appreciation
(depreciation) relative to the dollar.
jr
April 16, 1973
*
JOHN M. PORGES
BIOGRAPHY
John M. Porges, of New York, New York, has been
nominated by President Nixon, on April 13, 1973, to
serve as the U.S. Executive Director of the Inter
American Development Bank for a term of three years.
Mr. Porges will replace Henry J. Costanzo, who resigned
December 31, 1971.
Mr. Porges has been the Vice President in charge
of Latin America with Morgan Guaranty Trust Co. since
1962.
He joined Morgan Guaranty's International D i v i
sion in 1953 and was named Assistant Treasurer in the
Latin America area in 1958.
He has also served as a
Director of Banco Frances del Rio de la Plata, Buenos
Aires, and as President of the Pan American Society.
Mr. Porges enlisted in the U.S. Army in 1942 and served
in the 44th Infantry Division in the European Theatre
of Operations.
He received a battlefield commission in
France in 1945.
Mr. Porges, 50, attended Grinnell College, Grinnell,
Iowa, and New York University where he received a B.A.
degree.
He also holds an M.A. degree from the University
of Florida, Gainesville.
Mr. Porges is married to Anne Elina Barea of New
York, New York.
They have two children and presently
reside in Douglas Manor, New York.
oOo
thefREAJH
Departmentof
iSHINGTON, D.C. 20220
TELEPHONE W04-2041
o
FOR IMMEDIATE RELEASE
/ S
April 16, 1973
CHIEF COUNSEL LEE H. HENKEL, JR., RESIGNS
Treasury Secretary George P. Shultz announced that
President Nixon has accepted with "deep regret" the
resignation of Lee Ho Henkel, Jr., Assistant General Counsel
and Chief Counsel for the Internal Revenue Service0
M r c Henkel plans to establish in Atlanta the law firm of
Henkel and Lamon0
Mr. Henkel received Treasury *s Exceptional Service Award
which cited, among other things, "the exceptional service he
rendered in connection with organizing the Stabilization
Activity within the Chief Counsel’s Office commencing with
Phase II of the Economic Stabilization Program..*"
He also received the General Counsel’s Award which
noted his "superb legal, managerial, and executive ability",
and his "unusual leadership in improving the efficiency and
economy of operations within the Chief Counsel’s Office."
S-170
OVER
-
2
-
M r 0 Henkel has served as Chie£ Counsel since June 1972.
He began his Treasury service in September 1971 when he was
appointed Deputy Chief Counsel for the Internal Revenue
Service.
Mr. Henkel, of Columbus, Georgia, is married to the
former Barbara Davidson.
They have three children.
oOo
DepartmentoftheTREASURY
INGTON, D.C. 20220
TELEPHONE W04-2041
tTENTION: FINANCIAL EDITOR
OR RELEASE 6:30 P.M.
April 16, 1973
RESULTS OF TREASURY’S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
January 18,^1973 ? and
;he other series to be dated April 19, 1973 ? which were invited on April 10, 1973,
were opened at the Federal Reserve Banks today. Tenders were invited for $2,400,000,000,
or thereabouts, of 91-day bills and for $1,800,000,000, or thereabouts, of 182 -day
ibis. The details of the two series are as follows:
Ills, one series to be an additional issue of the bills dated
Inge of accepted
REPETITIVE BIDS :
High
Low
Average
91-day Treasury bills
maturing July 19, 1973
Approx. Equiv.
Annual Rate
Price
98.443
6.160$
6.203$
98.432
6.187$
1/
98.456
182-day Treasury bills
maturing October 18, 1973
Approx. Equiv.
Annual Rate
Price
96.778 a/
6.373$
96.765
6.399$
96.770
6.389$ 1/
:
|
:
:
;
:
a/ Excepting 4 tenders totaling $8,010,000
42$ of the amount of 91-day bills bid for at the low price was accepted
19$ of the amount of 182-day bills bid for at the low price was accepted
M l TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
[District
■Boston
■New York
■Philadelphia
[Cleveland
[Richmond
[Atlanta
[Chicago
[St. Louis
Minneapolis
Pansas City
[Dallas
[San Francisco
TOTALS
Accepted
Applied For
9,280,000
$ * 13,$057(500 $
1,597,105,000
2,924,540,000
15,010,000
38,585,000
24,020,000
26,210,000
10,330,000
26,330,000
22,645,000
13,515,000
38,135,000
287,215,000
29,345,000
72,360,000
6,655,000
22,655,000
45,380,000
23,630,000
13,620,000
39,115,000
619,905,000
651?660,000
$4,170,500,000 $2,400,550,000 b/
Applied For
Accepted
$
$
3,170,000
2,788,540,000
7,280,000
13,585,000
26,570,000
24,355,000
265,755,000
75,980,000
25,485,000
27,100,000
31,970,000
470,010,000
$3,759,800,000
2,470,000
1,274,580,000
7,070,000
11,915,000
5,805,000
9,285,000
17,240,000
25,480,000
3,485,000
13,710,000
9,970,000
419,110,000
$1,800,120,000
98.436
96.770
■ These rates are on a bank discount basis. The equivalent coupon issue yields are
I '^$ for the 91*.day bills, and 6.69$ for the 182-day bills.
■ Includes $222,465,000
■Includes $121,280,000
noncompetitive tenders accepted at the average price■of
noncompetitive tenders accepted at the average price of
/
S T A T E M E N T BY THE H O N O R A B L E J A C K F. B E N N E T T
D E P U T Y U N D E R S E C R E T A R Y OF THE T R E A S U R Y
F OR M O N E T A R Y A F F A I R S
B E F O R E THE
H O U S E A P P R O P R I A T I O N S S U B C O M M I T T E E F OR A G R I C U L T U R E
ENVIRONMENTAL AND CONSUMER PROTECTION
T U E S D A Y , A P R I L 17, 1972, AT 1 :00 P.M. (EST)
Mr.
Chairman
and m e m b e r s
I am p l e a s e d
Treasury
year
created
Financing
by
the
w h i c h wa s
92-500,
Authority
to
support
request
for
progr?m
municipal
because
their
waste
of
waste
Under
Amendments
enacted
18,
a limited,
sol e p u r p o s e
national
Financing
the
for
the
the f i s c a l
the
of E F A
for
of
as
but
is
1972"
Act
of
12 of P u b l i c
important,
to help
fun c t i o n .
assure
facilities
of
that
is not
on r e a s o n a b l e
Water
Pollution
the E n v i r o n m e n t a l
the
essential
of m u n i c i p a l i t i e s
bonds
"Federal
section
construction
treatment
inability
Financing
or EFA,
1972.
the
treatment
the
Authority,
"Environmental
October
E F A has
The
today
1974.
1972,"
Law
subcommittee:
appropriation
The E n v i r o n m e n t a l
was
the
to be here
Department's
Environmental
of
interrupted
to
sell
terms.
Control
Protection
Act
Agency
2
will
the
provide
Federal
construction
grants
costs
of m u n i c i p a l
facilities.
The r e m a i n i n g
s h are
construction
of
extent
the
be
purchase
sold
in
financed
those
by
Agency
(1)
to o b t a i n
finance
as
has
(3)
has
and
EFA will
obligations
or
interest
finance
by
if
EFA will
they c a n n o t
(2)
terms.
sufficient
credit
approved
Control
and
its p u r c h a s e s
of m u n i c i p a l
its own o b l i g a t i o n s
No
the p r i v a t e m a r k e t .
the
capital
respect
However,
S e c r e t a r y of
Secretary
to EFA,
in
appropriation
of
the
action
to b o r r o w i n g
any p u r c h a s e s
in a p p r o p r i a t i o n Acts.
initial
the
of
the o b l i g a t i o n .
must
provide
Act,
timely payment
is r e q u i r e d w i t h
authorizes
the p r o j e c t
Pollution
by
also
to
grant
of E F A o b l i g a t i o n s
Act
is u n a b l e
construction
Treasury.
be a u t h o r i z e d
unless
Protection
the b o r r o w e r
has
be
treatment
on
selling
to the
issues.
any o b l i g a t i o n
terms
to g u a r a n t e e
the C o n g r e s s
by E F A in
Water
treatment
to a large
on r e a s o n a b l e
that
needs,
for a w a s t e
Federal
debt
of
non-Federal
the E n v i r o n m e n t a l
certified
agreed
principal
by
of
waste
wil l
only
purchase
its a c t u a l
the
market
l o cal
on r e a s o n a b l e
eligible
under
costs
the p r i v a t e m a r k e t
the A d m i n i s t r a t o r
75 p e r c e n t
25 p e r c e n t
obligations
' E F A c o u l d n ot
to cover
the
the
Treasury
The
1972
Treasury
which must
to
be r e p a i d
3
with
are
int e r e s t ,
and
appropriations
authorized
for
such
The
FY 1974
$100 m i l l i o n
authority
purchase
up
requests
for
for
initial
the
to
are n e c e s s a r y
in order
$300 m i l l i o n
in
from
as
to
the
for
The
initial borrowings
We
are also
Secretary
of
obligations
permit
EFA
interest
is not
provide
issues
on
and
timely
EFA will
l o cal
have
for
public
permanent
less,
depending
decisions
and
financing
amount' of b o r r o w i n g
a m ount
authority
upon
in FY 1974
of E F A ?s
payment
to be use d
for
the
E F A's
as m a y be n e c e s s a r y
of p r i n c i p a l
obligations.
an e f f e c t i v e
thus
for
to
the T r e a s u r y
to p u r c h a s e
in such a m o u n t s
its m a r k e t
(2)
the m a r ket.
requesting
to m a k e
of
its
and
timing
the T r e a s u r y
expected
for
in
from
actual
conditions
appropriate
of
allow EFA a reasonable
the T r e a s u r y m a y w e l l be
financial market
that
of b o n d s
the p r i v a t e m a r ket.
and
the T r e a s u r y
available
to a r r a n g e
appropriations
of E F A fs o b l i g a t i o n s
This a s s u r a n c e w i l l
time
a d v ances.
advances
to a s s u r e
purchasing
of
for
of
$100 m i l l i o n
capital
capital
$200 m i l l i o n
resources
amount
(1)
Secretary
sufficient
bodies.
initial
of
but
This
of
and
authority
is n e c e s s a r y
guarantee
to
to
E F A Ts m a r k e t
s a v ^ the G o v e r n m e n t m o n e y by
minimizing
the
borrowings.
interest
That
obligations
is,
that
to m a k e
timely payment
its m a r k e t
on
will
purchase
interest
r ate
if
EFA may borrow
like
proposed
of p r i n c i p a l
and
to p o int
today
out
that
are not
are
if n e c e s s a r y
interest
the d e t e r m i n a n t
which will
Federal assistance.
receive
mination
is m a d e
approval
of grant
by
P r o t e c t i o n Agency.
to insure
the E n v i r o n m e n t a l
and
E F A*s
on
the appropriatio.ns
of w a s t e
authority
they
f rom T r e a s u r y
the m a x i m u m a m o u n t
authority
such m a r k e t
obligations.
I would
actions
required
investors
at a l o wer
assured
rate
the
treatment
Congress
authority
for
the p r o j e c t s
can
That
deter
annual
the E n v i r o n m e n t a l
Protection Agency
from Congress
facilities
in its
I am her e m e r e l y
that
of
to r e q u e s t
approved
u n der
a c t u a l l y be
by
its
financed
constructed.
T hat
I will
c o n c l u d e s my p r e p a r e d
be h a p p y
to answ e r
any
statement,
questions
requests.
0O0
on
Hr.
Chairman
these
Departmentof
^T
TELEPHONE W04-2041
iSHINGTON, D.C. 20220
FOR IMMEDIATE RELEASE
"April 17, 1973
TREASURY’S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series
of Treasury bills to the aggregate amount of $4,200,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing
of $4,200,830,000 as follows:
April 26, 1973, in the amount
91-day bills (to maturity date) to be issued April 26, 1973,
in the amount
of $2,400,000,000, or thereabouts, representing an additional amount of bills
dated January 25, 1973, and to mature July 26, 1973
(CUSIP No. 912793 rmo ),
originally issued in the amount of $1,901,115,000,
bills to be freely interchangeable.
the additional and original
182_day bills, for $1,800,000,000, or thereabouts, to be dated April 26, 1973,
and. to mature October 25, 1973
(CUSIP No. 912793 SA5 ).
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding, as hereinafter provided, and at maturity their face
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will be received at Federal Reserve Banks and Branches up to the clos
ing hour, one-thirty p.m., Eastern Standard time, Monday, April 23, 1973.
Tenders will not be received at the Treasury Department, Washington. Each tender
must be for a minimum of $10,000. Tenders over $10,000 must be in multiples of
$5,000.
In the case of competitive tenders the price offered must be expressed
on the basis of 100, with not more than three decimals, e.g., 99.925.
may not be used.
Fractions
It is urged that tenders be made on the printed forms and for
warded in the special envelopes which will be supplied by Federal Reserve Banks
or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders. Others than
banking institutions will not be permitted to submit tenders except for their own
-
2-
account. Tenders will be received without deposit from incorporated banks and
trust companies and from responsible and recognized dealers in investment
securities. Tenders from others must be accompanied by payment of 2 percent
of the face amount of Treasury bills applied for, unless the tenders are
accompanied by an express guaranty of payment by an incorporated bank or trust
company.
Immediately after the closing hour, tenders will be opened at the Federal
Reserve Banks and Branches, following which public announcement will be made by
the Treasury Department of the amount and price range of accepted bids.
Only those
submitting competitive tenders will be advised of the acceptance or rejection
thereof.
.Che Secretary of the Treasury expressly reserves the right to accept or
reject any or all tenders, in whole or in part, and his action in any such respect
shall be final. Subject to these reservations, noncompetitive tenders for each
issue for $200,000 or less without stated price from any one bidder will be accepted
in full at the average price (in three decimals) of accepted competitive bids for
the respective issues.
Settlement for accepted tenders in accordance with the
bids must be made or completed at the Federal Reserve Bank on April 26, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing April 26, 1973.
treatment.
Cash and exchange tenders will receive equal
Cash adjustments will be made for differences between the par value of
maturing bills accepted in exchange and the issue price of the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the
amount of discount at which bills issued hereunder are sold is considered to accrue
when the bills are sold, redeemed or otherwise disposed of, and the bills are ex
cluded from consideration as capital assets. Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder must include in his
income tax return, as ordinary gain or loss, the difference between the price paidfor the bills, whether on original issue or on subsequent purchase, and the amount
actually received either upon sale or redemption at maturity during the taxable
year for which the return is made.
Treasury Department Circular Wo. 418 (current revision) and this notice,
prescribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
MEMORANDUM TO CORRESPONDENTS:
April 17, 1973
Attached is a copy of the letter of transmittal
from the Secretary of the Treasury to the Speaker of
the House proposing legislation to strengthen and
improve the private retirement system by establishing
minimum standards for participation in and for vesting
of benefits under pension and profit-sharing plans, by
providing certain tax incentives and statutory
requirements for the plans.
A copy of the bill and
general explanation also are attached.
A similar
letter was transmitted to the President of the Senate.
Attachments
8-171
THE SECRETARY OF THE TREASU RY
W A S H IN G T O N
APR 1 7 1973
Dear M r . S p e a k e r :
T h e r e is t r a n s m i t t e d h e r e w i t h a p r o p o s e d b i l l e n t i t l e d
"Retirement Benefits Tax Act," as recommended by the President
in h i s m e s s a g e of A p r i l 11, 1973, o n p e n s i o n reform.
T h e b i l l is a r e v i s e d a n d e x p a n d e d v e r s i o n of t h e d r a f t
bill e n t i t l e d " I n d i v i d u a l R e t i r e m e n t B e n e f i t s A c t of 1971,"
t r a n s m i t t e d to y o u b y D e p u t y S e c r e t a r y C h a r l s E. W a l k e r o n
D e c e m b e r 13, 1971.
T h i s l e g i s l a t i o n is d e s i g n e d to s t r e n g t h e n
the p r i v a t e r e t i r e m e n t s y s t e m b y p r o v i d i n g m i n i m u m s t a n d a r d s
of p a r t i c i p a t i o n in t h e b e n e f i t s o f f e r e d b y e m p l o y e r - s p o n s o r e d
r e t i r e m e n t p l a n s , to e n c o u r a g e t h e e x p a n s i o n of t h e p r i v a t e
r e t i r e m e n t s y s t e m b y o f f e r i n g g r e a t e r t a x b e n e f i t s to i n d i
v i d u a l s w h o c h o o s e to i n v e s t in r e t i r e m e n t s a v i n g s p l a n s , a n d
to i n c r e a s e t h e d e d u c t i b l e c o n t r i b u t i o n s w h i c h m ay be m a d e to
r e t i r e m e n t p l a n s o n b e h a l f of s e l f - e m p l o y e d i n d i v i d u a l s a n d
s h a r e h o l d e r - e m p l o y e e s of e l e c t i n g s m all b u s i n e s s c o r p o r a t i o n s .
A d i s c u s s i o n of t h e p r o v i s i o n s o f t h e e n c l o s e d b i l l is c o n t a i n e d
in t h e g e n e r a l e x p l a n a t i o n e n c l o s e d h e r e w i t h .
It w o u l d b e a p p r e c i a t e d if y o u w o u l d l ay t h e p r o p o s e d
l e g i s l a t i o n b e f o r e t h e H o u s e of R e p r e s e n t a t i v e s .
A similar
c o m m u n i c a t i o n h as b e e n a d d r e s s e d to t h e P r e s i d e n t of t h e
Senate.
W e h a v e b e e n a d v i s e d b y t h e O f f i c e of M a n a g e m e n t a n d B u d g e t
that t h e r e is no o b j e c t i o n to t h e p r e s e n t a t i o n of t h i s d r a f t b i l l
to t h e C o n g r e s s , a n d t h a t its e n a c t m e n t w o u l d be in a c c o r d w i t h
the p r o g r a m of t h e P r e s i d e n t .
Sincerely yours
G e o r g e P.
The H o n o r a b l e
Carl A l b e r t
Speaker of t h e H o u s e
of R e p r e s e n t a t i v e s
W a s h i n g t o n , D. C.
2 0 515
Enclosures
Shultz
A
IA
U
A BILL
To strengthen and improve the private retirement system by
establishing minimum standards for participation in
and for vesting of benefits under pension and profitsharing retirement plans, by allowing deductions to
individuals for their contributions to retirement
plans, by increasing contribution limitations for
self-employed individuals and shareholder-employees
of electing small business corporations, by imposing
an excise tax on prohibited transactions, and for
other purposes*
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled*
SECTION II
(a)
SHORT TITLE, ETC.
Short Title.— This Act may be cited as the "Retire
ment Benefits Tax Act".
(b)
Amendment of 1954 Code.--Except as otherwise
expressly provided, whenever in this Act an amendment is
expressed in terms of an amendment to a section or other
provision, the reference is to a section or other provision
of the Internal Revenue Code of 1954.
2
SEC. 2.
(a)
MINIMUM STANDARDS RELATING TO FUNDING,
ELIGIBILITY AND VESTING.
In General.— Section 401 (a) (relating to
requirements for qualification) is amended:
(1)
by inserting at the end of paragraph (7)
the following:
"For purposes of this paragraph, a complete
discontinuance of contributions under a defined benefit
pension plan occurs if the amount contributed to or
under the plan for a plan year beginning after
December 31, 1973, is less than the minimum
funding standard.
For this purpose, the
minimum funding standard is the excess (if
any) of—
"(A)
the sum of—
jj(i)
the normal cost of the plan
for such year plus interest on the
unfunded liability, computed under the
funding method used to determine normal
costs,
"(ii)
5 percent of the unfunded
liability for nonforfeitable benefits
under the plan
(computed as the excess of the
present value of the then accrued nonforfeitable
benefits over the fair market value of the
assets), and
"(iii)
the total of the amounts
determined under clauses (i) and (ii)
with respect to the plan for each of the
preceding plan years beginning after
December 31, 1973, over
M(B)
the total of the amounts con
tributed to or under the plan for each of
the preceding plan years beginning after
December 31, 1973.
The minimum funding standard determined under the
preceding sentence shall not exceed the excess
(if any) of the accrued liability under the
entry age normal funding method (including the
normal cost for the year), over
the fair market value
of the assets held under the plan.
In lieu of the
minimum funding standard otherwise provided under
this paragraph, the Secretary or his delegate may
authorize the use of another minimum funding
standard which results in a satisfactory rate of
funding.”, and
- 4 -
(2)
by adding at the end thereof the following
new paragraphs:
"(11)
A trust shall not constitute a qualified
trust under this section if the plan of which such
trust is a part requires, as a condition of partici
pation, that an employee-"(A)
have a period of continuous service
with the employer (or, in accordance with regu
lations prescribed by the Secretary or his
delegate, a predecessor of the employer) in
excess of 3 years,
5
”(B)
have attained an age in excess of
30 years, or
"(C)
have not attained an age which is
greater than the normal retirement age under
the plan reduced by 5 years.
The Secretary or his delegate shall by regulation define
the term ’normal retirement age under the plan' for
purposes of this paragraph.
i
6
"(12) (A)
(B)
Except as provided in subparagraphs
and (C), a trust shall not constitute
a qualified trust under this section unless,
under the plan of which such trust is a part,
an employee *s rights in his accrued benefit
derived from his own contributions are non
forfeitable (other than by reason of death);
his rights in at least 50 percent of his accrued
benefit derived from employer contributions
become nonforfeitable (other than by reason
of death)-"(i)
as of the close of the first
plan year in which the sum of his age
and the period of his active participation in
the plan equals or exceeds 50 years, or
"(ii)
as of the time he has com
pleted 3 years of continuous service with
the employer (or, in accordance with
regulations prescribed by the Secretary
or his delegate, a predecessor of the
employer),
7
whichever occurs later; and his rights in the
remaining percentage of all of his accrued benefit
derived from employer contributions become non
forfeitable (other than by reason of death) not
less rapidly than ratably over the next succeeding
5 plan years.
"(B)
A trust which is a part of a plan
to which employees are required to contribute
as a condition of participation shall not be
disqualified under this paragraph merely because
an employee*s rights in his accrued benefit
derived from employer contributions under the
plan are forfeitable if, by reason of his
separation from the service or termination of
his active participation in the plan, he
voluntarily withdraws all or a part of the
amount contributed by him.
"(C)
This paragraph shall not apply to
contributions which, under provisions of the
plan adopted pursuant to regulations prescribed
by the Secretary or his delegate to preclude
8
discrimination prohibited by paragraph (4),
may" not be used to provide benefits for de
signated employees in the event of early
termination of the plan.
"(D)
For purposes of this paragraph and
subsection (d) (2) (A), an employee's accrued
benefit as of any applicable date is—
"(i)
in the case of a defined
benefit pension plan, except as provided
under subparagraph (F), the annual benefit
commencing at normal retirement age
9
to which*he would be entitled
under the plan as in effect at such time
if he continued to earn annually until
normal retirement age the same rate of
compensation as he earned at such time
(based upon his earnings during the 12
preceding months or, if shorter, the
actual preceding period of employment)
multiplied by a fraction, the numerator
of which is the total number of his years
of service with the employer (or, in
accordance with regulations prescribed
by the Secretary or his delegate, a
predecessor of the employer) performed
as of such time, and the denominator of
which is the total number of years of
service he would have performed as of
normal retirement age if he had continued
to be employed by the employer until
attaining such age, except that the
10
-
denominator of such fraction shall not
be less than 15 nor more than 40, or
M(ii)
in the case of a plan other
than a defined benefit pension plan,
the balance of the account or accounts
for such employee as of that time#
For purposes of this subparagraph, the fraction
referred to in clause (i) shall be equal to one
at normal retirement age and shall never exceed
one.
In the case of a defined benefit pension
plan which permits voluntary employee contribu
tions, the portion of an employee's accrued
benefit derived from such contributions shall be
treated as an accrued benefit derived from
contributions under, a plan other than a defined
benefit pension plan.
"(E)
For purposes of this paragraph, an
employee's accrued benefit derived from employer
contributions as of any applicable date is the excess
of the accrued benefit determined under
subparagraph (D) for such employee as
of such applicable date over the amount
of the accrued benefit derived from
contributions made by such employee as of
such date.
With respect to a plan other
than a defined benefit pension plan, the
amount of accrued benefit derived from
contributions made by an employee is the
benefit attributable to the balance of the
employee*s separate account consisting
only of his contributions and the income,
gains and losses attributable thereto
or, if a separate account is not maintained
with respect to an employee *s contributions
under such a plan, is an amount which bears
the same ratio to the total accrued benefit
as the total amount of the employee's
contributions (less withdrawals) bears to the
total amount of such contributions and the
contributions made on his behalf by the employer.
- 11a -
With respect to a defined benefit pension
plan providing an annual benefit in the form
of a single life annuity commencing at normal
retirement age, the amount of the accrued
benefit derived from contributions made by an
employee as of any applicable date is the annual
benefit equal to the employee's accumulated
contributions multiplied by the appropriate
conversion factor.
For this purpose, the term
'appropriate conversion factor' means the factor
necessary to convert an amount equal to the
accumulated contributions to a single life an
nuity commencing at normal retirement age and
shall be 10 percent for a normal retirement age of
65 years.
For other normal retirement ages the
conversion factor shall be determined in ac
cordance with regulations prescribed by the
Secretary or his delegate.
For purposes of this
subparagraph, the term ’accumulated contributions*
means the total of:
**(i)
all mandatory contributions
made by the employee before the end of
the last plan year referred to in para
graph (14) (A) (i) or (ii), together
with interest (if any) credited thereon under
the plan to the end of such plan year
(to the extent such contributions and
interest are nonforfeitable on the
applicable date), and interest compounded
annually thereafter at the rate of 5
percent per annum, to the date upon
which the employee would attain normal
retirement age, and
*'(ii)
all mandatory contributions
made by the employee after the end of
the last plan year referred to in paragraph
13
(14) (A) (i) or (ii), together with in
terest on such contributions compounded
annually at the rate of 5 percent per
annum to the date upon which the employee
would attain normal retirement age.
The accrued benefit derived from contributions
made by an employee shall not exceed the accrued
benefit determined under subparagraph (D).
For
purposes of this subparagraph, mandatory con
tributions made by an employee are the contri
butions that are required to be made under the
plan to receive any benefit derived from employer
contributions.
"(F)
For purposes of this paragraph,
in the case of any defined benefit pension plan,
if an employee's accrued benefit is to be
determined as an amount other than an annual
benefit commencing at normal retirement date,
or if the amount of accrued benefit derived
from contributions made by an employee is to
be determined with respect to a benefit other
I
than an annual benefit in the form of a single
- 14 -
life annuity commencing at normal retire
ment age, the employee*s accrued benefit, or
the amount of accrued benefit derived from
contributions made by an employee, as the case
may be, shall be the actuarial equivalent
(determined in accordance with regulations
prescribed by the Secretary or his delegate)
of such benefit or amount determined under
subparagraph (D) or (E).
15
f,(13) (A)
Except as provided in subparagraph (B),
a trust which is a part of a defined benefit pension plan
in existence on December 31, 1972, shall not be dis
qualified under paragraph (12) merely because the plan of
which it is a part provides that an employee's
accrued benefit derived from employer contributions
for any plan year is forfeitable if—
"(i)
for such plan year the sum of
the periodic benefit payments to retired
participants exceeds the benefit accruals
(determined in accordance with regulations
prescribed by the Secretary or his delegate)
by active participants, and
"(ii)
as of the beginning of such
plan year, the sum of the present values
of accrued plan liabilities to active and
retired participants exceeds the fair
market value of plan assets.
"(B)
Subparagraph (A) shall not apply—
" (i)
for any plan year which begins
after December 31, 1972, in which the plan is
amended to provide additional or increased
benefits;
M(ii)
for any plan year beginning
after the plan year described in clause
(i); or
"(iii)
for any
plan year which begins
after December 31, 1972, and which precedes
the plan year described in clause (i) by
not more than five plan years.
11 (14) (A)
Except as provided by subparagraph (B),
paragraphs (11) and (12) shall not apply in
the case of a plan in existence on December 31,
1972, with respect to the eligibility of partici
pants or the benefits accrued under such plan during
"(i) a plan year which begins before
January 1, 1975, or
"(ii) if later, a plan year ending
before the termination of an agreement,
pursuant to which the plan is maintained,
which the Secretary or his delegate finds
to be a collective bargaining agreement,
between employee representatives and
one or more employers, in effect on
December 31, 1972.
For purposes of clause (ii), the date on which
an agreement terminates shall be determined
17
without regard to any extension thereof
agreed to after December 31, 1972.
*'(B)
Paragraph (12) shall apply to all
benefits accrued under the plan unless—
"(i)
the conditions of nonforfeitability
provided under the plan as in effect on
December 31, 1972, remain in effect with
respect to benefits accrued during any
plan year referred to in subparagraph (A)
(i) or (ii), and
M(ii)
in the case of a profit-sharing,
stock bonus, or money purchase pension
plan, separate accounts are maintained
with respect to the benefits accrued
during the plan years referred to in subparagraph (A) (i) or (ii).M
18
(b)
Plans Benefiting Owner-Employees.--Section
401 (d) (relating to additional requirements for
qualification of trusts and plans benefiting owneremployees) is amended—
(1)
(A)
Vesting.— By striking out paragraph (2)
and inserting in lieu thereof:
"(A)
an employee's rights to his accrued
benefit derived from his own contributions
(within the meaning of subsection (a) (12))
are nonforfeitable (other than by reason of
death), and his rights in at least 50 percent
of such accrued benefit derived from employer
contributions (within the meaning of subsection
(a)
(12)) are nonforfeitable (other than by
reason of death) as of the close of the first
plan year in which the sum of his age and the
period of his active participation in the plan
equals or exceeds 35 years, and his rights in
the remaining percentage of
19
all of his accrued benefit derived from
employer contributions become nonforfeitable
(other than by reason of death) not less
rapidly than ratably over the next succeeding
5 plan years; and".
(2)
Eligibility conditions.— By striking out
paragraph (3) and inserting in lieu thereof:
"(3)
The plan benefits—
"(A)
each employee who has not attained the
age of 30 years and has a period of continuous
service with the employer of 3 or more years,
"(B)
each employee who has attained the age
of 30 years but has not attained the age of 35
years and has a period of continuous service with
the employer of 2 or more years, and
"(C)
each employee who has attained the age
of 35 years and who has a period of continuous
service with the employer of 1 or more years.
For purposes of the preceding sentence, the term
'employee' does not include any employee whose
customary employment is for not more than 20 hours
in any one week or is for not more than 5 months in
any calendar year.
For purposes of this paragraph,
under regulations prescribed by the Secretary or
his delegate, the term 'employerf -shall include a
predecessor of the employer.”
(c)
Conforming Amendments.-(1)
Section 404 (a) (2) (relating to deduc
tion for contributions of an employer to employees'
annuity plan) is amended by striking out "and (8),
and, if applicable, the requirements of section
401 (a) (9) and (10) and of section 401 (d) (other
than paragraph (1)),” and inserting in lieu thereof
"(8), (11), (12), and (13), and, if applicable, the require
ments of section 401 (a) (9) and (10), section 401
(c)
(6), and section 401 (d) (other than paragraph (1)),” .
(2)
Section 405 (a) (1) (relating to qualified
bond purchase plans) is amended by striking out "and
(8) and, if applicable, the requirements of sec
tion 401 (a) (9) and (10) and of section 401 (d)
(other than paragraphs (1), (5) (B), and (8>); and"
21
and inserting in lieu thereof "(8), and (11), and,
if applicable, the requirements of section 401 (a)
(9) and (10) and of section 401 (d) (other than
paragraphs (1), (2) (A), (5) (B), and (8)); and".
(3)
Section 805 (d) (1) (C) (relating to
definition of pension plan reserves) is amended by
striking out "and (8)" and inserting in lieu thereof
"(8), (11), (12), and (13)".
(d)
Effective Dates.-(1)
General rule.--Except as provided by para
graph (2), the amendments made by this section shall
be effective after the date of enactment of this Act.
(2)
(b)
Exception.--The amendments made by subsection
(2) shall not apply for a plan year beginning
before January 1, 1975, in the case of a trust or
contract which is a part of a plan in existence on
December 31, 1972.
22
SEC. 3.
DEDUCTION FOR RETIREMENT SAVINGS.
(a)
In General.— Part VII of subchapter B of chapter
1 (relating to additional itemized deductions for indivi
duals) is amended by redesignating section 219 as 220 and
inserting after section 218 the following new section:
**SEC. 219.
" (a)
RETIREMENT SAVINGS.
Deduction Allowed.^-Subject to the limitations
imposed by subsections (b) and (c), in the case of an
individual, there shall be allowed as a deduction amounts
paid in cash during the taxable year by such individual—
M (l)
to or under a qualified individual
retirement account described in section 408 (a) which
is exempt from tax under section 501 (a), if the
individual established such account,
"(2)
to an employees' trust described in section
401 (a) which is exempt from tax under section 501 (a),
for his benefit,
"(3)
for the purchase of an annuity contract
for the individual under a plan which meets the
requirements of section 404 (a) (2), or
"(4)
to or under a qualified bond purchase
plan described in section 405 (a), for his benefit.
- 23 -
"(b)
Limitations.-"(1)
General rule.--Except as provided in
paragraphs (2) and (3), the amount allowable as a
deduction under subsection (a) to an individual for
any taxable year shall not exceed an amount equal
to 20 percent of his earned income paid or accrued
for such taxable year, or $1,500, whichever is the
lesser.
This limitation shall apply to the sum
of the amounts paid during the taxable year by
the individual to or under all accounts, trusts,
and plans described in subsection (a).
"(2)
Reduction on account of employer contri
butions to qualified pension, etc., plans.--The amount
of the limitation otherwise determined under this
24 -
subsection for any taxable year shall be reduced by
the amount (determined in accordance with regula
tions prescribed by the Secretary of his delegate)
of contributions paid on behalf of the individual by
his employer (including an employer within the meaning
of section 401 (c) (4)) for the individual's taxable
year-"(A)
to an employees' trust described
in section 401 (a) which is exempt from tax
under section 501 (a),
"(B)
for the purchase of an annuity con
tract under a plan which meets the requirements
of section 404 (a) (2),
"(C)
to or under a qualified bond pur
chase plan described in section 405 (a), or
"(D)
for the purchase of an annuity
contract described in section 403 (b).
In accordance with regulations prescribed by the
Secretary or his delegate, the amount of contribu
tions described in subparagraphs (A), (B), and (C) of
the preceding sentence paid on behalf of an individual
25
by his employer for his taxable year may, at the
option of the individual, be considered to be
7 percent of his earned income paid or accrued
for such taxable year attributable to the perfor
mance of personal services for such employer.
The
previous sentence shall not apply in the case of
a contribution on behalf of an owner-employee within
the meaning of section 401 (c) (5).
M (3)
Reduction for certain employees.--If an
individual has earned income for the taxable year
which is not subject to tax under chapter 2, 21,
or 22, the amount of the limitation otherwise
determined under this subsection for such year
shall be reduced by an amount equal to the tax
(or the increase in tax) that would have been imposed
upon such income under section 3101 for the taxable
year had such income constituted wages (as defined
in section 3121 (a)) received by him with respect
to employment (as defined in section 3121 (b)).
26
"(4)
Contributions made after age 70-1/2 years.—
No deduction shall be allowed under this section with
respect to any payment described in subsection (a)
which is made by an individual who has attained the
age of 70-1/2 years.
"(c)
Recontributed Amounts.--No deduction shall be
allowed under this section with respect to a contribution
to which section 72 (p) (2) (C), 402 (a) (6) or (7),
or 403 (a) (4) or (5), applies.
"(d)
Married Individuals.’--In the case of a married
individual (as defined in section 153), the amount deter
mined under subsection (b) (1) shall be determined without
regard to the earned income of his spouse and without
regard to contributions described in subsection (b) (2)
paid on behalf of his spouse.
For purposes of this sec
tion, the earned income of a married individual shall be
determined without regard to the community property laws
of a State.
- 27 -
M (e)
Earned Income Defined#--For purposes of
this section, the term ’earned income' means any
income which is earned income within the meaning of
section 401 (c) (2) or 911 (b),
"(f)
Time Contributions Deemed Made.--For
purposes of this section and section 408, an individual shall be deemed to have made a payment during
the taxable year if the payment is on account of such
taxable year and is made not later than the time
prescribed by law for filing the return for such
taxable year (including extensions thereof)."
28
(b)
Individual Retirement Accounts,— Part I of
subchapter D of chapter 1 (relating to pension, etc.
plans) is amended by adding at the end thereof the
following new section:
"SEC. 408.
"(a)
INDIVIDUAL RETIREMENT ACCOUNTS.
Requirements for Qualification.--A trust created
or organized in the United States shall constitute a
qualified individual retirement account under this section
provided that under a written governing instrument—
"(1)
it is maintained for the purpose of dis
tributing the contributions thereto and the income
therefrom to the individual who established it or
his beneficiaries;
"(2)
except in the case of a contribution
to which section 72 (p) (2) (C), 402 (a) (6),
or 403 (a) (4) applies, contributions thereto during
any taxable year may not exceed the excess of-"(A)
the limitation provided by section
219 (b) for such taxable year, over
!|
29
H (B)
the sum of the amounts paid by such
individual during such year—
"(i)
to an employees' trust described
in section 401 (a) which is exempt from
tax under section 501 (a), for his benefit,
"(ii)
for the purchase of an annuity
contract for the individual under a plan
which meets the requirements of section
404 (a) (2), or
"(iii)
to or under a qualified bond
purchase plan described in section 405 (a),
for his benefit,
and may be made only by the individual who established
such account;
"(3)
the assets thereof may not be commingled
with other property except in a common trust fund;
30
"(4)
the assets
th e r e o f
are required to be held
in trust by, or in the custody of, a bank (as defined
in section 401 (d) (1)) or other person who demon
strates to the satisfaction of the Secretary or his
delegate that the manner in which such other person
will hold or have custody of such assets will be
consistent with the requirements of this section;
"(5)
the entire interest of the individual who
established it will be distributed to him not later
than his taxable year in which he attains the age of
70-1/2 years, or will be distributed, commencing not
later than such taxable year, in accordance with
regulations prescribed by the Secretary or his
delegate, over—
"(A)
the life of such individual or the
lives of such individual and his spouse, or
"(B)
a period not extending beyond the
life expectancy of such individual or the life
expectancy of such individual and his spouse;
"(6)
if the individual who established it dies
before his entire interest has been distributed to
him, or if distribution has been commenced in
accordance with paragraph (5) to his surviving spouse
and such surviving spouse dies before the entire
interest has been distributed to such surviving spouse,
- 31
the entire interest (or the remaining part of such
interest if distribution thereof has commenced) will,
within 5 years after his death (or the death of his
surviving spouse) be distributed, or applied to the
purchase of an immediate annuity for his beneficiary
or beneficiaries (or the beneficiary or beneficiaries
of his surviving spouse) which will be payable for
the life of such beneficiary or beneficiaries (or
for a term certain not extending beyond the life
expectancy of such beneficiary or beneficiaries) and
which will be immediately distributed to such bene
ficiary or beneficiaries; and
"(7)
if contributions thereto may be used for
the purchase of an annuity or similar contract issued
by a life insurance company, any refunds of premiums
are applied within the current taxable year or next
succeeding taxable year toward the payment of future
premiums or the purchase of additional benefits.
For purposes of this title, a custodial account, annuity
contract, or other similar arrangement shall be treated as
a trust constituting a qualified individual retirement
account.
For purposes of paragraph (4), if the assets are
held in custody, record title to the assets shall be in
r
the name of the custodian or his nominee.
Paragraph
(6) shall not apply if distribution of the interest
of such individual has commenced and such distribution
is for a term certain over a period permitted under
paragraph (5).
n (b)
Special Rules.—
"(1)
Excess contributions.--To the extent
that contributions during any taxable year to a
qualified individual retirement account are not
deductible under section 219, they shall be treated,
under regulations prescribed by the Secretary or
his delegate, in the same manner as provided for
in paragraphs (2) and (3) of section 401 (e)
(relating to excess contributions on behalf of
owner-employees).
"(2)
Community property laws.— This section
shall be applied without regard to the community
property laws of any State.
"(c)
Treatment as Qualified Trust Benefiting Owner-
Employee.— Solely for purposes of subchapter F, chapter
44, and subtitle F, a qualified individual retirement
account shall be treated as a trust described in section
401 (a) which is part of a plan providing contributions or
benefits for employees some or all of whom are owner-employees
- 33
(as defined in section 401 (c) (3)), the individual who
established such qualified individual retirement account
shall be treated as an owner-employee for whom such
contributions or benefits are provided, and the
person holding or having custody of the assets of such
qualified individual retirement account shall be treated
as the trustee of such trust.
402
(a) (6), or 403
If section 72 (p) (2) (C),
(a) (4) applies to a contribution to a
qualified individual retirement account, chapter 44 shall
not be applied to such contribution.
"(d)
Taxability of Beneficiary of Qualified In
dividual Retirement Account.-"(1)
In general.— Except as provided in para
graphs (2) and (3), the amount actually paid, dis
tributed or made available to any payee or distributee
by a qualified individual retirement account shall be
taxable to him in the year in which actually paid or
distributed under section 72 (relating to annuities).
M(2)
Recontributed amounts.--Amounts paid or
distributed by a qualified individual retirement
account, except amounts distributed pursuant to
provisions of the governing instrument meeting the
requirements of subsection (a) (5), shall not be
includible in gross income in the
- 34 -
year paid or distributed to the extent that such
amounts are not subject to the tax imposed by section
72 (p) (3) by reason of the application of section
72 (p) (2) (C).
"(3)
Repayment of excess contributions.—
Amounts paid or distributed under subsection (b)
(l) by a qualified individual retirement account
shall not be includible in gross income in the
year paid or distributed.
"(4)
Applicability of section 72 (m).--Under
regulations prescribed by the Secretary or his
delegate, an individual who establishes a qualified
individual retirement account shall be treated as
an employee who is an owner-employee for purposes
of applying paragraphs (2) and (4) of section 72
(m) (relating to special rules applicable to employee
annuities and distributions under employee plans).
35
"(e)
Treatment of Nonqualified or Nonexempt
Account.--If for the preceding taxable year of a
trust it was described in subsection (a) and was exempt
from tax under section 501 (a) and if for the taxable
year such trust is not exempt from tax under section 501
(a), the fair market value of the account at the beginning
of the taxable year, reduced by any contributions of the
individual who established such account which were not
deductible under section 219, shall be included in the
gross income of the individual who established such
account or his beneficiary as if the assets of the trust
had been distributed on the first day of the taxable year.
"(f)
Cross References.—
n(l)
For excise tax on a qualified individual
retirement account, see section 4960.
**(2)
For additional tax on certain distributions
from a qualified individual retirement account, see
section 72 (p).'*
- ~36 «
(c )
Treatment of Distributions from Individual
Retirement Accounts.--Section 72 (relating to annuities)
is amended-(£)|4j$() byt striking but subsection (m) (1),
(2)
by inserting after "section 401 (c) (1)"
in subsection (m) (2)", or under section 219",
(3)
by striking out at the end of subsection
,(m) (3) (A) (i) "or",
- 37 -
(4)
by striking out at the end of subsection
■Cm)- (3) (A) (ii) "participant." and inserting in
lieu thereof "participant, or",
(5)
by inserting after subsection (m) (3)
(A) (ii) the following new clause-"(iii)
purchased by a trust
described in section 408 (a) which is
exempt from tax under section 50If(a)*",
(6)
by striking out subsection (m) (3) (B) and
inserting in lieu thereof:
"(B)
Any contribution to a plan described
in subparagraph (A) (i) or a trust described
in subparagraph (A) (ii) or (iii) which is
p
w
- 38 -
a.
allowed as a deduction under section 404 or
section 219, and any income of a trust described
in subparagraph (A) (ii) or (iii), which is
determined in accordance with regulations
prescribed by the Secretary or his delegate to
have been applied to purchase the life insurance
protection under a contract described in subparagraph (A), is includible in the gross income
of the participant for the taxable year when so
applied.”,
(7)
by inserting after ”501 (a)” in subsection
(m) (4) (A) '%a trust described in section 408 (a)
which is exempt from tax under section 501 (a),”,
(8)
by inserting after ”501 (a)” in subsection
(m) (4) (B) ”,a trust described in section 408 (a)
which is exempt from tax under section 501 (a),”,
and
(9)
by redesignating subsection (p) as (q) and
inserting after subsection (o) the following new
subsection:
”(p)
Treatment of Certain Premature Distributions.-"(1)
Application of subsection.--This sub
section shall apply to amounts paid or distributed—
” (A)
by a qualified individual retirement
account described in section 408 (a) which is
exempt from tax under section 501 (a), or
39
" (B)
by a qualified trust described in
section 401 (a) which is exempt from tax under
section 501 (a) or under a plan described in
section 403 (a), but only to the extent attri
butable , as determined under regulations pre
scribed by the Secretary or his delegate, to
amounts with respect to which a deduction was
allowed under section 219 (relating to retire
ment savings),
which are includible in the gross income of the
distributee or payee and which are received by him
before the individual who established such qualified
individual retirement account or the individual who
was allowed such deduction attains the age of 59-1/2
years•
M (2)
Limitations •--This subsection shall not
apply to an amount described in paragraph (1)-"(A)
paid or distributed to such indivi
dual on account of his becoming disabled within
the meaning of subsection (m) (7),
"(B)
includible in gross income under
section 72 (m) (3) (B), or
"(C)
paid or distributed by a qualified
individual retirement account to the individual
who established such account if, within 60 days
40 after receipt, such amount is contributed
in full to another qualified individual re
tirement account established by such individual.
Subparagraph (C) shall not apply for a taxable year
if during the three year period ending on the date
such amount is received, this subsection did not
apply to an amount previously received by the individual
because of subparagraph (C).
Subparagraph (C) shall
not apply unless the same property received in a
payment or distribution is contributed.
The Secretary
or his delegate shall prescribe such regulations as
he may deem necessary to carry out the purposes of
this paragraph.
"(3)
Amount of penalty.--If an individual is
required to include in gross income for the taxable
year an amount to which this subsection applies,
there shall be imposed in addition to any other
tax imposed by this chapter a tax for such taxable
year equal to 30 percent of such amount.
The tax
imposed under this paragraph shall not be reduced by
any credit under part IV of subchapter A (other than
sections 31, 39, and 42 thereof), and shall not be
treated as a tax imposed by this chapter for purposes
of section 56.**
41
(d)
Excise Tax on Excessive Accumulations«— Sub
title D (relating to miscellaneous excise taxes) is
amended by adding at the end thereof the following
new chapter:
MCHAPTER 43— RETIREMENT PLANS
"Sec* 4960.
"SEC. 4960.
Excise tax on individual
retirement accounts.
EXCISE TAX ON INDIVIDUAL RETIREMENT ACCOUNTS.
"There is hereby imposed for each taxable year on
the assets of a qualified individual retirement account
described in section 408 (a) which is exempt from tax
under section 501 (a) a tax equal to 10 percent of an
amount which bears the same ratio to the fair market
value of the total assets in such account at the beginning
of the taxable year as the minimum amount required to be
distributed during such year under section 408 (a) (5)
or (6) (whichever applies) reduced (but not below zero)
by the total amount actually distributed during such
year by the account to the individual who established
such account or his beneficiary bears to the minimum
amount required to be distributed during such year
under section 408 (a) (5) or (6) (whichever applies).
The tax imposed by this section shall apply only for
taxable years beginning after the taxable year in which
the individual who established such account attains the
age of 70-1/2 years.
For purposes of this section, the
minimum amount required to be distributed during a year
- 42 under section 408 (a) (5)~or^(6) shall be determined
under regulations prescribed by the Secretary or his
delegate•"
(e )
Conforming Amendment s.-(1)
Retirement income,--Section 37 (c) (1)
(defining retirement income) is amended—
(A)
by striking out subparagraph (A) and
inserting in lieu thereof the following new
subparagraph:
"(A)
pensions and annuities including—
"(i)
in the case of an
individual who is, or has been, an employee
within the meaning of section 401 (c) (1),
a distribution by a trust described in
section 401 (a) which is exempt from tax
under section 501 (a) to the extent such
distribution was not subject to the tax
imposed by section 72 (p) (3), and
M(ii)
distributions from a
qualified individual retirement account
described in section 408 (a) which is exempt
from tax under section 501 (a) to the extent
such distribution was not subject to the
tax imposed by section 72 (p) (3),M
(B)
by striking out subparagraph (E) and
inserting in lieu thereof the following new
subparagraph:
43
"(E)
bonds described in section 405 (b)
(1) which are received—
"(i)
under a qualified bond purchase
plan described in section 405 (a),
"(ii) in a distribution from a trust
described in section 401 (a) which is
exempt from tax under section 501 (a),
"(iii)
from a qualified individual
retirement account described in section 408
(a)
which is exempt from tax under section
501 (a), orM .
(2)
Adjusted gross income.— Section 62 (relating
to definition of adjusted gross income) is amended
by inserting after paragraph (9) the following new
paragraph:
"(10)
Individual retirement savings.— The
deduction allowed by section 219."
(3)
Treatment of total distributions.--Section
72 (n) (4) (B) (relating to special rule for employees
without regard to section 401 (c) (1)) is amended by
inserting ", and other than a distribution from
a qualified individual retirement account described
in section 408 (a)" after "section 404".
(4)
Employee death benefits.--Section 101
(b) (2) (B) (relating to nonforfeitable rights) is
44
amended by striking out "or" at the end of clause
(ii), by striking out "contract." at the end of
clause (iii) and inserting in lieu thereof "contract,
or" and by adding at the end thereof the following
new clause:
"(iv)
by a qualified individual
retirement account described in section
408 (a) which is exempt from tax under
section 501 (a)."
(5)
Qualified bond purchase plans.— Section
405 (d) (relating to taxability of beneficiary) is
amended by striking out "or" after "bond purchase
plan," in paragraph (1), by inserting "or from a
qualified individual retirement account described
in section 408 (a) which is exempt from tax under
section 501 (a)," after "section 501 (a)," in
paragraph (1), and by striking out the portion thereof
which follows subparagraph (2) (B) and inserting in
lieu thereof the following:
"The basis of any bond
described in subsection (b) received by a distributee
from a trust described in section 401 (a) which
is exempt from tax under section 501 (a) or a
qualified individual retirement account described
in section 408 (a) which is exempt from tax under
section 501 (a) shall be determined under regulations
prescribed by the Secretary or his delegate."
m
- .45 (6)
Pension plan reserves.— Section 805 (d)
(1) (relating to definition of pension plan reserves)
is amended by striking out "or" at the end of sub*
paragraph (C), by striking out "foregoing.” at the
end of subparagraph (D) and inserting in lieu
thereof "foregoing; or", and by adding at the end
thereof the following new subparagraph:
"(E)
purchased under contracts entered
into with trusts which (as of the time the
contracts were entered into) were deemed to
be qualified individual retirement accounts
described in section 408 (a) which are exempt
from tax under section 501 (a)."
(7)
Averagable income.--Paragraph (2) (A) of
section 1302 (a) (relating to definition of averagable
income) is amended by inserting "or 72 (p) (3)" after
"section 72 (m) (5)".
(8)
Earned income.— Section 1348 (b) (1)
(relating to definition of earned income) is amended
by inserting ", 72 (p) (3)" after "72 (m)".
(9)
Definition of wages for purposes of Federal
Insurance Contributions Act.— Section 3121 (a) (5)
(defining wages) is amended by striking out "or" at
the end of subparagraph (B), by striking out "405
(a);" at the end of subparagraph (C) and inserting
in lieu thereof "405 (a), or" and by adding at the
end thereof the following new subparagraph:
"(D)
from or to a qualified individual
retirement account described in section 408 (a)
which is exempt from tax under section 501 (a)
at the time of such payment;".
- 47
(10) Federal unemployment tax definition of
wages.--Section 3306 (b) (5) (defining wages) is
amended by striking out "or" at the end of subparagraphs (A) and (B), by striking out "section
405 (a);" at the end of subparagraph (C) and
inserting in lieu thereof "section 405 (a), or ",
and inserting at the end thereof the following new
subparagraph:
"(D)
from or to a qualified individual
retirement account described in section 408
(a) which is exempt from tax under section
501 (a) at the time of such payment;".
(11)
Definition of wages for purposes of
collection of income tax at source.--Section
3401 (a) (12) (defining wages) is amended by
striking out ";or" at the end of subparagraphs
(A) and (B) and inserting after subparagraph (C)
the following new subparagraph:
"(D)
from or to a qualified individual
retirement account described in section 408 (a)
which is exempt from tax under section 501 (a)
at the time of such payment unless such payment
is made to an employee of the account as
remuneration for services rendered as such
employee and not as a beneficiary of the
account: or".
-
(f )
-
4 8
-
Clerical Amendments.*¥
(1)
The table of sections for part VII of
subchapter B of chapter 1 is amended by striking
out the item relating to section 219 and inserting
in lieu thereof the following:
"Sec. 219.
"Sec. 220.
(2)
Retirement savings.
Cross references."
The table of sections for part I of sub
chapter D of chapter 1 is amended by adding at the
end thereof the following new item:
"Sec. 408.
(3)
Individual retirement accounts."
The table of chapters for subtitle D is
amended by adding at the end thereof the following
new item:
"Chapter 43*
(g)
Retirement plans."
Effective Date.--The amendments made by this
section shall apply to taxable years ending after the date
of enactment of this Act.
jl
49
SEC. 4.
(a)
CONTRIBUTIONS ON BEHALF OF SELF-EMPLOYED
INDIVIDUALS AND SHAREHOLDER-EMPLOYEES OF
ELECTING SMALL BUSINESS CORPORATIONS.
Contributions on Behalf of Self-Employed
Individuals.—
(1)
Special limitations for self-employed
individuals.--Section 404 (e) (relating to special
limitations for self-employed individuals) is amended
by striking out V$2,500, or 10 percent'* each place
it appears and inserting in lieu thereof "$7,500, or
15 percent".
(2)
Excess contributions on behalf of owner-
employees.—
(A)
Section 401 (e) (1) (B) (iii)
(relating to excess contributions on behalf
of owner-employees) is amended by striking
out "$2,500 or 10 percent" and inserting in
lieu thereof "$7,500 or 15 percent".
(B)
Section 401 (e) (1) (B) (iv) (re
lating to excess contributions on behalf of
owner-employees) is amended by striking out
'$2,500" and inserting in lieu thereof "$7,500".
(C)
Section 401 (e) (3) (relating to
contributions for premiums on annuity, etc.,
contracts) is amended by striking out "$2,500" and
inserting in lieu thereof "$7,500".
50
(3)
Penalties applicable to certain amounts
received by owner-employees.— Section 72 (m) (5)
(B) (i) (relating to penalties applicable to certain
amounts received by owner-employees) is amended by
striking out **$2,500** and inserting in lieu thereof
**$7,500".
(b)
Contributions on Behalf of Shareholder-Employees
of Electing Small Business Corporations.- -Section 1379
(b) (1) (relating to the taxability of shareholderemployee beneficiaries) is amended—
(1)
by striking out in subparagraph (A)
'*10 percent** and inserting in lieu thereof **15
percent**, and
(2)
by striking out in subparagraph (B)
**$2,500** and inserting in lieu thereof **$7,500**.
(c)
Effective Date.— The amendments made by this
section shall apply to taxable years beginning after
December 31, 1972.
51
SEC.
5.
(a)
LIMITATION ON APPLICATION OF SECTIONS 402(a)
AND 403(a) IN THE CASE OF CERTAIN CONTRI
BUTIONS.
Amendment of Section 402.--Section 402(a)
(relating to taxability of beneficiary of exempt trust)
is amended—
(1)
by striking out in the first sentence of
paragraph (1) Mand (4)M and inserting in lieu
thereof ",(4), (6), and (7)M , and
(2)
by inserting after paragraph (5) the
following new paragraphs-**(6)
Individual retirement accounts.--
In the case of an employees* trust described in
section 401 (a), which is exempt from tax under
section 501 (a), if the total distributions payable
with respect to any employee are paid to him within
1 taxable year of the employee on account of his
separation from the service other than by reason of
his death, the amount of such distribution, to the
extent such distribution would be includible in
gross income but for the provisions of this paragraph,
shall not be includible in gross income in the year
paid if, within 60 days after the close of the tax
able year in which such amount was paid to him, such
amount is contributed by him in full to one or more
qualified individual retirement accounts described
in section 408(a).
This paragraph shall not apply
unless the same property received in the total
distribution is contributed.
The Secretary or his
delegate shall prescribe such regulations as he may
deem necessary to carry out the purposes of this
paragraph.
"(7)
Qualified plans.—
"(A)
GeneralT rule.— In the case of an
employees* trust described in section 401 (a),
which is exempt from tax under section 501 (a),
if the total distributions payable with respect
to any employee are paid to him within 1
taxable year of the employee on account of his
separation from the service other than by reason
of his death, the amount of such distribution,
to the extent such distribution would be
includible in gross income but for the pro
visions of this paragraph, shall not be in
cludible in gross income in the year paid if,
within 60 days after the close of the taxable
year in which such amount was paid to him, such
amount is contributed by him in full to another
employees' trust described in section 401 (a),
which is exempt from tax under section 501 (a),
or for the purchase of retirement annuities
under an annuity plan which meets the require
ments of section 404 (a) (2).
- 53 **(B)
Exceptions.--This paragraph shall
not apply to a distribution paid to any distributee
to the extent such distribution is attributable to
contributions made by or on behalf of an employee
while he was an employee within the meaning of
section 401 (c) (1).
This paragraph shall not
apply unless the same property received in the
total distribution is contributed.
- 54
"(C)
-
Special rules.^-For purposes of
this title a contribution made pursuant to
subparagraph (A) shall—
H (i)
except as provided in clause
(ii) be treated as an employer contri
bution made on the date contributed, and
••(ii)
be treated as an employee
contribution for purposes of sections
219 (b) (2), 401 (a) (12), 404, 409 (a),
and 1379 (b).
"(D)
Regulations.— The Secretary or his
delegate shall prescribe such regulations as
he may deem necessary to carry out the purposes
of this paragraph.'*
55 e
(b)
Amendment of Section 403.--Section 403 (a)
is amended—
(1)
by striking out in the first sentence of
paragraph (1) "paragraph (2)" and inserting in lieu
thereof "paragraphs (2), (4), and (5)", and
(2)
by inserting after paragraph (3) the
following new paragraphs-"(4)
Individual retirement accounts.— If—
"(A)
an annuity contract is purchased
by an employer for an employee under a plan
described in paragraph (1);
"(B)
such plan requires that refunds of
contributions with respect to annuity contracts
purchased under such plan be used to reduce
subsequent premiums on the contracts under the
plan; and
f
I
- 56
"(C)
the total amounts payable by reason
of an employee's separation from the service
other than by reason of death are paid to the
payee within one taxable year of the payee,
then the amount of such payments, to the extent
such amounts would be includible in gross income
but for the provisions of this paragraph, shall
not be includible in gross income in the year
paid if, within 60 days after the close of the
taxable year in which such amounts are paid to
him, such amounts are contributed by him in full
to one or more qualified individual retirement
accounts described in section 408 (a).
This
paragraph shall not apply tinless the same property
received in such payments is contributed.
The
Secretary or his delegate shall prescribe such
regulations as he may deem necessary to carry
out the purposes of this paragraph.
- 57
"(5)
Qualified plans.-"(A)
General rule.— If an annuity contract
is purchased by an employer for an employee
under a plan described in paragraph (1), such
plan requires that refunds of contributions
with respect to annuity contracts purchased
under such plan be used to reduce subsequent
premiums on the contracts under the plan, and
the total amounts payable by reason of an
employee's separation from the service other
than by reason of death are paid to the payee
within one taxable year of the payee, then the
amount of such payments, to the extent such
amounts would be includible in gross income
but for the provisions of this paragraph, shall
not be includible in gross income in the year
paid if, within 60 days after the close of the
taxable year in which such amounts are paid to
him, such amounts are contributed by him in
full to an employees' trust described in
section 401 (a), which is exempt from tax
under section 501 (a), or for the purchase of
retirement annuities under another annuity plan
which meets the requirements of section 404
(a) (2).
-
"(B)
58
-
Exceptions,— This paragraph shall
not apply to a distribution paid to any distributee
to the extent such distribution is attributable to
contributions made by or on behalf of an employee
while he was an employee within the meaning of
section 401 (c) (1).
This paragraph shall not
apply unless the same property received in the
total distribution is contributed.
59
**(C)
Special rules.--For purposes of
this title a contribution made pursuant to
subparagraph (A) shall-**(i)
except as provided in clause
(ii) be treated as an employer contri
bution made on the date contributed, and
**(ii)
be treated as an employee
contribution for purposes of sections
219 (b) (2), 401 (a) (12), 404, 409 (a),
and 1379 (b).
**(D)
Regulations.--The Secretary or
his delegate shall prescribe such regulations
as he may deem necessary to carry out the
purposes of this paragraph.**
(c)
Effective Date.— The amendments made by this
section shall apply to taxable years ending after
the date of enactment of this Act.
SEC. 6.
(a)
PROHIBITED TRANSACTIONS.
Amendment of Section 503.--Section 503 is
amended—
(1)
by striking out subsection (a) (1) (B)
and by redesignating subsection (a) (1) (C) as (a)
(1) (B),
(2)
by striking out "or section 401 (a)*' in
subsections (a) (2) and (c),
(3)
by striking out subsections (d), (f),
and (g) and redesignating subsection (e) as (d).
(b)
Excise Tax on Prohibited Transactions.--Subtitle
D (relating to miscellaneous excise taxes) is amended by
adding at the end thereof the following new chapter:
"Chapter 44--Qualified Pension, ProfitSharing, and Stock Bonus
Plans
"Sec. 4971#
"s e c . 4971.
"(a)
Excise tax on prohibited
transactions.
EXCISE TAX ON PROHIBITED TRANSACTIONS.
Imposition of Initial Tax,--There is hereby
imposed a tax on each prohibited transaction at the rate
of 5 percent of the amount involved with respect to the
prohibited transaction for each year (or part thereof) in
the taxable period.
The tax imposed by this paragraph
61
-
shall be paid by any party in interest who participates
in the prohibited transaction.
"(b)
Additional Tax. — In any case in which an
initial tax is imposed by subsection (a) on a prohibited
transaction by a party in interest and the transaction is
not corrected within the correction period, there is
hereby imposed a tax equal to 200 percent of the amount
involved.
The tax imposed by this paragraph shall be
paid by any party in interest who participated in the
prohibited transaction.
"(c)
Special Rule. — If more than one person is
liable under subsection (a) or (b) with respect to any
one prohibited transaction, all such persons shall be
jointly and severally liable under such subsection with
respect to such transaction.
"(d)
Prohibited Transaction.— For purposes of this
section, the term ’prohibited transaction' means an act
which is—
"(1)
described in section 14 (b) (2) of the
Welfare and Pension Plans Disclosure Act of August
28, 1958, as amended and supplemented (^__ Stat.
____ , 29 U.S.C. ____ ), and not permitted under
*
J
section 14 (c) of such Act* and
"(2)
committed by a fiduciary for a trust
described in section 401 (a) or 408 (a) which is
exempt from tax under section 501 (a),
"(e)
Other Definitions.— pFor purposes of this
section~"(1)
Party in interest.--The term 'party in
interest' means a person described in section 3
(m) of Welfare and Pension Plans Disclosure Act
of August 28, 1958, as amended and supplemented
(_________ Stat.________ , 29 0. S .C
.
- 63 "(2)
Taxable period.— The term ’taxable period*
means with respect to any prohibited t ransaction,
the period beginning with the date on which the
prohibited transaction occurs and ending on whichever
of the following is the earlier: (A) the date of
mailing of a notice of deficiency pursuant to sec
tion 6212, with respect to the tax imposed by this
section, or (B) the date on which correction of the
prohibited transaction is completed.
"(3)
Amount involved.--The term ’amount in
volved' means, with respect to a prohibited trans
action, the greater of the amount of money and the
fair market value of the other property given or
the amount of money and the fair market value of
the other property received.
For purposes of the
preceding sentence, the fair market value-"(A)
in the case of the tax imposed by
subsection (a), shall be determined as of the
date on which the prohibited transaction occurs;
and
"(B)
in the case of the tax imposed by
subsection (b), shall be the highest fair
market value during the correction period.
"(4)
Correction.--The terms 'correction' and
'correct' mean, with respect to a prohibited
transaction, undoing the transaction to the extent
possible, but in any case placing the trust in a
financial position not worse than that in which it
would be if the prohibited transaction had not occurred.
"(5)
Correction period.--The term 'correction
period' means, with respect to a prohibited transaction,
the period beginning with the date on which the
prohibited transaction occurs and ending 90 days
after the date of mailing of a notice of deficiency
with respect to the tax imposed by subsection (b) under
section 6212, extended by—
"(A)
any period in which a deficiency
cannot be assessed under section 6213(a), and
"(B)
any pther period which the Secretary
or his delegate determines is reasonable and
necessary to bring about correction of the
... prohibited transaction.
#*(6)
Fiduciary.--The term 'fiduciary' includes a
person described in section 3 Xw) of the Welfare and ~
Pension Plans Disclosure Act of August 28, 1958, as
amended and supplemented, or section 7701 (a) (6).
"(f)
Regulations.— The Secretary or his delegate
shall prescribe such regulations as may be necessary to
carry out the provisions of this section."
65 -
(c)
Conforming, clerical, etc. amendments.—
(1)
The table of chapters for subtitle D
is amended by adding at the end thereof the
following new item:
"Chapter 44.
(2)
Qualified pension,
profit-sharing and
stock bonus plans.”
Section 6161 (relating to extension of
time for paying tax) is amended by striking out ”or 42”
each place it appears in subsection (b) and inserting
in lieu thereof ”, 42 or 44”.
(3)
Section 6201 (d) (relating to assessment
authority) is amended by striking out "chapter 42"
and inserting in lieu thereof "chapter 42 or 44”.
(4)
Section 6211 (relating to definition of a
deficiency) is amended by striking out "chapter 42” each
place it appears therein and inserting in lieu thereof
"chapter 42 or 44”.
(5)
Section 6212 (relating to notice of
deficiency) is amended—
(i)
by striking out "or chapter 42"
in subsections (a) and (b) and inserting
in lieu thereof "chapter 42, or chapter 44",
If
-
(ii)
66
-
by striking out "chapter 42, and this
chapter" in subsection (b) and inserting
in lieu thereof "chapter 42, chapter 44, and
this chapter", and
(iii)
by striking out "except in the case
of fraud," and inserting in lieu thereof "or
of chapter 44 tax, except in the case of
fraud".
(6)
Section 6213 (relating to restrictions
applicable to deficiences and petition to Tax Court)
is amended—
(i)
by striking out Mor chapter 42" in
subsection (a) and inserting in lieu thereof
", chapter 42 or chapter 44",
(ii)
by striking out the heading in
subsection (e) and inserting in lieu thereof
"Suspension Of Filing Period For Certain
Chapter 42 or 44 Taxes.— "; by striking out "or
4945 (relating to taxes on taxable expenditures)"
in subsection (e) and inserting in lieu
thereof " 4945 (relating to taxes on taxable
expenditures) or 4971 (^elating to taxes on
4
g 67 prohibited transactions)"; and by striking out
"or 4945 (h)
(2)"
in subsection (e) and
inserting in lieu thereof ",
4945 (h) (2),
or 4971 (e) (5)".
(7)
Section 6214 (c) (relating to determinations
by Tax Court) is amended-(i)
by striking out the heading and
inserting in lieu thereof "Taxes imposed by
section 507, chapter 42, or chapter 44", and
(ii)
by striking out "chapter 42" each
place it appears therein and inserting in
lieu thereof chapter 42 or 44".
(8)
Section 6344 (a) (1) (relating to cross
references) is amended by striking out "chapter 42" and
inserting in lieu thereof "chapter 42 or 44".
(9)
Section 6501 (e) (3) (relating to limitations
on assessment and collection) is amended by striking
out "chapter 42" and inserting in lieu thereof "chapter
42 or 44".
&
(10)
Section 6503 (relating to suspension of
running of period of limitations) is amended—
(i) by striking out "and chapter 42 taxes)"
in subsection (a) (1) and inserting in lieu
thereof "chapter 42 taxes and chapter 44
taxes)", and
-
(ii)
68
-
by striking out "or section 507"
in subsection (h) and inserting in lieu
thereof ", section 507, or chapter 44",
and by striking out "or 4945 (h) (2)" in
subsection (h) and inserting in lieu
thereof "4945 (h) (2), or 4971
(11)
(e) (5)M.
Section 6512 (relating to limitations in
case of petition to Tax Court) is amended by striking
out "chapter 42" each place it appears therein and
inserting in lieu thereof "chapter 42 or 44",
(12)
Section 6601 (d) (relating to interest
on underpayment, nonpayment, or extensions of time for
payment of tax) is amended by striking but "chapter 42"
and inserting in lieu thereof "chapter 42 or 44".
(13)
Section 6653 (c) (relating to failure to
pay tax) is amended by striking out "chapter 42" each
place it appears therein and inserting in lieu
thereof "chapter 42 or 44".
(14)
Section 6659 (b) (relating to applicable
rules) is amended by striking out "chapter 42" and
inserting in lieu thereof "chapter 42 or 44".
69
(15)
Section 6676 (b) (relating to failure
to supply : identifying numbers) is amended by striking
out "chapter 42" and inserting in lieu thereof
"chapter 42 or 44".
(16)
Section 6677 (b) (relating to failure to
file information returns with respect to certain
foreign trusts) is amended by striking out "chapter 42"
and inserting in lieu thereof "chapter 42 or 44".
(17)
Section 6679 (b) (relating to failure
to file returns as to organization or reorganization
of foreign corporations and as to acquisitions of
their stock) is amended by striking out "chapter 42"
and inserting in lieu thereof "chapter 42 or 44” .
(18)
Section 7422 (g) (relating to civil actions
for refund) is amended-(i)
by striking out "chapter 42" in
the heading thereof and inserting in lieu
thereof "chapter 42 or 44", and
(ii)
by striking
out "or section 4945
(b) (relating to additional taxes on taxable
expenditures)" in paragraph (1) and inserting
in lieu thereof "section 4945 (b) (relating
.70
to additional taxes on taxable
expenditures), or section 4971 (relating
to tax on prohibited transactions)”, and
(iii)
by striking out "or 4945" in
paragraphs (2) and (3) and inserting in
(d)
lieu thereof "4945 or 4971",
Effective Date.—
The amendments made by this
section shall be effective on and after the day after .
the date of enactment of this Act.
71
SEC. 7.
(a)
MISCELLANEOUS PROVISIONS.
Penalties Applicable to Forfeitures Received
by Owner-Employees.— Section 72 (m) (5) (A) (i) is amended
by striking out "while he was an owner-employee," and
inserting in lieu thereof”, or forfeitures credited to
his account or applied for his benefit, while he was an
owner-employee,".
(b)
Amendment to section 401 (a) (3) (A).—
Section 401 (a) (relating to requirements for qualification)
is amended by striking out paragraph (3) (A) and inserting
in lieu thereof:
"(A)
70 percent or more of all the
employees, or 80 percent or more of all the
employees who are eligible to benefit under
the plan if 70 percent or more of all the
employees are eligible to benefit under the plan,
excluding in each case employees who are included
in a unit of employees covered by an agreement
which the Secretary or his delegate finds to
be a collective bargaining agreement which does
not provide that such employees are to be included,
employees who have been employed not more than
a minimum period prescribed by the plan, not
exceeding 5 years, employees whose customary
employment is for not more than 20 hours in any
one week, and employees whose customary employment
- 72 -
0
is for not more than 5 months in any
calendar year, or".
(c)
Plans Benefiting Self-Employed Individuals.—
Section 401 (c) (relating to definitions and rules relating
to self-employed individuals and owner-employees) is
amended by adding at the end thereof the following new
paragraph:
•’(6)
Additional requirements for qualification
of trusts and plans benefiting self-employed indivi
duals.— A trust forming part of a pension or profitsharing plan which provides contributions or benefits
for employees some or all or whom are employees within
the meaning of paragraph (1) shall constitute a
qualified trust only if—
"(A)
under the plan, forfeitures attributable
to contributions made on behalf of an employee
other than an employee within the meaning of
paragraph (1) may not inure to the benefit of
any individual who, at any time during the
- 73 period beginning with the taxable year for which
the contribution is made and ending with the
taxable year during which the forfeiture occurs, is an
employee within the meaning of paragraph (1), and
"(B)
in the case of a defined benefit
pension plan, a separate account is maintained
with respect to all participants under the
plan who are not employees within the meaning
of paragraph (1) and another separate account
is maintained with respect to all participants
under the plan who are employees within the
meaning of paragraph (l).'1
(d)
Trustee of a Trust Benefiting An Owner^Employee.--
Section 401 (d) (relating to additional requirements for
qualification of trusts and plans benefiting owner-employees)
is amended by striking out the first sentence of paragraph
(1) and inserting in lieu thereof:
"(1)
In the case of a trust which is created
on or after the date of the enactment of this sub
section, or which was created before such date but
is not exempt from tax under section 501 (a) as an
organization described in subsection (a) on the
day before such date, the assets thereof are held
in trust by, or in custody of, a bank or other person
who demonstrates to the satisfaction of the Secretary
or his delegate that the manner in which he will
hold or have custody of such assets will be con
sistent with the requirements of this section.
Notwithstanding the requirements of the preceding
sentence, a person (including the employer) other
than the trustee or custodian so holding plan assets
may be granted, under the trust instrument, the
power to control the investment of the trust funds
either by directing investments (including reinvest
ments, disposals, and exchanges) or by disapproving
proposed investments (including reinvestments, disposals,
or exchanges)."
(e)
Certain Custodial Accounts.--Section 401
(relating to pension, profit-sharing, and stock bonus
plans) is amended by striking out subsection (f) and
inserting in lieu thereof:
- 75 "(f)
Certain Custodial Accounts.--For purposes
of this title, a custodial account shall be treated
as a qualified trust under this section provided that-"(1)
such custodial account would, except
for the fact that it is not a trust, constitute
a qualified trust under this section;
H(2)
the custodian is a bank (as defined
in subsection (d) (1)) or other person who
demonstrates to the satisfaction of the Secretary
or his delegate that the manner in which he will
have custody of such assets will be consistent
with the requirements of this section; and
"(3)
the assets of such custodial account
are held in the name of the custodian or his nominee.
For purposes of this title, in the case of a custodial
account treated as a qualified trust under this section
by reason of the preceding sentence, the custodian of
such account shall be treated as the trustee thereof.M
(f)
Excess Contributions.--Section 401 (e) (1) (B)
is amended by striking out clause (ii) and inserting in
lieu thereof:
*'(ii)
with respect to any plan other
than a defined benefit plan, the amount
of any contribution made by any
76
uy
y
owner-employee (as an employee) at a
rate which exceeds the rate of contribu
tions permitted to be made by employees
other than owner-employees;M
(g)
Amendments to Section 404 (a).--Section 404
(a) (relating to deduction fpr contributions of an
employer to an employees' trust, etc.) is amended-(1)
by striking out paragraph (I) (A),
(2)
by striking out paragraph (1) (B) and
(C) and inserting in lieu thereof:
"(B)
the amount necessary to
provide with respect to all of the
employees under the trust the remaining
unfunded cost of their past and current
service credits distributed as a level
amount, or a level percentage of
compensation, over the remaining future
service of each such employee, as;
determined under regulations prescribed
by the Secretary or his delegate, but if
- 77
such remaining unfunded cost with respect
to any three individuals is more
than 50 percent of such remaining
unfunded cost, the amount of such
unfunded cost attributable to such
individuals shall be distributed over a
period of at least 5 taxable years, or
"(C)
in lieu of the amount allowable
under subparagraph (B), an amount equal
to the normal cost of the plan, as
determined under regulations prescribed
by the Secretary or his delegate, plus,
if past service or other supplementary
pension or annuity credits are provided
by the plan, an amount not in excess of
10 percent of the cost which would be
required to completely fund or purchase
such pension or annuity credits as of
the date when they are included in the
plan, as determined under regulations
prescribed by the Secretary or his delegate,
except that in no case shall a deduction be
allowed for any amount (other than the normal
cost) paid in after such pension or annuity
credits are completely funded or purchased,M
(3)
by adding immediately after paragraph (1)
(D) the following ne w sentence:
"The limitations under subparagraphs (B) and (C)
shall not apply with respect to the amount of a
contribution made to or under a pension plan to
the extent such contribution does not exceed the
minimum funding standard described in section 401 (a) (7)."
(4)
by striking out paragraph (6) and inserting
in lieu thereof:
"(6)
Time when contributions deemed made#^-
For purposes of paragraphs (1), (2), and (3), a
taxpayer shall be deemed to have made a payment
on the last day of the preceding taxable year if
the payment is on account of such taxable year and
is made not later than the time prescribed by law
for filing the return for such taxable year (including
extensions thereof).”
79
(5)
by striking out subsection (a) (7), and
inserting in lieu thereof:
**(7)
Limit of deduction.--If amounts are
deductible under paragraphs (1) and (3), or (2) and
(3), or (1), (2), and (3), in connection with 2 or
more trusts, or one or more trusts and an annuity
plan, the total amount deductible in a taxable year
under such trusts and plans shall not exceed the
greater of 25 percent of the compensation otherwise
paid or accrued during the taxable year to the
persons who are the beneficiaries of the trusts or
plans, or the amount of contributions made to or
under the trusts or plans to the extent such contributions do not exceed the minimum funding standard
described in section 401 (a) (7), for the plan year which
ends with or within such taxable year.
In addition,
any amount paid into such trust or.under such annuity
plans in any taxable year in excess of the amount
allowable with respect to such year under the preceding
provisions of this paragraph shall be deductible in
the suceeding taxable years in order of time,
but the amount so deductible under
- 80 this sentence in any one such succeeding taxable
year together with the amount allowable under the
first sentence of this paragraph shall not exceed
the greater of 25 percent of the compensation
otherwise paid or accrued during such taxable year
to the beneficiaries under the trusts or plans,
or the amount of contributions made to or under
the trusts or plans to the extent such contributions
do not exceed the minimum funding standard described in
section 401 (a) (7) for the plan year which ends with
or within such taxable year.
This paragraph shall
not have the effect of reducing the amount other
wise deductible under paragraphs (1), (2), and (3),
if no employee is a beneficiary under more than
one trust, or a trust and an annuity plan”,
81
(h)
Inclusion of Certain Employer Contributions in
Gross Income.--Part I of subchapter D of chapter 1
(relating to pension, etc., plans) as amended by
section 3 (b) of this Act is further amended by adding
at the end thereof the following new section:
nSEC. 409.
"(a)
INCLUSION OF CERTAIN EMPLOYER CONTRIBUTIONS IN
GROSS INCOME.
Inclusion of Contributions in Gross Income.--
Notwithstanding the provisions of section 402 (relating
to taxability of beneficiary of employees1 trust), section
403 (relating to taxation of employee annuities), or section
405 (d) (relating to taxability of beneficiaries under
qualified bond purchase plans),
an
individual shall include
in gross income, for his taxable year in which or with which
the taxable year of his employer ends, the amount equal
to the excess of—
"(1)
the amount of the contributions made on his
behalf by the employer during the taxable year of the
employer (including amounts deemed to be paid during
such year under section 404 (a) (6)) to or under a
money purchase pension plan, over
M (2)
20 percent of such individual’s compensation
otherwise paid or accrued by him from such employer
- 82 -
during the employer's taxable year.
In any taxable year of an Individual in which he is covered
under two or more money purchase pension plans maintained
by an employer, the amount includible in gross income shall
be the amount by which the total of such contributions
exceeds 20 percent of the compensation received or accrued by
such individual during the tax&ble year of his employer.
\
j
"(b)
Treatment of Amounts Included in Gross Income.—
Any amount included in the gross income of an individual
under subsection (a) shall be treated as consideration for
the contract contributed by the individual for purposes of
section 72 (relating to annuities).
"(c)
Deduction for Amounts not Received as
Benefits.--lf-~
"(l)
Amounts, are included in the gross income
of an individual under subsection (a), and
"(2) the rights of such individual (or his
beneficiaries) under the plan terminate before
payments under the plan which are excluded from
gross income equal the amounts included in gross
income under subsection (a),
then there shall be allowed as a deduction, for the taxable
year in which such rights terminate, an amount equal to
the excess of the amounts included in gross income under
subsection (a) over such payments."
- 83 (i)
Conforming and clerical amendments.-(1)
Conforming amendment.--Section 62 (relating
to definition of adjusted gross income) as amended
by section 3 (e) (2) of this Act is further amended
by adding after paragraph (10) the following new
paragraph:
"(11)
Money purchase pension plans. —
The deduction allowed by section 409 (c).M
(2)
Clerical amendment.--The table of sections
for Part I of subchapter P of chapter 1 is amended
by adding at the end thereof the following new item:
"Sec. 409.
(j)
Inclusion of certain employer
contributions in gross
income."
Effective Dates.--The amendments made by this
section (other than the amendment made by subsection (h))
shall be effective on and after the day after the date of
enactment of this Act.
The amendment made by subsection
(h) shall apply with respect to taxable years of an employer
beginning after December 31, 1973.
GENERAL EXPLANATION
RETIREMENT BENEFITS TAX ACT
1.
Introduction,
Since 19^2 the Internal Revenue Code has accorded special tax benefits
to qualified retirement plans established by employers for the benefit
of their employees and the beneficiaries of their employees.
To insure
that benefits are provided under these plans for a broad range of the
employees of the sponsoring employer and not merely for a small group of
select employees 5 the availability of these special tax benefits is
conditioned upon the plants meeting certain statutory requirements.
Private retirement plans form an important part of the total frame
work of income maintenance for older Americans.
As such? it is appropriate
to provide tax incentives to encourage employers to establish these
plans and thus provide for their employees’ post-retirement needs. In
so doing the employer performs a function and assumes a burden which
otherwise might be thrust upon society at large.
Private retirement
plans are a significant supplement to the social security system as a
source of income for retired and disabled Americans and their dependents.
Because private retirement plans are established by individual employers?
they can be shaped to respond to unique needs and situations in a manner
that a public system covering tens of millions of individuals cannot.
2
The experience of the past
30
years has demonstrated that while
the private retirement system has the capacity to deal with an
important social problem through individual initiative, changes in
existing law are needed.
In the first place, recent surveys indicate
that, in spite of the incentives provided by existing law, approximately
one-half of the non-agricultural labor force does not now participate
in private retirement plans and that coverage is not likely to expand
significantly under existing conditions.
Moreover, overly restrictive
requirements for participation in, or acquisition of vested benefits
under, private retirement plans have resulted in effectively denying
to millions of employees the full benefits of the private retirement
system.
Special limitations upon contributions on behalf of self-
employed individuals and requirements for the plans in which they
participate are so restrictive that they have created an artificial
preference for the corporate form over other business forms which might
be more suitable or desirable for a particular enterprise.
2. Eligibility Requirements. (Section 2 of Bill)
A.
Present Law.
The Internal Revenue Code does not now contain any specific require
ments concerning eligibility conditions based on age or service that may
be included in a qualified private retirement plan established by a
-
corporate employer.
3
-
Existing administrative practice does permit such
a plan to provide that participation in the plan is limited to employees
who have attained a specified age or have been employed for a specified
number of years if the effect of such provisions is not discrimination
in favor of officers, shareholders, supervisory employees, or highly
compensated employees.
Likewise, such a plan may exclude from
participation employees who have attained a specified age close to
retirement when they otherwise become eligible to participate in the
plan.
On the other hand, the Internal Revenue Code specifically
requires that a qualified plan established by an unincorporated
business in which an owner-employee (i.e., a sole proprietor or a
partner with a greater than
10
percent interest in capital or income)
participates must provide that no employee with
3
more years of
service may be excluded from the plan.
B.
Proposal.
Reasonable service or age requirements are an appropriate means of
preventing the dissipation of plan assets.
The benefits earned by
employees with short periods of service are usually small, both in
absolute terms and in relation to the administrative costs attributable
to these benefits.
Overly restrictive requirements may, however, result
in the arbitrary exclusion of employees from participation in private
retirement plans and thereby frustrate the effective functioning of the
private retirement system.
The proposed bill would, therefore, provide that a qualified
private retirement plan not be permitted to require, as a condition
of participation, that an employee have completed a period of service
with the employer in excess of 3 years, that he have attained an age
in excess of
30
years, or that he not have attained an age which is
greater than the normal retirement age under the plan reduced by
5
years.
In the case of a qualified plan in which self-employed individuals
who are owner-employees participate, the bill would provide that the
plan not be permitted to require, as a condition of participation, that
the employee have completed more than
1
year of service with the employer
if his then age is
35
his then age is
years or greater but less than
3
30
years or greater, more than
years of service if his then age is less than
C.
30
years of service if
2
35
years, or more than
years.
Effective Date.
These rules would be effective upon the day after the date of
enactment with respect to all private retirement plans established after
December 31? 1972.
In the case of plans in effect on December 31? 1972?
these rules would apply to plan years beginning after December 31, 197*+?
except that in the case of plans which are collectively bargained, these
rules would not apply to plan years ending before the expiration of the
collective bargaining agreement in effect on December 31? 1972.
- 5 -
3*
Vesting Requirements.
A.
(Section 2
of
Bill)
Present Law.
There is no generally applicable requirement under existing law
that a participant in a qualified private retirement plan have at
any time before he attains normal retirement age a nonforfeitable
right to receive his accrued benefit under the plan.
However, the
failure to provide pre-retirement vesting is taken into account by
the Internal Revenue Service in determining whether a plan satifies
the statutory requirement that it not discriminate in favor of officers,
shareholders, supervisory employees, or highly compensated employees,
and in appropriate circumstances the Service will not issue such a
determination if a plan does not provide pre-retirement vesting.
Neither
the circumstances in which pre-retirement vesting is required nor the
degree of such vesting is well defined, and considerable variation has
arisen*
The Internal Revenue Code requires that a plan established by
an unincorporated business in which an owner-employee participates must
provide that each participant have an immediately nonforfeitable interest
in the contributions made on his behalf under the plan.
B.
Proposal.
Some measure of pre-retirement vesting is essential if the private
retirement system is to exist as a functioning and effective supplement
to the social security system.
This is especially true in view of our
- 6 -
highly mobile labor force.
An individual whose participation in a
private retirement plan terminates before his rights in his benefits
accrued under the plan have become nonforfeitable has, for all
practical purposes, not really participated in the plan.
In addition,
pre-retirement vesting is needed to reinforce the non-discrimination
requirements of existing law in cases where most of the employer
contributions under a plan are made on behalf of participants with
a proprietary interest in the employer.
The proposed bill would, therefore, require a qualified private
retirement plan to meet new minimum pre-retirement vesting standards.
A participant's rights in his accrued benefits derived from his own
contributions would have to be folly vested at all times.
in at least
50
His rights
percent of his accrued benefits derived from employer
contributions would have to be nonforfeitable when the sum of his age
and his years of participation in the plan equals or exceeds
and this percentage would have to increase ratably to
over the next succeeding 5 plan years.
10 0
50
years,
percent
Under this rule, the rights
of older employees would vest more rapidly than the rights of younger
employees, reflecting the fact that an older employee has less of an
opportunity to earn a reasonable pension with a new employer or to
save for his retirement.
-7To
avoid providing a disincentive against hiring older workers,
the proposed bill would permit a qualified plan to provide that an
employee’s rights in his accrued benefits derived from employer
contributions remain forfeitable until he has completed
continuous service with the employer.
3
years of
The plan would have to provide
that upon completing this period of service his rights in at least
50
percent of his accrued benefits derived from employer contributions
are nonforfeitable, and this percentage would be required to increase
ratably to
10 0
percent over the next succeeding
5
plan years.
To avoid additional costs for defined benefit pension plans in
difficult financial condition, pre-retirement vesting would not be
required with respect to benefits accrued for any plan year for which
benefit payments to retired participants exceed benefit accruals by
active participants and the present value of accrued liabilities to
retired and active participants exceeds the fair market value of plan
assets.
If, however, the plan is amended to provide greater benefits
during a plan year when this exception would otherwise be operable,
the exception would not apply with respect to that plan year, any
succeeding plan years, or the
the plan is amended.
5
plan years preceding such year in which
This exception is designed to provide relief for
defined benefit pension plans that have a large number of retired
- 8 -
participants in relation to the number of active participants and that
are not fully funded.
These plans are typically found in industries
where employment is declining and where any increase in pension costs
would be especially burdensome.
In the case of qualified private retirement plans in which selfemployed individuals who are owner-employees participate, an employee's
rights in at least
50
percent of his accrued benefits derived from employer
contributions would be required to be nonforfeitable when the sum of his
age and his years of participation equal or exceeds 35 years.
His
rights in the remaining percentage of such accrued benefits would be
required to become nonforfeitable not less rapidly than ratably over the
next succeeding
C.
5
plan years of participation.
Effective Dates.
Generally, these rules are effective with respect to benefits accrued
after the date of enactment.
However, in the case of plans in existence
on December 31? 1972, the rules would generally apply to benefits accrued
for a plan year beginning after January 1, 1975.
In the case of
collectively bargained plans, however, these rules would not apply to
benefits accrued during plan years ending before the expiration of the
collective bargaining agreement in effect on December 31, 1972.
In applying these rules, all participation in the plan (whether before
or after the applicable effective dates) would be considered in
-9 -
determining whether the sum of the employee's age and his years of
participation equal
50
years or
35
years, whichever is applicable.
Deduction for Personal Savings for Retirement. (Section 3 of Bill)
A.
Present Law*-
Under present law, employer contributions on behalf of an
employee to a private retirement plan satisfying the qualification
requirements of the Internal Revenue Code and investment earnings on
these contributions are generally not subject to tax until paid to the
employee or his beneficiaries, even though the employee’s right to
receive these amounts becomes nonforfeitable before payment is made.
Employee contributions to such a plan are subject to tax currently
(i.e., no deduction or exclusion is allowable), but investment earnings
on these contributions are not subject to tax: until distributed or paid
to the employee.
Amounts saved by an individual for his retirement
outside the scope of a qualified plan are not deductible or excludable
from gross income, and investment earnings on such amounts are subject
to tax currently.
B. Proposal.
The effect of existing law relating to saving for retirement purposes
is to discriminate substantially against individuals who do not participate
in qualified private retirement plans or who participate in plans providing
10
inadequate benefits.
-
Frequently, this situation is the result of a
unilateral decision of the employer not to establish a private retire
ment plan for its employees or not to improve benefits under an
existing plan.
Many other individuals, because of the nature of
their occupations, never have a sufficient period of service with
any one employer to accrue adequate retirement benefits.
To remedy this inadequacy in existing law, the proposed bill would
allow individuals a deduction in computing adjusted gross income for
amounts contributed to qualified individual retirement plans which
they have established or to qualified private retirement plans
established by their employers.
In addition, investment earnings on
amounts contributed to individual retirement plans would be excludable
from gross income.
In the case of an individual who does not participate in an employerfinanced private retirement plan, the amount deductible would be limited
to 20 percent of earned income or $1,500, whichever is the lesser.
In
the case of a married couple, each spouse would be eligible to claim
this deduction, and the limit would be applied separately to each spouse.
Thus, if a husband had earned income of $12,000 and his wife had earned
income of $7 ,0 0 0 , the maximum deduction for him would be $1 ,5 0 0 , and the
maximum deduction for her would be $1 ,U0 0 , permitting a total deduction
of $2 ,9 0 0 .
-
11
-
If an individual participates in an employer-financed plan, the
amount deductible, after application of the $1 , 5 0 0 or 20 percent of
earned income Imitation, would be further reduced to reflect employer
contributions to such plan on his behalf.
For this purpose, an individual
would be permitted to assume that employer contributions on his behalf
are 7 percent of his earned income. He could show, however, that a
lesser amount had been contributed on his behalf.
Such amount would be
determined in accordance with Treasury Department regulations on the
basis of the particular facts and circumstances of his situation.
In the case of individuals who have earned income which is not
covered by the social security system or the railroad retirement system,
the limitation on the deduction would be further reduced by the amount
of tax that would be imposed under the Federal Insurance Contributions
Act if that income were covered by the social security system.
This
reflects the fact that taxes imposed on employees under the Federal
Insurance Contributions Act are not deductible.
No deduction would be allowed with respect to amounts contributed
to a qualified individual retirement plan or a qualified private retirement
plan by an individual who has attained the age of
70
l/2 years.
Under the proposed bill, an individual would be allowed to invest
these amounts in a broad range of assets, including stocks, bonds,
mutual fund shares, annuity and other life insurance contracts, faceamount certificates, and savings accounts with financial institutions.
-
12
While these assets could not be commingled with other property, they could
be held in custodial accounts, and a taxpayer would not be required to
establish a trust for this purpose.
To insure that amounts contributed to individual retirement programs
and investment earnings on such amounts are used only for retirement purposes,
withdrawals before the individual attains age 59 l/2 would not qualify for
the general income averaging provided under existing law and would also be
subject to an additional penalty tax of 30 percent of the amount withdrawn.
This penalty would not apply, however, if the taxpayer has died or has become
disabled or if the amount withdrawn is deposited in another individual
retirement account within 60 days.
This last exception is designed to permit
transfer of individual retirement amounts from one type of investment to
another, or from one trustee or custodian to another.
Moreover, withdrawals would be required to begin by the time the
taxpayer reaches age 70 l/2 and would have to be sufficiently large so that
the entire accumulation will be distributed over his life expectancy or the
combined life expectancy of the taxpayer and his spouse.
If sufficient
amounts are not withdrawn to meet these rules after age 70 l/2, an annual
excise tax of 10 percent would be imposed.
The 10 percent excise tax would
be applied against the assets in the account multiplied by a fraction, the
numerator of which is the minimum amount required to be distributed for the
year reduced by the amount actually distributed, and the denominator of which
is the minimum amount required to be distributed for the year.
To insure compliance w ith th e foregoing requirem ents, tr u s te e s ,
c u sto d ia n s, and o th er persons having c o n tro l o f amounts deducted under the
proposal would be required to submit annual re p o rts to th e I n te rn a l Revenue
- 13 -
Service similar to those •which are now required of trustees of plans
benefitting self-employed individuals who are owner-employees.
C.
Effective Date.
This proposal would apply to taxable years ending after the date
of enactment of the proposed bill.
5.
Contributions on Behalf of Self-Employed Individuals and ShareholderEmployees of Electing Small Business Corporations. (Section ^ of Bill)
A.
Present Law.
The Internal Revenue Code now limits the deductible contribution to
a qualified private retirement plan on behalf of a self-employed individual
to the lesser of 10 percent of earned income or $2,500.
In certain circum
stances, an additional $2 ,5 0 0 nondeductible contribution may be made.
Penalties are imposed if excessive contributions are made and are not
returned.
With respect to a shareholder-employee of an electing small
business corporation, no limit is imposed on the amount that may be
contributed on his behalf, but if the contribution exceeds the lesser of
10 percent of compensation or $2,500, the excess is includible in his
gross income.
The amount which may be contributed as a result of the limitation on
contributions on behalf of self-employed individuals has had a number of
undesirable effects.
In the first place, while the limitation applies by
its terns only to contributions on behalf of self-employed individuals,
as a matter of practice, it applies as well to their employees with the
Ik
-
result that the contributions on their behalf may be less than the contri
butions which would otherwise be contributed on their behalf.
Furthermore,
the inadequacy of the amount presently deductible creates an artificial
incentive for the incorporation of businesses and professional practices.
B.
Proposal.
The proposed bill would increase the limitation on deductible
contributions to a qualified private retirement plan on behalf of a
self-employed individual to an amount which is the lesser of $7,500 or
15 percent of his earned income.
The limitation on excludable contributions on behalf of shareholderemployees of electing small business corporations would likewise be
increased to an amount which is the lesser of $7?500 or 15 percent of
compensation.
C.
Effective Date.
These increased limitations would apply to taxable years beginning
after December 31> 1972.
6 . Treatment of Lump-Sum Distributions Recontributed to Qualified
Retirement Plans. (Section 5 of Bill)
A.
Present Law.
Under existing law, if a lump sum distribution is made under a
qualified private retirement plan, the distribution is subject to income
taxation even if the distribution is received by an employee before his
retirement and is set aside by him for his future retirement security.
A
/
/
- 15 -
Often, if an employee leaves his employer for a new employer under
circumstances where he has a vested right to retirement benefits from
his first employer, his retirement benefits will be distributed to him
in a lump sum at the time he leaves his first employer.
This is con
venient for the employer, because he thereby avoids continuing to
administer funds for the benefit of a former employee.
However, because
of the income tax payable at that time, the employee will have a smaller
fund available for his retirement years.
On the other hand, an employee
who, throughout his working career, is employed by a single employer,
will typically avoid any tax on his retirement funds until actual
retirement.
Such a result creates an inequity between employees who
work for only one employer and employees who are more mobile.
B.
Proposal.
Under the proposed bill, an individual would not be subject to tax
upon receipt of a lump-sum distribution from a qualified retirement plan
if the individual reinvests the funds in a qualified individual retirement
account or a qualified employer-sponsored retirement plan within 60 days
after the close of the employee’s taxable year.
If the individual receives
the distribution in property, other than cash, he would have to reinvest the
same property in order to take advantage of this tax deferral opportunity.
The proposal would encourage retirement savings by enabling an employee to
defer taxation of an amount received as a lump-sum distribution until
retirement.
-
C.
16
-
Effective Date.
These rules would apply to taxable years ending after the date of
enactment.
7.
Prohibited Transactions. (Section 6 of Bill)
A. Present Law.
Under present law, a trust forming part of a qualified private
retirement plan is denied exemption from taxation if it engaged in a
prohibited transaction.
Within this context, a prohibited transaction
usually involves a transaction at less than armTs length, between the
trust and the employer who established the plan, under circumstances which
may result in the diversion or dissipation of the trust assets required to
be held for the exclusive benefit of the employees covered by the plan.
If exemption from taxation is denied to the trust, other special benefits
under the Code relating to qualified plans are also denied.
Special
benefits affecting employees include deferral of the taxation of non
forfeitable amounts contributed on their behalf by employers, and special
averaging provisions available with respect to lump sum distributions.
The denial of the trust’s exemption from taxation, accompanied by
the denial of the employee’s exclusions for employer contributions and
the employer’s current deduction, has not been a satisfactory deterrent
in discouraging participation in a prohibited transaction.
An employer,
in need of working capital or in failing financial condition, may find it
advantageous to forego a deduction for any contribution made under a plan
in order to divert trust assets to his own use.
In far too many instances,
the fiduciary for the trust acquiesces in the employer’s demand to divert
assets to the detriment of the employees.
In many cases, the consequences of the denial of exemption for the
trust fall upon innocent rank-and-file employees covered.
For example,
if a trust is disqualified because of an act of the trustee and the
employer, any income tax imposed upon a disqualified plan may diminish
the funds available to provide the retirement benefit promised to the
employee.
Furthermore, because of the prohibited act in which he did not
participate, the employee may have to include in his gross income the
contributions made on his behalf in a taxable year before he actually
receives the amounts attributable to the contributions.
B.
Proposal.
Any sanction against prohibited transactions should be directed only
toward those who participate in them.
An employee who is a stranger to
the transaction should not be penalized through denial of the special tax
benefits to which he would be entitled but for the transaction of another.
An effective sanction against prohibited transactions would prevent the
wrongful dissipation of plan assets.
The proposed bill would impose excise taxes on the amount involved
in a prohibited transaction.
The taxes would be paid by any party in
interest (e.g., the trustee, employer, or officers of the employer, and
othe;r persons having a close relationship to the trust or employer) who are
- 18-
participants in the transaction.
An initial, tax "would be imposed at the
rate of 5 percent of the amount involved in the prohibited transaction.
An additional tax would be imposed at the rate of 200 percent if the trans
action is not corrected within 90 days after notice of deficiency for such
tax is mailed.
An additional period for correction of the transaction
may be allowed if reasonable and necessary to bring about correction of
the prohibited transaction.
These provisions are similar to taxes imposed
by the Tax Reform Act of 1969 with respect to private foundations.
Under the proposed bill, a prohibited transaction would be any act
which is prohibited under the Administration’s proposed Employee Benefits
Protection Act.
Thus, there would be a uniform meaning of a prohibited
transaction for purposes of the tax law and the law relating to fiduciary
standards.
Furthermore, the effect of a uniform definition of the term
would be to extend the fiduciary standards to qualified private retire
ment plans that are not covered, for administrative and other reasons,
under the Employee Benefits Protection Act (e.g., plans covering fewer
than 26 participants).
C . Effective Date.
These provisions would be effective on the day after the date of
enactment.
8 . Minimum Funding Standard
A.
(Section 2 of Bill)
Present Law.
Under present law, in order to prevent full vesting of all accounts,
a defined benefit pension plan must be funded in an amount at least equal
- 19 -
to the sum of normal cost and interest on the unfunded liability.
Thus
there is no requirement that unfunded liability ever be reduced.
B. -Proposal.
The proposed bill would provide a higher minimum standard, in order to
increase the security of participants.
The proposed standard would, in
general, require defined benefit pension plans to be funded in an amount at
least equal to the sum of normal cost, interest on the unfunded liability,
and
of the unfunded vested liability.
This standard is similar to the
standard widely used by accountants to compute the minimum pension cost for
accounting purposes.
9 . Miscellaneous Provisions.
A,
Rr<=ymature Distributions to Owner-Employees. (Section 7(a) of Bill)
Under existing law, certain penalties are applicable to distributions
made to an owner-employee before he attains the age of 59-1/2 years but only
to the extent the distributions are attributable to contributions made on
his behalf.
Undqr the proposed bill, this provision is made applicable to
forfeitures which may arise under the rule of 35 vesting standard.
B.
Employees Covered under Collective Bargaining Agreement (Section 7(b) of
Bill)
Under existing law, a qualified private retirement plan must cover
(l) specified percentages (generally, 70 percent of employees or 80 percent
if 70 percent are eligible to participate) of employees or (2) such employees
as qualify under a classification that does not discriminate in favor of
officers, shareholders, or highly compensated employees.
In maMng the
20
computation under the percentage requirement, certain short service, parttime and seasonal employees are excluded.
In many cases, employees covered
under a collective "bargaining agreement prefer current compensation or other
"benefits to the "benefits provided under a qualified plan.
Thus, many employers
are unable to establish a plan for other employees because the percentage
requirement cannot be satisfied if the bargaining unit employees are not
covered.
Under the proposed bill, employees who are included in a unit
Of employees covered by a collective bargaining agreement may be excluded
for purposes of satisfying the coverage requirements unless such agreement
provides that the employees are to be included in the plan.
C.
Plans Benefiting Self-Employed Individuals. (Section 7(c) of Bill)
Under existing law, there is full and immediate vesting in contribu
tions or benefits made under a plan covering an owner-employee.
In a
plan which does not cover any owner-employee, forfeitures may not benefit
self-employed individuals.
Under the proposed bill, forfeitures attri
butable to contributions made on behalf of common law employees (which
may arise under the rule of 35 or 50 vesting standards) may not inure to
the benefit of self-employed individuals.
However, forfeitures by a
self-employed individual may inure to the benefit of other participants,
whether or not those other participants are self-employed.
D,
Trustee of a Trust Benefiting an Owner-Employee.
(Section 7(&)
Under existing law, the trustee for a trust forming part of a retire
ment plan benefiting an camer-employee must be a bank.
Under the proposed
any person, who demonstrates to the satisfaction of the Secretary
or his delegate that he will hold the trust assets in a manner consistent
f
-
21
-
■with the requirements for qualification, may t>e a trustee for a plan
benefiting an owner-employee.
This provision is identical with the
corresponding requirement the bill would establish with respect to
individual retirement accounts.
E.
Custodial Accounts. (Section 7 (e) of Bill)
Under existing law, a custodial account may be treated as a trust if
the custodian is a bank and investment of the funds is either solely in
mutual funds or solely in annuity contracts.
Under the proposed bill, a
person other than a bank may be a custodian if he demonstrates that he
will hold the assets consistently with the requirements for qualification
of a trust.
The restrictions relating to investment would be eliminated.
This provision is identical with the corresponding requirement the bill
would establish with respect to individual retirement accounts.
p.
Time when Contributions Deemed Made. (Section 7 (g) of Bill)
Under existing law, a taxpayer who reports his income on an accrual
basis may deduct the contributions made after the close of a taxable year
on account of that year*, if they are made at any time prior to filing a
tax return for that year.
In many cases, it is impossible to determine
the amount to be contributed under the plan for a year by the end of that
year.
Under the proposed bill, the rule applicable to accrual basis
taxpayers would be extended to cash basis taxpayers.
G.
Inclusion of Certain Employer Contributions in Gross Income.
(Section 7 (h,
of Bill)
Under existing law, there is no limit upon the amount contributed under
a qualified private pension plan on behalf of an employee, other than a
-
22
-
shareholder-employee of an electing small business corporation, which may
be excluded from gross income by the employee.
Furthermore, there is no
meaningful limitation on the deductible amount which may be contributed by
an employer under a money purchase pension plan.
Under the proposed bill,
an employee would be required currently to include in his gross income the
amount of employer contributions made on his behalf under a money purchase pensi
plan to the extent in excess of 20 percent of his compensation.
Any amount
included in gross income would be considered as part of the employee's
investment in the contract for purposes of computing the taxable amount of
a distribution from the plan to the employee.
However, these amounts would
be considered to be made by the employer for purposes of qualification of
the plan.
A deduction would be allowed for amounts included in.gross income
that are not received before all rights under the plan terminate.
H.
Defined Benefit Pension Plans Benefiting Self-Employed Individuals.
(Section 7 (a), (c), (f) of Bill)
Under existing law, defined benefit pension plans are permitted for selfemployed individuals.
However, these plans are seldom established because
of the low limits on deductible contributions and because separate accounts
are required to be maintained for each self-employed individual to assure
that forfeitures do not inure to his benefit.
Defined benefit pension plans
would be more feasible for self-employed individuals under the proposed bill
because of the increased deductible limit of ^>7>500 and because forfeitures
by one self-employed individual would be permitted to inure to the benefit of
other self-employed individuals.
Under the proposed bill, a separate account
- 23 would be required to be maintained with respect to the self-employed individuals
covered under a defined benefit pension plan.
Another separate account would
be required to be maintained with respect to the common law employees covered
under the plan.
I.
Voluntary Contributions by Owner-Employees. (Section 3 (c) of Bill)
Under existing law, amounts received from a retirement plan before retire
ment are tax-free to all participants other than owner-employees (self-employed
persons who own 10$ or more of the business) to the extent of all non
deductible amounts contributed to the plan by the participants. Under the
proposed bill owner-employees would have the same rights upon withdrawal of
non-deductible contributions as all other participants.
10.
Major Changes from Individual Retirement Benefits Act of 1971»
The proposed bill is a revised and expanded version of the Individual
Retirement Benefits Act of 1971? a bill proposed by the Administration in the
92nd Congress.
A.
The major changes from the earlier bill are as follows:
Minimum Funding Standard.
The earlier proposed bill did not deal with funding.
B. Accrued Benefits.
The earlier proposed bill did not define "accrued benefits" for
vesting purposes.
C. Vesting.
Provisions in the earlier proposed bill for special vesting in lieu
of the rule of 50 intended to prevent discrimination in favor of officers, etc.,
of closely held partnerships and corporations have been dropped because of
administrative complexities.
-
D.
2h
-
Contributions on Behalf of Self-Employed.
The earlier proposed hill provided that deductible contributions on
behalf of self-employed individuals and shareholder-employees of electing
small business corporations could not exceed 15$ of so much of earned income
as does not exceed $50,000.
This proposed bill provides that deductible
contributions are limited to the lesser of $7,500 or 15$ of all earned income.
E.
Reinvestment of Lump-Sum Distributions.
The earlier proposed bill did not permit tax-free reinvestment of lump
sum distributions.
F.
Prohibited Transactions.
The earlier proposed bill did not change the law concerning prohibited
transactions
G.
Bargaining Unit.
The earlier p ro p o se d bill did not deal with collective bargaining
unit employees.
H.
Forfeitures.
The provision prohibiting the allocation of a forfeiture of a common
law employee's benefits to a self-employed individual is new.
I.
Trustees and Custodians.
The earlier proposed bill did not change the rules concerning trustees
and custodians of existing qualified retirement plans.
J.
Money Purchase Pension Plans.
The provision requiring an employee to include in gross income amounts
contributed on his behalf under a purchase money pension plan, to the extent
in excess of 20 percent of his compensation, is new.
- 25 -
L.
II
Withdrawals by Owner-Employees
The earlier proposed bill would not have repealed the provision prohibit
ing an owner-employee from withdrawing his voluntary nondeductible contribu
tions before the taxable recovery of deductible contributions.
AN INTERVIEW WITH SECRETARY GEORGE SCHULTZ
April 17, 1973
U. S. TREASURY DEPARTMENT
Q: ...You say there's no news announcement today.
When Is the next news announcement going to be?
SECRETARY GEORGE SHULTZ: Well, I'm Just reflecting
(name unintelligible) first law dealing with the press: never
call a press conference unless you have some news.
REPORTER:
HAH:
You're not calling...
I didn't call this....
Q: Mr. Secretary* 1 wonder If you could tell us whether
you were surprised by the House vote on the controls?
SECRETARY SHULTZ: Well* we worked for 1t* and we felt
that that was a possible outcome. The size of the vote was
larger than we expected. But It was a very strong -» strong
vote* and we were gratified with 1t.
Q: Could you tell us how It In any way affects the
administrationes thinking as to any additional steps on your
own In regard to toughening Phase III?
SECRETARY SHULTZ: Well * we have -- I think what all
of the debate shows Is how concerned people are about Inflation.
And we9re concerned about inflation; the President's concerned
about Inflation. We've been working on the problem from practice
the first day of the administration * 1n a sense. And we continue
to be. But I think what people are reflecting -- and* of course*
I talked about that at the lengthy hearing* for example* of
the House Banking Committee - - i s this sense of the need to
have reasonably stable prices that people feel and which we
2
want and which w e ’re working for.
So I think that we felt that way and It shows that
concerns and vie have been trying to deal with 11 in every practical
way we could think of that was workable, and vie continue to
turn that problem around as an administrative proposition.
Now, the uncertainties which we have been living under
as far as would the law be extended and, 1f so, what would the
form of the law be have made it difficult to know, you know,
what your authority Is and what you’re mandated to do and would
it turn out that way. There were certainly many versions of
that law that the President wouldn't sign. And we don’t know
yet what the law will be. We have a Senate bill and a House
bill. They both have a one year extension in them, so that’s
certain. Other than that, they’re different...
Q:
Well, Mr. Secretary...
SECRETARY SHULTZ:
...and we don’t know what the procedures
are.
Q: ...If you’re willing to go on the assumption, though,
that because of the similarities between the two bills you’re
going to get the main thing you want, which 1s the one year
extension and no real change or diminution of your authority -once that uncertainty 1s finally cleared up, does that mean
other steps now are ready to be taken pretty soon after that?
SECRETARY SHULTZ: There are steps that are
I think
people don't realize the extent to which there 1s an ongoing
admlnlstrative process vihlch has been taking steps -- I won’t
say dally, but very regularly, maybe even daily, depending upon
how big you define a step as. The step that people noticed,
of course, was the celling ©n red meat certainly. And we have
held hearings on oil and put controls on there of a^different
sort. And we have been working with these various industry
groups, food Industry group particularly, to explore all those
problems. Me have been working on supply problems of agriculture.
We have had a major impact on getting the stockpiles released.
We have been doing all that kind of thing. And I’ve talked
to the (word unintelligible) Council. Me are embarking, ^I guess
everybody knows, on a series of discussions with people In different
industries. Are you familiar with that set of things?
SEVERAL VOICES:
Ho.
Like what, I mean?
SECRETARY SHULTZ: Me have a program of discussions
with industries where w@ feel there seem to be special price
problems — machine tools, metal containers, nonferrous metals,
paper, textiles, and perhaps going on to electrical machinery,
fabricated structural metal, glass, unedible fats and oils,
iron and steel, plastic resinous materials (?). And we come
t© those discussions prepared with, as best vie can (words unfntelllgi
3
governments recent price behav1or9 supply factors and demand
factors9 and one thing or another like that. And we will explore
with them what are the limiting factors preventing expansion
of supply. What capacities are coming along? What are the
sources of current projected demand? What world market conditions
are Impacting or suspected to Impact on U. S. markets? What
changes are taking place 1n inventory quantities? What cost
pressures have9 is* or will the industry experience -- raw material
labor# other costs? How much cost (word unintelligible) has
there been and how much is expected? What explanation does
the industry see for recent price behavior and what price behavior
1s expected in the future?
In other words, I think there Is an ongoing administrative
process that is partly Informational and partly letting the
industry know w@ know they're there and we understand It a little
bit. And in assessing th1ngs9 we find that when you do this
you discover things. It may be in the sense that everything
1s known. What you do 1s you come to realize things that are -~
what their strategic importance may be. For example, in the
lumber hearings, we discovered that there Is a one hundred rule#
so to speak, that affects all sorts of calculations about when
you cut and how profitable it 1s, and so forth. And a hundred
years is longer than it takes most of these trees to grow.
So if you cut your assumption down# you automatically increase
the potential supply. And the assumption doesn't -- seems to
be obsolete in the way a tree farm operation goes. So that’s
something that government can do something about, and so on.
So there is this ongoing process. And I think 1t8$
probably a fair statement that we need to not only maintain
a strong adminlstrative posture 1n the controls program, but
we need to let people know about 1t more. And we’ve just sort
of been doing it -- letting people know ~~ but it Isn’t beer? -we haven't served notice (?) on people that w e ’re doing these
things. But maybe it’s a good idea to b© more visible about
it.
Q: Hr. Secretary, what can we do about the whole range
of commodities that are traded on world markets? Isn’t this
a major problem 1n your program?
SECRETARY SHULTZ: That’s a major problem, and 1t*s
a problem that you have to approach with great care. Because
if you are -- if you are using a raw material which you’re getting
a major fraction off the viorld market and you decide that you’re
not going to pay the price for that raw material, then if that
market is strong you’re not going to get the raw material.
And then you’ve got all kinds of down-the-1ine impacts of that
in terms of the operation of the economy and jobs# etc. So
I think we have to have a strong stance on prices. But we have
4
to watch out all the time that we
our nose to spite our face.
t. I 8 8 1
off
The basic thing that one tries to do 1s work on the
supply factor. And of course9 price tends to have an Impact
on the nature of demands both in terms of substitutabi11ty and
in terms of overall demands and then see where we can use the
wage and pries control machinery to keep things 1n bounds and
we don't have any more price Increase than we need to....
Q:
Hr. Secretary....
SECRETARY SHULTZ: ...sometimes there grows a situation
where* let's say* there are increases In raw material prices.
There can grow a sort of a psychology that tends to over-extrapolatc
and over-anti cl pate9 and I think the control mechanisms can
deal with that so we get all the mileage we can out of the controls
mechanism without using it in a way that shorts us in places
where we don't want to be short. Maybe there9re some places
where people would just as soon be short* but I haven't seen
too many ©f them.
Q: What about the pre-notification?
be worth reconsidering at this juncture?
in that possibl
SECRETARY SHULTZ: Well9 that's been a subject that's
been discussed a lot. And there are various forms of that are
perpetually under consideration. Our price problems to date
this year have not been so much 1n the big so-called administered
price Industries where really the mechanics of Phase II, Phase
III, and so forth, tend to apply the most and where something
like pre-notification has its greatest impact. Everyone rivets
on those areas, but they're not the areas that are causing us
all the trouble. The areas that have been causing us the most
trouble so far are the same ones that caused trouble 1n Phase
II. I'm not saying that they are not some general problems
1n the field of Inflation. But that area that's most affected
by pre-notification is not the place where w @ sve been having
the difficulty. The auto industry, for examples by and large -we've probably had lower prices in the auto [industry] in Phase
III than we would have had if Phase II had continued.
Q: Mr. Secretary, is it fair to infer from all you've
said that you're reasonably satisfied to stand pat with the
Phase III control system, albeit you would make some certain
ad hoc adjustments as It comes along, as you have already?
I'm trying to find some general way to assess your attitude...
emu l believe
that we should d© very practical
Inflation. And that means,
able
eye
off
the
fundamentals. That's why
first, never taking our
A. 9
t b
© sis
on
Du
Q:
Never take your eye off what?
SECRETARY SHULTZ: Off of fundamentals. And whenever
we f1ndp leaving aside the sort of macro type problems
where
we see problems in a particular industry* to approach it both
1n terms of the supply/ demand type factors and the mechanics
of the wage and price system in the control sense* and to get
as much mileage as we can out of the control mechanism* plus
trying to keep working on these other things. That's why* in
the food area* we place such a lot of emphasis on our effort
to increase supply.
Q:
We have heard....
SECRETARY SHULTZ: I don't -- I'm not really answering
your question directly* because I would rather leave 1t sort
of fuzzy in the sense that what — you can say that you move
from Phase II to Phase II* and you can just say that you describe
that change because there are a number of discreet steps that
are large enough to warrant changing a name. But I don't know.
All of these things tend to have a lot of common features and
merge into together* to some extent.
Q: Let me just follow on point* 1f I may. I'm beginning
to wonder if leaving it fuzzy Is beginning to be a problem Itself...
SECRETARY SHULTZ:
It may be.
Q: ...In that there's been so much talk about a freeze*
that there may be some anticipatory price...
SECRETARY SHULTZ: I think — I think the last month
or so has been an unfortunate month from the standpoint of the
wage-price program* because there has been so much uncertainty
about what's likely to happen* with all of the congressional
discussion and other discussion of freezing this and that and
rolling back* and whatnot* that it makes people jumpy. So I
think that you’re right 1n pointing that out as something...
Q:
Let me pursue that....
SECRETARY SHULTZ: ...And 1t may very well. The President
may want to make a clarifying statement. X8m sure* If ha gets
a bill he can sign* he will probably make some statement about
the timing of 1t (?).
Q: We have heard from several sources that the controls
program was set up to control cost push Inflation. And now
we're in a demand pull situation....
How do you feel about this kind of philosophy?
SECRETARY SHULTZ: He's hitting me with my ideology.
There 1s a school of thought that says there's no such thing
as cost push. Don’t write that down. I don’t want to get into
this kind of an argument. But that 1s a legitimate school of
thought.
I
think there 1s a genuine and worthwile distinction
among situations. And regardless of sort of the underlying
economics and conceptualization of 1t, the situation we had
in mid *71 was a totally different one than we have now. We
had -- in mid ‘71, we had in place all of the classic measures
that will deal with inflation, and they were dealing inflation.
And the problem was in an unsattsfactory state, obviously, but
it was Improving. Now there was a lot of — there was unused
capacity that was definitely usable, and we had an expansion
underway which we wanted to make more rapid. And we knew that
when you — at that stage when the expansion picks up steam,
you generate big increases in productlvity, and as some combination
of the control system and the underlying factors took hold,
you would have low labor costs and you’d have all the ingredients,
with or without a control system, that would tend to Improve
the situation.
In fact, I think I gave a talk -- I’m sure I did -to the National Press Club In January of 1972, entitled "Why
Will Phase II Work,” and, 1n addition to paying my respects
to the control system, outlined all of these underlying favorable
factors. Well, now we have a situation where economies around
the world are all very strong, with the impact on these international
traded commodities, including food, which is visible. We don't
have very much unused capacity. There’re all sorts of problems
in classifying what is real capacity and what Isn’t. You know
that as you move toward more full utilization, what’s left over
Is the less efficient part of 1t. We know that for sure. But
at any rate, we don’t have that. We will have strong expansion
during the year, but we won’t have the acceleration of expansion.
We can’t. It’s not physically possible, as we've got to get
ourselves to the point where our rate of real expansion is as
as close as it can be kept to the natural rate of expansion
of the economy, by definition, pretty soon. But that means
that the rate of productivity advance won’t be so fast, and
we will have (?) that factor.
Also, we had something in the freeze that was -- we
didn’t realize how well timed that was. Or maybe I should have
said we knew
The seasonal pattern of food prices, from
around July or so, is down for the balance of the year. And
the result was, In terms of food prices and with the law of
supply/demand conditions there, that, on the whole, food prices
did not, during the freeze period or 1n the subsequent months
of that year -- didn’t hit the celling. So food was a big aid
to us in the whole thing.
So there are very different -- so there are very different
7
factors.
Q: Can we get on to the question, since there was
a distinction made between cost push and demand pull, as to
what your view 1s of the price situation when (v^ords Inaudible)
Interfaced with labor negotiations?
I
mean9 I presume you've not been totally still 1n
trying to sound this out from the labor side. And what we'd
like to know is if you've received any kind of assurances -but I wouldn't think you would tell us if you hadn't -- but
I'd like to know what your own feeling is. Surely, they've
gotten some kind of risk in there. It's been publicly articulate
by Meany (?).
SECRETARY SHULTZ: Well* we have -- we have had so
far this year a very good labor response. And I think that
underneath it all there is a desire all around in the society
to be constructive 1n working at this problem, flow that doesn't
mean people aren't going to fight hard for what they think they
deserve. And they should. But I think that everybody wishes
that we would have control of inflation,, and everyone sees,
in a sense9 these connections. And I don't get this sort of
spirit of 'we've got to strike all the time® that we had at
some earlier moments. But that is much less apparent now.
So 1 think those are all good things. And actually
so far this year, I think we've come off pretty well. Now,
how the subsequent events will unfold remains to be seen. We
have, of course, been working with people on both sides of the
1abor/management situation, and we'll continue to do that.
I don't want to make any forecasts or whatnot, except that,
recognizing all of the problems that have been created by the
food price business, some of them subsequent to the statement;
nevertheless, the statement put out by the Labor-Management
Advisory Committee 1s a very constructive statement, I think.
Q: What's the significance of the recent by-play Involv
Secretary Brennan and Mr. Meany and the President? What does
all this mean?
SECRETARY SHULTZ: Well, the President, of course,
is very much in support of Secretary Brennan. Pete has moved
into a difficult job, which he recognized, and is doing a very
good job of coming to grips with his department, getting a staff
and working through policy Issues that are difficult policy
Issues, and has, I think, done quite a job ~~ I’ve felt It myself
of representing the viewpoints that he holds. And the President8
aware of that. And this question of what all lies behind Mr.
Meany's statement yesterday, I don’t know and I don't have any
comment on that.
Q:
Secretary Shultz...
SECRETARY SHULTZ: But you know, there's been a lot
of -*» there’s been a lot of policy put out In the ~~ sort of
the economic sphere, things that are particularly Interesting
to labor. There’s the trade bill that has some strong aspects
to It. There 1s the minimum wage, with Its training differential,
sort of like an apprenticeship program. There 1s the concept;
there 1s the pension bill; and there Is the unemployment Insurance
bill, with a gigantic breakthrough In the benefit standards’
area. So those are all, each one, a very Important Item. And
Secretary Brennan, Secretary Dent, others — the administration
has worked Its way through these things, and I think that’s
a big area of economic policy out there, and It will continue.
We’ll have an energy message that has major things In it. lie’ll
have a tax program that will be out. Of course, Secretary Brennan
1s not as involved 1n those two things.
Q:
What’s your timing on the tax program, by the way?
SECRETARY SHULTZ:
of April....
Q:
Well , we’ll testify the thirtieth
Secretary Shultz...
SECRETARY SHULTZ: W@ had a piece of it 1n the trade
bill. We’ll have a little piece 1n the energy message. But
you won’t be able to see the — in a sense, the trade-offs 1n
the tax program until you see the whole program.
Q: Host of these Involve -- most of the tax things
Involve foreign relations, U. S. to foreign taxes, 1n one form
or another?
SECRETARY SHULTZ: Well, no, that’s what has been announced
in connection with the trade bill...
Q:
Yes.
SECRETARY SHULTZ: ...and we may break an additional
little piece 1n connection with the energy message. But the -«
sort of the overall scope of the problems of dealing with equity,
dealing with simplification, dealing with special problems,
and so on, you won't be able to see until you see the whole
thing. I would urge you to wait for it...
Q:
Hr, Secretary, as I understand it, you're excluding
the possibility of any kind of a new freeze or return to Phase
II controls and speaking Instead of ad hoc measures, greater
visibility, some of the things that Dunlop and h1s people are
doing.
SECRETARY SHULTZ: All that I have done, Irving, so
far 1s to try to recapitulate and describe the ongoing situation
and to suggest to you that it is -- there is much more of a
strength of administration that John Dunlop 1s carrying out
than 1s appreciated. And whether you call that Phase III prime9
or whatever you want to call 1t9 nevertheless that has been
an ongoing thing from the beginning. And of course* the problems
of administering a program have been sort of peppered with and
Interspersed with the problems of working on the legislation.
If you don't know what your statutory base 1s, It's hard to
know precisely where you're going. But that Is going to be
clarlfled.
Vie had hoped -- people say, why did we move so rapidly,
or why did we move in January on the control system. Vie had
hoped that we would have prompt action on the Economic Stabilization
Act and that the Congress would want to know what, broadly speaking,
was the President's Intent in administering 1t , and that by
taking an action then, which was I think broadly recommended
by many groups observing the wage-price control system, that
we would lay the groundwork for prompt action. But, of course,
1t was not until two and a half, three months later that the
House got around to holding hearings on It.**
Q:
What difference would that have made, though?
SECRETARY SHULTZ: It would have made the difference
that people -- we would have know -- people would have known
what the statutory base 1s, and we wouldn't have had this month
of ups and downs on 8Is there going to be this, that or the
other.'
Q: There wasn't anything to prevent you from, 1n effect,
reading off all of these particular -- I don't like the word
"ad hoc," because it's a pejorative. I'll take your point that
maybe you really were trying to get Into a broad spectrum of
things by going Into particulars. There wasn't anything to
prevent you from having done that quite publicly at least a
month or six weeks ago.
SECRETARY SHULTZ: Well, we've been doing 1t. We've
beers doing it. There have beers steps, and I've cited this most
recent one that Is aimed at understanding better the most recent
price splurge...
Q; No, no, no. I didn't mean doing 1t; I meant doing
this; I mean publicizing it. That is, as (words unintelligible)9
never call a press conference unless you've got something to
say, but it4s quite clear you do have something to say or points
to get across. And I'm not saying that 1n any critical sense,
and that's fine. But I'm asking why wasn't 1t done -- why did
you not choose to do it six weeks ago?
SECRETARY SHULTZ: Well, ws have done an awful lot
of talking about Phase III or about -- let's drop this; let's
not say talking about Phase III -- talking about the wage and
price control system and what we're trying to do with it and
of time, it
a peri
how it works» and so on
s 3 in what
was basically trying to explain to peop
1ste
i
t
s
e
l
f
sense is it mandatory, in what sense is
g*
this
was
going
aroundi
in what sense 1s it voluntary. And all
Food Price Committee,
as we were embarking (?)
lots of discussion that was about
so on
But maybe we should have had a stronger public relations
kind of effort...
Q:
Mr. Secretary...
SECRETARY SHULTZ: ...with Dunlop talking about it
and saying that's what we're trying...
Q: ...well, you can't have a public relations' effort
unless, in fact, you have something, a strong thrust to say,
and it hasn’t come across. And 1 can't fully put my finger
on the PR man for that. And if, 1n fact, there's a sense of
talking out of two sides of the mouth, which there was a little
while ago — that 1s, not having -- a sense of ambivalences
which doesn't seem to be the case in your mind now...
SECRETARY SHULTZ: I don't think there's been any ambiva
lence. There are changes 1n the program, and, to some extent,
they're difficult to explain. The great thing about Phase I,
the freeze, was it was so simple to explain. And yet that simple
world you can't stay with for too long; then It begins to get
more complicated...
Q: Secretary Shultz, now that you will receive the
legislative base that you had wanted, and given the strength
of the admlnlstration of Dunlop's action, which you've referred
to, is 1t your feeling then that that will be sufficient to
cope with the inflation problem?
SECRETARY SHULTZ: Vlell, we will see what we learn.
I think that we'll see a kind of a continuing pattern of trying
to do, admlnistratlvely, practical, workable, sensible things...
Q:
them.
Rather than...
SECRETARY SHULTZ:
That's the way you find out about
Q: Rather than more drastic actions, the stuff we've
been reading about of a freeze, a return to Phase II, that kind
of thing?
SECRETARY SHULTZ: Well, I want to emphasize the administra
tive stance that the program has and which we're trying to bring
up to the surface to a greater degree* Arid I think we will
be able to do that more effectively when people pay more attention
to what's going on over there in John Dunlop’s office -- and
the action 1s not on the Mill all the time.
Q: But can you flatly rule out the administration
Imposing a new freeze? Can you tell us now that that won’t
be done?
SECRETARY SHULTZ: Under the Economic Stabl1izatlon
Act* the President has broad options* and so they’ll stay there.
But I don’t want to create any headlines or big talk about that...
Q: Mr. Secretary* you indicated that one of the problems
that has caused prices to go up 1s the speculation on...
freeze.
SECRETARY SHULTZ: A general
a general wage-price
I don’t -- the President does not...
q;
Could we expect some kind of a major announcement...
[Confusion of voices.]
MAN:
Now one at a time.
Q: I think you just said the crucial thing I wanted
to hear* and I didn’t hear It. Mould you repeat 1t?
SECRETARY SHULTZ: A general across-the-board wageprice freeze 1s not under active consideration by the President*
as far as I know.
Q: A question that follows from that. Prices have
been running up in Industrial commodities and many other areas
where they’ve been stable for some time, evidently In anticipation
of the freeze. One of your own officials has made a speech
to this effect. Do you think that if...
[Confusion of voices.]
SECRETARY SHULTZ:
brought that out...
....I agreed with you.
Somebody
Q: Right. Is 1t your feeling that If nothing 1s done*
those prices will have to fall back again? Will time be on
your side?
SECRETARY SHULTZ: We think time is on our side and
1n many areas* particularly the areas where we have taken strong
supply oriented action. The stockpile business wll.1 affect
some of these* depending how promptly we can get the legislation.
The agriculture move will affect some of these. If we can get
this ant1-1nflat1on piece of the trade bill passed in a hurry*
that would be some help, but 1t doesn’t look as though we will.
12
But at any rate* that*s the sort of thing that can help you
down the road.
So we think time 1s on our side on these things. Of
course* we're like everybody else. We read the weather reports
from the Middle West. Every morning* the first thing l do ~~
I don't look at the headlines any more or the financial page;
I turn to the weather report* see how we're doing out there.
It has been just a terrible run of bad weather. How heavily
It hurts r- and it's hurt some* we know that. I'm told by the
experts that 1f we get good weather now that* basically* we'll
be all right; it won't have that much effect. But the weather
has been foul* and the wage and price system can't cure that
problem.
We had one
his
of
when one
the
all these things*
and a little more
Q:
in the
I was testifying with 8u lz and Dunlop
that while they were legislate
should legislate a little more rainfall
A very
SECRETARY SHULTZ: And Butz said* "Well * now* just
wait a minute. If you're going to legislate more rainfall*
you better go slowly; we've already had more than we need* and
that kind of move could be counterproductive." But you observe
sometimes that the problem may be less separation of the executive
and legislative branches and their functions as separation of
church and state on some of these matters.
But these discussions that you referred
Q: Have these discussions that you referred to resulted
in any unpublicized rollbacks of prices?
SECRETARY SHULTZ: I think there have been a few.
But Dunlop 1s your better man to talk about that.
Shall we tell him you said so?
SECRETARY SHULTZ:
Q:
Help yourself.
Okay* fellows* I5m going to be serious* because
13
I was thinking of this GNP which 1s coming out this week and
the consumer price index and next month's wholesale price index*
all of which, by all Indications * or In the case of the GUP*
going to show an overheated economy. The consumer price index*
judging by what has preceded it, will be bad news. I was wondering.
The pressure that you're going to be under from labor and others
for action -- I don't know that quite formulates Itself into
a question. But...
SECRETARY SHULTZ: Well, in a sense, whatever the 6HP
Inflator turns out to fee, or the consumer price Index turns
out to be -- presumably high rates -- won't be news. That 1s,
we already have -- we know the news, because, as you point out,
the information relates to a past period which we have not measured
with the precision that we presume the CPI has, but we've all
measured it with the Imprecision of our own shopping experiences
and the wholesale price Index, and so on. So that you know
more or less that it's not going to be a very good set of readings.
The first quarter GNP, as we all know, has a special
problem connected with it each year, because it has the government
pay Increase, and that always runs It up. It's a special thing,
because that's counted as a price increase, as you know, So
that when you get the GNP, I hope you will all want to look
at the private deflator, which will be enough, I'm sure, but
it won't have to be worse...
Q: You said, in a sense, it won't be news. Our ten
dollars on the table says it'll be on everybody's front page...
SECRETARY SHULTZ:
Q:
Oh, yes.
Yes.
I didn't mean that...
Ho, I know what you...
SECRETARY SHULTZ: ...I meant that if It turned out
to be low, everybody would be surprised. In that sense, 1t
would be news. If 1t turns out to be high, it's what everybody
expects. And it's news, but 1t Isn't unexpected news...
Q: If I extrapolate, you know, you don't need to be
a weatherman to know which way the wind is blowing, as was said
a little while ago. Now that stuff may or may not be news to
anybody that follows it. But I'm asking really about the political
Impact it's going to have on groups who want a larger — maintain
that they had their purchasing power eroded. But, you know,
the argument really 1s about five, six billion of the GNP between
wages and farmers, as some other administration official mentioned
at the beginning ©f the year. And I still don't feel that the
answer that we've got so far about -- which really is the answer,
quote, "labor statesmanship," doesn't take away the risk of
eleven to fourteen percent settlements In the next three or
four months...
HAN:
Or strikes.
Q: Well9 I wouldn't even want to go to strikes for
the minute. Let's just presume that you've got full-time capacity.
And the companies will say* "Hell, vie'll settle that. Why not
see 1f we can get It through Dunlop one way or another.1' And
then It'll be Dunlop moving furiously in the back room trying
to keep -- you know* trying to balance one off against the other.
I just want to know* Is that really -- 1s that the essence of
your program?
SECRETARY SHULTZ: Well * as far as the -- as far as
the wage system is concerned* we have
we have a standard;
we have an approach to that standard; we have the Labor-Hanagement
Advisory Committee material. We know that the food price problem
1s a particular...
[Tape concludes at this point.]
eDepartmentof theTREASURY
HINGTON, 0.€. 20220 M f r ' TELEPHONE W04*204t :
FOR IMMEDIATE RELEASE
April
18/
1973
J A M E S B. C L A W S O N
APPOINTED D E P U T Y ASSISTANT SECRETARY FOR
E N F O R C E M E N T , T A R I F F A N D T R A D E AF F A I R S , A N D O P E R A T I O N S
T r e a s u r y S e c r e t a r y G e o r g e P. S h u l t z t o d a y a n n o u n c e d
the a p p o i n t m e n t of J a m e s C l a w s o n o f Downey, C a l i f o r n i a ,
as D e p u t y A s s i s t a n t S e c r e t a r y for E n f o r c e m e n t , T a r i f f
and T r a d e Affairs, a n d O p e r a t i o n s u n d e r A s s i s t a n t
S e c r e t a r y E d w a r d L. M o r gan.
C l a wson, 33, p r e v i o u s l y s e r v e d as a S t a f f A s s i s t a n t
to the P r e s i d e n t for D o m e s t i c Affairs, b e i n g a p p o i n t e d
in O c t o b e r o f 1971.
H e w a s a l s o D e p u t y D i r e c t o r of the
P r e s i d e n t ' s C a b i n e t C o m m i t t e e on E d u c a t i o n and h a d b e e n
on the C o m m i t t e e s t a f f since J a n u a r y 1970.
From April
1969, to A p r i l 1970, h e w a s the E x e c u t i v e A s s i s t a n t to
the G e n e r a l C o u n s e l at the D e p a r t m e n t of Health, E d u c a
tion an d W e l f a r e .
F r o m 1966 to 1969, he p r a c t i c e d law
in Los A n g e l e s , C a l i f o r n i a .
B o r n in Safford, Ari z o n a , Mr. C l a w s o n w a s e d u c a t e d in
p u b l i c s c h o o l s in Compton, C a l i f o r n i a .
H e a t t e n d e d the
U n i v e r s i t y o f S o u t h e r n C a l i f o r n i a w h e r e he r e c e i v e d a B S L
in 1964 and a JD f r o m t he S c h o o l o f L a w in 1966.
Mr. C l a w s o n is m a r r i e d to the f o r m e r J e a n n e t t e G i l e s
of Downey, C a l i f o r n i a .
The Clawsons have three children
and r e s i d e in G a i t h e r s b u r g , M a r y l a n d .
#
S-173
#
#
#
DepartmentofIheTREASU RY
OFFICE OF REVENUE SHARING
WASHINGTON, D.C. 20220
FOR RELEASE 10 :00 A,M,, EST
WEDNESDAY, APRIL 18.1973
PLANNED-USE REPORTS MAILED OUT
T h e O f f i c e o f R e v e n u e S h a r i n g in the D e p a r t m e n t of the
Treasury today mai l e d Planned-Use Report
than
forms to its m o r e
38,000 S t ate a n d local g o v e r n m e n t r e c i p i e n t s 0
p a g e r e p o r t c o v e r s the p e r i o d fro m J a n u a r y
June
T h e one-
1, 1973, to
30, 19730
T h e g e n e r a l r e v e n u e s h a ring law r e q u i r e s each g o v e r n m e n t a l
j u r i s d i c t i o n to p r e p a r e a r e p o r t o f the u s e s w h i c h it p l a n s
to m a k e o f r e v e n u e sh a r i n g funds a n d to p u b l i c i z e that r e p o r t
locallyo
Revenue
s h a r i n g r e g u l a t i o n s r e q u i r e local and
S t ate g o v e r n m e n t s to p u b l i s h c o p i e s o f t h e i r r e p o r t s in
n e w s p a p e r s h a v i n g g e n e r a l local c i r c u l a t i o n a n d to p r o v i d e
o t h e r p u b l i c i t y a b out the r e p o r t to the n e w s media,
including
m i n o r i t y a n d b i l i n g u a l m e diao
" P r e s i d e n t N i x o n * s o b j e c t i v e to e n h a n c e l o cal a c c o u n t
a b i l i t y is a c h i e v e d b y t he r e q u i r e m e n t that S t a t e and local
g o v e r n m e n t s p u b l i c i z e t h e i r p l a n n e d u s e of g e n e r a l r e v e n u e
sh a r i n g funds to t h e i r l o cal c i t i z e n s , " G r a h a m W» Watt,
2
D i r e c t o r o f the O f f i c e o f R e v e n u e Sharing,
explained0
"The
d e m o c r a t i c p r o c e s s w i l l t h e n f u n c t i o n to o f f e r o p p o r t u n i t y
for p u b l i c p a r t i c i p a t i o n in local d e c i s i o n m a k i n g a nd
budgetingo"
" T h e T r e a s u r y D e p a r t m e n t w i l l c o n t i n u e to stress the
i m p o r t a n c e of this l o c a l p r o c e s s a n d w i l l n o t a s k for
u p d a t e s to t h e s e r e p o r t s w h e n l o c a l p l a n s are c h a n g e d , "
Watt
saido
Each Planned-Use Report form contains the Treasury
Department’s estimate of total funds to be paid to each
jurisdiction for the third entitlement period (the first
six months of calendar 1973)o Local officials are asked
to indicate the amounts which they propose to spend in each
of the eight priority expenditure categories authorized in
the revenue sharing law (operating and maintenance
expenses for public safety, environmental protection, public
transportation, health, recreation, libraries, social
services for the poor or aged, financial administration, and
for capital expenditures)0
The Planned-Use Report must be returned to the Office
of Revenue Sharing by June 200
A government’s failure to
comply with this requirement of the revenue sharing law
will jeopardize continued eligibility for future general
revenue sharing paymentsc
3
Later in the year, each jurisdiction will be asked to
report to the Office of Revenue Sharing its actual
expenditures of general revenue sharing funds•
Both the
report of planned use and the report of actual use will
be made annually as required in the State and Local Fiscal
Assistance Act of 1972«
0O0
n
DepartmentofthefREASURY
ISHINGTQN, D.C 20220
TELEPHONE W04-2041
1 7 8'
“
Note
)
April 17, 1973
to Corres p o n d e n t s :
T r e a s u r y S e c r e t a r y G e o r g e Shultz, and Ch a r l e s DiBona,
S p e c i a l C onsultant, w i l l b r i e f the news m e d i a W e d n e s d a y ,
A p r i l 18, at 9:30 a.m. on P r e s i d e n t N i x o n ' s e n e r g y m e s s a g e
in the W e s t W i n g B r i e f i n g R o o m of the W h i t e House.
P e r sons
w i t h o u t W h i t e H o u s e p r e s s c r e d e n t i a l s should cal l 964-2041,
no later than 3:00 p.m. t o d a y (April 17) to m a k e a r r a n g e
m e n t s for clearance.
E n t r a n c e w i l l be t h r o u g h the n o r t h w e s t
gate on P e n n s y l v a n i a A v e n u e .
Treasury Deputy Secretary William Simon, Chairman of the
President's Oil Policy Committee, will hold a technical energy
briefing at 10:30 a.m. in room 450, Old Executive Office
Building. Persons without EOB building passes should call
964-2041, no later than 3:00 p.m. today to make arrangements
for clearance. Entrance will be through the main EOB entrance
(D-l lobby) on Pennsylvania Avenue.
All information generated by these two briefings will be
on embargo until 12:00 noon.
oOo
p
EMBARGOED FOR RELEASE UNTIL
12;00 NOON, E.S.T., A P R I L 18,
1973
S T A T E M E N T BY W I L L I A M E. S I MON
D E P U T Y S E C R E T A R Y OF THE T R E A S U R Y
ON T H E O IL IMPO R T P R O G R A M
A P R I L 18, 1973
P r e s i d e n t N i x o n t o d a y sign e d a P r o c l a m a t i o n w h i c h t e r m i n a t e s
v o l u m e t r i c q u o t a s on o il imports b e g i n n i n g M a y
1, .1973.
The
P r o c l a m a t i o n s u b s t i t u t e s a s y s t e m of li c e n s e fees on i m p orts of
p e t r o l e u m and p e t r o l e u m p r o d u c t s
into the U n i t e d States.
Today's action follows an intensive study of the nation's
oil import policies relative to current domestic supplies of
crude oil and petroleum refinery capacity and the national
security interest of the nation.
The study was conducted by
an inter-agency task force under my direction as Chairman of
the Oil Policy Committee.
License Fee Program
An explanation of the new license fee program is attached.
In essence,
however,
as of M a y 1,
1973,
v o l u m e t r i c c o n t r o l s on oil imports,
t h ere no l o nger are any
and the e x i s t i n g d u t i e s
on c r ude oil an d r e f i n e r y p r o d u c t i m p orts are suspended.
Any
pers o n or c o m p a n y w a n t i n g to i m p o r t c r ude oil a n d / o r r e f i n e r y
p r o ducts m a y do so a f t e r o b t a i n i n g an i m port l i c e n s e f r o m the
Office of Oil and Gas at the D e p a r t m e n t of I n t e r i o r and a f ter
paying the li c e n s e fees in force at the time.
S-172
B 2 H
1 'll!9i i m
iiivSiiii u n i
'i I
In o r d e r to p r o v i d e an e q u i t a b l e t r a n s i t i o n f r o m the
c u r r e n t p r o g r a m to the n e w l i c ense fee system,
c e r t a i n crude
oi l and p r o d u c t i m ports w i l l be e x e m p t fro m l i c ense fees for
a l i m i t e d p e r i o d a f ter M a y 1,
1973.
T h e s e exemptions,
however,
w i l l be p h a s e d out ove r a seven y e a r period.
D e m a n d a nd S u p p l y
In r e c e n t years,
the U n i t e d States has seen its surplus
s u p p l y of c r u d e oil an d r e f i n e r y c a p a c i t y r a p i d l y d w i n d l e into
a d e e p e n i n g deficit,
as d e m a n d for p e t r o l e u m p r o d u c t s has
s p i r a l e d u p w a r d and d i s c o v e r i e s of n e w r e s e r v e s and construction
of n e w r e f i n e r i e s in this c o u n t r y have f a i l e d to k e e p pace.
I n c r e a s i n g r e l i a n c e on imports of f o r e i g n suppl i e s has raised
serious q u e s t i o n s w i t h r e g a r d to the n a t i o n ' s b a l a n c e of payments
p o s i t i o n and n a t i o n a l s e c u r i t y re q u i r e m e n t s .
In addition,
the
d i f f i c u l t y in s a t i s f y i n g the n a t i o n ' s home h e a t i n g oil requiremenj
this p a s t w i n t e r and the t h r e a t of a g a s o l i n e sh o r t a g e this sununej
u n d e r s c o r e d the i m i n e n t n e e d to r e c o n s i d e r n a t i o n a l oil policy,
and an i n v e s t i g a t i o n of c u r r e n t p o l i c i e s w a s b e g u n in February
by the oil i m p o r t t ask force u n d e r m y direction.
M a n d a t o r y Oil I m p o r t P r o g r a m
The tas k force found that the M a n d a t o r y Oi l Import Program
no long e r p r o v i d e d the p r o p e r c l i m a t e to s u p p o r t a vigorous
d o m e s t i c p e t r o l e u m industry,
w h i c h is e s s e n t i a l to the national
s e c u r i t y and the e c o n o m i c w e l f a r e of the nation.
It found that
the p r o g r a m w a s n e i t h e r a d e q u a t e to a l l e v i a t e the t h r e a t of neart e r m c r u d e oil a nd p r o d u c t shortages,
n or a d e q u a t e to provide
l o n g e r - t e r m i n c e n t i v e s for i n c r e a s e d i n v e s t m e n t in domestic
3
exploration and production and new refinery construction and
expansion.
Th e t ask force f o und t h a t the p r o g r a m w a s n ot so m u c h a
fa i l u r e as it w a s obsolete.
domestic production was
It w a s e s t a b l i s h e d at a t i m e w h e n
in e x c e s s of d e m a n d a nd it w a s
founded
on the p r e m i s e t h a t it w a s n e c e s s a r y to r e s t r i c t i m p o r t s of c h e a p
foreign o il to e n c o u r a g e the d o m e s t i c p e t r o l e u m i n d u s t r y
i n t erest of n a t i o n a l security.
in the
T he c o n d i t i o n s w h i c h g a v e
r ise
to this p o l i c y no l o n g e r exist.
Further,
the o r i g i n a l p u r p o s e of q u o t a s w a s to p r o v i d e
r e a s o n a b l e s e l f - s u f f i c i e n c y by e n c o u r a g i n g the d e v e l o p m e n t of
d o m estic p r o d u c t i o n and r e f i n i n g capacity.
Thi s c l e a r l y has
not h a p p e n e d .
C o m p a n i e s w e r e i n d u c e d to e x p l o r e a nd p r o d u c e a b r o a d
in
order to b e n e f i t b o t h f r o m l o w e r f o r e i g n p r o d u c i n g c o s t s and
the a s s u r a n c e of a large h i g h e r - p r i c e d m a r k e t at home.
Imports
now a c c o u n t for 30 p e r c e n t of p r o d u c t i o n a nd a re e x p e c t e d to
climb to the 50 p e r c e n t
level in a f ew years.
The task force found that these unintended developments
are inherent in the quota system, and have not been corrected
by the stop-gap measures used to shore up the program over the
past years.
Lately refinery capacity has also begun to move abroad.
Although other factors have contributed to this development,
including environmental restrictions which have blocked refinery
4
p l a n t sitings,
the u n c e r t a i n t i e s of the q u o t a s y s t e m hav e had
an a d v e r s e e f f e c t on l o n g - r a n g e inve s t m e n t s
for n e w r e f i n e r y
c o n s t r u c t i o n as w e l l as i n v e s t m e n t s for a d d i t i o n a l e x p l o r a t i o n
and p r o d u c t i o n in this country.
This u n c e r t a i n t y d e v e l o p e d
because:
1.
Import a l l o c a t i o n s are subject to annual realignment;
2.
In r e c e n t years,
quently,
the p r o g r a m has b e e n a l t e r e d f r e
m a k i n g it a p a t c h w o r k of special provisions
and e x c e p t i o n s ; and
3.
G e n e r a l d i s s a t i s f a c t i o n w i t h the p r o g r a m b o t h in
i n d u s t r y and the g o v e r n m e n t has fos t e r e d the
e x p e c t a t i o n that it w o u l d be a b a n d o n e d shortly.
Basis for P o l i c y R e c o m m e n d a t i o n
B a s e d on this a s s e s s m e n t of the M a n d a t o r y Oil Import Program,
we la u n c h e d a full scale effo r t to d e v e l o p r e c o m m e n d a t i o n s to
r e s t r u c t u r e import policies.
We r e c o g n i z e d the n e e d to get the
federal g o v e r n m e n t o ut of the b u s i n e s s of r e g u l a t i n g oil imports,
since the g o v e r n m e n t doe s not hav e the f o r e c a s t i n g c a p a b i l i t y
to p r e d i c t e x a c t l y w h a t i m port levels w i l l be e ach year.
Our
o b j e c t i v e w as to d e s i g n a p r o g r a m that w o u l d a s s u r e the oil
in d u s t r y f l e x i b i l i t y to import oil to sa t i s f y the s h o r t - t e r m
needs of U.
S. r e f i n e r s and c o n s u m e r s while,
at the same time,
p r o v i d e l o n g e r - t e r m s t a b i l i t y and a d d i t i o n a l i n c e n t i v e s
for
i n c r e a s e d d o m e s t i c e x p l o r a t i o n and p r o d u c t i o n and n e w refinery
c o n s t r u c t i o n and expansion.
We k n e w t h a t in d e s i g n i n g this n e w p r o g r a m the s p e cial
provisions,
e x c e p t i o n s and sub s i d i e s
to be ended.
in the M O I P w o u l d hav e
We r e a l i z e d that this c o uld not be d one abruptly,
but w o u l d hav e to be don e g r a d u a l l y to a v oid p u t t i n g an u n f a i r
econo m i c h a r d s h i p on the n u m e r o u s p e r s o n s and c o m p a n i e s tha t
t o g ether hav e i n v e s t e d m a n y m i l l i o n s of d o l l a r s
in the d o m e s t i c
oil i n d u s t r y b a s e d on the p o l i c i e s u n der the MOIP.
We also r e a l i z e d t h a t our n e w p o l i c y r e c o m m e n d a t i o n s w o u l d
have to s a t i s f y c o n s u m e r int e r e s t s in r e a s o n a b l e p r i c e s and
suf f i c i e n t s u p plies w i t h o u t s t r a i n i n g or d i s r u p t i n g the c o m p l e x
m e c h a n i s m k n o w n as the oi l industry.
We k n e w tha t eac h s e g ment
of the in d u s t r y m u s t c o n t i n u e to be v i a b l e
in o r d e r to m e e t
the supply needs of the n a t i o n b o t h in the n e a r and longer term.
The f o r m i d a b i l i t y of this tas k is o b v i o u s w h e n y o u realize that
the oil in d u s t r y is c o m p o s e d of c o m p a n i e s t hat v a r y in size from
global to local and f r o m i n t e g r a t e d m a j o r s to i n d e p e n d e n t
producers,
refiners, m a r k e t e r s and jobbers.
We f u rther r e c o g n i z e d that our p o l i c y r e c o m m e n d a t i o n s w o u l d
have to be c o m p a t i b l e w i t h o t her g o v e r n m e n t p o l i c i e s a nd programs,
in p a r t i c u l a r the E c o n o m i c S t a b i l i z a t i o n Program.
We k n e w t hat in o r der to be m o r e a t t r a c t i v e for oil c o m p a n i e s
or for tha t m a t t e r a n y o n e —
for m ore oil in this country,
to b u i l d n e w r e f i neries
and e x p l o r e
p r i c e s in this c o u n t r y for f o r e i g n
p e t r o l e u m p r o d u c t s w o u l d h a v e to be h i g h e r tha n the p r i c e s for
domestic products.
O n l y in this situation, w o u l d it be m o r e
profitable to m a n u f a c t u r e t h ose p r o d u c t s h e r e tha n to m a k e t h e m
6
s o m e w h e r e else and i m p o r t t h e m into this country.
T h e r e had
to be c l e a r a d v a n t a g e s to p r o d u c i n g c r u d e o i l in t h i s c o u n t r y
r a t h e r t h a n p r o d u c i n g it s o m e w h e r e e lse
this country.
Therefore,
of c r u d e o il and
fuel oil,
even
distillates,
Various changes
and in turn selling it in
w e h a v e set a l i c e n s e fee on imports
higher
l i c e n s e fees on i m p o r t s of residual
gasoline,
u n f i n i s h e d oil s a nd o t h e r product!
in t h e s e i n c e n t i v e s a re s p e l l e d o u t in a d v ance
so t h a t the oil i n d u s t r y w i l l h a v e a r e a s o n a b l e d e g r e e of certaint
u n d e r w h i c h to m a k e m a j o r n e w i n v e s t m e n t s
in U.
S.
exploration
and d e v e l o p m e n t a n d r e f i n e r y c o n s t r u c t i o n .
Independent Refiners
I m p l e m e n t a t i o n of the n e w l i c e n s e
g i v e v a l u e to
unused
1973
i m port
fees on M a y 1,
licenses,
i n d e p e n d e n t r e f i n e r s w i t h some a d d i t i o n a l
for d o m e s t i c
"sweet"
—
I m port licenses,
lo w s u l f u r —
in general,
p r o v i d i n g landlocked
l e v e r a g e to b a r g a i n
c r u d e oil.
n o w h a v e no e x c h a n g e v a l u e
b e c a u s e the l a n d e d p r i c e s of f o r e i g n c r u d e s —
crudes —
prices.
1973 will
especially
"sweet"
are r o u g h l y e q u i v a l e n t to or a b o v e d o m e s t i c c r u d e
A n i n c r e a s e in the v a l u e of i n d e p e n d e n t s '
l i c e n s e s by
the d i f f e r e n t i a l of 10-1/2 c e nts p e r b a r r e l i n i t i a l l y
h e l p i n d e p e n d e n t r e f i n e r s b a r g a i n for a d d i t i o n a l
supplies.
Moreover,
"sweet"
crude
the a b i l i t y of the i n d e p e n d e n t r e f i n e r to
obtain license fee-exempt tickets
B o a r d will,
shou l d
hopefully,
f r o m the O il I m p o r t s A p p e a l s
e n a b l e t h e m to o b t a i n a s u f f i c i e n t number
of t i c k e t s to a l l o w t h e m to b a r g a i n for a d e q u a t e c r u d e o i l suppli^
under present-day price relationships.
Under the new license fee program, the exemption of 1973
allocations for all refiners will be phased out over 7 years.
The intent is to provide refiners both the time and the incentive
to adapt their refineries to run available "sour" crudes or
to develop or contract for adequate "sweet" crude supplies for
the long-term.
Independent Marketers and Jobbers
T o d a y ' s a c t i o n als o
g i v e s v a l u e to the
1973
import alloca
tions i s sued by the Oi l I m p o r t A p p e a l s B o a r d to i n d e p e n d e n t
marketers and jobbers,
products.
e n h a n c i n g t h e i r a b i l i t y to b a r g a i n for
The O I A B w i l l c o n t i n u e to h e a r a p p e a l s
from this
sector of the i n d u s t r y to m a k e c e r t a i n t h a t no u n d u e h a r d s h i p s
occur as a r e s u l t of t i g h t p r o d u c t supplies.
the license fee
In t he
l o n g -run,
program will further benefit independent
jobbers
and m a r k e t e r s by e n c o u r a g i n g a d d i t i o n a l r e f i n e r y c a p a c i t y ,
which
will m a k e p r o d u c t s m o r e r e a d i l y a c c e ssible.
Prices
The i m p a c t of t o d a y ' s a c t i o n on o il p r i c e s
be gr a d u a l over the l o n g - t e r m and m i n i m a l
to the n e w l i c ense
fees d u r i n g
is e x p e c t e d to
in 1973.
Imports
subject
1973 ar e e x p e c t e d to be s u c h a s m all
percentage of the n a t i o n ' s t o t a l o il r e q u i r e m e n t s
if any, impa c t on c o n s u m e r prices.
as to h a v e
little,
T he C o s t of L i v i n g C o u n c i l has
advised us t h a t t h ere is a d e q u a t e f l e x i b i l i t y u n d e r the c u r r e n t o il
price c o n t r o l s to a l l o w such p r i c e m o v e m e n t s
s h o u l d t h e y be
necessary to m e e t the s u p p l y n e e d s of the nation.
8
Today's action also gives all importers the opportunity
to negotiate long-term contracts, and thereby lower prices, for
their crude oil and product supplies.
This should be especially I
beneficial to deepwater terminal operators in PAD District iJ
Conclusion
The program announced today by the President deals equitably I
with the many and varied aspects of oil import policy, while
satisfying the national security interest
by assuring the oil
industry the flexibility, certainty and incentives to meet the
growing petroleum needs of the nation through domestic expansion
at all levels of the production and distribution system.
Today's action suspends oil import quota restrictions withou
abandoning the Mandatory Oil Import Program.
It opens the way
for foreign imports to alleviate potential shortages of crude oil
and finished products, without foreclosing the option of re
imposing mandatory controls at any time in the future, should
that ever again become necessary or desirable.
The intent is
to maintain import control and accountability without restricting
the flow of essential oil into the United States.
The license fee approach gives the President the flexibility
to satisfy short-term needs of consumers without destroying longterm incentive, namely, domestic exploration and production of
crude oil, and construction and expansion of domestic refineries.
o 0 o
Caution:
The following text is meant to clarify the
Presidential Proclamation concerning changes in the
modified oil import program.
It does not have any
legal effect in the interpretation of the implementing
regulations to be published shortly.
April 18, 1973
SUMMARY OF THE MODIFIED
OIL IMPORT PROGRAM
As it is currently structured, the Mandatory Oil
Import Program has neither prevented near-term crude oil
and product shortages nor provided adequate longer-term in
centives for increased investment in domestic exploration and
production and new refinery construction and expansion.
The program is not so much a failure as it is o b s o l b t e ^ ^ ^ ^
It was established at a time when domestic production w as
in excess of demand and it was founded on the premise that
it was necessary to restrict imports of cheap foreign oil
to encourage the domestic petroleum industry in the interests
of national security. Today, foreign oil prices are roughly
equivalent to or above domestic prices and this country must
import ever larger amounts of foreign oil to supplement its
inadequate domestic production.
Not only does the program provide little benefit now,
it has the very real potential of aggravating tight supply
conditions.
Unexpected increases in the demand for imports
could lead to a situation in which there is insufficient
import tickets, creating the possibility of a shortage that
otherwise could have been avoided.
Probably the greatest shortcoming of the current
program, however, is the uncertainty inherent in its opera
tion.
This uncertainty has an adverse effect on longrange investment planning for new refinery Construction
and drilling.
It is created because:
1.
realignment;
Import allocations are subject to annual
2.
In recent years, the program has been
altered frequently, making it a patchwork of special
provisions and .exceptions; and,
,*
3. General dissatisfaction with the program
both in industry and government is fostering the^Texpectation that it will be abandoned shortly.
/
J
V I ■ I
-r A
-
2
-
Therefore, it is recommended that the program be modified
to meet current needs and objectives.
The program must be
restructured to assure the oil industry the flexibility
to import oil to satisfy the short-term needs of U.S.
refiners and consumers while, at the same time, providing
longer-term stability and additional incentives for increased
domestic exploration and production and new refinery c o n
struction and expansion.
We believe the program recommended
below will achieve these objectives.
There are built into the program a number of exemptions
to license fees during the next s e v e n years.
This is done
to provide a period of transition during which both producers
and consumers mvlj be able to adjust to the new system.
In
the long;run, however, each of these exemptions will be
phased put of existence in order to create a simpler and
more„ unxf orm prog ram than now exists.
PLAN OF ACTION
1.
Volumetric quotas now established under the
Mandatory Oil Import Program are being eliminated
and a system of license fees established to regulate
the level of crude oil and product imports.
This
change will help to assure adequate supplies of
wo
t : crude oil and refinery products in the short run
[rn i
( and sufficient incentives to domestic drilling and
R S ion mi ibhst^Uction of refineries in the long run.
The
legal basis for these changes is provided by
Section 232 of the Trade Expansion Act of 1962.
2.
Effective May 1, 1973, any person or company wishing
to import crude oil and petroleum products may do
so simply by applying for an import license to the
Department of the Interior, Office of Oil and Gas
n o | . and by. paying the appropriate license fee.
3. Also effective May 1, 1973, existing tariffs on
r£jcfprude' oil and refinery products will be suspended.
In their place, license fees will be imposed on
imports equal, in the long run, to l/2<£ per gallon
of crude and 1 l/2£ per gallon for unfinished oils
and all refinery products.
Fees will be paid to
the Office of Oil and Gas at the time of application
for an import license.
- B J O S C 'X S
S ill
* 5 i i
4.1 These long-term fees will take effect at the end
of 1975.
In the meantime, license fees will be
stepped-up over time.
The following schedule of
fees will apply to all but exempt imports.
Schedule of License Fees
(cents per barrel)
Product
May 1
1973
1.
Crude Oil
103a
2.
Residual fuel oil,
Unfinished oils,
distillates and
refinery products
other than gaso15
line
3.
Gasoline
52
Nov 1
1973
May 1
1974
Nov 1
1974
May 1
1975
Nov 1
1975
13
153a
18
21
21
20
30
42
52
63
54^
57
59^
63
63
5.
License fees will be reassessed from time to
time to assure that the primary objectives of the
program are being met, namely, to provide adequate
incentives to domestic exploration and drilling for
crude oil and construction and expansion of domestic
refineries, while not imposing unnecessary burdens
on the American consumer.
6.
All import licenses outstanding as of May 1, 1973,
will be honored by the United States Government
license fee-exempt.
7.
Certain crude oil and product imports will also be
exempt from license fees for a limited period of
time after May 1, 1973.
Current program partici
pants will be granted yearly allocations, exempt
from license fees, equal to import levels in
effect as of April 1, 1973, for residual fuel
oil and quota levels in effect as of January 1,
1973 for crude oil and petroleum products other
than residual fuel oil.
The exempt allocations
will be granted through April 30, 1974, after
which the level upon which allocations are based
4
will be reduced by a fraction of the original
level each year for the next seven years.
No
allocations will be granted license fee-exempt
beyond April 30, 1980.
The schedule by which
exemptions will be phased out is:
Percentage of Initial Allocation
Exempt from License Fees
After April 30
Percentage
1973
100
1974
90
1975
80
1976
65
1977
50
1978
35
1979
20
1980
0
8.
Crude oil import licenses not subject to license
fees will continue to be convertible to unfinished
oils and finished products at existing rates
(15 and 1 pe r c e n t ,respectively) until January 1,
1974.
Crude oil licenses subject to license fees
will not be convertible.
9.
Current participants in the Mandatory Oil Import
Program a r e :
a.
Refiners.
b.
Petrochemical plant operators.
c.
Deepwater Terminal Operators in District I.
d.
Asphalt marketers or consumers in Districts I-IV.
-5 -
e.
c
10.
Recipients of grants from the Oil Import
Appeals Board.
Persons or groups other than those currently
participating in the program would also be allowed
to import crude oil and products, subject to the
license fee schedule indicated in Section No. 4.
The Oil- Import Appeals Board will assume primary
responsibility for assuring adequate supplies of
oil for the independent segment of the industry.
To this end, the OIAB will be authorized to distri
bute fee-exempt licenses to established independent
refiners and marketers experiencing exceptional
hardship or emergency.
The OIAB will also advise
the Oil Policy Committee about other ways to assist
the independent segment of the industry.
Integrated oil companies with special hardship
or emergency needs will also be permitted to apply
to the OIAB for assistance.
However, those com
panies with a domestic crude oil production capa
bility will be required to demonstrate their
inability to obtain by exchange import licenses
from those already distributed by the U.S. Govern
ment and their willingness to supply established
independent refiners with 1972 allocations of crude
oil and established independent marketers with 1972
allocations of refinery products.
Specific guidelines for the OIAB will be issued
shortly after the proclamation.
The OIAB will, on
all matters, report to the Chairman of the Oil
Policy Committee.
The O I A B ’s power to distribute license fee-exempt
import licenses will expire on April 30, 1980.
11.
Fee-exem.pt import licenses may, as at present, be
exchanged for domestically-produced crude oil at
a rate negotiated by the parties involved in the
exchange.
In any exchange, licenses not subject
to a license fee would retain their license-fee
exempt status.
*<•
6
12.
I m p o r t s o f e t h a n e , p r o p a n e and b u t a n e w i l l be
exempt from l i c e n s e f e e s .
Lice n se fees w i l l a lso
be r e f u n d e d on q u a n t i t i e s o f i m p o r t e d c r u d e u s e d
to p rod u ce a s p h a l t .
13.
Companies building new refineri es or petrochemical plants or expanding ex isting refineries
or petrochemical plants coming on-stream after
April 30, 1973 will be granted license fee-exempt
allocations equal to 75 percent of their
additional inputs for their fir st five years of
operation.
Throughput earning exempt allocations
under these provisions will not be counted as
certified refinery inputs in es timating exempt
allocations.
14.
License fee exemption of existing petrochemical plants
using heavy feedstocks will be considered
by tne Oil Policy Committee at a later
date.
15.
Deepwater t e rm in a l o p e r a t o r s in D i s t r i c t I
c u r r e n t l y u n d e r th e p r o g r a m w i l l be a l l o w e d to
im p o r t 5 0 , 0 0 0 b a r r e l s p e r d a y o f No. 2 f u e l o i l
exempt from l i c e n s e fe e .
A f t e r May 1, 1973 th e s e
i m p o r t s o f N o. 2 f u e l o i l m u s t b e p r o d u c e d f r o m
W e ste rn H em isphere crud e o i l u n l e s s o t h e r w is e
exempted.
The W e s t e r n H e m is p h e r e p r e f e r e n c e r e q u i r e m e n t w i l l
a p p ly o n ly i f the C hairm an o f the O i l P o l i c y
Com m ittee d e t e r m in e s t h a t im p o r t s fro m the W e s t e rn
H em isphere are
a va ila b le .
i f they are not
a v a i l a b l e , l i c e n s e f e e - e x e m p t i m p o r t s w i l l be p e r
m itte d from o t h e r s o u rc e s .
The C h a i r m a n o f th e O i l P o l i c y C o m m itt e e s h a l l
d e te rm in e w h e th e r, b e c a u se o f s u p p l y , p r i c e , and
o th e r c o n s i d e r a t i o n s , the W e ste rn H em isphere
r e s t r i c t i o n i s u n d u l y r e s t r i c t i v e and mav s u s p e n d
o r r e im pose
t h i s r e s t r i c t i o n a s neecteci.
16.
Im p o rt l i c e n s e s f o r c ru d e o i l and p r o d u c t s p ro d u c e d
i n a l l W e s t e r n H e m i s p h e r e c o u n t r i e s w i l l be s u b j e c t
to l i c e n s e fe e s u n l e s s o t h e r w is e exempted.
The fe e
exempt volu m e o f im p o r t s f o r a l l C a n a d ia n and
M e x i c a n c r u d e o i l and p r o d u c t s w i l l be e s t a b l i s h e d
a t the a v e ra g e d a i l y volum e o f im p o r t s in t o the
U n ite d S t a t e s under the e x i s t i n g q u o ta s o r d u r in g
- 7
6
the first quarter of 1973, whichever is higher.
The State D e p a r t m e n t w i l l a d v i s e the OPC f r o m
tim e to tim e o f any c h a n g e s i n the l i c e n s e f e e s
on t h e s e i m p o r t s w h i c h i t d e e m s t o b e i n t h e
s e c u r i t y i n t e r e s t s o f the U n ite d S t a t e s .
Product
i m p o r t s f o r w h i c h no q u o t a now e x i s t s w i l l be
a llo w e d in t o the c o u n t r y u n d e r the l i c e n s e fee
s c h e d u l e p r e s e n t e d i n S e c t i o n 4.
17.
To i n t e g r a t e P u e r t o R i c a n i m p o r t s m o r e f u l l y i n t o
t h e U .'S. p r o g r a m , i m p o r t s o f c r u d e o i l and
f i n i s h e d p r o d u c t s to P u e r t o R i c o w i l l be s u b j e c t
t o t h e sa m e l i c e n s e f e e s a f t e r M a y 1 , 1 9 7 3 a s t h e
M a i n l a n d a n d w i l l be a l l o w e d f r o m a n y w h e r e i n t h e
w orld.
a.
A l l fin is h e d prod ucts re fin e d in Puerto
w i l l be s h i p p e d t o t h e M a i n l a n d l i c e n s e
exempt .
R ico
fee-
b.
A l l l i c e n s e f e e s on P u e r t o R ic a n im p o r t s
o i l w i l l r e v e r t to the Com m onwealth o f
Puerto R ico .
c.
I m p o r t s o f c r u d e o i l a n d u n f i n i s h e d o i l s now
go ve rn e d by c o n t r a c t u a l agreem en ts between
P u e r t o R i c o and t h e U . S . G o v e rn m e n t w i l l be
exempt from l i c e n s e f e e s f o r th e r e m a in d e r
of
of the terms of these contracts. Upon
expiration of these contracts, the exemption
will be phased out according to the schedule
in paragraph 7 *
d.
e.
Im p o r t s o f c ru d e o i l and u n f i n i s h e d o i l s u se d
to m a n u fa c tu re f i n i s h e d p r o d u c t s s h ip p e d to
the M a in la n d under the h i s t o r i c a l c l a s s i f i c a t i o n
b a s e d on s h i p m e n t s p r i o r t o 19 6 5 w i l l be exem pt
f r o m l i c e n s e f e e s a n d t h a t e x e m p t i o n wri l l b e
p h a s e d o u t o v e r t h e s am e s c h e d u l e p r o v i d e d
f o r exempt r e f i n e r y a l l o c a t i o n s .
Finally, the Commonwealth will be allowed
to impose restrictions on shipments to the
Mainland of petrochemical and intermediates
and products necessary to assure continued
growth of the downstream petrochemical
industry in Puerto Rico.
However, ultimate
responsibility for determining import policy
will reside with the Chairman of the Oil
Policy Committee.
8
18.
Imports of crude oil and finished products into
the Virgin Islands and free trade zones would be
exempt from license fees after May 1, 1973.
Exports from the Virgin Islands and entries from
free trade zones into the United States will be
subject to fees.
However, the existing refinery
in the Virgin Islands may continue to export to
the United States license fee-exempt those products
governed by contract with the U.S. Government
for the term of that contract.
19.
All imports from possessions outside the United
States customs territory will be subject to
license charges.
20.
Imports under existing allocations to the
Department of Defense will be allowed license
fee-exempt.
These allocations will be phased-out
over the same period allowed for exempt alloca
tions .
21.
Whatever customs drawbacks apply to existing
tariffs or the import-for-export provisions that
apply to existing petrochemical programs will
similarly apply to license fees.
22.
The O i l P o l i c y C om m ittee w i l l e x p l o r e w ays to u s e
th e l i c e n s e fee p ro g ra m as an i n c e n t i v e f o r
in v e s t m e n t i n d o m e s t ic s t o r a g e c a p a b i l i t y and
d e s u l f u r i z a t i o n of crude o i l .
23.
A p p l i c a t i o n s f o r im p o r t a l l o c a t i o n s exempt from
l i c e n s e f e e s w i l l c o n t i n u e t o be s u b m i t t e d a n d
a l l o c a t i o n s a s s i g n e d a c c o r d i n g to the c u r r e n t
annual cycle.
A p p l i c a t i o n s f o r im port a l l o c a t i o n s
s u b j e c t t o l i c e n s e f e e s w i l l be a c c e p t e d a n d
p r o c e s s e d by the D epartm en t o f the I n t e r i o r a t any
tim e .
24.
A f t e r t e r m i n a t i o n o f the v a r i o u s te m p o ra ry exemp
t i o n s , t h e r e w i l l be no d i f f e r e n c e s i n l i c e n s e
fe e s o r im p o rt r e s t r i c t i o n s f o r the v a r i o u s
p e trgle u m d i s t r i c t s in the U n ite d S t a t e s .
I
WHAT THESE CHANGES WILL ACCOMPLISH
1. These changes would suspend oil import quota
restrictions without abandoning the Mandatory Oil Import
Program.
They open the way for foreign imports to alleviate
potential shortages of crude oil and finished products,
without foreclosing the option of reimposing mandatory con
trols at some time in the future.
Nor do they foreclose
the option of auctioning some portion of import allocations
should that become desirable.
The intent is to maintain
import control and accountability without restricting the
flow of essential oil into the United States.
2. These changes provide for the implementation
of a permanent oil import program that leaves no uncertainty
as to the U.S. Governments1s long-run policy intent to assure
the availability of adequate supplies of crude oil and
finished products while, at the same time, providing the
incentive for increased investment in domestic exploration
and production and refinery construction.
To do this, the program establishes over time
a clear differential between the prices of domestic and
foreign petroleum in the United States that favors U.S. oil
production and refining.
Various changes in these incentives
are spelled out in advance so that the oil industry will have
a reasonable degree of certainty under which to make major
new investments in U.S. drilling and refinery construction.
These incentives will be assessed from time to time and,
if necessary, increased to assure that they are sufficient
to encourage domestic investment.
3. This approach minimizes the impact on oil
prices during the next two years.
The license fees will be
increased over time.
In any event, imports subject to the
proposed license fees during 1973 are expected to be such a
small percentage of the nation’s total oil requirements as
to have little, if any, impact on consumer prices.
Moreover,
there
is adequate flexibility under current oil price con
trols to allow such price movements should they be
necessary.
10
The trend toward increased prices will
begin in 1974, when the nation is expected to require an
additional one million barrels per day of petroleum to
satisfy its demand.
Should price controls be extended in
any form, adequate and timely consideration could be
given to the potential impact of license fees on prices
and the impact of continuation of price controls on the
effectiveness of the changes discussed here.
There may be some upward price movement
for distillate fuels related to license fee charges in
1973.
Because the nation does not have the refinery
capacity to satisfy its requirements for both gasoline this
.summer and heating oil next winter, under the license fee
approach domestic refiners could be expected to maximize
gasoline output over the next several months in favor of
increased distillate imports.
There are several reasons
for th is:
1
•
u
a * Distillates are more likely to be
available from overseas due to foreign refinery yield
patterns, although foreign supplies may not satisfy the
fur specifications of U.S. environmental restrictions.
b.
Prices for foreign distillates will
be seasonally low over the next several months, whereas
gasoline prices will not be.
c. Maximizing domestic gasoline output
maximizes a refiners dollar return.
4.
Implementation of license fees on May 1,
1973 ^ would help to give value to unused 1973 import tickets,
providing landlocked independent refiners with some leverage
to bargain for domestic sweet crude o i l . The current world
wide shortage of sweet crudes, coupled with rising foreign
prices, has wiped out the value of the independent refiners’
tickets and has led to many small refiners cutting back p r o
duction for lack of refinery feedstock.
Import licenses, in
general, now have no exchange value because the landed price
of foreign crudes is roughly equivalent or above domestic crude
prices.
Raising the value
of independents’ unused licenses
should help the independents to bargain for additional sweet
crude supplies.
Moreover, the ability of the independent
11
refiner to obtain additional fee-exempt licenses from the
OIAB would, hopefully, enable him to obtain an adequate
number of tickets necessary to arrange exchanges with the
majors under present-day price relationships.
5.
Under the proposed license fee program, the
subsidy provided by exemption of 1973 allocations for all
refiners would be phased out over seven years with the
initial reduction coming in the second year.
The intent is
to provide refiners both the time and the incentive to retool
their refineries to run sour crudes or to develop or contract
for adequate sweet crude supplies for the long-term.
6.
This approach also gives value to 1973
import allocations issued by the Oil Import Appeals Board
to independent jobbers and marketers, enhancing their
ability to bargain for products.
The OIAB will continue
to hear appeals from this sector of the industry to make
certain that no undue hardships occur as a result of tight
product supplies.
In the long-run, the license fee approach
will further benefit independent jobbers and marketers by
encouraging additional refinery capacity, which will make
products more readily accessible.
7. This approach also gives all importers the
opportunity to negotiate long-term contracts, and thereby
lower prices, for their crude oil and product supplies.
This should be especially beneficial to deepwater terminal
operators in District I.
CHART Is
T h i s g r a p h shows t h e a v e r a g e Ame ri c an c i t i z e n ' s i n c r e a s i n g demand f o r
e n e r g y from a l l s o u r c e s i n B r i t i s h Ther mal U n i t s .
CHART I I :
The d a t a i n "Ener gy and O i l Co n s umpt i on P e r C a p i t a " c o mp a r e s an A m e r i c a n ' s
c o n s u m p t i o n o f e n e r g y and o i l w i t h c o n s u m p t i o n i n o t h e r c o u n t r i e s .
The
c i t i z e n s of i n d u s t r i a l c o u n t r i e s consume f a r more p e r c a p i t a t h a n t h e
r e s t of the world.
As income i n c r e a s e s i n t h e s e o t h e r c o u n t r i e s , one
may e x p e c t a s h a r p i n c r e a s e i n t o t a l w o r l d demand.
The n o n - p e t r o l e u m o r
o t h e r s o u r c e s o f e n e r g y a r e e x p r e s s e d as t h e e n e r g y p r o d u c e d by a b a r r e l
of petroleum .
CHART I l l s
This c h a r t i l l u s t r a t e s th e p r o j e c t e d changes i n th e s o u r c e s of th e Un ited
S t a t e s ' su pply of e n erg y .
A s i g n i f i c a n t g r o w t h i s e x p e c t e d i n t h e amount
o f e n e r g y s u p p l i e d by n u c l e a r s o u r c e s .
A s ig n if ic a n t increase is also
e x p e c t e d i n t h e amount s u p p l i e d from i m p o r t e d o i l and g a s .
CHART IV:
T h i s d i a g r a m shows t h e p r o j e c t e d s i z e o f t h e c o u n t r y ' s i n c r e a s i n g r e l i a n c e
on f o r e i g n s o u r c e s o f p e t r o l e u m .
CHART Vs
This
map
needed
to
shows
the
import
transportation
oil
from
the
costs
major
oil
per
barrel
producing
and
estim a t e d that the c o n s t r u c t i o n of superport facilities
t o t a l of $485 m i l l i o n p e r y e a r on t h e s e s h i p p i n g costs.
Source:
U.
S.
April
Treasury
17,
1973
the
shipping
countries.
would
It
time
has
save
a
been
CHART I
U .S. P E R C A P IT A C O N S U M P T IO N O F E N E R G Y
1950
-
1985
Z
3
<
co
cr ^
$
x =j
lu
I— o
I h
cn " 3
h
o:
m
1950
Source: U.S. Treasury
1960
1965
1970
1980
1985
CHART II
E N E R G Y A N D O IL C O N S U M P T IO N P E R C A P IT A
U.S.A.
Source: U.S. Treasury
Sweden
Canada
W.Germany
Australia
U.K.
France
Italy
Japan
Rest of Rest of
W. Europe World
CHART III
U .S. E N E R G Y S O U R C E S
1970
1970
Source: U.S. Treasury
-
1980
1980
CHART IV
,-------------------
PROJECTED PETROLEUM SUPPLY
30
1971
Source: U.S. Treasury
1985
CHART V
T R A N S P O R T A T IO N O F U .S. P E T R O L E U M IM P O R T S 1 9 7 2
Days per Voyage and Costs per Barrel
With and Without Superports
Costs in $1972: U.S. flag vessels between Alaska and U.S.. Foreign flag vessels on other routes. Alaskan & Indonesian costs are based on
160,000 DWT tankers. Venezuelan cost is based on 65,000 DWT tankers. Mediterranean and Persian Gulf cost are based on 65,000 DWT
tankers with NO superport (and 375,000 DWT tankers with superports); does not include transshipment surcharge of $.14/BBL.
*C o sts with supertankers and superports.
Source: U.S. Treasury
Departmentof theTREASU RY
SHINGTON. D C 20220
I
|||||PHONE W04-2041
FOR IMMEDIATE RELEASE
April 18, 1973
■TREASURY’S MONTHLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for
$ 1,800,000,OOQ or thereabouts, of 344 -day Treasury bills for cash and in exchange
for Treasury bills maturing
April 30, 1973
The bills of this series will be dated
April 9, 1974
, in the amount of $1,700,030,000.
April 30, 1973
, and will mature
(CUSIP No. 912793 SP2) .
The bills will be issued on a discount basis under competitive and noncom
petitive bidding as hereinafter provided, and at maturity their face amount will
be payable without interest.
They will be issued in bearer form only, and in
denominations of $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000
(maturity value).
Tenders will:be received at Federal Reserve Banks and Branches up to the closing
hour, one-thirty p.m., Eastern Standard time, Tuesday, April 24, 1973.
Tenders will not be received at the Treasury Department, Washington.
must be for a minimum of $10,000.
$5,000.
Each tender
Tenders over $10,000 must be in multiples of
In the case of competitive tenders the price offered must be expressed on
the basis of 100, with not more than three decimals, e.g., 99.925.
not be used.
Fractions may
It is urged that tenders be made on the printed forms and forwarded in
the special envelopes which will be supplied by Federal Reserve Banks or Branches
on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
Others than
hanking institutions will not be permitted to submit tenders except for their own
account.
Tenders will be received without deposit from incorporated banks and trust
companies and from responsible and recognized dealers in investment securities.
Tenders from others must be accompanied by payment of 2 percent of the face amount
°f Treasury bills applied for, unless the tenders are accompanied by an express
guaranty of payment by an incorporated bank or trust company.
(OVER)
-
2-
Immediately after the closing hour, tenders will be opened at the Federal Reserve
Banks and Branches, following which public announcement will be made by the Treasury
Department of the amount and price range of accepted bids.
Only those submitting
competitive tenders will be advised of the acceptance or rejection thereof.
The
Secretary of the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect shall be final.
Subject to these reservations, noncompetitive tenders for $200,000 or less without
stated price from any one bidder will be accepted in full at the average price (in
three decimals) of accepted competitive bids.
Settlement for accepted tenders in
accordance with the bids must be made or completed at the Federal Reserve Bank on
April 30, 1973
, in cash or other immediately available funds or in a like
face amount of Treasury bills maturing April 30, 1973
tenders will receive equal treatment.
.
Cash and exchange
Cash adjustments will be made for differences
between the par value of maturing bills accepted in exchange and the issue price of
the new bills.
Under Sections 454(b) and 1221(5) of the Internal Revenue Code of 1954 the amount
of discount at which bills issued hereunder are sold is considered to accrue when the
bills are sold, redeemed or otherwise disposed of, and the bills are excluded from
consideration as capital assets.
Accordingly, the owner of Treasury bills (other than
life insurance companies) issued hereunder must include in his income tax return, as
ordinary gain or loss, the difference between the price paid for the bills, whether
on original issue or on subsequent purchase, and the amount actually received either
upon sale or redemption at maturity during the taxable year for which the return is
made.
Treasury Department Circular No. 418 (current revision) and this notice, pre
scribe the terms of the Treasury bills and govern the conditions of their issue.
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
Statement by Secretary Shultz - April 5, 1973
Everyone is upset about food prices, including
my wife and I.
We are trying to do something about
it here in the Administration.
We think that the
basic way to get at this problem is through increasing
the supply so that the housewife will find shelves
full of food at reasonable prices.
In response to
market forces farmers are increasing their plantings
of crop, and building up their livestock herds.
In
addition, starting last June but mostly in December
and January, the agricultural policies of the Federal
government had been adjusted sharply and comprehensively
to insure that this increase in supplies takes place
as quickly as possible.
Set aside acreage of crop
land has been reduced by about 50 million acres to
permit greater production of grain; government-owned
stocks of grains are being sold; all government loans
on farm-stored grains are being terminated; meat
import quotas which were first suspended in June 1972
have been suspended for all of 1973.
Thus
far
in 1973,
meat
with
the s ame p e r i o d
las t w e e k he w o u l d
imports
are u p
last year.
the
non-fat
dried milk have been permitted
raising
export
These
on r e d m e a t s .
for
suspend
Commission
is c u r r e n t l y
cheese
legislation
Additional
imports
50 p e r c e n t .
All
a nd
increase
I k n o w th e P r e s i d e n t
c e i l i n g on F e d e r a l
I k n o w the
i s sue
spending
the s u p n l v a nd
isn't
so m u c h
spending
got
to be
President wants
them.
He w a n t s
t a xes
down.
to k e e p
t a xes
r i g h t n o w the b e s t w a y to do t h a t
imposing
a ceiling
rather
Federal
And
oOo
a
time.
taxing
government
the
He d o e s n ' t w a n t
down.
to
And therefore
is to k e e p
- a stiff ceiling
spe n d i n g .
t hat
a n d the
r a i s e d t h r o u g h taxes.
to k e e p
c o n trol.
at this
or t hat b u t
s o o n e r or l a t e r m o n e y t h a t the
has
down by
thinks
is e s s e n t i a l
d e s i r a b i l i t y of this p r o j e c t
raise
direct
a c t i o n o f s u p p l y i n t e r a c t i n g w i t h our d e m a n d
I think
spends
of
an d the T a r i f f
for f o o d p r o d u c t s w h i c h w i l l b r i n g p r i c e s u n d e r
because
to
on a g r i c u l t u r a l p r o d u c t s h a v e b e e n ended.
and other measures will
it is the
announced
i n v e s t i g a t i n g the p o s s i b i l i t y of
import quotas by
subsidies
coraparea
President Nixon
a sk the C o n g r e s s
tariffs
20 p e r c e n t
spending
- on Federal
FOR IMMEDIATE RELEASE
April 18, 1973
JAMES B. CLAWSON
APPOINTED DEPUTY ASSISTANT SECRETARY FOR
ENFORCEMENTf TARIFF AND TRADE AFFAIRS, AND OPERATIONS
Treasury Secretary George P. Shultz today announced
the appointment of James Clawson of DoWney, California,
as Deputy Assistant Secretary for Enforcement, Tariff
and Trade Affairs, and Operations under Assistant
Secretary Edward L. Morgan.
Clawson, 33, previously served as a Staff Assistant
to the President for Domestic Affairs, being appointed
in October of 1971* He was also Deputy Director of the
President's Cabinet Committee on Education and had been
on the Committee staff since January 1970. From April
1969, to April 1970, he was the Executive Assistant to
the General Counsel at the Department of Health, Educa
tion and Welfare. From 1966 to 1969, he practiced law
in Los Angeles, California.
Born in Safford, Arizona, Mr, Clawson was educated in
public schools in Compton, California. He attended the
University of Southern California where he received a BSL
in 1964 and a JD from the School of Law in 1966.
Mr. Clawson is married to the former Jeannette Giles
of Downey, California. The Clawsons have three children
and reside in Gaithersburg, Maryland.
#
S-173
#
#
#
DepartmentoltheTREASURY
SHINGTON. D C. 20220
TELEPHONE W04-2041
WSSMm
FOR IMMEDIATE RELEASE
A p r i l 18/
1973
T R E A S U R Y A N N O U N C E S A C T I O N S ON
THREE INVESTIGATIONS UNDER THE ANTIDUMPING ACT
A s s i s t a n t S e c r e t a r y of the T r e a s u r y E d w a r d L. M o r g a n
a n n o u n c e d t o d a y a c t i o n s oh t h ree i n v e s t i g a t i o n s u n d e r the
A n t i d u m p i n g A c t o f 1921, as amended.
In the f i r s t two c a s e s t h e r e are final d e t e r m i n a t i o n s
of sales at les s t h a n fai r value, a nd in the t h ird case
there is a f i n a l d i s c o n t i n u a n c e .
.
T h e s e d e c i s i o n s w i l l a p p e a r in the F e d e r a l R e g i s t e r of
A p r i l 19, 1973.
In t he f i r s t c a s e A s s i s t a n t S e c r e t a r y M o r g a n a n n o u n c e d
that p r i n t e d v i n y l f i l m f r o m A r g e n t i n a is being, or is
l i k e l y to b e , sold at less t h a n fair v a l u e w i t h i n the
m e a n i n g of the A n t i d u m p i n g Act. ,P r i n t e d v i n y l f i l m is
p r o d u c e d in a v a r i e t y of c o l o r s a n d p a t t e r n d e s i g n s and
is u s e d fpr s h o w e r c u r t a i n s , d r a p e r i e s , a n d m a n y o t h e r
p u r p o s e s . T h e c a s e w i l l n o w b e r e f e r r e d to the T a r i f f
C o m m i s s i o n for a d e t e r m i n a t i o n as t o w h e t h e r an A m e r i c a n
i n d u s t r y is being, o r is l i k e l y to be, injured.
In the e v e n t
of a d e t e r m i n a t i o n of injury, d u m p i n g d u t i e s w i l l be a s s e s s e d
on a l l e n t r i e s of p r i n t e d v i n y l f i l m f r o m A r g e n t i n a w h i c h
have n o t b e e n a p p r a i s e d a n d o n w h i c h d u m p i n g m a r g i n s exist.
A n o t i c e of "Withholding- of A p p r a i s e m e n t " w a s i s s u e d on
J a n u a r y 18, 1973, w h i c h s t a t e d tha t t h e r e w a s r e a s o n a b l e
cause to b e l i e v e or s u s p e c t t h a t t h e r e w e r e sales at less
than f a i r value.
D u r i n g t he p e r i o d of J a n u a r y 1971 t h r o u g h
J a n u a r y 1973 i m p o r t s of p r i n t e d v i n y l f i l m f r o m A r g e n t i n a
were v a l u e d at a p p r o x i m a t e l y $324,500.
In the s e c o n d c a s e T r e a s u r y a n n o u n c e d t h a t p r i n t e d v i n y l
film f r o m B r a z i l is being, or is l i k e l y to be, sol d at less
than f a i r v a l u e w i t h i n the m e a n i n g of the A n t i d u m p i n g Act.
The c a s e w i l l n o w b e r e f e r r e d to the T a r i f f C o m m i s s i o n for a
d e t e r m i n a t i o n as to w h e t h e r an A m e r i c a n i n d u s t r y is being, or
is l i k e l y to be, injured.
In the e v e n t of a d e t e r m i n a t i o n of
(OVER)
2 w
injury, d u m p i n g d u t i e s w i l l be a s s e s s e d o n all e n t r i e s of
p r i n t e d v i n y l f i l m f r o m B r a z i l w h i c h h ave n o t b e e n
a p p r a i s e d and on w h i c h d u m p i n g m a r g i n s exist.
A notice
of " W i t h h o l d i n g of A p p r a i s e m e n t " w a s i s s u e d on J a n u a r y 18, 1973,
w h i c h s t a t e d t hat t h ere w a s r e a s o n a b l e c a u s e to b e l i e v e or
s u s p e c t t h a t there w e r e sales at less t han fair value.
D u r i n g the p e r i o d of O c t o b e r 1971 t h r o u g h J a n u a r y 1973
i m p o r t s of p r i n t e d v i n y l f i l m f r o m B r a z i l w e r e v a l u e d at
a p p r o x i m a t e l y $176,500.
In the t h i r d c a s e the D e p a r t m e n t a n n o u n c e d a final
d i s c o n t i n u a n c e of the a n t i d u m p i n g i n v e s t i g a t i o n on h i g h
speed tool s t eel f rom Sweden.
O n J a n u a r y 16, 1973, a
" W i t h h o l d i n g of A p p r a i s e m e n t " w a s p u b l i s h e d w h i c h stated
t hat t h e r e w a s r e a s o n a b l e c a u s e to b e l i e v e or s u s p e c t that
t h e r e w e r e sales at less t h a n fair value.
Thi s n o t i c e also
i n v i t e d i n t e r e s t e d p a r t i e s to s u b m i t w r i t t e n v i e w s or request
an o p p o r t u n i t y to p r e s e n t t h e i r v i e w s orally.
After consid
e r a t i o n of all w r i t t e n and o ral a r g u m e n t s pre s e n t e d , the
i n v e s t i g a t i o n n o w i n d i c a t e s t h a t the sales at less tha n fair
v a l u e w e r e o n l y m i n i m a l in r e l a t i o n to the v o l u m e of imports.
F o r m a l a s s u r a n c e s h a v e b e e n o f f e r e d s t a t i n g t h a t no further
less t h a n fair v a l u e sales w o u l d be made.
Accordingly, a
final d i s c o n t i n u a n c e is p r o p e r at this time.
S t o r a Kbpparberg
AB, w h i c h w a s e x c l u d e d f r o m the w i t h h o l d i n g of appraisement,
is l i k e w i s e e x c l u d e d f r o m this d i s c o n t i n u a n c e .
During
c a l e n d a r y e a r 1972, im p o r t s of h i g h speed tool steel from
S w e d e n w e r e v a l u e d at a p p r o x i m a t e l y $4.3 m i l lion.
# # #
FYI the following ,,Op-Edn piece will appear in Thursday
rooming s Wall St. Journal, Please credit them if you use.
April
17,
1973
WHY NOT RIGID CONTROLS?
b y E d g a r R.
Fiedler
Asst. Secretary of the Treasury for Economic Policy
Why not
Prices
doesn't
i m pose
more
rigid controls
call
for more
to the " s e I f - a d m i n i s t e r e d "
as a f a i l u r e ;
trols
--
doesn't
Certainly
other s o u r c e s .
there
Phase
And although
regarded
for a n e w s y s t e m of t i g h t e r
from organized
a freeze
and
there
are d e m a n d i n g mor e
and m ore p e r m a n e n t c o n t r o l s
se c t o r s ;
changeover
III has b e e n w i d e l y
the C o n g r e s s
o f the e c o n o m y ,
Congressmen who
The
is a g r e a t d e m a n d for
groups,
to r e i n s t i t u t e
other s e c t o r s
stringent controls?
t h a t cal l
from c o n s u m e r
proposals
a nd w a g e s ?
are s u r g i n g u p w a r d in a n u m b e r o f e c o n o m i c
that
controls?
on p r i c e s
tougher c o n
labor,
decisively
to b r o a d e n
it
is a s i z e a b l e
from
rejected
to e n c o m p a s
minority
comprehensive,
over prices
and
mor e
of
rigid
a n d w a ges.
W e l l , w h y not?
There
the call
are,
I think,
two
fundamental
for t i g h t e r c o n t r o l s .
old-fashioned principle
unit in o u r s o c i e t y ,
cherished,
and
t hat
t h a t his
that the
One
the
r e a sons
reason
individual
is
is
for r e s i s t i n g
liberty
the
f r e e d o m is s o m e t h i n g
Government's power
over hi m
the
important
to be
should
2
be
limited.
To me,
this p r i n c i p l e
opposing
a move
to i n f l e x i b l e ,
T he
second
fundamental
Our e c o n o m y
of s t r i c t
is
on p r i c e s
a persuasive
reason
is e c o n o m i c e f f i c i e n c y .
c h a nges
so
and w a g e s
rapidly
applied
o ver
that a c o m p r e h e n s i v e
system of controls would require
tape
History
a long
damage
of red
it s e r i o u s l y .
that a system
p e r i o d o f time w o u l d
bureaucracy here
in W a s h i n g t o n a nd w o u l d p r o d u c e
throughout
the m a j o r e c o n o m i c
the e c o n o m y .
impact
for
permanent controls.
reason
so c o m p l e x a nd
controls
is
History
us
a gigantic
endless
also
of c o n t r o l s w o u l d be
tells
tells
ri b b o n s
us
that
inefficiency
and inequity.
Those
o f us w h o
prehensive wage
remember
the
shortages
and
and p r i c e
restrictions
controls
against
rationing of meat,
o t her p r o d u c t s .
illegal e f f o r t s
We
to
Those World War
economy
remember World War
changing
sugar,
jobs
gasoline
and
ircumvent
c o n t rols.
II c o n t r o l s
with such problems
for p a t r i o t i c
make
to h e l p
produced
for
re a s o n s ;
the w a r
effort.
We
the
and o t h e r
great waste
the p u b l i c .
com
and m a n y
the b l a c k m a r k e t s
the
the
o f that e r a p r o d u c e d .
r e m e m b e r also
and great inconvenience
the s a c r i f i c e
II k n o w w h a t
in the
B u t we p u t up
we w e r e w i l l i n g
to
- 3 -
I think
accept
There
the p r o b l e m s
are
people
sumer
it is o b v i o u s
that
no p a t r i o t i c
that
today
the p u b l i c w o u l d n o t
rigid controls
inevitably
create.
or o t h e r r e a s o n s
tha t w o u l d
lead
to p u t up w i t h ,
for e x a m p l e ,
shortages
con
goods.
The P h a s e
But
II R e c o r d
the W o r l d W a r
applicable
present
to 1972
that
tive e f f i c i e n c y
The
no, b u t
answer
II e x p e r i e n c e
a nd
controls?
and a h a l f
1973.
Hav e
they
What,
done
then,
to that is,
as
in
yes,
we
do n o t
for this:
ihe
first,
wherever possible
s p read e c o n o m i c
individual
during
about
the
the y e a r
Have'they hurt p r o d u c
find
to be
effects
of things,
W h e n we
that productivity
There
c o n t r o l s y s t e m in P h a s e
flexible
considerable
the
general sweep
or any o t h e r s u b s t a n t i a l e v i d e n c e
done w i d e s p r e a d damage.
But while
say
very definitely.
the c o n t r o l s h a v e
troublesome
can we
any d a m a g e
the b r o a d
a whole,
b e e n sl o w e d ,
operating with
completely
a nd c r e a t e d o t h e r p r o b l e m s ?
in m a n y s p e c i f i c cases,
growth has
m a y n o t be
t h e y ’ve b e e n in e f f e c t ?
look at the e c o n o m y
the
of b a s i c
and,
slack.
second,
These
are
II w a s
two r e a sons
designed
the e c o n o m y was
conditions
minimized
of the p r o g r a m .
s t a b ilization p r o g r a m did not produce
distortions
instances
that
during
1972,
of i n e q u i t y . a n d
it d i d p r o d u c e
inefficiency.
And
wide
many
the
4
economy was
g r o w i n g
@FedFRASER